EX-99.1 2 ex99193010.htm EXHIBIT 99.1 ex99193010.htm
Exhibit 99.1

 
 
 
 
Contact: Mark J. Grescovich,
 President & CEO
Lloyd W. Baker, CFO
(509) 527-3636
 
News Release
 

Banner Corporation Announces Third Quarter Results

Walla Walla, WA – October 20, 2010 - Banner Corporation (NASDAQ GSM: BANR), the parent company of Banner Bank and Islanders Bank, today reported that it had a net loss of $42.7 million in the third quarter ended September 30, 2010, compared to a net loss of $4.9 million in the immediately preceding quarter and a net loss of $6.4 million in the third quarter a year ago.  The current quarter’s results include a previously announced $24.0 million non-cash provision for income taxes as a result of adjustments to its current and deferred tax assets, a $20.0 million provision for loan losses, an $8.6 million charge for valuation adjustments on real estate owned and an other-than-temporary impairment (OTTI) charge of $3.0 million.
 
“For the third quarter we had solid revenue growth, reflecting a further significant reduction in deposit costs, strong mortgage banking activity and an increase in our average interest-earning asset balances as a result of our recent common stock offering.   We demonstrated improvement in our core business by continuing to change the composition of our deposit portfolio, increasing non-interest-bearing and other core deposit balances and customer relationships, while strengthening our on-balance-sheet liquidity and effectively managing controllable operating expenses,” said Mark J. Grescovich, President and Chief Executive Officer.  “While we are pleased with the progress in all of these areas during the quarter, the continuing high level of non-performing assets and related credit and operational costs have adversely affected our operating results, leading us to conclude that recording a valuation allowance for the deferred tax asset was appropriate at this time.  Improving our asset quality through aggressive management of our problem assets, including appropriate valuation adjustments when necessary, remains the primary focus for Banner.  We expect ultimately to recover this deferred tax valuation allowance in future periods when we sufficiently reduce the credit costs associated with non-performing assets and return to profitability.”
 
In the third 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 $398,000 for related discount accretion.  Including the preferred stock dividend and related accretion, the net loss to common shareholders was $0.40 per share for the quarter ended September 30, 2010, compared to a net loss to common shareholders of $0.28 per share in the second quarter of 2010 and a net loss to common shareholders of $0.44 per share for the third quarter a year ago.
 
For the first nine months of 2010, Banner reported a net loss of $49.2 million compared to a net loss of $32.2 million for the first nine months of 2009.  For the first nine months of 2010, the net loss to common shareholders was $1.04 per share, compared to a net loss of $2.11 per share for the first nine months of 2009.
 
Common Stock Offering
 
On June 30, 2010, Banner announced the funding of its offering of 75,000,000 shares of its common stock and the sale of an additional 3,500,000 shares pursuant to the partial exercise of the underwriters’ over-allotment option, at a price to the public of $2.00 per share.  On July 2, 2010, Banner announced the completion of the capital raise as the underwriters had exercised their over-allotment option for an additional 7,139,000 shares, at a price to the public of $2.00 per share.  In aggregate, Banner issued a total of 85,639,000 shares in the offering, resulting in net proceeds, after deducting underwriting discounts and commissions and estimated offering expenses, of approximately $161.6 million.
 
Banner intends to use a significant portion of the net proceeds from the offering to strengthen Banner Bank’s regulatory capital ratios and to support managed growth.  To that end, through September 30, 2010, the Company had invested $110.0 million of the net proceeds as additional paid-in common equity in Banner Bank.  The Company expects to use the remaining net proceeds for general working capital purposes, including additional capital investments in its subsidiary banks if appropriate.
 
Income Statement Review
 
“We achieved a further significant reduction in our cost of funds during the quarter through changes in our deposit mix and additional re-pricing opportunities.  The reduced cost of funds allowed our net interest margin to be nearly unchanged compared to the immediately preceding quarter and to increase by 33 basis points compared to the third quarter a year ago, despite significant pressure on asset yields,” said Grescovich.  “Loan yields, which have been relatively stable for a number of quarters, decreased modestly in the third quarter reflecting the impact of the continuing low interest rate environment on new loans and renewals.  However, overall asset yields declined more meaningfully because we continued to build our on-balance-sheet liquidity, which is currently invested in short-term instruments that pay very low interest rates.”  Banner’s net interest margin was 3.63% for the third quarter, compared to 3.65% in
 
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BANR – Third Quarter 2010 Results
October 20, 2010
Page 2
 
the preceding quarter and 3.30% in the third quarter a year ago.  For the first nine months of 2010, Banner’s net interest margin was 3.63%, a 36 basis point improvement compared to 3.27% for the first nine months of 2009.
 
Funding costs for the third quarter decreased 22 basis points compared to the previous quarter and 81 basis points from the third quarter a year ago.  Deposit costs decreased by 25 basis points compared to the preceding quarter and 87 basis points compared to the third quarter a year earlier.  Asset yields decreased 28 basis points from the prior linked quarter and 48 basis points from the third quarter a year ago.  Loan yields declined three basis points compared to the preceding quarter, and declined two basis points from the third quarter a year ago.  Non-accruing loans reduced the margin by approximately 33 basis points in the third quarter compared to approximately 34 basis points in the preceding quarter and approximately 42 basis points in the third quarter of 2009.
 
Net interest income before the provision for loan losses was $39.9 million in the third quarter of 2010, compared to $38.9 million in the preceding quarter and $36.4 million in the third quarter a year ago.  In the first nine months of 2010, net interest income before the provision for loan losses increased 10% to $117.0 million, compared to $106.2 million in the first nine months of 2009.  Revenues from core operations* (net interest income before the provision for loan losses plus total other operating income excluding fair value and OTTI adjustments) were $49.2 million in the third quarter of 2010, compared to $45.9 million in the second quarter of 2010 and $45.2 million for the third quarter a year ago.  Revenues from core operations for the first nine months of 2010 increased 6% to $140.4 million, compared to $131.9 million in the first nine months of 2009.
 
During the quarter ended September 30, 2010, Banner recognized a $3.0 million other-than-temporary impairment charge on a trust preferred security issued by a single banking institution.  The security had previously been reported as a non-accruing, non-performing asset.  Publicly available information about the issuer of the security released during the third quarter caused management to believe that collection of this asset had become more uncertain resulting in the OTTI charge.  There was no OTTI charge in the second quarter of 2010 and a $1.3 million charge in the third quarter of 2009.  Third quarter 2010 results also included a net gain of $1.4 million ($1.4 million after tax, or $0.01 earnings per share) for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, compared to a net loss of $821,000 ($525,000 after tax, or $0.02 loss per share) in the second quarter of 2010 and a net gain of $6.0 million ($3.8 million after tax, or $0.20 earnings per share) in the third quarter a year ago.
 
Total other operating income, which includes the changes in the valuation of financial instruments noted above, was $7.7 million in the third quarter of 2010, compared to $6.2 million in the preceding quarter and $13.5 million for the third quarter a year ago.  For the first nine months of 2010, total other operating income was $21.6 million, compared to $38.1 million in the first nine months of 2009.  Total other operating income from core operations* (other operating income excluding fair value and OTTI adjustments) for the current quarter was $9.3 million, compared to $7.0 million the preceding quarter, and $8.8 million for the third quarter a year ago.  For the first nine months of 2010, total other operating income from core operations decreased to $23.3 million, compared to $25.6 million in the first nine months of 2009, primarily as a result of a decline in mortgage banking revenues in the 2010 period despite the increase in the most recent quarter.
 
“Mortgage loan production levels increased meaningfully during the third quarter reflecting the very low mortgage interest rate environment and better integration of the origination process with our retail delivery channel.  In addition, we sold a portion of the Great Northwest Home Rush loans that we had accumulated over the life of that program.   As a result, mortgage banking revenues increased 208% during the third quarter compared to the preceding quarter and 22% compared to the third quarter a year ago,” said Grescovich.  “Deposit fees and other service charges also increased modestly during the quarter, although activity levels for certain of these revenue sources, particularly merchant services, continue to be adversely impacted by the slow pace of economic recovery.”  Income from mortgage banking operations improved to $2.5 million in the quarter ended September 30, 2010, compared to $817,000 in the immediately preceding quarter and $2.1 million in the third quarter of 2009.  Deposit fees and other service charges were $5.7 million in the third quarter compared to $5.6 million in the preceding quarter and $5.7 million in the third quarter a year ago.
 
“Controllable operating expense remained well behaved and only modestly changed from the preceding quarter; however, expenses related to collection activities remained high.  In addition, we recorded $8.6 million in valuation adjustments in our real estate owned portfolio as recent appraisals demonstrated further declines in certain property values,” said Grescovich.  “We expect collection expenses and costs associated with real estate owned to remain elevated for a number of future quarters as we work down our inventory of non-performing assets.”
 
Total other operating expenses, or non-interest expenses, were $46.3 million in the third quarter of 2010, compared to $38.0 million in the preceding quarter and $36.6 million in the third quarter a year ago.  For the first nine months of the year, other operating expenses were $119.8 million compared to $107.3 million in the first nine months of 2009.  The increase in operating expense for the nine-month period largely reflects charges related to our real estate owned, including valuation adjustments, which increased to $19.0 million for the nine months ended September 30, 2010, compared to $5.2 million for the same period a year ago.
 
*Earnings information excluding fair value adjustments (alternately referred to as total other operating income from core operation or revenues 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.
 
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BANR – Third Quarter 2010 Results
October 20, 2010
Page 3
 
Credit Quality
 
“Credit costs have been a persistent challenge throughout the past several quarters and continue to adversely impact our profitability,” said Grescovich.  “The provision for loan losses in the third quarter remains high, reflecting still significant 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 residential land development projects.  However, our exposure to one-to-four family residential construction and land development loans has continued to decline and at September 30, 2010 had been reduced to $364 million, or 10.4% of total loans outstanding.  Our reserve levels are substantial and both our impairment analysis and charge-off actions reflect current appraisals and valuation estimates.  While economic weakness persists, we remain diligent in our efforts to reduce credit costs substantially in 2011 and beyond as the economy recovers.”
 
Banner recorded a $20.0 million provision for loan losses in the third quarter, compared to $16.0 million in the preceding quarter and $25.0 million in the third quarter a year ago.  For the first nine months of 2010, the provision for loan losses was $50.0 million, compared to $92.0 million for the first nine months of 2009.  The allowance for loan losses at September 30, 2010 totaled $96.4 million, representing 2.76% of total loans outstanding and 57% of non-performing loans.  Non-performing loans totaled $170.3 million at September 30, 2010, compared to $177.9 million in the preceding quarter and $243.3 million at September 30, 2009.  Banner’s real estate owned and repossessed assets totaled $106.5 million at September 30, 2010, compared to $101.7 million three months earlier and $53.8 million a year ago.  Net charge-offs in the quarter totaled $19.1 million, or 0.53% of average loans outstanding, compared to $16.2 million, or 0.44% of average loans outstanding for the second quarter of 2010 and $20.5 million, or 0.53% of average loans outstanding for the third quarter of last year.  Non-performing assets totaled $277.4 million at September 30, 2010, compared to $283.1 million in the preceding quarter and $298.3 million a year earlier.  At September 30, 2010, Banner’s non-performing assets were 6.03% of total assets, compared to 6.02% at the end of the preceding quarter and 6.23% a year ago.
 
One-to-four family residential construction, land and land development loans were $364 million, or 10.4% of the total loan portfolio at September 30, 2010.  The geographic distribution of these construction, land and land development loans was approximately $120 million, or 33%, in the greater Puget Sound market, $154 million, or 43%, in the greater Portland, Oregon market and $19 million, or 5%, in the greater Boise, Idaho market as of September 30, 2010.  The remaining $71 million, or 19%, was distributed in the various eastern Washington, eastern Oregon and northern Idaho markets served by Banner Bank.
 
Non-performing residential construction, land and land development loans and related real estate owned were $148 million, or 53.4% of non-performing assets at September 30, 2010.  The geographic distribution of non-performing construction, land and land development loans and related real estate owned included approximately $64 million, or 43%, in the greater Puget Sound market, $58 million, or 39%, in the greater Portland market and $13 million, or 9%, in the greater Boise market, with the remaining $13 million, or 9%, distributed in the various eastern Washington, eastern Oregon and northern Idaho markets served by Banner Bank.
 
Balance Sheet Review
 
“Loan demand was modest during the quarter, as both businesses and consumers remain very cautious in the current economic environment.  In addition, we have continued to intentionally reduce our construction and land development loans over the past year.  As a result, total loans declined further in the third quarter,” said Grescovich.  “At September 30, 2010, our one-to-four family construction loans totaled $174 million, a $103 million reduction over the past year and a reduction of $481 million from their peak quarter-end balance of $655 million at June 30, 2007.  Similarly, total construction, land and land development loans have declined by $733 million from their peak quarter-end balance of $1.24 billion, also at June 30, 2007.”  Net loans were $3.40 billion at September 30, 2010, compared to $3.54 billion at June 30, 2010 and $3.80 billion a year ago.
 
Total assets were $4.60 billion at September 30, 2010, compared to $4.70 billion at the end of the preceding quarter and $4.79 billion a year ago.  Deposits totaled $3.76 billion at September 30, 2010, compared to $3.84 billion at the end of the preceding quarter and $3.86 billion a year ago.  Non-interest-bearing accounts totaled $613 million at September 30, 2010, compared to $548 million at the end of the preceding quarter and $547 million a year ago, a year-over-year increase of 12%.  At September 30, 2010, interest-bearing transaction and savings accounts were $1.46 billion, compared to $1.40 billion at the end of the preceding quarter and $1.31 billion a year ago, also a year-over-year increase of 12%.
 
“We made further progress in implementing our strategies to strengthen the franchise through our super community bank model,” said Grescovich.  “As a result, although we encouraged a significant reduction in higher cost certificate of deposit balances, Banner’s retail deposit franchise had another solid quarter of core deposit growth, significantly increasing non-interest-bearing and other transaction and savings deposit products, which helped improve our cost of funds and increased the opportunity for deposit fee revenue.  Much lower rates on renewed and retained certificates of deposit also significantly contributed to the decline in the cost of deposits and will provide a substantial benefit in future periods.”
 
Augmented by the recent stock offering, 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
 
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BANR – Third Quarter 2010 Results
October 20, 2010
Page 4
 
 
1 leverage capital to average assets ratio was 12.12% and its total capital to risk-weighted assets ratio was 16.95% at September 30, 2010.  Banner Bank’s Tier 1 leverage ratio was 10.77% at September 30, 2010, equal to the ratio at June 30, 2010 and in excess of the minimum level targeted in our Memorandum of Understanding agreed to with the FDIC.
 
Tangible stockholders’ equity at September 30, 2010 was $515.6 million, including $118.6 million attributable to preferred stock.  Tangible book value per common share was $3.57 at quarter-end.  At September 30, 2010, Banner had 111.2 million shares outstanding, compared to 19.7 million shares outstanding a year ago.  Tangible common stockholders’ equity was $397.0 million at September 30, 2010, or 8.65% of tangible assets, compared to $425.9 million, or 9.08% of tangible assets at June 30, 2010 and $278.0 million, or 5.82% of tangible assets a year ago.
 
Conference Call
 
Banner will host a conference call on Thursday, October 21, 2010, at 8:00 a.m. PDT, to discuss third quarter 2010 results.  The conference call can be accessed live by telephone at 480-629-9770 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 4367087.
 

 
About the Company
 
Banner Corporation is a $4.6 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 and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates and the relative differences between short and long-term interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; secondary market conditions for loans and our ability to sell loans in the secondary market; results of examinations of us by the Board of Governors of the Federal Reserve System and of 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, institute a formal or informal enforcement action against us or any of the Banks which could require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; our compliance with regulatory enforcement actions; the requirements and restrictions that have been imposed upon Banner and Banner Bank under the memoranda of understanding with the Federal Reserve Bank of San Francisco (in the case of Banner) and the FDIC and the Washington DFI (in the case of Banner Bank) and the possibility that Banner and Banner Bank will be unable to fully comply with the memoranda of understanding, which could result in the imposition of additional requirements or restrictions; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules; our ability to attract and retain deposits; further increases in premiums for deposit insurance; our ability to control operating costs and expenses; the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect or result in significant declines in valuation; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; the failure or security breach of computer systems on which we depend; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to implement our business strategies; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may 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; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; our ability to pay dividends on our common and preferred stock and interest or principal payments on our junior subordinated debentures; 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 including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; war or terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; future legislative changes in the United States Department of Treasury  Troubled Asset Relief Program Capital Purchase Program; 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 year ended December 31, 2009. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 2010 and beyond to differ
 
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BANR – Third Quarter 2010 Results
October 20, 2010
Page 5
 
materially from those expressed in any forward-looking statements by, or on behalf of, us, and could negatively affect our operating and stock price performance.


 

 

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BANR – Third Quarter 2010 Results
October 20, 2010
Page 6
 
RESULTS OF OPERATIONS
    
Quarters Ended
     Nine Months Ended  
(in thousands except shares and per share data)
    
Sep 30, 2010
  
Jun 30, 2010
  
Sep 30, 2009
  
Sep 30, 2010
  
Sep 30, 2009
  
                               
INTEREST INCOME:
                          
 
Loans receivable
    
$
           51,162
$ 
          52,473
$ 
          56,175
$ 
        156,394
$ 
        168,022
  
 
Mortgage-backed securities
    
                972
  
            1,045
  
            1,422
  
            3,143
  
            4,792
  
 
Securities and cash equivalents
    
             2,116
  
            2,116
  
            1,976
  
            6,317
  
            6,248
  
           
           54,250
  
          55,634
  
          59,573
  
        165,854
  
        179,062
  
                               
INTEREST EXPENSE:
                          
 
Deposits
      
           12,301
  
          14,700
  
          20,818
  
          42,799
  
          65,548
  
 
Federal Home Loan Bank advances
    
                323
  
               320
  
               630
  
            1,004
  
            2,025
  
 
Other borrowings
      
                604
  
               626
  
               655
  
            1,864
  
            1,553
  
 
Junior subordinated debentures
    
             1,100
  
            1,047
  
            1,118
  
            3,174
  
            3,700
  
           
           14,328
  
          16,693
  
          23,221
  
          48,841
  
          72,826
  
 
Net interest income before provision for loan losses
    
           39,922
  
          38,941
  
          36,352
  
        117,013
  
        106,236
  
PROVISION FOR LOAN LOSSES
    
           20,000
  
          16,000
  
          25,000
  
          50,000
  
          92,000
  
 
Net interest income
      
           19,922
  
          22,941
  
          11,352
  
          67,013
  
          14,236
  
OTHER OPERATING INCOME:
                        
 
Deposit fees and other service charges
    
             5,702
  
            5,632
  
            5,705
  
          16,494
  
          16,049
  
 
Mortgage banking operations
    
             2,519
  
               817
  
            2,065
  
            4,284
  
            7,640
  
 
Loan servicing fees
      
                146
  
               315
  
               282
  
               774
  
               260
  
 
Miscellaneous
      
                919
  
               243
  
               768
  
            1,788
  
            1,700
  
           
9,286
  
7,007
  
8,820
  
23,340
  
25,649
  
 
Other-than-temporary impairment losses
    
           (3,000
 ) 
                  - -
  
          (1,349
 ) 
          (4,231
 ) 
          (1,511)
  
 
Net change in valuation of financial instruments carried at fair value
  
             1,366
  
              (821
 ) 
            5,982
  
            2,453
  
          13,940
  
 
Total other operating income
    
             7,652
  
            6,186
  
          13,453
  
          21,562
  
          38,078
  
OTHER OPERATING EXPENSE:
                        
 
Salary and employee benefits
    
           17,093
  
          16,793
  
          17,379
  
          50,445
  
          52,508
  
 
Less capitalized loan origination costs
    
           (1,731
 ) 
           (1,740
 ) 
          (2,060
 ) 
          (5,076
 ) 
          (7,010
 ) 
 
Occupancy and equipment
    
             5,546
  
            5,581
  
            5,715
  
          16,731
  
          17,697
  
 
Information / computer data services
    
             1,501
  
            1,594
  
            1,551
  
            4,601
  
            4,684
  
 
Payment and card processing services
    
             2,018
  
            1,683
  
            1,778
  
            5,125
  
            4,786
  
 
Professional services
      
             1,500
  
            1,874
  
            1,456
  
            4,661
  
            3,833
  
 
Advertising and marketing
    
             2,025
  
            1,742
  
            1,899
  
            5,717
  
            5,938
  
 
Deposit insurance
      
             2,282
  
            2,209
  
            2,219
  
            6,623
  
            7,818
  
 
State/municipal business and use taxes
    
                630
  
               533
  
               558
  
            1,643
  
            1,630
  
 
Real estate operations
      
           11,757
  
            4,166
  
            2,799
  
          18,981
  
            5,227
  
 
Amortization of core deposit intangibles
    
                600
  
               615
  
               646
  
            1,859
  
            1,997
  
 
Miscellaneous
      
             3,107
  
            2,974
  
            2,689
  
            8,457
  
            8,205
  
 
Total other operating expense
    
           46,328
  
          38,024
  
          36,629
  
        119,767
  
        107,313
  
                               
 
Income (loss) before provision for (benefit from) income taxes
    
         (18,754
 ) 
           (8,897
 ) 
        (11,824
 ) 
        (31,192
 ) 
        (54,999
 ) 
PROVISION FOR  (BENEFIT FROM ) INCOME TAXES
    
           23,988
  
           (3,951
 ) 
          (5,376
 ) 
          18,013
  
        (22,777
 ) 
NET INCOME (LOSS)
      
         (42,742
 ) 
           (4,946
 ) 
          (6,448
 ) 
        (49,205
 ) 
        (32,222
 ) 
PREFERRED STOCK DIVIDEND AND DISCOUNT ACCRETION:
                      
 
Preferred stock dividend
      
             1,550
  
            1,550
  
            1,550
  
            4,650
  
            4,650
  
 
Preferred stock discount accretion
    
                398
  
               399
  
               373
  
            1,195
  
            1,119
  
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
$
         (44,690
)  $
           (6,895
)  $
          (8,371
)    $
        (55,050
)  $
        (37,991
 ) 
Earnings (loss) per share available to common shareholder
                        
   
Basic
    
$
             (0.40
)  $
             (0.28
)  $
            (0.44
)    $
            (1.04
)  $
            (2.11
 ) 
   
Diluted
    
$
             (0.40
)  $
             (0.28
)  $
            (0.44
)    $
            (1.04
)  $
            (2.11
 ) 
Cumulative dividends declared per common share
  
$
               0.01
$ 
              0.01
$ 
              0.01
$  
              0.03
$ 
              0.03
  
Weighted average common shares outstanding
                        
   
Basic
      
  110,514,868
  
   24,452,356
  
   19,022,522
  
   52,690,046
  
   17,982,945
  
   
Diluted
      
  110,514,868
  
   24,452,356
  
   19,022,522
  
   52,690,046
  
   17,982,945
  
Common shares issued in connection with exercise of stock options or DRIP
      1,252,200
  
     1,353,589
  
     1,507,485
  
     4,167,348
  
     2,781,905
  

 
 
 
BANR – Third Quarter 2010 Results
October 20, 2010
Page 7
 
FINANCIAL  CONDITION
                        
(in thousands except shares and per share data)
  
Sep 30, 2010
    
Jun 30, 2010
    
Sep 30, 2009
    
Dec 31, 2009
  
                           
                           
ASSETS
                        
Cash and due from banks
   $ 46,146     $ 67,322     $ 60,531     $ 78,364  
Federal funds and interest-bearing deposits
     441,977       369,864       270,623       244,641  
Securities - at fair value
     101,760       105,381       167,944       147,151  
Securities - available for sale
     153,903       140,342       74,527       95,667  
Securities - held to maturity
     66,929       73,632       76,630       74,834  
Federal Home Loan Bank stock
     37,371       37,371       37,371       37,371  
                                   
Loans receivable:
                                
 
Held for sale
     3,545       4,819       4,781       4,497  
 
Held for portfolio
     3,495,340       3,626,685       3,891,413       3,785,624  
 
Allowance for loan losses
     (96,435 )     (95,508 )     (95,183 )     (95,269 )
        3,402,450       3,535,996       3,801,011       3,694,852  
                                   
Accrued interest receivable
     17,866       16,930       20,912       18,998  
Real estate owned held for sale, net
     106,376       101,485       53,576       77,743  
Property and equipment, net
     98,300       99,536       104,469       103,542  
Other intangibles, net
     9,210       9,811       11,718       11,070  
Bank-owned life insurance
     56,141       55,477       54,037       54,596  
Other assets
     58,758       88,459       54,659       83,392  
      $ 4,597,187     $ 4,701,606     $ 4,788,008     $ 4,722,221  
                                   
LIABILITIES
                                
Deposits:
                                
 
Non-interest-bearing
   $ 613,313     $ 548,251     $ 546,956     $ 582,480  
 
Interest-bearing transaction and savings accounts
     1,459,756       1,403,231       1,305,546       1,341,145  
 
Interest-bearing certificates
     1,687,417       1,887,513       2,008,673       1,941,925  
        3,760,486       3,838,995       3,861,175       3,865,550  
                                   
Advances from Federal Home Loan Bank at fair value
     46,833       47,003       255,806       189,779  
Customer repurchase agreements and other borrowings
     178,134       172,737       174,770       176,842  
Junior subordinated debentures at fair value
     48,394       49,808       47,859       47,694  
                                   
Accrued expenses and other liabilities
     24,624       25,440       28,715       24,020  
Deferred compensation
     13,877       13,665       12,960       13,208  
        4,072,348       4,147,648       4,381,285       4,317,093  
                                   
STOCKHOLDERS' EQUITY
                                
Preferred stock - Series A
     118,602       118,204       117,034       117,407  
Common stock
     506,418       490,119       327,385       331,538  
Retained earnings (accumulated deficit)
     (99,575 )     (53,768 )     (36,402 )     (42,077 )
Other components of stockholders' equity
     (606 )     (597 )     (1,294 )     (1,740 )
        524,839       553,958       406,723       405,128  
      $ 4,597,187     $ 4,701,606     $ 4,788,008     $ 4,722,221  
Common Shares Issued:
                                
Shares outstanding at end of period
     111,461,893       102,954,738       19,933,943       21,539,590  
 
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
     111,221,512       102,714,357       19,693,562       21,299,209  
                                   
Common stockholders' equity per share (1)
   $ 3.65     $ 4.24     $ 14.71     $ 13.51  
Common stockholders' tangible equity per share (1) (2)
   $ 3.57     $ 4.15     $ 14.11     $ 12.99  
                                   
Tangible common stockholders' equity to tangible assets
     8.65 %     9.08 %     5.82 %     5.87 %
Consolidated Tier 1 leverage capital ratio
     12.12 %     13.02 %     9.66 %     9.65 %
                                   
(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 – Third Quarter 2010 Results
October 20, 2010
Page 8
 
ADDITIONAL FINANCIAL INFORMATION
                      
(dollars in thousands)
                        
                             
           
Sep 30, 2010
  
Jun 30, 2010
  
Sep 30, 2009
  
Dec 31, 2009
    
LOANS (including loans held for sale):
                      
Commercial real estate
                        
 
Owner occupied
    
$
              526,599
$
              503,796
$
              481,698
$
              509,464
    
 
Investment properties
      
              534,338
  
              553,689
  
              585,206
  
              573,495
    
Multifamily real estate
      
              150,396
  
              149,980
  
              152,832
  
              153,497
    
Commercial construction
      
                64,555
  
                84,379
  
                83,937
  
                80,236
    
Multifamily construction
      
                48,850
  
                56,573
  
                62,614
  
                57,422
    
One- to four-family construction
      
              174,312
  
              182,928
  
              277,419
  
              239,135
    
Land and land development
                        
 
Residential
      
              189,948
  
              228,156
  
              322,030
  
              284,331
    
 
Commercial
      
                24,697
  
                29,410
  
                47,182
  
                43,743
    
Commercial business
      
              596,152
  
              635,130
  
              678,187
  
              637,823
    
Agricultural business including secured by farmland
  
              210,904
  
              208,815
  
              225,603
  
              205,307
    
One- to four-family real estate
      
              681,921
  
              702,420
  
              676,928
  
              703,277
    
Consumer
      
              106,922
  
              103,065
  
              114,354
  
              110,937
    
Consumer secured by one- to four-family real estate
  
              189,291
  
              193,163
  
              188,204
  
              191,454
    
   
Total loans outstanding
    
$
           3,498,885
$
           3,631,504
$
           3,896,194
$
           3,790,121
    
Restructured loans performing under their restructured terms
$
                46,243
$
                43,899
$
                55,161
$
                43,683
    
Loans 30 - 89 days past due and on accrual
  
$
                18,242
$
                26,050
$
                21,243
$
                34,156
    
Total delinquent loans (including loans on non-accrual)
$
              188,584
$
              203,992
$
              264,531
$
              248,006
    
Total delinquent loans  /  Total loans outstanding
    
5.39%
  
5.62%
  
6.79%
  
6.54%
    
                             
                             
GEOGRAPHIC CONCENTRATION OF LOANS AT
                    
   
September 30, 2010
      
Washington
  
Oregon
  
Idaho
  
Other
  
Total
                             
Commercial real estate
                        
 
Owner occupied
    
$
              399,039
$
                76,861
$
                45,561
$
                  5,138
$
              526,599
 
Investment properties
      
              397,868
  
                87,980
  
                43,848
  
                  4,642
  
              534,338
Multifamily real estate
      
              123,771
  
                12,216
  
                  9,968
  
                  4,441
  
              150,396
Commercial construction
      
                44,163
  
                  8,347
  
                12,045
  
                       - -
  
                64,555
Multifamily construction
      
                25,551
  
                23,299
  
                       - -
  
                       - -
  
                48,850
One- to four-family construction
      
                86,789
  
                76,948
  
                10,575
  
                       - -
  
              174,312
Land and land development
                        
 
Residential
      
                99,078
  
                75,418
  
                15,452
  
                       - -
  
              189,948
 
Commercial
      
                21,126
  
                  1,138
  
                  2,433
  
                       - -
  
                24,697
Commercial business
      
              414,321
  
                97,683
  
                68,150
  
                15,998
  
              596,152
Agricultural business including secured by farmland
  
              110,118
  
                41,328
  
                59,412
  
                       46
  
              210,904
One- to four-family real estate
      
              445,190
  
              206,867
  
                27,487
  
                  2,377
  
              681,921
Consumer
      
                76,341
  
                23,515
  
                  7,066
  
                       - -
  
              106,922
Consumer secured by one- to four-family real estate
  
              133,112
  
                42,285
  
                13,394
  
                     500
  
              189,291
   
Total loans outstanding
    
$
           2,376,467
$
              773,885
$
              315,391
$
                33,142
$
           3,498,885
   
Percent of total loans
      
67.9%
  
22.1%
  
9.0%
  
1.0%
  
100.0%
                             
                             
DETAIL OF LAND AND LAND DEVELOPMENT LOANS AT
                    
   
September 30, 2010
      
Washington
  
Oregon
  
Idaho
  
Other
  
Total
                             
Residential
                        
 
Acquisition & development
    
$
                52,580
$
                47,151
$
                  5,139
$
                       - -
$
              104,870
 
Improved lots
      
                32,910
  
                21,316
  
                  1,356
  
                       - -
  
                55,582
 
Unimproved land
      
                13,588
  
                  6,951
  
                  8,957
  
                       - -
  
                29,496
   
Total residential land and development
  
$
                99,078
$
                75,418
$
                15,452
$
                       - -
$
              189,948
Commercial & industrial
                        
 
Acquisition & development
    
$
                  5,257
$
                       - -
$
                     562
$
                       - -
$
                  5,819
 
Improved land
      
                  8,751
  
                       - -
  
                       - -
  
                       - -
  
                  8,751
 
Unimproved land
      
                  7,118
  
                  1,138
  
                  1,871
  
                       - -
  
                10,127
   
Total commercial land and development
  
$
                21,126
$
                  1,138
$
                  2,433
$
                       - -
$
                24,697

 
(more)
 
BANR – Third Quarter 2010 Results
October 20, 2010
Page 9
 
ADDITIONAL FINANCIAL INFORMATION
                              
(dollars in thousands)
                              
                               
         
Quarters Ended
           Nine Months Ended  
CHANGE IN THE
  
Sep 30, 2010
    
Jun 30, 2010
    
Sep 30, 2009
    
Sep 30, 2010
    
Sep 30, 2009
  
ALLOWANCE FOR LOAN LOSSES
                              
                               
Balance, beginning of period
   $ 95,508     $ 95,733     $ 90,694     $ 95,269     $ 75,197  
                                         
Provision
     20,000       16,000       25,000       50,000       92,000  
                                         
Recoveries of loans previously charged off:
                                        
Commercial real estate
     - -       - -       - -       - -       - -  
Multifamily real estate
     - -       - -       - -       - -       - -  
Construction and land
     163       235       299       785       617  
  One- to four-family real estate
     54       71       21       125       112  
Commercial business
     204       595       120       2,089       439  
    Agricultural business, including secured by farmland
 9       - -       6       9       28  
Consumer
     77       69       152       205       215  
      507       970       598       3,213       1,411  
Loans charged off:
                                        
Commercial real estate
     (1 )     - -       - -       (93 )     - -  
Multifamily real estate
     - -       - -       - -       - -       - -  
Construction and land
     (11,802 )     (12,255 )     (16,614 )     (31,781 )     (56,321 )
  One- to four-family real estate
     (1,134 )     (2,128 )     (856 )     (5,377 )     (3,128 )
Commercial business
     (5,802 )     (1,447 )     (3,060 )     (12,033 )     (9,292 )
    Agricultural business, including secured by farmland
 (492 )     (986 )     - -       (1,480 )     (3,186 )
Consumer
     (349 )     (379 )     (579 )     (1,283 )     (1,498 )
      (19,580 )     (17,195 )     (21,109 )     (52,047 )     (73,425 )
Net charge-offs
     (19,073 )     (16,225 )     (20,511 )     (48,834 )     (72,014 )
                                         
Balance, end of period
   $ 96,435     $ 95,508     $ 95,183     $ 96,435     $ 95,183  
                                         
Net charge-offs / Average loans outstanding
     0.53 %     0.44 %     0.53 %     1.34 %     1.83 %
                                         
                                         
ALLOCATION OF
                                        
ALLOWANCE FOR LOAN LOSSES
  
Sep 30, 2010
    
Jun 30, 2010
    
Sep 30, 2009
    
Dec 31, 2009
          
Specific or allocated loss allowance
                                        
    Commercial real estate
   $ 6,988     $ 7,042     $ 7,580     $ 8,278          
    Multifamily real estate
     3,870       2,364       89       90          
    Construction and land
     38,666       45,601       49,829       45,209          
     One- to four-family real estate
     3,555       3,530       2,304       2,912          
    Commercial business
     23,114       23,905       20,906       22,054          
      Agricultural business, including secured by farmland
 2,486       679       1,540       919          
    Consumer
     1,899       1,890       1,758       1,809          
                                         
    Total allocated
     80,578       85,011       84,006       81,271          
                                         
       Estimated allowance for undisbursed commitments
     1,534       909       2,202       1,594          
    Unallocated
     14,323       9,588       8,975       12,404          
                                         
      Total allowance for loan losses
   $ 96,435     $ 95,508     $ 95,183     $ 95,269          
                                         
Allowance for loan losses / Total loans outstanding
     2.76 %     2.63 %     2.44 %     2.51 %        
                                         
Allowance for loan losses / Non-performing loans
     57 %     54 %     39 %     45 %        
                                         

(more)
 
 
 
BANR – Third Quarter 2010 Results
October 20, 2010
Page 10
 
ADDITIONAL FINANCIAL INFORMATION
                      
(dollars in thousands)
                        
             
Sep 30, 2010
  
Jun 30, 2010
  
Sep 30, 2009
  
Dec 31, 2009
    
                               
NON-PERFORMING ASSETS
                      
                               
Loans on non-accrual status
                      
 
Secured by real estate:
                        
     
Commercial
    
$
              17,709
$
                9,433
$
                8,073
$
                7,300
    
     
Multifamily
      
                1,758
  
                   363
  
                      - -
  
                   383
    
     
Construction and land
    
              95,317
  
            110,931
  
            193,281
  
            159,264
    
     
One- to four-family
      
              17,026
  
              19,878
  
              18,107
  
              14,614
    
 
Commercial business
      
              24,975
  
              23,474
  
              15,070
  
              21,640
    
 
Agricultural business, including secured by farmland
  
                6,519
  
                7,556
  
                5,868
  
                6,277
    
 
Consumer
      
                2,531
  
                3,588
  
                      - -
  
                3,923
    
             
            165,835
  
            175,223
  
            240,399
  
            213,401
    
                               
Loans more than 90 days delinquent, still on accrual
                    
 
Secured by real estate:
                        
     
Commercial
      
                   437
  
                1,137
  
                      - -
  
                      - -
    
     
Multifamily
      
                      - -
  
                      - -
  
                      - -
  
                      - -
    
     
Construction and land
    
                1,469
  
                   692
  
                2,090
  
                      - -
    
     
One- to four-family
      
                2,089
  
                   772
  
                   690
  
                   358
    
 
Commercial business
      
                   350
  
                      - -
  
                      - -
  
                      - -
    
 
Agricultural business, including secured by farmland
  
                      - -
  
                      - -
  
                      - -
  
                      - -
    
 
Consumer
      
                   162
  
                   118
  
                   109
  
                     91
    
             
                4,507
  
                2,719
  
                2,889
  
                   449
    
Total non-performing loans
      
            170,342
  
            177,942
  
            243,288
  
            213,850
    
Securities on non-accrual
      
                   500
  
                3,500
  
                1,236
  
                4,232
    
Real estate owned (REO) and repossessed assets
  
            106,531
  
            101,701
  
              53,765
  
              77,802
    
     
Total non-performing assets
  
$
            277,373
$
            283,143
$
            298,289
$
            295,884
    
                               
Total non-performing assets  /  Total assets
    
6.03%
  
6.02%
  
6.23%
  
6.27%
    
                               
DETAIL & GEOGRAPHIC CONCENTRATION OF
                    
 
NON-PERFORMING ASSETS AT
                      
     
September 30, 2010
      
Washington
  
Oregon
  
Idaho
  
Other
  
Total
Secured by real estate:
                        
 
Commercial
    
$
              13,849
$
                   910
$
                3,387
$
                      - -
$
              18,146
 
Multifamily
      
                1,758
  
                      - -
  
                      - -
  
                      - -
  
                1,758
 
Construction and land
                        
   
One- to four-family construction
    
              11,984
  
                9,892
  
                7,228
  
                      - -
  
              29,104
   
Commercial construction
    
                1,538
  
                      - -
  
                      - -
  
                      - -
  
                1,538
   
Multifamily construction
    
                6,651
  
                      - -
  
                      - -
  
                      - -
  
                6,651
   
Residential land acquisition & development
  
              24,963
  
              14,964
  
                   458
  
                      - -
  
              40,385
   
Residential land improved lots
    
                3,959
  
                4,237
  
                   641
  
                      - -
  
                8,837
   
Residential land unimproved
    
                7,198
  
                      - -
  
                   360
  
                      - -
  
                7,558
   
Commercial land acquisition & development
  
                      - -
  
                      - -
  
                      - -
  
                      - -
  
                      - -
   
Commercial land improved
    
                2,457
  
                      - -
  
                      - -
  
                      - -
  
                2,457
   
Commercial land unimproved
    
                   256
  
                      - -
  
                      - -
  
                      - -
  
                   256
     
Total construction and land
    
              59,006
  
              29,093
  
                8,687
  
                      - -
  
              96,786
 
One- to four-family
      
              12,062
  
                5,020
  
                2,033
  
                      - -
  
              19,115
Commercial business
      
              19,177
  
                5,029
  
                   694
  
                   425
  
              25,325
Agricultural business, including secured by farmland
  
                1,425
  
                     43
  
                5,051
  
                      - -
  
                6,519
Consumer
      
                2,390
  
                     85
  
                   218
  
                      - -
  
                2,693
Total non-performing loans
      
109,667
  
40,180
  
20,070
  
425
  
170,342
Securities on non-accrual
      
                      - -
  
                      - -
  
                   500
  
                      - -
  
500
Real estate owned (REO) and repossessed assets
  
              52,657
  
              42,152
  
              11,722
  
                      - -
  
            106,531
     
Total  non-performing assets at end of the period
$
            162,324
$
              82,332
$
              32,292
$
                   425
$
            277,373

(more)
 
 
 
BANR – Third Quarter 2010 Results
October 20, 2010
Page 11
 
ADDITIONAL FINANCIAL INFORMATION
                              
(dollars in thousands)
                              
                               
   
Quarters Ended
     Nine Months Ended        
                               
REAL ESTATE OWNED
  
Sep 30, 2010
    
Sep 30, 2009
    
Sep 30, 2010
    
Sep 30, 2009
        
                               
Balance, beginning of period
   $ 101,485     $ 56,967     $ 77,743     $ 21,782        
   Additions for loan foreclosures
     24,911       10,013       70,123       62,051        
   Additions from capitalized costs
     841       1,689       2,357       4,352        
Dispositions of REO
     (12,145 )     (13,439 )     (32,592 )     (25,615 )      
   Transfers to property and equipment
     - -       - -       - -       (7,030 )      
   Gain (loss) on sale of REO
     (133 )     (188 )     (1,332 )     (385 )      
   Valuation adjustments in the period
     (8,583 )     (1,466 )     (9,923 )     (1,579 )      
Balance, end of period
   $ 106,376     $ 53,576     $ 106,376     $ 53,576        
                                       
   
Quarters Ended
  
                                       
REAL ESTATE OWNED- FIVE COMPARATIVE QUARTERS
Sep 30, 2010
    
Jun 30, 2010
    
Mar 31, 2010
    
Dec 31, 2009
    
Sep 30, 2009
  
                                       
Balance, beginning of period
   $ 101,485     $ 95,074     $ 77,743     $ 53,576     $ 56,967  
   Additions for loan foreclosures
     24,911       17,966       27,327       39,802       10,013  
   Additions from capitalized costs
     841       380       1,136       1,712       1,689  
Dispositions of REO
     (12,145 )     (10,451 )     (9,915 )     (17,094 )     (13,439 )
   Gain (loss) on sale of REO
     (133 )     (660 )     (701 )     (189 )     (188 )
   Valuation adjustments in the period
     (8,583 )     (824 )     (516 )     (64 )     (1,466 )
Balance, end of period
   $ 106,376     $ 101,485     $ 95,074     $ 77,743     $ 53,576  
                                         
REAL ESTATE OWNED- BY TYPE AND STATE
  
Washington
    
Oregon
    
Idaho
    
Total
          
                                         
Commercial real estate
   $ 10,300     $ - -     $ - -     $ 10,300          
One- to four-family construction
     891       2,260       - -       3,151          
Land development- commercial
     6,168       6,065       225       12,458          
Land development- residential
     25,257       26,180       7,620       59,057          
Agricultural land
     329       - -       1,782       2,111          
One- to four-family real estate
     9,593       7,611       2,095       19,299          
Total
   $ 52,538     $ 42,116     $ 11,722     $ 106,376          
                                         

(more)
 
 
 
BANR – Third Quarter 2010 Results
October 20, 2010
Page 12
 
DEPOSITS & OTHER BORROWINGS
                  
           
Sep 30, 2010
  
Jun 30, 2010
  
Sep 30, 2009
  
Dec 31, 2009
 
DEPOSIT COMPOSITION
                    
                         
 
Non-interest-bearing
    
$
              613,313
$
              548,251
$
              546,956
$
              582,480
                         
 
Interest-bearing checking
      
              359,923
  
              368,418
  
              329,820
  
              360,256
 
Regular savings accounts
      
              618,144
  
              593,591
  
              521,663
  
              538,765
 
Money market accounts
      
              481,689
  
              441,222
  
              454,063
  
              442,124
                         
   
Interest-bearing transaction & savings accounts
    
           1,459,756
  
           1,403,231
  
           1,305,546
  
           1,341,145
                         
 
Interest-bearing certificates
      
           1,687,417
  
           1,887,513
  
           2,008,673
  
           1,941,925
                         
   
Total deposits
    
$
           3,760,486
$
           3,838,995
$
           3,861,175
$
           3,865,550
                         
                         
 
INCLUDED IN TOTAL DEPOSITS
                  
                         
 
Public transaction accounts
    
$
                72,076
$
                85,292
$
                44,645
$
                78,202
 
Public interest-bearing certificates
    
                82,045
  
                81,668
  
                98,906
  
                88,186
                         
   
Total public deposits
    
$
              154,121
$
              166,960
$
              143,551
$
              166,388
                         
                         
 
Total brokered deposits
    
$
              144,013
$
              145,571
$
              186,087
$
              165,016
                         
                         
                         
 
INCLUDED IN OTHER BORROWINGS
                  
 
Customer repurchase agreements / "Sweep accounts"
$
              128,149
$
              122,755
$
              124,795
$
              124,330
                         
                         
                         
 
GEOGRAPHIC CONCENTRATION OF DEPOSITS AT
                
   
September 30, 2010
      
Washington
  
Oregon
  
Idaho
  
Total
                         
         
$
           2,890,015
$
              607,279
$
              263,192
$
           3,760,486
                         
                         
                         
                         
                   
Minimum for Capital Adequacy
REGULATORY CAPITAL RATIOS AT
    
Actual
  
or "Well Capitalized"
   
September 30, 2010
      
Amount
  
Ratio
  
Amount
  
Ratio
                         
Banner Corporation-consolidated
                  
   
Total capital to risk-weighted assets
  
$
607,037
  
16.95%
$
286,424
  
8.00%
   
Tier 1 capital to risk-weighted assets
    
561,645
  
15.69%
  
143,212
  
4.00%
   
Tier 1 leverage capital to average assets
    
561,645
  
12.12%
  
185,305
  
4.00%
                         
Banner Bank
                    
   
Total capital to risk-weighted assets
    
515,451
  
15.18%
  
339,547
  
10.00%
   
Tier 1 capital to risk-weighted assets
    
472,370
  
13.91%
  
203,728
  
6.00%
   
Tier 1 leverage capital to average assets
    
472,370
  
10.77%
  
219,367
  
5.00%
                         
Islanders Bank
                    
   
Total capital to risk-weighted assets
    
28,794
  
13.88%
  
20,740
  
10.00%
   
Tier 1 capital to risk-weighted assets
    
26,457
  
12.76%
  
12,444
  
6.00%
   
Tier 1 leverage capital to average assets
    
26,457
  
11.03%
  
12,049
  
5.00%
                         

 
(more)
 
BANR – Third Quarter 2010 Results
October 20, 2010
Page 13
 
 
ADDITIONAL FINANCIAL INFORMATION
                      
 
(dollars in thousands)
                        
 
(rates / ratios annualized)
                        
           
Quarters Ended
   Nine Months Ended
                             
 
OPERATING PERFORMANCE
    
Sep 30, 2010
  
Jun 30, 2010
  
Sep 30, 2009
  
Sep 30, 2010
  
Sep 30, 2009
                             
                             
 
Average loans
    
$
       3,570,143
$
       3,677,140
$
       3,905,763
$
       3,657,281
$
       3,924,487
 
Average securities
      
          388,711
  
          391,067
  
          386,736
  
          391,440
  
          389,150
 
Average interest earning cash
    
          405,377
  
          216,576
  
            74,624
  
          266,351
  
            30,774
 
Average non-interest-earning assets
    
          276,261
  
          268,864
  
          219,780
  
          265,792
  
          204,414
   
Total average assets
    
$
       4,640,492
$
       4,553,647
$
       4,586,903
$
       4,580,864
$
       4,548,825
                             
 
Average deposits
    
$
       3,776,198
$
       3,830,659
$
       3,821,065
$
       3,802,291
$
       3,731,782
 
Average borrowings
      
          334,700
  
          349,997
  
          377,976
  
          352,551
  
          408,111
 
Average non-interest-bearing liabilities
    
          (36,164)
  
          (38,527)
  
          (25,527)
  
          (37,048)
  
          (17,357)
                             
   
Total average liabilities
      
       4,074,734
  
       4,142,129
  
       4,173,514
  
       4,117,794
  
       4,122,536
                             
 
Total average stockholders' equity
    
          565,758
  
          411,518
  
          413,389
  
          463,070
  
          426,289
   
Total average liabilities and equity
  
$
       4,640,492
$
       4,553,647
$
       4,586,903
$
       4,580,864
$
       4,548,825
                             
 
Interest rate yield on loans
      
5.69%
  
5.72%
  
5.71%
  
5.72%
  
5.72%
 
Interest rate yield on securities
    
2.91%
  
3.11%
  
3.43%
  
3.07%
  
3.77%
 
Interest rate yield on cash
      
0.24%
  
0.23%
  
0.27%
  
0.23%
  
0.24%
   
Interest rate yield on interest-earning assets
    
4.93%
  
5.21%
  
5.41%
  
5.14%
  
5.51%
                             
 
Interest rate expense on deposits
    
1.29%
  
1.54%
  
2.16%
  
1.50%
  
2.35%
 
Interest rate expense on borrowings
    
2.40%
  
2.28%
  
2.52%
  
2.29%
  
2.38%
   
Interest rate expense on interest-bearing liabilities
    
1.38%
  
1.60%
  
2.19%
  
1.57%
  
2.35%
                             
 
Interest rate spread
      
3.55%
  
3.61%
  
3.22%
  
3.57%
  
3.16%
                             
 
Net interest margin
      
3.63%
  
3.65%
  
3.30%
  
3.63%
  
3.27%
                             
 
Other operating income / Average assets
    
0.65%
  
0.54%
  
1.16%
  
0.63%
  
1.12%
                             
 
Other operating income (loss) EXCLUDING change in valuation of
                    
   
financial instruments carried at fair value / Average assets (1)
  
0.54%
  
0.62%
  
0.65%
  
0.56%
  
0.71%
                             
 
Other operating expense / Average assets
    
3.96%
  
3.35%
  
3.17%
  
3.50%
  
3.15%
                             
 
Efficiency ratio (other operating expense / revenue)
    
97.38%
  
84.26%
  
73.54%
  
86.43%
  
74.36%
                             
 
Return (Loss) on average assets
    
(3.65%)
  
(0.44%)
  
(0.56%)
  
(1.44%)
  
(0.95%)
                             
 
Return (Loss) on average equity
    
(29.97%)
  
(4.82%)
  
(6.19%)
  
(14.21%)
  
(10.11%)
                             
 
Return (Loss) on average tangible equity (2)
    
(30.49%)
  
(4.94%)
  
(6.37%)
  
(14.52%)
  
(10.42%)
                             
 
Average equity  /  Average assets
    
12.19%
  
9.04%
  
9.01%
  
10.11%
  
9.37%
                             
 
(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.