Market Overview

Banner Corporation Reports Net Income of $15.6 Million, or $0.79 Per Diluted Share, in Third Quarter; Net Income Highlighted by Strong Revenue Generation and Improved Credit Quality

Share:
WALLA WALLA, Wash.--(BUSINESS WIRE)--

Banner Corporation (NASDAQ: BANR), the parent company of Banner Bank and Islanders Bank, today reported net income of $15.6 million in the third quarter of 2012, compared to $25.4 million in the preceding quarter and $6.0 million in the third quarter a year ago. For the first nine months of 2012, Banner reported net income of $50.2 million, compared to $387,000 in the same period a year ago. In the preceding quarter ended June 30, 2012, Banner's results included a $31.8 million tax benefit as a result of the reversal of most of its deferred tax asset valuation allowance, which was partially offset by a net loss of $19.1 million for fair value adjustments.

“Banner's highlights for the third quarter included our continued improvement in asset quality, additional customer account growth and record revenues from core operations,” said Mark J. Grescovich, President and Chief Executive Officer. “Similar to the second quarter, Banner's third quarter revenues from core operations* (net interest income before the provision for loan losses plus total other operating income excluding fair value and other-than-temporary impairment (OTTI) adjustments) increased 8% when compared to the third quarter a year ago. This marks the twelfth consecutive quarter that we have realized a year-over-year increase in revenues from core operations.* Our net interest margin expanded 12 basis points to 4.22% in the third quarter compared to 4.10% in the third quarter a year ago. Also, our deposit fees and other service charge income remained strong, increasing by 10% compared to the third quarter a year ago, and our revenues from mortgage banking operations again increased and were more than two times higher than in the third quarter of 2011. This progress, which is consistent with our results for the first half of the year, further demonstrates our strategic plan and initiatives are effective and are building shareholder value.”

During the third quarter, Banner repurchased approximately 40% of its senior preferred stock in private transactions at an average price of $959 per share. As a result, Banner realized gains of $2.1 million on the repurchases, which was partially offset by accelerated amortization of a portion of the initial discount recorded at the issuance of the preferred shares. In addition, the accrual of the quarterly dividend was reduced by the retirement of the repurchased shares. Including the preferred stock dividend, related accretion and gains on repurchases, net income available to common shareholders was $0.79 per diluted share for the third quarter of 2012, compared to net income available to common shareholders of $1.27 per diluted share in the second quarter of 2012 and $0.24 per diluted share for the third quarter a year ago.

Third Quarter 2012 Highlights (compared to third quarter 2011 except as noted)

  • Net income was $15.6 million, compared to $6.0 million in the third quarter a year ago.
  • Revenues from core operations* increased 8% to $54.3 million.
  • The net interest margin was 4.22%, compared to 4.26% in the preceding quarter and 4.10% in the third quarter of 2011.
  • Deposit fees and other service charges increased 10%.
  • Revenues from mortgage banking increased 142%.
  • Non-performing assets decreased to $59.1 million, or 1.38% of total assets, at September 30, 2012, a 19% decrease compared to three months earlier and a 61% decrease compared to a year earlier.
  • Non-performing loans decreased to $38.7 million at September 30, 2012, an 18% decrease compared to three months earlier and a 53% decrease compared to a year earlier.
  • The ratio of tangible common equity to tangible assets increased to 11.47% at September 30, 2012.*
  • Banner repurchased 40% of its senior preferred stock at an average price of $959 per share.

*Earnings information excluding fair value and other-than-temporary impairment (OTTI) adjustments (alternately referred to as other operating income from core operations or revenues from core operations) and the ratio of tangible common equity (which excludes other intangible assets and preferred stock) to tangible assets 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 Banner's core operations reflected in the current quarter's results and facilitates the comparison of our performance with the performance of our peers. Where applicable, comparable earnings information using GAAP financial measures is also presented.

Income Statement Review

“The net interest margin expansion compared to a year ago reflects continuing reductions in our funding costs, particularly deposit costs, and a significant reduction in the adverse effect of non-performing assets,” said Grescovich. “Further, similar to the immediately preceding quarter, the yield on loans and net interest margin in the current quarter were again augmented by the collection of some previously unrecognized interest on certain nonaccrual loans.” Banner's net interest margin was 4.22% in the third quarter of 2012, compared to 4.26% in the preceding quarter and 4.10% in the third quarter a year ago. In the first nine months of the year, the net interest margin was 4.20% compared to 4.04% in the first nine months of 2011.

Deposit costs decreased by seven basis points in the third quarter compared to the preceding quarter and 29 basis points compared to the third quarter a year earlier. Total funding costs for the third quarter of 2012 decreased seven basis points compared to the previous quarter and 34 basis points from the third quarter a year ago. Asset yields decreased 10 basis points compared to the prior quarter and decreased 21 basis points from the third quarter a year ago. Loan yields decreased three basis points compared to the preceding quarter and decreased eight basis points from the third quarter a year ago. Nonaccrual loans reduced the margin by approximately five basis points in the third quarter of 2012 compared to approximately eight basis points in the preceding quarter and approximately 21 basis points in the third quarter of 2011. The collection of previously unrecognized interest on certain nonaccrual loans added nine basis points to the margin in the current quarter ended September 30, 2012.

“We have produced a solid increase in our revenues from core operations* compared to the third quarter a year ago by growing core deposits and reducing the drag on earnings from non-performing assets,” said Grescovich. “We also had another quarter of very strong results from our mortgage banking operations.” Third quarter net interest income, before the provision for loan losses, was $42.7 million, compared to $42.3 million in the preceding quarter and $41.7 million in the third quarter a year ago. In the first nine months of 2012, net interest income, before the provision for loan losses, was $126.1 million compared to $123.0 million in the first nine months of 2011. Revenues from core operations* were $54.3 million in the third quarter compared to $52.3 million in the second quarter of 2012 and $50.1 million in the third quarter a year ago. Year-to-date revenues from core operations* also increased 8% to $157.0 million compared to $145.7 million in the same period a year ago.

During the second quarter of 2012, Banner reversed most of its deferred tax asset valuation allowance, reflecting Banner's return to profitability and its expectation of sustainable profitability in future periods. This expectation also led to the significant adjustment of the fair value estimate for the junior subordinated debentures issued by the Company. The substantial changes to both of these significant accounting estimates were directly linked to the improved performance and profitability of the Company. In the third quarter of 2012, Banner reversed an additional $4.0 million of the deferred tax valuation allowance, which substantially reduced the provision for income tax expense for the quarter, and the remaining $3.0 million balance will be recovered in the fourth quarter.

Banner's third quarter 2012 results included a $473,000 net gain for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, which was largely offset by $409,000 of OTTI charges related to certain equity securities issued by government sponsored entities. In the preceding quarter, Banner recorded a net loss of $19.1 million for fair value adjustments, which largely resulted from a $21.2 million increase in the estimated value of the junior subordinated debentures issued by the Company, which was partially offset by increases in the estimated value of similar trust preferred securities owned by the Company. Banner's year-to-date results included net charges of $16.9 million for fair value adjustments compared to a net gain of $1.2 million for the same period a year ago. For the nine months ended September 30, 2012, OTTI charges were $409,000 compared to a recovery of $3.0 million for the nine months ended September 30, 2011. The third quarter and year-to-date results included an additional $2.5 million increase in the estimated fair value of the junior subordinated debentures, which primarily reflects management's judgment with respect to further tightening in general market credit spreads. The impact of this adjustment was partially offset by similar adjustments to the fair value estimates for certain investment securities also carried at fair value.

Total other operating income (loss), which includes the changes in the valuation of financial instruments, was a net gain of $11.7 million in the third quarter of 2012 compared to a net loss of $9.1 million in the second quarter of 2012 and a net gain of $10.3 million in the third quarter a year ago. In the first nine months of 2012, total other operating income was a net gain of $13.6 million compared to a net gain of $26.8 million in the first nine months of 2011. Other operating income from core operations* (total other operating income, excluding fair value and OTTI adjustments) for the current quarter was $11.6 million, compared to $10.0 million for the preceding quarter and $8.4 million for the third quarter a year ago, reflecting strong growth in deposit fees and other service charges and mortgage banking revenues.

As a result of continued account growth over recent periods and increased customer activity, deposit fees and other service charges were $6.7 million in the third quarter of 2012, compared to $6.3 million in the preceding quarter and a 10% increase compared to $6.1 million in the third quarter a year ago. Significant homeowner refinance activity contributed to strong revenues from mortgage banking activities, which increased 19% to $3.4 million in the third quarter of 2012, compared to $2.9 million in the immediately preceding quarter. Income from mortgage banking operations was $1.4 million in the third quarter a year ago.

“Operating expenses continued to decline in the third quarter compared to the preceding quarter and the third quarter a year ago, largely due to lower costs associated with loan collections and the real estate owned portfolio, with the current quarter reflecting a net gain on the sale of real estate owned, and a reduction in our deposit insurance premiums,” said Grescovich. “While we do not anticipate regularly recurring net gains on the disposition of real estate owned, we do believe credit costs will continue to decline as we resolve remaining problem assets.”

Total other operating expenses (non-interest expenses) were $33.4 million in the third quarter of 2012, compared to $35.7 million in the preceding quarter and $41.0 million in the third quarter of 2011. In the first nine months of 2012, total other operating expenses were $106.9 million compared to $119.4 million in the first nine months of 2011. The decrease was largely a result of decreased costs related to real estate owned and FDIC deposit insurance.

Credit Quality

“We made very good progress in continuing to reduce problem assets during the third quarter and our credit costs continued to decline and were significantly below those of a year ago. As a result of this progress, all of our key credit quality metrics have further improved and Banner's reserve levels remain substantial,” said Grescovich.

Banner recorded a $3.0 million provision for loan losses in the third quarter of 2012, compared to a $4.0 million provision in the preceding quarter and a $5.0 million provision in the third quarter a year ago. The allowance for loan losses at September 30, 2012 totaled $78.8 million, representing 2.45% of total loans outstanding and 204% of non-performing loans. Non-performing loans decreased 18% to $38.7 million at September 30, 2012, compared to $47.4 million three months earlier, and decreased 53% when compared to $83.1 million a year earlier.

Banner's real estate owned and repossessed assets decreased 21% to $20.4 million at September 30, 2012, compared to $25.8 million three months earlier, and decreased 69% when compared to $66.5 million a year ago. Net charge-offs in the third quarter of 2012 totaled $4.4 million, or 0.14% of average loans outstanding, compared to $5.3 million, or 0.16% of average loans outstanding for the second quarter of 2012 and $10.9 million, or 0.33% of average loans outstanding for the third quarter a year ago.

At September 30, 2012, Banner's non-performing assets were 1.38% of total assets, compared to 1.73% at June 30, 2012 and 3.53% at September 30, 2011. Non-performing assets decreased 19% to $59.1 million at September 30, 2012, compared to $73.2 million three months earlier, and decreased 61% when compared to $151.6 million a year ago.

Balance Sheet Review

“Despite the continuing adverse impact of refinancing activity on residential mortgage loan balances, total loans outstanding were essentially unchanged for the quarter. Aside from seasonal increases in construction and agricultural loans, net loan originations and credit line utilizations have remained disappointing, as the weak economy continues to temper loan demand by both businesses and consumers. We expect a continued challenging economic environment going forward as businesses and consumers maintain a cautious approach to spending and borrowing,” said Grescovich. “However, we believe the well-focused efforts of our bankers will allow us continued opportunity to capture increased market share.”

Net loans were $3.13 billion at September 30, 2012, compared to $3.14 billion a year ago, and unchanged compared to three months earlier. Commercial and agricultural business loans were $822.7 million at September 30, 2012 compared to $811.8 million at June 30, 2012 and $792.4 million at September 30, 2011. Commercial real estate and multifamily real estate loans were $1.22 billion at both September 30, 2012 and June 30, 2012 compared to $1.20 billion at September 30, 2011.

The aggregate total of securities and interest-bearing deposits increased to $764.4 million at September 30, 2012 compared to $729.3 million at June 30, 2012, but was slightly less than $783.2 million at September 30, 2011. The change in the mix of interest-bearing deposits and securities holdings compared to a year ago reflects a modest extension of the expected duration of this aggregate position designed to increase the yield relative to interest-bearing deposits. The securities purchased in recent periods were primarily short- to intermediate-term U.S. Government Agency notes and mortgage-backed securities and, to a lesser extent, intermediate-term tax-exempt municipal securities. The average duration of Banner's securities portfolio at September 30, 2012 was 4.4 years.

Deposits totaled $3.49 billion at September 30, 2012, compared to $3.43 billion at June 30, 2012 and $3.54 million at September 30, 2011. Non-interest-bearing account balances increased 14% to $919.0 million at September 30, 2012, compared to $804.6 million at June 30, 2012, and increased 20% compared to $763.0 million at September 30, 2011. Interest-bearing transaction and savings accounts were $1.48 billion at September 30, 2012, compared to $1.45 billion at June 30, 2012 and $1.46 billion a year ago.

“The improvements in our deposit mix are reflective of further successful execution of our super community bank strategy that is lowering our funding costs by reducing our reliance on high-priced CDs, growing new client relationships, and improving our core funding position. All of this growth is organic growth from our existing branch network,” said Grescovich. Banner's cost of deposits declined seven basis points to 0.41% for the quarter ended September 30, 2012 compared to 0.48% for the quarter ended June 30, 2012, and declined 29 basis points from 0.70% for the quarter ended September 30, 2011.

Total assets were $4.27 billion at September 30, 2012, compared to $4.22 billion at the end of the preceding quarter and $4.29 billion a year ago. At September 30, 2012, total stockholders' equity was $566.1 million, including $72.2 million attributable to preferred stock, and common stockholders' equity was $493.9 million, or $25.43 per share. Banner had 19.5 million shares of common stock outstanding at September 30, 2012, compared to 17.0 million shares of common stock outstanding a year ago. At September 30, 2012, tangible common stockholders' equity, which excludes other intangible assets and preferred stock, was $489.1 million, or 11.47% of tangible assets, compared to $460.3 million, or 10.92% of tangible assets, at June 30, 2012 and $394.3 million, or 9.20% of tangible assets, a year ago.

Banner Corporation and its subsidiary banks continue to maintain capital levels significantly in excess of the requirements to be categorized as “well-capitalized” under applicable regulatory standards. Banner Corporation's Tier 1 leverage capital to average assets ratio was 14.29% and its total capital to risk-weighted assets ratio was 19.01% at September 30, 2012.

Conference Call

Banner will host a conference call on Thursday, October 25, 2012, at 8:00 a.m. PDT, to discuss its third quarter results. The conference call can be accessed live by telephone at (480) 629-9692 to participate in the call. To listen to the call online, go to the Company's website at www.bannerbank.com. A replay will be available for a week at (303) 590-3030, using access code 4565884.

About the Company

Banner Corporation is a $4.27 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 and require us to materially increase our reserves; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates and the relative differences between short and long-term interest rates, loan and deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; secondary market conditions for loans and our ability to sell loans in the secondary market; results of examinations of us by the Board of Governors of the Federal Reserve System and of our bank subsidiaries by the FDIC, the Washington Department of Financial Institutions or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, institute a formal or informal enforcement action against us or any of the Banks which could require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, or impose additional requirements and restrictions on us, any of which could adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules including changes related to Basel III; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the implementing regulations; our ability to attract and retain deposits; increases in premiums for deposit insurance; our ability to control operating costs and expenses; the use of estimates in determining fair value of certain of our assets and liabilities, which estimates may prove to be incorrect and result in significant changes in valuations; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; the failure or security breach of computer systems on which we depend; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to implement our business strategies; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; our ability to pay dividends on our common and preferred stock and interest or principal payments on our junior subordinated debentures; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; the economic impact of war or terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and other risks detailed in Banner Corporation's reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2011. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for the remainder of 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     Nine Months Ended
(in thousands except shares and per share data) Sep 30, 2012     Jun 30, 2012     Sep 30, 2011 Sep 30, 2012     Sep 30, 2011
   
 
INTEREST INCOME:
Loans receivable $ 43,953 $ 44,040 $ 45,641 $ 131,981 $ 139,242
Mortgage-backed securities 1,089 995 799 3,011 2,533
Securities and cash equivalents 2,132   2,230   3,121   6,645   7,337  
47,174 47,265 49,561 141,637 149,112
 
INTEREST EXPENSE:
Deposits 3,536 4,035 6,169 12,019 20,995
Federal Home Loan Bank advances 64 64 64 191 306
Other borrowings 71 74 559 694 1,706
Junior subordinated debentures 805   802   1,041   2,619   3,120  
4,476   4,975   7,833   15,523   26,127  
Net interest income before provision for loan losses 42,698 42,290 41,728 126,114 122,985
 
PROVISION FOR LOAN LOSSES 3,000   4,000   5,000   12,000   30,000  
Net interest income 39,698 38,290 36,728 114,114 92,985
 
OTHER OPERATING INCOME:
Deposit fees and other service charges 6,681 6,283 6,096 18,833 17,068
Mortgage banking operations 3,397 2,855 1,401 8,901 3,218
Loan servicing fees 377 343 289 937 942
Miscellaneous 1,146   485   586   2,182   1,448  
11,601 9,966 8,372 30,853 22,676
Gain on sale of securities 19 29 - - 48 - -
Other-than-temporary impairment recovery (loss) (409 ) - - 3,000 (409 ) 3,000
Net change in valuation of financial instruments carried at fair value 473   (19,059 ) (1,032 ) (16,901 ) 1,163  
 
Total other operating income (loss) 11,684 (9,064 ) 10,340 13,591 26,839
 
OTHER OPERATING EXPENSE:
Salary and employee benefits 19,614 19,390 18,226 58,514 53,769
Less capitalized loan origination costs (2,655 ) (2,747 ) (1,929 ) (7,652 ) (5,597 )
Occupancy and equipment 5,811 5,204 5,352 16,492 16,182
Information / computer data services 1,807 1,746 1,547 5,068 4,635
Payment and card processing services 2,335 2,116 2,132 6,341 5,718
Professional services 993 1,224 1,950 3,561 4,807
Advertising and marketing 1,897 1,650 1,602 5,613 5,245
Deposit insurance 791 816 1,299 2,970 4,657
State/municipal business and use taxes 582 565 553 1,715 1,591
Real estate operations (1,304 ) 1,969 6,698 3,263 17,897
Amortization of core deposit intangibles 508 523 554 1,583 1,721
Miscellaneous 2,976   3,210   3,054   9,466   8,812  
Total other operating expense 33,355   35,666   41,038   106,934   119,437  
Income (loss) before provision for (benefit from) income taxes 18,027 (6,440 ) 6,030 20,771 387
 
PROVISION FOR (BENEFIT FROM ) INCOME TAXES 2,407   (31,830 ) - -   (29,423 ) - -  
NET INCOME 15,620   25,390   6,030   50,194   387  
 
PREFERRED STOCK DIVIDEND AND ADJUSTMENTS:
Preferred stock dividend 1,227 1,550 1,550 4,327 4,650
Preferred stock discount accretion 1,216 454 425 2,124 1,276
Gain on repurchase and retirement of preferred stock (2,070 ) - -   - -   (2,070 ) - -  
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 15,247   $ 23,386   $ 4,055   $ 45,813   $ (5,539 )
 
Earnings (loss) per share available to common shareholder
Basic $ 0.80 $ 1.27 $ 0.24 $ 2.49 $ (0.33 )
Diluted $ 0.79 $ 1.27 $ 0.24 $ 2.48 $ (0.33 )
Cumulative dividends declared per common share $ 0.01 $ 0.01 $ 0.01 $ 0.03 $ 0.09
 
Weighted average common shares outstanding
Basic 19,172,296 18,404,680 16,808,589 18,427,916 16,540,398
Diluted 19,285,373 18,444,276 16,837,324 18,488,577 16,569,133
 
Common shares issued via restricted stock grants, DRIP and stock purchases (net) 650,060 777,051 362,555 1,901,407 866,468
 

FINANCIAL CONDITION

                 
(in thousands except shares and per share data) Sep 30, 2012 Jun 30, 2012 Sep 30, 2011 Dec 31, 2011
 
 

ASSETS

Cash and due from banks $ 60,505 $ 56,640 $ 53,503 $ 62,678
Federal funds and interest-bearing deposits 143,251 132,536 234,824 69,758
Securities - at fair value 72,593 77,368 85,419 80,727
Securities - available for sale 459,958 436,130 383,670 465,795
Securities - held to maturity 88,626 83,312 79,289 75,438
Federal Home Loan Bank stock 37,038 37,371 37,371 37,371
Loans receivable:
Held for sale 6,898 6,752 2,003 3,007
Held for portfolio 3,206,625 3,205,505 3,223,243 3,293,331
Allowance for loan losses (78,783 ) (80,221 ) (86,128 ) (82,912 )
3,134,740 3,132,036 3,139,118 3,213,426
 
Accrued interest receivable 16,118 14,656 16,101 15,570
Real estate owned held for sale, net 20,356 25,816 66,459 42,965
Property and equipment, net 89,202 90,228 92,454 91,435
Other intangibles, net 4,740 5,252 6,887 6,331
Bank-owned life insurance 60,395 59,800 58,058 58,563
Other assets 81,142   70,282   38,611   37,255  
$ 4,268,664   $ 4,221,427   $ 4,291,764   $ 4,257,312  
 

LIABILITIES

Deposits:
Non-interest-bearing $ 918,962 $ 804,562 $ 763,008 $ 777,563
Interest-bearing transaction and savings accounts 1,480,234 1,449,890 1,461,383 1,447,594
Interest-bearing certificates 1,087,176   1,171,297   1,313,043   1,250,497  
3,486,372 3,425,749 3,537,434 3,475,654
 
Advances from Federal Home Loan Bank at fair value 10,367 10,423 10,572 10,533
Customer repurchase agreements and other borrowings 82,275 90,030 139,704 152,128
Junior subordinated debentures at fair value 73,071 70,553 48,770 49,988
 
Accrued expenses and other liabilities 36,109 23,564 19,593 23,253
Deferred compensation 14,375   13,916   14,200   13,306  
3,702,569 3,634,235 3,770,273 3,724,862
 

STOCKHOLDERS' EQUITY

Preferred stock - Series A 72,242 121,610 120,276 120,702
Common stock 567,659 554,866 523,284 531,149
Retained earnings (accumulated deficit) (74,212 ) (89,266 ) (122,384 ) (119,465 )
Other components of stockholders' equity 406   (18 ) 315   64  
566,095   587,192   521,491   532,450  
$ 4,268,664   $ 4,221,427   $ 4,291,764   $ 4,257,312  
 
Common Shares Issued:
Shares outstanding at end of period 19,454,879 18,804,819 17,031,249 17,553,472
Less unearned ESOP shares at end of period 34,340   34,340   34,340   34,340  
 
Shares outstanding at end of period excluding unearned ESOP shares 19,420,539   18,770,479   16,996,909   17,519,132  
 
Common stockholders' equity per share (1) $ 25.43 $ 24.80 $ 23.61 $ 23.50
Common stockholders' tangible equity per share (1) (2) $ 25.19 $ 24.52 $ 23.20 $ 23.14
Common stockholders' tangible equity to tangible assets (2) 11.47 % 10.92 % 9.20 % 9.54 %
Consolidated Tier 1 leverage capital ratio 14.29 % 15.07 % 13.19 % 13.44 %
 
(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)
   
Sep 30, 2012 Jun 30, 2012 Sep 30, 2011 Dec 31, 2011

LOANS (including loans held for sale):

Commercial real estate
Owner occupied $ 477,871 $ 477,621 $ 474,863 $ 469,806
Investment properties 604,265 613,965 586,652 621,622
Multifamily real estate 138,716 130,319 134,146 139,710
Commercial construction 28,598 23,808 38,124 42,391
Multifamily construction 14,502 18,132 16,335 19,436
One- to four-family construction 163,521 157,301 145,776 144,177
Land and land development
Residential 79,932 83,185 96,875 97,491
Commercial 14,242 11,451 19,173 15,197
Commercial business 603,606 600,046 580,876 601,440
Agricultural business including secured by farmland 219,084 211,705 211,571 218,171
One- to four-family real estate 594,413 607,489 639,909 642,501
Consumer 103,393 103,504 98,794 103,347
Consumer secured by one- to four-family real estate 171,380   173,731   182,152   181,049  
 
Total loans outstanding $ 3,213,523   $ 3,212,257   $ 3,225,246   $ 3,296,338  
 
Restructured loans performing under their restructured terms $ 62,438   $ 58,010   $ 51,990   $ 54,533  
 
Loans 30 - 89 days past due and on accrual $ 7,739   $ 5,504   $ 7,895   $ 9,962  
 
Total delinquent loans (including loans on non-accrual) $ 46,450   $ 52,866   $ 91,044   $ 85,274  
 
Total delinquent loans / Total loans outstanding 1.45 % 1.65 % 2.82 % 2.59 %
 
 
GEOGRAPHIC CONCENTRATION OF LOANS AT
    September 30, 2012 Washington Oregon Idaho Other Total
 
Commercial real estate
Owner occupied $ 360,406 $ 53,929 $ 58,799 $ 4,737 $ 477,871
Investment properties 471,723 81,874 44,187 6,481 604,265
Multifamily real estate 117,769 13,190 7,436 321 138,716
Commercial construction 20,030 4,998 2,159 1,411 28,598
Multifamily construction 9,498 5,004 - - - - 14,502
One- to four-family construction 88,350 73,375 1,796 - - 163,521
Land and land development
Residential 39,181 38,781 1,970 - - 79,932
Commercial 9,205 3,107 1,930 - - 14,242
Commercial business 387,598 75,609 59,461 80,938 603,606
Agricultural business including secured by farmland 109,099 45,418 64,567 - - 219,084
One- to four-family real estate 365,510 201,898 24,542 2,463 594,413
Consumer 66,837 31,154 5,402 - - 103,393
Consumer secured by one- to four-family real estate 116,127   43,054   11,668   531   171,380  
 
Total loans outstanding $ 2,161,333   $ 671,391   $ 283,917   $ 96,882   $ 3,213,523  
 
Percent of total loans 67.3 % 20.9 % 8.8 % 3.0 % 100.0 %
 
 
DETAIL OF LAND AND LAND DEVELOPMENT LOANS AT
    September 30, 2012 Washington Oregon Idaho Other Total
 
Residential
Acquisition & development $ 6,229 $ 15,820 $ 1,710 $ - - $ 23,759
Improved lots 22,727 20,273 260 - - 43,260
Unimproved land 10,225   2,688   - -   - -   12,913  
 
Total residential land and development $ 39,181   $ 38,781   $ 1,970   $ - -   $ 79,932  
 
Commercial & industrial
Acquisition & development $ 1,370 $ - - $ 484 $ - - $ 1,854
Improved land 3,470 138 558 - - 4,166
Unimproved land 4,365   2,969   888   - -   8,222  
 
Total commercial land and development $ 9,205   $ 3,107   $ 1,930   $ - -   $ 14,242  
 
ADDITIONAL FINANCIAL INFORMATION                      
(dollars in thousands)
   
Quarters Ended Nine Months Ended
CHANGE IN THE Sep 30, 2012 Jun 30, 2012 Sep 30, 2011 Sep 30, 2012 Sep 30, 2011

ALLOWANCE FOR LOAN LOSSES

 
Balance, beginning of period $ 80,221 $ 81,544 $ 92,000 $ 82,912 $ 97,401
 
Provision 3,000 4,000 5,000 12,000 30,000
 
Recoveries of loans previously charged off:
Commercial real estate 130 18 1 762 16
Multifamily real estate - - - - - - - - - -
Construction and land 35 1,050 89 1,455 840
One- to four-family real estate 34 374 34 412 115
Commercial business 154 639 414 1,030 571
Agricultural business, including secured by farmland 30 15 10 45 15
Consumer 91   195   69   422   231  
474 2,291 617 4,126 1,788
Loans charged off:
Commercial real estate (924 ) (1,259 ) (1,644 ) (3,507 ) (4,504 )
Multifamily real estate - - - - - - - - (671 )
Construction and land (617 ) (1,703 ) (6,445 ) (5,244 ) (23,059 )
One- to four-family real estate (709 ) (1,906 ) (2,483 ) (3,580 ) (6,586 )
Commercial business (1,687 ) (2,297 ) (863 ) (5,391 ) (7,224 )
Agricultural business, including secured by farmland (26 ) - - - - (301 ) (289 )
Consumer (949 ) (449 ) (54 ) (2,232 ) (728 )
(4,912 ) (7,614 ) (11,489 ) (20,255 ) (43,061 )
Net charge-offs (4,438 ) (5,323 ) (10,872 ) (16,129 ) (41,273 )
 
Balance, end of period $ 78,783   $ 80,221   $ 86,128   $ 78,783   $ 86,128  
 
Net charge-offs / Average loans outstanding 0.14 % 0.16 % 0.33 % 0.50 % 1.24 %
 
 
ALLOCATION OF

ALLOWANCE FOR LOAN LOSSES

Sep 30, 2012 Jun 30, 2012 Sep 30, 2011 Dec 31, 2011
Specific or allocated loss allowance
Commercial real estate $ 15,777 $ 16,834 $ 14,217 16,457
Multifamily real estate 4,741 5,108 2,958 3,952
Construction and land 15,764 16,974 22,683 18,184
One- to four-family real estate 16,152 14,213 11,249 12,299
Commercial business 10,701 12,352 16,894 15,159
Agricultural business, including secured by farmland 2,342 1,294 1,257 1,548
Consumer 1,321   1,365   1,277   1,253  
 
Total allocated 66,798 68,140 70,535 68,852
 
Estimated allowance for undisbursed commitments 932 639 508 678
Unallocated 11,053   11,442   15,085   13,382  
 
Total allowance for loan losses $ 78,783   $ 80,221   $ 86,128   82,912  
 
Allowance for loan losses / Total loans outstanding 2.45 % 2.50 % 2.67 % 2.52 %
 
Allowance for loan losses / Non-performing loans 204 % 169 % 104 % 110 %
 
ADDITIONAL FINANCIAL INFORMATION                  
(dollars in thousands)
     
Sep 30, 2012 Jun 30, 2012 Sep 30, 2011 Dec 31, 2011
 

NON-PERFORMING ASSETS

 
Loans on non-accrual status
Secured by real estate:
Commercial $ 5,574 $ 7,580 $ 8,908 $ 9,226
Multifamily - - - - - - 362
Construction and land 7,450 8,939 35,841 27,731
One- to four-family 14,234 16,170 15,274 17,408
Commercial business 6,159 8,600 15,754 13,460
Agricultural business, including secured by farmland 645 1,010 1,301 1,896
Consumer 2,571   2,882   4,232   2,905  
36,633 45,181 81,310 72,988
 
Loans more than 90 days delinquent, still on accrual
Secured by real estate:
Commercial - - - - - - - -
Multifamily - - - - - - - -
Construction and land - - - - - - - -
One- to four-family 2,037 2,142 1,111 2,147
Commercial business 15 - - 687 4
Agricultural business, including secured by farmland - - - - - - - -
Consumer 26   39   41   173  
2,078   2,181   1,839   2,324  
Total non-performing loans 38,711 47,362 83,149 75,312
Securities on non-accrual - - - - 1,942 500
Real estate owned (REO) and repossessed assets 20,356   25,830   66,538   43,039  
 
Total non-performing assets $ 59,067   $ 73,192   $ 151,629   $ 118,851  
 
Total non-performing assets / Total assets 1.38 % 1.73 % 3.53 % 2.79 %
 
DETAIL & GEOGRAPHIC CONCENTRATION OF
NON-PERFORMING ASSETS AT
      September 30, 2012 Washington Oregon Idaho Total
Secured by real estate:
Commercial $ 5,514 $ - - $ 60 $ 5,574
Construction and land
One- to four-family construction 3,028 - - 242 3,270
Residential land acquisition & development - - 1,452 - - 1,452
Residential land improved lots 292 1,361 - - 1,653
Residential land unimproved 47 688 - - 735
Commercial land improved 294 - - - - 294
Commercial land unimproved 46   - -   - -   46  
Total construction and land 3,707 3,501 242 7,450
 
One- to four-family 12,397 2,157 1,717 16,271
Commercial business 6,070 104 - - 6,174
Agricultural business, including secured by farmland 510 - - 135 645
Consumer 2,074   43   480   2,597  
Total non-performing loans 30,272 5,805 2,634 38,711
Real estate owned (REO) and repossessed assets 11,279   8,426   651   20,356  
 
Total non-performing assets at end of the period $ 41,551   $ 14,231   $ 3,285   $ 59,067  
 
ADDITIONAL FINANCIAL INFORMATION                      
(dollars in thousands)
 
Quarters Ended Nine Months Ended
 

REAL ESTATE OWNED

Sep 30, 2012 Sep 30, 2011 Sep 30, 2012 Sep 30, 2011
 
Balance, beginning of period $ 25,816 $ 71,205 $ 42,965 $ 100,872
Additions from loan foreclosures 3,111 18,881 11,598 45,715
Additions from capitalized costs 97 1,107 231 4,254
Proceeds from dispositions of REO (10,368 ) (19,440 ) (33,608 ) (70,771 )
Gain (loss) on sale of REO 2,955 (725 ) 3,621 (1,204 )
Valuation adjustments in the period (1,255 ) (4,569 )   (4,451 ) (12,407 )
 
Balance, end of period $ 20,356   $ 66,459   $ 20,356   $ 66,459  
 
Quarters Ended
 

REAL ESTATE OWNED- FIVE COMPARATIVE QUARTERS

Sep 30, 2012 Jun 30, 2012 Mar 31, 2012 Dec 31, 2011 Sep 30, 2011
 
Balance, beginning of period $ 25,816 $ 27,723 $ 42,965 $ 66,459 $ 71,205
Additions from loan foreclosures 3,111 6,886 1,601 7,482 18,881
Additions from capitalized costs 97 7 127 150 1,107
Proceeds from dispositions of REO (10,368 ) (7,799 ) (15,441 ) (28,299 ) (19,440 )
Gain (loss) on sale of REO 2,955 566 100 (170 ) (725 )
Valuation adjustments in the period (1,255 ) (1,567 ) (1,629 ) (2,657 ) (4,569 )
 
Balance, end of period $ 20,356   $ 25,816   $ 27,723   $ 42,965   $ 66,459  
 

REAL ESTATE OWNED- BY TYPE AND STATE

Washington Oregon Idaho Total
 
Commercial real estate $ 948 $ - - $ 198 $ 1,146
One- to four-family construction 90 - - - - 90
Land development- commercial 2,219 - - 195 2,414
Land development- residential 3,629 6,038 257 9,924
One- to four-family real estate 4,394   2,388   - -   6,782  
 
Total $ 11,280   $ 8,426   $ 650   $ 20,356  
 
ADDITIONAL FINANCIAL INFORMATION                  
(dollars in thousands)
   
 

DEPOSITS & OTHER BORROWINGS

Sep 30, 2012 Jun 30, 2012 Sep 30, 2011 Dec 31, 2011
DEPOSIT COMPOSITION
 
Non-interest-bearing $ 918,962 $ 804,562   $ 763,008 $ 777,563  
 
Interest-bearing checking 379,650 379,742 362,090 362,542
Regular savings accounts 689,322 664,736 670,210 669,596
Money market accounts 411,262 405,412   429,083 415,456  
 
Interest-bearing transaction & savings accounts 1,480,234 1,449,890   1,461,383 1,447,594  
 
Interest-bearing certificates 1,087,176 1,171,297   1,313,043 1,250,497  
 
Total deposits $ 3,486,372 $ 3,425,749   $ 3,537,434 $ 3,475,654  
 
 
INCLUDED IN TOTAL DEPOSITS
 
Public transaction accounts $ 72,407 $ 73,507 $ 67,753 $ 72,064
Public interest-bearing certificates 61,628 62,743   69,321 67,112  
 
Total public deposits $ 134,035 $ 136,250   $ 137,074 $ 139,176  
 
 
Total brokered deposits $ 21,403 $ 23,521   $ 59,576 $ 49,194  
 
 
 
OTHER BORROWINGS
Customer repurchase agreements / "Sweep accounts" $ 82,275 $ 90,030 $ 89,633 $ 102,131
Temporary liquidity guarantee notes - - - - 49,995 49,997
Other - - - -   76 - -  
Total other borrowings $ 82,275 $ 90,030   $ 139,704 152,128  
 
 
GEOGRAPHIC CONCENTRATION OF DEPOSITS AT
  September 30, 2012 Washington Oregon Idaho Total
 
$ 2,660,783 $ 597,826   $ 227,763 $ 3,486,372  
 
 
Minimum for Capital Adequacy

REGULATORY CAPITAL RATIOS AT

Actual or "Well Capitalized"
    September 30, 2012 Amount Ratio Amount Ratio
 
Banner Corporation-consolidated
Total capital to risk-weighted assets 643,074 19.01 % $ 270,597 8.00 %
Tier 1 capital to risk-weighted assets 600,343 17.75 % 135,298 4.00 %
Tier 1 leverage capital to average assets 600,343 14.29 % 168,063 4.00 %
 
Banner Bank
Total capital to risk-weighted assets 503,685 15.72 % 320,497 10.00 %
Tier 1 capital to risk-weighted assets 463,180 14.45 % 192,298 6.00 %
Tier 1 leverage capital to average assets 463,180 11.67 % 198,492 5.00 %
 
Islanders Bank
Total capital to risk-weighted assets 31,768 17.13 % 18,544 10.00 %
Tier 1 capital to risk-weighted assets 29,443 15.88 % 11,127 6.00 %
Tier 1 leverage capital to average assets 29,443 12.60 % 11,683 5.00 %
 
ADDITIONAL FINANCIAL INFORMATION                      
(dollars in thousands)
(rates / ratios annualized)
Quarters Ended Nine Months Ended
 

OPERATING PERFORMANCE

Sep 30, 2012 Jun 30, 2012 Sep 30, 2011 Sep 30, 2012 Sep 30, 2011
 
 
Average loans $ 3,211,133 $ 3,232,204 $ 3,271,728 $ 3,231,294 $ 3,317,986
Average securities 673,156 636,097 544,468 656,691 507,210
Average interest earning cash 142,437 122,846 224,993 125,668 242,937
Average non-interest-earning assets 210,660   174,566   206,420   189,992   218,338  
 
Total average assets $ 4,237,386   $ 4,165,713   $ 4,247,609   $ 4,203,645   $ 4,286,471  
 
Average deposits $ 3,452,393 $ 3,410,249 $ 3,498,594 $ 3,427,995 $ 3,521,272
Average borrowings 219,687 230,517 270,648 243,460 291,840
Average non-interest-bearing other liabilities (14,710 ) (37,694 ) (41,337 ) (29,691 ) (40,792 )
 
Total average liabilities 3,657,370 3,603,072 3,727,905 3,641,764 3,772,320
 
Total average stockholders' equity 580,016   562,641   519,704   561,881   514,151  
`
Total average liabilities and equity $ 4,237,386   $ 4,165,713   $ 4,247,609   $ 4,203,645   $ 4,286,471  
 
Interest rate yield on loans 5.45 % 5.48 % 5.53 % 5.46 % 5.61 %
Interest rate yield on securities 1.85 % 1.99 % 2.75 % 1.92 % 2.49 %
Interest rate yield on cash 0.23 % 0.25 % 0.26 % 0.24 % 0.23 %
 
Interest rate yield on interest-earning assets 4.66 % 4.76 % 4.87 % 4.71 % 4.90 %
 
Interest rate expense on deposits 0.41 % 0.48 % 0.70 % 0.47 % 0.80 %
Interest rate expense on borrowings 1.70 % 1.64 % 2.44 % 1.92 % 2.35 %
 
Interest rate expense on interest-bearing liabilities 0.48 % 0.55 % 0.82 % 0.56 % 0.92 %
 
Interest rate spread 4.18 % 4.21 % 4.05 % 4.15 % 3.98 %
 
Net interest margin 4.22 % 4.26 % 4.10 % 4.20 % 4.04 %
 
Other operating income / Average assets 1.10 % (0.88 %) 0.97 % 0.43 % 0.84 %
 

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

1.09 % 0.97 % 0.78 % 0.98 % 0.71 %
 
Other operating expense / Average assets 3.13 % 3.44 % 3.83 % 3.40 % 3.73 %
 
Efficiency ratio (other operating expense / revenue) 61.33 % 107.34 % 78.82 % 76.54 % 79.72 %
 
Efficiency ratio EXCLUDING fair value adjustments / Average assets (1) 61.41 % 68.21 % 81.91 % 68.10 % 82.00 %
 
Return (Loss) on average assets 1.47 % 2.45 % 0.56 % 1.59 % 0.01 %
 
Return (Loss) on average equity 10.71 % 18.15 % 4.60 % 11.93 % 0.10 %
 
Return (Loss) on average tangible equity (2) 10.81 % 18.33 % 4.67 % 12.05 % 0.10 %
 
Average equity / Average assets 13.69 % 13.51 % 12.24 % 13.37 % 11.99 %
 
(1)

- Earnings information excluding fair value 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.

Banner Corporation
Mark J. Grescovich, President & CEO
Lloyd W. Baker, CFO
509-527-3636


View Comments and Join the Discussion!