Banner Corporation Reports Net Income Of $25.4 Million, Or $1.27 Per Diluted Share, In Second Quarter; Net Income Highlighted By Strong Revenue Generation And Improved Credit Quality, Leading To A Recovery Of The Deferred Tax Asset

“The decision to reverse the deferred tax asset valuation allowance during the second quarter reflects Banner’s return to profitability and our expectation of sustainable profitability in future periods,” said Grescovich. “This expectation also led to the significant adjustment of the fair value estimate for the junior subordinated debentures issued by the Company. The substantial changes to both of these significant accounting estimates are directly linked to the improved performance and profitability of the Company. We expect to recover the remaining $7.0 million balance of the deferred tax asset valuation allowance as an offset to our provision for income taxes in the third and fourth quarters of 2012.”

Banner’s second quarter 2012 results included a net loss of $19.1 million for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value. The net fair value adjustments largely resulted from a $21.2 million increase in the estimated value of the junior subordinated debentures issued by the Company, which was partially offset by increases in the estimated value of similar trust preferred securities owned by the Company. In the preceding quarter, Banner recorded a net gain of $1.7 million for fair value adjustments and in the second quarter of 2011 Banner recorded a net gain of $1.9 million for fair value adjustments. Banner’s year-to-date results included a net loss of $17.4 million for fair value adjustments compared to a net gain of $2.2 million for the same period a year ago.

Total other operating income (loss), which includes the changes in the valuation of financial instruments, was a loss of $9.1 million in the second quarter of 2012 compared to a net gain of $11.0 million in the preceding quarter and a net gain of $9.3 million in the second quarter a year ago. In the first six months of 2012, total other operating income was a net gain of $1.9 million compared to a net gain of $16.5 million in the first six months of 2011. Other operating income from core operations* (total other operating income, excluding fair value adjustments) for the current quarter was $10.0 million, compared to $9.3 million for the preceding quarter and $7.3 million for the second quarter a year ago, reflecting strong growth in payment processing and mortgage banking revenues.

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