Good day and welcome to the Banner Corporation’s Fourth Quarter and Full Year 2015 Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mr. Mark Grescovich, President and Chief Executive Officer. Please go ahead.

Thank you, Cathy [ph] and good morning everyone. I would also like to welcome you to the full year and fourth quarter 2015 earnings call for Banner Corporation. As is customary, joining me on the call today is Rick Barton, our Chief Credit Officer; Lloyd Baker, our Chief Financial Officer the Corporation and Albert Marshall, the Secretary of the Corporation. Also joining us today is Peter Conner, our Chief Financial Officer of Banner Bank. Albert, would you please read our forward-looking Safe Harbor statement?

Certainly. Good morning, our presentation today discusses Banner’s business outlook and will include forward-looking statements. Those statements include descriptions of management’s plans, objectives, or goals for future operations, products or services, forecast of financial or other performance measures, and statements about Banner’s general outlook for economic and other conditions. We also may make other forward-looking statements in the question-and-answer period following management’s discussion. These forward-looking statements are subject to a number of risks and uncertainties, and actual results may differ materially from those discussed today. Information on the risk factors that could cause actual results to differ are available from the earnings press release that was released yesterday and a recently filed Form 10-Q for the quarter ended September 30, 2015. Forward-looking statements are effective only as of the date they are made, and Banner assumes no obligation to update information concerning its expectations. Thank you.

Thank you, Al. As announced, Banner Corporation reported the net profit available to common shareholders of $6.9 million, or $0.20 per diluted share for the quarter ended December 31, 2015. This compared to a net profit to common shareholders of $0.62 per share for the third quarter of 2015 and $0.60 per share in the fourth quarter of 2014. Results for the quarter just ended were impacted by acquisition-related expenses which net of taxes, reduced net income by $0.37 per diluted share. For the full year ended December 31, 2015, Banner Corporation reported net income available to common share holders of $45.2 million, compared to $54.1 million for the full year of 2014. As anticipated, the full year 2015 results were adversely impacted by acquisition and merger related expenses associated with the AmericanWest and Siuslaw Bank acquisitions. Excluding the impact of merger and acquisition expenses, gains and losses on the sale of securities, changes in fair value of financial instruments and bargain purchase gains, earnings increased $13.4 million or 26% to $64.1 million in 2015 from $50.7 million in 2014. 2015 was truly a transformational year for Banner Corporation. While our core operating performance continue to reflect the success of our proven fine acquisition strategies which produce strong organic growth of loans, deposits, and core revenue, we also benefitted from the successful acquisition and integration of Siuslaw Bank in March of 2015 and the six branches in southwest Oregon that we acquired in June of 2014. In addition, the recently completed acquisition of AmericanWest Bank had a dramatic impact on the scale and reach of the Company, providing a great opportunity for future revenue growth. While there remain significant additional work to be done to complete the full integration of the two companies and achieve the expected operating synergies, we…

Thank you, Mark. As you saw in our press release and heard in Mark’s comments, fourth quarter closing of the AmericanWest Bank transaction was indeed transformational for Banner and Banner’s loan portfolio. While the loan portfolio changed dramatically in size and somewhat in mix, the risk profile of the portfolio remained moderate. My remarks this morning will focus on portfolio changes and the metrics that support its moderate risk profile. Banner’s outstanding loans now totaled $7.3 billion, $4.5 billion was originated by legacy Banner with the remaining $2.8 billion coming from the AWB portfolio. The mix of loans in the combined portfolio changed very little from the mix in the old Banner portfolio. Changes worth noting are commercial real estate concentrations grew from 15% to 18% in the owner-occupied sector. The C&I concentration fell from 19% to 16.5%, multi-family exposure grew from 5.1% to 6.6%, and most significantly residential construction and land loans decreased to 5.5% of the portfolio down from 8.5%. The portfolio remains very well diversified by loan type and has additional geographic diversity because of the new markets added to our operating footprint. The credits metrics of the new portfolio are very solid. Delinquent loans are only 47 base points total loans. Classified loans in the due portfolio, totalled $95 million or 1.3% of total loans, while slightly elevated from the batter only third quarter 2015 percentage, of 1.1% the ratio remains at a very manageable level. It is also important to note these numbers are after a comprehensive closed legal day one review of loans in the former AmericanWest Bank portfolio, Risk rated, watch for worse. As scheduled in the press release, non-performing assets are only 28 basis points of total assets, down from Banner’s third quarter 2015 level of 42 basis points. The total non-performing…

Thank you, Rick and good morning everyone. As Mark and Rick have noted in this report in our release Banner Corporation’s fourth quarter was clearly highlighted by completion of the acquisition of Starbuck Bancshares and its wholly-owned subsidiary AmericanWest Bank. At the time of closing on October 1, AmericanWest Bank had $4.5 billion in assets, $3 billion in loans and $3.6 billion in deposits, as well as 98 branches. So as I warned at the end of last quarter's call the financial statements as of December 31, 2015 are significantly changed from 90 days earlier. And of course compared to a year earlier the March 2015 acquisition of Siuslaw Bank also materially impacted the financial statements and operating results for the company. In addition to the impact of these transactions our solid financial performance in the current quarter and throughout all of 2015, continue to be highlighted by strong revenue growth, driven by significant earning asset growth, both organic and acquisition related. A solid net interest margin and increased non-interest income, including substantially increased deposit fees and service charges and strong mortgage banking revenues, all of which continue to demonstrate the successful execution of our super community bank business model and the increasing value of the Banner franchise. Similar to previous periods, fully appreciating Banner’s core operating results for the current quarter in the year ended December 31, 2015, requires a clear understanding of the impact of the merger and acquisition-related expenses and the last year’s bargain purchase gain as well as the valuation adjustments for certain financial instruments that we carry at fair value which also flow through our income statement. And earlier in the current year so modest repositioning the securities portfolio, that resulted in a small loss on a year-to date basis. For the fourth quarter of…

Thank you, Lloyd, and thank you, Rick. That concludes our prepared remarks. And Cassia, we will now open the call and we welcome your questions.

Sure, we’ll now begin the question-and-answer session. [Operator Instruction] The first question comes from Paul Miller of FBR. Please go ahead.

Hey, guys. How you’re doing? Can we go back a little bit just clarify on your provision, I know you mentioned you did not take a provision you thought you had claimed provisions, you grew the balance sheet. But can you guide us a little bit how we should be looking at provision going forward and how you should, how you might grow it or you keep it relatively flat at these levels?

Yes Paul, this is Rick Barton. As we have stated previously we don't give specific guidance on provisioning or the level of the reserve. However, I can say that when we look at the adjusted level of 1.67% that is bracketed by the range which we feel comfortable with the reserve being at. The timing as to when provisioning begins is going to depend on a couple of factors: one, the pace of organic loan growth and the mix of that growth, as well as the migration of loans out of the AmericanWest bank, Siuslaw Bank, purchase accounting pools into the reserve calculation.

Okay, and then the other question that’s been – everybody has been asking so I’m asking, on the credit quality front a lot of the buyside or the streak is concerned about some type of credit quality stuff coming out of the commercial side more than anything else. Have you seen anything in your market footprints relative to deteriorating credit?

We have not seen anything that suggests that there is a trend, we’ve had transactional events but nothing which is systemic and we have looked at the portfolio specifically with regard to some national economic trend such as the price of energy and can report our exposure to what’s going on in the oil patches extremely nominal.

Okay. Hey guys, thank you very much.

Thanks, Paul.

The next question comes from Jeff Rulis of D.A. Davidson. Please go ahead.

Thanks, Good morning.

Good morning, Jeff.

I wanted to focus on the expense side and I guess Lloyd, I don’t know if you could either catch this as progress on that, on the cost savings target of, I think you’ve mentioned $37.5 million or just kind of a core run rate on expenses and I guess if you get this quarter’s at 81.9 for the quarter. The question is, have you achieved already or realize some of the cost savings, already in the quarter and kind of could you give us an update on how far along you are ahead of the conversion?

Well, sure, Jeff. This is Lloyd. I didn’t know lot of questions in there so I try and get if you won’t. In terms of progress on the expenses of course not a lot has occurred, subsequent to, these were in the fourth quarter, because I noted we haven’t consolidated any other locations or the data processing systems in customer support services, at this point. We are scheduled to complete those migrations about midway through February this quarter, and that will really be the launch point for that, now of course so they will continue to be. As I’ve also noted in the past there is going to be some additional merger and acquisition related expenses, this will characterize them on the financial statements, which we primarily conversion related at this point in time. But the point there is it, we’re still running two operating systems and carrying the AmericanWest platform units, generally in its existing state, in the most recent quarter. So, we would anticipate as we said it will realize about 75% of the projected cost savings and we're still reasonably comfortable with that number. It’s in the range of what our projections are today. We realize about 75% of that in the current year. It should be at 100% run rate thereby the fourth quarter.

Okay. That's great. And then may be a question on the fee side, AmericanWest did have much of a mortgage operation and I guess ultimately would you intend this kind of some plan or roll out a greater level of mortgage operations at the new locations?

Well, as you might expect let me address the first while there was a seasonal slowdown in the fourth quarter that was expected. So the legacy Banner platform production dropped off about 15% to 20% in the fourth quarter, the AmericanWest platform added to that. It was not as strong as the Banner platform. But yes it indeed, we include – intend to expand that operation commensurate with the changes in the footprint of the company and the additional production resources, it did come over with respect to the acquisition.

As far as core fees and service charges were at least initially were some fees waived at AmericanWest, the following deal closing and you anticipate some maybe a more normalized growth rate or is this good base level at 13.2 for the basic fees and service charges in the quarter.

Jeff, this is Mark. There was a different philosophy at AmericanWest Bank in terms of charging fees. And you’ll recognize that our strategy at Banner has been for the last six years to this client acquisition. And we believe that we have a compelling product. That is leading to our client acquisition in our growth both in core deposits and deposit fee income. So we changed the product mix at the AmericanWest branches to mere the Banner product suite which you have an initial give up of fee income but that will jump start client acquisition as you know AmericanWest is probably that treading more accounts than anticipated given the fee structure. And we want to jump start that with a marketing strategy to reverse course and accelerate client acquisition in the payback takes a little time for that. But that’s the overall philosophy and that's why you see a little bit of seasonality and give up in the deposit fees in the quarter.

Got, it. Okay thanks. And maybe one last one Mark, just any indication on the shareholders that came over from AmericanWest on their position are they as you had communication with them on their, I guess their holdings and what their intent is any indication particularly…

Yes, we are in contact with them as you know that we also had two of their board members joined our board. So we’ve been in contact with our shareholder base and the representatives as well, and I don’t have anything more to report other than what we have filed in S-1.

Okay. I’ll step back.

Thanks Jeff.

The next question comes from Jackie Chimera of KBW. Please go ahead.

Hi, good morning everyone.

Good morning, Jackie.

Hi, Jackie.

Hi, [indiscernible] the loan growth that you had in the quarter, I’m very strong on a legacy basis. What are your plans as you ramp up the AmericanWest lenders and how to get them running up at Banner speed?

Well, Jackie, this is Mark. We’ve already begun that process that’s there has been in the tandem for several months now and introducing our sales process. We’ve had a number of meetings with the overall teams as in combination with the Banner teams and we’re rolling out the sales and credit platform to that and its been very, very well received, I think it should also be noted that, they were experiencing some strong pipeline growth themselves at AmericanWest Bank. So we’ve been able to translate that into some of our sales process. And we feel very good about how the integrations going on.

Okay. Are they – is the lending platform changing to the extent that the fee platform is changing just in terms of…

No, I would not characterize that, this is Mark again, I would not characterize it, I think it is – in similar format, although what you will see is obviously there were margin differences, loan yield differences between AmericanWest and Banner, and we’ll try to gravitate their loan yields based on mix of the portfolio and then type of business.

Okay and what type of loans did you sell from them in the quarter?

The loans that were sold, were principally out of the multi-family portfolio, AmericanWest Bank has a specialty unit, that produces permanent mortgages on existing multi-family properties and the business model all along has been to move those loans through and out of the portfolio much like the traditional mortgage banking operation.

Okay. So there could be future sales from that?

Yes, Jackie. This is Mark. I think it’s also important to note that when you do that in the quarter obviously at the closing it doesn’t show up in the fee income but it shows up when all set to get rolled.

That is actually…

So we….

If it is so though [ph] what kind of fees could we expect from something like that?

Well Jackie this is Lloyd. We expect some good fees around that, hopefully the answer that everyone is listening. It will show up in the mortgage banking revenue and the fees will be dependent on volume. I think that similar to the one to four-family operation, there margins are around 2% on sales. So if they continue to add to success they’ve had in the past, that should be an area where we will see incremental revenue. I want to follow-up just to make sure everyone is clear with what Mark said though. The sales that were executed in the fourth quarter out of that portfolio rather than record a gain or loss on those sales that the gain that was there relative to the origination values on those loans was actually an offset to goodwill, because it would be hard to argue that that wasn’t appropriate indicator of the fair value of those loans and acquisitions.

And Jackie just one more follow-up to that. I think the encouraging note here is to know that the business unit was originally setup to do exactly that. And that we were able to execute that sale which means it’s operating intentionally.

Okay. Now I'm just saying maybe I'm wrong on that. But I'm guessing that a $170 million was not only a quarter’s worth of generation. Understanding that there are seasonal trends how much generation would you expect to from a loan standpoint, would you expect that unit to produce at any given quarter?

So, Jackie this is Lloyd. They were running at about $30 million a month cliff under the AmericanWest management, and we would expect that there will be somewhere along the outline for us as well.

Okay. And then just one last one, all the borrowing repayments and security sales are those now complete or is there anymore repositioning that you are looking to do?

No, those are complete at the present time. As you know we wanted to be comfortably under $10 billion at the end of the quarter which we achieved at $9.8 billion and postponing any impact at Durbin for at least another year. And there’s not a lot of borrowings to reposition. So we would anticipate the core deposit growth rates to take off here and balance sheet to move this, as that will support.

Okay. Great, thank you very much taking my question.

Thank you, Jackie.

The next question comes from Russell Gunther of Macquarie, please go ahead.

Hi, good morning guys.

Good morning Russell

I wanted to circle up with the margin, Lloyd you’ve given us real consisting guidance over the past few quarters, looks like the results came in a little better than the low end of the range. Just wondering as you look out into 2016, if you could just walk us through your expectations, whether or not you guys are factoring in any further Fed increases? And then maybe touch upon how December psych may or may not manifest itself in the P&L?

I’m just how – what may manifest itself?

Yes the last part of my question was the impact of the December hike made.

Well the December hike, okay sure. Well, as we’ve consistently said, we’re pretty flat in terms of interest rate risk exposure. I think we actually benefited a few basis points in the quarter as a result of the increase in the Fed funds rate, because as you would expect, there was no real commensurate increase in deposit costs, which tend to lag. We’re not anticipating anything meaningful out of the Fed reserve over the course of the next year and you have to take them at face value which is they’ve said that they will probably rise rates in very gradual path. And it’s our very deeply [ph] dependent on what’s going on in the economy. So our expectation is given our profile, our margin will change. What I will make one small caveat to that it as we noted there was accretion effect from purchase loans about 11 basis point and that will continue. That’s a reasonably good run rate, although it will be lumpy in overtime it will decline as some of the discounts related to credit mark come in at lumpy fashion.

Okay, that’s helpful. And I appreciate the color you gave kind of parsing that impact. So I guess just to make sure I understand, near term on that 405, we should expect a flattish margin and similar levels of accretion in a short-term.

Yes, near-term, that’s correct, although again credit advance on the purchase credit impaired portion of the portfolio will cost that to move in just a little bit lumpy fashion. So I think underlying if you look at our adjusted margin that we noted that one we would expect to be very stable. Improvement there will come from changes in the mix and perhaps a little bit of impact from interest rate spend, as rates goes up.

Okay, great. Well, thank you for the color there. I just had a follow-up on expenses to chill down a little bit. If we just look at the comp line this quarter, is that a – is this a near-term run rate that may experience an uptick with seasonal expenses but perhaps then trend lower as cost saves are realized and we’re into rationalization? How do we kind of parse the near-term versus potential synergies in the second half of the year?

A little broader look at expense compensation and occupancy are couples of ones you can take a very close look at there and also information services. All three of those should come down as we complete the integration and consolidation activities.

Yes, that’s helpful. And that’s more of a second half of that correct.

That’s exactly, right.

Okay. And then just kind of one last question understanding the comment of that not providing provision guidance, I was just kind of wondering, you mentioned that growth would certainly play a role, how much of a role you guys had really nice recoveries, what's your expectation there over the next 12 months and could that get us a to a point where we see provision sooner rather than later that flows and you guys continue to put up organic?

Well, trying to – this is Rick, Russell. Trying to look at the different pieces of that question, it’s really difficult to project the level and timing of recoveries, obviously we have been successful over the last two or three years and it’s fair to assume that there will be some level of recovery, but it will be lumpy and it would be a stress to think that it would continue with the pace that it did in fourth quarter certainly. With respect to provisioning and organic loan growth with the migration of things out of the AmericanWest purchase accounting portfolios. If you take a look at the level of the remaining mark, $45 million that’s about 1.6% of total loans that came over from AmericanWest Bank and Siuslaw Bank. So if the timing was perfect that would keep the reserve in balance where we are at to somewhere we wanted to be, continue to be at approximate level we’re at today. But as what you said that, moment of that coming over is going to be lumpy and it’s not going to be one for one match. So that would you would expect some provisioning would be necessary with respect to the AmericanWest portfolios that migrates out of the purchase accounting pools.

Okay, that’s very helpful. Just last question there, if you have a sort of a near term comfort zone in terms of where the reserve could go, if loan growth continues from that 167 pro-forma range today?

Our comfort zone would be no less than 1.5%.

Okay, right. Thank you guys, I appreciate the help.

You bet.

The next question comes from Matthew Clark of Piper Jaffray. Please go ahead.

, :

Hi Neil.

Just maybe following-up on Russell’s first question on the margin maybe Rick or Lloyd could you give us an update on loan prices in the quarter, may be relative to your core portfolio loan yield of 480? [Indiscernible]

This is Lloyd. So loan pricing during the quarter, really didn’t move much than what’s been required for a while. Portfolio yield is just slightly above, what you would see in market yields, market rates I should say, and I have said for a long time as we continue at this rate environment. We still have some higher price loans to grow off and get replaced by lower price loans. The spread in pricing is pretty wide based on product type and credit quality that sort of thing but rates in the four in a quarter range is sort of a kind of bad benchmark for market pricing.

Okay. And assuming your loan growth kind of approximately single-digits unchanged as we look forward, you kind a provide some color on the type and geography that we are going to expect your portfolio production consist of this.

Well, I see it being very similar to what it has been in the past couple of years, and I also expect there to be solid production from what I have observed to date out of the new geographies.

Okay, great. And maybe one last housekeeping question, Lloyd. Any idea of what we expect for non-recurring expenses? Including these systems conversion in this quarter in 1Q?

Well, I think last quarter, I said the first quarter would be some where between $10 million and $15 million of merger related expenses that still looks likes the right number, I’ll note that fourth quarter came in a little bit less in terms of expense flow than we expected that $10 million to $15 million should wrap it up.

Great. Thank you guys.

Thank you.

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Mark Grescovich for any closing remarks.

Thanks, Cathy [ph]. As I stated we are pleased with our solid 2015 performance and see it as evidence that we’re making substantial and sustainable progress on our disciplined strategic plan to build shareholder value by executing on our super community bank model by growing market share, strengthening our deposit franchise and improving our core operating performance, maintaining a moderate risk profiles, and prudently deploying our excess capital. I would like to thank all my colleagues who are driving the solid performance for our company. Thank you for your interest in Banner and joining our call today. We look forward to reporting our results during the next quarter. Have a good day everyone.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.