WALLA WALLA, Wash., April 29, 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 $9.3 million for the quarter ended March 31, 2009, compared to net income of $3.8 million for the quarter ended March 31, 2008. The current quarter's results include a $22.0 million provision for loan losses and a $3.3 million decrease in valuation of financial instruments carried at fair value.
"Deteriorating economic conditions and ongoing strains in the financial and housing markets, which accelerated throughout 2008 and continued in the current quarter, have presented an unusually challenging environment for banks and their holding companies, including Banner Corporation," said D. Michael Jones, President and CEO. "This has been particularly evident in our need to provide for credit losses during the past 15 months at a significantly higher level than our historical experience and has also affected our net interest income and other operating revenues."
"Similar to recent quarters, the significant provision for loan losses during the current quarter reflects material increases in delinquencies, non-performing loans and net charge-offs, particularly for loans for the construction of one-to-four family homes and for acquisition and development of land for residential properties," Jones continued. "While the provision for loan losses decreased compared to the immediately preceding quarter, the housing market remained weak in many of our primary service areas, resulting in the increase in delinquencies and non-performing assets, deterioration in property values and the need to provide for an elevated level of losses. By contrast, other non-housing related segments of the loan portfolio, while showing some signs of stress, have performed as expected with only normal levels of credit problems given the serious economic slowdown."
In the fourth quarter of 2008, Banner issued $124 million of senior preferred stock to the U.S. Treasury as a participant in the Treasury's Capital Purchase Program. In the quarter ended March 31, 2009, Banner paid a $1.6 million dividend on this preferred stock and accrued $373,000 for related discount accretion. Including the preferred stock dividend and related accretion, the net loss available to common shareholders was $11.2 million, or $0.65 per diluted share, compared to net income of $3.8 million, or $0.24 per diluted share, for the quarter ended March 31, 2008.
"A highlight of the quarter was our Great Northwest Home Rush promotion, which we began initially in the Portland market and more recently have expanded to the Puget Sound region, with the goal of bringing Banner Bank, its subsidiary Community Financial Corporation, and Banner's builder partners together to deliver customers excellent prices on new homes and equally attractive home loan rates," said Jones. The excitement surrounding this promotion has been encouraging and through the date of this announcement we have committed to finance the purchase of 147 homes under this program, with 21 of those sales having closed as of March 31, 2009.
Also notable in the current quarter was very strong mortgage banking activity and revenues as exceptionally low interest rates resulted in significant refinancing opportunities for many of our customers.
Credit Quality
"Due to the continuing weakness of the housing market in many of our primary service areas, delinquencies and non-performing assets increased in the first quarter of 2009, again primarily centered in our construction and land development loan portfolios. As a result, our provision for loan losses was at a significantly higher amount than a year ago and in excess of our normal expectations." said Jones. "While property values have continued to decline, our reserve levels are substantial and both our impairment analysis and charge-off actions reflect current appraisals and valuation estimates. We remain confident that we can work our way through the housing market-related problems and recently have been encouraged by the positive response to our Great Northwest Home Rush program."
Banner added $22.0 million to its provision for loan losses in the first quarter of 2009, compared to $33.0 million in the fourth quarter of 2008 and $6.5 million in the first quarter of 2008. The allowance for loan losses at March 31, 2009 was $79.7 million, representing 2.04% of total loans outstanding. Non-performing loans were $224.1 million at March 31, 2009, compared to $187.3 million in the preceding quarter and $54.4 million at March 31, 2008. In addition, Banner's real estate owned and repossessed assets totaled $39.1 million at March 31, 2009 compared to $21.9 million in the previous quarter and $7.6 million at March 31, 2008. Banner's net charge-offs in the current quarter totaled $17.5 million, or 0.44% of average loans.
At March 31, 2009, the geographic distribution of our construction and land development loans, including residential and commercial properties, is approximately 30% in the greater Puget Sound market, 42% in the greater Portland, Oregon market, and 8% in the greater Boise, Idaho market, with the remaining 20% distributed in various eastern Washington, eastern Oregon and northern Idaho markets served by Banner Bank. One-to-four family residential construction and related lot and land loans represent 20% of the total loan portfolio and 80% of non-performing assets. The geographic distribution of non-performing construction, land and land development loans and real estate owned included approximately $96.8 million, or 45%, in the Puget Sound region, $75.1 million, or 35%, in the greater Portland market area and $14.1 million, or 7%, in the greater Boise market area.
Income Statement Review
Banner's net interest margin was 3.26% for the first quarter of 2009, compared to 3.24% in the preceding quarter and 3.63% for the first quarter of 2008. Funding costs decreased 27 basis points compared to the previous quarter and decreased 96 basis points from the first quarter a year earlier, while asset yields decreased 27 basis points from the prior linked quarter and 136 basis points from the first quarter a year ago, all reflecting the much lower interest rate environment engineered by the Federal Reserve.
"Funding costs improved as expected, which helped our net interest margin improve slightly from the previous quarter, despite the higher level of delinquencies," said Jones. Non-accruing loans reduced the margin by approximately 38 basis points in this year's first quarter compared to approximately 34 basis points in the fourth quarter of 2008 and approximately 12 basis points in the first quarter of 2008
For the first quarter of 2009, net interest income before the provision for loan losses was $35.0 million, compared to $35.7 million in the preceding quarter and $37.4 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 $42.9 million in the first quarter of 2009, the same as in the fourth quarter of 2008 and compared to $44.7 million for the first quarter a year ago.
Banner's results for the first quarter of 2009 included a net loss of $3.3 million ($2.1 million after tax), compared to a net gain of $823,000 ($527,000 after tax) in the first quarter of 2008, 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.
Total other operating income, which includes changes in the valuation of financial instruments carried at fair value, for the first quarter was $4.6 million, compared to $21.0 million in the preceding quarter and $8.1 million for the same quarter a year ago. Total other operating income from core operations* (excluding fair value adjustments) for the first quarter was $7.9 million, compared to $7.2 million in the preceding quarter and $7.3 million for the same quarter a year ago. Primarily reflecting a recent slow-down in customer transaction volumes, income from deposit fees and other service charges decreased to $4.9 million in the first quarter of 2009, compared to $5.3 million for the preceding quarter and $5.0 million in the first quarter a year ago. By contrast, income from mortgage banking operations increased substantially in the first quarter to $2.7 million compared to $1.4 million in the preceding quarter and $1.6 million in the same quarter a year ago. "The slowing economy adversely affected our payment processing business again this 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," said Jones. "We are also pleased that our mortgage banking revenues have nearly doubled compared to the year ago quarter due to strong mortgage refinancing activity. Unfortunately, the increased level of refinancing activity also resulted in accelerated termination of mortgage servicing rights as reflected in the impairment of loan servicing revenues in the quarter just ended. Amortization and write-off of mortgage servicing rights totaled $912,000 for the quarter ended March 31, 2009 compared to $193,000 in the preceding quarter and $261,000 in the first quarter a year ago."
"Operating expenses were generally well managed in the first quarter, reflecting continuing efforts to improve our processes and efficiency, although collection and legal costs, including charges related to acquired real estate, remained high," said Jones. "In addition, FDIC insurance expense increased approximately $1.2 million over the first quarter a year ago as a result of increased assessment rates for the current quarter and the depletion of offsetting credits that had held the prior year's charges at a lower level. An additional, non-recurring expense for the current quarter was a $655,000 shared risk assessment from the Washington Public Deposit Protection Commission related to the failure of a Washington state commercial bank during the first quarter of 2009. 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 core operations* (non-interest expenses excluding the goodwill write-off for the quarter ended December 31, 2008) were $33.8 million in the first quarter of 2009, a decline of 6% compared to $36.0 million in the preceding quarter and an increase of less than 1% compared to $33.7 million in the first quarter a year ago. Operating expenses from core operations as a percentage of average assets was 3.02% in the first quarter of 2009, compared to 3.06% in the previous quarter and 3.01% in the first quarter a year ago.
*Earnings information excluding the goodwill impairment charge and fair value adjustments (alternately referred to as total other operating income from core operations, total other operating expenses from core operations, revenues from core operations, or operating expenses from core operations) represent non-GAAP (Generally Accepted Accounting Principles) financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results. Where applicable, the Company has also presented comparable earnings information using GAAP financial measures.
Balance Sheet Review
Total loans increased by $75.6 million, or 2%, to $3.92 billion at March 31, 2009 from $3.84 billion at March 31, 2008. "On a quarterly basis, reflecting the favorable interest rate environment and increased mortgage originations, residential mortgage loans increased by $44.5 million during the first quarter of 2009," stated Jones. "In addition, commercial real estate loan balances increased by $22.6 million. By contrast, reflecting the slow economy, commercial business loans declined by $29.7 million. In addition, agricultural loans experienced an expected seasonal decline of $6.2 million which, combined with continued payoffs of construction loans, resulted in a modest decrease in total loan balances compared to the prior quarter end. Although still slower than historical levels, home sales have been sufficient to reduce the portfolio of one-to-four family construction loans by $206.3 million over the past twelve months, including a $55.3 million reduction in the most recent quarter. As a result, at March 31, 2009 our one-to-four family construction loans totaled $365.4 million and have declined by $289.2 million compared to their peak quarter-end balance of $654.6 million at June 30, 2007. In addition, our aggregate construction and land development loan balances, including commercial and multi-family real estate, have declined by $273.4 million, also compared to their peak quarter-end balances at June 30, 2007." Net loans were $3.84 billion at March 31, 2009, compared to $3.79 billion a year earlier. Total assets were $4.51 billion at March 31, 2009, compared to $4.57 billion a year earlier.
Total deposits were $3.63 billion at March 31, 2009, compared to $3.69 billion a year earlier. Non-interest-bearing accounts increased 5% and certificates of deposit increased 6% during the twelve months ended March 31, 2009, while total transaction and savings accounts decreased 10%. "Deposits were down this quarter primarily because we allowed $131 million in public funds, including $76 million of interest-bearing transaction accounts, to run off since year-end in anticipation of the higher costs of collateralizing these deposits and to reduce the shared risk exposure under the new Washington and Oregon State regulations," said Jones. "We anticipate further declines in public fund deposits over the next two or three quarters as we continue to adjust to these new regulations."
On March 31, 2009, Banner Bank completed an offering of $50 million of qualifying senior bank notes covered by the FDIC's Temporary Liquidity Guarantee Program (the "TLGP") with a three-year maturity and fixed interest rate of 2.625%.
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 is being put to use by enhancing our capacity to support the communities we serve through expanded lending activities and economic development, including funding loans originated in connection with our Great Northwest Home Rush promotion," said Jones.
Tangible stockholders' equity at March 31, 2009 was $411.5 million, including $116.3 million attributable to preferred stock, compared to $292.6 million at March 31, 2008. Tangible common stockholders' equity was $295.2 million at March 31, 2009, or 6.56% of tangible assets, compared to $292.6 million, or 6.60% of tangible assets at March 31, 2008. Tangible book value per common share was $16.96 at quarter-end, compared to $18.68 a year earlier. At March 31, 2009, Banner had 17.4 million shares outstanding, while it had 15.7 million shares outstanding a year ago.
Cash Dividend
On March 25, 2009, Banner's Board of Directors declared a quarterly cash dividend of $0.01 per share, payable to shareholders of record as of the close of business on April 3, 2009. The dividend was paid on April 13, 2009. "Due to the current uncertainty in our markets, the Board believes it is prudent to preserve the Company's capital position by reducing the cash dividend payment, while continuing to maintain our dividend reinvestment and stock purchase plan, which provides additional capital funding," Jones concluded. "We believe that we will resume paying a higher level of cash dividends in the future when the recovery in the regional economy is more evident."
Conference Call
Banner will host a conference call on Thursday, April 30, 2009, at 8:00 a.m. PDT, to discuss first quarter 2009 results. The conference call can be accessed live by telephone at 303-262-2075. 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 11129077# until Thursday, May 7, 2009, or via the Internet at www.bannerbank.com.
About the Company
Banner Corporation is a $4.5 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, 2008.
RESULTS OF OPERATIONS Quarters Ended
--------------------- ----------------------------------------
(in thousands except shares Mar 31, Dec 31, Mar 31,
and per share data) 2009 2008 2008
------------ ------------ ------------
INTEREST INCOME:
Loans receivable $ 56,347 $ 60,674 $ 68,126
Mortgage-backed securities 1,801 1,359 1,153
Securities and cash
equivalents 2,183 2,934 2,727
------------ ------------ ------------
60,331 64,967 72,006
INTEREST EXPENSE:
Deposits 23,092 25,868 30,063
Federal Home Loan Bank
advances 720 1,097 1,849
Other borrowings 227 397 610
Junior subordinated
debentures 1,333 1,954 2,064
------------ ------------ ------------
25,372 29,316 34,586
------------ ------------ ------------
Net interest income before
provision for loan losses 34,959 35,651 37,420
PROVISION FOR LOAN LOSSES 22,000 33,000 6,500
------------ ------------ ------------
Net interest income 12,959 2,651 30,920
OTHER OPERATING INCOME:
Deposit fees and other
service charges 4,936 5,263 5,013
Mortgage banking
operations 2,715 1,351 1,615
Loan servicing fees (270) 407 349
Miscellaneous 520 205 331
------------ ------------ ------------
7,901 7,226 7,308
Increase (Decrease) in
valuation of financial
instruments carried
at fair value (3,253) 13,740 823
------------ ------------ ------------
Total other operating
income 4,648 20,966 8,131
OTHER OPERATING EXPENSE:
Salary and employee
benefits 17,601 18,481 19,638
Less capitalized loan
origination costs (2,116) (1,730) (2,241)
Occupancy and equipment 6,054 6,197 5,868
Information / computer
data services 1,534 1,309 1,989
Payment and card
processing services 1,453 1,781 1,531
Professional services 1,194 1,175 755
Advertising and marketing 1,832 2,009 1,418
Deposit insurance 1,497 2,308 327
State/municipal business
and use taxes 540 545 564
Amortization of core
deposit intangibles 690 676 736
Miscellaneous 3,514 3,218 3,123
------------ ------------ ------------
33,793 35,969 33,708
Goodwill write-off -- 71,121 --
------------ ------------ ------------
Total other operating
expense 33,793 107,090 33,708
------------ ------------ ------------
Income (Loss) before
provision (benefit) for
income taxes (16,186) (83,473) 5,343
PROVISION FOR (BENEFIT FROM)
INCOME TAXES (6,923) (4,942) 1,509
------------ ------------ ------------
NET INCOME (LOSS) $ (9,263) $ (78,531) $ 3,834
============ ============ ============
PREFERRED STOCK DIVIDEND AND
DISCOUNT ACCRETION
Preferred stock dividend 1,550 689 --
Preferred stock discount
accretion 373 161 --
------------ ------------ ------------
NET INCOME (LOSS) AVAILABLE
TO COMMON SHAREHOLDERS $ (11,186) $ (79,381) $ 3,834
============ ============ ===========
Earnings (Loss) per share
available to common
shareholder
Basic $ (0.65) $ (4.72) $ 0.24
Diluted $ (0.65) $ (4.72) $ 0.24
Cumulative dividends
declared per common share $ 0.01 $ 0.05 $ 0.20
Weighted average common
shares outstanding
Basic 17,159,793 16,820,350 15,847,921
Diluted 17,159,793 16,820,350 15,965,032
Common shares repurchased
during the period -- 200 613,903
Common shares issued in
connection with exercise of
stock options or DRIP 493,514 171,770 251,391
FINANCIAL CONDITION
-------------------
(in thousands except shares Mar 31, Dec 31, Mar 31,
and per share data) 2009 2008 2008
------------ ------------ ------------
ASSETS
------
Cash and due from banks $ 72,811 $ 89,964 $ 93,634
Federal funds and interest-
bearing deposits 2,699 12,786 28,760
Securities - at fair value 161,963 203,902 226,910
Securities - available for
sale 66,963 53,272 --
Securities - held to maturity 67,401 59,794 55,647
Federal Home Loan Bank stock 37,371 37,371 37,371
Loans receivable:
Held for sale 11,071 7,413 6,118
Held for portfolio 3,904,476 3,953,995 3,833,875
Allowance for loan losses (79,724) (75,197) (50,446)
------------ ------------ ------------
3,835,823 3,886,211 3,789,547
Accrued interest receivable 20,821 21,219 23,795
Real estate owned held for
sale, net 38,951 21,782 7,572
Property and equipment, net 97,847 97,647 98,808
Goodwill and other
intangibles, net 13,026 13,716 136,918
Bank-owned life insurance 53,163 52,680 51,725
Other assets 41,285 34,024 21,538
------------ ------------ ------------
$ 4,510,124 $ 4,584,368 $ 4,572,225
============ ============ ============
LIABILITIES
-----------
Deposits:
Non-interest-bearing $ 508,593 $ 509,105 $ 486,201
Interest-bearing
transaction and savings
accounts 1,099,837 1,137,878 1,297,215
Interest-bearing
certificates 2,019,074 2,131,867 1,909,894
------------ ------------ ------------
3,627,504 3,778,850 3,693,310
Advances from Federal Home
Loan Bank at fair value 172,102 111,415 155,405
Customer repurchase
agreements and other
borrowings 181,194 145,230 135,032
Junior subordinated
debentures at fair value 53,819 61,776 105,516
Accrued expenses and other
liabilities 37,759 40,600 41,200
Deferred compensation 13,203 13,149 12,224
------------ ------------ ------------
4,085,581 4,151,020 4,142,687
STOCKHOLDERS' EQUITY
--------------------
Preferred stock -Series A 116,288 115,915 --
Common stock 318,628 316,740 292,061
Retained earnings
(accumulated deficit) (9,210) 2,150 139,722
Other components of
stockholders' equity (1,163) (1,457) (2,245)
------------ ------------ ------------
424,543 433,348 429,538
------------ ------------ ------------
$ 4,510,124 $ 4,584,368 $ 4,572,225
============ ============ ============
Common Shares Issued:
Shares outstanding at end of
period 17,645,552 17,152,038 15,903,637
Less unearned ESOP shares
at end of period 240,381 240,381 240,381
------------ ------------ ------------
Shares outstanding at end of
period excluding unearned
ESOP shares 17,405,171 16,911,657 15,663,256
=========== ============ ============
Common stockholders' equity
per share (1) $ 17.71 $ 18.77 $ 27.42
Common stockholders'
tangible equity per share
(1) (2) $ 16.96 $ 17.96 $ 18.68
Tangible common
stockholder's equity to
tangible assets 6.56% 6.64% 6.60%
Consolidated Tier 1 leverage
capital ratio 10.27% 10.32% 9.15%
(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.
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Mar 31, Dec 31, Mar 31,
2009 2008 2008
------------ ------------ ------------
LOANS (including loans held
for sale):
---------------------------
Commercial real estate $ 1,036,285 $ 1,013,709 $ 899,333
Multifamily real estate 149,442 151,274 163,110
Commercial construction 103,643 104,495 75,849
Multifamily construction 46,568 33,661 38,434
One- to four-family
construction 365,421 420,673 571,720
Land and land development 446,128 486,130 502,077
Commercial business 650,123 679,867 735,802
Agricultural business
including secured by
farmland 197,972 204,142 181,403
One- to four-family real
estate 643,705 599,169 456,199
Consumer 276,260 268,288 216,066
------------ ------------ ------------
Total loans outstanding $ 3,915,547 $ 3,961,408 $ 3,839,993
============ ============ ============
Restructured loans
performing under their
restructured terms $ 27,550 $ 23,635 $ 2,026
============ ============ ============
Total loans 30 days past due
and on non-accrual $ 335,780 $ 248,469 $ 85,927
============ ============ ============
Total delinquent loans /
Total loans outstanding 8.58% 6.27% 2.24%
GEOGRAPHIC CONCENTRATION OF
LOANS AT March 31, 2009
---------------------------
Washington Oregon Idaho Other Total
----------- ----------- ----------- ----------- -----------
Commercial
real
estate $ 777,568 $ 163,994 $ 81,911 $ 12,812 $1,036,285
Multi-
family
real
estate 124,786 12,478 8,804 3,374 149,442
Commercial
constru-
ction 59,181 33,431 10,081 950 103,643
Multi-
family
constru-
ction 28,428 18,140 -- -- 46,568
One- to
four-
family
constru-
ction 177,349 171,780 16,292 -- 365,421
Land and
land
develo-
pment 223,752 163,179 59,197 -- 446,128
Commercial
business 483,004 74,744 76,819 15,556 650,123
Agricul-
tural
business
including
secured
by farm-
land 89,053 45,080 63,839 -- 197,972
One- to
four-
family
real
estate 492,774 106,383 39,504 5,044 643,705
Consumer 199,684 57,892 18,183 501 276,260
----------- ----------- ----------- ----------- -----------
Total
loans
outsta-
nding $2,655,579 $ 847,101 $ 374,630 $ 38,237 $3,915,547
=========== =========== =========== =========== ===========
Percent
of total
loans 67.8% 21.6% 9.6% 1.0% 100.0%
DETAIL OF LAND AND LAND
DEVELOPMENT LOANS AT
March 31, 2009
-----------------------
Washington Oregon Idaho Other Total
----------- ----------- ----------- ----------- -----------
Residen-
tial
Acquisi-
tion &
develo-
pment $ 113,083 $ 118,945 $ 23,291 $ -- $ 255,319
Improved
lots 53,563 30,321 5,467 -- 89,351
Unim-
proved
land 25,109 12,010 25,159 -- 62,278
Commercial
& indus-
trial
Acquisi-
tion &
develo-
pment 3,904 -- 194 -- 4,098
Improved
land 17,207 699 402 -- 18,308
Unim-
proved
land 10,886 1,204 4,684 -- 16,774
----------- ----------- ----------- ----------- -----------
Total
land &
land
deve-
lopment
loans
outsta-
nding $ 223,752 $ 163,179 $ 59,197 $ -- $ 446,128
=========== =========== =========== =========== ===========
ADDITIONAL INFORMATION
ON DEPOSITS & OTHER
BORROWINGS
-------------------
BREAKDOWN OF Mar 31, Dec 31, Mar 31,
DEPOSITS 2009 2008 2008
------------------ ----------- ----------- -----------
Non-interest-
bearing $ 508,593 $ 509,105 $ 486,201
----------- ----------- -----------
Interest-bearing
checking 307,741 378,952 452,531
Regular savings
accounts 490,239 474,885 610,085
Money market
accounts 301,857 284,041 234,599
----------- ----------- -----------
Interest-bearing
transaction &
savings accounts 1,099,837 1,137,878 1,297,215
----------- ----------- -----------
Interest-bearing
certificates 2,019,074 2,131,867 1,909,894
----------- ----------- -----------
Total deposits $3,627,504 $3,778,850 $3,693,310
=========== =========== ===========
INCLUDED IN OTHER
BORROWINGS
----------------
Customer repurchase
agreements /
"Sweep accounts" $ 131,224 $ 145,230 $ 85,032
=========== =========== ===========
GEOGRAPHIC
CONCENTRATION OF Washington Oregon Idaho Total
DEPOSITS AT ----------- ----------- ----------- -----------
March 31, 2009 $2,843,305 $ 559,972 $ 224,227 $3,627,504
------------------ =========== =========== =========== ===========
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Quarters Ended
----------------------------------------
CHANGE IN THE Mar 31, Dec 31, Mar 31,
ALLOWANCE FOR LOAN LOSSES 2009 2008 2008
------------------------- ------------ ------------ ------------
Balance, beginning of period $ 75,197 $ 58,846 $ 45,827
Provision 22,000 33,000 6,500
Recoveries of loans
previously charged off 155 715 144
Loans charged-off (17,628) (17,364) (2,025)
------------ ------------ ------------
Net (charge-offs)
recoveries (17,473) (16,649) (1,881)
------------ ------------ ------------
Balance, end of period $ 79,724 $ 75,197 $ 50,446
============ ============ ============
Net charge-offs (recoveries)
/ Average loans outstanding 0.44% 0.42% 0.05%
ALLOCATION OF Mar 31, Dec 31, Mar 31,
ALLOWANCE FOR LOAN LOSSES 2009 2008 2008
------------------------- ------------ ------------ ------------
Specific or allocated loss
allowance
Commercial real estate $ 4,972 $ 4,199 $ 4,180
Multifamily real estate 84 87 587
Construction and land 46,297 38,253 11,117
One- to four-family real
estate 814 752 2,054
Commercial business 18,186 16,533 17,842
Agricultural business,
including secured by
farmland 587 530 1,397
Consumer 1,682 1,730 2,807
------------ ------------ ------------
Total allocated 72,622 62,084 39,984
Estimated allowance for
undisbursed commitments 1,358 1,108 599
Unallocated 5,744 12,005 9,863
------------ ------------ ------------
Total allowance for loan
losses $ 79,724 $ 75,197 $ 50,446
============ ============ ============
Allowance for loan losses /
Total loans outstanding 2.04% 1.90% 1.31%
Minimum for
Capital Adequacy or
REGULATORY CAPITAL RATIOS Actual "Well Capitalized"
AT March 31, 2009 -------------------- --------------------
------------------------- Amount Ratio Amount Ratio
--------- --------- --------- ---------
Banner Corporation-
consolidated
Total capital to risk-
weighted assets $515,432 12.87% $320,271 8.00%
Tier 1 capital to risk-
weighted assets 465,039 11.62% 160,135 4.00%
Tier 1 leverage capital
to average assets 465,039 10.27% 181,200 4.00%
Banner Bank
Total capital to risk-
weighted assets 464,079 12.09% 383,774 10.00%
Tier 1 capital to risk-
weighted assets 415,730 10.83% 230,265 6.00%
Tier 1 leverage capital
to average assets 415,730 9.56% 217,341 5.00%
Islanders Bank
Total capital to risk-
weighted assets 24,860 13.56% 18,329 10.00%
Tier 1 capital to risk-
weighted assets 23,631 12.89% 10,997 6.00%
Tier 1 leverage capital
to average assets 23,631 11.73% 10,072 5.00%
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Mar 31, Dec 31, Mar 31,
2009 2008 2008
------------ ------------ ------------
NON-PERFORMING ASSETS
---------------------
Loans on non-accrual status
Secured by real estate:
Commercial $ 15,180 $ 12,879 $ 3,273
Multifamily 968 -- --
Construction and land 175,794 154,823 44,192
One- to four-family 21,900 8,649 2,869
Commercial business 7,500 8,617 3,114
Agricultural business,
including secured by
farmland 2,176 1,880 386
Consumer 275 130 40
------------ ------------ ------------
223,793 186,978 53,874
Loans more than 90 days
delinquent, still on
accrual Secured by real
estate:
Commercial -- -- --
Multifamily -- -- --
Construction and land -- -- --
One- to four-family 161 124 488
Commercial business -- -- --
Agricultural business,
including secured by
farmland -- -- --
Consumer 143 243 73
------------ ------------ ------------
304 367 561
------------ ------------ ------------
Total non-performing loans 224,097 187,345 54,435
Securities on non - accrua
at fair value 160 -- --
Real estate owned (REO) /
Repossessed assets 39,109 21,886 7,579
------------ ------------ ------------
Total non-performing
assets $ 263,366 $ 209,231 $ 62,014
============ ============ ============
Total non-performing assets
/ Total assets 5.84% 4.56% 1.36%
DETAIL & GEOGRAPHIC
CONCENTRATION OF
NON-PERFORMING
ASSETS AT
March 31, 2009 Washington Oregon Idaho Other Total
-------------- ---------- ---------- ---------- ---------- ----------
Secured by real
estate:
Commercial $ 7,774 $ 7,406 $ -- $ -- $ 15,180
Multifamily 968 -- -- -- 968
Construction
and land
One- to
four-
family
construc-
tion 34,927 25,885 6,376 -- 67,188
Residential
land acqui-
sition &
develop-
ment 30,555 36,678 6,533 -- 73,766
Residential
land
improved
lots 11,133 3,058 2,006 -- 16,197
Residential
land
unimproved 8,415 200 5,543 -- 14,158
Commercial
land acqui-
sition &
develop-
ment -- -- -- -- --
Commercial
land
improved -- -- -- -- --
Commercial
land
unimproved 4,076 409 -- -- 4,485
---------- ---------- ---------- ---------- ----------
Total
constru-
ction
and land 89,106 66,230 20,458 -- 175,794
One- to four-
family 9,442 2,820 8,667 1,132 22,061
Commercial
business 6,115 1,118 267 -- 7,500
Agricultural
business,
including
secured by
farmland 774 417 985 -- 2,176
Consumer 418 -- -- -- 418
---------- ---------- ---------- ---------- ----------
Total non-
performing
loans 114,597 77,991 30,377 1,132 224,097
Securities on
non - accrual -- -- -- 160 160
Real estate
owned (REO)
and repos-
sessed assets 23,390 12,650 3,069 -- 39,109
---------- ---------- ---------- ---------- ----------
Total
non-per-
forming
assets
at end
of the
period $ 137,987 $ 90,641 $ 33,446 $ 1,292 $ 263,366
========== ========== ========== ========== ==========
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
Quarters Ended
----------------------------------------
OPERATING PERFORMANCE Mar 31, Dec 31, Mar 31,
--------------------- 2009 2008 2008
------------ ------------ ------------
Average loans $ 3,942,917 $ 3,988,531 $ 3,830,992
Average securities and
deposits 403,514 391,560 312,596
Average non-interest-earning
assets 193,188 296,927 359,474
------------ ------------ ------------
Total average assets $ 4,539,619 $ 4,677,018 $ 4,503,062
============ ============ ============
Average deposits $ 3,693,345 $ 3,750,383 $ 3,606,121
Average borrowings 416,927 456,383 411,560
Average non-interest-bearing
liabilities (7,922) 25,459 42,997
------------ ------------ ------------
Total average liabilities 4,102,350 4,232,225 4,060,678
Total average stockholders'
equity 437,269 444,793 442,384
------------ ------------ ------------
Total average liabilities
and equity $ 4,539,619 $ 4,677,018 $ 4,503,062
============ ============ ============
Interest rate yield on loans 5.80% 6.05% 7.15%
Interest rate yield on
securities and deposits 4.00% 4.36% 4.99%
------------ ------------ ------------
Interest rate yield on
interest-earning assets 5.63% 5.90% 6.99%
------------ ------------ ------------
Interest rate expense on
deposits 2.54% 2.74% 3.35%
Interest rate expense on
borrowings 2.22% 3.01% 4.42%
------------ ------------ ------------
Interest rate expense on
interest-bearing
liabilities 2.50% 2.77% 3.46%
------------ ------------ ------------
Interest rate spread 3.13% 3.13% 3.53%
============ ============ ============
Net interest margin 3.26% 3.24% 3.63%
============ ============ ============
Other operating income /
Average assets 0.42% 1.78% 0.73%
Other operating income (loss)
EXCLUDING change in
valuation of financial
instruments carried at fair
value / Average assets (1) 0.71% 0.61% 0.65%
Other operating expense /
Average assets 3.02% 9.11% 3.01%
Other operating expense
EXCLUDING goodwill write-
off / Average assets (1) 3.02% 3.06% 3.01%
Efficiency ratio (other
operating expense / revenue) 85.32% 189.15% 74.00%
Return (Loss) on average
assets (0.83%) (6.68%) 0.34%
Return (Loss) on average
equity (8.59%) (70.24%) 3.49%
Return (Loss) on average
tangible equity (2) (8.86%) (86.69%) 5.05%
Average equity / Average
assets 9.63% 9.51% 9.82%
(1) - Earnings information excluding the fair value adjustments
and goodwill impairment charge (alternately referred to as
operating income (loss) 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.