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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 (866) 235-9915 to participate in the call.  A replay will be available for one week at (877) 344-7529 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 ...