EX-99.1 2 ex991.htm EXHIBIT 99.1 Unassociated Document

 
   
 
    
Contact: D. Michael Jones,
President and CEO
Lloyd W. Baker, CFO
(509) 527-3636
News Release
         
Banner Corporation Announces Second Quarter Results

Walla Walla, WA – July 29, 2009 - Banner Corporation (NASDAQ GMS: BANR), the parent company of Banner Bank and Islanders Bank, today reported that it had a net loss of $16.5 million for the second quarter ended June 30, 2009, compared to a net loss of $52.3 million for the second quarter of 2008.  The current quarter’s results include a $45.0 million provision for loan losses and a $2.1 million special assessment from the FDIC.  The current quarter’s results also include an $11.0 million net gain from the valuation of financial instruments carried at fair value.
 
“Similar to recent quarters, our significant provision for loan losses during the quarter reflects material levels of non-performing loans and net charge-offs, particularly for loans for the construction of one-to-four family homes and for acquisition and development of land for residential properties,” said D. Michael Jones, President and CEO.  “While certain segments showed modest improvement, housing markets generally remained weak in many of our service areas, resulting in further deterioration in property values and the need to provide for additional loan losses.  By contrast, the non-housing related segments of our loan portfolio have continued to perform as expected with only normal levels of credit problems given the serious economic slowdown.  In addition, continued pressure on our net interest margin and substantial increases in FDIC insurance charges had a further negative impact on our operating results.”
 
For the first six months of 2009, Banner reported a net loss of $25.8 million compared to a net loss of $48.5 million for the first six months of 2008.  The second quarter and year-to-date 2008 results included a $50.0 million goodwill impairment charge.
 
In the fourth quarter of 2008, Banner issued $124 million of senior preferred stock to the U.S. Treasury as a participant in the Treasury’s Capital Purchase Program.  In the quarter ended June 30, 2009, Banner paid a $1.6 million dividend on this preferred stock and accrued $373,000 for related discount accretion.  Including the preferred stock dividend and related accretion, the net loss available to common shareholders was $18.4 million, or $1.04 per diluted share, for the second quarter, compared to a net loss of $52.3 million, or $3.31 per diluted share, for the quarter ended June 30, 2008.  For the six months ended June 30, 2009, the net loss available to common shareholders was $29.6 million, or $1.70 per diluted share, compared to a net loss of $48.5 million, or $3.06 per diluted share for the first six months of 2008.
 
“A continuing highlight of the quarter was our Great Northwest Home Rush promotion, which we began initially in the Portland market and expanded to the Puget Sound region and to other markets where we have financed new home construction.  Through this program, we have partnered with our builders to deliver customers excellent prices on new homes and equally attractive home loan rates,” said Jones.  “As we noted at the end of the first quarter, this promotion has been encouraging and is contributing to a meaningful reduction in our exposure to residential construction loans.  Through the date of this announcement our builders have accepted purchase offers on 299 of the 617 homes listed under this program, with 173 of those sales having closed through June 30, 2009.”
 
Again notable in the second quarter of 2009 was very strong mortgage banking activity and revenues as exceptionally low interest rates resulted in significant refinancing opportunities for many of our customers, and lower home prices and first-time buyer incentives have resulted in improving home sales activity and purchase financing.
 
Credit Quality
 
“Reflecting continuing weakness in the housing market in many of our primary service areas, non-performing assets remained high, primarily centered in our construction and land development loan portfolios,” said Jones.  “In addition, property values exhibited further declines, particularly for land and developed building lots, resulting in increased charge-offs and impairment reserves.  As a result, our provision for loan losses this quarter was significantly larger than in the immediately preceding quarter and the same quarter a year ago and was in excess of our normal expectations.  Although property values have declined, sales of finished homes have improved, our reserve levels are substantial, and both our impairment analysis and charge-off actions reflect current appraisals and valuation estimates.  Unfortunately, with respect to land and lot loans, those appraisals generally reflect a very limited number of sales which frequently involve distressed transactions, assume in many cases that market recoveries will be protracted and resulted in disappointingly low and uncertain valuation estimates which required increased provisioning.  We are hopeful that the final resolution of many of these loans will reflect better than currently recognized values.”
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BANR - Second Quarter 2009 Results
July 29, 2009
Page 2
 
Banner added $45.0 million to its provision for loan losses in the second quarter, compared to $22.0 million in the preceding quarter and $15.0 million in the second quarter of 2008.  For the first six months of the year, Banner added $67.0 million to its provision for loan losses compared to $21.5 million for the first six months of 2008.  The allowance for loan losses at June 30, 2009 was $90.7 million, representing 2.32% of total loans outstanding.  Non-performing loans totaled $225.1 million at June 30, 2009, compared to $224.1 million in the preceding quarter and $89.9 million at June 30, 2008.  In addition, Banner’s real estate owned and repossessed assets totaled $57.2 million at the end of June 2009, compared to $39.1 million three months earlier and $11.4 million at June 30, 2008.  Banner’s net charge-offs in the quarter ended June 30, 2009 totaled $34.0 million, or 0.87% of average loans and year-to-date net charge-offs were $51.5 million, or 1.31% of average loans.
 
At June 30, 2009, the geographic distribution of our construction and land development loans, including residential and commercial properties, is approximately 32% in the greater Puget Sound market, 40% in the greater Portland, Oregon market, and 9% in the greater Boise, Idaho market, with the remaining 19% distributed in various eastern Washington, eastern Oregon and northern Idaho markets served by Banner Bank.  One-to-four family residential construction and related lot and land loans represent 18% of the total loan portfolio and 77% of non-performing assets.  The geographic distribution of non-performing construction, land and land development loans and real estate owned included approximately $106 million, or 44%, in the Puget Sound region, $90 million, or 38%, in the greater Portland market area and $26 million, or 11%, in the greater Boise market area.
 
Income Statement Review
 
Banner’s net interest margin was 3.24% for the second quarter of 2009, compared to 3.26% in the preceding quarter and 3.50% for the second quarter of 2008.  Funding costs decreased 13 basis points compared to the previous quarter and decreased 65 basis points from the same quarter a year earlier, while asset yields decreased 14 basis points from the prior linked quarter and 95 basis points from the second quarter a year ago, all reflecting the much lower interest rate environment.  For the first half of 2009, the net interest margin was 3.25% compared to 3.57% for the first half of 2008.
 
“Funding costs improved as expected, which helped to maintain our net interest margin at a nearly unchanged level compared to the two previous quarters, despite higher levels of non-performing assets,” said Jones.  Non-accruing loans reduced the margin by approximately 45 basis points in this year’s second quarter compared to approximately 38 basis points in the first quarter of 2009 and approximately 16 basis points in the second quarter of 2008.
 
For the second quarter of 2009, net interest income before the provision for loan losses was $34.9 million, compared to $35.0 million in the preceding quarter and $37.1 million in the second quarter a year ago.  In the first half of 2009, net interest income before the provision for loan losses was $69.9 million, compared to $74.5 million in the first half of 2008.  Revenues from core operations* (net interest income before the provision for loan losses plus total other operating income excluding fair value adjustments) were $43.9 million in the second quarter of 2009, compared to $42.9 million in the first quarter of 2009 and $45.0 million for the second quarter a year ago.  Revenues from core operations for the first half of 2009 were $86.7 million, compared to $89.7 million in the first half of 2008.
 
Banner’s results for the second quarter of 2009 included a net gain of $11.0 million ($7.0 million after tax), compared to a net gain of $649,000 ($415,000 after tax) in the second quarter of 2008, for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value in accordance with the adoption of Statement of Financial Accounting Standards (SFAS) Nos. 157 and 159.  The fair value adjustments in the current quarter predominantly reflect changes in the valuation of trust preferred securities and junior subordinated debentures, both owned and issued by the Company.
 
Total other operating income, which includes the changes in the valuation of financial instruments noted above, was $20.0 million in the second quarter, compared to $4.7 million in the preceding quarter and $8.6 million for the same quarter a year ago.  For the first half of 2009, total other operating income was $24.6 million, compared to $16.7 million in the first half of 2008.  Total other operating income from core operations* (excluding fair value adjustments) for the current quarter was $8.9 million, compared to $7.9 million in the preceding quarter and $7.9 million for the same quarter a year ago.  For the first half of 2009, total other operating income from core operations increased 11% to $16.8 million, compared to $15.2 million in the first half of 2008.  Income from deposit fees and other service charges increased to $5.4 million in the second quarter of 2009, compared to $4.9 million for the preceding quarter; however, reflecting the reduction in customer transaction volumes in the current economic environment, fees were slightly less than the $5.5 million recorded in the second quarter a year ago despite growth in the number of accounts.  Income from mortgage banking operations increased to $2.9 million in the second quarter of 2009 compared to $2.7 million in the preceding quarter and $1.6 million in the same quarter a year ago.
 
“The soft economy continued to adversely affect our payment processing business this quarter as activity levels for deposit customers, cardholders and merchants remained subdued; however, we are pleased with the year-over-year growth in our customer base and encouraged by the increase in activity compared to the very low levels we experienced in the previous quarter,” said Jones.  “We are also pleased that our mortgage banking revenues remained strong and substantially above the levels reported a year ago.  Although not as significant as in the previous quarter, the high level of refinancing activity again resulted in accelerated termination of mortgage
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BANR - Second Quarter 2009 Results
July 29, 2009
Page 3
 
servicing rights as reflected in the impairment of loan servicing revenues in the quarter just ended.  Amortization and write-off of mortgage servicing rights totaled $559,000 for the quarter ended June 30, 2009, compared to $912,000 in the preceding quarter and $533,000 in the second quarter a year ago.”
 
“Manageable operating expenses were generally well controlled in the second quarter, reflecting continuing efforts to improve our processes and efficiency, although collection and legal costs, including charges related to acquired real estate, remained high,” said Jones.  “However, FDIC insurance expense increased substantially as a result of increased regular assessment rates for the current quarter as well as a one-time special assessment levied on all banks at quarter end.  FDIC insurance charges were $4.1 million for the second quarter of 2009 compared to $1.5 million for the preceding quarter and $633,000 for the second quarter of 2008.  Although we anticipate collection costs and FDIC insurance premiums will continue to be above historical levels for a number of future quarters, we expect continued expense discipline will be exhibited in our ongoing operating results.”
 
Total other operating expenses from core operations* (non-interest expenses excluding the goodwill write-off that occurred during the quarter ended June 30, 2008) were $36.9 million in the second quarter of 2009, compared to $33.8 million in the preceding quarter and $35.2 million in the same quarter a year ago.  For the first half of the year, other operating expenses from core operations were $70.7 million compared to $68.9 million in the first half of 2008.  Operating expenses from core operations as a percentage of average assets was 3.27% in the second quarter of 2009, compared to 3.02% in the previous quarter and 3.08% in the second quarter a year ago.
 
*Earnings information excluding the goodwill impairment charge and fair value adjustments (alternately referred to as total other operating income from core operations, total other operating expenses from core operations, revenues from core operations, or operating expenses from core operations) 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 the Company’s core operations reflected in the current quarter’s results.  Where applicable, the Company has also presented comparable earnings information using GAAP financial measures.
 
Balance Sheet Review
 
Net loans were $3.82 billion at June 30, 2009, compared to $3.91 billion a year earlier.  Total assets were $4.53 billion at June 30, 2009, compared to $4.64 billion a year earlier.
 
“In the second quarter of 2009, commercial and multifamily real estate loan balances increased by $14 million and commercial business loans increased by $28 million.  In addition, agricultural loans experienced an expected seasonal increase of $17 million and one-to-four family residential loans increased by $10 million,” said Jones.  “However, the continued reductions in construction and land development loans resulted in a modest decrease in total loan balances compared to the prior quarter end.  Although still slower than historical levels, home sales have improved, contributing to a $203 million reduction in our portfolio of one-to-four family construction loans over the past twelve months, including a $28 million decrease in the most recent quarter.  As a result, at June 30, 2009 our one-to-four family construction loans totaled $337 million, a decline of $317 million from their peak quarter-end balance of $655 million at June 30, 2007.
 
Total deposits were $3.75 billion at June 30, 2009, compared to $3.63 billion at the end of the previous quarter and $3.76 billion a year earlier.  Non-interest-bearing accounts of $508 million were unchanged for the quarter, but up nearly 7% compared to a year earlier.  Interest-bearing accounts increased by $123 million for the second quarter of 2009, but declined by $38 million compared to a year earlier.  “Our retail deposit franchise produced good results for the quarter as we were able to effectively replace the public funds and brokered deposits that we have chosen to de-emphasize this year,” said Jones.  “For the first six months of the year we have allowed $156 million in public funds, including $72 million of interest-bearing transaction accounts, to run off as the new higher collateralization requirements and the shared risk exposure under the Washington and Oregon State requirements have made retaining those deposits less desirable than in the past.  Brokered deposits declined by $21 million during the first six months of 2009.  We are pleased that we were able to produce this retail deposit growth while also reducing our overall cost of deposits by 18 basis points during the quarter.”
 
On November 21, 2008, Banner received $124 million from the U.S. Treasury Department as a part of the Treasury’s Capital Purchase Program.  This funding marked Banner’s successful completion of the sale of $124 million in senior preferred stock, with a related warrant to purchase up to $18.6 million in common stock, to the U.S. Treasury.  The warrant provides the Treasury the option to purchase up to 1,707,989 shares of Banner Corporation common stock at a price of $10.89 per share at any time during the next ten years.
 
"Despite the challenging operating environment, Banner Corporation and its subsidiary banks continue to maintain capital levels significantly in excess of the requirements to be categorized as 'well-capitalized' under applicable regulatory standards," concluded Jones.  Banner Corporation's Tier 1 leverage capital to average assets ratio was 9.90% and its total capital to risk-weighted assets was 12.49% at June 30, 2009.
 
Tangible stockholders’ equity at June 30, 2009 was $397.1 million, including $116.6 million attributable to preferred stock, compared to $295.2 million at June 30, 2008.  Tangible common stockholders’ equity was $280.4 million at June 30, 2009, or 6.20% of tangible assets, compared to $295.2 million, or 6.49% of tangible assets a year earlier.  Tangible book value per common share was $15.42 at
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BANR - Second Quarter 2009 Results
July 29, 2009
Page 4
 
quarter-end, compared to $18.38 a year earlier.  At June 30, 2009, Banner had 18.2 million shares outstanding, while it had 16.1 million shares outstanding a year ago.
 
Conference Call
 
Banner will host a conference call on Thursday, July 30, 2009, at 8:00 a.m. PDT, to discuss second quarter 2009 results.  The conference call can be accessed live by telephone at 480-629-9770 using access code 4095680 to participate in the call.  To listen to the call online, go to the Company’s website at www.bannerbank.com.  A replay will be available for a week at (303) 590-3030, using access code 4095680.
 
About the Company
 
Banner Corporation is a $4.5 billion bank holding company operating two commercial banks in Washington, Oregon and Idaho.  Banner serves the Pacific Northwest region with 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.
 
This press release contains statements that the Company believes are “forward-looking statements.” These statements relate to the Company’s financial condition, results of operations, plans, objectives, future performance or business. You should not place undue reliance on these statements, as they are subject to risks and uncertainties. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Company may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Company. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors which could cause actual results to differ materially include, but are not limited to, the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes and other properties and fluctuations in real estate values in our market areas; results of examinations of us by the Board of Governors of the Federal Reserve System and our bank subsidiaries by the Federal Deposit Insurance Corporation, the Washington State Department of Financial Institutions, Division of Banks or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses or to write-down assets; fluctuations in agricultural commodity prices, crop yields and weather conditions; our ability to control operating costs and expenses; our ability to implement our branch expansion strategy; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired or may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; legislative or regulatory changes that adversely affect our business; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board; war or terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and other risks detailed in Banner’s reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

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BANR - Second Quarter 2009 Results
July 29, 2009
Page 5
 
RESULTS OF OPERATIONS
        
Quarters Ended
          
Six Months
  
(in thousands except shares and per share data)
  
Jun 30, 2009
    
Mar 31, 2009
    
Jun 30, 2008
    
Jun 30, 2009
    
Jun 30, 2008
  
                               
                               
INTEREST INCOME:
                              
Loans receivable
   $ 55,500     $ 56,347     $ 64,174     $ 111,847     $ 132,300  
Mortgage-backed securities
     1,569       1,801       1,087       3,370       2,240  
Securities and cash equivalents
     2,089       2,183       2,861       4,272       5,588  
                                         
      59,158       60,331       68,122       119,489       140,128  
                                         
INTEREST EXPENSE:
                                        
Deposits
     21,638       23,092       27,565       44,730       57,628  
Federal Home Loan Bank advances
     675       720       1,301       1,395       3,150  
Other borrowings
     671       227       530       898       1,140  
Junior subordinated debentures
     1,249       1,333       1,666       2,582       3,730  
                                         
      24,233       25,372       31,062       49,605       65,648  
                                         
Net interest income before provision for loan losses
     34,925       34,959       37,060       69,884       74,480  
                                         
PROVISION FOR LOAN LOSSES
     45,000       22,000       15,000       67,000       21,500  
                                         
Net interest income (loss)
     (10,075 )     12,959       22,060       2,884       52,980  
                                         
OTHER OPERATING INCOME:
                                        
Deposit fees and other service charges
     5,408       4,936       5,494       10,344       10,507  
Mortgage banking operations
     2,860       2,715       1,579       5,575       3,194  
Loan servicing fees
     248       (270 )     467       (22 )     816  
Miscellaneous
     412       520       363       932       694  
                                         
      8,928       7,901       7,903       16,829       15,211  
Increase (Decrease) in valuation of financial instruments carried at fair value
     11,049       (3,253 )     649       7,796       1,472  
                                         
Total other operating income
     19,977       4,648       8,552       24,625       16,683  
                                         
OTHER OPERATING EXPENSE:
                                        
Salary and employee benefits
     17,528       17,601       19,744       35,129       39,382  
Less capitalized loan origination costs
     (2,834 )     (2,116 )     (2,728 )     (4,950 )     (4,969 )
Occupancy and equipment
     5,928       6,054       5,989       11,982       11,857  
Information / computer data services
     1,599       1,534       1,840       3,133       3,829  
Payment and card processing services
     1,555       1,453       1,768       3,008       3,299  
Professional services
     1,183       1,194       1,331       2,377       2,086  
Advertising and marketing
     2,207       1,832       1,677       4,039       3,095  
Deposit insurance
     4,102       1,497       633       5,599       960  
State/municipal business and use taxes
     532       540       576       1,072       1,140  
Real estate operations
     1,805       623       678       2,428       834  
Miscellaneous
     3,286       3,581       3,714       6,867       7,417  
                                         
      36,891       33,793       35,222       70,684       68,930  
Goodwill write-off
     - -       - -       50,000       - -       50,000  
                                         
Total other operating expense
     36,891       33,793       85,222       70,684       118,930  
                                         
Income (Loss) before provision (benefit) for income taxes
     (26,989 )     (16,186 )     (54,610 )     (43,175 )     (49,267 )
                                         
PROVISION FOR  (BENEFIT FROM ) INCOME TAXES
     (10,478 )     (6,923 )     (2,305 )     (17,401 )     (796 )
                                         
NET INCOME (LOSS)
   $ (16,511 )   $ (9,263 )   $ (52,305 )   $ (25,774 )   $ (48,471 )
                                         
PREFERRED STOCK DIVIDEND AND DISCOUNT ACCRETION
                                        
Preferred stock dividend
     1,550       1,550       - -       3,100       - -  
Preferred stock discount accretion
     373       373       - -       746       - -  
                                         
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
   $ (18,434 )   $ (11,186 )   $ (52,305 )   $ (29,620 )   $ (48,471 )
                                         
Earnings (Loss) per share available to common shareholder
                                        
Basic
   $ (1.04 )   $ (0.65 )   $ (3.31 )   $ (1.70 )   $ (3.06 )
Diluted
   $ (1.04 )   $ (0.65 )   $ (3.31 )   $ (1.70 )   $ (3.06 )
                                         
Cumulative dividends declared per common share
   $ 0.01     $ 0.01     $ 0.20     $ 0.02     $ 0.40  
                                         
Weighted average common shares outstanding
                                        
Basic
     17,746,051       17,159,793       15,821,934       17,454,542       15,834,728  
Diluted
     17,746,051       17,159,793       15,821,934       17,454,542       15,834,728  
                                         
Common shares repurchased during the period
     - -       - -       - -       - -       613,903  
Common shares issued in connection with exercise of stock options or DRIP
     780,906       493,514       401,645       1,274,420       653,036  
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BANR - Second Quarter 2009 Results
July 29, 2009
Page 6
 
FINANCIAL  CONDITION
                        
(in thousands except shares and per share data)
  
Jun 30, 2009
    
Mar 31, 2009
    
Jun 30, 2008
    
Dec 31, 2008
  
                           
                           
ASSETS
                        
Cash and due from banks
   $ 67,339     $ 72,811     $ 91,953     $ 89,964  
Federal funds and interest-bearing deposits
     16,919       2,699       430       12,786  
Securities - at fair value
     167,476       161,963       238,670       203,902  
Securities - available for sale
     50,980       66,963       - -       53,272  
Securities - held to maturity
     77,321       67,401       55,612       59,794  
Federal Home Loan Bank stock
     37,371       37,371       37,371       37,371  
                                   
Loans receivable:
                                
 
Held for sale
     8,377       11,071       6,817       7,413  
 
Held for portfolio
     3,904,704       3,904,476       3,966,482       3,953,995  
 
Allowance for loan losses
     (90,694 )     (79,724 )     (58,570 )     (75,197 )
                                   
        3,822,387       3,835,823       3,914,729       3,886,211  
                                   
Accrued interest receivable
     18,892       20,821       22,890       21,219  
Real estate owned held for sale, net
     56,967       38,951       11,390       21,782  
Property and equipment, net
     103,709       97,847       97,928       97,647  
Goodwill and other intangibles, net
     12,365       13,026       86,205       13,716  
Bank-owned life insurance
     53,341       53,163       52,213       52,680  
Other assets
     47,475       41,285       26,953       34,024  
                                   
      $ 4,532,542     $ 4,510,124     $ 4,636,344     $ 4,584,368  
                                   
LIABILITIES
                                
                                   
Deposits:
                                
 
Non-interest-bearing
   $ 508,284     $ 508,593     $ 477,144     $ 509,105  
 
Interest-bearing transaction and savings accounts
     1,131,093       1,099,837       1,216,217       1,137,878  
 
Interest-bearing certificates
     2,110,466       2,019,074       2,063,392       2,131,867  
                                   
        3,749,843       3,627,504       3,756,753       3,778,850  
                                   
Advances from Federal Home Loan Bank at fair value
     115,946       172,102       182,496       111,415  
Customer repurchase agreements and other borrowings
     158,249       181,194       164,192       145,230  
Junior subordinated debentures at fair value
     49,563       53,819       101,358       61,776  
                                   
Accrued expenses and other liabilities
     36,652       37,759       37,438       40,600  
Deferred compensation
     12,815       13,203       12,694       13,149  
                                   
        4,123,068       4,085,581       4,254,931       4,151,020  
                                   
STOCKHOLDERS' EQUITY
                                
                                   
Preferred stock -Series A
     116,661       116,288       - -       115,915  
Common stock
     322,582       318,628       299,425       316,740  
Retained earnings ( accumulated deficit )
     (27,826 )     (9,210 )     84,204       2,150  
Other components of stockholders' equity
     (1,943 )     (1,163 )     (2,216 )     (1,457 )
                                   
        409,474       424,543       381,413       433,348  
                                   
      $ 4,532,542     $ 4,510,124     $ 4,636,344     $ 4,584,368  
                                   
Common Shares Issued:
                                
Shares outstanding at end of period
     18,426,458       17,645,552       16,305,282       17,152,038  
 
Less unearned ESOP shares at end of period
     240,381       240,381       240,381       240,381  
                                   
Shares outstanding at end of period excluding unearned ESOP shares
     18,186,077       17,405,171       16,064,901       16,911,657  
                                   
Common stockholders' equity per share (1)
   $ 16.10     $ 17.71     $ 23.74     $ 18.77  
Common stockholders' tangible equity per share (1) (2)
   $ 15.42     $ 16.96     $ 18.38     $ 17.96  
                                   
Tangible common stockholders' equity to tangible assets
     6.20 %     6.56 %     6.49 %     6.64 %
Consolidated Tier 1 leverage capital ratio
     9.90 %     10.27 %     8.80 %     10.32 %
                                   
(1)
- Calculation is based on number of common shares outstanding at the end of the period rather than weighted average shares
          
 
 outstanding and excludes unallocated shares in the ESOP.
                                
(2)
- Tangible common equity excludes preferred stock, goodwill, core deposit and other intangibles.
                  
                                   
(more)
BANR - Second Quarter 2009 Results
July 29, 2009
Page 7
 
ADDITIONAL FINANCIAL INFORMATION
                              
(dollars in thousands)
                              
                               
   
Jun 30, 2009
    
Mar 31, 2009
    
Jun 30, 2008
    
Dec 31, 2008
        
LOANS (including loans held for sale):
                              
Commercial real estate
   $ 1,049,921     $ 1,036,285     $ 983,732     $ 1,013,709        
Multifamily real estate
     150,168       149,442       145,016       151,274        
Commercial construction
     90,762       103,643       103,009       104,495        
Multifamily construction
     56,968       46,568       17,681       33,661        
One- to four-family construction
     337,368       365,421       540,718       420,673        
Land and land development
     403,697       446,128       494,944       486,130        
Commercial business
     678,273       650,123       709,109       679,867        
Agricultural business including secured by farmland
     215,339       197,972       212,397       204,142        
One- to four-family real estate
     653,513       643,705       511,611       599,169        
Consumer
     277,072       276,260       255,082       268,288        
                                       
Total loans outstanding
   $ 3,913,081     $ 3,915,547     $ 3,973,299     $ 3,961,408        
                                       
Restructured loans performing under their restructured terms
   $ 55,031     $ 27,550     $ 7,771     $ 23,635        
                                       
Loans 30 - 89 days past due and on accrual
   $ 34,038     $ 111,683     $ 22,659     $ 61,124        
                                       
Total delinquent loans (including loans on non - accrual)
   $ 259,107     $ 335,780     $ 112,577     $ 248,469        
                                       
Total delinquent loans  /  Total loans outstanding
     6.62 %     8.58 %     2.83 %     6.27 %      
                                       
                                       
GEOGRAPHIC CONCENTRATION OF LOANS AT
                                      
June 30, 2009
  
Washington
    
Oregon
    
Idaho
    
Other
    
Total
  
                                       
Commercial real estate
   $ 785,186     $ 172,632     $ 81,478     $ 10,625     $ 1,049,921  
Multifamily real estate
     125,599       12,405       8,813       3,351       150,168  
Commercial construction
     65,357       15,171       10,234       - -       90,762  
Multifamily construction
     31,431       25,537       - -       - -       56,968  
One- to four-family construction
     166,637       151,704       19,027       - -       337,368  
Land and land development
     195,192       155,902       52,603       - -       403,697  
Commercial business
     496,605       93,752       70,818       17,098       678,273  
Agricultural business including secured by farmland
     101,717       48,807       64,815       - -       215,339  
One- to four-family real estate
     486,614       131,853       31,766       3,280       653,513  
Consumer
     197,377       61,659       17,535       501       277,072  
                                         
Total loans outstanding
   $ 2,651,715     $ 869,422     $ 357,089     $ 34,855     $ 3,913,081  
                                         
Percent of total loans
     67.8 %     22.2 %     9.1 %     0.9 %     100.0 %
                                         
                                         
DETAIL OF LAND AND LAND DEVELOPMENT LOANS AT
                                        
      June 30, 2009                          
  
Washington
    
Oregon
    
Idaho
    
Other
    
Total
  
                                         
Residential
                                        
Acquisition & development
   $ 94,895     $ 112,263     $ 22,088     $ - -     $ 229,246  
Improved lots
     48,448       30,581       4,107       - -       83,136  
Unimproved land
     25,523       10,988       21,167       - -       57,678  
Commercial & industrial
                                        
Acquisition & development
     4,013       - -       197       - -       4,210  
Improved land
     11,366       587       398       - -       12,351  
Unimproved land
     10,947       1,483       4,646       - -       17,076  
                                         
Total land & land development loans outstanding
   $ 195,192     $ 155,902     $ 52,603     $ - -     $ 403,697  
                                         
(more)
BANR - Second Quarter 2009 Results
July 29, 2009
Page 8
 
ADDITIONAL FINANCIAL INFORMATION
          
(dollars in thousands)
                              
                               
      Quarters Ended       Six Months Ended  
CHANGE IN THE
  
Jun 30, 2009
    
Mar 31, 2009
    
Jun 30, 2008
    
Jun 30, 2009
    
Jun 30, 2008
  
ALLOWANCE FOR LOAN LOSSES
                              
                               
Balance, beginning of period
   $ 79,724     $ 75,197     $ 50,446     $ 75,197     $ 45,827  
                                         
Provision
     45,000       22,000       15,000       67,000       21,500  
                                         
Recoveries of loans previously charged off:
                                        
Commercial real estate
     - -       - -       - -       - -       - -  
Multifamily real estate
     - -       - -       - -       - -       - -  
Construction and land
     266       52       9       318       9  
One- to four-family real estate
     89       2       40       91       40  
Commercial business
     249       70       174       319       260  
Agricultural business, including secured by farmland
     22       - -       5       22       8  
Consumer
     32       31       27       63       82  
      658       155       255       813       399  
Loans charged-off:
                                        
Commercial real estate
     - -       - -       (7 )     - -       (7 )
Multifamily real estate
     - -       - -       - -       - -       - -  
Construction and land
     (27,290 )     (12,417 )     (5,081 )     (39,707       (6,049 )
One- to four-family real estate
     (1,181 )     (1,091 )     (119 )     (2,272       (191 )
Commercial business
     (2,438 )     (3,794 )     (1,770 )     (6,232       (2,550 )
Agricultural business, including secured by farmland
     (3,186 )     - -       - -       (3,186       - -  
Consumer
     (593 )     (326 )     (154 )     (919       (359 )
      (34,688 )     (17,628 )     (7,131 )     (52,316       (9,156 )
Net charge-offs
     (34,030 )     (17,473 )     (6,876 )     (51,503       (8,757 )
                                         
Balance, end of period
   $ 90,694     $ 79,724     $ 58,570     $ 90,694     $ 58,570  
                                         
Net charge-offs / Average loans outstanding
     0.87 %     0.44 %     0.18 %     1.31       0.23 %
                                         
                                         
ALLOCATION OF
                                        
ALLOWANCE FOR LOAN LOSSES
  
Jun 30, 2009
    
Mar 31, 2009
    
Jun 30, 2008
    
Dec 31, 2008
          
Specific or allocated loss allowance
                                        
Commercial real estate
   $ 5,333     $ 4,972     $ 4,518     $ 4,199          
Multifamily real estate
     83       84       524       87          
Construction and land
     55,585       46,297       19,991       38,253          
One- to four-family real estate
     1,333       814       2,322       752          
Commercial business
     19,474       18,186       21,494       16,533          
Agricultural business, including secured by farmland
     1,323       587       1,634       530          
Consumer
     1,540       1,682       2,583       1,730          
                                         
Total allocated
     84,671       72,622       53,066       62,084          
                                         
Estimated allowance for undisbursed commitments
     1,976       1,358       543       1,108          
Unallocated
     4,047       5,744       4,961       12,005          
                                         
Total allowance for loan losses
   $ 90,694     $ 79,724     $ 58,570     $ 75,197          
                                         
Allowance for loan losses  /  Total loans outstanding
     2.32 %     2.04 %     1.47 %     1.90          
                                         
(more)
BANR - Second Quarter 2009 Results
July 29, 2009
Page 9
 
ADDITIONAL FINANCIAL INFORMATION
                              
(dollars in thousands)
                              
                               
   
Jun 30, 2009
    
Mar 31, 2009
    
Jun 30, 2008
    
Dec 31, 2008
        
                               
NON-PERFORMING ASSETS
                              
                               
Loans on non-accrual status
                              
Secured by real estate:
                              
Commercial
   $ 7,244     $ 15,180     $ 5,907     $ 12,879        
Multifamily
     - -       968       - -       - -        
Construction and land
     180,989       175,794       70,340       154,823        
One- to four-family
     15,167       21,900       5,526       8,649        
Commercial business
     10,508       7,500       6,875       8,617        
Agricultural business, including secured by farmland
     7,478       2,176       265       1,880        
Consumer
     2,058       275       - -       130        
                                       
      223,444       223,793       88,913       186,978        
                                       
Loans more than 90 days delinquent, still on accrual
                                      
Secured by real estate:
                                      
Commercial
     - -       - -       - -       - -        
Multifamily
     - -       - -       - -       - -        
Construction and land
     603       - -       - -       - -        
One- to four-family
     624       161       889       124        
Commercial business
     209       - -       - -       - -        
Agricultural business, including secured by farmland
     - -       - -       - -       - -        
Consumer
     189       143       116       243        
                                       
      1,625       304       1,005       367        
                                       
Total non-performing loans
     225,069       224,097       89,918       187,345        
Securities on non - accrual at fair value
     - -       160       - -       - -        
Real estate owned (REO) / Repossessed assets
     57,197       39,109       11,397       21,886        
                                       
Total non-performing assets
   $ 282,266     $ 263,366     $ 101,315     $ 209,231        
                                       
Total non-performing assets  /  Total assets
     6.23 %     5.84 %     2.19 %     4.56 %      
                                       
DETAIL & GEOGRAPHIC CONCENTRATION OF
                                      
NON-PERFORMING ASSETS AT
                                      
June 30, 2009
  
Washington
    
Oregon
    
Idaho
    
Other
    
Total
  
Secured by real estate:
                                      
Commercial
   $ 6,611     $ 483     $ 150     $ - -     $ 7,244  
Multifamily
     - -       - -       - -       - -       - -  
Construction and land
                                        
One- to four-family construction
     33,652       30,181       10,732       - -       74,565  
Residential land acquisition & development
     31,951       31,365       8,633       - -       71,949  
Residential land improved lots
     7,636       6,238       1,894       - -       15,768  
Residential land unimproved
     11,711       180       2,253       - -       14,144  
Commercial land acquisition & development
     - -       - -       - -       - -       - -  
Commercial land improved
     - -       591       - -       - -       591  
Commercial land unimproved
     4,382       - -       193       - -       4,575  
Total construction and land
     89,332       68,555       23,705       - -       181,592  
One- to four-family
     8,202       2,006       5,557       26       15,791  
Commercial business
     9,731       456       530       - -       10,717  
Agricultural business, including secured by farmland
     694       378       6,406       - -       7,478  
Consumer
     1,522       448       184       93       2,247  
                                         
Total non-performing loans
     116,092       72,326       36,532       119       225,069  
Securities on non - accrual
     - -       - -       - -       - -       0  
Real estate owned (REO) and repossessed assets
     38,354       15,131       2,833       879       57,197  
                                         
Total  non-performing assets at end of the period
   $ 154,446     $ 87,457     $ 39,365     $ 998     $ 282,266  
(more)
BANR - Second Quarter 2009 Results
July 29, 2009
Page 10
 
ADDITIONAL FINANCIAL INFORMATION
                        
(dollars in thousands)
                        
                         
                         
DEPOSITS & OTHER BORROWINGS
                        
                         
BREAKDOWN OF DEPOSITS
  
Jun 30, 2009
    
Mar 31, 2009
    
Jun 30, 2008
    
Dec 31, 2008
  
                         
Non-interest-bearing
   $ 508,284     $ 508,593     $ 477,144     $ 509,105  
                                 
Interest-bearing checking
     312,024       307,741       411,571       378,952  
Regular savings accounts
     499,447       490,239       580,482       474,885  
Money market accounts
     319,622       301,857       224,164       284,041  
                                 
Interest-bearing transaction & savings accounts
     1,131,093       1,099,837       1,216,217       1,137,878  
                                 
Interest-bearing certificates
     2,110,466       2,019,074       2,063,392       2,131,867  
                                 
Total deposits
   $ 3,749,843     $ 3,627,504     $ 3,756,753     $ 3,778,850  
                                 
                                 
INCLUDED IN OTHER BORROWINGS
                                
Customer repurchase agreements / "Sweep accounts"
   $ 108,277     $ 131,224     $ 91,192     $ 145,230  
                                 
                                 
                                 
GEOGRAPHIC CONCENTRATION OF DEPOSITS AT
                                
     June 30, 2009                                                 
 
Washington
    
Oregon
    
Idaho
    
Total
  
                                 
    $ 2,941,140     $ 566,065     $ 242,638     $ 3,749,843  
                                 
                                 
                                 
                                 
                                 
                   
Minimum for Capital Adequacy
  
REGULATORY CAPITAL RATIOS AT
       Actual    
or "Well Capitalized"
  
June 30, 2009                           
 
Amount
    
Ratio
    
Amount
    
Ratio
  
                                 
Banner Corporation-consolidated
                                
Total capital to risk-weighted assets
   $ 497,049       12.49 %   $ 318,332       8.00 %
Tier 1 capital to risk-weighted assets
     446,804       11.23 %     159,166       4.00 %
Tier 1 leverage capital to average assets
     446,804       9.90 %     180,436       4.00 %
                                 
Banner Bank
                                
Total capital to risk-weighted assets
     465,484       12.19 %     382,002       10.00 %
Tier 1 capital to risk-weighted assets
     417,222       10.92 %     229,201       6.00 %
Tier 1 leverage capital to average assets
     417,222       9.63 %     216,703       5.00 %
                                 
Islanders Bank
                                
Total capital to risk-weighted assets
     25,209       13.60 %     18,542       10.00 %
Tier 1 capital to risk-weighted assets
     23,726       12.80 %     11,125       6.00 %
Tier 1 leverage capital to average assets
     23,726       11.59 %     10,240       5.00 %
                                 
(more)
BANR - Second Quarter 2009 Results
July 29, 2009
Page 11
 
ADDITIONAL FINANCIAL INFORMATION
                              
(dollars in thousands)
                              
(rates / ratios annualized)
                              
        Quarters Ended       Six Months Ended  
                                 
OPERATING PERFORMANCE
  
Jun 30, 2009
    
Mar 31, 2009
    
Jun 30, 2008
    
Jun 30, 2009
    
Jun 30, 2008
  
                                 
                                 
Average loans
   $ 3,925,196     $ 3,942,917     $ 3,917,563     $ 3,934,002     $ 3,874,277  
Average securities and deposits
     394,244       403,514       336,662       398,856       324,605  
Average non-interest-earning assets
     199,981       193,188       352,639       196,604       354,960  
                                           
 
Total average assets
   $ 4,519,421     $ 4,539,619     $ 4,606,864     $ 4,529,462     $ 4,553,842  
                                           
Average deposits
   $ 3,679,653     $ 3,693,345     $ 3,719,748     $ 3,686,455     $ 3,662,934  
Average borrowings
     429,708       416,927       419,280       423,359       415,421  
Average non-interest-bearing liabilities
     (18,421 )     (7,922 )     31,475       (13,201 )     36,130  
                                           
 
Total average liabilities
     4,090,940       4,102,350       4,170,503       4,096,613       4,114,485  
                                           
Total average stockholders' equity
     428,481       437,269       436,361       432,849       439,357  
     
 
                                  
 
Total average liabilities and equity
   $ 4,519,421     $ 4,539,619     $ 4,606,864     $ 4,529,462     $ 4,553,842  
                                           
Interest rate yield on loans
     5.67 %     5.80 %     6.59 %     5.73 %     6.87 %
Interest rate yield on securities and deposits
     3.72 %     4.00 %     4.72 %     3.86 %     4.85 %
                                           
 
Interest rate yield on interest-earning assets
     5.49 %     5.63 %     6.44 %     5.56 %     6.71 %
                                           
Interest rate expense on deposits
     2.36 %     2.54 %     2.98 %     2.45 %     3.16 %
Interest rate expense on borrowings
     2.42 %     2.22 %     3.35 %     2.32 %     3.88 %
                                           
 
Interest rate expense on interest-bearing liabilities
     2.37 %     2.50 %     3.02 %     2.43 %     3.24 %
                                           
Interest rate spread
     3.12 %     3.13 %     3.42 %     3.13 %     3.47 %
                                           
Net interest margin
     3.24 %     3.26 %     3.50 %     3.25 %     3.57 %
                                           
Other operating income / Average assets
     1.77 %     0.42 %     0.75 %     1.10 %     0.74 %
                                           
Other operating income (loss) EXCLUDING  change in valuation of
                                        
 
financial instruments carried at fair value / Average assets (1)
     0.79 %     0.71 %     0.69 %     0.75 %     0.67 %
                                           
Other operating expense / Average assets
     3.27 %     3.02 %     7.44 %     3.15 %     5.25 %
                                           
Other operating expense EXCLUDING goodwill write-off / Average assets (1)
     3.27 %     3.02 %     3.08 %     3.15 %     3.04 %
                                           
Efficiency ratio (other operating expense / revenue)
     67.19 %     85.32 %     186.84 %     74.79 %     130.46 %
                                           
Return (Loss) on average assets
     (1.47 %)     (0.83 %)     (4.57 %)     (1.15 %)     (2.14 %)
                                           
Return (Loss) on average equity
     (15.46 %)     (8.59 %)     (48.21 %)     (12.01 %)     (22.19 %)
                                           
Return (Loss) on average tangible equity (2)
     (15.93 %)     (8.86 %)     (70.04 %)     (12.38 %)     (32.20 %)
                                           
Average equity  /  Average assets
     9.48 %     9.63 %     9.47 %     9.56 %     9.65 %
                                           
(1)
- Earnings information excluding the fair value adjustments and goodwill impairment charge (alternately referred to as operating
                  
 
income (loss) from core operations and expenses from core operations) represent non-GAAP (Generally Accepted
                  
 
Accounting Principles) financial measures.
                                        
                                           
(2)
- Average tangible equity excludes goodwill, core deposit and other intangibles.
                                  
                                           

 
Transmitted on Globe Newswire on Wednesday, July 29, 2009, at 1:00 p.m. PDT.