updated 4/27/2011 4:18:20 PM ET 2011-04-27T20:18:20

WALLA WALLA, Wash., April 27, 2011 (GLOBE NEWSWIRE) -- Banner Corporation (Nasdaq:BANR), the parent company of Banner Bank and Islanders Bank, today reported that it had a net loss of $7.8 million in the quarter ended March 31, 2011, compared to a net loss of $12.7 million in the immediately preceding quarter and a net loss of $1.5 million in the first quarter a year ago.

"The first quarter provided further evidence of the progress we are making in implementing our strategies to strengthen the franchise through our super community bank model," said Mark J. Grescovich, President and Chief Executive Officer. "Additional margin expansion and increased net interest income, before provision for loan losses, compared to a year ago supported strong revenue generation during the first quarter, despite a decline in income from mortgage banking operations. We have improved our core business by continuing to change the composition of our deposit portfolio, growing non-interest-bearing and other core deposit balances, while strengthening our on-balance-sheet liquidity and capital base and effectively managing controllable operating expenses. The result has been meaningful improvement in our core operations and growth in recurring revenues compared to the same period a year earlier.

"In addition, Banner's credit quality metrics improved during the first quarter, with non-performing loans, real estate owned and total non-performing asset levels all decreasing at March 31, 2011 compared to the prior quarter end," Grescovich continued. "However, the provision for loan losses and expenses related to real estate owned remained high, adversely affecting our operating results in the first quarter. Although we made progress during the quarter in reducing non-performing loans and selling acquired real estate, significantly improving our asset quality remains the primary focus for Banner that will allow us to return to profitability."

In the first quarter, Banner paid a $1.6 million dividend on the $124 million of senior preferred stock it issued to the U.S. Treasury in the fourth quarter of 2008 in connection with its participation in the Treasury's Capital Purchase Program. In addition, Banner accrued $426,000 for related discount accretion. Including the preferred stock dividend and related accretion, the net loss to common shareholders was $0.09 per share for the quarter ended March 31, 2011, compared to a net loss to common shareholders of $0.13 per share in the fourth quarter of 2010 and $0.16 per share for the first quarter a year ago.

Credit Quality

"Charge-offs and delinquencies as well as real estate expenses and valuation adjustments continued to be concentrated in loans for the construction of single-family homes and residential land development projects," noted Grescovich. "However, our exposure to one-to-four family residential construction and land development loans has continued to decline and at March 31, 2011 had been reduced to just 9.0% 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 this portfolio to continue to decline over the near term.

"Our impairment analysis and charge-off actions reflect current appraisals and valuation estimates and our reserve levels are substantial, resulting in increased coverage ratios relative to both non-performing loans and total loans at quarter end," Grescovich continued.  "We will remain diligent in our efforts to reduce credit costs substantially in 2011 and beyond as further problem asset resolution occurs and the economy continues to recover."

Banner recorded a $17.0 million provision for loan losses in the first quarter of 2011, compared to $20.0 million in the preceding quarter and $14.0 million in the first quarter of 2010. The allowance for loan losses at March 31, 2011 totaled $97.6 million, representing 2.94% of total loans outstanding and 74% of non-performing loans. Non-performing loans totaled $131.7 million at March 31, 2011, compared to $151.5 million in the preceding quarter and $196.0 million a year earlier. 

Banner's real estate owned and repossessed assets totaled $94.9 million at March 31, 2011, compared to $100.9 million three months earlier and $95.2 million a year earlier. Net charge-offs in the first quarter of 2011 totaled $16.8 million, or 0.50% of average loans outstanding, compared to $19.0 million, or 0.55% of average loans outstanding for the fourth quarter of 2010 and $13.5 million, or 0.36% of average loans outstanding for the first quarter a year ago.  Non-performing assets totaled $228.6 million at March 31, 2011, compared to $254.3 million in the preceding quarter and $294.2 million a year earlier. At March 31, 2011, Banner's non-performing assets were 5.32% of total assets, compared to 5.77% at the end of the preceding quarter and 6.42% a year ago.

One-to-four family residential construction, land and land development loans were $298.9 million, or only 9.0% of the total loan portfolio at March 31, 2011, compared to $470.0 million, or 12.8% of the total loan portfolio a year earlier. The geographic distribution of these residential construction, land and land development loans was approximately $95.5 million, or 32%, in the greater Puget Sound market, $131.1 million, or 44%, in the greater Portland, Oregon market and $11.8 million, or 4%, in the greater Boise, Idaho market as of March 31, 2011. The remaining $60.5 million, or 20%, 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 $108.3 million, or 47% of non-performing assets at March 31, 2011. The geographic distribution of non-performing construction, land and land development loans and related real estate owned included approximately $48.4 million, or 45%, in the greater Puget Sound market, $42.7 million, or 39%, in the greater Portland market and $9.2 million, or 9%, in the greater Boise market, with the remaining $8.0 million, or 7%, distributed in the various eastern Washington, eastern Oregon and northern Idaho markets served by Banner Bank. 

Income Statement Review

"Further maturing of our expanded branch system and the realignment and refocusing of our delivery platforms has 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 quarter through changes in our deposit mix. The reduced cost of funds made it possible for us to improve our net interest margin by 13 basis points compared to the immediately preceding quarter and to increase it by 33 basis points compared to the first quarter a year ago, despite significant downward pressure on asset yields," said Grescovich. Banner's net interest margin was 3.94% for the first quarter of 2011, compared to 3.81% in the preceding quarter and 3.61% in the first quarter a year ago. 

Funding costs for the first quarter decreased 13 basis points compared to the previous quarter and 73 basis points from the first quarter a year ago. Deposit costs decreased by 14 basis points compared to the preceding quarter and 80 basis points compared to the first quarter a year earlier. Asset yields were unchanged from the prior quarter and decreased 41 basis points from the first quarter a year ago.  Loan yields declined one basis point compared to the preceding quarter and decreased eight basis points from the first quarter a year ago. Non-accruing loans reduced the margin by approximately 27 basis points in the first quarter of 2011 compared to approximately 33 basis points in the preceding quarter and approximately 34 basis points in the first quarter of 2010. 

Net interest income, before the provision for loan losses, was $40.1 million in the first quarter of 2011, compared to $40.8 million in the preceding quarter and $38.2 million in the first quarter a year ago. Revenues from core operations* (net interest income before the provision for loan losses plus total other operating income excluding fair value and other-than-temporary impairment (OTTI) adjustments) were $47.0 million in the first quarter of 2011, compared to $49.0 million in the fourth quarter of 2010 and $45.2 million for the first quarter a year ago. "While we had an expected seasonal decline in revenues compared to the immediately preceding quarter, the growth in core deposits and reduced funding costs and resulting improvement in net interest margin led to a solid increase in our revenues from core operations compared to the same quarter a year earlier," said Grescovich.

Banner's first quarter 2011 results also included a net gain of $256,000 ($256,000 after tax, with no measurable impact on 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 loss of $706,000 ($706,000 after tax, or $0.01 loss per share) in the fourth quarter of 2010 and a net gain of $1.9 million ($1.2 million after tax, or $0.06 earnings per share) in the first quarter a year ago.  

Total other operating income, which includes the changes in the valuation of financial instruments noted above and OTTI adjustments, was $7.2 million in the first quarter of 2011, compared to $7.6 million in the preceding quarter and $7.7 million for the first quarter a year ago. There were no OTTI charges during the current first quarter or during the preceding quarter.  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 $7.0 million, compared to $8.3 million the preceding quarter, and $7.0 million for the first quarter a year ago.  

Income from mortgage banking operations decreased to $962,000 in the first quarter, compared to $2.1 million in the immediately preceding quarter and was nearly unchanged from $948,000 in the first quarter of 2010.  Deposit fees and other service charges were $5.3 million in the first quarter of 2011 compared to $5.5 million in the preceding quarter and $5.2 million in the first quarter a year ago.

"Operating expenses decreased during the quarter compared to the preceding quarter, primarily due to a lower amount of valuation adjustments in the real estate owned portfolio than was recorded during the fourth quarter of 2010," said Grescovich. "Aside from the costs associated with real estate owned, our operating expenses were little changed from recent quarters. 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 short term as we continue our efforts to reduce our inventory of non-performing assets."

Total other operating expenses, or non-interest expenses, were $38.1 million in the first quarter of 2011, compared to $41.0 million in the preceding quarter and $35.4 million in the first quarter a year ago.  

*Earnings information excluding fair value and OTTI adjustments (alternately referred to as total other operating income from core operation or revenues from core operations) represent non-GAAP (Generally Accepted Accounting Principles) financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results. Where applicable, the Company has also presented comparable earnings information using GAAP financial measures.

Balance Sheet Review

"We have continued to intentionally reduce our construction and land development loans as well as other non-performing loans during the past year, including additional reductions in the first quarter. Further, loan demand remained modest for the quarter as both businesses and consumers continued to deleverage their balance sheets and remain very cautious in the current economic environment. We also experienced a normal seasonal decline in agricultural loan balances during the first quarter. As a result, total loans declined further in the first quarter," said Grescovich, "however, the aggressive calling efforts of our bankers are resulting in a stronger pipeline of new relationship and lending opportunities for Banner." 

Net loans were $3.23 billion at March 31, 2011, compared to $3.31 billion at December 31, 2010 and $3.59 billion a year ago. At March 31, 2011, our one-to-four family construction loans totaled $151.0 million, a $62.4 million reduction over the past year and a reduction of $504.0 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 $864.3 million from their peak quarter-end balance of $1.24 billion at June 30, 2007.   

Total assets were $4.30 billion at March 31, 2011, compared to $4.41 billion at the end of the preceding quarter and $4.58 billion a year ago. Deposits totaled $3.54 billion at March 31, 2011, compared to $3.59 billion at the end of the preceding quarter and $3.85 billion a year ago. Non-interest-bearing accounts totaled $622.8 million at March 31, 2011, compared to $600.5 million at the end of the preceding quarter and $549.3 million a year ago, a year-over-year increase of 13%. At March 31, 2011, interest-bearing transaction and savings accounts were $1.46 billion, compared to $1.43 billion at the end of the preceding quarter and $1.40 billion a year ago, a year-over-year increase of 4%.  

 "We have significantly reduced our reliance on higher cost certificates of deposit by emphasizing core deposit activity in non-interest-bearing and other transaction and savings deposit products. This strategy continues to help improve our cost of funds and increase the opportunity for deposit fee revenue," said Grescovich.  "Much lower rates on renewed and retained certificates of deposit also significantly contributed to the decline in the cost of deposits and are expected to provide a substantial benefit in future periods."

At March 31, 2011, total stockholders' equity was $504.7 million, including $119.4 million attributable to preferred stock and common stockholders' equity was $385.3 million, or $3.35 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. At March 31, 2011, Banner had 114.9 million shares outstanding, compared to 22.9 million shares outstanding a year ago. Tangible common stockholders' equity, which excludes preferred stock and other intangibles, was $377.3 million at March 31, 2011, or 8.79% of tangible assets, compared to $383.9 million, or 8.73% of tangible assets at December 31, 2010 and $278.5 million, or 6.09% of tangible assets a year ago. Tangible book value per common share was $3.28 at March 31, 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 March 31, 2011, Banner Corporation had invested $110.0 million of the net proceeds as additional paid-in common equity in Banner Bank, although no additional equity investment was made during the most recent quarter. Banner Corporation's Tier 1 leverage capital to average assets ratio was 12.50% and its total capital to risk-weighted assets ratio was 17.14% at March 31, 2011. Banner Bank's Tier 1 leverage ratio improved to 11.03% at March 31, 2011, well in excess of the minimum level of 10% targeted in our Memorandum of Understanding agreed to with the FDIC and the Washington Department of Financial Institutions.

Conference Call

Banner will host a conference call on Thursday, April 28, 2011, at 8:00 a.m. PDT, to discuss first quarter results. The conference call can be accessed live by telephone at (480) 629-9723 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 4429150.

About the Company

Banner Corporation is a $4.30 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, 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 Federal Deposit Insurance Corporation, the Washington State Department of Financial Institutions, Division of Banks or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, 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; further 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, which estimates may prove to be incorrect and result in significant declines in valuation; 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.

BANR - First Quarter 2011 Results      
RESULTS OF OPERATIONS  Quarters Ended
(in thousands except shares and per share data) Mar 31, 2011 Dec 31, 2010 Mar 31, 2010
       
INTEREST INCOME:      
Loans receivable  $46,755  $49,390  $52,759
Mortgage-backed securities  875  902  1,126
Securities and cash equivalents  2,033  1,936  2,085
   49,663  52,228  55,970
       
INTEREST EXPENSE:      
Deposits  7,812  9,521  15,798
Federal Home Loan Bank advances  178  314  361
Other borrowings  579  584  634
Junior subordinated debentures  1,038  1,052  1,027
   9,607  11,471  17,820
Net interest income before provision for loan losses  40,056  40,757  38,150
       
PROVISION FOR LOAN LOSSES  17,000  20,000  14,000
Net interest income  23,056  20,757  24,150
       
OTHER OPERATING INCOME:      
Deposit fees and other service charges  5,279  5,515  5,169
Mortgage banking operations  962  2,086  948
Loan servicing fees  256  177  313
Miscellaneous  493  514  617
  6,990 8,292 7,047
Other-than-temporary impairment losses  --  --  (1,231)
Net change in valuation of financial instruments carried at fair value  256  (706)  1,908
Total other operating income  7,246  7,586  7,724
       
OTHER OPERATING EXPENSE:      
Salary and employee benefits  17,255  17,045  16,559
Less capitalized loan origination costs  (1,720)  (2,123)  (1,605)
Occupancy and equipment  5,394  5,501  5,604
Information / computer data services  1,567  1,531  1,506
Payment and card processing services  1,647  1,942  1,424
Professional services  1,672  1,740  1,287
Advertising and marketing  1,740  1,740  1,950
Deposit insurance  1,969  1,999  2,132
State/municipal business and use taxes  494  616  480
Real estate operations  4,631  7,044  3,058
Amortization of core deposit intangibles  597  600  644
Miscellaneous  2,898  3,399  2,376
Total other operating expense  38,144  41,034  35,415
Income (loss) before provision for (benefit from) income taxes  (7,842)  (12,691)  (3,541)
       
PROVISION FOR (BENEFIT FROM ) INCOME TAXES  --  --  (2,024)
NET INCOME (LOSS)  (7,842)  (12,691)  (1,517)
       
PREFERRED STOCK DIVIDEND AND DISCOUNT ACCRETION:      
Preferred stock dividend  1,550  1,550  1,550
Preferred stock discount accretion  426  398  398
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS  $(9,818)  $(14,639)  $(3,465)
       
Earnings (loss) per share available to common shareholder      
Basic  $(0.09)  $(0.13)  $(0.16)
Diluted  $(0.09)  $(0.13)  $(0.16)
       
Cumulative dividends declared per common share  $0.01  $0.01  $0.01
       
Weighted average common shares outstanding      
Basic  113,901,348  112,059,269  22,131,671
Diluted  113,901,348  112,059,269  22,131,671
       
Common shares issued in connection with exercise of stock options or DRIP  1,952,577  1,691,572  1,561,559
       
       
BANR - First Quarter 2011 Results      
FINANCIAL CONDITION      
(in thousands except shares and per share data) Mar 31, 2011 Dec 31, 2010 Mar 31, 2010
       
ASSETS      
Cash and due from banks  $44,381  $39,756  $41,123
Federal funds and interest-bearing deposits   271,924  321,896  236,629
Securities - at fair value  90,881  95,379  138,659
Securities - available for sale  240,968  200,227  96,718
Securities - held to maturity  75,114  72,087  73,555
Federal Home Loan Bank stock  37,371  37,371  37,371
Loans receivable:      
Held for sale  1,493  3,492  4,398
Held for portfolio  3,324,587  3,399,625  3,684,459
Allowance for loan losses  (97,632)  (97,401)  (95,733)
   3,228,448  3,305,716  3,593,124
       
Accrued interest receivable  16,503  15,927  18,501
Real estate owned held for sale, net  94,945  100,872  95,074
Property and equipment, net  94,743  96,502  101,541
Other intangibles, net  8,011  8,609  10,426
Bank-owned life insurance  57,123  56,653  55,125
Other assets  39,291  55,087  83,865
   $4,299,703  $4,406,082  $4,581,711
LIABILITIES      
Deposits:      
Non-interest-bearing  $622,759  $600,457  $549,291
Interest-bearing transaction and savings accounts  1,459,895  1,433,248  1,404,301
Interest-bearing certificates  1,457,994  1,557,493  1,896,186
   3,540,648  3,591,198  3,849,778
       
Advances from Federal Home Loan Bank at fair value  10,567  43,523  62,108
Customer repurchase agreements and other borrowings  159,902  175,813  177,244
       
Junior subordinated debentures at fair value  48,395  48,425  48,147
       
Accrued expenses and other liabilities   20,958  21,048  24,049
Deferred compensation  14,489  14,603  13,661
   3,794,959  3,894,610  4,174,987
       
STOCKHOLDERS' EQUITY      
Preferred stock - Series A  119,426  119,000  117,805
Common stock  513,950  509,457  335,877
Retained earnings (accumulated deficit)  (126,318)  (115,348)  (45,775)
Other components of stockholders' equity  (2,314)  (1,637)  (1,183)
   504,744  511,472  406,724
   $4,299,703  $4,406,082  $4,581,711
Common Shares Issued:      
Shares outstanding at end of period  115,106,042  113,153,465  23,101,149
Less unearned ESOP shares at end of period  240,381  240,381  240,381
Shares outstanding at end of period excluding unearned ESOP shares  114,865,661  112,913,084  22,860,768
Common stockholders' equity per share (1)  $3.35  $3.48  $12.64
Common stockholders' tangible equity per share (1) (2)  $3.28  $3.40  $12.18
Tangible common stockholders' equity to tangible assets 8.79% 8.73% 6.09%
Consolidated Tier 1 leverage capital ratio 12.50% 12.24% 9.76%
       
(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.
       
BANR - First Quarter 2011 Results          
ADDITIONAL FINANCIAL INFORMATION          
(dollars in thousands)          
           
  Mar 31, 2011 Dec 31, 2010 Mar 31, 2010    
LOANS (including loans held for sale):          
Commercial real estate          
Owner occupied  $521,823 $515,093  $515,542    
Investment properties  564,337  550,610  557,134    
Multifamily real estate  147,569  134,634  147,659    
Commercial construction  26,580  62,707  83,879    
Multifamily construction  19,694  27,394  61,924    
One- to four-family construction  151,015  153,383  213,438    
Land and land development          
Residential  147,913  167,764  256,607    
Commercial  30,539  32,386  48,194    
Commercial business  577,128  585,457  616,396    
Agricultural business including secured by farmland  188,756  204,968  187,207    
One- to four-family real estate  665,396  682,924  697,565    
Consumer  104,129  99,761  109,092    
Consumer secured by one- to four-family real estate  181,201  186,036  194,220    
Total loans outstanding  $3,326,080  $3,403,117  $3,688,857    
Restructured loans performing under their restructured terms  $60,968  $60,115  $45,471    
Loans 30 - 89 days past due and on accrual  $16,587  $28,847  $51,328    
Total delinquent loans (including loans on non-accrual)  $148,285  $180,336  $247,338    
Total delinquent loans / Total loans outstanding 4.46% 5.30% 6.71%    
           
           
GEOGRAPHIC CONCENTRATION OF LOANS AT          
March 31, 2011 Washington Oregon Idaho Other Total
           
Commercial real estate          
Owner occupied  $401,610  $65,803  $51,014  $3,396  $521,823
Investment properties  412,223  103,692  42,377  6,045  564,337
Multifamily real estate  119,984  17,308  9,788  489  147,569
Commercial construction  16,253  1,152  9,175  --  26,580
Multifamily construction  11,652  8,042  --  --  19,694
One- to four-family construction  74,942  72,533  3,540  --  151,015
Land and land development          
Residential  79,627  57,137  11,149  --  147,913
Commercial  26,176  1,356  3,007  --  30,539
Commercial business  390,439  108,587  64,624  13,478  577,128
Agricultural business including secured by farmland  100,560  36,410  51,778  8  188,756
One- to four-family real estate  426,549  207,273  29,235  2,339  665,396
Consumer  75,562  22,534  6,033  --  104,129
Consumer secured by one- to four-family real estate  125,231  43,001  12,471  498  181,201
Total loans outstanding  $2,260,808  $744,828  $294,191  $26,253  $3,326,080
Percent of total loans 68.0% 22.4% 8.8% 0.8% 100.0%
           
           
DETAIL OF LAND AND LAND DEVELOPMENT LOANS AT          
March 31, 2011 Washington Oregon Idaho Other Total
           
Residential          
Acquisition & development  $37,910  $33,985  $4,235 $ --  $76,130
Improved lots  26,775  17,334  950  --  45,059
Unimproved land  14,942  5,818  5,964  --  26,724
Total residential land and development  $79,627  $57,137  $11,149 $ --  $147,913
Commercial & industrial          
Acquisition & development  $4,402 $ --  $560 $ -- $ 4,962
Improved land  9,456  --  --  --  9,456
Unimproved land  12,318  1,356  2,447  --  16,121
Total commercial land and development  $26,176  $1,356  $3,007 $ --  $30,539
BANR - First Quarter 2011 Results      
ADDITIONAL FINANCIAL INFORMATION      
(dollars in thousands)      
       
   Quarters Ended
CHANGE IN THE Mar 31, 2011 Dec 31, 2010 Mar 31, 2010
ALLOWANCE FOR LOAN LOSSES      
Balance, beginning of period   $97,401  $96,435  $95,269
Acquisitions / (divestitures)  --  --  --
       
Provision  17,000  20,000  14,000
       
Recoveries of loans previously charged off:      
Commercial real estate  --  --  --
Multifamily real estate  --  --  --
Construction and land  35  112  37
One- to four-family real estate  52  11  350
Commercial business  81  776  1,290
Agricultural business, including secured by farmland  --  36  --
Consumer  78  79  59
   246  1,014  1,736
Loans charged off:      
Commercial real estate  (989)  (1,575)  (92)
Multifamily real estate  (427)  --  --
Construction and land  (10,537)  (11,811)  (7,724)
One- to four-family real estate  (2,209)  (2,483)  (2,115)
Commercial business  (2,368)  (3,211)  (4,784)
Agricultural business, including secured by farmland  (123)  (460)  (2)
Consumer  (362)  (508)  (555)
   (17,015)  (20,048)  (15,272)
Net charge-offs  (16,769)  (19,034)  (13,536)
Balance, end of period   $97,632  $97,401  $95,733
       
Net charge-offs / Average loans outstanding 0.50% 0.55% 0.36%
       
       
ALLOCATION OF      
ALLOWANCE FOR LOAN LOSSES Mar 31, 2011 Dec 31, 2010 Mar 31, 2010
Specific or allocated loss allowance      
Commercial real estate  $11,871  $11,779  $8,279
Multifamily real estate  6,055  3,963  2,072
Construction and land  30,346  33,121  44,078
Commercial business  22,054  24,545  24,530
Agricultural business, including secured by farmland  1,441  1,846  949
One- to four-family real estate  8,149  5,829  3,093
Consumer  1,452  1,794  1,898
Total allocated 81,368 82,877 84,899
       
Estimated allowance for undisbursed commitments  1,158  1,426  1,161
Unallocated  15,106  13,098  9,673
Total allowance for loan losses $97,632 $97,401 $95,733
       
Allowance for loan losses / Total loans outstanding 2.94% 2.86% 2.60%
Allowance for loan losses / Non-performing loans 74% 64% 49%
       
BANR - First Quarter 2011 Results          
ADDITIONAL FINANCIAL INFORMATION          
(dollars in thousands)          
         
  Mar 31, 2011 Dec 31, 2010 Mar 31, 2010    
           
NON-PERFORMING ASSETS          
Loans on non-accrual status          
Secured by real estate:          
Commercial  $23,443  $24,727  $6,801    
Multifamily  1,361  1,889  373    
Construction and land  67,163  75,734  138,245    
One- to four-family  16,571  16,869  19,777    
Commercial business  15,904  21,100  19,353    
Agricultural business, including secured by farmland  1,984  5,853  8,013    
Consumer  4,655  2,332  3,387    
   131,081  148,504  195,949    
           
Loans more than 90 days delinquent, still on accrual          
Secured by real estate:          
Commercial  --  --  --    
Multifamily  --  --  --    
Construction and land  --  --  --    
One- to four-family  561  2,955  --    
Commercial business  14  --  --    
Agricultural business, including secured by farmland  --  --  --    
Consumer  42  30  61    
   617  2,985  61    
Total non-performing loans  131,698  151,489  196,010    
Securities on non-accrual  1,904  1,896  3,000    
Real estate owned (REO) and repossessed assets  94,969  100,945  95,167    
Total non-performing assets  $228,571  $254,330  $294,177    
           
Total non-performing assets / Total assets 5.32% 5.77% 6.42%    
           
DETAIL & GEOGRAPHIC CONCENTRATION OF          
NON-PERFORMING ASSETS AT          
March 31, 2011 Washington Oregon Idaho Other Total
Secured by real estate:          
Commercial  $18,781  $495  $4,167 $ --  $23,443
Multifamily  1,361  --  --  --  1,361
Construction and land          
One- to four-family construction  8,202  4,314  1,075 --  13,591
Commercial construction  1,521  --  --  --  1,521
Multifamily construction  --  651  --  --  651
Residential land acquisition & development  21,496  10,203  1,748  --  33,447
Residential land improved lots  3,530  3,903  131  --  7,564
Residential land unimproved  3,619  1,090  3,428  --  8,137
Commercial land acquisition & development  --  --  --  --  --
Commercial land improved  1,956  --  --  --  1,956
Commercial land unimproved  296  --  --  --  296
Total construction and land  40,620  20,161  6,382  --  67,163
One- to four-family  11,532  4,279  1,321  --  17,132
Commercial business  14,157  591  1,020  150  15,918
Agricultural business, including secured by farmland  754  --  1,230  --  1,984
Consumer  2,723  1,750  224  --  4,697
Total non-performing loans 89,928 27,276 14,344 150 131,698
Securities on non-accrual  --  --  500  1,404 1,904
Real estate owned (REO) and repossessed assets  48,259  35,562  11,148  --  94,969
Total non-performing assets at end of the period  $138,187  $62,838  $25,992  $1,554  $228,571
           
BANR - First Quarter 2011 Results          
ADDITIONAL FINANCIAL INFORMATION          
(dollars in thousands)          
           
  Quarters Ended      
REAL ESTATE OWNED Mar 31, 2011 Mar 31, 2010      
Balance, beginning of period  $100,872  $77,743      
Additions from loan foreclosures  14,916  27,327      
Additions from capitalized costs  1,615  1,136      
Dispositions of REO  (18,894)  (9,879)      
Transfers to property and equipment  --  --      
Gain (loss) on sale of REO  (537)  (737)      
Valuation adjustments in the period  (3,027)  (516)      
Balance, end of period $94,945 $95,074      
           
  Quarters Ended
REAL ESTATE OWNED- FIVE COMPARATIVE QUARTERS Mar 31, 2011 Dec 31, 2010 Sep 30, 2010 Jun 30, 2010 Mar 31, 2010
Balance, beginning of period  $100,872  $107,159  $101,485  $95,074  $77,743
Additions from loan foreclosures  14,916  16,855  25,694  17,885  27,327
Additions from capitalized costs  1,615  1,650  841  380  1,136
Dispositions of REO  (18,894)  (19,095)  (12,145)  (10,532)  (9,879)
Gain (loss) on sale of REO  (537)  (524)  (133)  (498)  (737)
Valuation adjustments in the period  (3,027)  (5,173)  (8,583)  (824)  (516)
Balance, end of period $94,945 $100,872 $107,159 $101,485 $95,074
           
REAL ESTATE OWNED- BY TYPE AND STATE Washington Oregon Idaho Total  
Commercial real estate  $15,182  $--  $477  $15,659  
One- to four-family construction  472  2,088  --  2,560  
Land development- commercial  3,875  6,065  200  10,140  
Land development- residential  18,591  19,141  5,241  42,973  
Agricultural land  --  256  1,205  1,461  
One- to four-family real estate  10,115  8,012  4,025  22,152  
Total $48,235 $35,562 $11,148 $94,945  
           
BANR - First Quarter 2011 Results        
ADDITIONAL FINANCIAL INFORMATION        
(dollars in thousands)        
         
         
DEPOSITS & OTHER BORROWINGS        
  Mar 31, 2011 Dec 31, 2010 Mar 31, 2010  
DEPOSIT COMPOSITION        
         
Non-interest-bearing $ 622,759 $ 600,457 $ 549,291  
Interest-bearing checking  361,430  357,702  366,786  
Regular savings accounts  648,520  616,512  577,704  
Money market accounts  449,945  459,034  459,811  
Interest-bearing transaction & savings accounts  1,459,895  1,433,248  1,404,301  
Interest-bearing certificates  1,457,994  1,557,493  1,896,186  
Total deposits $ 3,540,648 $ 3,591,198 $ 3,849,778  
         
         
INCLUDED IN TOTAL DEPOSITS        
         
Public transaction accounts $ 62,873 $ 64,482 $ 80,942  
Public interest-bearing certificates  67,527  81,809  82,362  
Total public deposits  $130,400  $146,291  $163,304  
         
         
Total brokered deposits $ 92,940 $ 102,984 $ 150,577  
         
         
         
INCLUDED IN OTHER BORROWINGS        
Customer repurchase agreements / "Sweep accounts"  $109,227  $125,140  $126,954  
         
         
         
GEOGRAPHIC CONCENTRATION OF DEPOSITS AT        
March 31, 2011 Washington Oregon Idaho Total
         
   $2,699,341 $610,340  $230,967  $3,540,648
         
         
         
         
      Minimum for Capital Adequacy
REGULATORY CAPITAL RATIOS AT  Actual or "Well Capitalized"
March 31, 2011 Amount Ratio Amount Ratio
         
Banner Corporation-consolidated        
Total capital to risk-weighted assets $587,594 17.14% $274,302 8.00%
Tier 1 capital to risk-weighted assets 544,058 15.87% 137,151 4.00%
Tier 1 leverage capital to average assets 544,058 12.50% 174,063 4.00%
         
Banner Bank        
Total capital to risk-weighted assets 494,814 15.24% 324,612 10.00%
Tier 1 capital to risk-weighted assets 453,567 13.97% 194,767 6.00%
Tier 1 leverage capital to average assets 453,567 11.03% 205,589 5.00%
         
Islanders Bank        
Total capital to risk-weighted assets 29,829 14.46% 20,635 10.00%
Tier 1 capital to risk-weighted assets 27,248 13.20% 12,381 6.00%
Tier 1 leverage capital to average assets 27,248 11.53% 11,815 5.00%
         
ADDITIONAL FINANCIAL INFORMATION      
(dollars in thousands)      
(rates / ratios annualized)      
  Quarters Ended
       
OPERATING PERFORMANCE Mar 31, 2011 Dec 31, 2010 Mar 31, 2010
       
       
Average loans  $ 3,349,978  $ 3,458,400  $ 3,726,243
Average securities   465,017  418,647  391,992
Average interest earning cash  308,575  368,194  171,570
Average non-interest-earning assets  233,365  254,242  258,060
Total average assets  $ 4,356,935  $ 4,499,483  $ 4,547,865
       
Average deposits  $ 3,561,020  $ 3,669,442  $ 3,800,888
Average borrowings  322,261  344,906  373,192
Average non-interest-bearing liabilities  (39,755)  (38,355)  (36,459)
       
Total average liabilities  3,843,526  3,975,993  4,137,621
       
Total average stockholders' equity  513,409  523,490  410,244
Total average liabilities and equity  $ 4,356,935  $ 4,499,483  $ 4,547,865
       
Interest rate yield on loans 5.66% 5.67% 5.74%
Interest rate yield on securities  2.38% 2.46% 3.22%
Interest rate yield on cash 0.23% 0.26% 0.23%
       
Interest rate yield on interest-earning assets 4.88% 4.88% 5.29%
       
Interest rate expense on deposits 0.89% 1.03% 1.69%
Interest rate expense on borrowings 2.26% 2.24% 2.20%
       
Interest rate expense on interest-bearing liabilities 1.00% 1.13% 1.73%
       
Interest rate spread 3.88% 3.75% 3.56%
       
Net interest margin 3.94% 3.81% 3.61%
       
Other operating income / Average assets 0.67% 0.67% 0.69%
       
Other operating income EXCLUDING change in valuation of financial instruments carried at fair value / Average assets (1) 0.65% 0.73% 0.52%
       
Other operating expense / Average assets 3.55% 3.62% 3.16%
       
Efficiency ratio (other operating expense / revenue) 80.64% 84.88% 77.20%
       
Return (Loss) on average assets (0.73%) (1.12%) (0.14%)
       
Return (Loss) on average equity (6.19%) (9.62%) (1.50%)
       
Return (Loss) on average tangible equity (2) (6.30%) (9.78%) (1.54%)
       
Average equity / Average assets 11.78% 11.63% 9.02%
       
(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.
CONTACT: Mark J. Grescovich,
         President & CEO
         Lloyd W. Baker, CFO
         (509) 527-3636

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