Banner Corporation Reports Fourth Quarter Results and Record Full Year Net Income. Fourth Quarter Net Income of $37.5 Million, or $1.09 Per Diluted Share; Results Highlighted by Strong Organic Loan Growth and Completion of Skagit Bancorp, Inc. Acquisition

WALLA WALLA, Wash., Jan. 23, 2019 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) ("Banner"), the parent company of Banner Bank and Islanders Bank, today reported strong organic loan growth exclusive of the Skagit Bancorp, Inc. ("Skagit") acquisition on November 1, 2018, combined with a stable net interest margin, contributed to solid fourth quarter financial results.  Net income in the fourth quarter of 2018 was $37.5 million, or $1.09 per diluted share, compared to $37.8 million, or $1.17 per diluted share, in the preceding quarter.  Fourth quarter results include $4.6 million of acquisition-related expense, compared to $1.0 million of acquisition-related expense in the preceding quarter.  In the fourth quarter of 2017, following a revaluation of deferred tax assets due to tax reforms enacted in 2017, Banner recorded additional tax expense of $42.6 million, or $1.30 per diluted share.  Consequently, the fourth quarter 2017 net loss was $13.5 million, or $0.41 per diluted share.  There was no acquisition-related expense in the fourth quarter of 2017.  For the year ended December 31, 2018, net income increased to $136.5 million, or $4.15 per diluted share, compared to $60.8 million, or $1.84 per diluted share, in 2017.

“Banner’s fourth quarter and full year 2018 performance reflects continued execution of our super community bank strategy, which is generating new client relationships, adding to our core funding position by growing core deposits, and promoting client loyalty through our responsive service model, while augmenting our growth with opportunistic acquisitions,” stated Mark J. Grescovich, President and Chief Executive Officer.  “During the fourth quarter, we announced the completion of the merger with Skagit.  This transaction expanded Banner’s presence and density in the attractive North Sound region in Northwest Washington State and represents a complementary fit, both strategically and culturally, with Banner’s business model.  The combination of our two organizations provides the opportunity to enhance operational efficiency while offering Skagit Bank customers a broader product offering, increased lending limits and an expanded branch delivery system that stretches throughout the four states of Washington, Oregon, Idaho and California.”

At December 31, 2018, Banner Corporation had $11.86 billion in assets, $8.59 billion in net loans and $9.48 billion in deposits.  Banner operates 182 branch offices located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

Fourth Quarter 2018 Highlights

• Revenues were $138.5 million during the quarter ended December 31, 2018, $129.5 million during the preceding quarter and $125.9 million during the fourth quarter a year ago.
• Net interest income, before the provision for loan losses, increased 8% to $117.5 million, compared to $109.1 million in the preceding quarter and increased 20% from $98.3 million in the fourth quarter a year ago.
• Net interest margin was 4.47% for the current quarter, compared to 4.48% in the preceding quarter and 4.18% in the fourth quarter a year ago.
• Loans receivable increased $862.1 million, or 11%, to $8.68 billion at December 31, 2018, including $631.7 million of portfolio loans from the acquisition of Skagit, compared to $7.82 billion at September 30, 2018.
• Provision for loan losses increased to $2.5 million from $2.0 million in the preceding quarter, increasing the allowance for loan losses to $96.5 million, or 1.11% of total loans, compared to an allowance for loan losses of $89.0 million, or 1.17% of total loans, as of December 31, 2017.
• Core deposits increased $651.6 million, or 9%, to $8.16 billion, including $696.3 million of core deposits acquired from the Skagit acquisition, compared to September 30, 2018 and represented 86% of total deposits at December 31, 2018.
• Quarterly dividends to shareholders for the current quarter were $0.38 per share, an increase of 52% from the quarterly dividend for the fourth quarter a year ago.
• Common shareholders’ equity per share increased to $41.79 at December 31, 2018, compared to $39.26 at the preceding quarter end and $38.89 a year ago.  
• Tangible common shareholders' equity per share* increased to $31.45 at December 31, 2018, compared to $31.20 at the preceding quarter end and $30.78 a year ago.
• Non-performing assets improved to $18.9 million, or 0.16% of total assets, at December 31, 2018, compared to $27.5 million, or 0.28% of total assets, at December 31, 2017.

*Tangible common shareholders' equity per share and the ratio of tangible common equity to tangible assets (both of which exclude goodwill and other intangible assets, net), and references to revenues from core operations (which excludes fair value adjustments, net loss on the sale of securities and in the fourth quarter of 2017 gain on the sale of branches) and the adjusted efficiency ratio (which excludes fair value adjustments, net loss on the sale of securities and, in the fourth quarter of 2017, gain on the sale of branches from the total of net interest income before provision for loan losses and non-interest income and excludes acquisition-related costs, amortization of core deposit intangibles, real estate owned gain (loss) and state/municipal business and use taxes from adjusted non-interest expense) represent non-GAAP (Generally Accepted Accounting Principles) financial measures.  Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers.  Where applicable, comparable earnings information using GAAP financial measures is also presented.  See also Non-GAAP Financial Measures reconciliation tables on the last two pages of this press release.

Certain reclassifications have been made to the 2017 Consolidated Financial Statements and/or schedules to conform to the 2018 presentation.  These reclassifications have affected certain line items and ratios for the prior periods but have not changed net income or shareholders’ equity for those periods.  The effect of these reclassifications is considered immaterial.

Recent Events

On November 1, 2018, Banner completed its acquisition of Skagit and its wholly-owned subsidiary, Skagit Bank, of Burlington, Washington.  As of the closing of the transaction, Skagit Bank had 11 retail branches along the I-5 corridor from Seattle to the Canadian border.  Pursuant to the previously announced terms of the acquisition, Skagit shareholders received 5.6664 shares of Banner common stock in exchange for each share of Skagit common stock, plus cash in lieu of any fractional shares and cash to buyout Skagit stock options for a total consideration paid of $171.8 million.

The Skagit merger was accounted for using the acquisition method of accounting.  Accordingly, the assets (including identifiable intangible assets) and the liabilities of Skagit were measured at their respective estimated fair values as of the merger date. The excess of the purchase price over the fair value of the net assets acquired was attributed to goodwill.  The fair value on the merger date represents management's best estimates based on available information and facts and circumstances in existence on the merger date.  The acquisition accounting is subject to adjustment within a measurement period of one year from the acquisition date.  The acquisition provided $915.8 million of assets, $632.4 million of loans, and $810.2 million of deposits to Banner.

Income Statement Review

“Our net interest margin remained strong despite an increase in deposit costs,” said Grescovich.  Banner's net interest margin was 4.47% for the fourth quarter of 2018, a one basis-point decrease compared to 4.48% in the preceding quarter and a 29 basis-point improvement compared to 4.18% in the fourth quarter a year ago.  Acquisition accounting adjustments added 12 basis points to the net interest margin in both the current quarter and preceding quarters compared to six basis points in the fourth quarter a year ago.  The total purchase discount for acquired loans was $25.7 million at December 31, 2018, an increase from $15.4 million at September 30, 2018 and $21.1 million at December 31, 2017.  For the year ended December 31, 2018, Banner’s net interest margin expanded 19 basis points to 4.43% compared to 4.24% in 2017.  Acquisition accounting adjustments added ten basis points to the net interest margin for both years.

Average interest-earning asset yields increased seven basis points to 4.90% compared to 4.83% for the preceding quarter and increased 50 basis points compared to 4.40% in the fourth quarter a year ago.  Average loan yields increased six basis points to 5.37% compared to 5.31% in the preceding quarter and increased 55 basis points compared to 4.82% in the fourth quarter a year ago.  Loan discount accretion added 16 basis points to loan yields in the fourth quarter of 2018, compared to 15 basis points in the preceding quarter and five basis points in the fourth quarter a year ago.  Deposit costs were 0.32% in the fourth quarter of 2018, a seven basis-point increase compared to the preceding quarter and a 17 basis-point increase compared to the fourth quarter a year ago.  The total cost of funds was 0.46% during the fourth quarter of 2018, a nine basis-point increase compared to the preceding quarter and a 23 basis-point increase compared to the fourth quarter a year ago, largely reflecting increased use of brokered deposits and the impact of the rising interest rate environment.

Primarily as a result of the origination of new loans, the renewal of acquired loans out of the discounted acquired loan portfolio and net charge-offs, Banner recorded a $2.5 million provision for loan losses in the current quarter, compared to $2.0 million recorded in both the prior quarter and in the same quarter a year ago.

Deposit fees and other service charges were $12.5 million in the fourth quarter of 2018, compared to $12.3 million in the preceding quarter and $10.8 million in the fourth quarter a year ago.  Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $6.0 million in the fourth quarter, compared to $5.8 million in the preceding quarter and $5.0 million in the fourth quarter of 2017.  Home purchase activity accounted for 78% of one- to four-family mortgage loan originations in the fourth quarter of 2018, compared to 78% in the prior quarter and 71% in the fourth quarter of 2017.

Banner’s fourth quarter 2018 results included a $198,000 net gain for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, principally comprised of certain investment securities held for trading and an $885,000 net loss on the sale of securities.  In the preceding quarter, results included a $45,000 net gain for fair value adjustments.  In the fourth quarter a year ago, results included a $1.0 million net loss for fair value adjustments and a $2.3 million net loss on the sale of securities.  Following the adoption of new accounting guidance, beginning in the first quarter of 2018, Banner no longer reflects changes in the fair value of its junior subordinated debentures related to instrument-specific credit risk in the Consolidated Statements of Operations, but rather reports those changes in the Consolidated Statements of Comprehensive Income and includes them in total shareholders’ equity in the Consolidated Statements of Financial Condition.

Total revenues increased 7% to $138.5 million for the fourth quarter of 2018, compared to $129.5 million in the preceding quarter and increased 10% compared to $125.9 million in the fourth quarter a year ago.  For the year, total revenues increased 8% to $515.0 million, compared to $478.2 million in 2017.  Revenues from core operations* (revenues excluding gains and losses on the sale of securities, the net change in valuation of financial instruments and, in the fourth quarter of 2017, the gain on sale of the Utah branches) increased to $139.2 million in the fourth quarter of 2018, compared to $129.4 million in the preceding quarter and $117.1 million in the fourth quarter of 2017.  For 2018, revenues from core operations* increased 9% to $512.0 million from $471.0 million in 2017.

Total non-interest income was $21.0 million in the fourth quarter of 2018, compared to $20.4 million in the third quarter of 2018 and $27.7 million in the fourth quarter a year ago.  For 2018, total non-interest income was $84.0 million, compared to $85.2 million in 2017.

Banner’s total non-interest expense was $95.4 million in the fourth quarter of 2018, compared to $81.6 million in the preceding quarter and $82.5 million in the fourth quarter of 2017.  Acquisition-related expenses were $4.6 million for the fourth quarter of 2018, compared to $1.0 million for the preceding quarter and no acquisition expenses for the year ago quarter.  The increase in non-interest expense during the quarter also reflects the expenses associated with operating the branches acquired in the Skagit acquisition.  Other non-interest expense items of significance for the fourth quarter of 2018 included a $4.0 million accrual for pending litigation.  Banner’s efficiency ratio was 68.89% for the current quarter, compared to 63.04% in the preceding quarter and 65.51% in the year ago quarter.  Banner’s adjusted efficiency ratio*, which is calculated by dividing core non-interest expense by core revenue, was 63.06% for the current quarter, compared to 60.21% in the preceding quarter and 69.40% in the year ago quarter.

For the fourth quarter of 2018, Banner recorded $3.1 million in state and federal income tax expense for an effective tax rate of 7.5%, reflecting the new lower federal corporate income tax rate beginning in 2018, as well as the benefits from tax exempt income sources.  In addition, Banner recorded $5.5 million of tax benefit adjustments, which included the release of a $4.2 million valuation reserve previously recorded in the fourth quarter of 2017 as a provisional amount related to the enactment of the Tax Cuts and Jobs Act.  Our normal, expected statutory income tax rate is 23.7%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates.  For the year ago quarter, Banner recorded $55.0 million in state and federal income tax expense primarily due to a $42.6 million charge for the revaluation of its deferred tax assets as a result of the passage of the Tax Cuts and Jobs Act.

Balance Sheet Review

Largely as a result of the Skagit acquisition, but also as a result of organic growth, Banner’s total assets increased to $11.86 billion at December 31, 2018, compared to $10.51 billion at September 30, 2018 and $9.76 billion at December 31, 2017.  The total of securities and interest-bearing deposits held at other banks was $1.94 billion at December 31, 2018, compared to $1.76 billion at September 30, 2018 and $1.26 billion at December 31, 2017.  The increase in the securities portfolio during both the current quarter and preceding quarter compared to December 31, 2017 reflects Banner's renewed leveraging strategy as it crossed the $10 billion in total assets threshold.  During the fourth quarter of 2017, Banner reduced its holdings of securities and use of wholesale funding to ensure that it remained below $10 billion in total assets at December 31, 2017 in order to postpone the adverse impact of the Durbin Amendment.  The average effective duration of Banner's securities portfolio was approximately 3.5 years at December 31, 2018, compared to 4.1 years at December 31, 2017.

Net loans receivable increased 11% to $8.59 billion at December 31, 2018, compared to $7.73 billion at September 30, 2018 and increased 14% when compared to $7.51 billion at December 31, 2017.  The $860.9 million increase in net loans during the current quarter included $631.7 million of portfolio loans acquired in the Skagit acquisition as well as $230.4 million of organic loan growth.  Organic loan growth was 12% on an annualized basis during the quarter.  Commercial real estate and multifamily real estate loans increased 11% to $3.93 billion at December 31, 2018, compared to $3.52 billion at September 30, 2018, and $3.54 billion a year ago.  Commercial business loans increased 9% to $1.48 billion at December 31, 2018, compared to $1.36 billion three months earlier and increased 16% compared to $1.28 billion a year ago.  Reflecting normal seasonal trends, agricultural business loans increased by 12% to $404.9 million at December 31, 2018, compared to $360.0 million three months earlier and increased by 20% compared to $338.4 million a year ago.  Total construction, land and land development loans increased 9% to $1.11 billion at December 31, 2018, compared to $1.02 billion at September 30, 2018 and increased 22% compared to $907.5 million a year earlier.  Consumer loans increased 10% to $785.0 million at December 31, 2018, compared to $710.5 million at September 30, 2018 and increased 14% compared to $688.8 million a year ago.  One- to four-family loans increased 15% to $973.6 million, compared to both $849.9 million at September 30, 2018 and $848.3 million a year ago.

Loans held for sale increased substantially to $171.0 million at December 31, 2018, compared to $72.9 million at September 30, 2018 and $40.7 million at December 31, 2017.  The volume of one- to four- family residential mortgage loans sold was $130.1 million in the current quarter, compared to $134.1 million in the preceding quarter and was $141.1 million in the fourth quarter a year ago.  During the fourth quarter of 2018, Banner sold $26.8 million in multifamily loans, compared to $94.0 million in the preceding quarter.  Loans held for sale at December 31, 2018 included $130.7 million of multifamily loans and $40.3 million of one- to four-family loans.

Total deposits increased 9% to $9.48 billion at December 31, 2018, compared to $8.69 billion at September 30, 2018 and increased 16% when compared to $8.18 billion a year ago, as core deposit growth over the last year, coupled with the addition of both deposits from the Skagit acquisition and brokered certificates of deposit, was partially offset by continuing declines in retail, or non-brokered, certificates of deposit.  Total deposits at December 31, 2018 were negatively impacted by the sale of $20.4 million of Poulsbo Branch deposits during the second quarter of 2018.  Non-interest-bearing account balances increased 5% to $3.66 billion at December 31, 2018, compared to $3.47 billion at September 30, 2018 and increased 12% compared to $3.27 billion a year ago.  Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased $651.6 million, or 9%, from the prior quarter and increased 13% compared to a year ago.  The core deposit balance at December 31, 2018 was positively impacted by $696.3 million of core deposits acquired in the Skagit acquisition.  Core deposits represented 86% of total deposits at December 31, 2018, the same as three months earlier, and were 88% of total deposits a year earlier.  Certificates of deposit increased 12% to $1.32 billion at December 31, 2018, compared to $1.18 billion at September 30, 2018 and increased 37% compared to $966.9 million a year earlier.  Brokered deposits increased to $377.3 million at December 31, 2018, compared to $325.2 million at September 30, 2018 and $40.7 million a year earlier.

At December 31, 2018, total common shareholders' equity was $1.47 billion, or 12.39% of assets, compared to $1.27 billion or 12.10% of assets at September 30, 2018 and $1.27 billion or 13.03% of assets a year ago.  At December 31, 2018, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, was $1.11 billion, or 9.62% of tangible assets*, compared to $1.01 billion, or 9.86% of tangible assets, at September 30, 2018 and $1.01 billion, or 10.61% of tangible assets, a year ago.  Banner's tangible book value per share* increased to $31.45 at December 31, 2018, compared to $30.78 per share a year ago.

During the first quarter of 2018, Banner repurchased 269,711 shares of its common stock and during the fourth quarter of 2018, Banner repurchased 325,000 shares of its common stock.  There were no repurchases of common stock during the second or third quarters of 2018.  Banner and its subsidiary banks continue to maintain capital levels in excess of the requirements to be categorized as “well-capitalized” under the Basel III and Dodd Frank regulatory standards.  At December 31, 2018, Banner's common equity Tier 1 capital ratio was 10.75%, its Tier 1 leverage capital to average assets ratio was 10.98%, and its total capital to risk-weighted assets ratio was 13.12%.

Credit Quality

The allowance for loan losses was $96.5 million at December 31, 2018, or 1.11% of total loans outstanding and 616% of non-performing loans compared to $95.3 million at September 30, 2018, or 1.22% of total loans outstanding and 603% of non-performing loans, and $89.0 million at December 31, 2017, or 1.17% of total loans outstanding and 329% of non-performing loans.  Net loan charge-offs totaled $1.3 million in the fourth quarter, compared to $612,000 in the preceding quarter and $2.1 million in the fourth quarter a year ago.  Primarily as a result of the origination of new loans, the renewal of acquired loans out of the discounted acquired loan portfolio and net charge-offs, Banner recorded a $2.5 million provision for loan losses in the current quarter, compared to $2.0 million recorded in both the prior quarter and in the year ago quarter.  Non-performing loans decreased to $15.7 million at December 31, 2018, compared to $15.8 million at September 30, 2018 and $27.0 million a year ago.  Real estate owned and other repossessed assets were $3.2 million at December 31, 2018, compared to $937,000 at September 30, 2018 and $467,000 a year ago.  The increase in the current quarter primarily reflects $2.6 million of real estate owned acquired in the Skagit acquisition.

In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net discount to the loans’ contractual amounts, a portion of which reflects a discount for possible credit losses.  Credit discounts are included in the determination of fair value, and as a result, no allowance for loan and lease losses is recorded for acquired loans at the acquisition date.  At December 31, 2018, the total purchase discount for acquired loans was $25.7 million.

Banner's non-performing assets were $18.9 million, or 0.16% of total assets, at December 31, 2018, compared to $16.7 million, or 0.16% of total assets, at September 30, 2018 and $27.5 million, or 0.28% of total assets, a year ago.  In addition to non-performing assets, purchased credit-impaired loans increased due to the Skagit acquisition to $14.4 million at December 31, 2018, compared to $12.9 million at September 30, 2018 and decreased when compared to $21.3 million at December 31, 2017.

Conference Call

Banner will host a conference call on Thursday, January 24, 2019, at 8:00 a.m. PST, to discuss its fourth quarter and year end results.  To listen to the call on-line, go to www.bannerbank.com.  Investment professionals are invited to dial [phone] to participate in the call.  A replay will be available for one week at [phone] using access code 10127071, or at www.bannerbank.com.

About the Company

Banner Corporation is a $11.86 billion bank holding company operating two commercial banks in four Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans.  Visit Banner Bank on the Web at www.bannerbank.com.

Forward-Looking Statements

When used in this press release and in other documents filed with or furnished to the Securities and Exchange Commission (the “SEC”), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "may," “believe,” “will,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” "potential," or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date such statements are made and based only on information then actually known to Banner.  Banner does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.  These statements may relate to future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial information.  By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements and could negatively affect Banner's operating and stock price performance.

Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) expected revenues, cost savings, synergies and other benefits from the Skagit acquisition might not be realized within the expected time frames or at all and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (2) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses, which could necessitate additional provisions for loan losses, resulting both from loans originated and loans acquired from other financial institutions; (3) results of examinations by regulatory authorities, including the possibility that any such regulatory authority may, among other things, require increases in the allowance for loan losses or writing down of assets or impose restrictions or penalties with respect to Banner's activities; (4) competitive pressures among depository institutions; (5) interest rate movements and their impact on customer behavior and net interest margin; (6) the impact of repricing and competitors' pricing initiatives on loan and deposit products; (7) fluctuations in real estate values; (8) the ability to adapt successfully to technological changes to meet customers' needs and developments in the market place; (9) the ability to access cost-effective funding; (10) changes in financial markets; (11) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (12) the costs, effects and outcomes of litigation; (13) new legislation or regulatory changes, including but not limited to the Dodd-Frank Act and regulations adopted thereunder, changes in capital requirements pursuant to the Dodd-Frank Act and the implementation of the Basel III capital standards, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (14) changes in accounting principles, policies or guidelines; (15) future acquisitions by Banner of other depository institutions or lines of business; (16) future goodwill impairment due to changes in Banner's business, changes in market conditions, or other factors and (17) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and other risks detailed from time to time in our filings with the Securities and Exchange Commission including our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K.

RESULTS OF OPERATIONS		Quarters Ended												Twelve months ended
(in thousands except shares and per share data)		Dec 31, 2018				Sep 30, 2018				Dec 31, 2017				Dec 31, 2018				Dec 31, 2017
INTEREST INCOME:
Loans receivable		$	114,627			$	104,868			$	93,145			$	413,370			$	374,449
Mortgage-backed securities		9,931				8,915				7,006				35,076				24,535
Securities and cash equivalents		4,183				3,865				3,324				15,186				13,300
		128,741				117,648				103,475				463,632				412,284
INTEREST EXPENSE:
Deposits		7,503				5,517				3,111				20,642				12,273
Federal Home Loan Bank advances		2,072				1,388				766				5,636				1,908
Other borrowings		66				60				77				245				317
Junior subordinated debentures		1,641				1,605				1,257				6,136				4,752
		11,282				8,570				5,211				32,659				19,250
Net interest income before provision for loan losses		117,459				109,078				98,264				430,973				393,034
PROVISION FOR LOAN LOSSES		2,500				2,000				2,000				8,500				8,000
Net interest income		114,959				107,078				96,264				422,473				385,034
NON-INTEREST INCOME:
Deposit fees and other service charges		12,539				12,255				10,840				48,074				43,452
Mortgage banking operations		6,019				5,816				5,025				21,343				20,880
Bank owned life insurance		994				1,726				1,020				4,505				4,618
Miscellaneous		2,153				569				1,923				7,148				8,985
		21,705				20,366				18,808				81,070				77,935
Net loss on sale of securities		(885		)		—				(2,310		)		(837		)		(2,080		)
Net change in valuation of financial instruments carried at fair value		198				45				(1,013		)		3,775				(2,844		)
Gain on sale of branches, including related loans and deposits		—				—				12,189				—				12,189
Total non-interest income		21,018				20,411				27,674				84,008				85,200
NON-INTEREST EXPENSE:
Salary and employee benefits		52,122				48,930				48,082				202,613				192,096
Less capitalized loan origination costs		(4,863		)		(4,318		)		(4,134		)		(17,925		)		(17,379		)
Occupancy and equipment		13,490				12,385				12,088				49,215				47,866
Information / computer data services		5,112				4,766				4,731				18,823				17,245
Payment and card processing services		4,233				3,748				3,807				15,412				14,330
Professional and legal expenses		6,669				3,010				5,301				17,945				17,534
Advertising and marketing		2,588				1,786				3,412				8,346				8,637
Deposit insurance		1,093				991				1,251				4,446				4,689
State/municipal business and use taxes		854				902				737				3,284				2,594
Real estate operations		251				433				(941		)		804				(2,030		)
Amortization of core deposit intangibles		1,935				1,348				1,457				6,047				6,246
Miscellaneous		7,310				6,646				6,710				26,754				27,142
		90,794				80,627				82,501				335,764				318,970
Acquisition related expenses		4,602				1,005				—				5,607				—
Total non-interest expense		95,396				81,632				82,501				341,371				318,970
Income before provision for income taxes		40,581				45,857				41,437				165,110				151,264
PROVISION FOR INCOME TAXES		3,053				8,084				54,985				28,595				90,488
NET INCOME		$	37,528			$	37,773			$	(13,548	)		$	136,515			$	60,776
Earnings (loss) per share available to common shareholders:
Basic		$	1.10			$	1.17			$	(0.41	)		$	4.16			$	1.85
Diluted		$	1.09			$	1.17			$	(0.41	)		$	4.15			$	1.84
Cumulative dividends declared per common share		$	0.38			$	0.38			$	0.25			$	1.96			$	2.00
Weighted average common shares outstanding:
Basic		34,221,048				32,256,789				32,655,973				32,784,724				32,888,007
Diluted		34,342,641				32,376,623				32,766,335				32,894,425				32,986,707
Increase (decrease) in common shares outstanding		2,780,015				(2,939		)		(528,299		)		2,456,287				(466,902		)

FINANCIAL CONDITION														Percentage Change
(in thousands except shares and per share data)		Dec 31, 2018				Sep 30, 2018				Dec 31, 2017				Prior Qtr			Prior Yr Qtr
ASSETS
Cash and due from banks		$	231,029			$	184,417			$	199,624			25.3	%		15.7	%
Interest-bearing deposits		41,167				64,244				61,576				(35.9	)%		(33.1	)%
Total cash and cash equivalents		272,196				248,661				261,200				9.5	%		4.2	%
Securities - trading		25,896				25,764				22,318				0.5	%		16.0	%
Securities - available for sale		1,636,223				1,412,273				919,485				15.9	%		77.9	%
Securities - held to maturity		234,220				258,699				260,271				(9.5	)%		(10.0	)%
Total securities		1,896,339				1,696,736				1,202,074				11.8	%		57.8	%
Federal Home Loan Bank stock		31,955				19,196				10,334				66.5	%		209.2	%
Loans held for sale		171,031				72,850				40,725				134.8	%		320.0	%
Loans receivable		8,684,595				7,822,519				7,598,884				11.0	%		14.3	%
Allowance for loan losses		(96,485		)		(95,263		)		(89,028		)		1.3	%		8.4	%
Net loans receivable		8,588,110				7,727,256				7,509,856				11.1	%		14.4	%
Accrued interest receivable		38,593				37,676				31,259				2.4	%		23.5	%
Real estate owned held for sale, net		2,611				364				360				617.3	%		625.3	%
Property and equipment, net		171,809				151,212				154,815				13.6	%		11.0	%
Goodwill		330,874				242,659				242,659				36.4	%		36.4	%
Other intangibles, net		32,924				18,499				22,655				78.0	%		45.3	%
Bank-owned life insurance		177,467				163,265				162,668				8.7	%		9.1	%
Other assets		149,128				135,929				124,604				9.7	%		19.7	%
Total assets		$	11,863,037			$	10,514,303			$	9,763,209			12.8	%		21.5	%
LIABILITIES
Deposits:
Non-interest-bearing		$	3,657,817			$	3,469,294			$	3,265,544			5.4	%		12.0	%
Interest-bearing transaction and savings accounts		4,498,966				4,035,856				3,950,950				11.5	%		13.9	%
Interest-bearing certificates		1,320,265				1,180,674				966,937				11.8	%		36.5	%
Total deposits		9,477,048				8,685,824				8,183,431				9.1	%		15.8	%
Advances from Federal Home Loan Bank at fair value		540,189				221,184				202				144.2	%		nm
Customer repurchase agreements and other borrowings		118,995				98,979				95,860				20.2	%		24.1	%
Junior subordinated debentures at fair value		114,091				113,110				98,707				0.9	%		15.6	%
Accrued expenses and other liabilities		102,061				82,530				71,344				23.7	%		43.1	%
Deferred compensation		40,338				40,478				41,039				(0.3	)%		(1.7	)%
Total liabilities		10,392,722				9,242,105				8,490,583				12.4	%		22.4	%
SHAREHOLDERS' EQUITY
Common stock		1,329,156				1,175,250				1,187,127				13.1	%		12.0	%
Retained earnings		134,055				109,942				90,535				21.9	%		48.1	%
Other components of shareholders' equity		7,104				(12,994		)		(5,036		)		nm			nm
Total shareholders' equity		1,470,315				1,272,198				1,272,626				15.6	%		15.5	%
Total liabilities and shareholders' equity		$	11,863,037			$	10,514,303			$	9,763,209			12.8	%		21.5	%
Common Shares Issued:
Shares outstanding at end of period		35,182,772				32,402,757				32,726,485
Common shareholders' equity per share (1)		$	41.79			$	39.26			$	38.89
Common shareholders' tangible equity per share (1) (2)		$	31.45			$	31.20			$	30.78
Common shareholders' tangible equity to tangible assets (2)		9.62		%		9.86		%		10.61		%
Consolidated Tier 1 leverage capital ratio		10.98		%		11.04		%		11.33		%

(1)		Calculation is based on number of common shares outstanding at the end of the period rather than weighted average shares outstanding.
(2)		Common shareholders' tangible equity excludes goodwill and other intangible assets. Tangible assets exclude goodwill and other intangible assets. These ratios represent non-GAAP financial measures.  See also Non-GAAP Financial Measures reconciliation tables on the last two pages of the press release tables.

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
														Percentage Change
LOANS		Dec 31, 2018				Sep 30, 2018				Dec 31, 2017				Prior Qtr			Prior Yr Qtr
Commercial real estate:
Owner occupied		$	1,430,097			$	1,271,363			$	1,284,363			12.5	%		11.3	%
Investment properties		2,131,059				1,943,793				1,937,423				9.6	%		10.0	%
Multifamily real estate		368,836				309,809				314,188				19.1	%		17.4	%
Commercial construction		172,410				154,071				148,435				11.9	%		16.2	%
Multifamily construction		184,630				172,433				154,662				7.1	%		19.4	%
One- to four-family construction		534,678				498,549				415,327				7.2	%		28.7	%
Land and land development:
Residential		188,508				171,610				164,516				9.8	%		14.6	%
Commercial		27,278				22,382				24,583				21.9	%		11.0	%
Commercial business		1,483,614				1,358,149				1,279,894				9.2	%		15.9	%
Agricultural business including secured by farmland		404,873				359,966				338,388				12.5	%		19.6	%
One- to four-family real estate		973,616				849,928				848,289				14.6	%		14.8	%
Consumer:
Consumer secured by one- to four-family real estate		568,979				539,143				522,931				5.5	%		8.8	%
Consumer-other		216,017				171,323				165,885				26.1	%		30.2	%
Total loans receivable		$	8,684,595			$	7,822,519			$	7,598,884			11.0	%		14.3	%
Restructured loans performing under their restructured terms		$	13,422			$	13,328			$	16,115
Loans 30 - 89 days past due and on accrual (1)		$	25,108			$	8,688			$	29,278
Total delinquent loans (including loans on non-accrual), net (2)		$	38,721			$	21,191			$	50,503
Total delinquent loans / Total loans receivable		0.45		%		0.27		%		0.66		%

(1)		Includes $3,000 of purchased credit-impaired loans at December 31, 2018 compared to $5,000 at September 30, 2018 and $943,000 at December 31, 2017.
(2)		Delinquent loans include $519,000 of delinquent purchased credit-impaired loans at December 31, 2018 compared to $568,000 at September 30, 2018 and $2.2 million at December 31, 2017.

LOANS BY GEOGRAPHIC LOCATION																	Percentage Change
		Dec 31, 2018							Sep 30, 2018				Dec 31, 2017				Prior Qtr			Prior Yr Qtr
		Amount				Percentage			Amount				Amount
Washington		$	4,324,588			49.8	%		$	3,640,209			$	3,508,542			18.8	%		23.3	%
Oregon		1,636,152				18.8	%		1,628,703				1,590,233				0.5	%		2.9	%
California		1,596,604				18.4	%		1,496,817				1,415,076				6.7	%		12.8	%
Idaho		521,026				6.0	%		504,297				492,603				3.3	%		5.8	%
Utah		57,318				0.7	%		63,053				73,382				(9.1	)%		(21.9	)%
Other		548,907				6.3	%		489,440				519,048				12.2	%		5.8	%
Total loans receivable		$	8,684,595			100.0	%		$	7,822,519			$	7,598,884			11.0	%		14.3	%

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

The following table shows loan originations (excluding loans held for sale) activity for the three months ending December 31, 2018, September 30, 2018, and December 31, 2017 and for the twelve months ending December 31, 2018 and 2017 (in thousands):

LOAN ORIGINATIONS	Three Months Ended									Twelve Months Ended
	Dec 31, 2018			Sep 30, 2018			Dec 31, 2017			Dec 31, 2018			Dec 31, 2017
Commercial real estate	$	172,885		$	142,393		$	105,313		$	536,784		$	537,825
Multifamily real estate	16,731			2,215			6,033			25,771			77,409
Construction and land	397,702			370,484			303,414			1,460,536			1,216,227
Commercial business	206,922			303,472			148,004			839,290			647,079
Agricultural business	18,901			36,747			36,947			123,702			117,186
One-to four-family residential	81,522			51,459			69,541			177,332			249,558
Consumer	72,500			74,339			64,104			331,661			344,407
Total loan originations (excluding loans held for sale)	$	967,163		$	981,109		$	733,356		$	3,495,076		$	3,189,691

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
		Quarters Ended												Twelve months ended
CHANGE IN THE		Dec 31, 2018				Sep 30, 2018				Dec 31, 2017				Dec 31, 2018				Dec 31, 2017
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period		$	95,263			$	93,875			$	89,100			$	89,028			$	85,997
Provision for loan losses		2,500				2,000				2,000				8,500				8,000
Recoveries of loans previously charged off:
Commercial real estate		66				12				19				1,646				372
Multifamily real estate		—				—				—				—				11
Construction and land		23				5				57				213				1,237
One- to four-family real estate		18				86				8				750				270
Commercial business		193				586				305				1,049				1,226
Agricultural business, including secured by farmland		23				—				1				64				134
Consumer		102				46				188				366				481
		425				735				578				4,088				3,731
Loans charged off:
Commercial real estate		—				(102		)		(549		)		(401		)		(1,180		)
Construction and land		—				(479		)		—				(479		)		—
One- to four-family real estate		—				(27		)		(38		)		(43		)		(38		)
Commercial business		(684		)		(473		)		(517		)		(2,051		)		(3,803		)
Agricultural business, including secured by farmland		(415		)		(5		)		(1,110		)		(756		)		(2,374		)
Consumer		(604		)		(261		)		(436		)		(1,401		)		(1,305		)
		(1,703		)		(1,347		)		(2,650		)		(5,131		)		(8,700		)
Net charge-offs		(1,278		)		(612		)		(2,072		)		(1,043		)		(4,969		)
Balance, end of period		$	96,485			$	95,263			$	89,028			$	96,485			$	89,028
Net charge-offs / Average loans receivable		(0.015		)%		(0.008		)%		(0.027		)%		(0.013		)%		(0.065		)%

ALLOCATION OF
ALLOWANCE FOR LOAN LOSSES		Dec 31, 2018				Sep 30, 2018				Dec 31, 2017
Specific or allocated loss allowance:
Commercial real estate		$	27,132			$	25,147			$	22,824
Multifamily real estate		3,818				3,745				1,633
Construction and land		24,442				24,564				27,568
One- to four-family real estate		4,714				4,423				2,055
Commercial business		19,438				17,948				18,311
Agricultural business, including secured by farmland		3,778				3,505				4,053
Consumer		7,972				8,110				3,866
Total allocated		91,294				87,442				80,310
Unallocated		5,191				7,821				8,718
Total allowance for loan losses		$	96,485			$	95,263			$	89,028
Allowance for loan losses / Total loans receivable		1.11		%		1.22		%		1.17		%
Allowance for loan losses / Non-performing loans		616		%		603		%		329		%

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
	Dec 31, 2018				Sep 30, 2018				Dec 31, 2017
NON-PERFORMING ASSETS
Loans on non-accrual status:
Secured by real estate:
Commercial	$	4,088			$	3,728			$	10,646
Construction and land	3,188				2,095				798
One- to four-family	1,544				1,827				3,264
Commercial business	2,936				2,921				3,406
Agricultural business, including secured by farmland	1,751				1,645				6,132
Consumer	1,241				1,703				1,297
	14,748				13,919				25,543
Loans more than 90 days delinquent, still on accrual:
Secured by real estate:
Commercial	—				428				—
Construction and land	—				—				298
One- to four-family	658				1,076				1,085
Commercial business	1				87				18
Consumer	247				296				85
	906				1,887				1,486
Total non-performing loans	15,654				15,806				27,029
Real estate owned (REO)	2,611				364				360
Other repossessed assets	592				573				107
Total non-performing assets	$	18,857			$	16,743			$	27,496
Total non-performing assets to total assets	0.16		%		0.16		%		0.28		%
Purchased credit-impaired loans, net	$	14,413			$	12,944			$	21,310

	Quarters Ended												Twelve months ended
REAL ESTATE OWNED	Dec 31, 2018				Sep 30, 2018				Dec 31, 2017				Dec 31, 2018				Dec 31, 2017
Balance, beginning of period	$	364			$	473			$	1,496			$	360			$	11,081
Additions from loan foreclosures	139				—				—				641				46
Additions from acquisitions	2,593				—				—				2,593				—
Additions from capitalized costs	—				—				—				—				54
Proceeds from dispositions of REO	(453		)		(90		)		(2,092		)		(838		)		(13,474		)
Gain on sale of REO	168				8				956				242				2,909
Valuation adjustments in the period	(200		)		(27		)		—				(387		)		(256		)
Balance, end of period	$	2,611			$	364			$	360			$	2,611			$	360

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
DEPOSIT COMPOSITION														Percentage Change
		Dec 31, 2018				Sep 30, 2018				Dec 31, 2017				Prior Qtr			Prior Yr Qtr
Non-interest-bearing		$	3,657,817			$	3,469,294			$	3,265,544			5.4	%		12.0	%
Interest-bearing checking		1,191,016				1,034,678				971,137				15.1	%		22.6	%
Regular savings accounts		1,842,581				1,627,560				1,557,500				13.2	%		18.3	%
Money market accounts		1,465,369				1,373,618				1,422,313				6.7	%		3.0	%
Total interest-bearing transaction and savings accounts		4,498,966				4,035,856				3,950,950				11.5	%		13.9	%
Total core deposits		8,156,783				7,505,150				7,216,494				8.7	%		13.0	%
Interest-bearing certificates		1,320,265				1,180,674				966,937				11.8	%		36.5	%
Total deposits		$	9,477,048			$	8,685,824			$	8,183,431			9.1	%		15.8	%

GEOGRAPHIC CONCENTRATION OF DEPOSITS																	Percentage Change
		Dec 31, 2018							Sep 30, 2018				Dec 31, 2017				Prior Qtr			Prior Yr Qtr
		Amount				Percentage			Amount				Amount
Washington		$	5,674,328			59.9	%		$	4,849,807			$	4,506,249			17.0	%		25.9	%
Oregon		1,891,145				20.0	%		1,916,183				1,797,147				(1.3	)%		5.2	%
California		1,434,033				15.1	%		1,462,417				1,432,819				(1.9	)%		0.1	%
Idaho		477,542				5.0	%		457,417				447,216				4.4	%		6.8	%
Total deposits		$	9,477,048			100.0	%		$	8,685,824			$	8,183,431			9.1	%		15.8	%

INCLUDED IN TOTAL DEPOSITS		Dec 31, 2018				Sep 30, 2018				Dec 31, 2017
Public non-interest-bearing accounts		$	96,009			$	76,957			$	86,987
Public interest-bearing transaction & savings accounts		121,392				110,802				111,732
Public interest-bearing certificates		30,089				25,367				23,685
Total public deposits		$	247,490			$	213,126			$	222,404
Total brokered deposits		$	377,347			$	325,154			$	40,748

ADDITIONAL FINANCIAL INFORMATION
(in thousands)
ACQUISITION OF SKAGIT BANCORP, INC.
The following table provides the estimated fair value of the assets acquired and liabilities assumed in the Skagit acquisition at November 1, 2018 (in thousands):
	November 1, 2018
Cash paid		329
Fair value of common shares issued		171,429
Total consideration		171,758
Fair value of assets acquired:
Cash and cash equivalents	19,167
Securities	210,326
Loans receivable	632,374
Real estate owned held for sale	2,594
Property and equipment	15,788
Core deposit intangible	16,368
Deferred tax asset	95
Other assets	19,109
Total assets acquired	915,821
Fair value of liabilities assumed:
Deposits	810,209
Other liabilities	22,070
Total liabilities assumed	832,279
Net assets acquired		83,542
Goodwill		$	88,216
* Amounts recorded in this table are preliminary estimates of fair value.  Additional adjustments to the acquisition accounting may be required with a measurement period of one-year from the acquisition date.

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
		Actual							Minimum to be categorized as "Adequately Capitalized"						Minimum to be categorized as "Well Capitalized"
REGULATORY CAPITAL RATIOS AS OF DECEMBER 31, 2018		Amount				Ratio			Amount			Ratio			Amount			Ratio
Banner Corporation-consolidated:
Total capital to risk-weighted assets		$	1,302,239			13.12	%		$	794,072		8.00	%		$	992,590		10.00	%
Tier 1 capital to risk-weighted assets		1,203,155				12.12	%		595,554			6.00	%		595,554			6.00	%
Tier 1 leverage capital to average assets		1,203,155				10.98	%		438,379			4.00	%		n/a			n/a
Common equity tier 1 capital to risk-weighted assets		1,067,155				10.75	%		446,665			4.50	%		n/a			n/a
Banner Bank:
Total capital to risk-weighted assets		1,217,173				12.50	%		778,766			8.00	%		973,457			10.00	%
Tier 1 capital to risk-weighted assets		1,120,523				11.51	%		584,074			6.00	%		778,766			8.00	%
Tier 1 leverage capital to average assets		1,120,523				10.50	%		426,799			4.00	%		533,498			5.00	%
Common equity tier 1 capital to risk-weighted assets		1,120,523				11.51	%		438,056			4.50	%		632,747			6.50	%
Islanders Bank:
Total capital to risk-weighted assets		34,567				18.26	%		15,142			8.00	%		18,928			10.00	%
Tier 1 capital to risk-weighted assets		32,200				17.01	%		11,357			6.00	%		15,142			8.00	%
Tier 1 leverage capital to average assets		32,200				11.16	%		11,543			4.00	%		14,428			5.00	%
Common equity tier 1 capital to risk-weighted assets		32,200				17.01	%		8,518			4.50	%		12,303			6.50	%

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
ANALYSIS OF NET INTEREST SPREAD	Quarters Ended
	December 31, 2018									September 30, 2018									December 31, 2017
	Average Balance			Interest and Dividends			Yield / Cost(3)			Average Balance			Interest and Dividends			Yield / Cost(3)			Average Balance			Interest and Dividends			Yield / Cost(3)
Interest-earning assets:
Held for sale loans	$	83,741		$	1,056		5.00	%		$	72,249		$	895		4.91	%		$	75,359		$	822		4.33	%
Mortgage loans	6,573,278			88,560			5.35	%		6,117,299			81,130			5.26	%		5,989,291			72,527			4.80	%
Commercial/agricultural loans	1,631,133			22,257			5.41	%		1,511,077			20,545			5.39	%		1,454,639			17,549			4.79	%
Consumer and other loans	172,934			2,754			6.32	%		141,503			2,298			6.44	%		144,412			2,247			6.17	%
Total loans(1)	8,461,086			114,627			5.37	%		7,842,128			104,868			5.31	%		7,663,701			93,145			4.82	%
Mortgage-backed securities	1,400,508			9,931			2.81	%		1,266,862			8,915			2.79	%		1,131,692			7,006			2.46	%
Other securities	474,659			3,633			3.04	%		462,048			3,279			2.82	%		459,065			3,028			2.62	%
Interest-bearing deposits with banks	54,577			305			2.22	%		65,191			332			2.02	%		60,109			191			1.26	%
FHLB stock	22,791			245			4.26	%		20,345			254			4.95	%		18,496			105			2.25	%
Total investment securities	1,952,535			14,114			2.87	%		1,814,446			12,780			2.79	%		1,669,362			10,330			2.46	%
Total interest-earning assets	10,413,621			128,741			4.90	%		9,656,574			117,648			4.83	%		9,333,063			103,475			4.40	%
Non-interest-earning assets	903,165									799,083									861,232
Total assets	$	11,316,786								$	10,455,657								$	10,194,295
Deposits:
Interest-bearing checking accounts	$	1,131,030		403			0.14	%		$	1,006,010		270			0.11	%		$	964,306		222			0.09	%
Savings accounts	1,779,288			1,505			0.34	%		1,631,158			1,002			0.24	%		1,567,845			550			0.14	%
Money market accounts	1,440,889			1,638			0.45	%		1,381,943			1,011			0.29	%		1,471,875			645			0.17	%
Certificates of deposit	1,287,114			3,957			1.22	%		1,153,403			3,234			1.11	%		1,024,069			1,694			0.66	%
Total interest-bearing deposits	5,638,321			7,503			0.53	%		5,172,514			5,517			0.42	%		5,028,095			3,111			0.25	%
Non-interest-bearing deposits	3,608,930			—			—	%		3,424,587			—			—	%		3,325,452			—			—	%
Total deposits	9,247,251			7,503			0.32	%		8,597,101			5,517			0.25	%		8,353,547			3,111			0.15	%
Other interest-bearing liabilities:
FHLB advances	311,046			2,072			2.64	%		249,896			1,388			2.20	%		204,502			766			1.49	%
Other borrowings	117,724			66			0.22	%		110,868			60			0.21	%		106,678			77			0.29	%
Junior subordinated debentures	140,212			1,641			4.64	%		140,212			1,605			4.54	%		140,212			1,257			3.56	%
Total borrowings	568,982			3,779			2.64	%		500,976			3,053			2.42	%		451,392			2,100			1.85	%
Total funding liabilities	9,816,233			11,282			0.46	%		9,098,077			8,570			0.37	%		8,804,939			5,211			0.23	%
Other non-interest-bearing liabilities(2)	92,003									85,485									63,654
Total liabilities	9,908,236									9,183,562									8,868,593
Shareholders' equity	1,408,550									1,272,095									1,325,702
Total liabilities and shareholders' equity	$	11,316,786								$	10,455,657								$	10,194,295
Net interest income/rate spread				$	117,459		4.44	%					$	109,078		4.46	%					$	98,264		4.17	%
Net interest margin							4.47	%								4.48	%								4.18	%
Additional Key Financial Ratios:
Return on average assets							1.32	%								1.43	%								(0.53	)%
Return on average equity							10.57	%								11.78	%								(4.05	)%
Average equity/average assets							12.45	%								12.17	%								13.00	%
Average interest-earning assets/average interest-bearing liabilities							167.76	%								170.21	%								170.33	%
Average interest-earning assets/average funding liabilities							106.09	%								106.14	%								106.00	%
Non-interest income/average assets							0.74	%								0.77	%								1.08	%
Non-interest expense/average assets							3.34	%								3.10	%								3.21	%
Efficiency ratio(4)							68.89	%								63.04	%								65.51	%
Adjusted efficiency ratio(5)							63.06	%								60.21	%								69.40	%

(1)		Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due.  Amortization of net deferred loan fees/costs is included with interest on loans.
(2)		Average other non-interest-bearing liabilities include fair value adjustments related to FHLB advances and junior subordinated debentures.
(3)		Yields and costs have not been adjusted for the effect of tax-exempt interest.
(4)		Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.
(5)		Adjusted non-interest expense divided by adjusted revenue.  Adjusted revenue excludes net gain (loss) on sale of securities and fair value adjustments.  Adjusted non-interest expense excludes amortization of core deposit intangibles (CDI), REO gain (loss), and state/municipal business and use taxes.  These represent non-GAAP financial measures.  See also Non-GAAP Financial Measures reconciliation tables on the last two pages of this press release.

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
ANALYSIS OF NET INTEREST SPREAD	Twelve months ended
	December 31, 2018									December 31, 2017
	Average Balance			Interest and Dividends			Yield/Cost(3)			Average Balance			Interest and Dividends			Yield/Cost(3)
Interest-earning assets:
Held for sale loans	$	81,873		$	3,926		4.80	%		$	128,480		$	5,245		4.08	%
Mortgage loans	6,188,279			320,264			5.18	%		5,932,300			290,132			4.89	%
Commercial/agricultural loans	1,519,871			79,605			5.24	%		1,485,985			70,266			4.73	%
Consumer and other loans	149,184			9,575			6.42	%		140,500			8,806			6.27	%
Total loans(1)	7,939,207			413,370			5.21	%		7,687,265			374,449			4.87	%
Mortgage-backed securities	1,247,758			35,076			2.81	%		1,043,599			24,535			2.35	%
Other securities	468,416			13,332			2.85	%		464,680			12,448			2.68	%
Interest-bearing deposits with banks	59,031			1,080			1.83	%		49,573			583			1.18	%
FHLB stock	20,496			774			3.78	%		16,379			269			1.64	%
Total investment securities	1,795,701			50,262			2.80	%		1,574,231			37,835			2.40	%
Total interest-earning assets	9,734,908			463,632			4.76	%		9,261,496			412,284			4.45	%
Non-interest-earning assets	828,184									892,052
Total assets	$	10,563,092								$	10,153,548
Deposits:
Interest-bearing checking accounts	$	1,048,327		1,200			0.11	%		$	933,978		850			0.09	%
Savings accounts	1,665,608			3,944			0.24	%		1,559,042			2,138			0.14	%
Money market accounts	1,421,161			4,107			0.29	%		1,515,854			2,638			0.17	%
Certificates of deposit	1,127,612			11,391			1.01	%		1,116,304			6,647			0.60	%
Total interest-bearing deposits	5,262,708			20,642			0.39	%		5,125,178			12,273			0.24	%
Non-interest-bearing deposits	3,411,010			—			—	%		3,233,889			—			—	%
Total deposits	8,673,718			20,642			0.24	%		8,359,067			12,273			0.15	%
Other interest-bearing liabilities:
FHLB advances	253,661			5,636			2.22	%		151,295			1,908			1.26	%
Other borrowings	108,730			245			0.23	%		111,903			317			0.28	%
Junior subordinated debentures	140,212			6,136			4.38	%		140,212			4,752			3.39	%
Total borrowings	502,603			12,017			2.39	%		403,410			6,977			1.73	%
Total funding liabilities	9,176,321			32,659			0.36	%		8,762,477			19,250			0.22	%
Other non-interest-bearing liabilities(2)	79,901									61,592
Total liabilities	9,256,222									8,824,069
Shareholders' equity	1,306,870									1,329,479
Total liabilities and shareholders' equity	$	10,563,092								$	10,153,548
Net interest income/rate spread				$	430,973		4.40	%					$	393,034		4.23	%
Net interest margin							4.43	%								4.24	%
Additional Key Financial Ratios:
Return on average assets							1.29	%								0.60	%
Return on average equity							10.45	%								4.57	%
Average equity/average assets							12.37	%								13.09	%
Average interest-earning assets/average interest-bearing liabilities							168.85	%								167.52	%
Average interest-earning assets/average funding liabilities							106.09	%								105.69	%
Non-interest income/average assets							0.80	%								0.84	%
Non-interest expense/average assets							3.23	%								3.14	%
Efficiency ratio(4)							66.29	%								66.70	%
Adjusted efficiency ratio(5)							63.59	%								66.28	%

(1)		Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due.  Amortization of net deferred loan fees/costs is included with interest on loans.
(2)		Average other non-interest-bearing liabilities include fair value adjustments related to FHLB advances and junior subordinated debentures.
(3)		Yields and costs have not been adjusted for the effect of tax-exempt interest.
(4)		Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.
(5)		Adjusted non-interest expense divided by adjusted revenue.  Adjusted revenue excludes net gain (loss) on sale of securities and fair value adjustments.  Adjusted non-interest expense excludes acquisition related costs, amortization of CDI, real estate operations expense, and state/municipal business and use taxes.  These represent non-GAAP financial measures.  See also Non-GAAP Financial Measures reconciliation tables on the last two pages of this press release.

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
* Non-GAAP Financial Measures
In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures.  Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers.  However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP.  Where applicable, comparable earnings information using GAAP financial measures is also presented.  Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non-GAAP financial measures, see the tables below:
REVENUE FROM CORE OPERATIONS	Quarters Ended												Twelve months ended
	Dec 31, 2018				Sep 30, 2018				Dec 31, 2017				Dec 31, 2018				Dec 31, 2017
Net interest income before provision for loan losses	$	117,459			$	109,078			$	98,264			$	430,973			$	393,034
Total non-interest income	21,018				20,411				27,674				84,008				85,200
Total GAAP revenue	138,477				129,489				125,938				514,981				478,234
Exclude net loss on sale of securities	885				—				2,310				837				2,080
Exclude change in valuation of financial instruments carried at fair value	(198		)		(45		)		1,013				(3,775		)		2,844
Exclude gain on sale of branches	—				—				(12,189		)		—				(12,189		)
Revenue from core operations (non-GAAP)	$	139,164			$	129,444			$	117,072			$	512,043			$	470,969

EARNINGS FROM CORE OPERATIONS		Quarters Ended												Twelve months ended
		Dec 31, 2018				Sep 30, 2018				Dec 31, 2017				Dec 31, 2018				Dec 31, 2017
Net income (GAAP)		$	37,528			$	37,773			$	(13,548	)		$	136,515			$	60,776
Exclude net loss on sale of securities		885				—				2,310				837				2,080
Exclude change in valuation of financial instruments carried at fair value		(198		)		(45		)		1,013				(3,775		)		2,844
Exclude acquisition-related costs		4,602				1,005				—				5,607				—
Exclude gain on sale of branches		—				—				(12,189		)		—				(12,189		)
Exclude related tax (benefit) expense		(1,159		)		(126		)		3,192				(426		)		2,615
Exclude tax adjustments related to tax reform and valuation reserves		(4,207		)		—				42,630				(4,207		)		42,630
Total earnings from core operations (non-GAAP)		$	37,451			$	38,607			$	23,408			$	134,551			$	98,756
Diluted earnings (loss) per share (GAAP)		$	1.09			$	1.17			$	(0.41	)		$	4.15			$	1.84
Diluted core earnings per share (non-GAAP)		$	1.09			$	1.19			$	0.71			$	4.09			$	2.99

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
ADJUSTED EFFICIENCY RATIO		Quarters Ended												Twelve months ended
		Dec 31, 2018				Sep 30, 2018				Dec 31, 2017				Dec 31, 2018				Dec 31, 2017
Non-interest expense (GAAP)		$	95,396			$	81,632			$	82,501			$	341,371			$	318,970
Exclude acquisition-related costs		(4,602		)		(1,005		)		—				(5,607		)		—
Exclude CDI amortization		(1,935		)		(1,348		)		(1,457		)		(6,047		)		(6,246		)
Exclude state/municipal tax expense		(854		)		(902		)		(737		)		(3,284		)		(2,594		)
Exclude REO (loss) gain		(251		)		(433		)		941				(804		)		2,030
Adjusted non-interest expense (non-GAAP)		$	87,754			$	77,944			$	81,248			$	325,629			$	312,160
Net interest income before provision for loan losses (GAAP)		$	117,459			$	109,078			$	98,264			$	430,973			$	393,034
Non-interest income (GAAP)		21,018				20,411				27,674				84,008				85,200
Total revenue		138,477				129,489				125,938				514,981				478,234
Exclude net loss on sale of securities		885				—				2,310				837				2,080
Exclude net change in valuation of financial instruments carried at fair value		(198		)		(45		)		1,013				(3,775		)		2,844
Exclude gain on sale of branches		—				—				(12,189		)		—				(12,189		)
Adjusted revenue (non-GAAP)		$	139,164			$	129,444			$	117,072			$	512,043			$	470,969
Efficiency ratio (GAAP)		68.89		%		63.04		%		65.51		%		66.29		%		66.70		%
Adjusted efficiency ratio (non-GAAP)		63.06		%		60.21		%		69.40		%		63.59		%		66.28		%

TANGIBLE COMMON SHAREHOLDERS' EQUITY TO TANGIBLE ASSETS		Dec 31, 2018				Sep 30, 2018				Dec 31, 2017
Shareholders' equity (GAAP)		$	1,470,315			$	1,272,198			$	1,272,626
Exclude goodwill and other intangible assets, net		363,798				261,158				265,314
Tangible common shareholders' equity (non-GAAP)		$	1,106,517			$	1,011,040			$	1,007,312
Total assets (GAAP)		$	11,863,037			$	10,514,303			$	9,763,209
Exclude goodwill and other intangible assets, net		363,798				261,158				265,314
Total tangible assets (non-GAAP)		$	11,499,239			$	10,253,145			$	9,497,895
Common shareholders' equity to total assets (GAAP)		12.39		%		12.10		%		13.03		%
Tangible common shareholders' equity to tangible assets (non-GAAP)		9.62		%		9.86		%		10.61		%
TANGIBLE COMMON SHAREHOLDERS' EQUITY PER SHARE
Tangible common shareholders' equity		$	1,106,517			$	1,011,040			$	1,007,312
Common shares outstanding at end of period		35,182,772				32,402,757				32,726,485
Common shareholders' equity (book value) per share (GAAP)		$	41.79			$	39.26			$	38.89
Tangible common shareholders' equity (tangible book value) per share (non-GAAP)		$	31.45			$	31.20			$	30.78

CONTACT:	MARK J. GRESCOVICH,
	PRESIDENT & CEO
	PETER J. CONNER, CFO
	[phone]