Banner Corporation Earns $85.4 Million, Or $2.52 Per Diluted Share In 2016; Net Income Totaled $22.8 Million, Or $0.69 Per Diluted Share, In The Fourth Quarter Of 2016; Highlighted By Continued Revenue Growth And An Expanded Net Interest Margin

WALLA WALLA, Wash., Jan. 25, 2017 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM:BANR), the parent company of Banner Bank and Islanders Bank, today reported continued strong revenue generation contributed to solid fourth quarter and full year 2016 operating results.  Net income in the fourth quarter of 2016 was $22.8 million, or $0.69 per diluted share, compared to $23.9 million, or $0.70 per diluted share, in the preceding quarter and $6.9 million, or $0.20 per diluted share, in the fourth quarter a year ago.  The current quarter results were impacted by $788,000 of acquisition-related expenses which, net of tax benefit, reduced net income by $0.02 per diluted share.  The results for the preceding quarter included $1.7 million of acquisition-related expenses which, net of tax benefit, reduced net income by $0.03 per diluted share, while operating results in the fourth quarter a year ago included $18.4 million of acquisition-related expenses which, net of tax benefit, reduced net income by $0.37 per diluted share.

For the year ended December 31, 2016, net income increased to $85.4 million, or $2.52 per diluted share, compared to $45.2 million, or $1.89 per diluted share, for the year ended December 31, 2015.  Acquisition-related expenses were $11.7 million (or $0.22, net of tax, per diluted share) for 2016, compared to $26.1 million (or $0.76, net of tax, per diluted share) for 2015.

"Our 2016 operating performance continued to reflect the success of our proven client acquisition, balance sheet management and product pricing strategies, which produced solid core revenue and additional core deposit growth," stated Mark J. Grescovich, President and Chief Executive Officer.  "We also benefited from the successful completion of the integration of the AmericanWest Bank acquisition, which made a dramatic impact on our scale and reach and is providing enhanced opportunity for future client and revenue growth.  During the fourth quarter, we made additional progress in generating operating synergies as a result of the consolidation of overlapping locations and integration of operational activities earlier in the year.  However, during the quarter we also incurred increased expenses related to enhanced infrastructure and regulatory compliance costs as we prepared to cross the threshold of $10 billion in total assets.  While increasing regulatory costs are a significant headwind as we enter 2017, through the hard work of our employees across the franchise, we expect to continue successfully executing on our strategies and priorities to deliver sustainable profitability and revenue growth to our shareholders while maintaining our moderate risk profile."

At December 31, 2016, Banner Corporation had $9.79 billion in assets, $7.37 billion in net loans and $8.12 billion in deposits.  The Company operates 190 branch offices located in nine of the top 20 largest western Metropolitan Statistical Areas by population.

Fourth Quarter 2016 Highlights
  • Net income was $22.8 million, compared to $23.9 million in the preceding quarter and increased substantially compared to $6.9 million in the fourth quarter of 2015.
  • Return on average assets was 0.92% in the current quarter, 0.96% in the preceding quarter and 0.28% in the same quarter a year ago.
  • Acquisition-related expenses were $788,000 which, net of tax benefit, reduced net income by $0.02 per diluted share for the fourth quarter of 2016.
  • Revenues from core operations* were $117.5 million, the same as in the preceding quarter and increased 5% compared to $112.0 million in the fourth quarter a year ago.
  • Net interest margin was 4.32% for the current quarter, compared to 4.15% in the preceding quarter and 4.05% in the fourth quarter a year ago.
  • Excluding the impact of acquisition accounting adjustments, the net interest margin was 4.13%*, compared to 4.01%* in the third quarter and was 3.89%* in the fourth quarter a year ago.
  • Deposit fees and other service charges were $12.2 million, compared to $12.9 million in the preceding quarter and $13.2 million in the same quarter a year ago.
  • Revenues from mortgage banking operations were $5.1 million compared to $8.1 million in the preceding quarter and $4.5 million in the fourth quarter a year ago.
  • Provision for loan losses was $2.0 million, increasing the allowance for loan losses to $86.0 million or 1.15% of total loans.
  • Core deposits increased 1% during the current quarter and represented 87% of total deposits at December 31, 2016.
  • Quarterly dividends to shareholders were $0.23 per share, providing a current yield of 1.6% based on our December 31, 2016 closing price.
  • Repurchased 1,145,250 shares of common stock at an average price of $44.29 per share during the year 2016, including 660,900 shares at an average price per share of $44.86 during the fourth quarter.
  • Common shareholders' tangible equity per share* was $31.06 at December 31, 2016, compared to $31.14 at the preceding quarter end and $29.64 a year ago.
  • The ratio of tangible common shareholders' equity to tangible assets* remained strong at 10.83% at December 31, 2016, compared to 11.03% at the preceding quarter end and 10.67% a year ago.

*Revenues from core operations and non-interest income from core operations (both of which exclude fair value adjustments and gains and losses on the sale of securities), acquisition accounting impact on net interest margin, non-interest expense from core operations (which excludes acquisition-related costs), the adjusted allowance for loan losses to adjusted loans (which includes net loan discounts on acquired loans) and references to tangible common stockholders' equity per share and the ratio of tangible common equity to tangible assets (both of which exclude goodwill and other intangible assets, net) 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 three pages of this press release.

Acquisition of AmericanWest Bank

Effective October 1, 2015, Banner completed the acquisition of Starbuck Bancshares, Inc. ("Starbuck") and its wholly owned subsidiary AmericanWest Bank.  The merger was accounted for using the acquisition method of accounting.  Accordingly, the acquired assets (including identifiable intangible assets) and assumed liabilities of Starbuck were recognized 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 allocated 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 was subject to adjustment within a post-closing measurement period of one year from the acquisition date.  During the fourth quarter of 2016, there were no post-closing adjustments to goodwill as the measurement period has lapsed; however, post-closing adjustments reduced goodwill by $3.2 million during the year ended December 31, 2016.

In addition to the acquisition of AmericanWest Bank, the acquisition of Siuslaw Financial Group and its wholly-owned subsidiary Siuslaw Bank ("Siuslaw") on March 6, 2015 had an impact on the current and historical operating results of Banner.  For additional details regarding acquisitions and merger related expenses, see the tables under Business Combinations on page 12 of this press release.

Income Statement Review

Banner's fourth quarter net interest income, before the provision for loan losses, increased 4% to $97.2 million, compared to $93.7 million in the preceding quarter.  Fourth quarter 2016 net interest income, before the provision for loan losses, increased 6% compared to $92.1 million in the fourth quarter a year ago.  For the year, Banner's net interest income, before the provision for loan losses, increased 55% to $375.1 million compared to $242.3 million in 2015 largely reflecting the acquisition of AmericanWest Bank and continued client acquisition.

"Our net interest margin increased 17 basis points compared to the preceding quarter and increased 27 basis points compared to the fourth quarter a year ago, as a result of higher average loan yields and increased accretion from acquisition accounting loan discounts, as well as modest changes in our asset mix and slightly reduced funding costs," said Grescovich.  "Excluding the impact of acquisition accounting, the net interest margin increased 12 basis points compared to the preceding quarter, and increased by 24 basis points compared to a year ago.*"

Net interest margin is enhanced by the amortization of acquisition accounting discounts on loans acquired in the acquisitions, which are accreted into loan interest income, as well as by net premiums on non-market-rate certificate of deposit liabilities assumed, which are amortized as a reduction to deposit interest expense.  Banner's net interest margin was 4.32% for the fourth quarter of 2016, which included 16 basis points as a result of accretion from acquisition accounting loan discounts, one basis point from the amortization of deposit premiums and two basis points as a result of the impact of the net loan acquisition discounts on average earning assets from both the AmericanWest Bank and Siuslaw acquisitions, compared to a net interest margin of 4.15% in the preceding quarter and 4.05% in the fourth quarter a year ago.  Excluding the effects of acquisition accounting, the net interest margin was 4.13%* in the fourth quarter, 4.01% in the preceding quarter and 3.89%* in the fourth quarter a year ago.

Average interest-earning asset yields increased 15 basis points to 4.49% compared to 4.34% for the preceding quarter and increased 25 basis points compared to 4.24% in the fourth quarter a year ago.  Loan yields increased 15 basis points compared to the preceding quarter and increased 21 basis points from the fourth quarter a year ago.  Loan yields were positively impacted by increased market interest rates late in the fourth quarter due primarily to the impact of the December 2016 increase in the federal funds rate and related increases in Prime and LIBOR rates.  Loan yields in the current quarter were also aided by $1.1 million in prepayment fees related to a single credit relationship.  The accretion of discounts and related balance sheet impact on the loans acquired through the acquisitions added 21 basis points to reported loan yields for the quarter.  Deposit costs decreased one basis point compared to the preceding quarter and decreased two basis points compared to the fourth quarter a year ago.  Amortization of acquisition accounting net premiums on certificates of deposit reduced the cost of deposits by two basis points in the fourth quarter of 2016.  The total cost of funds decreased one basis point to 0.18% during the fourth quarter compared to the preceding quarter and declined two basis points compared to 0.20% for the fourth quarter a year ago, reflecting the decreased deposit costs and a reduction in Federal Home Loan Bank (FHLB) advances as part of a strategy to remain below $10 billion in total assets at December 31, 2016.

"As expected, due to loan growth and the renewal of acquired loans out of the discounted loan portfolio, we recorded a $2.0 million provision for loan losses during the fourth quarter, the same as in the preceding quarter," added Grescovich.  In the fourth quarter a year ago, Banner did not record a provision.

Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, decreased significantly to $5.1 million in the fourth quarter compared to $8.1 million in the preceding quarter but increased 15% compared to $4.5 million in the fourth quarter of 2015.  For the full year, mortgage banking revenues increased 45% to $25.6 million compared to $17.7 million in 2015.  The decrease in mortgage banking revenues compared to the third quarter reflected an expected seasonal pattern for one- to four-family loans, but also reflected meaningfully narrower spreads on sales compared to exceptionally wide spread levels in the preceding quarter.  In addition, sales of multifamily loans were significantly less in the current quarter resulting in gains of only $254,000, while sales of multifamily loans resulted in $1.4 million of gains in the third quarter.  Home purchase activity accounted for 58% of fourth quarter one- to four-family mortgage banking loan originations.

Also reflecting seasonal factors, Banner's deposit fees and other service charges decreased 6% to $12.2 million in the fourth quarter compared to $12.9 million in the preceding quarter and, principally as a result of changes in certain fee structures for accounts acquired in the AmericanWest Bank merger, decreased 7% compared to $13.2 million in the fourth quarter a year ago.  Nonetheless, reflecting the significant increase in core deposits compared to a year earlier, deposit fees and other service charges increased 21% to $49.2 million for the year, compared to $40.6 million in 2015.

Total revenues were $116.6 million for the fourth quarter of 2016, compared to $117.2 million in the preceding quarter and $110.5 million in the fourth quarter a year ago.  Revenues from core operations* (revenues excluding gains and losses on the sale of securities and net change in valuation of financial instruments) was $117.5 million in the fourth quarter of 2016, the same as the preceding quarter.  Revenues from core operations* increased 5% compared to $112.0 million in the fourth quarter of 2015.  Total revenues for 2016 were $458.5 million compared to $304.6 million in 2015, with the significant increase largely attributable to the acquisition of AmericanWest Bank.  For the year ended December 31, 2016, revenues from core operations* increased 50% to $460.3 million compared to $305.9 million in 2015.

Fourth quarter 2016 results included a $1.1 million net loss for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value that was partly offset by a $311,000 net gain on the sale of securities.  In the preceding quarter, results included a $1.1 million net loss for fair value adjustments that was partly offset by a $891,000 net gain on the sale of securities.  In the fourth quarter a year ago, results included a $1.5 million net loss for fair value adjustments and a $3,000 net loss on the sale of securities.  In 2016 results included a $2.6 million net loss for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value that was partly offset by an $843,000 net gain on the sale of securities.  A year ago, results included an $813,000 net loss for fair value adjustments and a $540,000 net loss on the sale of securities.

Total non-interest income, which includes the changes in the valuation of financial instruments carried at fair value and gains and losses on the sale of securities, was $19.5 million in the fourth quarter of 2016, compared to $23.5 million in the third quarter of 2016 and $18.4 million in the fourth quarter a year ago.  Non-interest income from core operations,* which excludes gains and losses on sale of securities and net changes in the valuation of financial instruments, was $20.3 million in the fourth quarter of 2016, compared to $23.7 million for the third quarter of 2016 and $19.9 million in the fourth quarter a year ago.  For the year ended December 31, 2016, Banner's total non-interest income was $83.5 million compared to $62.3 million a year ago and non-interest income from core operations* was $85.2 million compared to $63.6 million for the same periods, respectively.

Banner's total non-interest expenses were $79.9 million in the fourth quarter of 2016, compared to $79.1 million in the preceding quarter and $100.3 million in the fourth quarter of 2015.  For the year, total non-interest expenses were $322.9 million compared to $236.6 million in 2015.  The year's increase in non-interest expenses was largely attributable to the incremental costs associated with operating the branches and the related operations acquired in the AmericanWest Bank merger on October 1, 2015, as well as generally increased compensation, occupancy and payment and card processing services reflecting increased transaction volume.  The current quarter's non-interest expenses also included increased advertising and marketing expenses, elevated costs for professional services largely as result of seasonal factors relating to accounting, audit and examination processes, and costs incurred in anticipation of enhanced regulatory compliance requirements. There was $788,000 in acquisition-related expenses in the current quarter compared to $1.7 million in the preceding quarter and $18.4 million in the fourth quarter a year ago.

For the fourth quarter of 2016, Banner recorded $11.9 million in state and federal income tax expense for an effective tax rate of 34.4%, which reflects normal statutory tax rates reduced by the effect of tax-exempt income and certain tax credits.

Balance Sheet Review

As part of Banner's previously announced strategy to maintain total assets below $10.0 billion through the year 2016, total assets decreased to $9.79 billion at December 31, 2016, from $9.84 billion at September 30, 2016 and $9.80 billion a year ago.  The total of securities and interest-bearing deposits held at other banks was $1.16 billion at December 31, 2016, compared to $1.39 billion at September 30, 2016 and $1.54 billion a year ago.  The decrease in the securities portfolio during the current quarter reflects the temporary deleveraging strategy.  The average effective duration of Banner's securities portfolio was approximately 3.8 years at December 31, 2016 compared to 3.3 years at December 31, 2015.

"Total loans increased again during the quarter, with good production in targeted loan types, including increases in commercial real estate and construction and development loans.  The regional economy remains solid and we continue to see significant potential for growth in our loan origination pipelines," said Grescovich.

Net loans receivable increased 1% to $7.37 billion at December 31, 2016, compared to $7.31 billion at September 30, 2016 and increased 2% compared to $7.24 billion a year ago.  Commercial real estate and multifamily real estate loans increased 2% to $3.59 billion at December 31, 2016, compared to $3.53 billion at September 30, 2016, but increased modestly compared to $3.57 billion a year ago, reflecting significant sales earlier in the year of multifamily loans acquired in the AmericanWest Bank merger, which had been held for investment.  Commercial business loans increased 2% to $1.21 billion at December 31, 2016, compared to $1.19 billion three months earlier but were unchanged compared to a year ago.  Agricultural business loans, which are seasonal by nature, decreased to $369.2 million at December 31, 2016, compared to $383.3 million three months earlier and $376.5 million a year ago.  Total construction, land and land development loans increased 3% to $823.1 million at December 31, 2016, compared to $797.3 million at September 30, 2016, and increased 43% compared to $574.4 million a year earlier.  One- to four-family loans continued to decline as a result of repayments, with nearly all newly originated mortgage loans being sold in the secondary market.

Loans held for sale increased significantly to $246.4 million at December 31, 2016, compared to $123.1 million at September 30, 2016 and $44.7 million at December 31, 2015, principally as a result of multifamily loan originations that outpaced loan sales.  Loans held for sale at December 31, 2016, included $216.3 million of multifamily loans and $30.1 million of one- to four-family loans.

Total deposits were $8.12 billion at December 31, 2016, a modest increase compared to $8.11 billion at September 30, 2016, and $8.06 billion a year ago.  In connection with certain product changes earlier in the year, Banner converted approximately $420 million of former AmericanWest Bank interest-bearing deposits to non-interest-bearing deposits during the first quarter of 2016.  As a result of the product changes as well as organic growth, non-interest-bearing account balances increased 20% to $3.14 billion at December 31, 2016, compared to $2.62 billion a year ago.  Interest-bearing transaction and savings accounts decreased 4% to $3.94 billion compared to $4.08 billion a year ago as the product change more than offset organic growth.  Certificates of deposit decreased 23% to $1.05 billion at December 31, 2016, compared to $1.35 billion a year earlier.  Brokered deposits totaled $34.1 million at December 31, 2016, compared to $60.3 million at September 30, 2016 and $162.9 million a year ago.

In part reflecting expected seasonal trends but also as a result of additional account growth, core deposits (non-interest bearing and interest-bearing transaction and savings accounts) increased by 1% during the current quarter.  Core deposits represented 87% of total deposits at December 31, 2016, compared to 86% of total deposits at September 30, 2016 and 83% of total deposits a year earlier.  As a result of this improved deposit mix, as well as modest pricing adjustments, the cost of deposits was 0.13% for the quarter ended December 31, 2016, a one basis point decline compared to the preceding quarter, and a two basis points decline compared to the quarter ended December 31, 2015.

At December 31, 2016, total common shareholders' equity was $1.31 billion, or $39.34 per share, compared to $1.33 billion at September 30, 2016 and $1.30 billion a year ago.  The decrease in shareholders' equity compared to the prior quarter primarily reflects the repurchase of 660,900 shares of common stock at an average price of $44.86 per share as well as the $0.23 per share quarterly dividend, which was partially offset by net income for the quarter.  The decrease in shareholders' equity for the quarter also reflects an adverse change of $11.5 million in other comprehensive income for the quarter principally related to changes in the value securities available for sale as a result of increased market interest rates.  At December 31, 2016, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, was $1.03 billion, or 10.83% of tangible assets*, compared to $1.05 billion, or 11.03% of tangible assets, at September 30, 2016, and $1.01 billion, or 10.67% of tangible assets, a year ago.  Banner's tangible book value per share* increased to $31.06 at December 31, 2016, compared to $29.64 per share a year ago.

Banner Corporation 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, 2016, Banner Corporation's common equity Tier 1 capital ratio was 11.13%, its Tier 1 leverage capital to average assets ratio was 11.83%, and its total capital to risk-weighted assets ratio was 13.32%.

Credit Quality

In accordance with acquisition accounting, loans acquired from AmericanWest Bank and Siuslaw were recorded at their estimated fair value, which resulted in a net discount to the loans' contractual amounts, of which a portion 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.  Although the discount recorded on the acquired loans is not reflected in the allowance for loan losses or related allowance coverage ratios, we believe it should be considered when comparing the current ratios to similar ratios in periods prior to the acquisitions of AmericanWest Bank and Siuslaw.

The allowance for loan losses was $86.0 million at December 31, 2016, or 1.15% of total loans outstanding and 381% of non-performing loans compared to $78.0 million at December 31, 2015, or 1.07% of total loans outstanding and 512% of non-performing loans.  Banner had net charge-offs of $253,000 in the fourth quarter compared to net recoveries of $902,000 in the third quarter of 2016 and net recoveries of $688,000 in the fourth quarter a year ago.  Primarily as a result of loan growth and the renewal of acquired loans out of the discounted loan portfolio, Banner recorded a $2.0 million provision for loan losses in the current quarter which was the same amount as recorded in the prior quarter.  Banner did not record a provision for the fourth quarter of 2015.  If the allowance for loan losses included the remaining loan discount*, the adjusted allowance for loan losses to adjusted loans would have been 1.57% as of December 31, 2016 as compared to 1.65% a year ago.  Non-performing loans were $22.6 million at December 31, 2016, compared to $27.3 million at September 30, 2016 and $15.2 million a year ago.  Real estate owned and other repossessed assets were $11.2 million at December 31, 2016, compared to $4.9 million at September 30, 2016, and $11.9 million a year ago.

Banner's non-performing assets were $33.8 million, or 0.35% of total assets, at December 31, 2016, compared to $32.2 million, or 0.33% of total assets, at September 30, 2016 and $27.1 million, or 0.28% of total assets, a year ago.  In addition to non-performing assets, purchased credit-impaired loans decreased to $32.3 million at December 31, 2016, compared to $38.7 million at September 30, 2016, and $58.6 million a year ago.

Conference Call

Banner will host a conference call on Thursday, January 26, 2017, at 8:00 a.m. PST, to discuss its fourth quarter results.  To listen to the call on-line, go to www.bannerbank.com.  Investment professionals are invited to dial (866) 235-9915 to participate in the call.  A replay will be available for one week at (877) 344-7529 using access code 10098018, or at www.bannerbank.com.

About the Company

On October 1, 2015, Banner Corporation completed the acquisition of AmericanWest Bank which was merged into Banner Bank, a transformational merger that brought together two financially strong, well-respected institutions and created a leading Western bank.  Banner Corporation is now a $9.8 billion bank holding company operating two commercial banks in five 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 "believe," "will," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "plans," 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 merger of Banner Bank and Siuslaw Bank and the merger of Banner Bank and AmericanWest Bank 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 the Company'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, Utah 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, 2016   Sep 30, 2016   Dec 31, 2015   Dec 31, 2016   Dec 31, 2015
                     
INTEREST INCOME:                    
Loans receivable   $ 93,915     $ 89,805     $ 88,100     $ 359,612     $ 237,292  
Mortgage-backed securities   3,861     4,803     5,440     19,328     9,049  
Securities and cash equivalents   3,231     3,241     2,955     12,537     8,092  
    101,007     97,849     96,495     391,477     254,433  
INTEREST EXPENSE:                    
Deposits   2,604     2,784     3,146     11,105     8,385  
Federal Home Loan Bank advances   79     256     287     953     311  
Other borrowings   76     82     73     310     211  
Junior subordinated debentures   1,077     1,019     890     4,040     3,247  
    3,836     4,141     4,396     16,408     12,154  
Net interest income before provision for loan losses   97,171     93,708     92,099     375,069     242,279  
PROVISION FOR LOAN LOSSES   2,030     2,000         6,030      
Net interest income   95,141     91,708     92,099     369,039     242,279  
NON-INTEREST INCOME:                    
Deposit fees and other service charges   12,199     12,927     13,172     49,156     40,607  
Mortgage banking operations   5,143     8,141     4,482     25,552     17,720  
Bank owned life insurance   893     1,333     1,056     4,538     2,497  
Miscellaneous   2,065     1,344     1,196     6,001     2,821  
    20,300     23,745     19,906     85,247     63,645  
Net gain (loss) on sale of securities   311     891     (3 )   843     (540 )
Net change in valuation of financial instruments carried at fair value   (1,148 )   (1,124 )   (1,547 )   (2,620 )   (813 )
Total non-interest income   19,463     23,512     18,356     83,470     62,292  
NON-INTEREST EXPENSE:                    
Salary and employee benefits   44,387     44,758     49,225     180,883     127,282  
Less capitalized loan origination costs   (4,785 )   (4,953 )   (4,007 )   (18,895 )   (14,379 )
Occupancy and equipment   12,581     10,979     11,533     45,000     30,366  
Information / computer data services   4,674     4,836     5,365     19,281     12,110  
Payment and card processing services   5,440     5,878     5,504     21,604     16,430  
Professional services   2,384     2,258     2,341     8,120     4,828  
Advertising and marketing   3,220     2,282     1,882     9,709     7,649  
Deposit insurance   1,012     890     1,284     4,551     3,189  
State/municipal business and use taxes   952     956     505     3,516     1,889  
Real estate operations   (338 )   (21 )   207     175     397  
Amortization of core deposit intangibles   1,722     1,724     1,896     7,061     3,164  
Miscellaneous   7,820     7,785     6,150     30,131     17,565  
    79,069     77,372     81,885     311,136     210,490  
Acquisition related expenses   788     1,720     18,369     11,733     26,110  
Total non-interest expense   79,857     79,092     100,254     322,869     236,600  
Income before provision for income taxes   34,747     36,128     10,201     129,640     67,971  
PROVISION FOR INCOME TAXES   11,943     12,277     3,308     44,255     22,749  
NET INCOME   $ 22,804     $ 23,851     $ 6,893     $ 85,385     $ 45,222  
Earnings per share available to common shareholders:                    
Basic   $ 0.69     $ 0.70     $ 0.20     $ 2.52     $ 1.90  
Diluted   $ 0.69     $ 0.70     $ 0.20     $ 2.52     $ 1.89  
Cumulative dividends declared per common share   $ 0.23     $ 0.23     $ 0.18     $ 0.88     $ 0.72  
Weighted average common shares outstanding:                    
Basic   33,134,222     34,045,225     33,842,350     33,820,148     23,801,373  
Diluted   33,201,333     34,124,611     33,934,426     33,853,511     23,866,621  
(Decrease) increase in common shares outstanding   (673,924 )   (483,249 )   13,279,955     (1,048,868 )   14,670,707  
                               

FINANCIAL CONDITION               Percentage Change
(in thousands except shares and per share data)   Dec 31, 2016   Sep 30, 2016   Dec 31, 2015   Prior Qtr   Prior Yr Qtr
                     
ASSETS                    
Cash and due from banks   $ 177,083     $ 161,710     $ 117,657     9.5 %   50.5 %
Interest-bearing deposits   70,636     84,207     144,260     (16.1 )%   (51.0 )%
Total cash and cash equivalents   247,719     245,917     261,917     0.7 %   (5.4 )%
Securities - trading   24,568     30,889     34,134     (20.5 )%   (28.0 )%
Securities - available for sale   800,917     1,006,414     1,138,573     (20.4 )%   (29.7 )%
Securities - held to maturity   267,873     271,975     220,666     (1.5 )%   21.4 %
Federal Home Loan Bank stock   12,506     12,826     16,057     (2.5 )%   (22.1 )%
Loans held for sale   246,353     123,144     44,712     100.1 %   451.0 %
Loans receivable   7,451,148     7,398,637     7,314,504     0.7 %   1.9 %
Allowance for loan losses   (85,997 )   (84,220 )   (78,008 )   2.1 %   10.2 %
Net loans   7,365,151     7,314,417     7,236,496     0.7 %   1.8 %
Accrued interest receivable   30,178     30,345     29,627     (0.6 )%   1.9 %
Real estate owned held for sale, net   11,081     4,717     11,627     134.9 %   (4.7 )%
Property and equipment, net   166,481     167,621     167,604     (0.7 )%   (0.7 )%
Goodwill   244,583     244,583     247,738     %   (1.3 )%
Other intangibles, net   30,162     31,934     37,472     (5.5 )%   (19.5 )%
Bank-owned life insurance   158,936     158,831     156,865     0.1 %   1.3 %
Other assets   187,160     197,415     192,810     (5.2 )%   (2.9 )%
Total assets   $ 9,793,668     $ 9,841,028     $ 9,796,298     (0.5 )%   %
LIABILITIES                                    
Deposits:                                    
Non-interest-bearing   $ 3,140,451     $ 3,190,293     $ 2,619,618     (1.6 )%   19.9 %
Interest-bearing transaction and savings accounts   3,935,630     3,798,668     4,081,580     3.6 %   (3.6 )%
Interest-bearing certificates   1,045,333     1,123,011     1,353,870     (6.9 )%   (22.8 )%
Total deposits   8,121,414     8,111,972     8,055,068     0.1 %   0.8 %
Advances from Federal Home Loan Bank at fair value   54,216     62,342     133,381     (13.0 )%   (59.4 )%
Customer repurchase agreements and other borrowings   105,685     108,911     98,325     (3.0 )%   7.5 %
Junior subordinated debentures at fair value   95,200     94,364     92,480     0.9 %   2.9 %
Accrued expenses and other liabilities   71,369     92,783     76,511     (23.1 )%   (6.7 )%
Deferred compensation   40,074     39,385     40,474     1.7 %   (1.0 )%
Total liabilities   8,487,958     8,509,757     8,496,239     (0.3 )%   (0.1 )%
SHAREHOLDERS' EQUITY                                    
Common stock   1,213,837     1,243,205     1,261,174     (2.4 )%   (3.8 )%
Retained earnings   95,328     80,053     39,615     19.1 %   140.6 %
Other components of shareholders' equity   (3,455 )   8,013     (730 )   (143.1 )%   373.3 %
Total shareholders' equity   1,305,710     1,331,271     1,300,059     (1.9 )%   0.4 %
Total liabilities and shareholders' equity   $ 9,793,668     $ 9,841,028     $ 9,796,298     (0.5 )%   %
Common Shares Issued:                                    
Shares outstanding at end of period   33,193,387     33,867,311     34,242,255          
Common shareholders' equity per share (1)   $ 39.34     $ 39.31     $ 37.97          
Common shareholders' tangible equity per share (1) (2)   $ 31.06     $ 31.14     $ 29.64          
Common shareholders' tangible equity to tangible assets (2)   10.83 %   11.03 %   10.67 %        
Consolidated Tier 1 leverage capital ratio   11.83 %   11.68 %   11.06 %        

(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 three pages of the press release tables.

ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands)                    
                Percentage Change
LOANS   Dec 31, 2016   Sep 30, 2016   Dec 31, 2015   Prior Qtr   Prior Yr Qtr
                     
Commercial real estate:                    
Owner occupied   $ 1,352,999     $ 1,340,577     $ 1,327,807     0.9 %   1.9 %
Investment properties   1,986,336     1,918,639     1,765,353     3.5 %   12.5 %
Multifamily real estate   248,150     266,883     472,976     (7.0 )%   (47.5 )%
Commercial construction   124,068     135,487     72,103     (8.4 )%   72.1 %
Multifamily construction   124,126     105,669     63,846     17.5 %   94.4 %
One- to four-family construction   375,704     363,586     278,469     3.3 %   34.9 %
Land and land development:                                    
Residential   170,004     162,029     126,773     4.9 %   34.1 %
Commercial   29,184     30,556     33,179     (4.5 )%   (12.0 )%
Commercial business   1,207,879     1,187,848     1,207,944     1.7 %   %
Agricultural business including secured by farmland   369,156     383,275     376,531     (3.7 )%   (2.0 )%
One- to four-family real estate   813,077     846,899     952,633     (4.0 )%   (14.6 )%
Consumer:                                    
Consumer secured by one- to four-family real estate   493,211     497,643     478,420     (0.9 )%   3.1 %
Consumer-other   157,254     159,546     158,470     (1.4 )%   (0.8 )%
Total loans outstanding   $ 7,451,148     $ 7,398,637     $ 7,314,504     0.7 %   1.9 %
Restructured loans performing under their restructured terms   $ 18,907     $ 17,649     $ 21,777          
Loans 30 - 89 days past due and on accrual (1)   $ 11,571     $ 12,668     $ 18,834          
Total delinquent loans (including loans on non-accrual), net (2)   $ 30,553     $ 39,543     $ 30,994          
Total delinquent loans / Total loans outstanding   0.41 %   0.53 %   0.42 %        

(1 )   Includes $470,000 of purchased credit-impaired loans at December 31, 2016 compared to $486,000 at September 30, 2016 and $4.3 million at December 31, 2015.
(2 )   Delinquent loans include $1.7 million of delinquent purchased credit-impaired loans at December 31, 2016 compared to $3.6 million at September 30, 2016 and $6.3 million at December 31, 2015.

LOANS BY GEOGRAPHIC LOCATION   Dec 31, 2016   Sep 30, 2016   Dec 31, 2015
    Amount   Percentage   Amount   Percentage   Amount   Percentage
                         
Washington   $ 3,433,617     46.1 %   $ 3,415,413     46.2 %   $ 3,343,112     45.7 %
Oregon   1,505,369     20.2 %   1,466,845     19.8 %   1,446,531     19.8 %
California   1,239,989     16.6 %   1,204,273     16.3 %   1,234,016     16.9 %
Idaho   495,992     6.7 %   517,607     7.0 %   496,870     6.8 %
Utah   283,890     3.8 %   292,088     3.9 %   325,011     4.4 %
Other   492,291     6.6 %   502,411     6.8 %   468,964     6.4 %
Total loans   $ 7,451,148     100.0 %   $ 7,398,637     100.0 %   $ 7,314,504     100.0 %

ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands)                    
    Quarters Ended   Twelve months ended
CHANGE IN THE   Dec 31, 2016   Sep 30, 2016   Dec 31, 2015   Dec 31, 2016   Dec 31, 2015
ALLOWANCE FOR LOAN LOSSES                    
Balance, beginning of period   $ 84,220     $ 81,318     $ 77,320     $ 78,008     $ 75,907  
Provision for loan losses   2,030     2,000         6,030      
Recoveries of loans previously charged off:                                        
Commercial real estate   484     34     233     582     819  
Multifamily real estate                   113  
Construction and land   903     673     578     2,171     1,811  
One- to four-family real estate   231     482     631     1,283     772  
Commercial business   218     433     143     1,993     948  
Agricultural business, including secured by farmland   20     (138 )   261     59     1,927  
Consumer   81     73     197     610     570  
    1,937     1,557     2,043     6,698     6,960  
Loans charged off:                                        
Commercial real estate   (566 )       (537 )   (746 )   (64 )
Construction and land   (616 )           (616 )   (891 )
One- to four-family real estate   (249 )   (92 )   (292 )   (375 )   (419 )
Commercial business   (305 )   (333 )       (948 )   (746 )
Agricultural business, including secured by farmland           (161 )   (567 )   (1,225 )
Consumer   (454 )   (230 )   (365 )   (1,487 )   (1,514 )
    (2,190 )   (655 )   (1,355 )   (4,739 )   (4,859 )
Net recoveries (charge-offs)   (253 )   902     688     1,959     2,101  
Balance, end of period   $ 85,997     $ 84,220     $ 78,008     $ 85,997     $ 78,008  
Net recoveries (charge-offs) / Average loans outstanding   %   0.01 %   0.01 %   0.03 %   0.04 %

ALLOCATION OF            
ALLOWANCE FOR LOAN LOSSES   Dec 31, 2016   Sep 30, 2016   Dec 31, 2015
Specific or allocated loss allowance:            
Commercial real estate   $ 20,993     $ 19,846     $ 20,716  
Multifamily real estate   1,360     1,436     4,195  
Construction and land   34,252     33,803     27,131  
One- to four-family real estate   2,238     2,190     4,732  
Commercial business   16,533     16,507     13,856  
Agricultural business, including secured by farmland   2,967     2,833     3,645  
Consumer   4,104     3,934     902  
Total allocated   82,447     80,549     75,177  
Unallocated   3,550     3,671     2,831  
Total allowance for loan losses   $ 85,997     $ 84,220     $ 78,008  
Allowance for loan losses / Total loans outstanding   1.15 %   1.14 %   1.07 %
Allowance for loan losses / Non-performing loans   381 %   309 %   512 %

ADDITIONAL FINANCIAL INFORMATION          
(dollars in thousands)          
  Dec 31, 2016   Sep 30, 2016   Dec 31, 2015
NON-PERFORMING ASSETS          
Loans on non-accrual status:          
Secured by real estate:          
Commercial $ 8,237     $ 12,776     $ 3,751  
Multifamily     30      
Construction and land 1,748     1,747     2,260  
One- to four-family 2,263     3,414     4,700  
Commercial business 3,074     2,765     2,159  
Agricultural business, including secured by farmland 3,229     3,755     697  
Consumer 1,875     1,385     703  
  20,426     25,872     14,270  
Loans more than 90 days delinquent, still on accrual:          
Secured by real estate:          
Commercial 701          
Multifamily 147     147      
Construction and land          
One- to four-family 1,233     852     899  
Commercial business         8  
Consumer 72     425     45  
  2,153     1,424     952  
Total non-performing loans 22,579     27,296     15,222  
Real estate owned (REO) 11,081     4,717     11,627  
Other repossessed assets 166     164     268  
Total non-performing assets $ 33,826     $ 32,177     $ 27,117  
Total non-performing assets to total assets 0.35 %   0.33 %   0.28 %
Purchased credit-impaired loans, net $ 32,322     $ 38,674     $ 58,600  

  Quarters Ended   Twelve months ended
REAL ESTATE OWNED Dec 31, 2016   Sep 30, 2016   Dec 31, 2015   Dec 31, 2016   Dec 31, 2015
Balance, beginning of period $ 4,717     $ 6,147     $ 6,363     $ 11,627     $ 3,352  
Additions from loan foreclosures 8,375     156     1,125     8,909     4,351  
Additions from acquisitions         5,706     400     8,231  
Additions from capitalized costs                 298  
Proceeds from dispositions of REO (2,791 )   (1,699 )   (1,585 )   (10,812 )   (4,740 )
Gain on sale of REO 852     281     18     1,833     351  
Valuation adjustments in the period (72 )   (168 )       (876 )   (216 )
Balance, end of period $ 11,081     $ 4,717     $ 11,627     $ 11,081     $ 11,627  

ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands)                    
                     
DEPOSIT COMPOSITION               Percentage Change
    Dec 31, 2016   Sep 30, 2016   Dec 31, 2015   Prior Qtr   Prior Yr
                     
Non-interest-bearing   $ 3,140,451     $ 3,190,293     $ 2,619,618     (1.6 )%   19.9 %
Interest-bearing checking   914,484     853,594     1,159,846     7.1 %   (21.2 )%
Regular savings accounts   1,523,391     1,387,123     1,284,642     9.8 %   18.6 %
Money market accounts   1,497,755     1,557,951     1,637,092     (3.9 )%   (8.5 )%
Total interest-bearing transaction and savings accounts   3,935,630     3,798,668     4,081,580     3.6 %   (3.6 )%
Interest-bearing certificates   1,045,333     1,123,011     1,353,870     (6.9 )%   (22.8 )%
Total deposits   $ 8,121,414     $ 8,111,972     $ 8,055,068     0.1 %   0.8 %

GEOGRAPHIC CONCENTRATION OF DEPOSITS   Dec 31, 2016   Sep 30, 2016   Dec 31, 2015
    Amount   Percentage   Amount   Percentage   Amount   Percentage
Washington   $ 4,347,644     53.6 %   $ 4,283,522     52.8 %   $ 4,219,304     52.4 %
Oregon   1,708,973     21.0 %   1,737,754     21.4 %   1,648,421     20.4 %
California   1,469,748     18.1 %   1,491,903     18.4 %   1,592,365     19.8 %
Idaho   447,019     5.5 %   435,090     5.4 %   435,099     5.4 %
Utah   148,030     1.8 %   163,703     2.0 %   159,879     2.0 %
Total deposits   $ 8,121,414     100.0 %   $ 8,111,972     100.0 %   $ 8,055,068     100.0 %

INCLUDED IN TOTAL DEPOSITS   Dec 31, 2016   Sep 30, 2016   Dec 31, 2015
Public non-interest-bearing accounts   $ 92,789     $ 86,207     $ 85,489  
Public interest-bearing transaction & savings accounts   128,976     115,458     123,941  
Public interest-bearing certificates   25,650     26,734     31,281  
Total public deposits   $ 247,415     $ 228,399     $ 240,711  
Total brokered deposits   $ 34,074     $ 60,290     $ 162,936  

ADDITIONAL FINANCIAL INFORMATION        
(in thousands)        
         
BUSINESS COMBINATIONS        
ACQUISITION OF STARBUCK BANCSHARES, INC.   October 1, 2015
         
Cash paid       $ 130,000  
Fair value of common shares issued       630,674  
Total consideration       760,674  
         
Fair value of assets acquired:        
Cash and cash equivalents   $ 95,821      
Securities   1,037,238      
Loans receivable   2,999,130      
Real estate owned held for sale   6,105      
Property and equipment   66,728      
Core deposit intangible   33,500      
Deferred tax asset   108,454      
Other assets   113,009      
Total assets acquired   4,459,985      
         
Fair value of liabilities assumed:        
Deposits   3,638,596      
FHLB advances   221,442      
Junior subordinated debentures   5,806      
Other liabilities   56,359      
Total liabilities assumed   3,922,203      
Net assets acquired       537,782  
Goodwill       $ 222,892  

MERGER AND ACQUISITION EXPENSE Quarters Ended   Twelve months ended
  Dec 31, 2016   Sep 30, 2016   Dec 31, 2015   Dec 31, 2016   Dec 31, 2015
By expense category:                  
Personnel severance/retention fees $ 80     $ 16     $ 6,134     $ 1,384     $ 6,577  
Professional services 92     687     5,757     2,230     11,169  
Branch consolidation and other occupancy expenses 73     94     976     2,590     1,031  
Client communications 254     527     306     1,158     527  
Information/computer data services 81     459     2,069     2,490     2,875  
Payment and processing 13         12     197     28  
Miscellaneous 195     (63 )   3,115     1,684     3,903  
Total merger and acquisition expense $ 788     $ 1,720     $ 18,369     $ 11,733     $ 26,110  
                   
By acquisition:                  
Siuslaw Financial Group     1     133     95     2,000  
Starbuck Bancshares, Inc. (AmericanWest Bank) 788     1,719     18,236     11,638     24,110  
Total merger and acquisition expense $ 788     $ 1,720     $ 18,369     $ 11,733     $ 26,110  

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, 2016   Amount   Ratio   Amount   Ratio   Amount   Ratio
                         
Banner Corporation-consolidated:                        
Total capital to risk-weighted assets   $ 1,214,913     13.32 %   $ 729,663     8.00 %   $ 912,079     10.00 %
Tier 1 capital to risk-weighted assets   1,125,267     12.34 %   547,248     6.00 %   547,248     6.00 %
Tier 1 leverage capital to average assets   1,125,267     11.83 %   380,519     4.00 %     n/a     n/a  
Common equity tier 1 capital to risk-weighted assets   1,014,994     11.13 %   410,436     4.50 %     n/a     n/a  
                                       
Banner Bank:                                          
Total capital to risk-weighted assets   1,043,837     11.70 %   713,984     8.00 %   892,480     10.00 %
Tier 1 capital to risk-weighted assets   956,298     10.72 %   535,488     6.00 %   713,984     8.00 %
Tier 1 leverage capital to average assets   953,298     10.34 %   369,936     4.00 %   462,420     5.00 %
Common equity tier 1 capital to risk-weighted assets   956,298     10.72 %   401,616     4.50 %   580,112     6.50 %
                                     
Islanders Bank:                                          
Total capital to risk-weighted assets   35,207     18.45 %   15,266     8.00 %   19,082     10.00 %
Tier 1 capital to risk-weighted assets   33,099     17.35 %   11,449     6.00 %   15,266     8.00 %
Tier 1 leverage capital to average assets   33,099     12.72 %   10,405     4.00 %   13,006     5.00 %
Common equity tier 1 capital to risk-weighted assets   33,099     17.35 %   8,587     4.50 %   12,403     6.50 %

ADDITIONAL FINANCIAL INFORMATION  
(dollars in thousands)  
(rates / ratios annualized)  
                         
ANALYSIS OF NET INTEREST SPREAD Quarter Ended  
  December 31, 2016   September 30, 2016   December 31, 2015  
  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:                        
Mortgage loans $ 5,960,506   $ 74,538   4.97 %   $ 5,843,381   $ 70,223   4.78 %   $ 5,785,986   $ 69,552   4.77 %  
Commercial/agricultural loans 1,469,407   17,192   4.65 %   1,495,611   17,373   4.62 %   1,469,445   16,303   4.40 %  
Consumer and other loans 141,133   2,185   6.16 %   142,977   2,209   6.15 %   142,599   2,245   6.25 %  
Total loans (1) 7,571,046   93,915   4.93 %   7,481,969   89,805   4.78 %   7,398,030   88,100   4.72 %  
Mortgage-backed securities 796,625   3,861   1.93 %   920,560   4,803   2.08 %   1,025,612   5,440   2.10 %  
Other securities 469,377   3,062   2.60 %   472,159   3,050   2.57 %   457,521   2,787   2.42 %  
Interest-bearing deposits with banks 91,625   95   0.41 %   86,868   98   0.45 %   129,797   76   0.23 %  
FHLB stock 11,668   74   2.52 %   16,413   93   2.25 %   17,268   92   2.11 %  
Total investment securities 1,369,295   7,092   2.06 %   1,496,000   8,044   2.14 %   1,630,198   8,395   2.04 %  
Total interest-earning assets 8,940,341   101,007   4.49 %   8,977,969   97,849   4.34 %   9,028,228   96,495   4.24 %  
Non-interest-earning assets 904,846         913,991         870,169        
Total assets $ 9,845,187         $ 9,891,960         $ 9,898,397        
Deposits:                        
Interest-bearing checking accounts $ 876,904   197   0.09 %   $ 837,930   188   0.09 %   $ 1,127,541   234   0.08 %  
Savings accounts 1,470,548   493   0.13 %   1,371,911   449   0.13 %   1,595,451   420   0.10 %  
Money market accounts 1,541,258   677   0.17 %   1,564,906   749   0.19 %   1,311,383   881   0.27 %  
Certificates of deposit 1,089,337   1,237   0.45 %   1,173,630   1,398   0.47 %   1,418,774   1,611   0.45 %  
Total interest-bearing deposits 4,978,047   2,604   0.21 %   4,948,377   2,784   0.22 %   5,453,149   3,146   0.23 %  
Non-interest-bearing deposits 3,193,172     %   3,120,279     %   2,665,676     %  
Total deposits 8,171,219   2,604   0.13 %   8,068,656   2,784   0.14 %   8,118,825   3,146   0.15 %  
Other interest-bearing liabilities:                                          
FHLB advances 32,932   79   0.95 %   152,198   256   0.67 %   178,399   287   0.64 %  
Other borrowings 107,819   76   0.28 %   111,016   82   0.29 %   99,515   73   0.29 %  
Junior subordinated debentures 140,212   1,077   3.06 %   140,212   1,019   2.89 %   140,212   890   2.52 %  
Total borrowings 280,963   1,232   1.74 %   403,426   1,357   1.34 %   418,126   1,250   1.19 %  
Total funding liabilities 8,452,182   3,836   0.18 %   8,472,082   4,141   0.19 %   8,536,951   4,396   0.20 %  
Other non-interest-bearing liabilities (2) 67,536         68,566         54,967        
Total liabilities 8,519,718         8,540,648         8,591,918        
Shareholders' equity 1,325,469         1,351,312         1,306,479        
Total liabilities and shareholders' equity $ 9,845,187         $ 9,891,960         $ 9,898,397        
Net interest income/rate spread   $ 97,171   4.31 %     $ 93,708   4.15 %     $ 92,099   4.04 %  
Net interest margin     4.32 %       4.15 %       4.05 %  
Additional Key Financial Ratios:                                              
Return on average assets     0.92 %       0.96 %       0.28 %  
Return on average equity     6.84 %       7.02 %       2.09 %  
Average equity/average assets     13.46 %       13.66 %       13.20 %  
Average interest-earning assets/average interest-bearing liabilities     170.00 %       167.76 %       153.77 %  
Average interest-earning assets/average funding liabilities     105.78 %       105.97 %       105.75 %  
Non-interest income/average assets     0.79 %       0.95 %       0.74 %  
Non-interest expense/average assets     3.23 %       3.18 %       4.02 %  
Efficiency ratio (4)     68.47 %       67.47 %       90.76 %  
Adjusted efficiency ratio (5)     65.32 %       63.61 %       70.78 %  
                               
(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 core deposit intangibles (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 four pages of the press release tables.

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
               
ANALYSIS OF NET INTEREST SPREAD Twelve months ended
  December 31, 2016   December 31, 2015
  Average Balance Interest and Dividends Yield/Cost (3)   Average Balance Interest and Dividends Yield/Cost (3)
Interest-earning assets:              
Mortgage loans $ 5,807,397   $ 282,419   4.86 %   $ 3,754,386   $ 183,260   4.88 %
Commercial/agricultural loans 1,485,390   68,405   4.61 %   1,076,440   46,053   4.28 %
Consumer and other loans 141,460   8,788   6.21 %   130,367   7,979   6.12 %
Total loans (1) 7,434,247   359,612   4.84 %   4,961,193   237,292   4.78 %
Mortgage-backed securities 931,111   19,328   2.08 %   490,002   9,049   1.85 %
Other securities 454,977   11,814   2.60 %   311,701   7,646   2.45 %
Interest-bearing deposits with banks 94,456   395   0.42 %   122,479   334   0.27 %
FHLB stock 16,119   328   2.03 %   16,768   112   0.67 %
Total investment securities 1,496,663   31,865   2.13 %   940,950   17,141   1.82 %
Total interest-earning assets 8,930,910   391,477   4.38 %   5,902,143   254,433   4.31 %
Non-interest-earning assets 904,181         413,503      
Total assets $ 9,835,091         $ 6,315,646      
Deposits:              
Interest-bearing checking accounts $ 859,621   767   0.09 %   $ 634,398   518   0.08 %
Savings accounts 1,370,014   1,796   0.13 %   1,134,849   1,511   0.13 %
Money market accounts 1,575,877   3,098   0.20 %   747,019   1,538   0.21 %
Certificates of deposit 1,208,702   5,444   0.45 %   928,545   4,818   0.52 %
Total interest-bearing deposits 5,014,214   11,105   0.22 %   3,444,811   8,385   0.24 %
Non-interest-bearing deposits 3,033,604     %   1,764,539     %
Total deposits 8,047,818   11,105   0.14 %   5,209,350   8,385   0.16 %
Other interest-bearing liabilities:                          
FHLB advances 141,885   953   0.67 %   49,808   311   0.62 %
Other borrowings 108,427   310   0.29 %   94,176   211   0.22 %
Junior subordinated debentures 140,212   4,040   2.88 %   132,597   3,247   2.45 %
Total borrowings 390,524   5,303   1.36 %   276,581   3,769   1.36 %
Total funding liabilities 8,438,342   16,408   0.19 %   5,485,931   12,154   0.22 %
Other non-interest-bearing liabilities (2) 65,508         17,051      
Total liabilities 8,503,850         5,502,982      
Shareholders' equity 1,331,241         812,664      
Total liabilities and shareholders' equity $ 9,835,091         $ 6,315,646      
Net interest income/rate spread   $ 375,069   4.19 %     $ 242,279   4.09 %
Net interest margin     4.20 %       4.10 %
Additional Key Financial Ratios:                          
Return on average assets     0.87 %       0.72 %
Return on average equity     6.41 %       5.56 %
Average equity/average assets     13.54 %       12.87 %
Average interest-earning assets/average interest-bearing liabilities     165.24 %       158.60 %
Average interest-earning assets/average funding liabilities     105.84 %       107.59 %
Non-interest income/average assets     0.85 %       0.99 %
Non-interest expense/average assets     3.28 %       3.75 %
Efficiency ratio (4)     70.41 %       77.68 %
Adjusted efficiency ratio (5)     65.26 %       67.02 %
                   
(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 four pages of the press release tables.

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.  Where applicable, comparable earnings information using GAAP financial measures is also presented.
                   
REVENUE FROM CORE OPERATIONS Quarters Ended   Twelve months ended
  Dec 31, 2016   Sep 30, 2016   Dec 31, 2015   Dec 31, 2016   Dec 31, 2015
Net interest income before provision for loan losses $ 97,171     $ 93,708     $ 92,099     $ 375,069     $ 242,279  
Total non-interest income 19,463     23,512     18,356     83,470     62,292  
Total GAAP revenue 116,634     117,220     110,455     458,539     304,571  
Exclude net (gain) loss on sale of securities (311 )   (891 )   3     (843 )   540  
Exclude change in valuation of financial instruments carried at fair value 1,148     1,124     1,547     2,620     813  
Revenue from core operations (non-GAAP) $ 117,471     $ 117,453     $ 112,005     $ 460,316     $ 305,924  

INCOME FROM CORE OPERATIONS Quarters Ended   Twelve months ended
  Dec 31, 2016   Sep 30, 2016   Dec 31, 2015   Dec 31, 2016   Dec 31, 2015
Income before provision for taxes (GAAP) $ 34,747     $ 36,128     $ 10,201     $ 129,640     $ 67,971  
Exclude net (gain) loss on sale of securities (311 )   (891 )   3     (843 )   540  
Exclude change in valuation of financial instruments carried at fair value 1,148     1,124     1,547     2,620     813  
Exclude acquisition costs 788     1,720     18,369     11,733     26,110  
Income from core operations before provision for taxes (non-GAAP) $ 36,372     $ 38,081     $ 30,120     $ 143,150     $ 95,434  

ACQUISITION ACCOUNTING IMPACT ON NET INTEREST MARGIN Quarters Ended   Twelve months ended
  Dec 31, 2016   Sep 30, 2016   Dec 31, 2015   Dec 31, 2016   Dec 31, 2015
Net interest income before provision for loan losses (GAAP) $ 97,171     $ 93,708     $ 92,099     $ 375,069     $ 242,279  
Exclude discount accretion on purchased loans (3,635 )   (2,446 )   (2,579 )   (10,984 )   (3,566 )
Exclude premium amortization on acquired certificates of deposit (315 )   (316 )   (572 )   (1,552 )   (748 )
Net interest income before acquisition accounting impact (non-GAAP) $ 93,221     $ 90,946     $ 88,948     $ 362,533     $ 237,965  
                                       
Average interest-earning assets (GAAP) $ 8,940,341     $ 8,977,969     $ 9,028,228     $ 8,930,910     $ 5,902,143  
Exclude average net loan discount on acquired loans 32,773     36,958     43,109     38,561     17,615  
Average interest-earning assets before acquired loan discount (non-GAAP) $ 8,973,114     $ 9,014,927     $ 9,071,337     $ 8,969,471     $ 5,919,758  
                                       
Net interest margin (GAAP) 4.32 %   4.15 %   4.05 %   4.20 %   4.10 %
Exclude impact on net interest margin from discount accretion (0.16 )   (0.11 )   (0.11 )   (0.12 )   (0.06 )
Exclude impact on net interest margin from CD premium amortization (0.01 )   (0.01 )   (0.02 )   (0.02 )   (0.01 )
Exclude impact of net loan discount on average earning assets (0.02 )   (0.02 )   (0.03 )   (0.02 )   (0.01 )
Net margin before acquisition accounting impact (non-GAAP) 4.13 %   4.01 %   3.89 %   4.04 %   4.02 %

ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands except shares and per share data)                    
    Quarters Ended   Twelve months ended
    Dec 31, 2016   Sep 30, 2016   Dec 31, 2015   Dec 31, 2016   Dec 31, 2015
NON-INTEREST INCOME/EXPENSE FROM CORE OPERATIONS                    
Total non-interest income (GAAP)   $ 19,463     $ 23,512     $ 18,356     $ 83,470     $ 62,292  
Exclude net (gain) loss on sale of securities   (311 )   (891 )   3     (843 )   540  
Exclude change in valuation of financial instruments carried at fair value   1,148     1,124     1,547     2,620     813  
Non-interest income from core operations (non-GAAP)   $ 20,300     $ 23,745     $ 19,906     $ 85,247     $ 63,645  
                     
Total non-interest expense (GAAP)   $ 79,857     $ 79,092     $ 100,254     $ 322,869     $ 236,600  
Exclude acquisition related costs   (788 )   (1,720 )   (18,369 )   (11,733 )   (26,110 )
Non-interest expense from core operations (non-GAAP)   $ 79,069     $ 77,372     $ 81,885     $ 311,136     $ 210,490  

    Quarters Ended   Twelve months ended
    Dec 31, 2016   Sep 30, 2016   Dec 31, 2015   Dec 31, 2016   Dec 31, 2015
EARNINGS FROM CORE OPERATIONS                    
Net income (GAAP)   $ 22,804     $ 23,851     $ 6,893     $ 85,385     $ 45,222  
Exclude net (gain) loss on sale of securities   (311 )   (891 )   3     (843 )   540  
Exclude change in valuation of financial instruments carried at fair value   1,148     1,124     1,547     2,620     813  
Exclude acquisition-related costs   788     1,720     18,369     11,733     26,110  
Exclude related tax expense (benefit)   (585 )   (703 )   (6,425 )   (4,857 )   (8,552 )
Total earnings from core operations (non-GAAP)   $ 23,844     $ 25,101     $ 20,387     $ 94,038     $ 64,133  
                     
Diluted earnings per share (GAAP)   $ 0.69     $ 0.70     $ 0.20     $ 2.52     $ 1.89  
Diluted core earnings per share (non-GAAP)   $ 0.72     $ 0.74     $ 0.60     $ 2.78     $ 2.69  
                     
NET EFFECT OF ACQUISITION-RELATED COSTS ON EARNINGS                    
Acquisition-related costs   $ (788 )   $ (1,720 )   $ (18,369 )   $ (11,733 )   $ (26,110 )
Related tax benefit   284     619     5,867     4,217     8,065  
Total net effect of acquisition-related costs on earnings   $ (504 )   $ (1,101 )   $ (12,502 )   $ (7,516 )   $ (18,045 )
                     
Diluted weighted average shares outstanding   33,201,333     34,124,611     33,934,426     33,853,511     23,866,621  
Total net effect of acquisition-related costs on diluted weighted average earnings per share   $ (0.02 )   $ (0.03 )   $ (0.37 )   $ (0.22 )   $ (0.76 )

ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands)                    
    Quarters Ended   Twelve months ended
    Dec 31, 2016   Sep 30, 2016   Dec 31, 2015   Dec 31, 2016   Dec 31, 2015
ADJUSTED EFFICIENCY RATIO                    
Non-interest expense (GAAP)   $ 79,857     $ 79,092     $ 100,254     $ 322,869     $ 236,600  
Exclude acquisition-related costs   (788 )   (1,720 )   (18,369 )   (11,733 )   (26,110 )
Exclude CDI amortization   (1,722 )   (1,724 )   (1,896 )   (7,061 )   (3,164 )
Exclude state/municipal tax expense   (952 )   (956 )   (505 )   (3,516 )   (1,889 )
Exclude REO gain (loss)   338     21     (207 )   (175 )   (397 )
Adjusted non-interest expense (non-GAAP)   $ 76,733     $ 74,713     $ 79,277     $ 300,384     $ 205,040  
                                         
Net interest income before provision for loan losses (GAAP)   $ 97,171     $ 93,708     $ 92,099     $ 375,069     $ 242,279  
Non-interest income (GAAP)   19,463     23,512     18,356     83,470     62,292  
Total revenue   116,634     117,220     110,455     458,539     304,571  
Exclude net (gain) loss on sale of securities   (311 )   (891 )   3     (843 )   540  
Exclude net change in valuation of financial instruments carried at fair value   1,148     1,124     1,547     2,620     813  
Adjusted revenue (non-GAAP)   $ 117,471     $ 117,453     $ 112,005     $ 460,316     $ 305,924  
                                         
Efficiency ratio (GAAP)   68.47 %   67.47 %   90.76 %   70.41 %   77.68 %
Adjusted efficiency ratio (non-GAAP)   65.32 %   63.61 %   70.78 %   65.26 %   67.02 %

             
    Dec 31, 2016   Sep 30, 2016   Dec 31, 2015
TANGIBLE COMMON SHAREHOLDERS' EQUITY TO TANGIBLE ASSETS            
Shareholders' equity (GAAP)   $ 1,305,710     $ 1,331,271     $ 1,300,059  
Exclude goodwill and other intangible assets, net   274,745     276,517     285,210  
Tangible common shareholders' equity (non-GAAP)   $ 1,030,965     $ 1,054,754     $ 1,014,849  
                         
Total assets (GAAP)   $ 9,793,668     $ 9,841,028     $ 9,796,298  
Exclude goodwill and other intangible assets, net   274,745     276,517     285,210  
Total tangible assets (non-GAAP)   $ 9,518,923     $ 9,564,511     $ 9,511,088  
Common shareholders' equity to total assets (GAAP)   13.33 %   13.53 %   13.27 %
Tangible common shareholders' equity to tangible assets (non-GAAP)   10.83 %   11.03 %   10.67 %
                         
TANGIBLE COMMON SHAREHOLDERS' EQUITY PER SHARE                        
Tangible common shareholders' equity   $ 1,030,965     $ 1,054,754     $ 1,014,849  
Common shares outstanding at end of period   33,193,387     33,867,311     34,242,255  
Common shareholders' equity (book value) per share (GAAP)   $ 39.34     $ 39.31     $ 37.97  
Tangible common shareholders' equity (tangible book value) per share (non-GAAP)   $ 31.06     $ 31.14     $ 29.64  

ADDITIONAL FINANCIAL INFORMATION            
(dollars in thousands)            
    Dec 31, 2016   Sep 30, 2016   Dec 31, 2015
RATIO OF ADJUSTED ALLOWANCE FOR LOAN LOSSES TO ADJUSTED LOANS            
Loans receivable (GAAP)   $ 7,451,148     $ 7,398,637     $ 7,314,504  
Net loan discount on acquired loans   31,110     34,867     43,657  
Adjusted loans (non-GAAP)   $ 7,482,258     $ 7,433,504     $ 7,358,161  
             
Allowance for loan losses (GAAP)   $ 85,997     $ 84,220     $ 78,008  
Net loan discount on acquired loans   31,110     34,867     43,657  
Adjusted allowance for loan losses (non-GAAP)   $ 117,107     $ 119,087     $ 121,665  
             
Allowance for loan losses / Total loans (GAAP)   1.15 %   1.14 %   1.07 %
Adjusted allowance for loan losses / Adjusted loans (non-GAAP)   1.57 %   1.60 %   1.65 %

 
CONTACT:MARK J. GRESCOVICH,PRESIDENT & CEOLLOYD W. BAKER, CFO(509) 527-3636

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