WALLA WALLA, Wash., Jan. 28, 2009 (GLOBE NEWSWIRE) -- Banner Corporation (Nasdaq:BANR), the parent company of Banner Bank and Islanders Bank, today reported that it had a net loss of $78.5 million, or $4.72 per diluted share available to common shareholders, for the quarter ended December 31, 2008, compared to net income of $12.0 million, or $0.74 per diluted share, for the quarter ended December 31, 2007. The current quarter's results included a $71.1 million non-cash impairment charge to write-off the remaining balance of goodwill previously reflected on the Company's books. The current quarter's net income also included a $33.0 million provision for loan losses and $13.7 million of net fair value gains. Banner recorded a net loss of $128.0 million, or $7.94 per diluted share available to common shareholders (including a $121.1 million write-down of goodwill), for the year ended December 31, 2008, compared to net income of $36.9 million, or $2.49 per diluted share, for the year ended December 31, 2007.
"Deteriorating economic conditions and ongoing strains in the financial and housing markets presented an unusually challenging environment for Banner Corporation in 2008, which is reflected in our disappointing fourth quarter and year-to-date results," said D. Michael Jones, President and CEO. "This was particularly evident in our need to provide for credit losses at a significantly higher level than our historical experience. Although we anticipate that credit costs will be elevated well into 2009, we continue to believe that our revenue generation and operating results will be sufficient to sustain our expectation to remain 'well capitalized' under the regulatory guidelines while we continue to grow and improve our commercial banking franchise."
"The challenging environment and faltering equity markets also caused us to take another hard look at the carrying value of goodwill and to conclude that it was appropriate to record a non-cash write-off of that asset," continued Jones. "At least annually, and more often if appropriate, all companies are required to determine the value of goodwill as an asset. While there currently is a great deal of uncertainty with respect to the market valuation of certain other assets, declining stock prices for financial services companies clearly indicate that the value of goodwill for the industry has been severely diminished. As a result of the significant decline in most banks' common stock prices, including Banner's, and the lack of merger transactions in recent months, measuring the value of goodwill has become difficult and imprecise at best; however, we have concluded that continuing to record it as an asset on our books would be inappropriate. Therefore we have taken this action to reflect current market conditions as of December 31, 2008. As goodwill is not a component of regulatory capital calculations, is ignored by most institutional investors and has no effect on liquidity or operations, there is no meaningful effect from this accounting entry.
"Despite obvious concerns related to the national economy, soft housing markets and financial market turmoil, we continue to have a positive view on the long-term economic prospects for the Northwest markets that we serve. We are confident we have sufficient capital and human resources to manage the collection of our one-to-four family residential construction and related land loan portfolios in an orderly fashion while we maintain consistent forward momentum in our core operations."
Credit Quality
"The housing market remained weak in many of our primary service areas during the fourth quarter, resulting in increasing delinquencies and non-performing assets, primarily in our construction and land development loan portfolios, and declining property values. As a result, our provision for loan losses was at a significantly higher amount than our historical levels and normal expectations." said Jones. "In November and December, in particular, home and lot sales activity was exceptionally slow, causing additional stress on builders' and developers' cash flows and ability to service debt, which is reflected in our increased non-performing asset totals. However, we remain confident that we can work our way through the housing market-related problems and we are actively engaged with our borrowers in resolving problem loans. While property values have continued to decline, our reserve levels are substantial and, along with our impairment analysis and charge-off actions, reflect current appraisals and valuation estimates."
Banner added $33.0 million to its provision for loan losses in the fourth quarter of 2008, compared to $8.0 million in the third quarter of 2008 and $2.0 million in the fourth quarter of 2007. For the year ended December 31, 2008, Banner's provision for loan losses was $62.5 million compared to $5.9 million for the year ended December 31, 2007. The allowance for loan losses at December 31, 2008 was $75.2 million, representing 1.90% of total loans outstanding. Non-performing loans were $187.3 million at December 31, 2008, compared to $119.4 million in the previous quarter and $42.4 million at December 31, 2007. In addition, Banner's real estate owned and repossessed assets were $21.9 million at December 31, 2008 compared to $10.2 million in the previous quarter and $1.9 million at December 31, 2007. Banner's net charge-offs in the current quarter totaled $16.6 million, or 0.42% of average loans. Net charge-offs for the year ended December 31, 2008 were $33.1 million, or 0.84% of average loans.
One-to-four family residential construction and related lot and land loans represent 23% of the total loan portfolio and 82% of non-performing assets. The geographic distribution of all construction and land development loans, including residential and commercial properties, is approximately 30% in the greater Puget Sound market, 40% in the greater Portland, Oregon market, and 9% in the greater Boise, Idaho market, with the remaining 21% distributed in various eastern Washington, eastern Oregon and northern Idaho markets served by Banner Bank. While non-performing assets are similarly geographically disbursed, they are concentrated largely in land and land development loans. The geographic distribution of non-performing construction, land and land development loans and real estate owned included approximately $81.0 million, or 47%, in the Puget Sound region, $72.6 million, or 40%, in the greater Portland market area and $16.7 million, or 9%, in the greater Boise market area.
"Other non-housing-related segments of the loan portfolio are beginning to show some signs of stress and increased non-performing loans as the effects of the slowing economy become more evident," Jones added. "We are sensitive to current economic conditions and are proactively monitoring and managing those portions of our portfolio as well."
Income Statement Review
Banner's net interest margin was 3.23% for the fourth quarter of 2008, compared to 3.45% in the preceding quarter and 3.82% for the fourth quarter of 2007. For the year ended December 31 2008, the net interest margin was 3.45% compared to 3.99% for the year ended December 31, 2007. Funding costs decreased nine basis points compared to the previous quarter and decreased 107 basis points from the fourth quarter a year earlier, while asset yields decreased 34 basis points from the prior linked quarter and 164 basis points from the fourth quarter a year ago.
"While funding costs improved as expected, we continued to experience decreasing asset yields during the fourth quarter which further reduced our net interest margin," said Jones. "Early in the quarter pressure on deposit pricing was intense, as system-wide liquidity concerns temporarily pushed competitive deposit rates higher despite the Federal Reserve's efforts to lower market interest rates. Those concerns abated as the quarter progressed, particularly following the announcement of increased FDIC insurance coverage, allowing deposit costs to decline modestly. By contrast, the impact of the Federal Reserve's three rate cuts was evident in lower loan yields and reduced borrowing costs. In addition, our lower net interest margin also reflected the higher level of delinquencies, as non-accruing loans reduced the margin by approximately 34 basis points in this year's fourth quarter compared to approximately 24 basis points in the third quarter of 2008 and approximately 16 basis points in the fourth quarter of 2007."
For the fourth quarter of 2008, net interest income before the provision for loan losses was $35.6 million, compared to $37.6 million in the preceding quarter and $38.7 million in the same quarter a year ago. Reflecting the lower margin, net interest income before the provision for loan losses decreased to $147.6 million for the year ended December 31, 2008, compared to $149.6 million for the year ended December 31, 2007. Revenues from recurring operations* (net interest income before the provision for loan losses plus total other operating income excluding fair value adjustments) were $42.9 million in the fourth quarter of 2008, compared to $45.7 million for the third quarter of 2008 and $46.2 million for the fourth quarter a year ago. Revenues from recurring operations for the year ended December 31, 2008 increased to $178.3 million, compared to $176.6 million in the year ended December 31, 2007.
Banner's results for the fourth quarter of 2008 included a net gain of $13.7 million ($8.8 million after tax), compared to a net gain of $9.2 million ($5.9 million after tax) in the fourth quarter of 2007, for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value in accordance with the adoption of Statement of Financial Accounting Standards (SFAS) Nos. 157 and 159. The fair value adjustments in the current quarter predominantly reflect changes in the valuation of trust preferred securities and junior subordinated debentures, both owned and issued by the Company. For the year ended December 31, 2008, fair value adjustments resulted in a net gain of $9.2 million ($5.9 million after tax), compared to a net gain of $11.6 million ($7.4 million after tax) for the year ended December 31, 2007.
Total other operating income for the fourth quarter was $21.0 million compared to $16.7 million for the same quarter a year ago. Total other operating income from recurring operations* (excluding fair value adjustments) for the fourth quarter was $7.3 million compared to $8.1 million in the preceding quarter and $7.5 million for the same quarter a year ago. For the year ended December 31, 2008, total other operating income from recurring operations increased 14% to $30.7 million, compared to $27.0 million for the year ended December 31, 2007. Primarily reflecting a recent slow-down in customer transaction volumes, income from deposit fees and other service charges decreased to $5.3 million in the fourth quarter of 2008, compared to $5.8 million for the preceding quarter. By contrast, deposit fees and service charges increased by 10% from $4.8 million in the fourth quarter a year ago, largely as a result of growth in our customer base and related payment processing activities. Income from mortgage banking operations decreased slightly in the fourth quarter to $1.4 million compared to $1.5 million in the preceding quarter, but was slightly higher than the $1.3 million recorded in the same quarter a year ago. For the year, mortgage banking revenues declined modestly to $6.0 million from $6.3 million in 2007. "The slowing economy adversely affected our payment processing business in the most recent quarter as activity levels for deposit customers, cardholders and merchants clearly declined; however, we are pleased with the year-over-year growth in our customer base and payment processing activities," Jones noted. "We are also pleased that our mortgage banking revenues have remained solid despite a very difficult year for housing finance. Further, the currently very low level of interest rates has resulted in a significant increase in mortgage loan applications in recent weeks."
"Controllable operating expenses were generally well managed in the fourth quarter reflecting continuing efforts to improve our processes and efficiency. Unfortunately, collection and legal costs, including charges related to acquired real estate, remained high," said Jones. "In addition, FDIC insurance expense increased significantly as a result of increased assessment rates for the current quarter, as well as a $1.3 million correction of an error recognizing the appropriate coverage periods related to previous quarterly assessments, including $744,000 for the year ended December 31, 2007. Although we anticipate collection costs will continue to be above historical levels for a number of future quarters, we expect continued expense discipline will be a positive factor going forward."
Total other operating expenses from recurring operations* (non-interest expenses excluding the goodwill write-off) were $36.0 million in the fourth quarter of 2008, compared to $34.0 million in the preceding quarter and $35.3 million in the fourth quarter a year ago. For the year ended December 31, 2008, other operating expenses from recurring operations were $138.9 million compared to $127.5 million in 2007. The increase from the prior year reflects the effects of new branch openings, including two added in 2008 and ten at various times during 2007, as well as last year's three acquisitions which added another 16 branches and nearly $800 million in total assets. Operating expenses from recurring operations as a percentage of average assets was 3.06% in the fourth quarter of 2008, compared to 2.91% in the previous quarter and 3.20% in the fourth quarter a year ago.
*Earnings information excluding the goodwill impairment charge and fair value adjustments (alternately referred to as net operating income or net income from recurring operations and revenues or expenses from recurring 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 more useful and comparative information to assess trends in the Company's core operations reflected in the current quarter and year-to-date results. Where applicable, the Company has also presented comparable earnings information using GAAP financial measures.
Balance Sheet Review
"New loan origination volumes were light in the fourth quarter, reflecting the slowing economic activity. While commercial business loans increased meaningfully, continued payoffs of construction loans and seasonal declines in certain agricultural loans resulted in a modest decrease in total loan balances compared to the prior quarter end." said Jones. "Although slower in the fourth quarter, home sales have been sufficient to reduce the portfolio of one-to-four family construction loans by $193.1 million over the past twelve months, including a $61.8 million reduction in the most recent quarter. As a result, at December 31, 2008 our one-to-four family construction loans have declined by $233.9 million compared to their peak quarter-end balance at June 30, 2007, and our aggregate construction and land development loan balances, including commercial and multi-family real estate, have declined by $190.2 million, also compared to their peak quarter-end balances at June 30, 2007." Net loans increased 3% to $3.89 billion at December 31, 2008, compared to $3.76 billion a year earlier. Total assets also increased 2% to $4.58 billion at December 31, 2008, compared to $4.49 billion a year earlier.
Total deposits increased 4% to $3.78 billion at December 31, 2008, compared to $3.62 billion at December 31, 2007. Non-interest-bearing accounts increased 5% and certificates of deposit increased 15% during the twelve months ended December 31, 2008, while total transaction and savings accounts decreased 7%. "We continue to see a decline in average deposit balances for certain real estate-related customers as their business activity has slowed," said Jones. "We have also experienced further shifts into certificate of deposit accounts as customers have repositioned balances to obtain more attractive yields and additional deposit insurance coverage. Still, we are optimistic that our expanded branch network will deliver core deposit growth and related fee income as we have experienced a healthy increase in the number of transaction deposit accounts."
On November 21, 2008, Banner received $124 million from the U.S. Treasury Department as a part of the Treasury's Capital Purchase Program. This funding marked Banner's successful completion of the sale of $124 million in senior preferred stock, with a related warrant to purchase up to $18.6 million in common stock, to the U.S. Treasury. The warrant provides the Treasury the option to purchase up to 1,707,989 shares of Banner Corporation common stock at a price of $10.89 per share at any time during the next ten years. "The additional capital will enhance our capacity to support the communities we serve through expanded lending activities and economic development," said Jones. "This capital will also add flexibility in considering strategic options that may be available to us. We believe participation in this program should be beneficial not only to the communities we serve, but also to the employees, customers and shareholders of Banner Corporation."
Tangible stockholders' equity at December 31, 2008 was $419.6 million, including $115.9 million attributable to preferred stock, compared to $300.2 million at December 31, 2007. Tangible book value per common share was $17.96 at quarter-end, compared to $18.73 a year earlier. During the quarter ended December 31, 2008, the Company issued 171,770 shares of common stock through its Dividend Reinvestment and Stock Purchase Plan at an average price of $10.91 per share, generating approximately $1.9 million of additional paid in capital. At December 31, 2008, Banner had 16.9 million shares outstanding, while it had 16.0 million shares outstanding a year ago.
Cash Dividend
On December 16, 2008, Banner's Board of Directors declared a quarterly cash dividend of $0.05 per share, payable to shareholders of record as of the close of business on December 31, 2008. The dividend was paid on January 12, 2009. "Our analysis indicates that the Company and its subsidiary banks have sufficient capital to accommodate the orderly collection of existing loan portfolios at current price levels and absorption rates and remain "well capitalized" during the entire process," said Jones. "Nonetheless, we will continue to evaluate our dividend payments on a quarterly basis during this period of uncertain economic times to ensure that we are appropriately managing our capital position."
Conference Call
Banner will host a conference call on Thursday, January 29, 2009, at 8:00 a.m. PT, to discuss fourth quarter results. The conference call can be accessed live by telephone at 303-262-2140. To listen to the call online, go to the Company's website at www.bannerbank.com. An archived recording of the call can be accessed by dialing 303-590-3000, passcode 11119693# until Thursday, February 5, 2009, or via the Internet at www.bannerbank.com.
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; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes and other properties and fluctuations in real estate values in our market areas; results of examinations of us by the Board of Governors of the Federal Reserve System and our bank subsidiaries by the Federal Deposit Insurance Corporation, the Washington State Department of Financial Institutions, Division of Banks or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses or to write-down assets; fluctuations in agricultural commodity prices, crop yields and weather conditions; our ability to control operating costs and expenses; our ability to implement our branch expansion strategy; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired or may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; legislative or regulatory changes that adversely affect our business; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board; war or terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and other risks detailed in Banner's reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
RESULTS OF
OPERATIONS
----------- Quarters Ended Year Ended
(in thousands -------------------------------- ---------------------
except shares Dec 31, Sep 30, Dec 31, Dec 31, Dec 31,
and per share 2008 2008 2007 2008 2007
data) ---------- ---------- ---------- ---------- ----------
INTEREST
INCOME:
Loans
receivable $ 60,603 $ 64,181 $ 72,592 $ 256,951 $ 281,135
Mortgage-
backed
securities 1,359 1,040 1,179 4,639 5,832
Securities
and cash
equivalents 2,934 2,786 2,471 11,308 8,342
---------- ---------- ---------- ---------- ----------
64,896 68,007 76,242 272,898 295,309
INTEREST EXPENSE:
Deposits 25,868 26,818 34,091 110,314 129,420
Federal Home
Loan Bank
advances 1,097 1,160 435 5,407 4,168
Other
borrowings 397 734 766 2,271 3,214
Junior sub-
ordinated
debentures 1,954 1,669 2,288 7,353 8,888
---------- ---------- ---------- ---------- ----------
29,316 30,381 37,580 125,345 145,690
---------- ---------- ---------- ---------- ----------
Net interest
income
before pro-
vision for
loan losses 35,580 37,626 38,662 147,553 149,619
PROVISION FOR
LOAN LOSSES 33,000 8,000 2,000 62,500 5,900
---------- ---------- ---------- ---------- ----------
Net interest
income 2,580 29,626 36,662 85,053 143,719
OTHER OPERATING
INCOME:
Deposit fees
and other
service
charges 5,263 5,770 4,770 21,540 16,573
Mortgage
banking
operations 1,351 1,500 1,325 6,045 6,270
Loan servic-
ing fees 478 536 625 1,963 1,830
Miscellaneous 205 286 800 1,185 2,336
---------- ---------- ---------- ---------- ----------
7,297 8,092 7,520 30,733 27,009
Increase
(Decrease)
in valuation
of financial
instruments
carried at
fair value 13,740 (6,056) 9,209 9,156 11,574
---------- ---------- ---------- ---------- ----------
Total other
operating
income 21,037 2,036 16,729 39,889 38,583
OTHER OPERATING
EXPENSE:
Salary and
employee
benefits 18,481 18,241 19,441 76,104 75,975
Less
capitalized
loan
origination
costs (1,730) (2,040) (2,459) (8,739) (10,683)
Occupancy
and equip-
ment 6,197 5,956 6,011 24,010 20,953
Information/
computer
data ser-
vices 1,309 1,560 2,130 6,698 7,297
Payment and
card proces-
sing ser-
vices 1,781 1,913 1,663 6,993 5,415
Professional
services 1,175 1,117 932 4,378 3,207
Advertising
and
marketing 2,009 1,572 2,163 6,676 8,310
Deposit
insurance 2,308 701 101 3,969 373
State/
municipal
business
and use
taxes 545 572 566 2,257 1,993
Amortization
of core
deposit
intangibles 676 691 736 2,828 1,881
Miscellaneous 3,218 3,717 3,989 13,725 12,768
---------- ---------- ---------- ---------- ----------
35,969 34,000 35,273 138,899 127,489
Goodwill
write-off 71,121 -- -- 121,121 --
---------- ---------- ---------- ---------- ----------
Total other
operating
expense 107,090 34,000 35,273 260,020 127,489
---------- ---------- ---------- ---------- ----------
Income (Loss)
before
provision
(benefit)
for income
taxes (83,473) (2,338) 18,118 (135,078) 54,813
PROVISION FOR
(BENEFIT FROM)
INCOME TAXES (4,942) (1,347) 6,106 (7,085) 17,890
---------- ---------- ---------- ---------- ----------
NET INCOME
(LOSS) $ (78,531) $ (991) $ 12,012 $(127,993) $ 36,923
========== ========== ========== ========== ==========
PREFERRED STOCK
DIVIDEND AND
DISCOUNT
ACCRETION
Preferred
stock divi-
dend 689 -- -- 689 --
Preferred
stock dis-
count
accretion 161 -- -- 161 --
---------- ---------- ---------- ---------- ----------
NET INCOME
(LOSS)
AVAILABLE TO
COMMON SHARE-
HOLDERS $ (79,381) $ (991) $ 12,012 $(128,843) $ 36,923
========== ========== ========== ========== ==========
Earnings (Loss)
per common
share
Basic $ (4.72) $ (0.06) $ 0.75 $ (7.94) $ 2.53
Diluted $ (4.72) $ (0.06) $ 0.74 $ (7.94) $ 2.49
Cumulative
dividends
declared per
common share $ 0.05 $ 0.05 $ 0.20 $ 0.50 $ 0.77
Weighted
average common
shares out-
standing
Basic 16,820,350 16,402,607 15,936,430 16,225,225 14,581,286
Diluted 16,820,350 16,402,607 16,141,941 16,225,225 14,838,469
Common shares
repurchased
during the
period 200 -- 58,157 614,103 69,467
Common shares
issued in
connection
with
acquisitions -- -- 339,860 -- 2,932,471
Common shares
issued in
connection
with exercise
of stock
options or
DRIP 171,770 675,186 163,379 1,499,992 1,088,875
FINANCIAL CONDITION
--------------------
(in thousands except shares and per share data)
Dec 31, Sep 30, Dec 31,
2008 2008 2007
---------- ---------- ----------
ASSETS
------
Cash and due from banks $ 89,964 $ 80,508 $ 98,120
Federal funds and interest-
bearing deposits 12,786 403 310
Securities - at fair value 211,506 239,009 202,863
Securities - available for sale 53,272 -- --
Securities - held to maturity 52,190 55,389 53,516
Federal Home Loan Bank stock 37,371 37,371 37,371
Loans receivable:
Held for sale 7,413 6,085 4,596
Held for portfolio 3,953,995 3,993,094 3,805,021
Allowance for loan losses (75,197) (58,846) (45,827)
---------- ---------- ----------
3,886,211 3,940,333 3,763,790
Accrued interest receivable 21,219 22,799 24,980
Real estate owned held for
sale, net 21,782 10,147 1,867
Property and equipment, net 97,647 97,958 98,098
Goodwill and other intangibles,
net 13,716 85,513 137,654
Bank-owned life insurance 52,680 52,500 51,483
Other assets 34,024 28,329 22,606
---------- ---------- ----------
$4,584,368 $4,650,259 $4,492,658
========== ========== ==========
LIABILITIES
-----------
Deposits:
Non-interest-bearing $ 509,105 $ 521,927 $ 484,251
Interest-bearing transaction
and savings accounts 1,137,878 1,086,621 1,288,112
Interest-bearing certificates 2,131,867 2,182,318 1,848,230
---------- ---------- ----------
3,778,850 3,790,866 3,620,593
Advances from Federal Home Loan
Bank at fair value 111,415 209,243 167,045
Customer repurchase agreements
and other borrowings 145,230 104,496 91,724
Junior subordinated debentures
at fair value 61,776 101,358 113,270
Accrued expenses and other
liabilities 40,600 44,486 47,989
Deferred compensation 13,149 12,880 11,596
Deferred income tax liability,
net -- -- 2,595
---------- ---------- ----------
4,151,020 4,263,329 4,054,812
STOCKHOLDERS' EQUITY
--------------------
Preferred stock -Series A 115,915 -- --
Common stock 316,740 306,741 300,486
Retained earnings 2,150 82,377 139,636
Other components of
stockholders' equity (1,457) (2,188) (2,276)
---------- ---------- ----------
433,348 386,930 437,846
---------- ---------- ----------
$4,584,368 $4,650,259 $4,492,658
========== ========== ==========
Common Shares Issued:
Shares outstanding at end of
period 17,152,038 16,980,468 16,266,149
Less unearned ESOP shares at
end of period 240,381 240,381 240,381
---------- ---------- ----------
Shares outstanding at end
of period excluding
unearned ESOP shares 16,911,657 16,740,087 16,025,768
========== ========== ==========
Book value per common share,
excluding preferred stock (1) $ 18.77 $ 23.11 $ 27.32
Tangible book value per common
share, excluding preferred
stock (1) (2) $ 17.96 $ 18.01 $ 18.73
Consolidated Tier 1 leverage
capital ratio 10.32% 8.86% 10.04%
(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 book value excludes goodwill, core deposit and other
intangibles.
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
LOANS
(including
loans
held for Dec 31, Sep 30, Dec 31,
sale): 2008 2008 2007
-------------- ---------- ---------- ----------
Commercial
real estate $1,013,709 $1,013,919 $ 882,523
Multifamily
real estate 151,274 141,787 165,886
Commercial
construction 104,495 113,342 74,123
Multifamily
construction 33,661 22,236 35,318
One- to
four-family
construction 420,673 482,443 613,779
Land and land
development 486,130 481,521 497,962
Commercial
business 679,867 694,688 696,350
Agricultural
business
including
secured by
farmland 204,142 213,753 186,305
One- to
four-family
real estate 599,169 561,043 445,222
Consumer 268,288 274,447 212,149
---------- ---------- ----------
Total loans
outstanding $3,961,408 $3,999,179 $3,809,617
========== ========== ==========
Restructured
loans
performing
under their
restructured
terms $ 17,852 $ 15,514 $ 2,750
========== ========== ==========
Total loans 30
days past due
and on
non-accrual $ 248,469 $ 137,953 $ 69,031
========== ========== ==========
Total
delinquent
loans / Total
loans
outstanding 6.27% 3.45% 1.81%
GEOGRAPHIC
CONCENTRATION
OF LOANS AT
December 31,
2008 Washington Oregon Idaho Other Total
-------------- ---------- ---------- ---------- ---------- ----------
Commercial
real estate $ 765,490 $ 160,608 $ 77,489 $ 10,122 $1,013,709
Multifamily
real estate 125,571 12,570 9,735 3,398 151,274
Commercial
construction 59,590 33,927 10,028 950 104,495
Multifamily
construction 20,536 13,125 -- -- 33,661
One- to
four-family
construction 208,699 193,025 18,949 -- 420,673
Land and land
development 247,505 166,721 71,904 -- 486,130
Commercial
business 506,864 75,678 80,566 16,759 679,867
Agricultural
business
including
secured by
farmland 79,817 54,918 69,407 -- 204,142
One- to
four-family
real estate 474,774 87,797 31,664 4,934 599,169
Consumer 194,990 54,852 17,938 508 268,288
---------- ---------- ---------- ---------- ----------
Total loans
outstanding $2,683,836 $ 853,221 $ 387,680 $ 36,671 $3,961,408
========== ========== ========== ========== ==========
Percent of
total loans 67.7% 21.5% 9.8% 1.0% 100.0%
DETAIL OF LAND
AND LAND
DEVELOPMENT
LOANS AT
December 31,
2008 Washington Oregon Idaho Other Total
------------- ----------- ---------- ---------- ---------- ----------
Residential
Acquisition &
development $ 125,933 $ 120,167 $ 25,257 $ -- $ 271,357
Improved lots 53,641 31,497 11,544 -- 96,682
Unimproved
land 28,353 11,630 26,046 -- 66,029
Commercial &
industrial
Acquisition &
development 5,011 -- 193 -- 5,204
Improved land 18,277 699 3,601 -- 22,577
Unimproved
land 16,290 2,728 5,263 -- 24,281
---------- ---------- ---------- ---------- ----------
Total land &
land
development
loans
outstanding $ 247,505 $ 166,721 $ 71,904 $ -- $ 486,130
========== ========== ========== ========== ==========
ADDITIONAL
INFORMATION ON
DEPOSITS &
OTHER
BORROWINGS
---------------
BREAKDOWN OF Dec 31, Sep 30, Dec 31,
DEPOSITS 2008 2008 2007
------------- ---------- ---------- ----------
Non-interest
-bearing $ 509,105 $ 521,927 $ 484,251
---------- ---------- ----------
Interest
-bearing
checking 378,952 373,496 430,636
Regular
savings
accounts 474,885 519,285 609,073
Money market
accounts 284,041 193,840 248,403
---------- ---------- ----------
Interest
-bearing
transaction
& savings
accounts 1,137,878 1,086,621 1,288,112
---------- ---------- ----------
Three-month
maturity
money market
certificates 118,923 153,300 165,693
Other
certificates 2,012,944 2,029,018 1,682,537
---------- ---------- ----------
Interest
-bearing
certificates 2,131,867 2,182,318 1,848,230
---------- ---------- ----------
Total
deposits $3,778,850 $3,790,866 $3,620,593
========== ========== ==========
INCLUDED IN
OTHER
BORROWINGS
--------------
Customer
repurchase
agreements /
"Sweep
accounts" $ 145,230 $ 103,496 $ 91,724
========== ========== ==========
Washington Oregon Idaho Total
---------- ---------- ---------- ----------
GEOGRAPHIC
CONCENTRATION
OF DEPOSITS
AT
December 31,
2008 $3,004,221 $ 535,998 $ 238,631 $3,778,850
------------- ========== ========== ========== ==========
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Quarters Ended Year
------------------------------ Ended
CHANGE IN THE Dec 31, Sep 30, Dec 31, Dec 31,
ALLOWANCE FOR LOAN LOSSES 2008 2008 2007 2008
------------------------- -------- -------- -------- --------
Balance, beginning
of period $ 58,846 $ 58,570 $ 44,212 $ 45,827
Acquisitions / (divestitures) -- -- 1,319 --
Provision 33,000 8,000 2,000 62,500
Recoveries of loans
previously charged off 715 2,357 127 3,471
Loans charged-off (17,364) (10,081) (1,831) (36,601)
-------- -------- -------- --------
Net (charge-offs)
recoveries (16,649) (7,724) (1,704) (33,130)
-------- -------- -------- --------
Balance, end of period $ 75,197 $ 58,846 $ 45,827 $ 75,197
======== ======== ======== ========
Net charge-offs (recoveries)
/ Average loans outstanding 0.42% 0.19% 0.05% 0.84%
ALLOCATION OF Dec 31, Sep 30, Dec 31,
ALLOWANCE FOR LOAN LOSSES 2008 2008 2007
------------------------- -------- -------- --------
Specific or allocated loss
allowance
Commercial real estate $ 4,255 $ 2,789 $ 3,771
Multifamily real estate 87 103 934
Construction and land 42,045 21,932 7,569
One- to four-family
real estate 753 511 1,987
Commercial business 16,612 23,085 19,026
Agricultural business,
including secured
by farmland 530 1,097 1,419
Consumer 1,742 2,935 3,468
-------- -------- --------
Total allocated 66,024 52,452 38,174
Estimated allowance for
undisbursed commitments 1,129 1,060 330
Unallocated 8,044 5,334 7,323
-------- -------- --------
Total allowance for
loan losses $ 75,197 $ 58,846 $ 45,827
======== ======== ========
Allowance for loan losses /
Total loans outstanding 1.90% 1.47% 1.20%
Minimum for Capital
REGULATORY CAPITAL Adequacy or
RATIOS AT Actual "Well Capitalized"
------------------- ------------------- -------------------
December 31, 2008 Amount Ratio Amount Ratio
----------------- -------- -------- -------- --------
Banner Corporation-
consolidated
Total capital to
risk-weighted assets $532,784 13.07% $326,071 8.00%
Tier 1 capital to
risk-weighted assets 481,697 11.82% 163,036 4.00%
Tier 1 leverage capital to
average assets 481,697 10.32% 186,696 4.00%
Banner Bank
Total capital to
risk-weighted assets 468,472 12.02% 389,695 10.00%
Tier 1 capital to
risk-weighted assets 419,450 10.76% 233,817 6.00%
Tier 1 leverage capital to
average assets 419,450 9.40% 223,058 5.00%
Islanders Bank
Total capital to
risk-weighted assets 24,088 13.27% 18,152 10.00%
Tier 1 capital to
risk-weighted assets 22,703 12.51% 10,891 6.00%
Tier 1 leverage capital to
average assets 22,703 10.74% 10,568 5.00%
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Dec 31, Sep 30, Dec 31,
2008 2008 2007
-------- -------- --------
NON-PERFORMING ASSETS
---------------------
Loans on non-accrual
status
Secured by
real estate:
Commercial $ 12,879 $ 6,368 $ 1,357
Multifamily -- -- 1,222
Construction and
land 154,823 98,108 33,432
One- to four-family 8,649 6,583 3,371
Commercial business 8,617 6,905 2,250
Agricultural
business, including
secured by farmland 1,880 265 436
Consumer 130 427 --
-------- -------- --------
186,978 118,656 42,068
Loans more than 90
days delinquent,
still on accrual
Secured by
real estate:
Commercial -- -- --
Multifamily -- -- --
Construction
and land -- -- --
One- to
four-family 124 635 221
Commercial business -- -- --
Agricultural
business, including
secured by farmland -- -- --
Consumer 243 75 94
-------- -------- --------
367 710 315
-------- -------- --------
Total non-performing
loans 187,345 119,366 42,383
Real estate owned
(REO) / Repossessed
assets 21,886 10,153 1,885
-------- -------- --------
Total non-
performing assets $209,231 $129,519 $ 44,268
======== ======== ========
Total non-performing
assets / Total assets 4.56% 2.79% 0.99%
DETAIL &
GEOGRAPHIC
CONCENTRATION
OF NON-
PERFORMING
ASSETS AT
December 31,
2008 Washington Oregon Idaho Other Total
-------------- ---------- ---------- ---------- ---------- ----------
Secured by real
estate:
Commercial $ 6,208 $ 6,671 $ -- $ -- $ 12,879
Multifamily -- -- -- -- --
Construction
and land
One- to
four-family
construction 26,404 22,440 1,685 -- 50,529
Residential
land
acquisition &
develop-
ment 38,061 33,330 5,984 -- 77,375
Residential
land
improved
lots 10,735 2,832 2,041 -- 15,608
Residential
land
unimproved 785 -- 5,099 -- 5,884
Commercial
land
acquisition &
develop-
ment -- -- -- -- --
Commercial
land
improved 232 -- -- -- 232
Commercial
land
unimproved 4,786 409 -- -- 5,195
---------- ---------- ---------- ---------- ----------
Total
construction
and land 81,003 59,011 14,809 -- 154,823
One- to
four-family 6,008 1,257 1,508 -- 8,773
Commercial
business 7,872 376 305 64 8,617
Agricultural
business,
including
secured by
farmland 774 121 985 -- 1,880
Consumer 373 -- -- -- 373
---------- ---------- ---------- ---------- ----------
Total non-
performing
loans 102,238 67,436 17,607 64 187,345
Real estate
owned (REO)
and
repossessed
assets 14,605 5,203 2,078 -- 21,886
---------- ---------- ---------- ---------- ----------
Total non-
performing
assets at
end of the
period $ 116,843 $ 72,639 $ 19,685 $ 64 $ 209,231
========== ========== ========== ========== ==========
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
Quarters Ended Year Ended
-------------------------------- ---------------------
OPERATING Dec 31, Sep 30, Dec 31, Dec 31, Dec 31,
PERFORMANCE 2008 2008 2007 2008 2007
------------ ---------- ---------- ---------- ---------- ----------
Average loans $3,988,531 $4,001,999 $3,716,512 $3,935,039 $3,437,259
Average
securities
and deposits 391,560 342,153 301,071 345,827 309,860
Average non-
interest-
earning assets 296,927 296,572 356,752 325,235 297,353
---------- ---------- ---------- ---------- ----------
Total
average
assets $4,677,018 $4,640,724 $4,374,335 $4,606,101 $4,044,472
========== ========== ========== ========== ==========
Average
deposits $3,750,383 $3,810,718 $3,628,581 $3,722,012 $3,332,098
Average
borrowings 456,383 415,517 258,431 425,713 287,478
Average non-
interest-
earning lia-
bilities 25,459 25,506 62,415 30,335 58,371
---------- ---------- ---------- ---------- ----------
Total average
liabilities 4,232,225 4,251,741 3,949,427 4,178,060 3,677,947
Total average
stockholders'
equity 444,793 388,983 424,908 428,041 366,525
---------- ---------- ---------- ---------- ----------
`
Total average
liabilities
and equity $4,677,018 $4,640,724 $4,374,335 $4,606,101 $4,044,472
========== ========== ========== ========== ==========
Interest rate
yield on loans 6.04% 6.38% 7.75% 6.53% 8.18%
Interest rate
yield on
securities and
deposits 4.36% 4.45% 4.81% 4.61% 4.57%
---------- ---------- ---------- ---------- ----------
Interest rate
yield on
interest-
earning
assets 5.89% 6.23% 7.53% 6.37% 7.88%
---------- ---------- ---------- ---------- ----------
Interest rate
expense on
deposits 2.74% 2.80% 3.73% 2.96% 3.88%
Interest rate
expense on
borrowings 3.01% 3.41% 5.36% 3.53% 5.66%
---------- ---------- ---------- ---------- ----------
Interest rate
expense on
interest-
bearing
liabilities 2.77% 2.86% 3.84% 3.02% 4.03%
---------- ---------- ---------- ---------- ----------
Interest rate
spread 3.12% 3.37% 3.69% 3.35% 3.85%
========== ========== ========== ========== ==========
Net interest
margin 3.23% 3.45% 3.82% 3.45% 3.99%
========== ========== ========== ========== ==========
Other operating
income / Ave-
rage assets 1.79% 0.17% 1.52% 0.87% 0.95%
Other operating
income (loss)
EXCLUDING
change in
valuation of
financial
instruments
carried at
fair value /
Average assets
(1) 0.62% 0.69% 0.68% 0.67% 0.67%
Other operating
expense /
Average assets 9.11% 2.91% 3.20% 5.65% 3.15%
Other operating
expense EX-
CLUDING good-
will write-
off / Average
assets 3.06% 2.91% 3.20% 3.02% 3.15%
Efficiency
ratio (other
operating
expense /
revenue) 189.15% 85.72% 63.68% 138.72% 67.74%
Return (Loss)
on average
assets (6.68%) (0.08%) 1.09% (2.78%) 0.91%
Return (Loss)
on average
equity (70.24%) (1.01%) 11.22% (29.90%) 10.07%
Return (Loss)
on average
tangible
equity (2) (83.44%) (1.24%) 15.28% (38.51%) 13.27%
Average
equity /
Average assets 9.51% 8.38% 9.71% 9.29% 9.06%
(1) - Earnings information excluding the fair value adjustments and
goodwill impairment charge (alternately referred to as
operating income from recurring operations and expenses from
recurring operations) represent non-GAAP (Generally Accepted
Accounting Principles) financial measures.
(2) - Average tangible equity excludes goodwill, core deposit and
other intangibles.