Banner Corporation Earns $9.2 Million, Or $0.40 Per Diluted Share, In First Quarter; Net Income Highlighted By Strong Revenue Generation And Improved Credit Quality

Banner Corporation (NASDAQ:BANR), the parent company of Banner Bank and Islanders Bank, today reported that net income increased to $9.2 million in the first quarter of 2012, compared to net income of $5.1 million in the preceding quarter. In the first quarter a year ago Banner reported a net loss of $7.8 million.

“Banner’s first quarter operating results provided further evidence, and confirmed through the hard work of our employees throughout the Company, that we are successfully executing on our strategies to strengthen our franchise and deliver sustainable profitability,” said Mark J. Grescovich, President and Chief Executive Officer. “Our return to profitability for the last four quarters reflects significant progress on the key objectives of our turnaround plan. Banner’s operating performance again showed improvement on every key metric compared to the first quarter a year ago. Our first quarter revenues from core operations* (net interest income before the provision for loan losses plus total other operating income excluding fair value and other-than-temporary impairment (OTTI) adjustments) increased 7% when compared to the first quarter a year ago. Our net interest margin expanded to 4.11% in the first quarter compared to 3.94% in the first quarter a year ago, our deposit fee income remained strong, increasing by 11% compared to the first quarter a year ago, and revenues from mortgage banking, which increased by 37% compared to the immediately preceding quarter, were nearly three times larger than the first quarter of 2011. This progress clearly demonstrates that our strategic turnaround plan is effective and is building shareholder value.”

In the first quarter of 2012, Banner paid a $1.6 million dividend on the $124 million of senior preferred stock it issued to the U.S. Department of the Treasury under the Capital Purchase Program. In addition, Banner accrued $454,000 for related discount accretion. Including the preferred stock dividend and related accretion, net income available to common shareholders was $0.40 per share for the first quarter of 2012, compared to net income available to common shareholders of $0.18 per share in the fourth quarter of 2011 and a net loss to common shareholders of $0.60 per share for the first quarter a year ago.

First Quarter 2012 Highlights (compared to first quarter 2011 except as noted)

  • Net income was $9.2 million, compared to a net loss of $7.8 million in the first quarter a year ago.
  • Revenues from core operations* increased 7% to $50.4 million.
  • The net interest margin improved to 4.11%, compared to 4.07% in the preceding quarter and 3.94% for the first quarter of 2011.
  • Net interest income before provision for loan losses increased 3%.
  • Deposit fees and service charges increased 11%.
  • Mortgage banking revenues increased 175%.
  • Non-performing assets decreased to $93.1 million at March 31, 2012, a 22% decrease compared to three months earlier and a 59% decrease compared to a year earlier.
  • Non-performing loans decreased to $64.9 million at March 31, 2012, a 14% decrease compared to three months earlier and a 51% decrease compared to a year earlier.
  • Real estate owned and repossessed assets decreased to $27.7 million at March 31, 2012, a 36% decrease compared to three months earlier and a 71% decrease compared to a year earlier.

Credit Quality

“Improving the risk profile of Banner and aggressively managing our troubled assets has been and will remain a primary focus for the Company. We continue to show good progress as nonperforming assets have been reduced nearly 22% compared to the fourth quarter of 2011 and 59% compared to a year ago. Credit costs continue to decline and were significantly below those of a year ago as our special asset teams continued to make meaningful progress at reducing problem assets,” said Grescovich.

Banner recorded a $5.0 million provision for loan losses in the first quarter of 2012, equal to the provision in the preceding quarter and substantially lower than the $17.0 million provision recorded in the first quarter a year ago. The allowance for loan losses at March 31, 2012 totaled $81.5 million, representing 2.52% of total loans outstanding and 126% of non-performing loans. Non-performing loans decreased 14% to $64.9 million at March 31, 2012, compared to $75.3 million three months earlier, and decreased 51% when compared to $131.7 million a year earlier.

Banner’s real estate owned and repossessed assets decreased 36% to $27.7 million at March 31, 2012, compared to $43.0 million three months earlier and decreased 71% when compared to $95.0 million a year ago. Net charge-offs in the first quarter of 2012 totaled $6.4 million, or 0.20% of average loans outstanding, compared to $8.2 million, or 0.25% of average loans outstanding for the fourth quarter of 2011 and $16.8 million, or 0.50% of average loans outstanding, for the first quarter a year ago.

Non-performing assets decreased 22% to $93.1 million at March 31, 2012, compared to $118.9 million three months earlier and decreased 59% when compared to $228.6 million a year ago. At March 31, 2012, Banner’s non-performing assets were 2.24% of total assets, compared to 2.79% at December 31, 2011 and 5.32% a year ago.

Income Statement Review

“The improvement in our net interest margin largely reflects continuing reductions in our funding costs, particularly in our deposit costs, and a significant reduction in the adverse effect of non-performing assets. This reduced cost of funds coupled with changes in our asset mix made it possible for us to maintain a strong net interest margin in recent quarters and to increase it by 17 basis points compared to the first quarter a year ago, despite continued downward pressure on asset yields,” said Grescovich. Banner’s net interest margin was 4.11% in the first quarter of 2012, compared to 4.07% in the preceding quarter and 3.94% in the first quarter a year ago.

Deposit costs decreased by seven basis points in the first quarter compared to the preceding quarter and 37 basis points compared to the first quarter a year earlier. Total funding costs for the first quarter of 2012 decreased six basis points compared to the previous quarter and 34 basis points from the first quarter a year ago. Asset yields decreased two basis points compared to the prior quarter and decreased 16 basis points from the first quarter a year ago. Loan yields decreased nine basis points compared to the preceding quarter and decreased 22 basis points from the first quarter a year ago. Nonaccrual loans reduced the margin by approximately 13 basis points in the first quarter of 2012 compared to approximately 14 basis points in the preceding quarter and approximately 27 basis points in the first quarter of 2011.

“The continued growth in core deposits and the reduced drag from non-performing assets over the past year have led to a solid increase in our revenues from core operations* compared to the first quarter last year,” said Grescovich. First quarter net interest income, before the provision for loan losses, was $41.1 million, compared to $41.6 million in the preceding quarter and $40.1 million in the first quarter a year ago. Revenues from core operations* were $50.4 million in the first quarter of 2012, compared to $50.5 million in the fourth quarter of 2011 and $47.0 million in the first quarter a year ago.

Banner’s first quarter 2012 results included a net gain of $1.7 million for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value. In the preceding quarter Banner recorded a net loss of $1.8 million for fair value adjustments and in the first quarter of 2011 Banner recorded a net gain of $256,000 for fair value adjustments.

Total other operating income, which includes the above-mentioned changes in the valuation of financial instruments, was $11.0 million in the first quarter of 2012 compared to $7.2 million in both the preceding quarter and the first quarter a year ago. Other operating income from core operations* (total other operating income, excluding fair value and OTTI adjustments) for the current quarter was $9.3 million, compared to $8.9 million for the preceding quarter and $7.0 million for the first quarter a year ago.

Deposit fees and other service charges were $5.9 million in the first quarter of 2012, equal to the preceding quarter and an 11% increase compared to $5.3 million in the first quarter a year ago. As a result of exceptionally strong homeowner refinance activity, revenues from mortgage banking activities increased 37% to $2.7 million in the first quarter of 2012, compared to $1.9 million in the immediately preceding quarter. Income from mortgage banking operations was $962,000 in the first quarter of 2011.

“Operating expenses declined for the first quarter compared to the preceding quarter and the first quarter a year ago, largely due to lower costs associated with the real estate owned portfolio, particularly valuation adjustments,” said Grescovich. “These credit costs should continue to decline as further problem asset resolution occurs.”

Total other operating expenses (non-interest expenses) were $37.9 million in the first quarter of 2012, compared to $38.7 million in the preceding quarter and $38.1 million in the first quarter of 2011. The decrease was largely a result of decreased costs related to real estate owned and FDIC deposit insurance, partially offset by increased compensation-related expenses.

*Earnings information excluding fair value and other-than-temporary impairment (OTTI) adjustments (alternately referred to as other operating income from core operations 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.

Balance Sheet Review

“Loan balances declined slightly compared to the previous quarter, primarily as a result of the expected seasonal pay down of agricultural loans, the impact of refinancing activity on residential mortgage loans and further reductions in land development loans. Production levels for targeted loans remained encouraging, resulting in a consistent pipeline of lending opportunities and modest growth in commercial business loans. While we expect a continued challenging economic environment, we believe that our well-focused marketing efforts to attract business clients will allow us to capitalize on additional lending opportunities going forward,” said Grescovich.

Net loans were $3.15 billion at March 31, 2012, compared to $3.21 billion at December 31, 2011 and $3.23 billion a year ago. Commercial and agricultural business loans were $798.5 million at March 31, 2012 compared to $819.6 million at December 31, 2011 and $765.9 million a year ago. Commercial real estate and multi-family real estate loans were $1.21 billion at March 31, 2012, compared to $1.23 billion at both December 31, 2011 and at March 31, 2011.

The combined total of securities at fair value, available for sale and held to maturity, was $541.3 million at March 31, 2012 compared to $622.0 million at December 31, 2011 and $407.0 million at March 31, 2011. The aggregate total of securities and interest-bearing deposits decreased to $685.2 million at March 31, 2012 compared to $691.7 million at December 31, 2011 and $678.9 million a year ago. The change in the mix of interest-bearing deposits and securities holdings compared to a year ago reflects a modest extension of the expected duration of this aggregate position designed to increase the yield relative to interest-bearing deposits. The securities purchased in recent periods were primarily short- to intermediate-term U.S. Government Agency notes and mortgage-backed securities and, to a lesser extent, intermediate-term tax-exempt municipal securities.

Deposits totaled $3.43 billion at March 31, 2012, compared to $3.48 billion at the end of the preceding quarter and $3.54 billion a year ago. Non-interest-bearing accounts increased 24% to $771.8 million at March 31, 2012, compared to $622.8 million a year ago. At December 31, 2011, non-interest-bearing accounts totaled $777.6 million. Interest-bearing transaction and savings accounts were $1.46 billion at March 31, 2012, compared to $1.45 billion at December 31, 2011 and $1.46 billion a year ago.

“The improvements in our deposit mix are reflective of our super community bank strategy that is reducing our funding cost by remixing our deposits away from high-priced CDs, growing new client relationships, and improving our core funding position. To that point, total transaction and savings accounts increased by 7% compared to a year ago and non-interest-bearing accounts increased by 24% over the same period,” said Grescovich.

On March 31, 2012, Banner Bank repaid a $50 million, three-year borrowing that was guaranteed under the FDIC Temporary Liquidity Guarantee Program (TLGP) as reflected in other borrowings on the attached financial statements. Assets totaled $4.16 billion at March 31, 2012, compared to $4.26 billion at the end of the preceding quarter and $4.30 billion a year ago.

At March 31, 2012, total stockholders’ equity was $548.8 million, including $121.2 million attributable to preferred stock, and common stockholders’ equity was $427.6 million, or $23.77 per share. In May 2011, Banner announced a 1-for-7 reverse stock split, which took effect on June 1, 2011. Every seven shares of Banner’s pre-split common shares were automatically consolidated into one post-split share. Taking the reverse stock split into account, Banner had 18.0 million shares outstanding at March 31, 2012, compared to 16.4 million shares outstanding a year ago. At March 31, 2012, tangible common stockholders’ equity, which excludes other intangible assets and preferred stock, was $421.9 million, or 10.15% of tangible assets, compared to $405.4 million, or 9.54% of tangible assets at December 31, 2011 and $377.3 million, or 8.79% of tangible assets a year ago.

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 increased to 14.00% and its total capital to risk-weighted assets ratio increased to 18.98% at March 31, 2012.

Regulatory Agreements

On March 19, 2012, Banner Bank received notice from the FDIC and the Washington Department of Financial Institutions terminating their Memorandum of Understanding with Banner Bank dated March 23, 2010. On April 10, 2012, Banner Corporation received notice from the Federal Reserve Bank of San Francisco terminating its Memorandum of Understanding with Banner Corporation dated March 29, 2010.

Conference Call

Banner will host a conference call on Tuesday, April 24, 2012, at 8:00 a.m. PDT, to discuss its first quarter results. The conference call can be accessed live by telephone at (480) 629-9692 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 4527868.

About the Company

Banner Corporation is a $4.16 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 and may lead to increased losses and non-performing assets and may result in our allowance for loan losses not being adequate to cover actual losses; 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, loan and 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 FDIC, the Washington Department of Financial Institutions or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, institute a formal or informal enforcement action against us or any of the Banks which could require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; 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; 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 and liabilities, which estimates may prove to be incorrect and result in significant changes in valuations; 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; our ability to manage loan delinquency rates; 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; the economic impact of 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 Corporation’s reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2011. 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 2012 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.

 
     

RESULTS OF OPERATIONS
Quarters Ended
(in thousands except shares and per share data) Mar 31, 2012 Dec 31, 2011 Mar 31, 2011
 
INTEREST INCOME
Loans receivable $ 43,988 $ 45,115 $ 46,755
Mortgage-backed securities 927 922 875
Securities and cash equivalents 2,283   2,414   2,033  
47,198 48,451 49,663
 
INTEREST EXPENSE
Deposits 4,448 5,169 7,812
Federal Home Loan Bank advances 63 64 178
Other borrowings 549 559 579
Junior subordinated debentures 1,012   1,073   1,038  
6,072   6,865   9,607  
 
Net interest income before provision for loan losses 41,126 41,586 40,056
 
PROVISION FOR LOAN LOSSES 5,000   5,000   17,000  
Net interest income 36,126 36,586 23,056
 
OTHER OPERATING INCOME
Deposit fees and other service charges 5,869 5,894 5,279
Mortgage banking operations 2,649 1,936 962
Loan servicing fees 217 136 256
Miscellaneous 551   972   493  
9,286 8,938 6,990
 
Net change in valuation of financial instruments carried at fair value 1,685   (1,787 ) 256  
Total other operating income 10,971 7,151 7,246
 
OTHER OPERATING EXPENSE
Salary and employee benefits 19,510 18,730 17,255
Less capitalized loan origination costs (2,250 ) (2,404 ) (1,720 )
Occupancy and equipment 5,477 5,379 5,394
Information / computer data services 1,515 1,388 1,567
Payment and card processing services 1,890 2,156 1,647
Professional services 1,344 1,210 1,672
Advertising and marketing 2,066 2,036 1,740
Deposit insurance 1,363 1,367 1,969
State/municipal business and use taxes 568 562 494
Real estate operations 2,598 4,365 4,631
Amortization of core deposit intangibles 552 555 597
Miscellaneous 3,280   3,323   2,898  
Total other operating expense 37,913   38,667   38,144  
Income (loss) before provision for (benefit from) income taxes 9,184 5,070 (7,842 )
 
PROVISION FOR (BENEFIT FROM ) INCOME TAXES - -   - -   - -  
NET INCOME (LOSS) 9,184   5,070   (7,842 )
 
PREFERRED STOCK DIVIDEND AND DISCOUNT ACCRETION
Preferred stock dividend 1,550 1,550 1,550
Preferred stock discount accretion 454   425   426  
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 7,180   $ 3,095   $ (9,818 )
 
Earnings (loss) per share available to common shareholder
Basic $ 0.40 $ 0.18 $ (0.60 )
Diluted $ 0.40 $ 0.18 $ (0.60 )
 
Cumulative dividends declared per common share $ 0.01 $ 0.01 $ 0.07
 
Weighted average common shares outstanding
Basic 17,761,667 17,269,269 16,271,621
Diluted 17,790,402 17,298,004 16,271,621
 
Common shares issued in connection with exercise of stock options or DRIP 474,296 522,223 278,940

 
     

FINANCIAL CONDITION
(in thousands except shares and per share data) Mar 31, 2012 Dec 31, 2011 Mar 31, 2011
 

ASSETS
Cash and due from banks $ 55,723 $ 62,678 $ 44,381
Federal funds and interest-bearing deposits 143,885 69,758 271,924
Securities - at fair value 77,706 80,727 90,881
Securities - available for sale 386,716 465,795 240,968
Securities - held to maturity 76,853 75,438 75,114
Federal Home Loan Bank stock 37,371 37,371 37,371
Loans receivable:
Held for sale 4,623 3,007 1,493
Held for portfolio 3,225,039 3,293,331 3,324,587
Allowance for loan losses (81,544 ) (82,912 ) (97,632 )
3,148,118 3,213,426 3,228,448
 
Accrued interest receivable 16,047 15,570 16,503
Real estate owned held for sale, net 27,723 42,965 94,945
Property and equipment, net 90,106 91,435 94,743
Other intangibles, net 5,777 6,331 8,011
Bank-owned life insurance 59,056 58,563 57,123
Other assets 35,683   37,255   39,291  
$ 4,160,764   $ 4,257,312   $ 4,299,703  
 

LIABILITIES
 
Deposits:
Non-interest-bearing $ 771,812 $ 777,563 $ 622,759
Interest-bearing transaction and savings accounts 1,457,030 1,447,594 1,459,895
Interest-bearing certificates 1,197,328   1,250,497   1,457,994  
3,426,170 3,475,654 3,540,648
 
Advances from Federal Home Loan Bank at fair value 10,467 10,533 10,567
Customer repurchase agreements and other borrowings 91,253 152,128 159,902
Junior subordinated debentures at fair value 49,368 49,988 48,395
 
Accrued expenses and other liabilities 21,136 23,253 20,958
Deferred compensation 13,580   13,306   14,489  
3,611,974 3,724,862 3,794,959
 

STOCKHOLDERS' EQUITY
 
Preferred stock - Series A 121,156 120,702 119,426
Common stock 540,068 531,149 513,950
Retained earnings (accumulated deficit) (112,465 ) (119,465 ) (126,318 )
Other components of stockholders' equity 31   64   (2,314 )
548,790   532,450   504,744  
$ 4,160,764   $ 4,257,312   $ 4,299,703  
 
Common Shares Issued:
Shares outstanding at end of period 18,027,768 17,553,472 16,443,720
Less unearned ESOP shares at end of period 34,340   34,340   34,340  
Shares outstanding at end of period excluding unearned ESOP shares 17,993,428   17,519,132   16,409,380  
 
Common stockholders' equity per share (1) $ 23.77 $ 23.50 $ 23.48
Common stockholders' tangible equity per share (1) (2) $ 23.45 $ 23.14 $ 22.99
 
Common stockholders' tangible equity to tangible assets (2) 10.15 % 9.54 % 8.79 %
Consolidated Tier 1 leverage capital ratio 14.00 % 13.44 % 12.50 %
 

(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)- Common stockholders' tangible equity excludes core deposits and preferred stock, core deposit and other intangibles. Tangible assets excludes other intangible assets. These ratios represent non-GAAP financial measures.

 

 
     
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
 
Mar 31, 2012 Dec 31, 2011 Mar 31, 2011

LOANS (including loans held for sale)
Commercial real estate
Owner occupied $ 468,318 $ 469,806 $ 521,823
Investment properties 612,617 621,622 564,337
Multifamily real estate 132,306 139,710 147,569
Commercial construction 40,276 42,391 26,580
Multifamily construction 20,654 19,436 19,694
One- to four-family construction 148,717 144,177 151,015
Land and land development
Residential 89,329 97,491 147,913
Commercial 12,044 15,197 30,539
Commercial business 609,497 601,440 577,128
Agricultural business including secured by farmland 188,955 218,171 188,756
One- to four-family real estate 619,511 642,501 665,396
Consumer 106,978 103,347 104,129
Consumer secured by one- to four-family real estate 180,460   181,049   181,201  
Total loans outstanding $ 3,229,662   $ 3,296,338   $ 3,326,080  
Restructured loans performing under their restructured terms $ 53,391   $ 54,533   $ 60,968  
Loans 30 - 89 days past due and on accrual $ 14,336   $ 9,962   $ 16,587  
Total delinquent loans (including loans on non-accrual) $ 79,249   $ 85,274   $ 148,285  
Total delinquent loans / Total loans outstanding 2.45 % 2.59 % 4.46 %
 
GEOGRAPHIC CONCENTRATION OF LOANS AT
March 31, 2012   Washington   Oregon   Idaho   Other   Total
 
Commercial real estate
Owner occupied $ 355,126 $ 58,739 $ 51,341 $ 3,112 $ 468,318
Investment properties 473,807 91,070 42,581 5,159 612,617
Multifamily real estate 110,525 13,210 8,192 379 132,306
Commercial construction 23,748 6,861 9,667 - - 40,276
Multifamily construction 20,654 - - - - - - 20,654
One- to four-family construction 77,225 69,370 2,122 - - 148,717
Land and land development
Residential 47,833 39,135 2,361 - - 89,329
Commercial 9,338 887 1,819 - - 12,044
Commercial business 396,611 74,683 67,449 70,754 609,497
Agricultural business including secured by farmland 99,778 35,073 54,104 - - 188,955
One- to four-family real estate 379,602 210,708 26,977 2,224 619,511
Consumer 70,662 30,697 5,619 - - 106,978
Consumer secured by one- to four-family real estate 124,494 43,420 12,011 535 180,460
 
Total loans outstanding $ 2,189,403 $ 673,853 $ 284,243 $ 82,163 $ 3,229,662
 
Percent of total loans 67.8% 20.9% 8.8% 2.5% 100.0%
 
 
DETAIL OF LAND AND LAND DEVELOPMENT LOANS AT
March 31, 2012 Washington Oregon Idaho Other Total
 
Residential
Acquisition & development $ 12,115 $ 14,708 $ 1,903 $ - - $ 28,726
Improved lots 22,615 21,510 370 - - 44,495
Unimproved land 13,103 2,917 88 - - 16,108
 
Total residential land and development $ 47,833 $ 39,135 $ 2,361 $ - - $ 89,329
Commercial & industrial
Acquisition & development $ 1,555 $ - - $ 483 $ - - $ 2,038
Improved land 3,458 - - 580 - - 4,038
Unimproved land 4,325 887 756 - - 5,968
 
Total commercial land and development $ 9,338 $ 887 $ 1,819 $ - - $ 12,044
 
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
     
Quarters Ended
CHANGE IN THE Mar 31, 2012 Dec 31, 2011 Mar 31, 2011

ALLOWANCE FOR LOAN LOSSES
 
Balance, beginning of period $ 82,912 $ 86,128 $ 97,401
 
Provision 5,000 5,000 17,000
 
Recoveries of loans previously charged off:
Commercial real estate 614 37 - -
Multifamily real estate - - - - - -
Construction and land 370 762 35
One- to four-family real estate 5 241 52
Commercial business 236 511 81
Agricultural business, including secured by farmland - - 5 - -
Consumer 136   73   78  
1,361 1,629 246
Loans charged off:
Commercial real estate (1,323 ) (1,575 ) (989 )
Multifamily real estate - - (11 ) (427 )
Construction and land

(2,924
) (3,269 ) (10,537 )
One- to four-family real estate

(966
) (3,324 ) (2,209 )
Commercial business (1,407 ) (1,172 ) (2,368 )
Agricultural business, including secured by farmland (275 ) (188 ) (123 )
Consumer (834 ) (306 ) (362 )
(7,729 ) (9,845 ) (17,015 )
Net charge-offs (6,368 ) (8,216 ) (16,769 )
 
Balance, end of period $ 81,544   $ 82,912   $ 97,632  
 
Net charge-offs / Average loans outstanding 0.20 % 0.25 % 0.50 %
 
 
ALLOCATION OF

ALLOWANCE FOR LOAN LOSSES
Mar 31, 2012 Dec 31, 2011 Mar 31, 2011
Specific or allocated loss allowance
Commercial real estate $ 17,083 $ 16,457 $ 11,871
Multifamily real estate 3,261 3,952 6,055
Construction and land 15,871 18,184 30,346
Commercial business 13,123 15,159 22,054
Agricultural business, including secured by farmland 1,887 1,548 1,441
One- to four-family real estate 12,869 12,299 8,149
Consumer 1,274   1,253   1,452  
 
Total allocated 65,368 68,852 81,368
 
Estimated allowance for undisbursed commitments 651 678 1,158
Unallocated 15,525   13,382   15,106  
 
Total allowance for loan losses $ 81,544   $ 82,912   $ 97,632  
 
Allowance for loan losses / Total loans outstanding 2.52 % 2.52 % 2.94 %
 
Allowance for loan losses / Non-performing loans 126 % 110 % 74 %
 
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
     
Mar 31, 2012 Dec 31, 2011 Mar 31, 2011
 

NON-PERFORMING ASSETS
 
Loans on non-accrual status
Secured by real estate:
Commercial $ 10,541 $ 9,226 $ 23,443
Multifamily - - 362 1,361
Construction and land 18,601 27,731 67,163
One- to four-family 19,384 17,408 16,571
Commercial business 10,121 13,460 15,904
Agricultural business, including secured by farmland 1,481 1,896 1,984
Consumer 2,572   2,905   4,655  
62,700 72,988 131,081
 
Loans more than 90 days delinquent, still on accrual
Secured by real estate:
Commercial - - - - - -
Multifamily - - - - - -
Construction and land - - - - - -
One- to four-family 2,129 2,147 561
Commercial business - - 4 14
Agricultural business, including secured by farmland - - - - - -
Consumer 84   173   42  
2,213   2,324   617  
Total non-performing loans 64,913 75,312 131,698
Securities on non-accrual 500 500 1,904
Real estate owned (REO) and repossessed assets 27,731   43,039   94,969  
Total non-performing assets $ 93,144   $ 118,851   $ 228,571  
 
Total non-performing assets / Total assets 2.24 % 2.79 % 5.32 %
 
DETAIL & GEOGRAPHIC CONCENTRATION OF
NON-PERFORMING ASSETS AT
March 31, 2012   Washington     Oregon     Idaho     Other     Total
Secured by real estate:        
Commercial $ 7,698 $ 355 $ 2,488 $ - - $ 10,541
Multifamily - - - - - - - - - -
Construction and land
One- to four-family construction 3,782 2,226 243 - - 6,251
Commercial construction 942 - - - - - - 942
Multifamily construction - - - - - - - - - -
Residential land acquisition & development 4,691 1,836 - - - - 6,527
Residential land improved lots 424 2,309 73 - - 2,806
Residential land unimproved 287 916 88 - - 1,291
Commercial land acquisition & development - - - - - - - - - -
Commercial land improved 454 - - - - - - 454
Commercial land unimproved 330 - - - - - - 330
Total construction and land 10,910 7,287 404 - - 18,601
One- to four-family 16,753 3,386 1,374 - - 21,513
Commercial business 9,511 138 472 - - 10,121
Agricultural business, including secured by farmland 1,346 - - 135 - - 1,481
Consumer 2,128 25 503 - - 2,656
         
Total non-performing loans 48,346 11,191 5,376 - - 64,913
Securities on non-accrual - - - - 500 - - 500
Real estate owned (REO) and repossessed assets 14,497 10,341 2,893 - - 27,731
         
Total non-performing assets at end of the period $ 62,843 $ 21,532 $ 8,769 $ - - $ 93,144
 
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
         
Quarters Ended
 

REAL ESTATE OWNED
Mar 31, 2012 Mar 31, 2011
 
Balance, beginning of period $ 42,965 $ 100,872
Additions from loan foreclosures 1,601 14,916
Additions from capitalized costs 127 1,615
Dispositions of REO (15,441 ) (18,894 )
Gain (loss) on sale of REO 100 (537 )
Valuation adjustments in the period (1,629 ) (3,027 )
 
Balance, end of period $ 27,723   $ 94,945  
 
Quarters Ended
 

REAL ESTATE OWNED- FIVE COMPARATIVE QUARTERS
Mar 31, 2012 Dec 31, 2011 Sep 30, 2011 Jun 30, 2011 Mar 31, 2011
 
Balance, beginning of period $ 42,965 $ 66,459 $ 71,205 $ 94,945 $ 100,872
Additions from loan foreclosures 1,601 7,482 18,881 11,918 14,916
Additions from capitalized costs 127 150 1,107 1,532 1,615
Dispositions of REO (15,441 ) (28,299 ) (19,440 ) (32,437 ) (18,894 )
Gain (loss) on sale of REO 100 (170 ) (725 ) 58 (537 )
Valuation adjustments in the period (1,629 ) (2,657 ) (4,569 ) (4,811 ) (3,027 )
 
Balance, end of period $ 27,723   $ 42,965   $ 66,459   $ 71,205   $ 94,945  
 

REAL ESTATE OWNED- BY TYPE AND STATE
Washington Oregon Idaho Total
 
Commercial real estate $ 2,064 $ - - $ 494 $ 2,558
One- to four-family construction 405 732 - - 1,137
Land development- commercial 3,875 75 200 4,150
Land development- residential 4,354 7,793 1,181 13,328
One- to four-family real estate 3,791   1,741   1,018   6,550  
 
Total $ 14,489   $ 10,341   $ 2,893   $ 27,723  
 
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)        
 
 

DEPOSITS & OTHER BORROWINGS
Mar 31, 2012 Dec 31, 2011 Mar 31, 2011
DEPOSIT COMPOSITION
 
Non-interest-bearing $ 771,812 $ 777,563   $ 622,759
 
Interest-bearing checking 368,810 362,542 361,430
Regular savings accounts 673,704 669,596 648,520
Money market accounts 414,516 415,456   449,945
 
Interest-bearing transaction & savings accounts 1,457,030 1,447,594   1,459,895
 
Interest-bearing certificates 1,197,328 1,250,497   1,457,994
 
Total deposits $ 3,426,170 $ 3,475,654   $ 3,540,648
 
 

INCLUDED IN TOTAL DEPOSITS
 
Public transaction accounts $ 68,590 $ 72,064 $ 62,873
Public interest-bearing certificates 69,856 67,112   67,527
 
Total public deposits $ 138,446 $ 139,176   $ 130,400
 
 
Total brokered deposits $ 30,978 $ 49,194   $ 92,940
 

OTHER BORROWINGS
Customer repurchase agreements / "Sweep accounts" $ 91,253 $ 102,131 $ 109,227
Temporary liquidity guarantee notes - - 49,997 49,990
Other - - - -   685
Total other borrowings $ 91,253 $ 152,128   $ 159,902
 
 
 
GEOGRAPHIC CONCENTRATION OF DEPOSITS AT
March 31, 2012 Washington Oregon Idaho Total
 
$ 2,599,804 $ 601,842   $ 224,524 $ 3,426,170  
 
 

REGULATORY CAPITAL RATIOS AT
Actual

Minimum for Capital Adequacy

or "Well Capitalized"
March 31, 2012 Amount Ratio Amount Ratio
 
Banner Corporation-consolidated
Total capital to risk-weighted assets $ 630,106 18.98 % $ 265,573 8.00 %
Tier 1 capital to risk-weighted assets 588,116 17.72 % 132,787 4.00 %
Tier 1 leverage capital to average assets 588,116 14.00 % 168,018 4.00 %
 
Banner Bank
Total capital to risk-weighted assets 519,867 16.47 % 252,445 10.00 %
Tier 1 capital to risk-weighted assets 479,938 15.21 % 126,223 6.00 %
Tier 1 leverage capital to average assets 479,938 12.10 % 158,658 5.00 %
 
Islanders Bank
Total capital to risk-weighted assets 30,967 16.44 % 15,066 10.00 %
Tier 1 capital to risk-weighted assets 28,607 15.19 % 7,533 6.00 %
Tier 1 leverage capital to average assets 28,607 12.48 % 9,172 5.00 %
 
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
  Quarters Ended
   

OPERATING PERFORMANCE
Mar 31, 2012 Dec 31, 2011 Mar 31, 2011
 
 
Average loans $ 3,250,767 $ 3,237,305 $ 3,349,978
Average securities 660,638 670,807 465,017
Average interest earning cash 111,536 148,070 308,575
Average non-interest-earning assets 185,035   207,609   233,365  
 
Total average assets $ 4,207,976   $ 4,263,791   $ 4,356,935  
 
Average deposits $ 3,421,448 $ 3,477,587 $ 3,561,020
Average borrowings 280,439 294,675 322,261
Average non-interest-bearing other liabilities (36,699 ) (38,703 ) (39,755 )
 
Total average liabilities 3,665,188 3,733,559 3,843,526
 
Total average stockholders' equity 542,788   530,232   513,409  
`
Total average liabilities and equity $ 4,207,976   $ 4,263,791   $ 4,356,935  
 
Interest rate yield on loans 5.44 % 5.53 % 5.66 %
Interest rate yield on securities 1.92 % 1.92 % 2.38 %
Interest rate yield on cash 0.23 % 0.23 % 0.23 %
 
Interest rate yield on interest-earning assets 4.72 % 4.74 % 4.88 %
 
Interest rate expense on deposits 0.52 % 0.59 % 0.89 %
Interest rate expense on borrowings 2.33 % 2.28 % 2.26 %
 
Interest rate expense on interest-bearing liabilities 0.66 % 0.72 % 1.00 %
 
Interest rate spread 4.06 % 4.02 % 3.88 %
 
Net interest margin 4.11 % 4.07 % 3.94 %
 
Other operating income / Average assets 1.05 % 0.67 % 0.67 %
 

Other operating income EXCLUDING fair value and OTTI adjustments / Average assets (1)
0.89 % 0.83 % 0.65 %
 
Other operating expense / Average assets 3.62 % 3.60 % 3.55 %
 
Efficiency ratio (other operating expense / revenue) 72.77 % 79.34 % 80.64 %
 
Return (Loss) on average assets 0.88 % 0.47 % (0.73 %)
 
Return (Loss) on average equity 6.81 % 3.79 % (6.19 %)
 
Return (Loss) on average tangible equity (2) 6.88 % 3.84 % (6.30 %)
 
Average equity / Average assets 12.90 % 12.44 % 11.78 %
 

(1)- Earnings information excluding fair value and OTTI adjustments (alternately referred to as other operating income from core operations or revenues from core operations) represent non-GAAP financial measures.
 
(2)- Average tangible equity excludes core deposit and other intangibles and represents a non-GAAP financial measure.

Copyright Business Wire 2010

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