Mark Grescovich – President and Chief Executive Officer Albert Marshall – Secretary Rick Barton – Chief Credit Officer Lloyd Baker – Executive Vice President and Chief Financial Officer Peter Conner – Chief Financial Officer-Banner Bank.

Paul Miller – FBR Jeff Rulis – D.A. Davidson Jackie Chimera – KBW Russell Gunther – Macquarie.

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 are exceptionally pleased with the progress we have made and through the hard work of our employees throughout the company, we continue to successfully execute on our integration plan as well as successfully execute on our strategies and priorities to deliver sustainable profitability and revenue growth to Banner by expanding our balance sheet with strong organic loan and deposit growth.

Our consistent and increasing year-over-year core profits show that execution on our strategic plan is effective. And we continue building shareholder value. Our full-year 2015 core revenue was strong at $306 million, an increase of 36% compared to the full-year 2014.

We benefited from a larger and improved earning asset mix, a net interest margin that remained above 4%, very good deposit fee income, and strong mortgage banking revenue. Also our cost of deposits was 16 basis points, compared to 20 basis points for the full-year of 2014.

Overall, this resulted in a solid return on average assets before acquisition expenses of 1% for the year.

Once again our performance this quarter and for the full-year, reflects continued execution on our super community bank strategy that is, growing new client relationships, improving our core funding position by growing core deposits and promoting client loyalty and advocacy through our responsive service model, while augmenting our growth with opportunistic acquisitions.

To that point, our core deposits increased 114%, compared to December 31, 2014. Also our non-interest bearing deposits increased to 102% from one year ago. Although a large portion of this balance growth is from the acquisitions, we also saw continued strong organic generation of new client relationships.

Our organic net client growth in these product categories is now 76% since December 31, 2009. In a few moments, Lloyd Baker will discuss our operating performance in more detail.

While we have been effectively executing on our strategies to protect our net interest margin, grow client relationships, deliver sustainable profitability and prudently invest our capital, we have also focused on maintaining our improved risk profile of Banner.

Again this quarter, our credit quality metrics reflect our moderate risk profile, and our non-performing assets remained very low.

In a moment, Rick Barton, our Chief Credit Officer, will discuss the credit metrics of the company and provide some context around the loan portfolio and our success at maintaining a moderate credit risk profile, while also increasing our loan portfolio.

Given our successful credit risk management, our low level of non-performing loans and our moderate risk profile, we did not report a provision for loan losses in the quarter despite additional organic loan growth. With the acquisition of AmericanWest, Banner’s reserve levels are strong and our capital position remains substantial.

At the end of the quarter, our ratio of allowance for loan and lease losses to total loans was 1.67%, when including the net loan discount on acquired loans. Our capital to risk weighted asset ratio was a strong 13.66% and our tangible common equity ratio was 10.68%.

In the quarter and throughout the preceding six years, we continue to invest in our franchise. We have added talented commercial and retail banking personnel to our company, and we have invested in further developing and integrating all our bankers into Banner’s proven credit and sales culture.

While these investments have increased our core operating expenses, they have also resulted in positive core revenue growth, strong customer acquisition, year-over-year growth in the loan portfolio, improving cross sell ratios, and strong deposit fee income growth.

Further, we have received marketplace recognition of our progress and our value proposition as the Small Business Administration named Banner Bank, Community Lender of the Year for the Seattle and Spokane district for two consecutive years, and this year named Banner Bank Regional Lender of The Year.

Also Forbes magazine ranked Banner Corporation as one of the top 50 most trustworthy financial institutions in the United States.

The successful execution of our organic growth plan and our persistent focus on improving the risk profile of Banner has now resulted in 19 consecutive quarters of profitability and our tangible book value increased to $29.66 per share versus $29.64 per share at December 31, 2014.

Finally, I’m very excited about the recently closed acquisitions of Siuslaw Bank and AmericanWest Bank. With these strategic combinations we will have the opportunity to deploy our super community bank model throughout our strengthened presence in Washington, Oregon, and Idaho and enter into attractive growth markets of California and Utah.

These combinations will provide significant benefits to our expanded group of clients, communities, shareholders, and employees and I would like to reinforce our welcome to the Siuslaw and AmericanWest Bank clients, employees, and shareholders who joined the Banner Bank team this past year.

I’ll now turn the call over to Rick Barton to discuss the trends at our loan portfolio, Rick?.

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 assets of $27 million were split between non-performing loans of $15 million and REO of $12 million. Not reflected in these totals, our non-performing loans of $17 million acquired from Siuslaw Bank and AmericanWest Bank which are not reportable under purchase accounting rules.

These non-performing loans, however, are included in our net purchase credit impaired loans of $59 million. If we were to include the acquired non-performing loans, in our non-performing asset totals the ratio of non-performing assets to total assets would be a very modest 45 basis points.

Performing troubled debt restructures fell from $24 million to $22 million in the combined portfolio and are only in consequential 30 basis points of total loans. The combined portfolios had net recoveries of $688,000 for the quarter. Gross charge-offs were $1,355,000, versus recoveries of $2,43,000.

Metrics tied to the allowance for loan and lease losses are impacted by purchase accounting, in our substantially different than, you are used to seeing us report.

The allowance for loan and lease losses for the company, totaled $78 million and it’s now 1.07% of total loans, compared to 1.77% at the end of the third quarter, because no provision is made to the allowance for acquired loans, rather the net loan discount or credit mark against these loans is part of purchase accounting requirements.

As shown in the press release, the remaining net loan discount is $45 million. When this amount is added to the traditional allowance for loan and lease losses the adjusted allowance totals $123 million or 1.67% of total loans. Coverage at this level 1.67% is strong and aligns with our goal of a moderate risk profile.

We should also make note of the fact that no provision expense was recorded for the 12th consecutive quarter. Turning to loan production for a moment, the legacy Banner portfolio had solid growth during this time of integration.

Increases were recorded in all sectors of the portfolio and totaled a $125 million during the fourth quarter, which equates to an annualized growth rate of 11.9%. This growth reflects both the hard work of our bankers and the vibrant West Coast economy.

I do want to note specifically that we continue to monitor the residential construction and land portfolios closely. And can report that loan turnover remains brisk and each of our major markets remain in balance. Loan balances were $2.8 billion at year-end in the legacy AmericanWest Bank units.

These loan outstandings were flat when compared to linked quarter after adjusting for loan sales of $170 million. I want to close my remarks this morning by saying that the fundamentals of the AmercianWest Bank loan portfolio are what we expected and the excellent performance of Banner portfolio continues.

This is reflected in the credit metrics of the new combined portfolio and its moderate risk profile. With that, I’ll turn the stage over to Lloyd for his comments. .

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 2015, Banner reported earnings to common shareholders of $6.9 million or $0.20 per diluted share.

This amount was adversely impacted by $18.4 million of acquisition-related expenses, as well as fair value charges of $1.5 million which together net of related tax benefits reduced earnings for the quarter by $0.40 per diluted share.

In comparison for the fourth quarter a year ago, acquisition-related expenses were $2.8 million and net fair value adjustments were $287,000, which together net of tax benefit, reduced earnings by $0.12 per diluted share.

Excluding these acquisition-related expenses and fair value adjustments, our earnings from core operations increased to $20.4 million or $0.60 per diluted share for the current quarter, compared to $14 million or $0.72 per diluted share in the same quarter a year ago.

For the year ended December 2015, Banner reported net income of $45.2 million or $1.89 per diluted share. This included $26.1 million of acquisition-related expenses, a loss on the sale of securities of $540,000 and net fair value charges of $813,000, which together net of related taxes reduced earnings for the year by $0.79 per diluted share.

By contrast for the year ended December 31, 2014, we reported a bargain purchase gain of $9.1 million, a small gain on sale of securities, a positive fair value adjustment of $1.4 million, which were only partially offset by acquisition related expenses of $4.3 million.

The combined impact of these items net of related taxes added $0.17 per diluted share to our earnings for 2014. Excluding these acquisition related expenses securities, gains, and losses fair value adjustments and last year's bargain purchase gain.

Our earnings from core operations increased 26% to $64.1 million for 2015, compared to $50.7 million in 2014. Of course on a per share basis, the increase was much more modest as the earnings were spread over a much larger share base as a result of the shares issued in the two acquisitions.

Nonetheless, excluding these items our earnings from core operations for the full year 2015 increased to $2.68 per diluted share, compared to $2.62 per diluted share for 2014.

When reviewing these operating results for 2015, it is important to recognize that the integration, consolidation activities with respect to the AmericanWest acquisition are only partially complete.

And while we are pleased with the progress of those activities to remain significant work to be done to complete the full integration and realize the expected operating synergies from combining the two companies.

In particular, this means completing the migration to a single set of core operating systems, consolidating overlapping branch in support locations, and fully focusing our efforts on client acquisition strategies and services.

The increase in earnings from core operations reflects continued growth, organic growth to the balance sheet and client base as well as last year's purchase of six branches on the Southern Oregon Coast and this year’s acquisition of Siuslaw Bank which included 10 additional branches in Western Oregon and the recently combined combination with – completed combination with AmericanWest Bank.

Importantly, as Mark has already noted, underlying this earnings growth, our revenues from core operations which is revenues excluding gains and losses on sales of securities, net fair value adjustments and last year's bargain purchase gain, increased substantially for both the quarter and the full year when compared to earlier periods.

For the quarter ended December 31, 2015, revenues from core operations were $112 million an increase of 66% compared to the immediately preceding quarter and 90% compared to the fourth quarter of 2014. For the full year 2015, revenues from core operations, increased 36% to $305.6 million compared to $224 million in 2014.

Of course the strong revenue generation for the quarter and year-to-date is the result of significant balance sheet growth, a remarkably solid net interest margin, additional client acquisition which has driven increased deposit fees and particularly compared to a year ago, increased mortgage banking activity.

Taking together these trends clearly demonstrate that our value proposition is being well received and the focused efforts of our employees are continuing to produce consistent earnings momentum.

Primarily as a result of growth in average balance of loans in core deposits, our net interest income nearly doubled to $92.1 million, in the fourth quarter, compared to $46.7 million in the fourth quarter a year ago. For the full year, our net interest income increased by 35% to $242.3 million.

While we experienced an expected decline in our net interest margin following the acquisitions of AmericanWest Bank, the margin remains solid on both reported basis and adjusted basis reflecting a strong loan to deposit, core deposits to total deposits and loan to asset ratios as well as disciplined pricing decisions.

Our reported net interest margin was 4.05% for the fourth quarter of 2015, which included 11 basis points of yield accretion, from acquisition accounting discounts on the acquired loans and 3 basis points from amortization deposit premiums for acquired certificates of deposits.

Excluding the acquisition accounting contributions, our normalized margins for the quarter decreased to 3.91%, from 4.11% in the preceding quarter and 4.06% at fourth quarter year ago.

This was in line with our expectations, and primarily reflects the significantly larger proportion of securities to average earning assets following the acquisition of AmericanWest Bank, as well as modest differences in the acquired loan mix.

For the full year 2015, our net interest margin was 4.10% which included 7 basis points of acquisition accounting accretion compared to 4.06% for the year ended December 31, 2014, which included just 1 basis point of acquisition accounting impact.

Deposit fees and service charges were $13.2 million in the fourth quarter, an increase of 35% compared to the immediately preceding quarter and 58% compared to the fourth quarter a year ago. For the year ended December 31, 2015, deposit fees and service charges increased to $40.6 million, a 33% increase compared to 2014.

The significant increase in these fees and service charges compared to a year earlier is a direct result of growth in core deposit accounts and related transaction activity reflecting the success of our client acquisition strategies as well as the acquisitions.

Despite an expected seasonal slowdown in market activity our mortgage banking revenues increased slightly of $4.5 million in the fourth quarter compared to $4.4 million in the preceding quarter, in part reflecting the additional production staff gain to the combination with AmericanWest.

Mortgage banking revenues increased much more significantly compared to the fourth quarter a year ago and for the full year. For the year ended December 31, 2015, our mortgage banking revenues were $17.7 million, a 73% increase compared to the prior year, reflecting our continued investment in this line of business.

Home purchase activity accounted for 63% of mortgage originations in 2015. As you would expect our total operating expenses were also significantly increased in the current quarter and for the year ended December 31, 2015, reflecting the increased scale of the company as well as the acquisition related expenses.

Total other operating expenses were $103.3 million for the fourth quarter compared to $44.5 million in the preceding quarter and $38.4 million in the fourth quarter of 2014.

As previously noted, acquisition related expenses were $18.4 million in the current quarter compared to $2.2 million in the preceding quarter and $2.8 million in the fourth quarter a year ago.

For the full year 2015, total other operating expenses were $236.6 million including $26.1 million of acquisition related expenses compared to $153 million including $4.3 million of acquisition expenses in 2014.

Aside from the acquisition related expenses the year-over-year increase in operating expenses is largely attributable to the incremental cost associated with operating in 98 AmericanWest branches acquired in October 1, as well as the ten Siuslaw branches acquired in March 2015 and six southwestern Oregon branches acquired in June 2014.

In addition to current year’s expenses reflect higher compensation costs, including generally higher salaries and benefits, as well as increased costs associated with our expanded mortgage banking operations and the increased payment in card processing expenses driven by greater activity volume.

Finally, with respect to the income statement, on our effective tax rate decreased slightly to 32.4% in the fourth quarter, as the elevated level expenses caused us add proportionally more tax exempt income than in previous periods. For full year 2015 our effective tax rate was 33.5% which is more represented of our normal expectation.

Quarters compared to a year ago the current quarter and statement of condition has been significantly impacted by completion of two acquisitions.

In particular, AmericanWest Bank and Siuslaw Bank contributed $2.82 billion and $236 million respectively, to our consolidated loan totals and $3.54 billion and $336 million respectively, to total deposits as of December 31, 2015 We also recorded a combined total of $247.7 million of goodwill as a result of the two purchases and increased paid in capital by just over $688.8 million to reflect the value of the Banner shares issued as part of the consideration for the two acquisitions.

Aided by expected seasonal factors of our organic loan growth was strong in the fourth quarter. As Rick noted, excluding loans acquired from AmericanWest merger, organic loan growth was $125 million for the fourth quarter which is an annualized rate of 11.9%.

Loan growth during the quarter was broad-based and included meaningful increases in commercial real estate, agricultural business, construction and development and consumer loans. As noted, in the release, total loans end of the year at $7.24 billion an increase of 93% compared to year earlier.

Also reflecting strong organic growth, as well as the acquisitions total deposits increased to $8.06 billion as of December 31, 2015 Included in this total were $2.62 billion of non-interest bearing accounts and $4.07 billion of interest bearing transaction and savings accounts.

As a result, these core deposits increased to 83% of total deposits at December 31, 2015. This core deposits provide a stable funding base and represent the foundational accounts for relationship banking, which is the basis of Banner’s super community bank model.

Importantly, for the year-ended December 31, 2015, our organic growth for checking accounts was just over 14% and organic growth for savings and money market accounts was 8%. This concludes my prepared remarks.

In summary, for Banner Corporation 2015 was obviously a year of exceptional growth and change but also a year of continued strong client acquisition, revenue generation and earnings [indiscernible] all of which positioned the company well for further success in future periods. As always I look forward to answering your questions.

Mark?.

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?.

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..

Unidentified Analyst:.

, :.

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..