EX-99.1 2 ex99112710.htm EXHIBIT 99.1 ex99112710.htm
Exhibit 99.1
 
 

 
 
Contact: D. Michael Jones,
President and CEO
Lloyd W. Baker, CFO
(509) 527-3636
 
News Release
Banner Corporation Announces Fourth Quarter Results;
Reports Net Interest Margin Expansion and Strong Core Deposit Growth

Walla Walla, WA – January 27, 2010 - Banner Corporation (NASDAQ GMS: BANR), the parent company of Banner Bank and Islanders Bank, today reported that it had a net loss of $3.5 million for the fourth quarter ended December 31, 2009, compared to a net loss of $6.4 million in the immediately preceding quarter.  The current quarter’s results include a $17.0 million provision for loan losses and a $1.4 million loss from the valuation of financial instruments carried at fair value.
 
“The strong performance of our retail deposit franchise during the entire year ended December 31, 2009 was particularly evident in our improved operating results for the fourth quarter, as solid core deposit growth and changes in the mix of our funding over the past twelve months resulted in a significant expansion of our net interest margin which increased by 19 basis points to 3.49% compared to the immediately preceding quarter and 25 basis points compared to the same quarter a year ago,” said D. Michael Jones, President and CEO.  “This improvement reflects continuing growth in customer relationships as a result of the determined efforts and quality service provided by our entire staff and the further maturing of the expanded branch network we worked to create over the past five years.  Despite the current difficult economic environment, we are optimistic that the strength of this deposit franchise will provide the foundation for better operating results in future periods.”
 
“The difficult economic environment and resulting credit costs have been a persistent challenge throughout all of 2009,” Jones continued.  “As a direct result, the provision for loan losses, while substantially less than both the preceding quarter and the same quarter a year ago, remained high in the fourth quarter, reflecting still significant, though moderating, levels of non-performing loans and net charge-offs.  Charge-offs and delinquencies continue to be concentrated in loans for the construction of single-family homes and for acquisition and development of land for residential properties.  However, we are encouraged by the further reduction in our exposure to residential construction loans during the quarter and the slowdown in the surfacing of new problem assets.  By contrast to our construction and development loan portfolio, the non-housing related segments of our loan portfolio have continued to perform with only normal levels of credit problems given the serious economic slowdown.”
 
In the fourth quarter, Banner paid a $1.6 million dividend on the $124 million of senior preferred stock it issued to the U.S. Treasury in the fourth quarter of 2008 in connection with its participation in the Treasury’s Capital Purchase Program.  In addition, Banner accrued $373,000 for related discount accretion.  Including the preferred stock dividend and related accretion, the net loss to common shareholders was $5.5 million, or $0.27 per diluted share, for the fourth quarter of 2009, compared to a net loss of $79.4 million or $4.72 per diluted share, for the fourth quarter a year ago.  Fourth quarter 2008 results included a $71.1 million goodwill impairment charge and a preferred dividend of $689,000.
 
Credit Quality
 
“Distressed property values, particularly for land and developed building lots, placed further stress on certain borrowers and projects during the quarter resulting in additional charge-offs and impairment reserves,” said Jones.  “As a result, our provision for loan losses for the fourth quarter, while decreased significantly from the preceding quarter, was again in excess of our normal expectations.  Although property values have declined, sales of finished homes have continued, our reserve levels are substantial, and both our impairment analysis and charge-off actions reflect current appraisals and valuation estimates as well as recent regulatory examination results.  We remain hopeful that the final resolution of many of these loans will occur at a reasonable pace and that credit costs will moderate over time.  We also are confident that we have the capital and human resources necessary to manage our problem assets in the current economic environment.”
 
Banner recorded a $17.0 million provision for loan losses in the fourth quarter, compared to $25.0 million in the preceding quarter and $33.0 million in the fourth quarter of 2008. The allowance for loan losses at December 31, 2009 totaled $95.3 million, representing 2.51% of total loans outstanding.  Non-performing loans totaled $ 213.9 million at December 31, 2009, compared to $243.3 million in the preceding quarter and $187.3 million at December 31, 2008.  Banner’s real estate owned and repossessed assets totaled $77.8 million at December 31, 2009, compared to $53.8 million three months earlier and $21.9 million a year ago.  Banner’s net charge-offs in the quarter totaled $16.9 million, or 0.44% of average loans outstanding.
 
At December 31, 2009, the geographic distribution of construction and land development loans, including residential and commercial properties, is approximately 32% in the greater Puget Sound market, 38% in the greater Portland, Oregon market, and 7% in the greater Boise, Idaho market, with the remaining 23% distributed in various eastern Washington, eastern Oregon and northern Idaho 
 
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BANR-Fourth Quarter 2009 Results
January 27, 2010
Page 2
 
markets served by Banner Bank.  One-to-four family residential construction and related lot and land loans represent 14% of the total loan portfolio and 48% of non-performing assets.  The geographic distribution of non-performing construction, land and land development loans and real estate owned included approximately $103 million, or 43%, in the greater Puget Sound market, $78 million, or 33%, in the greater Portland market and $24 million, or 10%, in the greater Boise market.
 
Income Statement Review
 
Banner’s net interest margin was 3.49% for the fourth quarter, a 19 basis point improvement compared to the preceding quarter and a 25 basis point improvement compared to the fourth quarter a year ago.  “Our improved net interest margin is driven by a continued decline in funding costs as well as our core deposit growth,” said Jones.  “While loan yields have been very stable for a number of quarters now, asset yields declined slightly primarily as a result of the growth of our on-balance-sheet liquidity which is currently invested at very low short-term interest rates.”
 
For the quarter ended December 31, 2009, funding costs decreased 31 basis points compared to the previous quarter and 89 basis points from the same quarter a year ago.  Deposit costs decreased by 33 basis points compared to the preceding quarter and 91 basis points compared to the fourth quarter a year earlier.  Asset yields decreased ten basis points from the prior linked quarter and 59 basis points from the fourth quarter a year ago.  Loan yields decreased by one basis point compared to the third quarter and by 35 basis points compared to the fourth quarter of 2008.  Non-accruing loans reduced the margin by approximately 37 basis points in the fourth quarter of 2009 compared to approximately 42 basis points in the preceding quarter and approximately 34 basis points in the fourth quarter of 2008.
 
For the fourth quarter of 2009, net interest income before the provision for loan losses was $38.3 million, compared to $36.4 million in the preceding quarter and $35.7 million in the fourth quarter a year ago.  Revenues from core operations* (net interest income before the provision for loan losses plus total other operating income excluding fair value adjustments) were $45.4 million in the fourth quarter of 2009, compared to $45.2 million in the third quarter of 2009 and $42.9 million for the fourth quarter a year ago.
 
Banner’s results for the quarter included a net loss of $1.4 million ($0.9 million after tax), compared to a net gain of $13.7 million ($8.8 million after tax) in the fourth quarter a year ago, for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value.
 
Total other operating income, which includes the changes in the valuation of financial instruments noted above, was $5.6 million in the fourth quarter, compared to $13.5 million in the preceding quarter and $21.0 million for the fourth quarter a year ago.  Total other operating income from core operations* (excluding fair value adjustments) for the current quarter was $7.0 million, compared to $8.8 million in the preceding quarter and $7.2 million for the same quarter a year ago.  Income from deposit fees and other service charges decreased to $5.3 million in the fourth quarter compared to $5.7 million in the preceding quarter and was unchanged from the fourth quarter a year ago.  Income from mortgage banking operations decreased to $1.3 million in the fourth quarter compared to $2.1 million in the preceding quarter and $1.4 million for the fourth quarter a year ago.
 
“Our payment processing business continues to be adversely affected by the soft economy, as activity levels for deposit customers, cardholders and merchants remained lower than in previous years,” said Jones.  “Additionally, mortgage banking revenues declined compared to the preceding quarter and the fourth quarter a year ago, as seasonal factors and rising mortgage rates slowed originations.   However, for the full year mortgage banking revenues were well above the levels achieved in 2008 and we are encouraged by our market share position and improved efficiencies as we continue to address the needs of home buyers in the communities we serve.  Unfortunately, continuing high levels of refinancing activity and a soft market for mortgage servicing rights was reflected in the impairment of loan servicing revenues in the fourth quarter.  Amortization and write-off of mortgage servicing rights totaled $974,000 for the fourth quarter of 2009, compared to $415,000 in the third quarter and $193,000 in the fourth quarter a year ago.”
 
“We had another good quarter of managing controllable operating expenses; however, collection and legal costs, including charges related to acquired real estate, remained high,” said Jones.  “We have made significant progress in improving our core operating efficiency as compensation, occupancy and other manageable operating expenses have been reduced steadily over the past twelve months.  However, compared to a year ago FDIC insurance expense has increased substantially and offset much of the improvement in other operating expenses.  FDIC insurance charges were $2.2 million and $10.0 million, respectively, for the quarter and year ended December 31, 2009, compared to $2.3 million and $4.0 million, respectively, for the quarter and year ended December 31, 2008.  In addition, expenses associated with acquired real estate increased to $1.9 million for the quarter and $7.1 million for the year ended December 31, 2009, compared to $676,000 and $2.8 million, respectively, for the same quarter and twelve-month period a year ago.  We anticipate collection costs, acquired real estate expenses and FDIC insurance premiums will continue above historical levels for a number of future quarters.”
 
Total other operating expenses from core operations* (excluding the goodwill write-off in 2008), or non-interest expenses, were $34.8 million in the fourth quarter, compared to $36.6 million in the preceding quarter and $36.0 million in the fourth quarter a year ago.  
 
 
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BANR-Fourth Quarter 2009 Results
January 27, 2010
Page 3
 
Operating expenses from core operations as a percentage of average assets was 3.00% in the fourth quarter of 2009, compared to 3.17% in the preceding quarter and 3.06% in the fourth quarter a year ago.
 
*Earnings information excluding fair value adjustments and the goodwill impairment charge (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 and year-to-date’s results.  Where applicable, the Company has also presented comparable earnings information using GAAP financial measures.
 
Balance Sheet Review
 
Net loans were $3.69 billion at December 31, 2009, compared to $3.80 billion at the end of the preceding quarter and $3.89 billion a year earlier.  Total assets were $4.72 billion at December 31, 2009, compared to $4.79 billion at the end of the preceding quarter and $4.58 billion a year ago.
 
“Largely as a result of substantially reducing construction and land development loans, our total loan balances declined compared to a year ago,” said Jones.  “Home sales have improved, although they are still slower than historical levels, contributing to a $182 million reduction in our portfolio of one-to-four family construction loans over the past twelve months, including a $38.3 million decrease in the most recent quarter.  As a result, at December 31, 2009 our one-to-four family construction loans totaled $239 million, a decline of $416 million from their peak quarter-end balance of $655 million at June 30, 2007.  Reflecting the economic environment, demand for business and consumer loans has been modest, further contributing to the decrease in total loans.  By contrast, mortgage loans for one- to four-family properties have shown steady growth primarily as a result of financing the purchase of newly constructed homes.”
 
Deposits totaled $3.87 billion at December 31, 2009, compared to $3.86 billion at the end of the preceding quarter and $3.78 billion a year ago.  Non-interest-bearing accounts increased by $36 million during the quarter to $582 million at December 31, 2009, compared to $547 million at September 30, 2009 and $509 million a year ago.  Interest-bearing accounts declined by $31 million during the fourth quarter, primarily due to a decrease in brokered deposits, to $3.28 billion at December 31, 2009 compared to $3.31 billion at September 30, 2009, but increased by $13.3 million compared to a year ago.  At December 31, 2008, interest-bearing accounts totaled $3.27 billion.
 
“Our retail deposit franchise had another strong quarter and we have now more than replaced all of the public funds and brokered deposits that we have chosen to run off,” said Jones.  “Over the past year, we have allowed $173 million in public funds to run off as the new higher collateralization requirements and the shared risk exposure requirements under the Washington and Oregon State requirements have made retaining those deposits less desirable than in the past.  In addition, although brokered deposits have never been an important component of our funding, we have reduced brokered deposits by $103 million over the same twelve-month period.  At the same time, our retail deposit growth has allowed us to steadily build our short-term liquidity, a key operating goal, lower our loan-to-deposits ratio towards our long-term goal of 95% and substantially lower our cost of deposits and funding.”
 
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.  Banner Corporation’s Tier 1 leverage capital to average assets ratio was 9.62% and its total capital to risk-weighted assets ratio was 12.73% at December 31, 2009.
 
Tangible stockholders’ equity at December 31, 2009 was $394.1 million, including $117.4 million attributable to preferred stock, compared to $419.6 million a year ago.  Tangible book value per common share was $12.99 at quarter-end, compared to $17.96 a year earlier.  At December 31, 2009, Banner had 21.3 million shares outstanding, while it had 16.9 million shares outstanding a year ago.  Tangible common stockholders’ equity was $276.7 million at December 31, 2009, or 5.87% of tangible assets, compared to $303.7 million, or 6.64% of tangible assets a year earlier.
 
On December 18, 2009 Banner announced that it had decided to terminate its previously announced common stock offering in light of current market conditions.  Banner plans to commence a new offering in 2010 after market conditions become more favorable.
 
Conference Call
 
Banner will host a conference call on Thursday, January 28, 2010, at 8:00 a.m. PST, to discuss fourth quarter 2009 results.  The conference call can be accessed live by telephone at 480-629-9818 using access code 4198992 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 4198992.
 

 
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BANR-Fourth Quarter 2009 Results
January 27, 2010
Page 4
 
 
About the Company
 
Banner Corporation is a $4.7 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; our ability to pay dividends; 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-Fourth Quarter 2009 Results
January 27, 2010
Page 5
 
RESULTS OF OPERATIONS
    
Quarters Ended
  
Year Ended
(in thousands except shares and per share data)
    
Dec 31, 2009
  
Sep 30, 2009
  
Dec 31, 2008
  
Dec 31, 2009
  
Dec 31, 2008
                             
INTEREST INCOME:
                        
 
Loans receivable
    
$
           55,013
$
          56,175
$
          60,674
$
        223,035
$
        257,211
 
Mortgage-backed securities
    
             1,265
  
            1,422
  
            1,359
  
            6,057
  
            4,639
 
Securities and cash equivalents
    
             2,030
  
            1,976
  
            2,934
  
            8,278
  
          11,308
           
           58,308
  
          59,573
  
          64,967
  
        237,370
  
        273,158
INTEREST EXPENSE:
                        
 
Deposits
      
           17,663
  
          20,818
  
          25,868
  
          83,211
  
        110,314
 
Federal Home Loan Bank advances
    
                602
  
               630
  
            1,097
  
            2,627
  
            5,407
 
Other borrowings
      
                652
  
               655
  
               397
  
            2,205
  
            2,271
 
Junior subordinated debentures
    
             1,054
  
            1,118
  
            1,954
  
            4,754
  
            7,353
           
           19,971
  
          23,221
  
          29,316
  
          92,797
  
        125,345
 
Net interest income before provision for loan losses
    
           38,337
  
          36,352
  
          35,651
  
        144,573
  
        147,813
                             
PROVISION FOR LOAN LOSSES
    
           17,000
  
          25,000
  
          33,000
  
        109,000
  
          62,500
 
Net interest income
      
           21,337
  
          11,352
  
            2,651
  
          35,573
  
          85,313
                             
OTHER OPERATING INCOME:
                      
 
Deposit fees and other service charges
    
             5,345
  
            5,705
  
            5,263
  
          21,394
  
          21,540
 
Mortgage banking operations
    
             1,253
  
            2,065
  
            1,351
  
            8,893
  
            6,045
 
Loan servicing fees
      
              (167)
  
               282
  
               407
  
                 93
  
            1,703
 
Miscellaneous
      
                592
  
               768
  
               205
  
            2,292
  
            1,185
           
7,023
  
8,820
  
7,226
  
32,672
  
30,473
 
Increase (Decrease) in valuation of financial instruments carried at fair value
           (1,411)
  
            4,633
  
          13,740
  
          11,018
  
            9,156
 
Total other operating income
    
             5,612
  
          13,453
  
          20,966
  
          43,690
  
          39,629
OTHER OPERATING EXPENSE:
                      
 
Salary and employee benefits
    
           16,166
  
          17,379
  
          18,481
  
          68,674
  
          76,104
 
Less capitalized loan origination costs
    
           (1,853)
  
           (2,060)
  
          (1,730)
  
          (8,863)
  
          (8,739)
 
Occupancy and equipment
    
             5,699
  
            5,715
  
            6,197
  
          23,396
  
          24,010
 
Information / computer data services
    
             1,580
  
            1,551
  
            1,309
  
            6,264
  
            6,698
 
Payment and card processing services
    
             1,610
  
            1,778
  
            1,781
  
            6,396
  
            6,993
 
Professional services
      
             2,251
  
            1,456
  
            1,175
  
            6,084
  
            4,378
 
Advertising and marketing
    
             1,701
  
            1,899
  
            2,009
  
            7,639
  
            6,676
 
Deposit insurance
      
             2,150
  
            2,219
  
            2,308
  
            9,968
  
            3,969
 
State/municipal business and use taxes
    
                524
  
               558
  
               545
  
            2,154
  
            2,257
 
Real estate operations
      
             1,920
  
            2,799
  
               676
  
            7,147
  
            2,828
 
Miscellaneous
      
             3,019
  
            3,335
  
            3,218
  
          13,221
  
          13,725
           
           34,767
  
          36,629
  
          35,969
  
        142,080
  
        138,899
 
Goodwill write-off
      
                  - -
  
                  - -
  
          71,121
  
                 - -
  
        121,121
 
Total other operating expense
    
           34,767
  
          36,629
  
        107,090
  
        142,080
  
        260,020
 
Income (Loss) before provision (benefit) for income taxes
    
           (7,818)
  
         (11,824)
  
        (83,473)
  
        (62,817)
  
      (135,078)
PROVISION FOR  (BENEFIT FROM ) INCOME TAXES
    
           (4,276)
  
           (5,376)
  
          (4,942)
  
        (27,053)
  
          (7,085)
NET INCOME (LOSS)
    
$
           (3,542)
$
           (6,448)
$
        (78,531)
$
        (35,764)
$
      (127,993)
PREFERRED STOCK DIVIDEND AND DISCOUNT ACCRETION
                    
 
Preferred stock dividend
      
             1,550
  
            1,550
  
               689
  
            6,200
  
               689
 
Preferred stock discount accretion
    
                373
  
               373
  
               161
  
            1,492
  
               161
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
$
           (5,465)
$
           (8,371)
$
        (79,381)
$
        (43,456)
$
      (128,843)
Earnings (Loss) per share available to common shareholder
                      
   
Basic
    
$
             (0.27)
$
             (0.44)
$
            (4.72)
$
            (2.33)
$
            (7.94)
   
Diluted
    
$
             (0.27)
$
             (0.44)
$
            (4.72)
$
            (2.33)
$
            (7.94)
Cumulative dividends declared per common share
  
$
               0.01
$
              0.01
$
              0.05
$
              0.04
$
              0.50
Weighted average common shares outstanding
                      
   
Basic
      
    20,616,861
  
   19,022,522
  
   16,820,350
  
   18,646,836
  
   16,225,225
   
Diluted
      
    20,616,861
  
   19,022,522
  
   16,820,350
  
   18,646,836
  
   16,225,225
Common shares repurchased during the period
    
                  - -
  
                  - -
  
               200
  
                 - -
  
        614,103
Common shares issued in connection with exercise of stock options or DRIP
      1,605,647
  
     1,507,485
  
        171,770
  
     4,387,552
  
     1,499,992

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BANR-Fourth Quarter 2009 Results
January 27, 2010
Page 6
 
 
FINANCIAL  CONDITION
                
 
(in thousands except shares and per share data)
    
Dec 31, 2009
  
Sep 30, 2009
  
Dec 31, 2008
                     
 
ASSETS
                
 
Cash and due from banks
    
$
             78,364
$
             60,531
$
             89,964
 
Federal funds and interest-bearing deposits
    
           244,641
  
           270,623
  
             12,786
 
Securities - at fair value
      
           147,151
  
           167,944
  
           203,902
 
Securities - available for sale
      
             74,834
  
             74,527
  
             53,272
 
Securities - held to maturity
      
             95,667
  
             76,630
  
             59,794
 
Federal Home Loan Bank stock
    
             37,371
  
             37,371
  
             37,371
 
Loans receivable:
                
   
Held for sale
      
               4,497
  
               4,781
  
               7,413
   
Held for portfolio
      
        3,785,624
  
        3,891,413
  
        3,953,995
   
Allowance for loan losses
      
            (95,269)
  
           (95,183)
  
            (75,197)
           
        3,694,852
  
        3,801,011
  
        3,886,211
 
Accrued interest receivable
      
             18,998
  
             20,912
  
             21,219
 
Real estate owned held for sale, net
    
             77,743
  
             53,576
  
             21,782
 
Property and equipment, net
      
           103,542
  
           104,469
  
             97,647
 
Goodwill and other intangibles, net
    
             11,070
  
             11,718
  
             13,716
 
Bank-owned life insurance
      
             54,596
  
             54,037
  
             52,680
 
Other assets
      
             83,392
  
             54,659
  
             34,024
         
$
        4,722,221
$
        4,788,008
$
        4,584,368
                     
 
LIABILITIES
                
 
Deposits:
                
   
Non-interest-bearing
    
$
           582,480
$
           546,956
$
           509,105
   
Interest-bearing transaction and savings accounts
    
        1,341,145
  
        1,305,546
  
        1,137,878
   
Interest-bearing certificates
    
        1,941,925
  
        2,008,673
  
        2,131,867
           
        3,865,550
  
        3,861,175
  
        3,778,850
                     
 
Advances from Federal Home Loan Bank at fair value
    
           189,779
  
           255,806
  
           111,415
 
Customer repurchase agreements and other borrowings
    
           176,842
  
           174,770
  
           145,230
 
Junior subordinated debentures at fair value
    
             47,694
  
             47,859
  
             61,776
                     
 
Accrued expenses and other liabilities
    
             24,020
  
             28,715
  
             40,600
 
Deferred compensation
      
             13,208
  
             12,960
  
             13,149
           
        4,317,093
  
        4,381,285
  
        4,151,020
                     
 
STOCKHOLDERS' EQUITY
                
 
Preferred stock - Series A
      
           117,407
  
           117,034
  
           115,915
 
Common stock
      
           331,538
  
           327,385
  
           316,740
 
Retained earnings (accumulated deficit)
    
            (42,077)
  
           (36,402)
  
               2,150
 
Other components of stockholders' equity
    
              (1,740)
  
             (1,294)
  
              (1,457)
           
           405,128
  
           406,723
  
           433,348
         
$
        4,722,221
$
        4,788,008
$
        4,584,368
 
Common Shares Issued:
                
 
Shares outstanding at end of period
    
      21,539,590
  
      19,933,943
  
      17,152,038
   
Less unearned ESOP shares at end of period
    
           240,381
  
           240,381
  
           240,381
 
Shares outstanding at end of period excluding unearned ESOP shares
  
      21,299,209
  
      19,693,562
  
      16,911,657
 
Common stockholders' equity per share (1)
  
$
               13.51
$
               14.71
$
               18.77
 
Common stockholders' tangible equity per share (1) (2)
  
$
               12.99
$
               14.11
$
               17.96
                     
 
Tangible common stockholders' equity to tangible assets
    
5.87%
  
5.82%
  
6.64%
 
Consolidated Tier 1 leverage capital ratio
    
9.62%
  
9.66%
  
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-Fourth Quarter 2009 Results
January 27, 2010
Page 7
 
 
ADDITIONAL FINANCIAL INFORMATION
                        
 
(dollars in thousands)
                          
                                 
             
Dec 31, 2009
  
Sep 30, 2009
  
Dec 31, 2008
  
 
      
 
LOANS (including loans held for sale):
                        
 
Commercial real estate
                          
   
Owner occupied
    
$
              509,464
$
              481,698
$
              459,446
 
       
      
   
Investment properties
      
              573,495
  
              585,206
  
              554,263
  
          
      
 
Multifamily real estate
      
              153,497
  
              152,832
  
              151,274
  
           
      
 
Commercial construction
      
                80,236
  
                83,937
  
              104,495
  
           
      
 
Multifamily construction
      
                57,422
  
                62,614
  
                33,661
  
               
      
 
One- to four-family construction
    
              239,135
  
              277,419
  
              420,673
  
             
      
 
Land and land development
                          
   
Residential
      
              284,331
  
              322,030
  
              401,129
  
        
      
   
Commercial
      
                43,743
  
                47,182
  
                62,128
  
             
      
 
Commercial business
      
              637,823
  
              678,187
  
              679,867
  
            
      
 
Agricultural business including secured by farmland
  
              205,307
  
              225,603
  
              204,142
  
            
      
 
One- to four-family real estate
      
              703,277
  
              676,928
  
              599,169
  
            
      
 
Consumer
      
              302,391
  
              302,558
  
              291,161
  
            
      
                                 
     
Total loans outstanding
    
$
           3,790,121
$
           3,896,194
$
           3,961,408
 
         
      
                                 
 
Restructured loans performing under their restructured terms
$
                43,683
$
                39,173
$
                23,635
 
         
      
 
Loans 30 - 89 days past due and on accrual
  
$
                34,156
$
                21,243
$
                61,124
 
              
      
 
Total delinquent loans (including loans on non-accrual)
$
              248,006
$
              264,531
$
              248,469
 
       
      
 
Total delinquent loans  /  Total loans outstanding
  
6.54%
  
6.79%
  
6.27%
  
 
      
                                 
                                 
 
GEOGRAPHIC CONCENTRATION OF LOANS AT
                    
     
December 31, 2009
      
Washington
  
Oregon
  
Idaho
  
Other
  
Total
  
                                 
 
Commercial real estate
                          
   
Owner occupied
    
$
              401,392
$
                61,821
$
                46,251
$
                       - -
$
              509,464
  
   
Investment properties
      
              413,570
  
              105,956
  
                43,684
  
                10,285
  
              573,495
  
 
Multifamily real estate
      
              127,748
  
                13,672
  
                  8,776
  
                  3,301
  
              153,497
  
 
Commercial construction
      
                57,493
  
                13,625
  
                  9,118
  
                       - -
  
                80,236
  
 
Multifamily construction
      
                29,956
  
                27,466
  
                       - -
  
                       - -
  
                57,422
  
 
One- to four-family construction
    
              107,067
  
              120,395
  
                11,673
  
                       - -
  
              239,135
  
 
Land and land development
                          
   
Residential
      
              140,539
  
              112,945
  
                30,847
  
                       - -
  
              284,331
  
   
Commercial
      
                29,130
  
                12,122
  
                  2,491
  
                       - -
  
                43,743
  
 
Commercial business
      
              451,531
  
                92,289
  
                70,803
  
                23,200
  
              637,823
  
 
Agricultural business including secured by farmland
  
                94,452
  
                50,419
  
                60,436
  
                       - -
  
              205,307
  
 
One- to four-family real estate
      
              485,185
  
              185,573
  
                30,064
  
                  2,455
  
              703,277
  
 
Consumer
      
              216,315
  
                65,564
  
                20,011
  
                     501
  
              302,391
  
     
Total loans outstanding
    
$
           2,554,378
$
              861,847
$
              334,154
$
                39,742
$
           3,790,121
  
                                 
     
Percent of total loans
      
67.4%
  
22.7%
  
8.8%
  
1.1%
  
100.0%
  
                                 
                                 
 
DETAIL OF LAND AND LAND DEVELOPMENT LOANS AT
                    
     
December 31, 2009
      
Washington
  
Oregon
  
Idaho
  
Other
  
Total
  
                                 
 
Residential
                          
   
Acquisition & development
    
$
                56,540
$
                74,496
$
                  8,946
$
                       - -
$
              139,982
  
   
Improved lots
      
                48,102
  
                31,461
  
                  2,013
  
                       - -
  
                81,576
  
   
Unimproved land
      
                35,897
  
                  6,988
  
                19,888
  
                       - -
  
                62,773
  
     
Total residential land and development
  
$
              140,539
$
              112,945
$
                30,847
$
                       - -
$
              284,331
  
 
Commercial & industrial
                          
   
Acquisition & development
    
$
                  8,531
$
                       - -
$
                     552
$
                       - -
$
                  9,083
  
   
Improved land
      
                  9,072
  
                10,643
  
                       - -
  
                       - -
  
                19,715
  
   
Unimproved land
      
                11,527
  
                  1,479
  
                  1,939
  
                       - -
  
                14,945
  
     
Total commercial land and development
  
$
                29,130
$
                12,122
$
                  2,491
$
                       - -
$
                43,743
  
                                 


(more)
 
 
 
BANR-Fourth Quarter 2009 Results
January 27, 2010
Page 8
 
ADDITIONAL FINANCIAL INFORMATION
                    
(dollars in thousands)
                        
                             
             
Quarters Ended
    
Year Ended
CHANGE IN THE
      
Dec 31, 2009
  
Sep 30, 2009
  
Dec 31, 2008
  
Dec 31, 2009
  
Dec 31, 2008
ALLOWANCE FOR LOAN LOSSES
                      
                             
Balance, beginning of period
  
$
                95,183
$
                90,694
$
                58,846
$
                75,197
$
                45,827
                             
Provision
      
                17,000
  
                25,000
  
                33,000
  
              109,000
  
                62,500
                             
Recoveries of loans previously charged off:
                    
   
Commercial real estate
      
                       - -
  
                       - -
  
                       - -
  
                       - -
  
                  1,530
   
Multifamily real estate
      
                       - -
  
                       - -
  
                       - -
  
                       - -
  
                       - -
   
Construction and land
      
                       98
  
                     299
  
                     144
  
                     715
  
                     192
   
One- to four-family real estate
    
                       26
  
                       21
  
                         1
  
                     138
  
                       45
   
Commercial business
      
                     106
  
                     120
  
                       81
  
                     545
  
                     471
   
Agricultural business, including secured by farmland
  
                       10
  
                         6
  
                     430
  
                       38
  
                  1,048
   
Consumer
      
                       60
  
                     152
  
                       59
  
                     275
  
                     185
           
                     300
  
                     598
  
                     715
  
                  1,711
  
                  3,471
Loans charged-off:
                        
   
Commercial real estate
      
                       (1)
  
                       - -
  
                       - -
  
                       (1)
  
                       (7)
   
Multifamily real estate
      
                       - -
  
                       - -
  
                       - -
  
                       - -
  
                       - -
   
Construction and land
      
              (12,245)
  
              (16,614)
  
              (13,404)
  
              (64,456)
  
              (27,020)
   
One- to four-family real estate
    
                (1,557)
  
                   (856)
  
                   (523)
  
                (8,795)
  
                   (934)
   
Commercial business
      
                (2,249)
  
                (3,060)
  
                (2,884)
  
              (11,541)
  
                (7,323)
   
Agricultural business, including secured by farmland
  
                   (692)
  
                       - -
  
                       - -
  
                (3,877)
  
                     (60)
   
Consumer
      
                   (470)
  
                   (579)
  
                   (553)
  
                (1,969)
  
                (1,257)
           
              (17,214)
  
              (21,109)
  
              (17,364)
  
              (90,639)
  
              (36,601)
   
Net charge-offs
      
              (16,914)
  
              (20,511)
  
              (16,649)
  
              (88,928)
  
              (33,130)
Balance, end of period
    
$
                95,269
$
                95,183
$
                75,197
$
                95,269
$
                75,197
                             
Net charge-offs / Average loans outstanding
  
0.44%
  
0.53%
  
0.42%
  
2.28%
  
0.84%
                             
                             
ALLOCATION OF
                        
ALLOWANCE FOR LOAN LOSSES
    
Dec 31, 2009
  
Sep 30, 2009
  
Dec 31, 2008
  
 
    
Specific or allocated loss allowance
                      
 
Commercial real estate
    
$
                  7,631
$
                  7,580
$
                  4,199
                
    
 
Multifamily real estate
      
                       90
  
                       89
  
                       87
  
                    
    
 
Construction and land
      
                43,746
  
                49,829
  
                38,253
  
              
    
 
One- to four-family real estate
    
                  3,026
  
                  2,304
  
                     752
  
                   
    
 
Commercial business
      
                21,754
  
                20,906
  
                16,533
  
             
    
 
Agricultural business, including secured by farmland
  
                     918
  
                  1,540
  
                     530
  
                     
    
 
Consumer
      
                  1,778
  
                  1,758
  
                  1,730
  
                 
    
                             
   
Total allocated
      
78,943
  
84,006
  
62,084
  
 
    
                             
 
Estimated allowance for undisbursed commitments
  
                  1,591
  
                  2,202
  
                  1,108
  
                 
    
 
Unallocated
      
                14,735
  
                  8,975
  
                12,005
  
              
    
                             
   
Total allowance for loan losses
  
$
95,269
$
95,183
$
75,197
 
 
    
                             
Allowance for loan losses  /  Total loans outstanding
  
2.51%
  
2.44%
  
1.90%
  
 
    
                             
                             
                             
                             
 
 
(more)
 
 
 
BANR-Fourth Quarter 2009 Results
January 27, 2010
Page 9
 

 
ADDITIONAL FINANCIAL INFORMATION
                      
 
(dollars in thousands)
                        
                                 
               
Dec 31, 2009
  
Sep 30, 2009
  
Dec 31, 2008
  
 
    
                                 
 
NON-PERFORMING ASSETS
                      
                                 
 
Loans on non-accrual status
                      
   
Secured by real estate:
                        
       
Commercial
    
$
                7,300
$
                8,073
$
              12,879
 
            
    
       
Multifamily
      
                   383
  
                      - -
  
                      - -
  
                
    
       
Construction and land
    
            159,264
  
            193,281
  
            154,823
  
            
    
       
One- to four-family
      
              14,614
  
              18,107
  
                8,649
  
              
    
   
Commercial business
      
              21,640
  
              15,070
  
                8,617
  
             
    
   
Agricultural business, including secured by farmland
  
                6,277
  
                5,868
  
                1,880
  
               
    
   
Consumer
      
                3,923
  
                      - -
  
                   130
  
                
    
               
            213,401
  
            240,399
  
            186,978
  
         
    
                                 
 
Loans more than 90 days delinquent, still on accrual
                    
   
Secured by real estate:
                        
       
Commercial
      
                      - -
  
                      - -
  
                      - -
  
                    
    
       
Multifamily
      
                      - -
  
                      - -
  
                      - -
  
                    
    
       
Construction and land
    
                      - -
  
                2,090
  
                      - -
  
                    
    
       
One- to four-family
      
                   358
  
                   690
  
                   124
  
              
    
   
Commercial business
      
                      - -
  
                      - -
  
                      - -
  
                    
    
   
Agricultural business, including secured by farmland
  
                      - -
  
                      - -
  
                      - -
  
                    
    
   
Consumer
      
                     91
  
                   109
  
                   243
  
                   
    
               
                   449
  
                2,889
  
                   367
  
                  
    
 
Total non-performing loans
      
            213,850
  
            243,288
  
            187,345
  
           
    
 
Securities on non-accrual
      
                4,232
  
                1,236
  
                      - -
  
                    
    
 
Real estate owned (REO) / Repossessed assets
  
              77,802
  
              53,765
  
              21,886
  
             
    
       
Total non-performing assets
  
$
            295,884
$
            298,289
$
            209,231
 
           
    
                                 
 
Total non-performing assets  /  Total assets
    
6.27%
  
6.23%
  
4.56%
  
 
    
                                 
 
DETAIL & GEOGRAPHIC CONCENTRATION OF
                    
   
NON-PERFORMING ASSETS AT
                      
       
December 31, 2009
      
Washington
  
Oregon
  
Idaho
  
Other
  
Total
 
Secured by real estate:
                        
   
Commercial
    
$
                6,095
$
                   716
$
                   489
$
                      - -
$
                7,300
   
Multifamily
      
                   383
  
                      - -
  
                      - -
  
                      - -
  
                   383
   
Construction and land
                        
     
One- to four-family construction
    
              21,819
  
              24,760
  
                6,810
  
                      - -
  
              53,389
     
Commercial construction
    
                1,561
  
                      - -
  
                      - -
  
                      - -
  
                1,561
     
Residential land acquisition & development
  
              16,775
  
              25,920
  
                3,987
  
                      - -
  
              46,682
     
Residential land improved lots
    
              10,743
  
                8,287
  
                   588
  
                      - -
  
              19,618
     
Residential land unimproved
    
              22,414
  
                   241
  
                   321
  
                      - -
  
              22,976
     
Commercial land acquisition & development
  
                      - -
  
                      - -
  
                      - -
  
                      - -
  
                      - -
     
Commercial land improved
    
                      - -
  
              10,656
  
                      - -
  
                      - -
  
              10,656
     
Commercial land unimproved
    
                4,382
  
                      - -
  
                      - -
  
                      - -
  
                4,382
       
Total construction and land
    
              77,694
  
              69,864
  
              11,706
  
                      - -
  
            159,264
   
One- to four-family
      
                8,666
  
                5,548
  
                   758
  
                      - -
  
              14,972
 
Commercial business
      
              14,825
  
                   633
  
                1,195
  
                4,987
  
              21,640
 
Agricultural business, including secured by farmland
  
                   365
  
                   214
  
                5,698
  
                      - -
  
                6,277
 
Consumer
      
                3,029
  
                   372
  
                   183
  
                   430
  
                4,014
 
Total non-performing loans
      
111,057
  
77,347
  
20,029
  
5,417
  
213,850
 
Securities on non-accrual
      
                3,000
  
                      - -
  
                      - -
  
                1,232
  
4,232
 
Real estate owned (REO) and repossessed assets
  
              44,330
  
              17,909
  
              15,563
  
                      - -
  
              77,802
       
Total  non-performing assets at end of the period
$
            158,387
$
              95,256
$
              35,592
$
                6,649
$
            295,884
                                 
 
(more)
 
 
 
BANR-Fourth Quarter 2009 Results
January 27, 2010
Page 10
 
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands) 
                  
                   
DEPOSITS & OTHER BORROWINGS
                  
           
Dec 31, 2009
  
Sep 30, 2009
  
Dec 31, 2008
  
 
 
BREAKDOWN OF DEPOSITS
                  
                         
 
Non-interest-bearing
    
$
              582,480
$
              546,956
$
              509,105
 
          
 
Interest-bearing checking
      
              360,256
  
              329,820
  
              378,952
  
             
 
Regular savings accounts
      
              538,765
  
              521,663
  
              474,885
  
             
 
Money market accounts
      
              442,124
  
              454,063
  
              284,041
  
           
   
Interest-bearing transaction & savings accounts
    
           1,341,145
  
           1,305,546
  
           1,137,878
  
        
                         
 
Interest-bearing certificates
      
           1,941,925
  
           2,008,673
  
           2,131,867
  
         
                         
   
Total deposits
    
$
           3,865,550
$
           3,861,175
$
           3,778,850
 
         
                         
                         
 
INCLUDED IN TOTAL DEPOSITS
                  
                         
 
Public transaction accounts
    
$
                78,202
$
                44,645
$
              117,402
 
            
 
Public interest-bearing certificates
    
                88,186
  
                98,906
  
              221,915
  
            
   
Total public deposits
    
$
              166,388
$
              143,551
$
              339,317
 
            
                         
                         
 
Total brokered deposits
    
$
              165,016
$
              186,087
$
              268,458
 
          
                         
                         
                         
                         
 
INCLUDED IN OTHER BORROWINGS
                  
 
Customer repurchase agreements / "Sweep accounts"
$
              124,330
$
              124,795
$
              145,230
 
        
                         
                         
                         
 
GEOGRAPHIC CONCENTRATION OF DEPOSITS AT
                
   
December 31, 2009
      
Washington
  
Oregon
  
Idaho
  
Total
                         
         
$
           2,979,985
$
              611,180
$
              274,385
$
           3,865,550
                         
                         
                         
                         
                         
                   
Minimum for Capital Adequacy
REGULATORY CAPITAL RATIOS AT
    
Actual
  
or "Well Capitalized"
   
December 31, 2009
      
Amount
  
Ratio
  
Amount
  
Ratio
                         
Banner Corporation-consolidated
                  
   
Total capital to risk-weighted assets
  
$
489,827
  
12.73%
$
334,879
  
8.00%
   
Tier 1 capital to risk-weighted assets
    
441,160
  
11.47%
  
167,440
  
4.00%
   
Tier 1 leverage capital to average assets
    
441,160
  
9.62%
  
183,421
  
4.00%
                         
Banner Bank
                    
   
Total capital to risk-weighted assets
    
474,831
  
12.95%
  
400,522
  
10.00%
   
Tier 1 capital to risk-weighted assets
    
428,420
  
11.69%
  
240,313
  
6.00%
   
Tier 1 leverage capital to average assets
    
428,420
  
9.74%
  
219,431
  
5.00%
                         
Islanders Bank
                    
   
Total capital to risk-weighted assets
    
26,728
  
13.17%
  
20,301
  
10.00%
   
Tier 1 capital to risk-weighted assets
    
24,732
  
12.18%
  
12,180
  
6.00%
   
Tier 1 leverage capital to average assets
    
24,732
  
11.58%
  
10,679
  
5.00%
 

(more)
 
 
 
BANR-Fourth Quarter 2009 Results
January 27, 2010
Page 11
 
 
ADDITIONAL FINANCIAL INFORMATION
                      
 
(dollars in thousands)
                        
 
(rates / ratios annualized)
                        
           
Quarters Ended
  
Year Ended
                             
 
OPERATING PERFORMANCE
    
Dec 31, 2009
  
Sep 30, 2009
  
Dec 31, 2008
  
Dec 31, 2009
  
Dec 31, 2008
                             
                             
 
Average loans
    
$
       3,829,717
$
       3,905,763
$
       3,988,531
$
       3,900,569
$
       3,935,039
 
Average securities and deposits
    
          528,754
  
          461,360
  
          391,560
  
          447,386
  
          345,827
 
Average non-interest-earning assets
    
          235,007
  
          219,780
  
          296,927
  
          212,126
  
          325,235
                             
   
Total average assets
    
$
       4,593,478
$
       4,586,903
$
       4,677,018
$
       4,560,081
$
       4,606,101
                             
 
Average deposits
    
$
       3,836,327
$
       3,821,065
$
       3,750,383
$
       3,758,156
$
       3,722,012
 
Average borrowings
      
          378,376
  
          377,976
  
          456,383
  
          400,596
  
          425,713
 
Average non-interest-bearing liabilities
    
          (32,296)
  
          (25,527)
  
            25,459
  
          (21,122)
  
            30,335
                             
   
Total average liabilities
      
       4,182,407
  
       4,173,514
  
       4,232,225
  
       4,137,630
  
       4,178,060
                             
 
Total average stockholders' equity
    
          411,071
  
          413,389
  
          444,793
  
          422,451
  
          428,041
           
 `
                
   
Total average liabilities and equity
  
$
       4,593,478
$
       4,586,903
$
       4,677,018
$
       4,560,081
$
       4,606,101
                             
 
Interest rate yield on loans
      
5.70%
  
5.71%
  
6.05%
  
5.72%
  
6.54%
 
Interest rate yield on securities and deposits
    
2.47%
  
2.92%
  
4.36%
  
3.20%
  
4.61%
                             
   
Interest rate yield on interest-earning assets
    
5.31%
  
5.41%
  
5.90%
  
5.46%
  
6.38%
                             
 
Interest rate expense on deposits
    
1.83%
  
2.16%
  
2.74%
  
2.21%
  
2.96%
 
Interest rate expense on borrowings
    
2.42%
  
2.52%
  
3.01%
  
2.39%
  
3.53%
                             
   
Interest rate expense on interest-bearing liabilities
    
1.88%
  
2.19%
  
2.77%
  
2.23%
  
3.02%
                             
 
Interest rate spread
      
3.43%
  
3.22%
  
3.13%
  
3.23%
  
3.36%
                             
 
Net interest margin
      
3.49%
  
3.30%
  
3.24%
  
3.33%
  
3.45%
                             
 
Other operating income / Average assets
    
0.48%
  
1.16%
  
1.78%
  
0.96%
  
0.86%
                             
 
Other operating income (loss) EXCLUDING change in valuation of
                    
   
financial instruments carried at fair value / Average assets (1)
  
0.61%
  
0.76%
  
0.61%
  
0.72%
  
0.66%
                             
 
Other operating expense / Average assets
    
3.00%
  
3.17%
  
9.11%
  
3.12%
  
5.65%
                             
 
Other operating expense EXCLUDING goodwill write-off / Average assets (1)
  
3.00%
  
3.17%
  
3.06%
  
3.12%
  
3.02%
                             
 
Efficiency ratio (other operating expense / revenue)
    
79.11%
  
73.54%
  
189.15%
  
75.47%
  
138.72%
                             
 
Return (Loss) on average assets
    
(0.31%)
  
(0.56%)
  
(6.68%)
  
(0.78%)
  
(2.78%)
                             
 
Return (Loss) on average equity
    
(3.42%)
  
(6.19%)
  
(70.24%)
  
(8.47%)
  
(29.90%)
                             
 
Return (Loss) on average tangible equity (2)
    
(3.52%)
  
(6.37%)
  
(86.69%)
  
(8.72%)
  
(40.34%)
                             
 
Average equity  /  Average assets
    
8.95%
  
9.01%
  
9.51%
  
9.26%
  
9.29%
                             
 
(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.