 | | Contact: Mark J. Grescovich, President & CEO Lloyd W. Baker, CFO (509) 527-3636 News Release |
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
Walla Walla, WA – October 24, 2012 - Banner Corporation (NASDAQ GSM: 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
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October 24, 2012
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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.
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October 24, 2012
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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.
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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 imcrease 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
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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.
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| 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 | |
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| 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. |
BANR- Third Quarter 2012 Results
October 24, 2012
Page 8
| 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 | |
BANR- Third Quarter 2012 Results
| 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 | % |
BANR- Third Quarter 2012 Results
October 24, 2012
Page 10
| 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 | |
BANR- Third Quarter 2012 Results
October 24, 2012
Page 11
| 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 | |
BANR- Third Quarter 2012 Results
October 24, 2012
Page 12
| 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 | % |
BANR- Third Quarter 2012 Results
October 24, 2012
Page 13
| 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. |
