EX-99.1 2 pr42110.htm EXHIBIT 99.1 pr42110.htm

Exhibit 99.1

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

Walla Walla, WA – April 21, 2010 - Banner Corporation (NASDAQ GSM: BANR), the parent company of Banner Bank and Islanders Bank, today reported that it had a net loss of $1.5 million for the first quarter ended March 31, 2010, compared to a net loss of $3.5 million in the immediately preceding quarter.
 
“Solid core deposit growth and continued changes in the mix of our funding over the past year resulted in a significant expansion of our net interest margin during the first quarter of 2010 to 3.61%, an increase of 12 basis points compared to the immediately preceding quarter and an increase of 35 basis points compared to the same quarter a year ago,” said D. Michael Jones, Chief Executive Officer.  “This improvement reflects continuing growth in customer relationships as a result of the determined efforts of our staff and the further maturing of the expanded branch network we have worked to create over the past five years.  Despite the current difficult economic environment, we are optimistic that the strength of this deposit franchise will provide the foundation for better operating results in future periods.”
 
In the first 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 $3.5 million, or $0.16 per diluted share, for the first quarter of 2010, compared to a net loss to common shareholders of $11.2 million, or $0.65 per diluted share, for the first quarter a year ago, and a net loss to common shareholders of $5.5 million, or $0.27 per diluted share, in the fourth quarter of 2009.
 
Income Statement Review
 
“Our improved net interest margin was driven by a further decrease in our funding costs as deposit costs in particular continued to decline,” said Jones.  “While loan yields have been relatively stable for a number of quarters now and even increased modestly in the most recent quarter, overall asset yields have declined slightly primarily as a result of the growth of our on-balance-sheet liquidity which is currently invested at very low short-term interest rates.”  Banner’s net interest margin was 3.61% for the first quarter, a 12 basis point improvement compared to the preceding quarter and a 35 basis point improvement compared to the first quarter a year ago.
 
For the first quarter of 2010, funding costs decreased 15 basis points compared to the previous quarter and 77 basis points from the same quarter a year ago.  Deposit costs decreased by 14 basis points compared to the preceding quarter and 85 basis points compared to the first quarter a year earlier.  Asset yields decreased two basis points from the prior linked quarter and 34 basis points from the first quarter a year ago.  Loan yields increased by four basis points compared to the preceding quarter and declined by only six basis points as compared to the first quarter of 2009.  Non-accruing loans reduced the margin by approximately 34 basis points in the first quarter of 2010 compared to approximately 37 basis points in the preceding quarter and approximately 38 basis points in the first quarter of 2009.
 
Net interest income before the provision for loan losses was $38.2 million in the first quarter of 2010, compared to $38.3 million in the preceding quarter and $35.0 million in the first quarter a year ago.  Revenues from core operations* (net interest income before the provision for loan losses plus total other operating income excluding fair value adjustments) were $45.2 million in the first quarter of 2010, compared to $45.4 million in the fourth quarter of 2009 and $42.9 million for the first quarter a year ago.
 
First quarter 2010 results included a net gain of $677,000 ($433,000 after tax) 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 $1.4 million ($903,000 after tax) in the fourth quarter of 2009 and a net loss of $3.3 million ($2.1 million after tax) in the first 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 first quarter, compared to $5.6 million in the preceding quarter and $4.6 million for the first quarter a year ago.  Total other operating income from core operations* (excluding fair value adjustments) for the current quarter was $7.0 million, compared to $7.0 million in the preceding quarter and $7.9 million for the first quarter a year ago.  Income from deposit fees and other service charges was $5.2 million in the first quarter compared to $5.3 million in the preceding quarter and $4.9 million in the first quarter a year ago.  Income from mortgage banking operations decreased to $948,000 in the first quarter compared to $1.3 million in the preceding quarter and $2.7 million for the first quarter a year ago.
 
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BANR-First Quarter 2010 Results
April 21, 2010
Page 2
 
“Our payment processing business continues to be adversely affected by the soft economy, as activity levels for deposit customers, cardholders and merchants remained lower than in periods before 2009,” said Jones.  “Additionally, mortgage banking revenues declined compared to the preceding quarter and the first quarter a year ago, as seasonal factors and rising mortgage rates slowed originations and refinancing activity, returning mortgage loan production to more normal levels.”
 
“While we had another good quarter managing controllable operating expenses, collection and legal costs, including charges related to acquired real estate, remained high,” said Jones.  “We have made progress in improving our core operating efficiency as compensation, occupancy and other manageable operating expenses have been reduced over the past year.  However, we anticipate collection costs, acquired real estate expenses and elevated FDIC insurance premiums will continue above historical levels for a number of future quarters.”
 
Total other operating expenses, or non-interest expenses, were $35.4 million in the first quarter of 2010, compared to $34.8 million in the preceding quarter and $33.8 million in the first quarter a year ago.  Operating expenses from core operations as a percentage of average assets was 3.16% in the first quarter of 2010, compared to 3.00% in the preceding quarter and 3.02% in the first quarter 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.
 
Credit Quality
 
“The difficult economic environment and resulting credit costs have been a persistent challenge throughout the past several quarters,” said Jones.  “As a direct result, the $14 million provision for loan losses in the first quarter of the year, while less than both the preceding quarter and the same quarter a year ago, remained relatively 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, sales of finished homes have continued and our exposure to single-family home construction and development loans has continued to decline to 13% of total loans outstanding.  Our reserve levels are substantial and both our impairment analysis and charge-off actions reflect current appraisals and valuation estimates.  We remain hopeful that credit costs will continue to moderate in 2010 and 2011.”
 
Banner recorded a $14.0 million provision for loan losses in the first quarter, compared to $17.0 million in the preceding quarter and $22.0 million in the first quarter a year ago.  The allowance for loan losses at March 31, 2010 totaled $95.7 million, representing 2.60% of total loans outstanding.  Non-performing loans totaled $196.0 million at March 31, 2010, compared to $213.9 million in the preceding quarter and $224.1 million at March 31, 2009.  Banner’s real estate owned and repossessed assets totaled $95.2 million at March 31, 2010, compared to $77.8 million three months earlier and $39.1 million a year ago.  Banner’s net charge-offs in the quarter totaled $13.5 million, or 0.36% of average loans outstanding, compared to $16.9 million, or 0.44% of average loans outstanding for the fourth quarter of 2009 and $17.5 million, or 0.44% of average loans outstanding for the first quarter of last year.  Nonperforming assets totaled $294.2 million at March 31, 2010, compared to $295.9 million in the preceding quarter and $263.4 million at March 31, 2009.
 
At the end of March, the geographic distribution of construction and land development loans, including residential and commercial properties, was approximately $217 million, or 32%, in the greater Puget Sound market, $238 million, or 36%, in the greater Portland, Oregon market, and $44 million, or 7%, in the greater Boise, Idaho market, with the remaining $165 million, or 25%, distributed in the various eastern Washington, eastern Oregon and northern Idaho markets served by Banner Bank.  The geographic distribution of non-performing construction, land and land development loans and related real estate owned included approximately $94 million, or 43%, in the greater Puget Sound market, $80 million, or 36%, in the greater Portland market and $23 million, or 10%, in the greater Boise market, with the remaining $24 million, or 11%, distributed in the 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 were $470 million, or 13% of the total loan portfolio at March 31, 2010.  Non-performing residential construction and related lot and land loans and related real estate owned were $188 million, or 64% of non-performing assets at March 31, 2010.
 
Balance Sheet Review
 
“Largely as a result of substantially reducing construction and land development loans, our total loan balances declined compared to a year ago,” said Jones.  “Although lower than historical levels, the pace of home sales has generally improved from their recessionary lows, contributing to a $152 million reduction in our portfolio of one-to-four family construction loans over the past twelve months, including a $26 million decrease in the most recent quarter.  As a result, at March 31, 2010 our one-to-four family construction loans totaled $213 million, a decline of $442 million from their peak quarter-end balance of $655 million at June 30, 2007.  Reflecting the economic environment, demand for business and consumer loans has been modest, further contributing to the decrease in total loans.”  Net loans were $3.59 billion at March 31, 2010, compared to $3.69 billion at December 31, 2009 and $3.84 billion at March 31, 2009.
 
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BANR-First Quarter 2010 Results
April 21, 2010
Page 3
 
Total assets were $4.58 billion at March 31, 2010, compared to $4.72 billion at the end of the preceding quarter and $4.51 billion a year ago.  Deposits totaled $3.85 billion at March 31, 2010, compared to $3.87 billion at the end of the preceding quarter and $3.63 billion a year ago, a year-over-year increase of 6%.  Non-interest-bearing accounts were $549.3 million at March 31, 2010, compared to $582.5 million at the end of the preceding quarter and $508.6 million a year ago, a year-over-year increase of 8.0%.  Interest-bearing transaction and savings accounts increased by $63.2 million during the first quarter to $1.4 billion compared to $1.3 billion three months earlier and increased by $304.5 million compared to $1.1 billion a year ago, a year-over-year increase of 28%.
 
“Our retail deposit franchise had another solid quarter and has allowed us to steadily build our short-term liquidity, a key operating goal, lower our loans-to-deposits ratio towards our long-term goal of 95% and substantially lower our cost of deposits and funding over the last year,” said Jones.  “In addition, our substantial deposit growth has allowed us to more than replace the $60 million in public funds and $99 million in brokered deposits that we have elected to run off over the past year.”
 
Banner Corporation and its subsidiary banks continue to maintain capital levels significantly in excess of the requirements to be categorized as “well-capitalized” under applicable regulatory standards.  Banner Corporation’s Tier 1 leverage capital to average assets ratio was 9.76% and its total capital to risk-weighted assets ratio was 12.93% at March 31, 2010.
 
Tangible stockholders’ equity at March 31, 2010 was $396.3 million, including $117.8 million attributable to preferred stock, compared to $411.5 million a year ago.  Tangible book value per common share was $12.18 at quarter-end.  At March 31, 2010, Banner had 22.9 million shares outstanding, compared to 17.4 million shares outstanding a year ago.  Tangible common stockholders’ equity was $278.5 million at March 31, 2010, or 6.09% of tangible assets, compared to $276.7 million, or 5.87% of tangible assets at December 31, 2009 and $295.2 million, or 6.56% of tangible assets at March 31, 2009.
 
Conference Call
 
Banner will host a conference call on Thursday, April 22, 2010, at 8:00 a.m. PDT, to discuss first quarter 2010 results.  The conference call can be accessed live by telephone at 480-629-9835 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 4283091.
 
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, 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; 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,
 
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BANR-First Quarter 2010 Results
April 21, 2010
Page 4
 
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 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-First Quarter 2010 Results
April 21, 2010
Page 5

RESULTS OF OPERATIONS
    
Quarters Ended
(in thousands except shares and per share data)
    
Mar 31, 2010
  
Dec 31, 2009
  
Mar 31, 2009
                     
INTEREST INCOME:
                
 
Loans receivable
    
$
           52,759 
$
          55,013 
$
          56,347 
 
Mortgage-backed securities
    
             1,126 
 
            1,265 
 
            1,801 
 
Securities and cash equivalents
    
             2,085 
 
            2,030 
 
            2,183 
           
           55,970 
 
          58,308 
 
          60,331 
                     
INTEREST EXPENSE:
                
 
Deposits
      
           15,798 
 
          17,663 
 
          23,092 
 
Federal Home Loan Bank advances
    
                361 
 
               602 
 
               720 
 
Other borrowings
      
                634 
   
               652 
   
               227 
 
Junior subordinated debentures
    
             1,027 
 
            1,054 
 
            1,333 
           
           17,820 
 
          19,971 
 
          25,372 
                     
 
Net interest income before provision for loan losses
    
           38,150 
 
          38,337 
 
          34,959 
                     
PROVISION FOR LOAN LOSSES
    
           14,000 
 
          17,000 
 
          22,000 
 
Net interest income
      
           24,150 
 
          21,337 
 
          12,959 
                     
OTHER OPERATING INCOME:
              
 
Deposit fees and other service charges
    
             5,169 
 
            5,345 
 
            4,936 
 
Mortgage banking operations
    
                948 
 
            1,253 
 
            2,715 
 
Loan servicing fees
      
                313 
 
              (167)
  
             (270)
 
Miscellaneous
      
                617 
 
               592 
 
               520 
           
7,047 
 
7,023 
 
7,901 
 
Net change in valuation of financial instruments carried at fair value
  
                677 
   
           (1,411)
  
          (3,253)
 
Total other operating income
    
             7,724 
 
            5,612 
 
            4,648 
                       
OTHER OPERATING EXPENSE:
              
 
Salary and employee benefits
    
           16,559 
   
          16,166 
   
          17,601 
 
Less capitalized loan origination costs
    
           (1,605)
  
           (1,853)
  
          (2,116)
 
Occupancy and equipment
    
             5,604 
 
            5,699 
 
            6,054 
 
Information / computer data services
    
             1,506 
 
            1,580 
 
            1,534 
 
Payment and card processing services
    
             1,424 
 
            1,610 
  
            1,453 
 
Professional services
      
             1,287 
 
            2,251 
 
            1,194 
 
Advertising and marketing
    
             1,950 
 
            1,701 
 
            1,832 
 
Deposit insurance
      
             2,132 
 
            2,150 
 
            1,497 
 
State/municipal business and use taxes
    
                480 
 
               524 
 
               540 
 
Real estate operations
      
             3,058 
 
            1,920 
 
               623 
 
Amortization of core deposit intangibles
    
                644 
   
               648 
 
               690 
   
Miscellaneous
      
             2,376 
 
            2,371 
 
            2,891 
 
Total other operating expense
    
           35,415 
 
          34,767 
 
          33,793 
 
Income (loss) before provision for (benefit from) income taxes
    
           (3,541)
  
           (7,818)
  
        (16,186)
PROVISION FOR  (BENEFIT FROM ) INCOME TAXES
    
           (2,024)
  
           (4,276)
  
          (6,923)
NET INCOME (LOSS)
      
           (1,517)
  
           (3,542)
  
          (9,263)
                     
PREFERRED STOCK DIVIDEND AND DISCOUNT ACCRETION:
            
 
Preferred stock dividend
      
             1,550 
 
            1,550 
 
            1,550 
 
Preferred stock discount accretion
    
                398 
 
               373 
 
               373 
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
$
           (3,465)
$
           (5,465)
$
        (11,186)
                     
Earnings (loss) per share available to common shareholder
              
   
Basic
    
$
             (0.16)
$
             (0.27)
$
            (0.65)
   
Diluted
    
$
             (0.16)
$
             (0.27)
$
            (0.65)
Cumulative dividends declared per common share
  
$
               0.01 
$
              0.01 
$
              0.01 
Weighted average common shares outstanding
              
   
Basic
      
    22,131,671 
 
   20,616,861 
 
   17,159,793 
   
Diluted
      
    22,131,671 
   
   20,616,861 
 
   17,159,793 
Common shares issued in connection with exercise of stock options or DRIP
      1,561,559 
 
     1,605,647 
 
        493,514 

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BANR-First Quarter 2010 Results
April 21, 2010
Page 6
 
FINANCIAL  CONDITION
                  
(in thousands except shares and per share data)
  
Mar 31, 2010
    
Dec 31, 2009
    
Mar 31, 2009
  
                     
ASSETS
                  
Cash and due from banks
   $ 41,123     $ 78,364     $ 72,811  
Federal funds and interest-bearing deposits
     236,629       244,641       2,699  
Securities - at fair value
     138,659       147,151       161,963  
Securities - available for sale
     96,718       95,667       66,963  
Securities - held to maturity
     73,555       74,834       67,401  
Federal Home Loan Bank stock
     37,371       37,371       37,371  
                           
Loans receivable:
                        
 
Held for sale
     4,398       4,497       11,071  
 
Held for portfolio
     3,684,459       3,785,624       3,904,476  
 
Allowance for loan losses
     (95,733 )     (95,269 )     (79,724 )
        3,593,124       3,694,852       3,835,823  
Accrued interest receivable
     18,501       18,998       20,821  
Real estate owned held for sale, net
     95,074       77,743       38,951  
Property and equipment, net
     101,541       103,542       97,847  
Other intangibles, net
     10,426       11,070       13,026  
Bank-owned life insurance
     55,125       54,596       53,163  
Other assets
     83,865       83,392       41,285  
      $ 4,581,711     $ 4,722,221     $ 4,510,124  
                           
LIABILITIES
                        
Deposits:
                        
 
Non-interest-bearing
   $ 549,291     $ 582,480     $ 508,593  
 
Interest-bearing transaction and savings accounts
     1,404,301       1,341,145       1,099,837  
 
Interest-bearing certificates
     1,896,186       1,941,925       2,019,074  
        3,849,778       3,865,550       3,627,504  
                           
Advances from Federal Home Loan Bank at fair value
     62,108       189,779       172,102  
Customer repurchase agreements and other borrowings
     177,244       176,842       181,194  
Junior subordinated debentures at fair value
     48,147       47,694       53,819  
                           
Accrued expenses and other liabilities
     24,049       24,020       37,759  
Deferred compensation
     13,661       13,208       13,203  
        4,174,987       4,317,093       4,085,581  
STOCKHOLDERS' EQUITY
                        
Preferred stock - Series A
     117,805       117,407       116,288  
Common stock
     335,877       331,538       318,628  
Retained earnings (accumulated deficit)
     (45,775 )     (42,077 )     (9,210 )
Other components of stockholders' equity
     (1,183 )     (1,740 )     (1,163 )
        406,724       405,128       424,543  
      $ 4,581,711     $ 4,722,221     $ 4,510,124  
Common Shares Issued:
                        
Shares outstanding at end of period
     23,101,149       21,539,590       17,645,552  
 
Less unearned ESOP shares at end of period
     240,381       240,381       240,381  
Shares outstanding at end of period excluding unearned ESOP shares
     22,860,768       21,299,209       17,405,171  
                           
Common stockholders' equity per share (1)
   $ 12.64     $ 13.51     $ 17.71  
Common stockholders' tangible equity per share (1) (2)
   $ 12.18     $ 12.99     $ 16.96  
                           
Tangible common stockholders' equity to tangible assets
     6.09 %     5.87 %     6.56 %
Consolidated Tier 1 leverage capital ratio
     9.76 %     9.62 %     10.27 %
                           
(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.
                  
                           
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BANR-First Quarter 2010 Results
April 21, 2010
Page 7
ADDITIONAL FINANCIAL INFORMATION
                        
(dollars in thousands)
                          
           
Mar 31, 2010
  
Dec 31, 2009
  
Mar 31, 2009
  
 
      
LOANS (including loans held for sale):
                        
Commercial real estate
                          
 
Owner occupied
    
$
              515,542
$
              509,464
$
              460,569
 
             
      
 
Investment properties
      
              557,134
  
              573,495
  
              575,716
  
            
      
Multifamily real estate
      
              147,659
  
              153,497
  
              149,442
  
            
      
Commercial construction
      
                83,879
  
                80,236
  
              103,643
  
             
      
Multifamily construction
      
                61,924
  
                57,422
  
                46,568
  
             
      
One- to four-family construction
      
              213,438
  
              239,135
  
              365,421
  
            
      
Land and land development
                          
 
Residential
      
              256,607
  
              284,331
  
              406,948
  
            
      
 
Commercial
      
                48,194
  
                43,743
  
                39,180
  
             
      
Commercial business
      
              616,396
  
              637,823
  
              650,123
  
             
      
Agricultural business including secured by farmland
    
              187,207
  
              205,307
  
              197,972
  
             
      
One- to four-family real estate
      
              697,565
  
              703,277
  
              643,705
  
              
      
Consumer
      
              303,312
  
              302,391
  
              276,260
  
             
      
   
Total loans outstanding
    
$
           3,688,857
$
           3,790,121
$
           3,915,547
 
          
      
Restructured loans performing under their restructured terms
$
                45,471
$
                43,683
$
                27,550
 
            
      
                               
Loans 30 - 89 days past due and on accrual
  
$
                51,328
$
                34,156
$
              111,683
 
               
      
                               
Total delinquent loans (including loans on non-accrual)
$
              247,338
$
              248,006
$
              335,780
 
           
      
                               
Total delinquent loans  /  Total loans outstanding
    
6.71%
  
6.54%
  
8.58%
  
 
      
                               
                               
GEOGRAPHIC CONCENTRATION OF LOANS AT
                      
   
March 31, 2010
      
Washington
  
Oregon
  
Idaho
  
Other
  
Total
  
                               
Commercial real estate
                          
 
Owner occupied
    
$
              404,284
$
                64,585
$
                46,673
$
                       - -
$
              515,542
  
 
Investment properties
      
              411,242
  
              102,735
  
                43,157
  
                       - -
  
              557,134
  
Multifamily real estate
      
              121,362
  
                12,740
  
                13,557
  
                       - -
  
              147,659
  
Commercial construction
      
                60,732
  
                13,295
  
                  9,852
  
                       - -
  
                83,879
  
Multifamily construction
      
                33,704
  
                28,220
  
                       - -
  
                       - -
  
                61,924
  
One- to four-family construction
      
              101,947
  
              100,840
  
                10,651
  
                       - -
  
              213,438
  
Land and land development
                          
 
Residential
      
              133,016
  
                95,131
  
                28,460
  
                       - -
  
              256,607
  
 
Commercial
      
                33,941
  
                11,778
  
                  2,475
  
                       - -
  
                48,194
  
Commercial business
      
              436,556
  
                92,602
  
                69,451
  
                17,787
  
              616,396
  
Agricultural business including secured by farmland
    
                95,895
  
                39,320
  
                51,992
  
                       - -
  
              187,207
  
One- to four-family real estate
      
              464,960
  
              200,573
  
                31,145
  
                     887
  
              697,565
  
Consumer
      
              215,853
  
                66,778
  
                20,681
  
                       - -
  
              303,312
  
   
Total loans outstanding
    
$
           2,513,492
$
              828,597
$
              328,094
$
                18,674
$
           3,688,857
  
                               
   
Percent of total loans
      
68.1%
  
22.5%
  
8.9%
  
0.5%
  
100.0%
  
                               
                               
DETAIL OF LAND AND LAND DEVELOPMENT LOANS AT
                      
   
March 31, 2010
      
Washington
  
Oregon
  
Idaho
  
Other
  
Total
  
Residential
                          
 
Acquisition & development
    
$
                64,106
$
                58,380
$
                  6,481
$
                       - -
$
              128,967
  
 
Improved lots
      
                45,044
  
                29,899
  
                  2,218
  
                       - -
  
                77,161
  
 
Unimproved land
      
                23,866
  
                  6,852
  
                19,761
  
                       - -
  
                50,479
  
   
Total residential land and development
  
$
              133,016
$
                95,131
$
                28,460
$
                       - -
$
              256,607
  
Commercial & industrial
                          
 
Acquisition & development
    
$
                  8,302
$
                       - -
$
                     554
$
                       - -
$
                  8,856
  
 
Improved land
      
                  9,725
  
                10,054
  
                       - -
  
                       - -
  
                19,779
  
 
Unimproved land
      
                15,914
  
                  1,724
  
                  1,921
  
                       - -
  
                19,559
  
   
Total commercial land and development
  
$
                33,941
$
                11,778
$
                  2,475
$
                       - -
$
                48,194
  

(more)
 
 
 
BANR-First Quarter 2010 Results
April 21, 2010
Page 8

ADDITIONAL FINANCIAL INFORMATION
                  
(dollars in thousands)
                  
                   
         
Quarters Ended
        
CHANGE IN THE
  
Mar 31, 2010
    
Dec 31, 2009
    
Mar 31, 2009
  
ALLOWANCE FOR LOAN LOSSES
                  
                   
Balance, beginning of period
   $ 95,269     $ 95,183     $ 75,197  
                         
Provision
     14,000       17,000       22,000  
                         
Recoveries of loans previously charged off:
                        
Commercial real estate
     - -       - -       - -  
Multifamily real estate
     - -       - -       - -  
Construction and land
     37       98       52  
      One- to four-family real estate
     350       26       2  
Commercial business
     1,290       106       70  
        Agricultural business, including secured by farmland
     - -       10       - -  
Consumer
     59       60       31  
      1,736       300       155  
Loans charged off:
                        
Commercial real estate
     (92 )     (1 )     - -  
Multifamily real estate
     - -       - -       - -  
Construction and land
     (7,724 )     (12,302 )     (12,417 )
      One- to four-family real estate
     (2,115 )     (1,500 )     (1,091 )
Commercial business
     (4,784 )     (2,249 )     (3,794 )
        Agricultural business, including secured by farmland
     (2 )     (692 )     - -  
Consumer
     (555 )     (470 )     (326 )
      (15,272 )     (17,214 )     (17,628 )
Net charge-offs
     (13,536 )     (16,914 )     (17,473 )
Balance, end of period
   $ 95,733     $ 95,269     $ 79,724  
                         
Net charge-offs / Average loans outstanding
     0.36 %     0.44 %     0.44 %
                         
                         
ALLOCATION OF
                        
ALLOWANCE FOR LOAN LOSSES
  
Mar 31, 2010
    
Dec 31, 2009
    
Mar 31, 2009
  
Specific or allocated loss allowance
                        
Commercial real estate
   $ 8,279     $ 8,278     $ 4,972  
Multifamily real estate
     2,072       90       84  
Construction and land
     44,078       45,209       46,297  
   One- to four-family real estate
     3,093       2,912       814  
Commercial business
     24,530       22,054       18,186  
    Agricultural business, including secured by farmland
     949       919       587  
Consumer
     1,898       1,809       1,682  
Total allocated
     84,899       81,271       72,622  
                         
Estimated allowance for undisbursed commitments
     1,161       1,594       1,358  
Unallocated
     9,673       12,404       5,744  
Total allowance for loan losses
   $ 95,733     $ 95,269     $ 79,724  
                         
Allowance for loan losses  /  Total loans outstanding
     2.60 %     2.51 %     2.04 %

(more)
 
 
 
BANR-First Quarter 2010 Results
April 21, 2010
Page 9
 
ADDITIONAL FINANCIAL INFORMATION
                        
(dollars in thousands)
                          
                                 
             
Mar 31, 2010
  
Dec 31, 2009
  
Mar 31, 2009
  
 
      
                                 
NON-PERFORMING ASSETS
                        
                                 
Loans on non-accrual status
                          
 
Secured by real estate:
                          
     
Commercial
    
$
                6,801
$
                7,300
$
              15,180
 
          
      
     
Multifamily
      
                   373
  
                   383
  
                   968
  
             
      
     
Construction and land
    
            138,245
  
            159,264
  
            175,794
  
         
      
     
One- to four-family
      
              19,777
  
              14,614
  
              21,900
  
              
      
 
Commercial business
      
              19,353
  
              21,640
  
                7,500
  
            
      
 
Agricultural business, including secured by farmland
  
                8,013
  
                6,277
  
                2,176
  
              
      
 
Consumer
      
                3,387
  
                3,923
  
                   275
  
               
      
             
            195,949
  
            213,401
  
            223,793
  
          
      
                                 
Loans more than 90 days delinquent, still on accrual
                      
 
Secured by real estate:
                          
     
Commercial
      
                      - -
  
                      - -
  
                      - -
  
                
      
     
Multifamily
      
                      - -
  
                      - -
  
                      - -
  
                   
      
     
Construction and land
    
                      - -
  
                      - -
  
                      - -
  
                   
      
     
One- to four-family
      
                      - -
  
                   358
  
                   161
  
                  
      
 
Commercial business
      
                      - -
  
                      - -
  
                      - -
  
                   
      
 
Agricultural business, including secured by farmland
  
                      - -
  
                      - -
  
                      - -
  
                     
      
 
Consumer
      
                     61
  
                     91
  
                   143
  
                
      
                                 
             
                     61
  
                   449
  
                   304
  
                
      
Total non-performing loans
      
            196,010
  
            213,850
  
            224,097
  
          
      
Securities on non-accrual
      
                3,000
  
                4,232
  
                   160
  
              
      
Real estate owned (REO) / Repossessed assets
    
              95,167
  
              77,802
  
              39,109
  
             
      
     
Total non-performing assets
  
$
            294,177
$
            295,884
$
            263,366
 
          
      
                                 
Total non-performing assets  /  Total assets
    
6.42%
  
6.27%
  
5.84%
  
 
      
                                 
DETAIL & GEOGRAPHIC CONCENTRATION OF
                      
 
NON-PERFORMING ASSETS AT
                        
     
March 31, 2010
      
Washington
  
Oregon
  
Idaho
  
Other
  
Total
  
Secured by real estate:
                          
 
Commercial
    
$
                6,106
$
                     12
$
                   339
$
                   344
$
                6,801
  
 
Multifamily
      
                   373
  
                      - -
  
                      - -
  
                      - -
  
                   373
  
 
Construction and land
                          
   
One- to four-family construction
    
              13,529
  
              12,989
  
                5,723
  
                      - -
  
              32,241
  
   
Commercial construction
    
                1,552
  
                      - -
  
                      - -
  
                      - -
  
                1,552
  
   
Multifamily construction
    
              11,283
  
                      - -
  
                      - -
  
                      - -
  
              11,283
  
   
Residential land acquisition & development
  
              29,992
  
              22,063
  
                1,071
  
                      - -
  
              53,126
  
   
Residential land improved lots
    
                6,317
  
                8,145
  
                   588
  
                      - -
  
              15,050
  
   
Residential land unimproved
    
              10,127
  
                   348
  
                   321
  
                      - -
  
              10,796
  
   
Commercial land acquisition & development
  
                      - -
  
                      - -
  
                      - -
  
                      - -
  
                      - -
  
   
Commercial land improved
    
                      - -
  
              10,065
  
                      - -
  
                      - -
  
              10,065
  
   
Commercial land unimproved
    
                4,132
  
                      - -
  
                      - -
  
                      - -
  
                4,132
  
     
Total construction and land
    
              76,932
  
              53,610
  
                7,703
  
                      - -
  
            138,245
  
 
One- to four-family
      
                9,663
  
                9,834
  
                   280
  
                      - -
  
              19,777
  
Commercial business
      
              13,393
  
                   361
  
                1,015
  
                4,584
  
              19,353
  
Agricultural business, including secured by farmland
  
                1,775
  
                   121
  
                6,117
  
                      - -
  
                8,013
  
Consumer
      
                2,828
  
                     96
  
                      - -
  
                   524
  
                3,448
  
Total non-performing loans
      
111,070
  
64,034
  
15,454
  
5,452
  
196,010
  
Securities on non-accrual
      
                3,000
  
                      - -
  
                      - -
  
                      - -
  
3,000
  
Real estate owned (REO) and repossessed assets
  
              45,930
  
              30,566
  
              18,671
  
                      - -
  
              95,167
  
     
Total  non-performing assets at end of the period
$
            160,000
$
              94,600
$
              34,125
$
                5,452
$
            294,177
  
 
(more)
 
 
 

BANR-First Quarter 2010 Results
April 21, 2010
Page 10
 
ADDITIONAL FINANCIAL INFORMATION
                    
(dollars in thousands)
                      
                           
                           
DEPOSITS & OTHER BORROWINGS
                    
           
Mar 31, 2010
  
Dec 31, 2009
  
Mar 31, 2009
  
 
  
 
BREAKDOWN OF DEPOSITS
                    
                           
 
Non-interest-bearing
    
$
              549,291
$
              582,480
$
              508,593
 
             
  
 
Interest-bearing checking
      
              366,786
  
              360,256
  
              307,741
  
          
  
 
Regular savings accounts
      
              577,704
  
              538,765
  
              490,239
  
            
  
 
Money market accounts
      
              459,811
  
              442,124
  
              301,857
  
              
  
   
Interest-bearing transaction & savings accounts
    
           1,404,301
  
           1,341,145
  
           1,099,837
  
          
  
 
Interest-bearing certificates
      
           1,896,186
  
           1,941,925
  
           2,019,074
  
          
  
   
Total deposits
    
$
           3,849,778
$
           3,865,550
$
           3,627,504
 
         
  
                           
                           
 
INCLUDED IN TOTAL DEPOSITS
                    
                           
 
Public transaction accounts
    
$
                80,942
$
                78,202
$
                47,639
 
          
  
 
Public interest-bearing certificates
    
                82,362
  
                88,186
  
              175,418
  
              
  
   
Total public deposits
    
$
              163,304
$
              166,388
$
              223,057
 
             
  
                           
 
Total brokered deposits
    
$
              150,577
$
              165,016
$
              249,619
 
             
  
                           
                           
                           
                           
 
INCLUDED IN OTHER BORROWINGS
                    
 
Customer repurchase agreements / "Sweep accounts"
$
              126,954
$
              124,330
$
              131,224
 
            
  
                           
                           
                           
 
GEOGRAPHIC CONCENTRATION OF DEPOSITS AT
                  
   
March 31, 2010
      
Washington
  
Oregon
  
Idaho
  
Total
  
                           
         
$
           2,952,735
$
              623,302
$
              273,741
$
           3,849,778
  
                           
                           
                           
                           
                           
                   
Minimum for Capital Adequacy
  
REGULATORY CAPITAL RATIOS AT
    
Actual
  
or "Well Capitalized"
  
   
March 31, 2010
      
Amount
  
Ratio
  
Amount
  
Ratio
  
                           
Banner Corporation-consolidated
                    
   
Total capital to risk-weighted assets
  
$
491,175
  
12.93%
$
303,984
  
8.00%
  
   
Tier 1 capital to risk-weighted assets
    
443,082
  
11.66%
  
151,992
  
4.00%
  
   
Tier 1 leverage capital to average assets
    
443,082
  
9.76%
  
181,592
  
4.00%
  
                           
Banner Bank
                      
   
Total capital to risk-weighted assets
    
467,903
  
12.93%
  
361,834
  
10.00%
  
   
Tier 1 capital to risk-weighted assets
    
422,075
  
11.66%
  
217,100
  
6.00%
  
   
Tier 1 leverage capital to average assets
    
422,075
  
9.71%
  
217,341
  
5.00%
  
                           
Islanders Bank
                      
   
Total capital to risk-weighted assets
    
27,382
  
13.43%
  
20,391
  
10.00%
  
   
Tier 1 capital to risk-weighted assets
    
25,346
  
12.43%
  
12,235
  
6.00%
  
   
Tier 1 leverage capital to average assets
    
25,346
  
11.75%
  
10,783
  
5.00%
  
 
(more)
 
 
 
 
BANR-First Quarter 2010 Results
April 21, 2010
Page 11
 
ADDITIONAL FINANCIAL INFORMATION
                  
(dollars in thousands)
                  
(rates / ratios annualized)
                  
     
Quarters Ended
  
                     
OPERATING PERFORMANCE
  
Mar 31, 2010
    
Dec 31, 2009
    
Mar 31, 2009
  
                     
                     
Average loans
   $ 3,726,243     $ 3,829,717     $ 3,942,917  
Average securities and deposits
     563,562       528,754       403,514  
Average non-interest-earning assets
     258,060       235,007       193,188  
 
Total average assets
   $ 4,547,865     $ 4,593,478     $ 4,539,619  
                           
Average deposits
   $ 3,800,888     $ 3,836,327     $ 3,693,345  
Average borrowings
     373,192       378,376       416,927  
Average non-interest-bearing liabilities
     (36,459 )     (32,296 )     (7,922 )
 
Total average liabilities
     4,137,621       4,182,407       4,102,350  
                           
Total average stockholders' equity
     410,244       411,071       437,269  
 
Total average liabilities and equity
   $ 4,547,865     $ 4,593,478     $ 4,539,619  
                           
Interest rate yield on loans
     5.74 %     5.70 %     5.80 %
Interest rate yield on securities and deposits
     2.31 %     2.47 %     4.00 %
 
Interest rate yield on interest-earning assets
     5.29 %     5.31 %     5.63 %
                           
Interest rate expense on deposits
     1.69 %     1.83 %     2.54 %
Interest rate expense on borrowings
     2.20 %     2.42 %     2.22 %
 
Interest rate expense on interest-bearing liabilities
     1.73 %     1.88 %     2.50 %
                           
Interest rate spread
     3.56 %     3.43 %     3.13 %
                           
Net interest margin
     3.61 %     3.49 %     3.26 %
                           
Other operating income / Average assets
     0.69 %     0.48 %     0.42 %
                           
Other operating income (loss) EXCLUDING change in valuation of
                        
 
financial instruments carried at fair value / Average assets (1)
     0.63 %     0.61 %     0.71 %
                           
Other operating expense / Average assets
     3.16 %     3.00 %     3.02 %
                           
Efficiency ratio (other operating expense / revenue)
     77.20 %     79.11 %     85.32 %
                           
Return (Loss) on average assets
     (0.14 %)     (0.31 %)     (0.83 %)
                           
Return (Loss) on average equity
     (1.50 %)     (3.42 %)     (8.59 %)
                           
Return (Loss) on average tangible equity (2)
     (1.54 %)     (3.52 %)     (8.86 %)
                           
Average equity  /  Average assets
     9.02 %     8.95 %     9.63 %
                           
(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.