EX-99.1 2 ex9911020.htm EXHIBIT 99.1 ex9911020.htm
Exhibit 99.1
 
 
  
Contact: D. Michael Jones,
President and CEO
Lloyd W. Baker, CFO
(509) 527-3636
 News Release
 
Banner Corporation Announces Third Quarter Results

Walla Walla, WA – October 20, 2009 - Banner Corporation (NASDAQ GMS: BANR), the parent company of Banner Bank and Islanders Bank, today reported that it had a net loss of $6.4 million for the third quarter ended September 30, 2009, compared to a net loss of $991,000 for the third quarter of 2008.  The current quarter’s results include a $25.0 million provision for loan losses and a $4.6 million net gain from the valuation of financial instruments carried at fair value.  For the nine-month period ended September 30, 2009, Banner reported a net loss of $32.2 million compared to a net loss of $49.5 million for the nine months ended September 30, 2008.  The nine month results for 2008 included a $50.0 million goodwill impairment charge.
 
In the fourth quarter a year ago, Banner issued $124 million of senior preferred stock to the U.S. Treasury as a participant in the Treasury’s Capital Purchase Program.  In the quarter ended September 30, 2009, Banner paid a $1.6 million dividend on this preferred stock and accrued $373,000 for related discount accretion.  Including the preferred stock dividend and related accretion, the net loss to common shareholders was $8.4 million, or $0.44 per diluted share, for the third quarter, compared to a net loss of $991,000, or $0.06 per diluted share, for the third quarter a year ago.  Year-to-date, the net loss to common shareholders was $38.0 million, or $2.11 per diluted share, compared to a net loss of $49.5 million, or $3.09 per diluted share for the first nine months of 2008.
 
“Similar to recent quarters, our provision for loan losses during the third quarter reflects continued material levels of non-performing loans and net charge-offs, particularly for loans for the construction of one-to-four family homes and for acquisition and development of land for residential properties,” said D. Michael Jones, President and CEO.  “However, while there is still much work to be accomplished, 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 construction and development loans, the non-housing related segments of our loan portfolio have continued to perform as expected with only normal levels of credit problems given the serious economic slowdown.”
 
“Retail deposit growth was a highlight again in the third quarter as we continued to replace public and brokered funds with attractively priced core deposits which will continue to strengthen our commercial banking franchise,” Jones continued.  “Also notable in the quarter was strong mortgage banking revenues as exceptionally low interest rates resulted in continued refinancing opportunities for many of our customers, and lower home prices and first-time buyer incentives led to solid purchase financing activities.  Continuing its earlier success, our Great Northwest Home Rush promotion contributed to additional home sales.  Through the date of this announcement our builders have accepted purchase offers on 361 of the 617 homes listed under this program, with 289 of those sales having closed through September 30, 2009.”
 
Credit Quality
 
“In addition to the weakness in the residential construction market, property values exhibited further declines, particularly for land and developed building lots, resulting in additional charge-offs and impairment reserves,” said Jones.  “As a result, our provision for loan losses for the quarter ended September 30, 2009, while significantly less than in the immediately preceding quarter, was in excess of our normal expectations.  Although property values have declined, sales of finished homes have improved, our reserve levels are substantial, and both our impairment analysis and charge-off actions reflect current appraisals and valuation estimates as well as recent regulatory examination results.  Unfortunately, with respect to land and lot loans, those appraisals generally reflect a very limited number of sales which frequently involve distressed transactions and assume in many cases that market recoveries will be protracted, resulting in disappointingly low and uncertain valuation estimates which required further loss provisioning.  We remain hopeful that the final resolution of many of these loans will reflect better than currently recognized values and we are confident that we have the capital and human resources necessary to manage the collection of problem assets in the current economic environment.”
 
Banner recorded a $25.0 million provision for loan losses in the third quarter, compared to $45.0 million in the preceding quarter and $8.0 million in the third quarter of 2008.  For the first nine months of the year, the provision for loan losses was $92.0 million compared to $29.5 million for the first nine months of 2008.  The allowance for loan losses at September 30, 2009 was $95.2 million, representing 2.44% of total loans outstanding.  Non-performing loans totaled $243.3 million at September 30, 2009, compared to $225.1 million in the preceding quarter and $119.4 million at September 30, 2008.  In addition, Banner’s real estate owned and repossessed assets totaled $53.8 million at September 30, 2009, compared to $57.2 million three months earlier and $10.2 million at September 30, 2008.  Banner’s net charge-offs in the quarter ended September 30, 2009 totaled $20.5 million, or 0.53% of average loans outstanding and year-to-date net charge-offs were $72.0 million, or 1.83% of average loans outstanding.
 
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BANR-Third Quarter 2009 Results
October 20, 2009
Page 2
 
At September 30, 2009, the geographic distribution of our construction and land development loans, including residential and commercial properties, is approximately 33% in the greater Puget Sound market, 37% in the greater Portland, Oregon market, and 8% in the greater Boise, Idaho market, with the remaining 22% distributed in various eastern Washington, eastern Oregon and northern Idaho markets served by Banner Bank.  One-to-four family residential construction and related lot and land loans represent 16% of the total loan portfolio and 73% of non-performing assets.  The geographic distribution of non-performing construction, land and land development loans and real estate owned included approximately $110 million, or 44%, in the Puget Sound region, $84 million, or 34%, in the greater Portland market area and $27 million, or 11%, in the greater Boise market area.
 
Income Statement Review
 
Banner’s net interest margin was 3.30% for the third quarter, compared to 3.24% in the preceding quarter and 3.45% for the third quarter a year ago.  Funding costs decreased 18 basis points compared to the previous quarter and decreased 67 basis points from the same quarter a year earlier, while asset yields decreased eight basis points from the prior linked quarter and 82 basis points from the third quarter a year ago, all reflecting the much lower interest rate environment.  For the first nine months of 2009, the net interest margin was 3.27% compared to 3.52% for the first nine months of 2008.
 
“Funding costs continued to decline, which allowed our net interest margin to expand modestly despite the drag on earnings from the still high level of non-performing assets,” said Jones.  Non-accruing loans reduced the margin by approximately 42 basis points in this year’s third quarter compared to approximately 45 basis points in the immediately preceding quarter of 2009 and approximately 24 basis points in the third quarter of 2008.
 
For the third quarter of 2009, net interest income before the provision for loan losses was $36.4 million, compared to $34.9 million in the preceding quarter and $37.6 million in the third quarter a year ago.  In the first nine months of 2009, net interest income before the provision for loan losses was $106.2 million compared to $112.0 million in the first nine months of 2008.  Revenues from core operations* (net interest income before the provision for loan losses plus total other operating income excluding fair value adjustments) were $45.2 million in the third quarter of 2009, compared to $43.9 million in the second quarter of 2009 and $45.7 million for the third quarter a year ago.  Revenues from core operations for the first nine months of 2009 were $131.9 million, compared to $135.4 million for the same period of 2008.
 
Banner’s results for the quarter included a net gain of $4.6 million ($3.0 million after tax), compared to a net loss of $6.1 million ($3.9 million after tax) in the third quarter a year ago, for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value in accordance with the adoption of Statement of Financial Accounting Standards (SFAS) Nos. 157 and 159.  The fair value adjustments in the current quarter predominantly reflect changes in the valuation of trust preferred securities, including pooled trust preferred securities, and junior subordinated debentures, both owned and issued by the Company.
 
Total other operating income, which includes the changes in the valuation of financial instruments noted above, was $13.4 million in the third quarter, compared to $20.0 million in the preceding quarter and $2.0 million for the same quarter a year ago.  For the first nine months of 2009, total other operating income was $38.1 million, compared to $18.9 million in the same period in 2008.  Total other operating income from core operations* (excluding fair value adjustments) for the current quarter was $8.8 million, compared to $8.9 million in the preceding quarter and $8.1 million for the same quarter a year ago.  For the first nine months of 2009, total other operating income from core operations increased 9% to $25.6 million, compared to $23.4 million in the first nine months of 2008.  Income from deposit fees and other service charges increased to $5.7 million in the third quarter of 2009, compared to $5.4 million for the preceding quarter; however, reflecting the reduction in customer transaction volumes in the current economic environment, fees were slightly less than the $5.8 million recorded in the third quarter a year ago despite growth in the number of accounts.  Income from mortgage banking operations decreased to $2.1 million in the third quarter compared to $2.9 million in the preceding quarter, but was up substantially from the $1.5 million recorded in the third quarter a year ago.
 
“The soft economy continued to adversely affect our payment processing business compared to a year ago as activity levels for deposit customers, cardholders and merchants remained subdued; however, we are pleased with the year-over-year growth in our customer base and encouraged by the continuing improvement in activity compared to the very low levels we experienced earlier this year,” said Jones.  “We are also pleased that our mortgage banking revenues remained strong and substantially above the levels reported a year ago.  Although not as significant as in the first two quarters of the year, the high level of refinancing activity again resulted in accelerated termination of mortgage servicing rights as reflected in the impairment of loan servicing revenues in the third quarter.  Amortization and write-off of mortgage servicing rights totaled $415,000 for the third quarter of 2009, compared to $912,000 and $559,000, respectively, in the first and second quarters of this year and $176,000 in the third 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.  “Compensation, occupancy and other manageable operating expenses have shown steady reductions over the past twelve months as we have made significant progress in improving our core operating efficiency.
 
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BANR-Third Quarter 2009 Results
October 20, 2009
Page 3
 
 
Unfortunately, compared to a year ago FDIC insurance expense has increased substantially and offset much of this improvement.  FDIC insurance charges were $2.2 million and $7.8 million, respectively, for the quarter and nine months ended September 30, 2009, compared to $701,000 and $1.7 million, respectively, for the quarter and nine months ended September 30, 2008.  In addition, expenses associated with acquired real estate increased to $2.8 million for the quarter and $5.2 million for the nine months ended September 30, 2009, compared to $758,000 and $1.6 million, respectively, for the same quarter and nine-month period a year earlier.  We anticipate collection costs and FDIC insurance premiums will continue to be above historical levels for a number of future quarters.”
 
Total other operating expenses from core operations* (non-interest expenses excluding the goodwill write-off that occurred during the quarter ended June 30, 2008) were $36.6 million in the third quarter, compared to $36.9 million in the preceding quarter and $34.0 million in the third quarter a year ago.  For the first nine months of the year, other operating expenses from core operations were $107.3 million compared to $102.9 million in the first nine months of 2008.  Operating expenses from core operations as a percentage of average assets was 3.17% in the third quarter of 2009, compared to 3.27% in the preceding quarter and 2.91% in the third quarter a year ago.
 
*Earnings information excluding the goodwill impairment charge and fair value adjustments (alternately referred to as total other operating income from core operations, total other operating expenses from core operations, revenues from core operations, or operating expenses from core operations) represent non-GAAP (Generally Accepted Accounting Principles) financial measures.  Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in the Company’s core operations reflected in the current quarter’s 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 $3.80 billion at September 30, 2009, compared to $3.94 billion a year earlier.  Total assets were $4.79 billion at September 30, 2009, compared to $4.65 billion a year earlier.
 
“In the third quarter of 2009, commercial and multifamily real estate loan balances increased by $19.6 million while commercial business loans were essentially unchanged compared to the prior quarter end.  In addition, agricultural loans experienced an expected seasonal increase of $10.3 million and one-to-four family residential loans increased by $23.4 million,” said Jones.  “However, the continued reductions in construction and land development loans resulted in a modest decrease in total loan balances compared to the prior quarter end.  Although still slower than historical levels, home sales have improved, contributing to a $205 million reduction in our portfolio of one-to-four family construction loans over the past twelve months, including a $60.0 million decrease in the most recent quarter.  As a result, at September 30, 2009 our one-to-four family construction loans totaled $277 million, a decline of $378 million from their peak quarter-end balance of $655 million at June 30, 2007.
 
Total deposits were $3.86 billion at September 30, 2009, compared to $3.75 billion at the end of the preceding quarter and $3.79 billion a year ago.  Non-interest-bearing accounts increased by nearly $39 million during the quarter to $546 million at September 30, 2009, compared to $508 million at June 30, 2009 and $522 million a year ago.  Interest-bearing accounts increased by $73 million in the third quarter of 2009 and at quarter end exceeded the year earlier balances by $45 million despite the substantial decrease in public funds and brokered deposits.
 
“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 twelve months, we have allowed $253 million in public funds to run off as the new higher collateralization requirements and the shared risk exposure under the Washington and Oregon State requirements have made retaining those deposits less desirable than in the past.  In addition, although brokered deposits have never been an important component of our funding, we have reduced brokered deposits by $58 million over the same twelve-month period.  We are pleased that we were able to produce this retail deposit growth while also significantly reducing our overall cost of deposits, including another 20 basis point decrease during the third quarter.  This strong retail deposit growth, especially in the third quarter, has allowed us to steadily build our short-term liquidity, a key operating goal, and lower our loan-to-deposits ratio towards our long-term goal of 95%.”
 
 “Despite the challenging operating environment, Banner Corporation and its subsidiary banks continue to maintain capital levels significantly in excess of the requirements to be categorized as ‘well-capitalized’ under applicable regulatory standards,” said Jones.  Banner Corporation’s Tier 1 leverage capital to average assets ratio was 9.66% and its total capital to risk-weighted assets ratio was 12.54% at September 30, 2009.
 
Tangible stockholders’ equity at September 30, 2009 was $395.2 million, including $117.0 million attributable to preferred stock, compared to $301.4 million a year ago.  Tangible common stockholders’ equity was $278.2 million at September 30, 2009, or 5.82% of tangible assets, compared to $301.4 million, or 6.60% of tangible assets a year earlier.  Tangible book value per common share was $14.13 at quarter-end, compared to $18.01 a year earlier.  At September 30, 2009, Banner had 19.7 million shares outstanding, while it had 16.7 million shares outstanding a year ago.
 
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BANR-Third Quarter 2009 Results
October 20, 2009
Page 4
 
“A frequently asked question about us is the date of our bank regulatory examinations.  A regularly scheduled regulatory examination of Banner Bank, our lead bank, was conducted in the late third quarter of 2009.  We have not yet received a written report of that examination but have had the normal field examiner exit conference and have incorporated the financial-related results of that conference in our third quarter financial results,” concluded Jones.
 

Conference Call
 
Banner will host a conference call on Wednesday, October 21, 2009, at 8:00 a.m. PDT, to discuss third quarter 2009 results.  The conference call can be accessed live by telephone at 480-629-9723 using access code 4171247 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 4171247.
 
About the Company
 
Banner Corporation is a $4.8 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-Third Quarter 2009 Results
October 20, 2009
Page 5

RESULTS OF OPERATIONS
    
Quarters Ended
    
Nine Months Ended
  
(in thousands except shares and per share data)
    
Sep 30, 2009
  
Jun 30, 2009
  
Sep 30, 2008
  
Sep 30, 2009
  
Sep 30, 2008
  
                                       
                                       
INTEREST INCOME:
                                  
 
Loans receivable
    
$
           56,175
  
$
          55,500
  
$
          64,181
  
$
        168,022
  
$
        196,348
  
 
Mortgage-backed securities
    
             1,422
    
            1,569
    
            1,040
    
            4,792
    
            3,280
  
 
Securities and cash equivalents
    
             1,976
    
            2,089
    
            2,786
    
            6,248
    
            8,374
  
           
           59,573
    
          59,158
    
          68,007
    
        179,062
    
        208,002
  
                                       
INTEREST EXPENSE:
                                  
 
Deposits
      
           20,818
    
          21,638
    
          26,818
    
          65,548
    
          84,446
  
 
Federal Home Loan Bank advances
    
                630
    
               675
    
            1,160
    
            2,025
    
            4,310
  
 
Other borrowings
      
                655
    
               671
    
               734
    
            1,553
    
            1,874
  
 
Junior subordinated debentures
    
             1,118
    
            1,249
    
            1,669
    
            3,700
    
            5,399
  
           
           23,221
    
          24,233
    
          30,381
    
          72,826
    
          96,029
  
 
Net interest income before provision for loan losses
    
           36,352
    
          34,925
    
          37,626
    
        106,236
    
        111,973
  
                                       
PROVISION FOR LOAN LOSSES
    
           25,000
    
          45,000
    
            8,000
    
          92,000
    
          29,500
  
 
Net interest income (loss)
    
           11,352
    
         (10,075
) 
  
          29,626
    
          14,236
    
          82,473
  
                                       
OTHER OPERATING INCOME:
                                
 
Deposit fees and other service charges
    
             5,705
    
            5,408
    
            5,770
    
          16,049
    
          16,277
  
 
Mortgage banking operations
    
             2,065
    
            2,860
    
            1,500
    
            7,640
    
            4,694
  
 
Loan servicing fees
      
                282
    
               248
    
               536
    
               260
    
            1,485
  
 
Miscellaneous
      
                768
    
               412
    
               286
    
            1,700
    
               980
  
           
8,820
    
8,928
    
8,092
    
25,649
    
23,436
  
 
Increase (Decrease) in valuation of financial instruments carried at fair value
             4,633
    
          11,049
    
          (6,056
) 
  
          12,429
    
          (4,584
) 
 
Total other operating income
    
           13,453
    
          19,977
    
            2,036
    
          38,078
    
          18,852
  
                                       
OTHER OPERATING EXPENSE:
                                
 
Salary and employee benefits
    
           17,379
    
          17,528
    
          18,241
    
          52,508
    
          57,623
  
 
Less capitalized loan origination costs
    
           (2,060
) 
  
           (2,834
) 
  
          (2,040
) 
  
          (7,010
) 
  
          (7,009
) 
 
Occupancy and equipment
    
             5,715
    
            5,928
    
            5,956
    
          17,697
    
          17,813
  
 
Information / computer data services
    
             1,551
    
            1,599
    
            1,560
    
            4,684
    
            5,389
  
 
Payment and card processing services
    
             1,778
    
            1,555
    
            1,913
    
            4,786
    
            5,212
  
 
Professional services
      
             1,456
    
            1,183
    
            1,117
    
            3,833
    
            3,203
  
 
Advertising and marketing
    
             1,899
    
            2,207
    
            1,572
    
            5,938
    
            4,667
  
 
Deposit insurance
      
             2,219
    
            4,102
    
               701
    
            7,818
    
            1,661
  
 
State/municipal business and use taxes
    
                558
    
               532
    
               572
    
            1,630
    
            1,712
  
 
Real estate operations
      
             2,799
    
            1,805
    
               758
    
            5,227
    
            1,592
  
 
Miscellaneous
      
             3,335
    
            3,286
    
            3,650
    
          10,202
    
          11,067
  
           
           36,629
    
          36,891
    
          34,000
    
        107,313
    
        102,930
  
 
Goodwill write-off
      
                  - -
    
                  --
    
                 - -
    
                 - -
    
          50,000
  
 
Total other operating expense
    
           36,629
    
          36,891
    
          34,000
    
        107,313
    
        152,930
  
 
Income (Loss) before provision (benefit) for income taxes
    
         (11,824
) 
  
         (26,989
) 
  
          (2,338
) 
  
        (54,999
) 
  
        (51,605
) 
                                       
PROVISION FOR  (BENEFIT FROM ) INCOME TAXES
    
           (5,376
) 
  
         (10,478
) 
  
          (1,347
) 
  
        (22,777
) 
  
          (2,143
) 
NET INCOME (LOSS)
    
$
           (6,448
) 
$
         (16,511
) 
$
             (991
) 
$
        (32,222
) 
$
        (49,462
) 
                                       
PREFERRED STOCK DIVIDEND AND DISCOUNT ACCRETION
                              
 
Preferred stock dividend
      
             1,550
    
            1,550
    
                 - -
    
            4,650
    
                 - -
  
 
Preferred stock discount accretion
    
                373
    
               373
    
                 - -
    
            1,119
    
                 - -
  
                                       
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
$
           (8,371
) 
$
         (18,434
) 
$
             (991
) 
$
        (37,991
) 
$
        (49,462
) 
                                       
Earnings (Loss) per share available to common shareholder
                                
   
Basic
    
$
             (0.44
) 
$
             (1.04
) 
$
            (0.06
) 
$
            (2.11
) 
$
            (3.09
) 
   
Diluted
    
$
             (0.44
) 
$
             (1.04
) 
$
            (0.06
) 
$
            (2.11
) 
$
            (3.09
) 
Cumulative dividends declared per common share
  
$
               0.01
  
$
              0.01
  
$
              0.05
  
$
              0.03
  
$
              0.45
  
                                       
Weighted average common shares outstanding
                                
   
Basic
      
    19,022,522
    
   17,746,051
    
   16,402,607
    
   17,982,945
    
   16,025,403
  
   
Diluted
      
    19,022,522
    
   17,746,051
    
   16,402,607
    
   17,982,945
    
   16,025,403
  
Common shares repurchased during the period
    
                  - -
    
                  --
    
                 - -
    
                 - -
    
        613,903
  
Common shares issued in connection with exercise of stock options or DRIP
      1,507,485
    
        780,906
    
        675,186
    
     2,781,905
    
        653,036
  
                                       


 
(more)

 
 
 

BANR-Third Quarter 2009 Results
October 20, 2009
Page 6

 
FINANCIAL  CONDITION
                        
(in thousands except shares and per share data)
  
Sep 30, 2009
    
Jun 30, 2009
    
Sep 30, 2008
    
Dec 31, 2008
  
                           
                           
ASSETS
                        
Cash and due from banks
   $ 60,531     $ 67,339     $ 80,508     $ 89,964  
Federal funds and interest-bearing deposits
     270,623       16,919       403       12,786  
Securities - at fair value
     167,944       167,476       239,009       203,902  
Securities - available for sale
     74,527       50,980       - -       53,272  
Securities - held to maturity
     76,630       77,321       55,389       59,794  
Federal Home Loan Bank stock
     37,371       37,371       37,371       37,371  
Loans receivable:
                                
 
Held for sale
     4,781       8,377       6,085       7,413  
 
Held for portfolio
     3,891,413       3,904,704       3,993,094       3,953,995  
 
Allowance for loan losses
     (95,183 )     (90,694 )     (58,846 )     (75,197 )
        3,801,011       3,822,387       3,940,333       3,886,211  
                                   
Accrued interest receivable
     20,912       18,892       22,799       21,219  
Real estate owned held for sale, net
     53,576       56,967       10,147       21,782  
Property and equipment, net
     104,469       103,709       97,958       97,647  
Goodwill and other intangibles, net
     11,718       12,365       85,513       13,716  
Bank-owned life insurance
     54,037       53,341       52,500       52,680  
Other assets
     54,659       47,475       28,329       34,024  
      $ 4,788,008     $ 4,532,542     $ 4,650,259     $ 4,584,368  
                                   
LIABILITIES
                                
Deposits:
                                
 
Non-interest-bearing
   $ 546,956     $ 508,284     $ 521,927     $ 509,105  
 
Interest-bearing transaction and savings accounts
     1,305,546       1,131,093       1,086,621       1,137,878  
 
Interest-bearing certificates
     2,008,673       2,110,466       2,182,318       2,131,867  
        3,861,175       3,749,843       3,790,866       3,778,850  
                                   
Advances from Federal Home Loan Bank at fair value
     255,806       115,946       209,243       111,415  
Customer repurchase agreements and other borrowings
     174,770       158,249       104,496       145,230  
Junior subordinated debentures at fair value
     47,859       49,563       101,358       61,776  
                                   
Accrued expenses and other liabilities
     28,715       36,652       44,486       40,600  
Deferred compensation
     12,960       12,815       12,880       13,149  
        4,381,285       4,123,068       4,263,329       4,151,020  
                                   
STOCKHOLDERS' EQUITY
                                
Preferred stock - Series A
     117,034       116,661       - -       115,915  
Common stock
     327,385       322,582       306,741       316,740  
Retained earnings (accumulated deficit)
     (36,402 )     (27,826 )     82,377       2,150  
Other components of stockholders' equity
     (1,294 )     (1,943 )     (2,188 )     (1,457 )
        406,723       409,474       386,930       433,348  
      $ 4,788,008     $ 4,532,542     $ 4,650,259     $ 4,584,368  
                                   
Common Shares Issued:
                                
Shares outstanding at end of period
     19,933,943       18,426,458       16,980,468       17,152,038  
 
Less unearned ESOP shares at end of period
     240,381       240,381       240,381       240,381  
Shares outstanding at end of period excluding unearned ESOP shares
     19,693,562       18,186,077       16,740,087       16,911,657  
                                   
Common stockholders' equity per share (1)
   $ 14.72     $ 16.10     $ 23.11     $ 18.77  
Common stockholders' tangible equity per share (1) (2)
   $ 14.13     $ 15.42     $ 18.01     $ 17.96  
Tangible common stockholders' equity to tangible assets
     5.82 %     6.20 %     6.60 %     6.64 %
Consolidated Tier 1 leverage capital ratio
     9.66 %     9.90 %     8.86 %     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-Third Quarter 2009 Results
October 20, 2009
Page 7

 
ADDITIONAL FINANCIAL INFORMATION
                      
(dollars in thousands)
                        
                             
           
Sep 30, 2009
  
Jun 30, 2009
  
Sep 30, 2008
  
Dec 31, 2008
    
LOANS (including loans held for sale):
                      
Commercial real estate
                        
 
Owner occupied
    
$
              481,698
$
              476,922
$
              448,972
$
              459,446
    
 
Investment properties
      
              585,206
  
              572,999
  
              564,947
  
              554,263
    
Multifamily real estate
      
              152,832
  
              150,168
  
              141,787
  
              151,274
    
Commercial construction
      
                83,937
  
                90,762
  
              113,342
  
              104,495
    
Multifamily construction
      
                62,614
  
                56,968
  
                22,236
  
                33,661
    
One- to four-family construction
      
              277,419
  
              337,368
  
              482,443
  
              420,673
    
Land and land development
                        
 
Residential
      
              346,308
  
              359,994
  
              417,041
  
              424,002
    
 
Commercial
      
                47,182
  
                43,703
  
                64,480
  
                62,128
    
Commercial business
      
              678,187
  
              678,273
  
              694,688
  
              679,867
    
Agricultural business including secured by farmland
    
              225,603
  
              215,339
  
              213,753
  
              204,142
    
One- to four-family real estate
      
              676,928
  
              653,513
  
              561,043
  
              599,169
    
Consumer
      
              278,280
  
              277,072
  
              274,447
  
              268,288
    
                             
   
Total loans outstanding
    
$
           3,896,194
$
           3,913,081
$
           3,999,179
$
           3,961,408
    
                             
Restructured loans performing under their restructured terms
$
                55,161
$
                55,031
$
                15,514
$
                23,635
    
                             
Loans 30 - 89 days past due and on accrual
  
$
                21,243
$
                34,038
$
                18,587
$
                61,124
    
                             
Total delinquent loans (including loans on non-accrual)
$
              264,531
$
              259,107
$
              137,953
$
              248,469
    
                             
Total delinquent loans  /  Total loans outstanding
    
6.79%
  
6.62%
  
3.45%
  
6.27%
    
                             
                             
GEOGRAPHIC CONCENTRATION OF LOANS AT
                    
   
September 30, 2009
      
Washington
  
Oregon
  
Idaho
  
Other
  
Total
                             
Commercial real estate
                        
 
Owner occupied
    
$
              380,170
$
                59,793
$
                41,735
$
                       - -
$
              481,698
 
Investment properties
      
              423,431
  
              107,090
  
                44,243
  
                10,442
  
              585,206
Multifamily real estate
      
              127,882
  
                12,823
  
                  8,800
  
                  3,327
  
              152,832
Commercial construction
      
                62,827
  
                13,390
  
                  7,720
  
                       - -
  
                83,937
Multifamily construction
      
                33,837
  
                28,777
  
                       - -
  
                       - -
  
                62,614
One- to four-family construction
      
              133,319
  
              129,552
  
                14,548
  
                       - -
  
              277,419
Land and land development
                        
 
Residential
      
              170,345
  
              132,624
  
                43,339
  
                       - -
  
              346,308
 
Commercial
      
                30,400
  
                12,127
  
                  4,655
  
                       - -
  
                47,182
Commercial business
      
              483,451
  
                94,828
  
                74,621
  
                25,287
  
              678,187
Agricultural business including secured by farmland
    
              105,119
  
                55,488
  
                64,963
  
                       33
  
              225,603
One- to four-family real estate
      
              470,912
  
              169,564
  
                33,205
  
                  3,247
  
              676,928
Consumer
      
              196,305
  
                64,056
  
                17,418
  
                     501
  
              278,280
   
Total loans outstanding
    
$
           2,617,998
$
              880,112
$
              355,247
$
                42,837
$
           3,896,194
                             
   
Percent of total loans
      
67.2%
  
22.6%
  
9.1%
  
1.1%
  
100.0%
                             
                             
DETAIL OF LAND AND LAND DEVELOPMENT LOANS AT
                    
   
September 30, 2009
      
Washington
  
Oregon
  
Idaho
  
Other
  
Total
                             
Residential
                        
 
Acquisition & development
    
$
                93,883
$
                91,781
$
                20,236
$
                       - -
$
              205,900
 
Improved lots
      
                53,187
  
                33,431
  
                  2,754
  
                       - -
  
                89,372
 
Unimproved land
      
                23,275
  
                  7,412
  
                20,349
  
                       - -
  
                51,036
   
Total residential land and development
  
$
              170,345
$
              132,624
$
                43,339
$
                       - -
$
              346,308
Commercial & industrial
                        
 
Acquisition & development
    
$
                  8,975
$
                       - -
$
                     200
$
                       - -
$
                  9,175
 
Improved land
      
                  9,906
  
                10,643
  
                       - -
  
                       - -
  
                20,549
 
Unimproved land
      
                11,519
  
                  1,484
  
                  4,455
  
                       - -
  
                17,458
   
Total commercial land and development
  
$
                30,400
$
                12,127
$
                  4,655
$
                       - -
$
                47,182
                             
 
 
(more)
 
 
 


BANR-Third Quarter 2009 Results
October 20, 2009
Page 8

 
ADDITIONAL FINANCIAL INFORMATION
                              
(dollars in thousands)
                              
                               
   
Quarters Ended
    
Nine Months Ended
  
CHANGE IN THE
  
Sep 30, 2009
    
Jun 30, 2009
    
Sep 30, 2008
    
Sep 30, 2009
    
Sep 30, 2008
  
ALLOWANCE FOR LOAN LOSSES
                              
                               
Balance, beginning of period
   $ 90,694     $ 79,724     $ 58,570     $ 75,197     $ 45,827  
                                         
Provision
     25,000       45,000       8,000       92,000       29,500  
                                         
Recoveries of loans previously charged off:
                                        
Commercial real estate
     - -       - -       1,530       - -       1,530  
Multifamily real estate
     - -       - -       - -       - -       - -  
Construction and land
     299       266       39       617       48  
  One- to four-family real estate
     21       89       4       112       44  
Commercial business
     120       249       130       439       390  
    Agricultural business, including secured by farmland
     6       22       610       28       618  
Consumer
     152       32       44       215       126  
      598       658       2,357       1,411       2,756  
Loans charged-off:
                                        
Commercial real estate
     - -       - -       - -       - -       (7 )
Multifamily real estate
     - -       - -       - -       - -       - -  
Construction and land
     (16,614 )     (27,290 )     (7,567 )     (56,321 )     (13,616 )
  One- to four-family real estate
     (856 )     (1,181 )     (220 )     (3,128 )     (411 )
Commercial business
     (3,060 )     (2,438 )     (1,889 )     (9,292 )     (4,439 )
    Agricultural business, including secured by farmland
     - -       (3,186 )     (60 )     (3,186 )     (60 )
Consumer
     (579 )     (593 )     (345 )     (1,498 )     (704 )
      (21,109 )     (34,688 )     (10,081 )     (73,425 )     (19,237 )
Net charge-offs
     (20,511 )     (34,030 )     (7,724 )     (72,014 )     (16,481 )
                                         
Balance, end of period
   $ 95,183     $ 90,694     $ 58,846     $ 95,183     $ 58,846  
                                         
Net charge-offs / Average loans outstanding
     0.53 %     0.87 %     0.19 %     1.83 %     0.42 %
                                         
                                         
ALLOCATION OF
                                        
ALLOWANCE FOR LOAN LOSSES
  
Sep 30, 2009
    
Jun 30, 2009
    
Sep 30, 2008
    
Dec 31, 2008
          
Specific or allocated loss allowance
                                        
Commercial real estate
   $ 7,580     $ 5,333     $ 2,789     $ 4,199          
Multifamily real estate
     89       83       103       87          
Construction and land
     49,829       55,585       21,932       38,253          
 One- to four-family real estate
     2,304       1,333       511       752          
Commercial business
     20,906       19,474       23,085       16,533          
  Agricultural business, including secured by farmland
     1,540       1,323       1,097       530          
Consumer
     1,758       1,540       2,935       1,730          
                                         
Total allocated
     84,006       84,671       52,452       62,084          
                                         
Estimated allowance for undisbursed commitments
     2,202       1,976       1,060       1,108          
Unallocated 
      8,975        4,047        5,334        12,005          
                                         
   Total allowance for loan losses
   $ 95,183     $ 90,694     $ 58,846     $ 75,197          
                                         
Allowance for loan losses  /  Total loans outstanding
     2.44 %     2.32 %     1.47 %     1.90 %        
                                         
 
 
 
(more)
 
 
 

BANR-Third Quarter 2009 Results
October 20, 2009
Page 9

 
ADDITIONAL FINANCIAL INFORMATION
                      
(dollars in thousands)
                        
                               
             
Sep 30, 2009
  
Jun 30, 2009
  
Sep 30, 2008
  
Dec 31, 2008
    
                               
NON-PERFORMING ASSETS
                      
                               
Loans on non-accrual status
                      
 
Secured by real estate:
                        
     
Commercial
    
$
                8,073
$
                7,244
$
                6,368
$
              12,879
    
     
Multifamily
      
                      - -
  
                      - -
  
                      - -
  
                      - -
    
     
Construction and land
      
            193,281
  
            180,989
  
              98,108
  
            154,823
    
     
One- to four-family
      
              18,107
  
              15,167
  
                6,583
  
                8,649
    
 
Commercial business
      
              15,070
  
              12,339
  
                6,905
  
                8,617
    
 
Agricultural business, including secured by farmland
  
                5,868
  
                7,478
  
                   265
  
                1,880
    
 
Consumer
      
                      - -
  
                   227
  
                   427
  
                   130
    
             
            240,399
  
            223,444
  
            118,656
  
            186,978
    
                               
Loans more than 90 days delinquent, still on accrual
                    
 
Secured by real estate:
                        
     
Commercial
      
                      - -
  
                      - -
  
                      - -
  
                      - -
    
     
Multifamily
      
                      - -
  
                      - -
  
                      - -
  
                      - -
    
     
Construction and land
      
                2,090
  
                   603
  
                      - -
  
                      - -
    
     
One- to four-family
      
                   690
  
                   624
  
                   635
  
                   124
    
 
Commercial business
      
                      - -
  
                   209
  
                      - -
  
                      - -
    
 
Agricultural business, including secured by farmland
  
                      - -
  
                      - -
  
                      - -
  
                      - -
    
 
Consumer
      
                   109
  
                   189
  
                     75
  
                   243
    
             
                2,889
  
                1,625
  
                   710
  
                   367
    
Total non-performing loans
    
            243,288
  
            225,069
  
            119,366
  
            187,345
    
Securities on non-accrual at fair value
    
                1,236
  
                      - -
  
                      - -
  
                      - -
    
Real estate owned (REO) / Repossessed assets
    
              53,765
  
              57,197
  
              10,153
  
              21,886
    
     
Total non-performing assets
  
$
            298,289
$
            282,266
$
            129,519
$
            209,231
    
                               
Total non-performing assets  /  Total assets
    
6.23%
  
6.23%
  
2.79%
  
4.56%
    
                               
DETAIL & GEOGRAPHIC CONCENTRATION OF
                    
 
NON-PERFORMING ASSETS AT
                      
     
September 30, 2009
      
Washington
  
Oregon
  
Idaho
  
Other
  
Total
Secured by real estate:
                        
 
Commercial
    
$
                7,136
$
                   787
$
                   150
$
                      - -
$
                8,073
 
Multifamily
      
                      - -
  
                      - -
  
                      - -
  
                      - -
  
                      - -
 
Construction and land
                        
   
One- to four-family construction
    
              29,562
  
              29,816
  
                9,186
  
                      - -
  
              68,564
   
Residential land acquisition & development
    
              31,480
  
              36,222
  
              10,097
  
                      - -
  
              77,799
   
Residential land improved lots
    
              12,068
  
                6,549
  
                1,423
  
                      - -
  
              20,040
   
Residential land unimproved
    
                9,188
  
                   421
  
                2,221
  
                      - -
  
              11,830
   
Commercial land acquisition & development
  
                      - -
  
                      - -
  
                      - -
  
                      - -
  
                      - -
   
Commercial land improved
    
                      - -
  
              10,656
  
                      - -
  
                      - -
  
              10,656
   
Commercial land unimproved
    
                4,382
  
                      - -
  
                2,100
  
                      - -
  
                6,482
     
Total construction and land
    
              86,680
  
              83,664
  
              25,027
  
                      - -
  
            195,371
 
One- to four-family
      
                9,750
  
                3,055
  
                4,816
  
                1,176
  
              18,797
Commercial business
      
              13,000
  
                   631
  
                1,439
  
                      - -
  
              15,070
Agricultural business, including secured by farmland
  
                      - -
  
                   253
  
                5,615
  
                      - -
  
                5,868
Consumer
      
                   109
  
                      - -
  
                      - -
  
                      - -
  
                   109
Total non-performing loans
    
116,675
  
88,390
  
37,047
  
1,176
  
243,288
Securities on non-accrual
      
                      - -
  
                      - -
  
                      - -
  
                1,236
  
1,236
Real estate owned (REO) and repossessed assets
  
              40,312
  
                9,025
  
                4,428
  
                      - -
  
              53,765
     
Total  non-performing assets at end of the period
$
            156,987
$
              97,415
$
              41,475
$
                2,412
$
            298,289
                               
                               
 
 
 
(more)
 
 
 

BANR-Third Quarter 2009 Results
October 20, 2009
Page 10

 
ADDITIONAL FINANCIAL INFORMATION
                  
(dollars in thousands)
                    
                         
                         
DEPOSITS & OTHER BORROWINGS
                  
           
Sep 30, 2009
  
Jun 30, 2009
  
Sep 30, 2008
  
Dec 31, 2008
 
BREAKDOWN OF DEPOSITS
                  
                         
 
Non-interest-bearing
    
$
              546,956
$
              508,284
$
              521,927
$
              509,105
                         
 
Interest-bearing checking
      
              329,820
  
              312,024
  
              373,496
  
              378,952
 
Regular savings accounts
      
              521,663
  
              499,447
  
              519,285
  
              474,885
 
Money market accounts
      
              454,063
  
              319,622
  
              193,840
  
              284,041
                         
   
Interest-bearing transaction & savings accounts
    
           1,305,546
  
           1,131,093
  
           1,086,621
  
           1,137,878
                         
 
Interest-bearing certificates
      
           2,008,673
  
           2,110,466
  
           2,182,318
  
           2,131,867
                         
   
Total deposits
    
$
           3,861,175
$
           3,749,843
$
           3,790,866
$
           3,778,850
                         
                         
 
INCLUDED IN TOTAL DEPOSITS
                  
                         
 
Public transaction accounts
    
$
                44,645
$
                48,644
$
              100,776
$
              117,402
 
Public interest-bearing certificates
    
                98,906
  
              134,213
  
              295,432
  
              221,915
                         
   
Total public deposits
    
$
              143,551
$
              182,857
$
              396,208
$
              339,317
                         
                         
 
Total brokered deposits
    
$
              186,087
$
              247,514
$
              243,723
$
              268,458
                         
                         
                         
                         
 
INCLUDED IN OTHER BORROWINGS
                  
 
Customer repurchase agreements / "Sweep accounts"
$
              124,795
$
              108,277
$
              103,496
$
              145,230
                         
                         
                         
 
GEOGRAPHIC CONCENTRATION OF DEPOSITS AT
                
   
September 30, 2009
      
Washington
  
Oregon
  
Idaho
  
Total
                         
         
$
           2,998,259
$
              599,166
$
              263,750
$
           3,861,175
                         
                         
                         
                         
                         
                   
Minimum for Capital Adequacy
REGULATORY CAPITAL RATIOS AT
      
Actual
  
or "Well Capitalized"
   
September 30, 2009
      
Amount
  
Ratio
  
Amount
  
Ratio
                         
Banner Corporation-consolidated
                  
   
Total capital to risk-weighted assets
  
$
491,587
  
12.54%
$
313,651
  
8.00%
   
Tier 1 capital to risk-weighted assets
    
442,009
  
11.27%
  
156,826
  
4.00%
   
Tier 1 leverage capital to average assets
    
442,009
  
9.66%
  
183,122
  
4.00%
                         
Banner Bank
                    
   
Total capital to risk-weighted assets
    
449,907
  
12.02%
  
374,243
  
10.00%
   
Tier 1 capital to risk-weighted assets
    
402,549
  
10.76%
  
224,546
  
6.00%
   
Tier 1 leverage capital to average assets
    
402,549
  
9.18%
  
219,310
  
5.00%
                         
Islanders Bank
                    
   
Total capital to risk-weighted assets
    
25,899
  
12.93%
  
20,028
  
10.00%
   
Tier 1 capital to risk-weighted assets
    
24,259
  
12.11%
  
12,017
  
6.00%
   
Tier 1 leverage capital to average assets
    
24,259
  
11.31%
  
10,727
  
5.00%
                         
 
(more)
 
 
 

BANR-Third Quarter 2009 Results
October 20, 2009
Page 11
 
ADDITIONAL FINANCIAL INFORMATION
                              
(dollars in thousands)
                              
(rates / ratios annualized)
                              
     
Quarters Ended
    
Nine Months Ended
  
                                 
OPERATING PERFORMANCE
  
Sep 30, 2009
    
Jun 30, 2009
    
Sep 30, 2008
    
Sep 30, 2009
    
Sep 30, 2008
  
                                 
                                 
Average loans
   $ 3,905,763     $ 3,925,196     $ 4,001,999     $ 3,924,487     $ 3,917,155  
Average securities and deposits
     461,360       394,244       342,153       419,924       330,474  
Average non-interest-earning assets
     219,780       199,981       296,572       204,414       334,733  
                                           
 
Total average assets
   $ 4,586,903     $ 4,519,421     $ 4,640,724     $ 4,548,825     $ 4,582,362  
                                           
Average deposits
   $ 3,821,065     $ 3,679,653     $ 3,810,718     $ 3,731,782     $ 3,712,530  
Average borrowings
     377,976       429,708       415,517       408,111       415,453  
Average non-interest-bearing liabilities
     (25,527 )     (18,421 )     25,506       (17,357 )     31,967  
                                           
 
Total average liabilities
     4,173,514       4,090,940       4,251,741       4,122,536       4,159,950  
                                           
Total average stockholders' equity
     413,389       428,481       388,983       426,289       422,412  
     
 
                                  
 
Total average liabilities and equity
   $ 4,586,903     $ 4,519,421     $ 4,640,724     $ 4,548,825     $ 4,582,362  
                                           
Interest rate yield on loans
     5.71 %     5.67 %     6.38 %     5.72 %     6.70 %
Interest rate yield on securities and deposits
     2.92 %     3.72 %     4.45 %     3.52 %     4.71 %
                                           
 
Interest rate yield on interest-earning assets
     5.41 %     5.49 %     6.23 %     5.51 %     6.54 %
                                           
Interest rate expense on deposits
     2.16 %     2.36 %     2.80 %     2.35 %     3.04 %
Interest rate expense on borrowings
     2.52 %     2.42 %     3.41 %     2.38 %     3.72 %
                                           
 
Interest rate expense on interest-bearing liabilities
     2.19 %     2.37 %     2.86 %     2.35 %     3.11 %
                                           
Interest rate spread
     3.22 %     3.12 %     3.37 %     3.16 %     3.43 %
                                           
Net interest margin
     3.30 %     3.24 %     3.45 %     3.27 %     3.52 %
                                           
Other operating income / Average assets
     1.16 %     1.77 %     0.17 %     1.12 %     0.55 %
                                           
Other operating income (loss) EXCLUDING change in valuation of
                                        
 
financial instruments carried at fair value / Average assets (1)
   0.76 %     0.79 %     0.69 %     0.75 %     0.68 %
                                           
Other operating expense / Average assets
     3.17 %     3.27 %     2.91 %     3.15 %     4.46 %
                                           
Other operating expense EXCLUDING goodwill write-off / Average assets (1)
 3.17 %     3.27 %     2.91 %     3.15 %     3.00 %
                                           
Efficiency ratio (other operating expense / revenue)
     73.54 %     67.19 %     85.72 %     74.36 %     116.90 %
                                           
Return (Loss) on average assets
     (0.56 %)     (1.47 %)     (0.08 %)     (0.95 %)     (1.44 %)
                                           
Return (Loss) on average equity
     (6.19 %)     (15.46 %)     (1.01 %)     (10.11 %)     (15.64 %)
                                           
Return (Loss) on average tangible equity (2)
     (6.37 %)     (15.93 %)     (1.30 %)     (10.42 %)     (21.82 %)
                                           
Average equity  /  Average assets
     9.01 %     9.48 %     8.38 %     9.37 %     9.22 %
                                           
(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.