BANR Banner Corporation

Banner Corporation (NASDAQ:BANR), the parent company of Banner Bank and Islanders Bank, today reported net income of $5.1 million in the fourth quarter of 2011, compared to net income of $6.0 million in the immediately preceding quarter and a net loss of $12.7 million in the fourth quarter a year ago. For the full year ended December 31, 2011, Banner reported net income of $5.5 million compared to a net loss of $61.9 million in 2010.

“Banner’s 2011 performance provided consistent evidence that we are successfully executing on our strategies and priorities to strengthen our franchise and deliver sustainable profitability to Banner,” said Mark J. Grescovich, President and Chief Executive Officer. “Our return to profitability for the last three quarters, and now for the year, reflects significant progress on the key objectives of those strategies: reducing the adverse effect of non-performing assets, increasing client relationships and reducing our cost of funds. This progress and our 2011 operating results clearly demonstrate that our strategic turnaround plan is effective and is building shareholder value.

“Banner’s credit quality metrics further improved during the fourth quarter, with non-performing loans, real estate owned and total non-performing asset levels all decreasing at year end, leading to reduced credit costs for the current quarter and for the full year. Also notable during the quarter was an increase in net loans and continued growth in non-interest-bearing deposits, as we experienced further success in acquiring new client relationships and account balances.”

In the fourth quarter of 2011, Banner paid a $1.6 million dividend on the $124 million of senior preferred stock it issued to the U.S. Treasury under the Capital Purchase Program. In addition, Banner accrued $425,000 for related discount accretion. Including the preferred stock dividend and related accretion, net income available to common shareholders was $0.18 per share for the fourth quarter of 2011, compared to net income available to common shareholders of $0.24 per share in the third quarter of 2011 and a net loss to common shareholders of $0.91 per share for the fourth quarter a year ago. For the year ended December 31, 2011, the net loss to common shareholders, including the preferred stock dividend and related accretion, was $0.15 per share, compared to a net loss of $7.21 per share for the year ended December 31, 2010.

Credit Quality

“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. “Charge-offs and delinquencies as well as real estate owned expenses and valuation adjustments continued to be concentrated in loans for the construction of single-family homes and residential land development projects. However, our exposure to one- to four-family residential construction and land development loans has continued to decline and at the end of December 31, 2011 had been reduced to 7.3% of our loan portfolio. Importantly, strong sales activity reduced our portfolio of real estate owned through foreclosure by $23.5 million during the fourth quarter, resulting in a net decrease of $57.9 million during 2011. We are encouraged by the recent pace of problem asset resolution as well as the significant reduction in non-performing assets over the last year and remain diligent in our efforts to further improve our risk profile.”

Banner recorded a $5.0 million provision for loan losses in the fourth quarter of 2011, equal to the provision in the preceding quarter and reduced substantially from $20.0 million in the fourth quarter a year ago. The allowance for loan losses at December 31, 2011 totaled $82.9 million, representing 2.52% of total loans outstanding and 110% of non-performing loans. Non-performing loans decreased to $75.3 million at December 31, 2011, compared to $151.5 million at December 31, 2010 and $83.1 million at September 30, 2011.

Banner’s real estate owned and repossessed assets decreased to $43.0 million at December 31, 2011, compared to $100.9 million a year earlier and $66.5 million three months earlier. Net charge-offs in the fourth quarter of 2011 totaled $8.2 million, or 0.25% of average loans outstanding, compared to $10.9 million, or 0.33% of average loans outstanding for the third quarter of 2011 and $19.0 million, or 0.55% of average loans outstanding, for the fourth quarter a year ago. For all of 2011, net charge-offs were $49.5 million, compared to $67.9 million in 2010.

Non-performing assets decreased to $118.9 million at December 31, 2011, compared to $151.6 million at September 30, 2011 and $254.3 million at December 31, 2010. At December 31, 2011, Banner’s non-performing assets were 2.79% of total assets, compared to 3.53% at the end of the September 2011 and 5.77% a year ago.

One- to four-family residential construction, land and land development loans were $241.7 million, or 7.3% of the total loan portfolio at December 31, 2011, compared to $321.1 million, or 9.4% of the total loan portfolio a year earlier. The geographic distribution of these residential construction, land and land development loans was approximately $80.0 million, or 33%, in the greater Puget Sound market, $109.9 million, or 45%, in the greater Portland, Oregon market and $4.9 million, or 2%, in the greater Boise, Idaho market as of December 31, 2011. The remaining $46.9 million, or 20%, was distributed in the various eastern Washington, eastern Oregon and northern Idaho markets served by Banner Bank.

Income Statement Review

“The realignment of our delivery platforms and execution by our sales teams, as well as further maturing of our expanded branch system along with a targeted marketing campaign, have allowed Banner Bank to add client relationships and increase core deposits. That core deposit growth has enabled us to significantly reduce our cost of funds during the year through changes in our deposit mix and pricing strategies and has supported increased deposit fees despite the adverse impact of regulatory changes on overdraft revenues. The 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 26 basis points compared to the fourth quarter a year ago, despite continued downward pressure on asset yields,” said Grescovich. Banner’s net interest margin was 4.07% in the fourth quarter of 2011, compared to 4.10% in the preceding quarter and 3.81% in the fourth quarter a year ago. For the year 2011, Banner’s net interest margin was 4.05%, a 38 basis point improvement compared to 3.67% for 2010.

Deposit costs decreased by 11 basis points compared to the preceding quarter and 44 basis points compared to the fourth quarter a year earlier. Funding costs for the fourth quarter of 2011 decreased 10 basis points compared to the previous quarter and 41 basis points from the fourth quarter a year ago. Asset yields decreased 13 basis points compared to the prior quarter and decreased 14 basis points from the fourth quarter a year ago. Loan yields remained unchanged from the preceding quarter and decreased 14 basis points from the fourth quarter a year ago. Nonaccruing loans reduced the margin by approximately 14 basis points in the fourth quarter of 2011 compared to approximately 21 basis points in the preceding quarter and approximately 33 basis points in the fourth quarter of 2010.

“The continued growth in core deposits and reduced drag from non-performing assets over the past year have led to a solid increase in our revenues from core operations compared to a year earlier,” said Grescovich. Net interest income, before the provision for loan losses, was $41.6 million in the fourth quarter of 2011, compared to $41.7 million in the preceding quarter and $40.8 million in the fourth quarter a year ago. For the year 2011, net interest income, before the provision for loan losses, increased 4% to $164.6 million, compared to $157.8 million for 2010. 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) was $50.5 million in the fourth quarter of 2011, compared to $50.1 million in the third quarter of 2011 and $49.0 million in the fourth quarter a year ago. For the year, revenues from core operations increased 4% to $196.2 million, compared to $189.4 million a year earlier.

Banner’s fourth quarter 2011 results included a net loss of $1.8 million for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value. In the immediately preceding quarter, Banner’s results included a net recovery of $3.0 million of principal and $881,000 of interest as a result of the full cash repayment of a security that had been written off a year earlier as an OTTI charge. That recovery was partially offset by a net loss of $1.0 million for fair value adjustments in the third quarter. In the fourth quarter of 2010, Banner recorded a net loss of $706,000 for fair value adjustments.

Total other operating income, which includes the above-mentioned changes in the valuation of financial instruments and OTTI adjustments, was $7.2 million in the fourth quarter of 2011 compared to $10.3 million in the preceding quarter and $7.6 million in the fourth quarter a year ago. For the year 2011, total other operating income was $34.0 million, compared to $29.1 million for 2010. In addition to net fair value adjustments, the third quarter of 2011 and the full year 2011 included a $3.0 million recovery of a prior-period OTTI charge, while the third quarter of 2010 and the full year 2010 included net OTTI charges of $3.0 million and $4.2 million, respectively. Other operating income from core operations* (total other operating income, excluding fair value and OTTI adjustments) for the current quarter was $8.9 million, compared to $8.4 million for the preceding quarter and $8.3 million for the fourth quarter a year ago. For the year 2011, other operating income from core operations* was $31.6 million, the same as in 2010, as lower revenues from mortgage banking operations were offset by increased deposit fees and other income items.

Deposit fees and other service charges were $5.9 million in the fourth quarter of 2011 compared to $6.1 million in the preceding quarter and $5.5 million in the fourth quarter a year ago. Income from mortgage banking operations increased to $1.9 million in the fourth quarter of 2011, compared to $1.4 million in the immediately preceding quarter, but was lower than the $2.1 million recorded in the fourth quarter of 2010. For the year 2011, deposit fees were $23.0 million and mortgage banking revenues were $5.2 million compared to $22.0 million and $6.4 million, respectively, for the year 2010.

“Operating expenses declined for both the fourth quarter and the full year compared to the respective periods a year ago, largely due to lower costs associated with the real estate owned portfolio, particularly valuation adjustments,” said Grescovich. “While we expect collection expenses and costs associated with real estate owned to remain elevated in the near term, these credit costs should continue to decline as further problem asset resolution occurs.”

Total other operating expenses, or non-interest expenses, were $38.7 million in the fourth quarter of 2011, compared to $41.0 million in both the preceding quarter and in the fourth quarter of 2010. For the year 2011, total other operating expenses decreased 2% to $158.1 million compared to $160.8 million for 2010, largely as a result of decreased costs related to real estate owned and FDIC deposit insurance which were partially offset by increased compensation-related expenses.

* 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 (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

“We increased net loan balances by $74.3 million during the quarter, primarily in the commercial real estate and commercial business portfolios, as our production levels for targeted loans remained encouraging. Further, the calling efforts and responsiveness of our local bankers are resulting in a consistent pipeline of lending opportunities. While we expect a continued challenging economic environment, we believe that these well focused marketing efforts will allow us to capitalize on additional lending opportunities going forward,” said Grescovich.

Net loans increased $74.3 million during the quarter to $3.21 billion at December 31, 2011, compared to $3.14 billion at September 30, 2011. Net loans were $3.31 billion a year ago. Commercial and agricultural business loans increased to $819.6 million at December 31, 2011 compared to $792.4 million at September 30, 2011, and $790.4 million a year ago. Commercial and multi-family real estate loans were $1.23 billion at December 31, 2011, reflecting a modest increase from $1.20 billion at both September 30, 2011 and a year earlier.

The combined total of securities at fair value, available for sale and held to maturity, increased to $622.0 million at December 31, 2011 compared to $548.4 million at September 30, 2011 and $367.7 million at December 31, 2010. However, the aggregate total of securities and interest-bearing deposits decreased to $691.7 million at December 31, 2011 compared to $783.2 million at September 30, 2011 and was nearly unchanged compared to $689.6 million at December 31, 2010. The increase in the securities holdings reflects a modest extension of the expected duration of this aggregate total 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.

Total assets were $4.26 billion at December 31, 2011, compared to $4.29 billion at the end of the preceding quarter and $4.41 billion a year ago. Deposits totaled $3.48 billion at December 31, 2011, compared to $3.54 billion at September 30, 2011 and $3.59 billion a year ago. Non-interest-bearing accounts increased 29% to $777.6 million at December 31, 2011, compared to $600.5 million a year ago. At September 30, 2011, non-interest-bearing accounts totaled $763.0 million. Interest-bearing transaction and savings accounts were $1.45 billion at December 31, 2011, compared to $1.46 billion at September 30, 2011 and $1.43 billion at December 31, 2010.

“The improvement in our deposit mix helped lower our funding costs by reducing our reliance on higher cost certificates of deposit, increasing new client relationships and improving our core funding position. To that point, our non-interest-bearing deposits increased 29% from a year ago and 100% of this organic growth was from our existing branch network,” said Grescovich

At December 31, 2011, total stockholders’ equity was $532.5 million, including $120.7 million attributable to preferred stock, and common stockholders’ equity was $411.7 million, or $23.50 per share. During 2010, Banner completed a common stock offering, issuing a total of 85,639,000 shares in the offering, resulting in net proceeds of approximately $161.6 million. 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 17.6 million shares outstanding at December 31, 2011, compared to 16.2 million shares outstanding a year ago. Tangible common stockholders’ equity, which excludes preferred stock and other intangibles, was $405.4 million at December 31, 2011, or 9.54% of tangible assets, compared to $394.3 million, or 9.20% of tangible assets at September 30, 2011 and $383.9 million, or 8.73% of tangible assets a year ago. Tangible book value per common share was $23.14 at December 31, 2011.

Augmented by the stock offering and continued sales of common stock under its Dividend Reinvestment and Direct Stock Purchase and Sale Plan (DRIP), 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 used a significant portion of the net proceeds from last year’s offering to strengthen Banner Bank’s regulatory capital ratios while retaining the balance for general working capital purposes, including additional capital investments in its subsidiary banks if appropriate. Through December 31, 2011, Banner Corporation had invested $110.0 million of the net proceeds as additional paid-in common equity in Banner Bank, although no additional equity investment was made during the current year. Banner Corporation’s Tier 1 leverage capital to average assets ratio was 13.44% and its total capital to risk-weighted assets ratio was 18.07% at December 31, 2011. Banner Bank’s Tier 1 leverage ratio was 11.71 % at December 31, 2011, which is in excess of the 10% minimum level targeted in its Memorandum of Understanding with the Federal Deposit Insurance Corporation (FDIC) and the Washington State Department of Financial Institutions (Washington DFI).

Conference Call

Banner will host a conference call on Thursday, January 26, 2012, at 8:00 a.m. PST, to discuss its fourth quarter and year end results. The conference call can be accessed live by telephone at (480) 629-9770 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 4503316.

About the Company

Banner Corporation is a $4.26 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 DFI 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; our compliance with regulatory enforcement actions; the requirements and restrictions that have been imposed upon Banner Corporation and Banner Bank under the memoranda of understanding with the Federal Reserve Bank of San Francisco (in the case of Banner Corporation) and the FDIC and the Washington DFI (in the case of Banner Bank) and the possibility that Banner Corporation and Banner Bank will be unable to fully comply with the memoranda of understanding, which could result in the imposition of additional requirements or restrictions; 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; future legislative changes in the United States Department of Treasury Troubled Asset Relief Program Capital Purchase Program; 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, 2010. 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

Twelve Months Ended

(in thousands except shares and per share data) Dec 31, 2011 Sep 30, 2011 Dec 31, 2010 Dec 31, 2011 Dec 31, 2010     INTEREST INCOME: Loans receivable $ 45,115 $ 45,641 $ 49,390 $ 184,357 $ 205,784 Mortgage-backed securities 922 799 902 3,455 4,045 Securities and cash equivalents 2,414   3,121   1,936   9,751   8,253   48,451 49,561 52,228 197,563 218,082   INTEREST EXPENSE: Deposits 5,169 6,169 9,521 26,164 52,320 Federal Home Loan Bank advances 64 64 314 370 1,318 Other borrowings 559 559 584 2,265 2,448 Junior subordinated debentures 1,073   1,041   1,052   4,193   4,226   6,865   7,833   11,471   32,992   60,312   Net interest income before provision for loan losses 41,586 41,728 40,757 164,571 157,770   PROVISION FOR LOAN LOSSES 5,000   5,000   20,000   35,000   70,000   Net interest income 36,586 36,728 20,757 129,571 87,770   OTHER OPERATING INCOME: Deposit fees and other service charges 5,894 6,096 5,515 22,962 22,009 Mortgage banking operations 1,936 1,401 2,086 5,154 6,370 Loan servicing fees 136 289 177 1,078 951 Miscellaneous 972   586   514   2,420   2,302   8,938 8,372 8,292 31,614 31,632 Other-than-temporary impairment recovery (loss) - - 3,000 - - 3,000 (4,231 ) Net change in valuation of financial instruments carried at fair value (1,787 ) (1,032 ) (706 ) (624 ) 1,747   Total other operating income 7,151 10,340 7,586 33,990 29,148   OTHER OPERATING EXPENSE: Salary and employee benefits 18,730 18,226 17,045 72,499 67,490 Less capitalized loan origination costs (2,404 ) (1,929 ) (2,123 ) (8,001 ) (7,199 ) Occupancy and equipment 5,379 5,352 5,501 21,561 22,232 Information / computer data services 1,388 1,547 1,531 6,023 6,132 Payment and card processing services 2,156 2,132 1,942 7,874 7,067 Professional services 1,210 1,950 1,740 6,017 6,401 Advertising and marketing 2,036 1,602 1,740 7,281 7,457 Deposit insurance 1,367 1,299 1,999 6,024 8,622 State/municipal business and use taxes 562 553 616 2,153 2,259 Real estate operations 4,365 6,698 7,044 22,262 26,025 Amortization of core deposit intangibles 555 554 600 2,276 2,459 Miscellaneous 3,323   3,054   3,399   12,135   11,856   Total other operating expense 38,667   41,038   41,034   158,104   160,801   Income (loss) before provision for (benefit from) income taxes 5,070 6,030 (12,691 ) 5,457 (43,883 )   PROVISION FOR (BENEFIT FROM ) INCOME TAXES - -   - -   - -   - -   18,013     NET INCOME (LOSS) 5,070   6,030   (12,691 ) 5,457   (61,896 )   PREFERRED STOCK DIVIDEND AND DISCOUNT ACCRETION: Preferred stock dividend 1,550 1,550 1,550 6,200 6,200 Preferred stock discount accretion 425   425   398   1,701   1,593     NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 3,095   $ 4,055   $ (14,639 ) $ (2,444 ) $ (69,689 )   Earnings (loss) per share available to common shareholder Basic $ 0.18 $ 0.24 $ (0.91 ) $ (0.15 ) $ (7.21 ) Diluted $ 0.18 $ 0.24 $ (0.91 ) $ (0.15 ) $ (7.21 )   Cumulative dividends declared per common share $ 0.01 $ 0.01 $ 0.07 $ 0.10 $ 0.28   Weighted average common shares outstanding Basic 17,269,269 16,808,589 16,008,467 16,724,113 9,664,906 Diluted 17,298,004 16,837,324 16,008,467 16,752,848 9,664,906   Common shares issued in connection with exercise of stock options or DRIP 522,223 346,489 241,653 1,375,185 836,989      

 

       

FINANCIAL CONDITION

(in thousands except shares and per share data) Dec 31, 2011 Sep 30, 2011 Dec 31, 2010  

ASSETS

Cash and due from banks $ 62,678 $ 53,503 $ 39,756 Federal funds and interest-bearing deposits 69,758 234,824 321,896 Securities - at fair value 80,727 85,419 95,379 Securities - available for sale 465,795 383,670 200,227 Securities - held to maturity 75,438 79,289 72,087 Federal Home Loan Bank stock 37,371 37,371 37,371 Loans receivable: Held for sale 3,007 2,003 3,492 Held for portfolio 3,293,331 3,223,243 3,399,625 Allowance for loan losses (82,912 ) (86,128 ) (97,401 ) 3,213,426 3,139,118 3,305,716 Accrued interest receivable 15,570 16,101 15,927 Real estate owned held for sale, net 42,965 66,459 100,872 Property and equipment, net 91,435 92,454 96,502 Other intangibles, net 6,331 6,887 8,609 Bank-owned life insurance 58,563 58,058 56,653 Other assets 37,255   38,611   55,087   $ 4,257,312   $ 4,291,764   $ 4,406,082  

LIABILITIES

Deposits: Non-interest-bearing $ 777,563 $ 763,008 $ 600,457 Interest-bearing transaction and savings accounts 1,447,594 1,461,383 1,433,248 Interest-bearing certificates 1,250,497   1,313,043   1,557,493   3,475,654 3,537,434 3,591,198   Advances from Federal Home Loan Bank at fair value 10,533 10,572 43,523 Customer repurchase agreements and other borrowings 152,128 139,704 175,813 Junior subordinated debentures at fair value 49,988 48,770 48,425   Accrued expenses and other liabilities

23,253

19,593 21,048 Deferred compensation

13,306

  14,200   14,603   3,724,862 3,770,273 3,894,610

STOCKHOLDERS' EQUITY

Preferred stock - Series A 120,702 120,276 119,000 Common stock 531,149 523,284 509,457 Retained earnings (accumulated deficit) (119,465 ) (122,384 ) (115,348 ) Other components of stockholders' equity 64   315   (1,637 ) 532,450   521,491   511,472   $ 4,257,312   $ 4,291,764   $ 4,406,082   Common Shares Issued: Shares outstanding at end of period 17,553,472 17,031,249 16,164,781 Less unearned ESOP shares at end of period 34,340   34,340   34,340   Shares outstanding at end of period excluding unearned ESOP shares 17,519,132   16,996,909   16,130,441   Common stockholders' equity per share (1) $ 23.50 $ 23.61 $ 24.33 Common stockholders' tangible equity per share (1) (2) $ 23.14 $ 23.20 $ 23.80   Common stockholders' tangible equity to tangible assets (2) 9.54 % 9.20 % 8.73 % Consolidated Tier 1 leverage capital ratio 13.44 % 13.19 % 12.24 %  

(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 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)     Dec 31, 2011 Sep 30, 2011 Dec 31, 2010

LOANS (including loans held for sale):

Commercial real estate Owner occupied $ 469,806 $ 474,863 $ 515,093

 

Investment properties 621,622 586,652 550,610 Multifamily real estate 139,710 134,146 134,634 Commercial construction 42,391 38,124 62,707 Multifamily construction 19,436 16,335 27,394 One- to four-family construction 144,177 145,776 153,383 Land and land development Residential 97,491 96,875 167,764 Commercial 15,197 19,173 32,386 Commercial business 601,440 580,876 585,457 Agricultural business including secured by farmland 218,171 211,571 204,968 One- to four-family real estate 642,501 639,909 682,924 Consumer 103,347 98,794 99,761 Consumer secured by one- to four-family real estate 181,049   182,152   186,036     Total loans outstanding $ 3,296,338   $ 3,225,246   $ 3,403,117  

 

  Restructured loans performing under their restructured terms $ 54,533   $ 51,990   $ 60,115  

 

  Loans 30 - 89 days past due and on accrual $ 9,962   $ 7,895   $ 28,847  

 

  Total delinquent loans (including loans on non-accrual) $ 85,274   $ 91,044   $ 180,336  

 

  Total delinquent loans / Total loans outstanding 2.59 % 2.82 % 5.30 %    

GEOGRAPHIC CONCENTRATION OF LOANS AT

 

December 31, 2011

 

Washington Oregon Idaho Other Total   Commercial real estate Owner occupied $ 352,965 $ 62,354 $ 51,321 $ 3,166 $ 469,806 Investment properties 478,798 94,855 42,736 5,233 621,622 Multifamily real estate 121,699 9,344 8,260 407 139,710 Commercial construction 24,386 2,255 15,750 - - 42,391 Multifamily construction 19,436 - - - - - - 19,436 One- to four-family construction 79,294 63,058 1,825 - - 144,177 Land and land development Residential 49,611 43,382 4,498 - - 97,491 Commercial 12,874 890 1,433 - - 15,197 Commercial business 392,390 81,984 66,156 60,910 601,440 Agricultural business including secured by farmland 106,212 49,721 62,210 28 218,171 One- to four-family real estate 399,566 213,782 26,901 2,252 642,501 Consumer 72,349 25,871 5,127 - - 103,347 Consumer secured by one- to four-family real estate 126,507   42,412   11,631   499   181,049     Total loans outstanding $ 2,236,087   $ 689,908   $ 297,848   $ 72,495   $ 3,296,338     Percent of total loans 67.8 % 20.9 % 9.0 % 2.3 % 100.0 %     DETAIL OF LAND AND LAND DEVELOPMENT LOANS AT   December 31, 2011 Washington Oregon Idaho Other Total   Residential Acquisition & development $ 13,200 $ 17,343 $ 3,607 $ - - $ 34,150 Improved lots 22,651 23,055 408 - - 46,114 Unimproved land 13,760   2,984   483   - -   17,227     Total residential land and development $ 49,611   $ 43,382   $ 4,498   $ - -   $ 97,491   Commercial & industrial Acquisition & development $ 2,557 $ - - $ 481 $ - - $ 3,038 Improved land 5,892 - - 191 - - 6,083 Unimproved land 4,425   890   761   - -   6,076     Total commercial land and development $ 12,874   $ 890   $ 1,433   $ - -   $ 15,197        

 

          ADDITIONAL FINANCIAL INFORMATION (dollars in thousands)     Quarters Ended

Twelve Months Ended

CHANGE IN THE Dec 31, 2011 Sep 30, 2011 Dec 31, 2010 Dec 31, 2011 Dec 31, 2010

ALLOWANCE FOR LOAN LOSSES

  Balance, beginning of period $ 86,128 $ 92,000 $ 96,435 $ 97,401 $ 95,269   Provision 5,000 5,000 20,000 35,000 70,000   Recoveries of loans previously charged off: Commercial real estate 37 1 - - 53 - - Multifamily real estate - - - - - - - - - - Construction and land 762 89 112 1,602 897 One- to four-family real estate 241 34 11 356 136 Commercial business 511 414 776 1,082 2,865 Agricultural business, including secured by farmland 5 10 36 20 45 Consumer 73   69   79   304   284   1,629 617 1,014 3,417 4,227 Loans charged off: Commercial real estate (1,575 ) (1,644 ) (1,575 ) (6,079 ) (1,668 ) Multifamily real estate (11 ) - - - - (682 ) - - Construction and land (3,269 ) (6,445 ) (11,811 ) (26,328 ) (43,592 ) One- to four-family real estate (3,324 ) (2,483 ) (2,483 ) (9,910 ) (7,860 ) Commercial business (1,172 ) (863 ) (3,211 ) (8,396 ) (15,244 ) Agricultural business, including secured by farmland (188 ) - - (460 ) (477 ) (1,940 ) Consumer (306 ) (54 ) (508 ) (1,034 ) (1,791 ) (9,845 ) (11,489 ) (20,048 ) (52,906 ) (72,095 ) Net charge-offs (8,216 ) (10,872 ) (19,034 ) (49,489 ) (67,868 )   Balance, end of period $ 82,912   $ 86,128   $ 97,401   $ 82,912   $ 97,401     Net charge-offs / Average loans outstanding 0.25 % 0.33 % 0.55 % 1.50 % 1.88 %     ALLOCATION OF

ALLOWANCE FOR LOAN LOSSES

Dec 31, 2011 Sep 30, 2011 Dec 31, 2010 Specific or allocated loss allowance Commercial real estate $ 16,457 $ 14,217 $ 11,779

 

Multifamily real estate 3,952 2,958 3,963 Construction and land 18,184 22,683 33,121 Commercial business 15,159 16,894 24,545 Agricultural business, including secured by farmland 1,548 1,257 1,846 One- to four-family real estate 12,299 11,249 5,829 Consumer 1,253   1,277   1,794     Total allocated 68,852 70,535 82,877   Estimated allowance for undisbursed commitments 678 508 1,426 Unallocated 13,382   15,085   13,098     Total allowance for loan losses $ 82,912   $ 86,128   $ 97,401  

 

  Allowance for loan losses / Total loans outstanding 2.52 % 2.67 % 2.86 %   Allowance for loan losses / Non-performing loans 110 % 104 % 64 %      

 

          ADDITIONAL FINANCIAL INFORMATION (dollars in thousands)       Dec 31, 2011 Sep 30, 2011 Dec 31, 2010  

NON-PERFORMING ASSETS

  Loans on non-accrual status Secured by real estate: Commercial $ 9,226 $ 8,908 $ 24,727

 

Multifamily 362 - - 1,889 Construction and land 27,731 35,841 75,734 One- to four-family 17,408 15,274 16,869 Commercial business 13,460 15,754 21,100 Agricultural business, including secured by farmland 1,896 1,301 5,853 Consumer 2,905 4,232 2,332       72,988 81,310 148,504   Loans more than 90 days delinquent, still on accrual Secured by real estate: Commercial - - - - - - Multifamily - - - - - - Construction and land - - - - - - One- to four-family 2,147 1,111 2,955 Commercial business 4 687 - - Agricultural business, including secured by farmland - - - - - - Consumer 173 41 30       2,324 1,839 2,985       Total non-performing loans 75,312 83,149 151,489 Securities on non-accrual 500 1,942 1,896 Real estate owned (REO) and repossessed assets 43,039   66,538   100,945     Total non-performing assets $ 118,851   $ 151,629   $ 254,330  

 

  Total non-performing assets / Total assets 2.79 % 3.53 % 5.77 %   DETAIL & GEOGRAPHIC CONCENTRATION OF NON-PERFORMING ASSETS AT     December 31, 2011     Washington Oregon Idaho Other Total Secured by real estate: Commercial $ 8,723 $ 368 $ 135 $ - - $ 9,226 Multifamily 362 - - - - - - 362 Construction and land One- to four-family construction 4,039 2,278 306 - - 6,623 Commercial construction 949 - - - - - - 949 Multifamily construction - - - - - - - - - - Residential land acquisition & development 6,668 3,709 1,592 - - 11,969 Residential land improved lots 1,563 3,352 73 - - 4,988 Residential land unimproved 702 916 485 - - 2,103 Commercial land acquisition & development 308 - - - - - - 308 Commercial land improved 454 - - - - - - 454 Commercial land unimproved 337   - -   - -   - - 337 Total construction and land 15,020 10,255 2,456 - - 27,731 One- to four-family 14,830 3,376 1,349 - - 19,555 Commercial business 12,627 113 724 - - 13,464 Agricultural business, including secured by farmland 1,486 - - 410 - - 1,896 Consumer 2,441 131 506 - - 3,078           Total non-performing loans 55,489 14,243 5,580 - - 75,312 Securities on non-accrual - - - - 500 - - 500 Real estate owned (REO) and repossessed assets 18,380 17,967 6,692 - - 43,039           Total non-performing assets at end of the period $ 73,869   $ 32,210   $ 12,772   $ - - $ 118,851    

 

          ADDITIONAL FINANCIAL INFORMATION (dollars in thousands)  

Quarters Ended

Twelve Months Ended

REAL ESTATE OWNED

Dec 31, 2011 Dec 31, 2010 Dec 31, 2011 Dec 31, 2010   Balance, beginning of period $ 66,459 $ 107,159 $ 100,872 $ 77,743 Additions from loan foreclosures 7,482 16,855 53,197 87,761 Additions from capitalized costs 150 1,650 4,404 4,006 Dispositions of REO (28,299 ) (19,095 ) (99,070 ) (51,651 ) Gain (loss) on sale of REO (170 ) (524 ) (1,374 ) (1,891 ) Valuation adjustments in the period (2,657 ) (5,173 )   (15,064 ) (15,096 )   Balance, end of period $ 42,965   $ 100,872   $ 42,965   $ 100,872       Quarters Ended

REAL ESTATE OWNED - FIVE COMPARATIVE QUARTERS

Dec 31, 2011 Sep 30, 2011 Jun 30, 2011 Mar 31, 2011 Dec 31, 2010   Balance, beginning of period $ 66,459 $ 71,205 $ 94,945 $ 100,872 $ 107,159 Additions from loan foreclosures 7,482 18,881 11,918 14,916 16,855 Additions from capitalized costs 150 1,107 1,532 1,615 1,650 Dispositions of REO (28,299 ) (19,440 ) (32,437 ) (18,894 ) (19,095 ) Gain (loss) on sale of REO (170 ) (725 ) 58 (537 ) (524 ) Valuation adjustments in the period (2,657 ) (4,569 ) (4,811 ) (3,027 ) (5,173 )   Balance, end of period $ 42,965   $ 66,459   $ 71,205   $ 94,945   $ 100,872      

REAL ESTATE OWNED - BY TYPE AND STATE

Washington Oregon Idaho Total   Commercial real estate $ 1,852 $ - - $ 1,620 $ 3,472 One- to four-family construction 405 2,323 - - 2,728 Land development- commercial 3,876 112 200 4,188 Land development- residential 5,333 11,881 3,316 20,530 One- to four-family real estate 6,896   3,651   1,500   12,047     Total $ 18,362   $ 17,967   $ 6,636   $ 42,965        

 

        ADDITIONAL FINANCIAL INFORMATION (dollars in thousands)      

DEPOSITS & OTHER BORROWINGS

Dec 31, 2011 Sep 30, 2011 Dec 31, 2010 DEPOSIT COMPOSITION     Non-interest-bearing $ 777,563 $ 763,008   $ 600,457

 

  Interest-bearing checking 362,542 362,090 357,702 Regular savings accounts 669,596 670,210 616,512 Money market accounts 415,456 429,083   459,034   Interest-bearing transaction & savings accounts 1,447,594 1,461,383   1,433,248   Interest-bearing certificates 1,250,497 1,313,043   1,557,493   Total deposits $ 3,475,654 $ 3,537,434   $ 3,591,198

 

    INCLUDED IN TOTAL DEPOSITS   Public transaction accounts $ 72,064 $ 67,753 $ 64,482

 

Public interest-bearing certificates 67,112 69,321   81,809   Total public deposits $ 139,176 $ 137,074   $ 146,291

 

    Total brokered deposits $ 49,194 $ 59,576   $ 102,984

 

      INCLUDED IN OTHER BORROWINGS Customer repurchase agreements / "Sweep accounts" $ 102,131 $ 89,633   $ 125,140

 

      GEOGRAPHIC CONCENTRATION OF DEPOSITS AT   December 31, 2011   Washington Oregon Idaho Total   $ 2,657,016 $ 595,801   $ 222,837 $ 3,475,654         Minimum for Capital Adequacy

REGULATORY CAPITAL RATIOS AT

Actual or "Well Capitalized"     December 31, 2011   Amount Ratio Amount Ratio   Banner Corporation-consolidated Total capital to risk-weighted assets $ 615,091 18.07 % $ 272,242 8.00 % Tier 1 capital to risk-weighted assets 572,036 16.80 % 136,121 4.00 % Tier 1 leverage capital to average assets 572,036 13.44 % 169,639 4.00 %   Banner Bank Total capital to risk-weighted assets 511,614 15.81 % 323,499 10.00 % Tier 1 capital to risk-weighted assets 470,668 14.54 % 194,100 6.00 % Tier 1 leverage capital to average assets 470,668 11.71 % 200,955 5.00 %   Islanders Bank Total capital to risk-weighted assets 30,627 16.06 % 19,068 10.00 % Tier 1 capital to risk-weighted assets 28,237 14.81 % 11,441 6.00 % Tier 1 leverage capital to average assets 28,237 12.08 % 11,689 5.00 %      

 

          ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) (rates / ratios annualized)     Quarters Ended

Twelve Months Ended

OPERATING PERFORMANCE

Dec 31, 2011 Sep 30, 2011 Dec 31, 2010 Dec 31, 2011 Dec 31, 2010     Average loans $ 3,237,305 $ 3,271,728 $ 3,458,400 $ 3,297,650 $ 3,607,151 Average securities 670,807 544,468 418,647 548,446 398,297 Average interest earning cash 148,070 224,993 368,194 219,025 291,968 Average non-interest-earning assets 207,609   206,420   254,242   215,646   262,888     Total average assets $ 4,263,791   $ 4,247,609   $ 4,499,483   $ 4,280,767   $ 4,560,304     Average deposits $ 3,477,587 $ 3,498,594 $ 3,669,442 $ 3,510,274 $ 3,768,748 Average borrowings 294,675 270,648 344,906 292,555 350,636 Average non-interest-bearing liabilities (38,703 ) (41,337 ) (38,355 ) (40,266 ) (37,378 )   Total average liabilities 3,733,559 3,727,905 3,975,993 3,762,563 4,082,006   Total average stockholders' equity 530,232   519,704   523,490   518,204   478,298   ` Total average liabilities and equity $ 4,263,791   $ 4,247,609   $ 4,499,483   $ 4,280,767   $ 4,560,304     Interest rate yield on loans 5.53 % 5.53 % 5.67 % 5.59 % 5.70 % Interest rate yield on securities 1.92 % 2.75 % 2.46 % 2.32 % 2.91 % Interest rate yield on cash 0.23 % 0.26 % 0.26 % 0.23 % 0.24 %  

Interest rate yield on interest-earning assets

4.74 % 4.87 % 4.88 % 4.86 % 5.07 %   Interest rate expense on deposits 0.59 % 0.70 % 1.03 % 0.75 % 1.39 % Interest rate expense on borrowings 2.28 % 2.44 % 2.24 % 2.33 % 2.28 %   Interest rate expense on interest-bearing liabilities 0.72 % 0.82 % 1.13 % 0.87 % 1.46 %   Interest rate spread 4.02 % 4.05 % 3.75 % 3.99 % 3.61 %   Net interest margin 4.07 % 4.10 % 3.81 % 4.05 % 3.67 %   Other operating income / Average assets 0.67 % 0.97 % 0.67 % 0.79 % 0.64 %  

Other operating income EXCLUDING fair value and OTTI adjustments / Average assets (1)

0.83 % 0.78 % 0.73 % 0.74 % 0.69 %   Other operating expense / Average assets 3.60 % 3.83 % 3.62 % 3.69 % 3.53 %   Efficiency ratio (other operating expense / revenue) 79.34 % 78.82 % 84.88 % 79.62 % 86.03 %   Return (Loss) on average assets 0.47 % 0.56 % (1.12 %) 0.13 % (1.36 %)   Return (Loss) on average equity 3.79 % 4.60 % (9.62 %) 1.05 % (12.94 %)   Return (Loss) on average tangible equity (2) 3.84 % 4.67 % (9.78 %) 1.07 % (13.21 %)   Average equity / Average assets 12.44 % 12.24 % 11.63 % 12.11 % 10.49 %  

(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.