BANNER CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1

Attached files

file	filename
8-K - BANNER CORPORATION FORM 8-K - BANNER CORP	k8072011.htm

Exhibit 99.1

CONTACT: MARK J. GRESCOVICH,

PRESIDENT & CEO

LLOYD W. BAKER, CFO

(509) 527-3636

NEWS RELEASE

Banner Corporation Announces Earnings of $2.2 Million in Second Quarter

Walla Walla, WA – July 20, 2011 - Banner Corporation (NASDAQ GSM: BANR), the parent company of Banner Bank and Islanders Bank, today reported net income of $2.2 million in the second quarter ended June 30, 2011, compared to a net loss of $7.8 million in the immediately preceding quarter and a net loss of $4.9 million in the second quarter a year ago. In the first six months of the year, Banner reported a net loss of $5.6 million compared to a net loss of $6.5 million in the first six months of 2010.

“Banner’s return to profitability in the second quarter provided further evidence of the successful execution of our strategies and priorities to strengthen the franchise through our super community bank model,” said Mark J. Grescovich, President and Chief Executive Officer. “The resulting margin expansion and increased net interest income, as well as increased deposit and payment processing fees, supported strong revenue generation during the quarter and first half of the year. Additionally, Banner’s credit quality metrics continued to improve during the second quarter, with non-performing loans, real estate owned and total non-performing asset levels all decreasing at June 30, 2011 compared to the prior quarter end, leading to reduced credit costs for the current quarter and six months year-to-date.”

Banner’s second quarter 2011 results included a net gain of $1.9 million ($1.9 million after tax, or $0.12 earnings per share) for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, compared to a net gain of $256,000 ($256,000 after tax, or $0.02 earnings per share) in the first quarter of 2011 and a net loss of $821,000 ($525,000 after tax, or $0.15 earnings per share) in the second quarter a year ago.

In the second 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, the net income to common shareholders was $0.01 per share for the quarter ended June 30, 2011, compared to a net loss to common shareholders of $0.61 per share in the first quarter of 2011 and a net loss to common shareholders of $1.97 per share for the second quarter a year ago.

Credit Quality

“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,” said Grescovich. “Our exposure to one-to-four family residential construction and land development loans has continued to decline and at the end of June had been reduced to just 8.2% of total loans outstanding. Although this percentage is slightly below our long-term target range under improved market conditions, we do expect the land development portion of our portfolio to continue to decline over the near term.

“While credit costs remained stubbornly high and well above our long-term expectations, reflecting the persistent weak economic environment and additional declines in property values, they were significantly reduced from recent quarters and compared to a year ago as we continued to make meaningful progress at reducing problem assets. Although the economic environment remains challenging, our capital and reserve levels are substantial and our coverage ratio relative to non-performing loans continued to increase. We will remain diligent in our efforts to reduce credit costs in future periods as we further reduce non-performing assets.”

Banner recorded an $8.0 million provision for loan losses in the second quarter of 2011, compared to $17.0 million in the preceding quarter and $16.0 million in the second quarter of 2010. The allowance for loan losses at June 30, 2011 totaled $92.0 million, representing 2.78% of total loans outstanding and 80% of non-performing loans. Non-performing loans decreased to $115.2 million at June 30, 2011, compared to $131.7 million in the immediately preceding quarter and $177.9 million a year earlier.

Banner’s real estate owned and repossessed assets decreased to $71.3 million at June 30, 2011, compared to $95.0 million three months earlier and $101.7 million a year earlier. Net charge-offs in the second quarter of 2011 totaled $13.6 million, or 0.41% of average loans outstanding, compared to $16.8 million, or 0.50% of average loans outstanding for the first quarter of 2011 and $16.2 million, or 0.44% of average loans outstanding for the second quarter a year ago. For the first six months of 2011, net charge offs totaled $30.4 million, compared to $29.8 million in the first six months of 2010. Non-performing assets decreased to $188.4 million at June 30, 2011, compared to $228.6 million in the preceding quarter and $283.1 million a year ago. At June 30, 2011, Banner’s non-performing assets were 4.48% of total assets, compared to 5.32% at the end of the preceding quarter and 6.02% a year ago.

(more)

BANR - Second Quarter 2011 Results

July 20, 2011

Page 2

One-to-four family residential construction, land and land development loans were $269.6 million, or 8.2% of the total loan portfolio at June 30, 2011, compared to $411.1 million, or 11.3% of the total loan portfolio a year earlier. The geographic distribution of these residential construction, land and land development loans was approximately $81.3 million, or 30%, in the greater Puget Sound market, $119.1 million, or 44%, in the greater Portland, Oregon market and $9.2 million, or 4%, in the greater Boise, Idaho market as of June 30, 2011. The remaining $60.0 million, or 22%, was distributed in the various eastern Washington, eastern Oregon and northern Idaho markets served by Banner Bank.

Non-performing residential construction, land and land development loans and related real estate owned were $94.0 million, or 50% of non-performing assets at June 30, 2011. The geographic distribution of non-performing construction, land and land development loans and related real estate owned included approximately $41.6 million, or 44%, in the greater Puget Sound market, $37.3 million, or 40%, in the greater Portland market and $6.6 million, or 7%, in the greater Boise market, with the remaining $8.5 million, or 9%, 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 of our sales teams as well as further maturing of our expanded branch system and a targeted marketing campaign have allowed Banner Bank to add customer relationships and grow core deposits. That growth has enabled us to significantly reduce our cost of funds during the first six months of this 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 improve our net interest margin by 15 basis points compared to the immediately preceding quarter and to increase it by 44 basis points compared to the second quarter a year ago, despite continued downward pressure on asset yields,” said Grescovich. Banner’s net interest margin was 4.09% for the second quarter of 2011, compared to 3.94% in the preceding quarter and 3.65% in the second quarter a year ago. For the first six months of 2011, Banner’s net interest margin was 4.01%, a 39 basis point improvement compared to 3.62% for the first six months of 2010.

Funding costs for the second quarter of 2011 decreased eight basis points compared to the previous quarter and 68 basis points from the second quarter a year ago. Deposit costs decreased by nine basis points compared to the preceding quarter and 74 basis points compared to the second quarter a year earlier. Asset yields increased seven basis points compared to the prior quarter, largely as a result of reductions in low yielding interest-earning cash balances and nonaccruing loans, but decreased 26 basis points from the second quarter a year ago. Loan yields declined two basis points compared to the preceding quarter and decreased eight basis points from the second quarter a year ago. Nonaccruing loans reduced the margin by approximately 23 basis points in the second quarter of 2011 compared to approximately 27 basis points in the preceding quarter and approximately 34 basis points in the second quarter of 2010.

Net interest income, before the provision for loan losses, was $41.2 million in the second quarter of 2011, compared to $40.1 million in the preceding quarter and $38.9 million in the second quarter a year ago. For the first six months of 2011, net interest income, before the provision for loan losses, increased 5% to $81.3 million, compared to $77.1 million for the first six months of 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) were $48.5 million in the second quarter of 2011, compared to $47.0 million in the first quarter of 2011 and $45.9 million for the second quarter a year ago. Year-to-date, revenues from core operations increased 5% to $95.6 million, compared to $91.1 million in the same period a year earlier. “The continued growth in core deposits and reduced funding costs over the past year and resulting improvement in net interest margin led to a solid increase in our revenues from core operations compared to the same quarter and six-month period a year earlier,” said Grescovich.

Total other operating income, which includes the changes in the valuation of financial instruments and OTTI adjustments, was $9.3 million in the second quarter of 2011 compared to $7.2 million in the preceding quarter and $6.2 million in the second quarter a year ago. For the first six months of the year, total other operating income was $16.5 million, compared to $13.9 million for the first six months of 2010. There were no OTTI charges during the current quarter, the preceding quarter or the second quarter a year ago; however, OTTI charges during the first quarter of 2010 were $1.2 million. Total other operating income from core operations* (other operating income excluding fair value and OTTI adjustments) for the current quarter was $7.3 million, compared to $7.0 million for the preceding quarter and $7.0 million for the second quarter a year ago. For the first six months of 2011, total other operating income from core operations* was $14.3 million compared to $14.1 million for the first six months of 2010.

Deposit fees and other service charges were $5.7 million in the second quarter of 2011 compared to $5.3 million in the preceding quarter and $5.6 million in the second quarter a year ago. Income from mortgage banking operations decreased to $855,000 in the second quarter, compared to $962,000 in the immediately preceding quarter and $817,000 in the second quarter of 2010.

“Operating expenses were increased during the quarter compared to the preceding quarter and the same quarter a year ago, largely due to higher costs associated with the real estate owned portfolio, particularly valuation adjustments,” said Grescovich. “Aside from these real estate owned costs, our operating expenses were little changed from recent quarters as increased compensation and payment

(more)

BANR - Second Quarter 2011 Results

July 20, 2011

Page 3

processing costs were partially offset by lower deposit insurance expense and professional services fees. While we are working diligently to control operating expenses, we expect collection expenses and costs associated with real estate owned to remain elevated in the near term. However, these credit costs will reduce over time as further problem asset resolution occurs.”

Total other operating expenses, or non-interest expenses, were $40.3 million in the second quarter of 2011, compared to $38.1 million in the preceding quarter and $38.0 million in the second quarter a year ago. For the first six months of 2011, total other operating expenses were $78.4 million compared to $73.4 million for the first six months of 2010.

*Earnings information excluding fair value and OTTI adjustments (alternately referred to as total 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

“Although loan demand was modest for the quarter as both businesses and consumers remained cautious in their use of leverage, the aggressive calling efforts of our bankers are resulting in a stronger pipeline of new relationships and lending opportunities for Banner,” said Grescovich. “Nonetheless, as expected, our loan totals declined modestly again this quarter, as we continued to intentionally reduce our construction and land development loans as well as non-performing loans.”

Net loans were $3.21 billion at June 30, 2011, compared to $3.23 billion at March 31, 2011 and $3.54 billion a year ago. At June 30, 2011, one-to-four family construction loans totaled $140.7 million, a decrease of $10.3 million for the quarter and a decrease of $42.3 million over the past year. One-to-four family construction loans have now been reduced by $514.3 million from their peak quarter-end balance of $655.0 million at June 30, 2007. Similarly, total construction, land and land development loans have declined by $879.9 million from their peak quarter-end balance of $1.24 billion at June 30, 2007.

Total assets were $4.21 billion at June 30, 2011, compared to $4.30 billion at the end of the preceding quarter and $4.70 billion a year ago. Deposits totaled $3.47 billion at June 30, 2011, compared to $3.54 billion at the end of the preceding quarter and $3.84 billion a year ago. Non-interest-bearing accounts totaled $645.8 million at June 30, 2011, compared to $622.8 million at the end of the preceding quarter and $548.3 million a year ago, a year-over-year increase of 18%. At June 30, 2011, interest-bearing transaction and savings accounts were $1.42 billion, compared to $1.46 billion at the end of the preceding quarter and $1.40 billion a year ago.

“We are encouraged by the success we are having in adding non-interest-bearing and other transaction and savings accounts, which is allowing us to reduce our reliance on higher cost certificates of deposit as well as providing additional opportunities to earn deposit fees,” said Grescovich. “This strategy continues to help improve our cost of funds and has led to our net interest margin expansion and revenue growth. Lower rates on renewed and retained certificates of deposit and interest-bearing transaction and savings accounts also contributed to the decline in the cost of deposits.”

At June 30, 2011, total stockholders’ equity was $511.0 million, including $119.9 million attributable to preferred stock, and common stockholders’ equity was $ 391.2 million, or $23.52 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 16.7 million shares outstanding at June 30, 2011, compared to 14.7 million shares outstanding a year ago. Tangible common stockholders’ equity, which excludes preferred stock and other intangibles, was $383.7 million at June 30, 2011, or 9.14% of tangible assets, compared to $377.3 million, or 8.79% of tangible assets at March 31, 2011 and $425.9 million, or 9.08% of tangible assets a year ago. Tangible book value per common share was $23.07 at June 30, 2011.

Augmented by the stock offering and continued sales 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 the 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 June 30, 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 improved to 12.90% and its total capital to risk-weighted assets ratio increased to 17.29% at June 30, 2011. Banner Bank’s Tier 1 leverage ratio also improved to 11.37% at June 30, 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).

(more)

BANR - Second Quarter 2011 Results

July 20, 2011

Page 4

Conference Call

Banner will host a conference call on Thursday, July 21, 2011, at 8:00 a.m. PDT, to discuss its second quarter results. The conference call can be accessed live by telephone at (480) 629-9835 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 4453037.

About the Company

Banner Corporation is a $4.21 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 and Banner Bank under the memoranda of understanding with the Federal Reserve Bank of San Francisco (in the case of Banner) and the FDIC and the Washington DFI (in the case of Banner Bank) and the possibility that Banner 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’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 2011 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.

(more)

BANR - Second Quarter 2011 Results

July 20, 2011

Page 5

RESULTS OF OPERATIONS	Quarters Ended									Six Months Ended
(in thousands except shares and per share data)	Jun 30, 2011			Mar 31, 2011			Jun 30, 2010			Jun 30, 2011			Jun 30, 2010
INTEREST INCOME:
Loans receivable	$	46,846		$	46,755		$	52,473		$	93,601		$	105,232
Mortgage-backed securities		859			875			1,045			1,734			2,171
Securities and cash equivalents		2,183			2,033			2,116			4,216			4,201
		49,888			49,663			55,634			99,551			111,604

INTEREST EXPENSE:
Deposits		7,014			7,812			14,700			14,826			30,498
Federal Home Loan Bank advances		64			178			320			242			681
Other borrowings		568			579			626			1,147			1,260
Junior subordinated debentures		1,041			1,038			1,047			2,079			2,074
		8,687			9,607			16,693			18,294			34,513

Net interest income before provision for loan losses		41,201			40,056			38,941			81,257			77,091

PROVISION FOR LOAN LOSSES		8,000			17,000			16,000			25,000			30,000
Net interest income		33,201			23,056			22,941			56,257			47,091

OTHER OPERATING INCOME:
Deposit fees and other service charges		5,693			5,279			5,632			10,972			10,792
Mortgage banking operations		855			962			817			1,817			1,765
Loan servicing fees		397			256			315			653			628
Miscellaneous		369			493			243			862			869
		7,314			6,990			7,007			14,304			14,054
Other-than-temporary impairment losses		- -			- -			- -			- -			(1,231	)
Net change in valuation of financial instruments carried at fair value		1,939			256			(821	)		2,195			1,087
Total other operating income		9,253			7,246			6,186			16,499			13,910

OTHER OPERATING EXPENSE:
Salary and employee benefits		18,288			17,255			16,793			35,543			33,352
Less capitalized loan origination costs		(1,948	)		(1,720	)		(1,740	)		(3,668	)		(3,345	)
Occupancy and equipment		5,436			5,394			5,581			10,830			11,185
Information / computer data services		1,521			1,567			1,594			3,088			3,100
Payment and card processing services		1,939			1,647			1,683			3,586			3,107
Professional services		1,185			1,672			1,874			2,857			3,161
Advertising and marketing		1,903			1,740			1,742			3,643			3,692
Deposit insurance		1,389			1,969			2,209			3,358			4,341
State/municipal business and use taxes		544			494			533			1,038			1,013
Real estate operations		6,568			4,631			4,166			11,199			7,224
Amortization of core deposit intangibles		570			597			615			1,167			1,259
Miscellaneous		2,860			2,898			2,974			5,758			5,350
Total other operating expense		40,255			38,144			38,024			78,399			73,439

Income (loss) before provision for (benefit from) income taxes		2,199			(7,842	)		(8,897	)		(5,643	)		(12,438	)

PROVISION FOR (BENEFIT FROM ) INCOME TAXES		- -			- -			(3,951	)		- -			(5,975	)
NET INCOME (LOSS)		2,199			(7,842	)		(4,946	)		(5,643	)		(6,463	)

PREFERRED STOCK DIVIDEND AND DISCOUNT ACCRETION:
Preferred stock dividend		1,550			1,550			1,550			3,100			3,100
Preferred stock discount accretion		425			426			399			851			797
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	$	224		$	(9,818	)	$	(6,895	)	$	(9,594	)	$	(10,360	)

Earnings (loss) per share available to common shareholder
Basic	$	0.01		$	(0.61	)	$	(1.97	)	$	(0.58	)	$	(3.11	)
Diluted	$	0.01		$	(0.61	)	$	(1.97	)	$	(0.58	)	$	(3.11	)

Cumulative dividends declared per common share	$	0.01		$	0.07		$	0.07		$	0.08		$	0.14

Weighted average common shares outstanding
Basic		16,535,082			16,008,467			3,493,194			16,404,079			3,328,346
Diluted		16,535,082			16,008,467			3,493,194			16,404,079			3,328,346

Common shares issued in connection with exercise of stock options or DRIP		227,534			241,653			193,370			506,474			416,450

(more)

BANR - Second Quarter 2011 Results

July 20, 2011

Page 6

FINANCIAL CONDITION
(in thousands except shares and per share data)			Jun 30, 2011		Mar 31, 2011		Jun 30, 2010		Dec 31, 2010


ASSETS
Cash and due from banks		$	48,246	$	44,381	$	67,322	$	39,756
Federal funds and interest-bearing deposits			168,198		271,924		369,864		321,896
Securities - at fair value			89,374		90,881		105,381		95,379
Securities - available for sale			287,255		240,968		140,342		200,227
Securities - held to maturity			76,596		75,114		73,632		72,087
Federal Home Loan Bank stock			37,371		37,371		37,371		37,371

Loans receivable:
	Held for sale		1,907		1,493		4,819		3,492
	Held for portfolio		3,304,760		3,324,587		3,626,685		3,399,625
	Allowance for loan losses		(92,000)		(97,632)		(95,508)		(97,401)
			3,214,667		3,228,448		3,535,996		3,305,716

Accrued interest receivable			15,907		16,503		16,930		15,927
Real estate owned held for sale, net			71,205		94,945		101,485		100,872
Property and equipment, net			93,532		94,743		99,536		96,502
Other intangibles, net			7,442		8,011		9,811		8,609
Bank-owned life insurance			57,578		57,123		55,477		56,653
Other assets			38,696		39,291		88,459		55,087
		$	4,206,067	$	4,299,703	$	4,701,606	$	4,406,082

LIABILITIES

Deposits:
	Non-interest-bearing	$	645,778	$	622,759	$	548,251	$	600,457
	Interest-bearing transaction and savings accounts		1,422,290		1,459,895		1,403,231		1,433,248
	Interest-bearing certificates		1,398,332		1,457,994		1,887,513		1,557,493
			3,466,400		3,540,648		3,838,995		3,591,198

Advances from Federal Home Loan Bank at fair value			10,572		10,567		47,003		43,523
Customer repurchase agreements and other borrowings			136,285		159,902		172,737		175,813

Junior subordinated debentures at fair value			47,986		48,395		49,808		48,425

Accrued expenses and other liabilities			19,115		20,958		25,440		21,048
Deferred compensation			14,683		14,489		13,665		14,603
			3,695,041		3,794,959		4,147,648		3,894,610

STOCKHOLDERS' EQUITY

Preferred stock - Series A			119,851		119,426		118,204		119,000
Common stock			517,782		513,950		490,119		509,457
Retained earnings (accumulated deficit)			(126,268)		(126,318)		(53,768)		(115,348)
Other components of stockholders' equity			(339)		(2,314)		(597)		(1,637)
			511,026		504,744		553,958		511,472
		$	4,206,067	$	4,299,703	$	4,701,606	$	4,406,082

Common Shares Issued:
Shares outstanding at end of period			16,668,694		16,443,720		14,707,820		16,164,781
	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			16,634,354		16,409,380		14,673,480		16,130,441

Common stockholders' equity per share (1)		$	23.52	$	23.48	$	29.70	$	24.33
Common stockholders' tangible equity per share (1) (2)		$	23.07	$	22.99	$	29.03	$	23.80

Tangible common stockholders' equity to tangible assets			9.14%		8.79%		9.08%		8.73%
Consolidated Tier 1 leverage capital ratio			12.90%		12.50%		13.02%		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)	- Tangible common equity excludes preferred stock, goodwill, core deposit and other intangibles.

(more)

BANR - Second Quarter 2011 Results

July 20, 2011

Page 7

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

				Jun 30, 2011		Mar 31, 2011		Jun 30, 2010		Dec 31, 2010
LOANS (including loans held for sale):
Commercial real estate
	Owner occupied		$	507,751	$	521,823	$	503,796	$	515,093
	Investment properties			582,569		564,337		553,689		550,610
Multifamily real estate				147,951		147,569		149,980		134,634
Commercial construction				35,790		26,580		84,379		62,707
Multifamily construction				20,552		19,694		56,573		27,394
One- to four-family construction				140,669		151,015		182,928		153,383
Land and land development
	Residential			128,920		147,913		228,156		167,764
	Commercial			29,347		30,539		29,410		32,386
Commercial business				566,243		577,128		635,130		585,457
Agricultural business including secured by farmland				208,485		188,756		208,815		204,968
One- to four-family real estate				658,216		665,396		702,420		682,924
Consumer				97,396		104,129		103,065		99,761
Consumer secured by one- to four-family real estate				182,778		181,201		193,163		186,036
		Total loans outstanding	$	3,306,667	$	3,326,080	$	3,631,504	$	3,403,117

Restructured loans performing under their restructured terms			$	55,652	$	60,968	$	43,899	$	60,115

Loans 30 - 89 days past due and on accrual			$	11,560	$	16,587	$	26,050	$	28,847

Total delinquent loans (including loans on non-accrual)			$	126,805	$	148,285	$	203,992	$	180,336

Total delinquent loans / Total loans outstanding				3.83%		4.46%		5.62%		5.30%


GEOGRAPHIC CONCENTRATION OF LOANS AT
		June 30, 2011		Washington		Oregon		Idaho		Other		Total

Commercial real estate
	Owner occupied		$	383,576	$	69,389	$	51,458	$	3,328	$	507,751
	Investment properties			436,279		99,304		41,016		5,970		582,569
Multifamily real estate				120,552		17,187		9,749		463		147,951
Commercial construction				23,267		822		11,701		- -		35,790
Multifamily construction				12,514		8,038		- -		- -		20,552
One- to four-family construction				71,494		66,430		2,745		- -		140,669
Land and land development
	Residential			67,575		50,719		10,626		- -		128,920
	Commercial			25,286		949		3,112		- -		29,347
Commercial business				382,517		109,068		61,155		13,503		566,243
Agricultural business including secured by farmland				110,836		40,842		56,784		23		208,485
One- to four-family real estate				416,713		211,703		27,488		2,312		658,216
Consumer				69,094		22,734		5,568		- -		97,396
Consumer secured by one- to four-family real estate				125,771		44,070		12,439		498		182,778
		Total loans outstanding	$	2,245,474	$	741,255	$	293,841	$	26,097	$	3,306,667

		Percent of total loans		67.9%		22.4%		8.9%		0.8%		100.0%


DETAIL OF LAND AND LAND DEVELOPMENT LOANS AT
		June 30, 2011		Washington		Oregon		Idaho		Other		Total

Residential
	Acquisition & development		$	32,439	$	28,568	$	3,823	$	- -	$	64,830
	Improved lots			22,026		16,592		923		- -		39,541
	Unimproved land			13,110		5,559		5,880		- -		24,549
		Total residential land and development	$	67,575	$	50,719	$	10,626	$	- -	$	128,920
Commercial & industrial
	Acquisition & development		$	3,873	$	- -	$	510	$	- -	$	4,383
	Improved land			8,865		- -		200		- -		9,065
	Unimproved land			12,548		949		2,402		- -		15,899
		Total commercial land and development	$	25,286	$	949	$	3,112	$	- -	$	29,347

(more)

BANR - Second Quarter 2011 Results

July 20, 2011

Page 8

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

						Quarters Ended				Six Months		Ended
CHANGE IN THE				Jun 30, 2011		Mar 31, 2011		Jun 30, 2010		Jun 30, 2011		Jun 30, 2010
ALLOWANCE FOR LOAN LOSSES

Balance, beginning of period			$	97,632	$	97,401	$	95,733	$	97,401	$	95,269

Provision				8,000		17,000		16,000		25,000		30,000

Recoveries of loans previously charged off:
		Commercial real estate		15		- -		- -		15		- -
		Multifamily real estate		- -		- -		- -		- -		- -
		Construction and land		716		35		235		751		622
		One- to four-family real estate		29		52		71		81		71
		Commercial business		76		81		595		157		1,885
		Agricultural business, including secured by farmland		5		- -		- -		5		- -
		Consumer		84		78		69		162		128
				925		246		970		1,171		2,706
Loans charged off:
		Commercial real estate		(1,871)		(989)		- -		(2,860)		(92)
		Multifamily real estate		(244)		(427)		- -		(671)		- -
		Construction and land		(6,077)		(10,537)		(12,255)		(16,614)		(19,979)
		One- to four-family real estate		(1,894)		(2,209)		(2,128)		(4,103)		(4,243)
		Commercial business		(3,993)		(2,368)		(1,447)		(6,361)		(6,231)
		Agricultural business, including secured by farmland		(166)		(123)		(986)		(289)		(988)
		Consumer		(312)		(362)		(379)		(674)		(934)
				(14,557)		(17,015)		(17,195)		(31,572)		(32,467)
		Net charge-offs		(13,632)		(16,769)		(16,225)		(30,401)		(29,761)
Balance, end of period			$	92,000	$	97,632	$	95,508	$	92,000	$	95,508

Net charge-offs / Average loans outstanding				0.41%		0.50%		0.44%		0.91%		0.80%


ALLOCATION OF
ALLOWANCE FOR LOAN LOSSES				Jun 30, 2011		Mar 31, 2011		Jun 30, 2010		Dec 31, 2010
Specific or allocated loss allowance
	Commercial real estate		$	13,087	$	11,871	$	7,042	$	11,779
	Multifamily real estate			5,404		6,055		2,364		3,963
	Construction and land			25,976		30,346		45,601		33,121
	Commercial business			19,912		22,054		23,905		24,545
	Agricultural business, including secured by farmland			1,409		1,441		679		1,846
	One- to four-family real estate			8,254		8,149		3,530		5,829
	Consumer			1,445		1,452		1,890		1,794
		Total allocated		75,487		81,368		85,011		82,877

	Estimated allowance for undisbursed commitments			1,001		1,158		909		1,426
	Unallocated			15,512		15,106		9,588		13,098
		Total allowance for loan losses	$	92,000	$	97,632	$	95,508	$	97,401

Allowance for loan losses / Total loans outstanding				2.78%		2.94%		2.63%		2.86%

Allowance for loan losses / Non-performing loans				80%		74%		54%		64%

(more)

BANR - Second Quarter 2011 Results

July 20, 2011

Page 9

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

NON-PERFORMING ASSETS

Loans on non-accrual status
	Secured by real estate:
			Commercial	$	22,421	$	23,443	$	9,433	$	24,727
			Multifamily		1,560		1,361		363		1,889
			Construction and land		53,529		67,163		110,931		75,734
			One- to four-family		15,435		16,571		19,878		16,869
	Commercial business				15,264		15,904		23,474		21,100
	Agricultural business, including secured by farmland				1,342		1,984		7,556		5,853
	Consumer				4,400		4,655		3,588		2,332
					113,951		131,081		175,223		148,504

Loans more than 90 days delinquent, still on accrual
	Secured by real estate:
			Commercial		- -		- -		1,137		- -
			Multifamily		- -		- -		- -		- -
			Construction and land		- -		- -		692		- -
			One- to four-family		622		561		772		2,955
	Commercial business				1		14		- -		- -
	Agricultural business, including secured by farmland				545		- -		- -		- -
	Consumer				126		42		118		30
					1,294		617		2,719		2,985
Total non-performing loans					115,245		131,698		177,942		151,489
Securities on non-accrual					1,896		1,904		3,500		1,896
Real estate owned (REO) and repossessed assets					71,265		94,969		101,701		100,945
			Total non-performing assets	$	188,406	$	228,571	$	283,143	$	254,330

Total non-performing assets / Total assets					4.48%		5.32%		6.02%		5.77%

DETAIL & GEOGRAPHIC CONCENTRATION OF
	NON-PERFORMING ASSETS AT
			June 30, 2011		Washington		Oregon		Idaho		Other		Total
Secured by real estate:
	Commercial			$	17,852	$	477	$	4,092	$	- -	$	22,421
	Multifamily				1,560		- -		- -		- -		1,560
	Construction and land
		One- to four-family construction			6,486		3,082		641		- -		10,209
		Commercial construction			1,510		- -		- -		- -		1,510
		Multifamily construction			- -		648		- -		- -		648
		Residential land acquisition & development			18,374		6,207		1,470		- -		26,051
		Residential land improved lots			2,744		3,705		131		- -		6,580
		Residential land unimproved			2,739		916		2,428		- -		6,083
		Commercial land acquisition & development			- -		- -		- -		- -		- -
		Commercial land improved			1,954		- -		- -		- -		1,954
		Commercial land unimproved			494		- -		- -		- -		494
			Total construction and land		34,301		14,558		4,670		- -		53,529
	One- to four-family				12,059		2,766		1,232		- -		16,057
Commercial business					14,265		76		775		149		15,265
Agricultural business, including secured by farmland					1,290		- -		597		- -		1,887
Consumer					2,205		1,851		470		- -		4,526
Total non-performing loans					83,532		19,728		11,836		149		115,245
Securities on non-accrual					- -		- -		500		1,396		1,896
Real estate owned (REO) and repossessed assets					31,457		32,827		6,981		- -		71,265
			Total non-performing assets	$	114,989	$	52,555	$	19,317	$	1,545	$	188,406

(more)

BANR - Second Quarter 2011 Results

July 20, 2011

Page 10

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
			Quarters Ended				Six Months Ended

REAL ESTATE OWNED			Jun 30, 2011		Jun 30, 2010		Jun 30, 2011		Jun 30, 2010

Balance, beginning of period		$	94,945	$	95,074	$	100,872	$	77,743
	Additions from loan foreclosures		11,918		17,885		26,834		45,212
	Additions from capitalized costs		1,532		380		3,147		1,516
	Dispositions of REO		(32,437)		(10,532)		(51,331)		(20,411)
	Gain (loss) on sale of REO		58		(498)		(479)		(1,235)
	Valuation adjustments in the period		(4,811)		(824)		(7,838)		(1,340)
Balance, end of period		$	71,205	$	101,485	$	71,205	$	101,485

			Quarters Ended

REAL ESTATE OWNED- FIVE COMPARATIVE QUARTERS			Jun 30, 2011		Mar 31, 2011		Dec 31, 2010		Sep 30, 2010		Jun 30, 2010

Balance, beginning of period		$	94,945	$	100,872	$	107,159	$	101,485	$	95,074
	Additions from loan foreclosures		11,918		14,916		16,855		25,694		17,885
	Additions from capitalized costs		1,532		1,615		1,650		841		380
	Dispositions of REO		(32,437)		(18,894)		(19,095)		(12,145)		(10,532)
	Gain (loss) on sale of REO		58		(537)		(524)		(133)		(498)
	Valuation adjustments in the period		(4,811)		(3,027)		(5,173)		(8,583)		(824)
Balance, end of period		$	71,205	$	94,945	$	100,872	$	107,159	$	101,485

REAL ESTATE OWNED- BY TYPE AND STATE			Washington		Oregon		Idaho		Total

Commercial real estate		$	1,533	$	13	$	477	$	2,023
One- to four-family construction			472		3,646		- -		4,118
Land development- commercial			3,876		4,065		200		8,141
Land development- residential			18,787		18,763		3,400		40,950
Agricultural land			- -		256		850		1,106
One- to four-family real estate			6,729		6,084		2,054		14,867
Total		$	31,397	$	32,827	$	6,981	$	71,205

(more)

BANR - Second Quarter 2011 Results

July 20, 2011

Page 11

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)


DEPOSITS & OTHER BORROWINGS
				Jun 30, 2011		Mar 31, 2011		Jun 30, 2010		Dec 31, 2010
	DEPOSIT COMPOSITION

	Non-interest-bearing		$	645,778	$	622,759	$	548,251	$	600,457
	Interest-bearing checking			356,321		361,430		368,418		357,702
	Regular savings accounts			631,688		648,520		593,591		616,512
	Money market accounts			434,281		449,945		441,222		459,034
		Interest-bearing transaction & savings accounts		1,422,290		1,459,895		1,403,231		1,433,248
	Interest-bearing certificates			1,398,332		1,457,994		1,887,513		1,557,493

		Total deposits	$	3,466,400	$	3,540,648	$	3,838,995	$	3,591,198


	INCLUDED IN TOTAL DEPOSITS

	Public transaction accounts		$	72,181	$	62,873	$	85,292	$	64,482
	Public interest-bearing certificates			69,219		67,527		81,668		81,809
		Total public deposits	$	141,400	$	130,400	$	166,960	$	146,291


	Total brokered deposits		$	73,161	$	92,940	$	145,571	$	102,984



	INCLUDED IN OTHER BORROWINGS
	Customer repurchase agreements / "Sweep accounts"		$	85,822	$	109,227	$	122,755	$	125,140



	GEOGRAPHIC CONCENTRATION OF DEPOSITS AT
		June 30, 2011		Washington		Oregon		Idaho		Total

			$	2,646,712	$	591,519	$	228,169	$	3,466,400




								Minimum for Capital Adequacy
REGULATORY CAPITAL RATIOS AT				Actual				or "Well Capitalized"
		June 30, 2011		Amount		Ratio		Amount		Ratio

Banner Corporation-consolidated
		Total capital to risk-weighted assets	$	591,709		17.29%	$	273,802		8.00%
		Tier 1 capital to risk-weighted assets		548,320		16.02%		136,901		4.00%
		Tier 1 leverage capital to average assets		548,320		12.90%		169,964		4.00%

Banner Bank
		Total capital to risk-weighted assets		497,052		15.32%		324,376		10.00%
		Tier 1 capital to risk-weighted assets		455,902		14.05%		194,626		6.00%
		Tier 1 leverage capital to average assets		455,902		11.37%		200,486		5.00%

Islanders Bank
		Total capital to risk-weighted assets		30,226		14.93%		20,243		10.00%
		Tier 1 capital to risk-weighted assets		27,695		13.68%		12,146		6.00%
		Tier 1 leverage capital to average assets		27,695		11.78%		11,756		5.00%

(more)

BANR - Second Quarter 2011 Results

July 20, 2011

Page 12

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

OPERATING PERFORMANCE			Jun 30, 2011		Mar 31, 2011		Jun 30, 2010		Jun 30, 2011		Jun 30, 2010


Average loans		$	3,333,102	$	3,349,978	$	3,677,140	$	3,341,487	$	3,701,552
Average securities			511,273		465,017		391,067		488,233		392,826
Average interest earning cash			196,211		308,575		216,576		252,094		194,188
Average non-interest-earning assets			215,494		233,365		268,864		224,414		262,193
	Total average assets	$	4,256,080	$	4,356,935	$	4,553,647	$	4,306,228	$	4,550,759

Average deposits		$	3,504,884	$	3,561,020	$	3,830,659	$	3,532,796	$	3,815,798
Average borrowings			283,178		322,261		349,997		302,612		361,578
Average non-interest-bearing liabilities			(41,253)		(39,755)		(38,527)		(40,508)		(37,498)
	Total average liabilities		3,746,809		3,843,526		4,142,129		3,794,900		4,139,878

Total average stockholders' equity			509,271		513,409		411,518		511,328		410,881
	Total average liabilities and equity	$	4,256,080	$	4,356,935	$	4,553,647	$	4,306,228	$	4,550,759

Interest rate yield on loans			5.64%		5.66%		5.72%		5.65%		5.73%
Interest rate yield on securities			2.31%		2.38%		3.11%		2.34%		3.16%
Interest rate yield on cash			0.20%		0.23%		0.23%		0.22%		0.23%
	Interest rate yield on interest-earning assets		4.95%		4.88%		5.21%		4.92%		5.25%

Interest rate expense on deposits			0.80%		0.89%		1.54%		0.85%		1.61%
Interest rate expense on borrowings			2.37%		2.26%		2.28%		2.31%		2.24%
	Interest rate expense on interest-bearing liabilities		0.92%		1.00%		1.60%		0.96%		1.67%

Interest rate spread			4.03%		3.88%		3.61%		3.96%		3.58%

Net interest margin			4.09%		3.94%		3.65%		4.01%		3.62%

Other operating income / Average assets			0.87%		0.67%		0.54%		0.77%		0.62%

Other operating income EXCLUDING change in valuation of
	financial instruments carried at fair value / Average assets (1)		0.69%		0.65%		0.62%		0.67%		0.57%

Other operating expense / Average assets			3.79%		3.55%		3.35%		3.67%		3.25%

Efficiency ratio (other operating expense / revenue)			79.79%		80.64%		84.26%		80.20%		80.70%

Return (Loss) on average assets			0.21%		(0.73%)		(0.44%)		(0.26%)		(0.29%)

Return (Loss) on average equity			1.73%		(6.19%)		(4.82%)		(2.23%)		(3.17%)

Return (Loss) on average tangible equity (2)			1.76%		(6.30%)		(4.94%)		(2.26%)		(3.25%)

Average equity / Average assets			11.97%		11.78%		9.04%		11.87%		9.03%

(1)	- Earnings information excluding the fair value adjustments and goodwill impairment charge (alternately referred to as operating
	income (loss) from core operations and expenses from core operations) represent non-GAAP (Generally Accepted
	Accounting Principles) financial measures.

(2)	- Average tangible equity excludes goodwill, core deposit and other intangibles.

Transmitted on GlobeNewswire on Wednesday, July 20, 2011, at 1:00 p.m. PDT.

Attached files

Stock widget

Investing forum

BANNER CORP Reports