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Banner Corporation's Net Income Totals $11.6 Million, or $0.60 Per Diluted Share, in First Quarter; Net Income Highlighted by Strong Revenue Generation and Further Improved Credit Quality

WALLA WALLA, Wash., April 22, 2013 (GLOBE NEWSWIRE) -- Banner Corporation (Nasdaq:BANR), the parent company of Banner Bank and Islanders Bank, today reported net income available to common shareholders of $11.6 million, or $0.60 per diluted share, in the first quarter of 2013, compared to $7.2 million, or $0.40 per diluted share, in the first quarter a year ago. Banner's net income available to common shareholders was $13.3 million, or $0.69 per diluted share, in the quarter ended December 31, 2012.

"We are pleased with our first quarter performance and with the continuation of the successful execution of our strategies and priorities to deliver sustainable profitability to Banner," said Mark J. Grescovich, President and Chief Executive Officer. "Our further improvement in asset quality, strong revenue generation and additional client acquisition demonstrate that through the hard work of our employees, Banner's super community bank strategy is working. This marks the fourteenth consecutive quarter that we have achieved a year-over-year increase in revenues from core operations* (net interest income before provision for loan losses plus total other operating income excluding gain on the sale of securities, other-than-temporary impairment recovery and fair value adjustments). Although the Banking Industry faces the continuing challenges of a low interest rate environment and modest economic growth, Banner is well positioned to meet this challenging environment because of our strong balance sheet, much improved operations and well received and acknowledged client value proposition."

"An additional highlight from the first quarter is that we meaningfully increased our dividend," Grescovich added. "The regular quarterly cash dividend was increased to $0.12 per share from $0.01 per share, which reflects our strong performance and our expectation of continued success in 2013."

First Quarter 2013 Highlights (compared to first quarter 2012, except as noted)

  • Net income available to common shareholders was $11.6 million, compared to $7.2 million for the first quarter a year ago.
  • Return on average assets was 1.11% compared to 0.88% for the first quarter a year ago.
  • Revenues from core operations* totaled $50.9 million compared to $50.4 million for the first quarter a year ago.
  • Net interest margin was 4.16%, compared to 4.13% for the preceding quarter and 4.15% for the first quarter a year ago.
  • Deposit fees and other service charges increased 7%.
  • Revenues from mortgage banking increased 15%.
  • Non-performing assets decreased to $44.9 million, or 1.06% of total assets, at March 31, 2013, an 11% decrease compared to three months earlier and a 52% decrease compared to a year earlier.
  • Non-performing loans decreased to $33.4 million at March 31, 2013, a 3% decrease compared to three months earlier and a 49% decrease compared to a year earlier.
  • The ratio of tangible common equity to tangible assets increased to 12.10% at March 31, 2013.*
  • Banner increased its regular quarterly cash dividend to $0.12 per share.

*Earnings information excluding gain on sale of securities, fair value and other-than-temporary impairment (OTTI) adjustments (alternately referred to as other operating income from core operations or revenues from core operations) and the ratio of tangible common equity (which excludes other intangible assets and preferred stock) to tangible assets represent non-GAAP (Generally Accepted Accounting Principles) financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner's core operations reflected in the current quarter's results and facilitate 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

"Our net interest margin expansion compared to both the preceding quarter and the first quarter a year ago reflects important reductions in deposit and other funding costs, as well as a further reduction in the adverse effect of non-performing assets and a favorable change in the mix of interest-earning assets," said Grescovich. "However, the continuing impact of exceptionally low market interest rates is evident in declining loan and securities yields." Banner's net interest margin was 4.16% in the first quarter of 2013, compared to 4.13% in the preceding quarter and 4.15% in the first quarter a year ago.

Deposit costs decreased by four basis points in the first quarter compared to the preceding quarter and 21 basis points compared to the first quarter a year ago. Total funding costs for the first quarter of 2013 decreased four basis points compared to the preceding quarter and 27 basis points from the first quarter a year ago. Asset yields were unchanged compared to the preceding quarter and decreased 24 basis points from the first quarter a year ago. However, loan yields decreased by eight basis points compared to the preceding quarter and decreased 26 basis points from the first quarter a year ago. Nonaccrual loans reduced the margin by approximately four basis points in the first quarter of 2013 compared to approximately six basis points in the preceding quarter and approximately 13 basis points in the first quarter of 2012. Securities yields decreased by seven basis points compared to the preceding quarter and were 14 basis points lower than the first quarter of 2012.

Banner's first quarter net interest income, before the provision for loan losses, was $41.0 million, compared to $41.5 million in the first quarter a year ago, as the increase in the net interest margin was offset by a modest decrease in the average balance of interest-earning assets and the effect of one additional day in the first quarter of 2012 which was a leap year. In spite of the modest increase in the net interest margin, net interest income also decreased from $41.9 million in the immediately preceding quarter, largely reflecting the fewer number of days in the current quarter and expected seasonal decreases in agricultural loan balances and non-interest-bearing deposits.

Continuing homeowner refinance activity, as well as increased home purchase transactions, contributed to revenues from mortgage banking activities, which increased 15% to $2.8 million compared to $2.5 million in the first quarter a year ago, but declined compared to $3.9 million in the fourth quarter of 2012 when homeowner refinance activity was at its peak. Deposit fees and other service charges were $6.3 million in the first quarter of 2013, compared to $6.4 million in the preceding quarter and increased 7% compared to $5.9 million in the first quarter a year ago. Revenues from core operations* were $50.9 million in the first quarter compared to $54.5 million in the fourth quarter of 2012 and $50.4 million in the first quarter a year ago.

Banner's first quarter 2013 results included a gain on the sale of securities of $1.0 million and an other than temporary impairment (OTTI) recovery of $409,000, both of which resulted from the sale of securities that had been fully written off in previous periods, as well as a $1.3 million net loss for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value. In the preceding quarter, Banner recorded a small $3,000 gain on the sale of securities and a net gain of $386,000 for fair value adjustments, while in the first quarter of 2012 Banner recorded a net gain of $1.7 million for fair value adjustments with no gains or losses on securities sales.

Total other operating income, which includes the gain on sale of securities, OTTI recovery and changes in the valuation of financial instruments, was $10.0 million in the first quarter of 2013 compared to $13.0 million in the fourth quarter of 2012 and $10.6 million in the first quarter a year ago. Other operating income from core operations* (total other operating income, excluding gain on the sale of securities, fair value and OTTI adjustments) was $9.9 million for the first quarter of 2013, compared to $12.6 million for the preceding quarter and $8.9 million for the first quarter a year ago.

"Operating expenses declined in the first quarter compared to the preceding quarter and the first quarter a year ago, largely due to lower costs associated with loan collections and the real estate owned portfolio, as well as decreases in advertising costs, FDIC deposit insurance charges and other miscellaneous expenses," said Grescovich. Total other operating expenses (non-interest expenses) were $34.1 million in the first quarter of 2013, compared to $34.5 million in the preceding quarter and $37.9 million in the first quarter of 2012.

For the quarter ended March 31, 2013, Banner recorded $5.3 million in state and federal income tax expense for an effective tax rate of approximately 31.3%, which reflects normal marginal tax rates reduced by the impact of tax-exempt income and certain tax credits. For the quarter ended March 31, 2012, Banner had no provision for income taxes as a result of the full valuation allowance for its deferred tax assets (DTA) at that date. The DTA valuation allowance was eliminated during the final three quarters of 2012 which resulted in the substantially reduced provision for income taxes of $4.6 million, or an effective rate of 24.0%, in the fourth quarter of 2012.

Credit Quality

"All of Banner's key credit quality metrics have improved over the last year, including further progress during the first quarter, while our reserve levels have remained substantial," said Grescovich, "providing us additional benefit in the current quarter's earnings." As a result of substantial reserves already in place representing 2.38% of total loans outstanding, as well as declining net charge-offs, Banner did not record a provision for loan losses in the first quarter of 2013. This compares to a $1.0 million provision in the preceding quarter and a $5.0 million provision in the first quarter a year ago. The allowance for loan losses at March 31, 2013 was $77.1 million, representing 231% of non-performing loans. Non-performing loans decreased by 3% to $33.4 million at March 31, 2013, compared to $34.4 million three months earlier, and decreased 49% when compared to $64.9 million a year earlier.

Real estate owned and repossessed assets decreased 28% to $11.5 million at March 31, 2013, compared to $15.9 million three months earlier, and decreased 59% when compared to $27.7 million a year ago. Net charge-offs in the first quarter of 2013 totaled $363,000, or 0.01% of average loans outstanding, compared to $2.3 million, or 0.07% of average loans outstanding in the fourth quarter of 2012 and $6.4 million, or 0.20% of average loans outstanding in the first quarter a year ago.

At March 31, 2013, Banner's non-performing assets were 1.06% of total assets, compared to 2.24% a year ago and 1.18% at December 31, 2012. Non-performing assets decreased 52% to $44.9 million at March 31, 2013, compared to $93.1 million a year ago and decreased 11% compared to $50.2 million at December 31, 2012.

Balance Sheet Review

"Total loans outstanding increased modestly during the quarter, despite an expected seasonal reduction in agricultural loans and additional refinance driven payoffs in residential loans, as our bankers' calling efforts continued to produce reasonable results," said Grescovich. "Nonetheless, credit line utilizations remained low, and we expect a continued challenging environment going forward as businesses and consumers maintain their cautious approach to spending and borrowing. However, we are encouraged by the potential in our loan origination pipelines and are optimistic about capturing more market share." Net loans were $3.16 billion at March 31, 2013, nearly unchanged from three months earlier. Net loans were $3.15 billion a year ago. Commercial real estate and multifamily real estate loans increased 2% to $1.23 billion at March 31, 2013 compared to $1.21 billion at both December 31 and March 31, 2012. Commercial and agricultural business loans were $829.7 million at March 31, 2013, a decrease from $848.0 million three months earlier but an increase of 4% compared to $798.5 million a year ago. Total construction and development loans increased 9% during the quarter to $331.7 million at March 31, 2013 compared to $304.6 million at December 31, 2012, and increased 7% compared to $311.0 million a year earlier.

The aggregate total of securities and interest-bearing deposits declined to $729.2 million at March 31, 2013 compared to $745.5 million at December 31, 2012, but increased from $685.2 million at March 31, 2012. The change in the mix of interest-bearing deposits and securities holdings compared to a year ago reflects both an increase in our overall securities holdings and a modest extension of the expected duration of our securities holdings 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 taxable and tax-exempt municipal securities. The average duration of Banner's securities portfolio was approximately 4.6 years at March 31, 2013.

Total deposits were $3.52 billion at March 31, 2013, compared to $3.56 billion three months earlier and $3.43 billion a year ago. Following a normal seasonal pattern, non-interest-bearing account balances declined 2% to $962.2 million at March 31, 2013, compared to $981.2 million at December 31, 2012, but increased 25% compared to $771.8 million a year ago. Interest-bearing transaction and savings accounts totaled $1.58 billion at March 31, 2013, compared to $1.55 billion at December 31, 2012 and $1.46 billion a year ago, while certificates of deposit further decreased to $982.9 million at March 31, 2013, compared to $1.03 billion at December 31, 2012 and $1.20 billion a year earlier. Non-certificate core deposits represented 72% of total deposits at the end of the first quarter, compared to 65% of total deposits a year earlier.

"Our super community bank strategy that involves lowering our funding costs by reducing our reliance on high-priced certificates of deposit, growing new client relationships, and improving our core funding position is consistently producing results and enhancing our deposit franchise," said Grescovich. "As a result, Banner's cost of deposits declined another four basis points to 0.31% for the quarter ended March 31, 2013 compared to 0.35% for the quarter ended December 31, 2012, and declined 21 basis points from 0.52% for the quarter ended March 31, 2012."

Total assets were $4.24 billion at March 31, 2013, compared to $4.16 billion a year ago and $4.27 billion at December 31, 2012. At March 31, 2013, total common stockholders' equity was $516.1 million, or $26.56 per share. Banner had 19.5 million shares of common stock outstanding at quarter end, compared to 18.0 million shares of common stock outstanding a year ago. The number of shares increased primarily as a result of common stock issued through Banner's Dividend Reinvestment and Direct Stock Purchase and Sale Plan during the first eight months of 2012. At March 31, 2013, tangible common stockholders' equity, which excludes other intangible assets, was $512.3 million, or 12.10% of tangible assets, compared to $502.7 million, or 11.80% of tangible assets, at December 31, 2012 and $422 million, or 10.15% of tangible assets, a year ago. Banner's tangible book value per share increased to $26.37 at March 31, 2013, compared to $23.45 per share 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 13.28% and its total capital to risk-weighted assets ratio was 17.06% at March 31, 2013.

Conference Call

Banner will host a conference call on Tuesday, April 23, 2013, at 8:00 a.m. PDT, to discuss its first quarter results. The conference call can be accessed live by telephone at (480) 629-9771 to participate in the call. To listen to the call on-line, go to the Company's website at www.bannerbank.com. A replay will be available for one week at (303) 590-3030, using access code 4610343.

About the Company

Banner Corporation is a $4.24 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" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to the Company's financial condition, liquidity, 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 from the results anticipated or implied by our forward-looking statements include, but are not limited to, the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets and may lead to increased losses and non-performing assets and may result in our allowance for loan losses not being adequate to cover actual losses and require us to materially increase our reserves; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates and the relative differences between short and long-term interest rates, loan and deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; secondary market conditions for loans and our ability to sell loans in the secondary market; results of examinations of us by the Board of Governors of the Federal Reserve System and of our bank subsidiaries by the Federal Deposit Insurance Corporation, the Washington State Department of Financial Institutions or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, institute a formal or informal enforcement action against us or any of the Banks which could require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, or impose additional requirements and restrictions on us, any of which could adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules including changes related to Basel III; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the implementing regulations; our ability to attract and retain deposits; increases in premiums for deposit insurance; our ability to control operating costs and expenses; the use of estimates in determining fair value of certain of our assets and liabilities, which estimates may prove to be incorrect and result in significant changes in valuations; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; the failure or security breach of computer systems on which we depend; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to implement our business strategies; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; our ability to pay dividends on our common 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, 2012. 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 whether as a result of new information, future events or otherwise. These risks could cause our actual results for 2013 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us, and could negatively affect our operating and stock price performance.

RESULTS OF OPERATIONS Quarters Ended
(in thousands except shares and per share data) Mar 31, 2013 Dec 31, 2012 Mar 31, 2012
INTEREST INCOME:
Loans receivable $41,489 $42,698 $44,352
Mortgage-backed securities 1,172 1,165 927
Securities and cash equivalents 1,847 2,019 2,283
44,508 45,882 47,562
INTEREST EXPENSE:
Deposits 2,719 3,088 4,448
Federal Home Loan Bank advances 24 63 63
Other borrowings 56 64 549
Junior subordinated debentures 741 776 1,012
3,540 3,991 6,072
Net interest income before provision for loan losses 40,968 41,891 41,490
PROVISION FOR LOAN LOSSES 1,000 5,000
Net interest income 40,968 40,891 36,490
OTHER OPERATING INCOME:
Deposit fees and other service charges 6,301 6,433 5,869
Mortgage banking operations 2,838 3,879 2,475
Miscellaneous 790 2,253 578
9,929 12,565 8,922
Gain on sale of securities 1,006 3
Other-than-temporary impairment recovery 409
Net change in valuation of financial instruments carried at fair value (1,347) 386 1,685
Total other operating income 9,997 12,954 10,607
OTHER OPERATING EXPENSE:
Salary and employee benefits 20,729 20,182 19,510
Less capitalized loan origination costs (2,871) (2,752) (2,250)
Occupancy and equipment 5,329 5,320 5,477
Information / computer data services 1,720 1,836 1,515
Payment and card processing services 2,305 2,263 1,890
Professional services 905 850 1,344
Advertising and marketing 1,499 1,602 2,066
Deposit insurance 645 715 1,363
State/municipal business and use taxes 464 574 568
Real estate operations (251) 91 2,598
Amortization of core deposit intangibles 505 509 552
Miscellaneous 3,120 3,329 3,280
Total other operating expense 34,099 34,519 37,913
Income before provision for income taxes 16,866 19,326 9,184
PROVISION FOR INCOME TAXES 5,284 4,638
NET INCOME 11,582 14,688 9,184
PREFERRED STOCK DIVIDEND AND ADJUSTMENTS:
Preferred stock dividend 611 1,550
Preferred stock discount accretion 1,174 454
Gain on repurchase and retirement of preferred stock (401)
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $11,582 $13,304 $7,180
Earnings per share available to common shareholders:
Basic $0.60 $0.69 $0.40
Diluted $0.60 $0.69 $0.40
Cumulative dividends declared per common share $0.12 $0.01 $0.01
Weighted average common shares outstanding:
Basic 19,312,824 19,312,761 17,761,667
Diluted 19,423,244 19,420,612 17,790,402
Common shares issued via restricted stock grants, DRIP and stock purchases (net) 58 86 474,296
FINANCIAL CONDITION
(in thousands except shares and per share data) Mar 31, 2013 Dec 31, 2012 Mar 31, 2012
ASSETS
Cash and due from banks $59,414 $66,370 $55,723
Federal funds and interest-bearing deposits 96,300 114,928 143,885
Securities - at fair value 67,761 71,232 77,706
Securities - available for sale 476,683 472,920 386,716
Securities - held to maturity 88,408 86,452 76,853
Federal Home Loan Bank stock 36,373 36,705 37,371
Loans receivable:
Held for sale 5,384 11,920 4,623
Held for portfolio 3,234,937 3,223,794 3,225,039
Allowance for loan losses (77,128) (77,491) (81,544)
3,163,193 3,158,223 3,148,118
Accrued interest receivable 15,235 13,930 16,047
Real estate owned held for sale, net 11,160 15,778 27,723
Property and equipment, net 88,414 89,117 90,106
Other intangibles, net 3,724 4,230 5,777
Bank-owned life insurance 60,425 59,891 59,056
Other assets 70,536 75,788 35,683
$4,237,626 $4,265,564 $4,160,764
LIABILITIES
Deposits:
Non-interest-bearing $962,156 $981,240 $771,812
Interest-bearing transaction and savings accounts 1,575,525 1,547,271 1,457,030
Interest-bearing certificates 982,903 1,029,293 1,197,328
3,520,584 3,557,804 3,426,170
Advances from Federal Home Loan Bank at fair value 278 10,304 10,467
Customer repurchase agreements and other borrowings 88,446 76,633 91,253
Junior subordinated debentures at fair value 73,220 73,063 49,368
Accrued expenses and other liabilities 24,157 26,389 21,136
Deferred compensation 14,879 14,452 13,580
3,721,564 3,758,645 3,611,974
STOCKHOLDERS' EQUITY
Preferred stock - Series A 121,156
Common stock 568,116 567,907 540,068
Retained earnings (accumulated deficit) (51,851) (61,102) (112,465)
Other components of stockholders' equity (203) 114 31
516,062 506,919 548,790
$4,237,626 $4,265,564 $4,160,764
Common Shares Issued:
Shares outstanding at end of period 19,462,483 19,454,965 18,027,768
Less unearned ESOP shares at end of period 34,340 34,340 34,340
Shares outstanding at end of period excluding unearned ESOP shares 19,428,143 19,420,625 17,993,428
Common stockholders' equity per share (1) $26.56 $26.10 $23.77
Common stockholders' tangible equity per share (1) (2) $26.37 $25.88 $23.45
Common stockholders' tangible equity to tangible assets (2) 12.10% 11.80% 10.15%
Consolidated Tier 1 leverage capital ratio 13.28% 12.74% 14.00%
(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 and other intangibles. Tangible assets excludes other intangible assets. These ratios represent non-GAAP financial measures.
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Mar 31, 2013 Dec 31, 2012 Mar 31, 2012
LOANS (including loans held for sale):
Commercial real estate:
Owner occupied $497,442 $489,581 $468,318
Investment properties 602,761 583,641 612,617
Multifamily real estate 134,290 137,504 132,306
Commercial construction 34,762 30,229 40,276
Multifamily construction 34,147 22,581 20,654
One- to four-family construction 171,876 160,815 148,717
Land and land development:
Residential 78,446 77,010 89,329
Commercial 12,477 13,982 12,044
Commercial business 619,478 618,049 609,497
Agricultural business including secured by farmland 210,225 230,031 188,955
One- to four-family real estate 566,730 581,670 619,511
Consumer:
Consumer secured by one- to four-family real estate 165,305 170,123 180,460
Consumer-other 112,382 120,498 106,978
Total loans outstanding $3,240,321 $3,235,714 $3,229,662
Restructured loans performing under their restructured terms $54,611 $57,460 $53,391
Loans 30 - 89 days past due and on accrual $6,984 $11,685 $14,336
Total delinquent loans (including loans on non-accrual) $40,390 $45,300 $79,249
Total delinquent loans / Total loans outstanding 1.25% 1.40% 2.45%
GEOGRAPHIC CONCENTRATION OF LOANS AT
March 31, 2013 Washington Oregon Idaho Other Total
Commercial real estate:
Owner occupied $376,330 $58,671 $57,363 $5,078 $497,442
Investment properties 467,720 87,184 43,750 4,107 602,761
Multifamily real estate 112,625 13,208 8,196 261 134,290
Commercial construction 23,636 6,566 1,207 3,353 34,762
Multifamily construction 15,566 18,581 34,147
One- to four-family construction 97,016 72,729 2,131 171,876
Land and land development:
Residential 47,106 29,614 1,726 78,446
Commercial 7,482 3,043 1,952 12,477
Commercial business 393,638 83,574 55,047 87,219 619,478
Agricultural business including secured by farmland 105,886 38,934 65,405 210,225
One- to four-family real estate 352,209 188,804 23,660 2,057 566,730
Consumer:
Consumer secured by one- to four-family real estate 111,010 41,897 11,721 677 165,305
Consumer-other 76,807 30,233 5,337 5 112,382
Total loans outstanding $2,187,031 $673,038 $277,495 $102,757 $3,240,321
Percent of total loans 67.5% 20.8% 8.5% 3.2% 100.0%
DETAIL OF LAND AND LAND DEVELOPMENT LOANS AT
March 31, 2013 Washington Oregon Idaho Other Total
Residential:
Acquisition & development $8,982 $12,071 $1,523 $22,576
Improved lots 29,463 17,093 203 46,759
Unimproved land 8,661 450 9,111
Total residential land and development $47,106 $29,614 $1,726 $78,446
Commercial & industrial:
Acquisition & development $— $482 $482
Improved land 4,143 136 541 4,820
Unimproved land 3,339 2,907 929 7,175
Total commercial land and development $7,482 $3,043 $1,952 $12,477

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Quarters Ended
CHANGE IN THE Mar 31, 2013 Dec 31, 2012 Mar 31, 2012
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period $77,491 $78,783 $82,912
Provision 1,000 5,000
Recoveries of loans previously charged off:
Commercial real estate 1,586 159 614
Multifamily real estate
Construction and land 101 1,499 370
One- to four-family real estate 116 174 5
Commercial business 386 1,395 236
Agricultural business, including secured by farmland 37 4
Consumer 102 108 136
2,328 3,339 1,361
Loans charged off:
Commercial real estate (348) (558) (1,323)
Multifamily real estate
Construction and land (435) (1,301) (2,924)
One- to four-family real estate (651) (1,748) (966)
Commercial business (929) (1,094) (1,407)
Agricultural business, including secured by farmland (155) (275)
Consumer (328) (775) (834)
(2,691) (5,631) (7,729)
Net charge-offs (363) (2,292) (6,368)
Balance, end of period $77,128 $77,491 $81,544
Net charge-offs / Average loans outstanding 0.01% 0.07% 0.20%
ALLOCATION OF
ALLOWANCE FOR LOAN LOSSES Mar 31, 2013 Dec 31, 2012 Mar 31, 2012
Specific or allocated loss allowance:
Commercial real estate $14,776 $15,322 $17,083
Multifamily real estate 5,075 4,506 3,261
Construction and land 15,214 14,991 15,871
One- to four-family real estate 15,930 16,475 13,123
Commercial business 10,011 9,957 1,887
Agricultural business, including secured by farmland 2,282 2,295 12,869
Consumer 1,238 1,348 1,274
Total allocated 64,526 64,894 65,368
Estimated allowance for undisbursed commitments 631 758 651
Unallocated 11,971 11,839 15,525
Total allowance for loan losses $77,128 $77,491 $81,544
Allowance for loan losses / Total loans outstanding 2.38% 2.39% 2.52%
Allowance for loan losses / Non-performing loans 231% 225% 126%
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Mar 31, 2013 Dec 31, 2012 Mar 31, 2012
NON-PERFORMING ASSETS
Loans on non-accrual status:
Secured by real estate:
Commercial $6,726 $6,579 $10,541
Multifamily 339
Construction and land 3,729 3,673 18,601
One- to four-family 12,875 12,964 19,384
Commercial business 4,370 4,750 10,121
Agricultural business, including secured by farmland 1,481
Consumer 3,078 3,395 2,572
31,117 31,361 62,700
Loans more than 90 days delinquent, still on accrual:
Secured by real estate:
Commercial
Multifamily
Construction and land
One- to four-family 2,243 2,877 2,129
Commercial business
Agricultural business, including secured by farmland
Consumer 46 152 84
2,289 3,029 2,213
Total non-performing loans 33,406 34,390 64,913
Securities on non-accrual 500
Real estate owned (REO) and repossessed assets 11,458 15,853 27,731
Total non-performing assets $44,864 $50,243 $93,144
Total non-performing assets / Total assets 1.06% 1.18% 2.24%
DETAIL & GEOGRAPHIC CONCENTRATION OF
NON-PERFORMING ASSETS AT
March 31, 2013 Washington Oregon Idaho Total
Secured by real estate:
Commercial $5,965 $761 $6,726
Multifamily 339 339
Construction and land:
One- to four-family construction 1,522 430 1,952
Residential land acquisition & development 1,386 1,386
Residential land improved lots 31 31
Residential land unimproved
Commercial land improved 119 119
Commercial land unimproved 241 241
Total construction and land 1,882 1,417 430 3,729
One- to four-family 10,813 2,286 2,019 15,118
Commercial business 4,299 71 4,370
Agricultural business, including secured by farmland
Consumer 2,227 429 468 3,124
Total non-performing loans 25,186 4,203 4,017 33,406
Real estate owned (REO) and repossessed assets 3,378 7,812 268 11,458
Total non-performing assets at end of the period $28,564 $12,015 $4,285 $44,864
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Quarters Ended
REAL ESTATE OWNED Mar 31, 2013 Mar 31, 2012
Balance, beginning of period $15,778 $42,965
Additions from loan foreclosures 1,086 1,601
Additions from capitalized costs 46 127
Proceeds from dispositions of REO (6,481) (15,441)
Gain on sale of REO 804 100
Valuation adjustments in the period (73) (1,629)
Balance, end of period $11,160 $27,723
Quarters Ended
REAL ESTATE OWNED- FIVE COMPARATIVE QUARTERS Mar 31, 2013 Dec 31, 2012 Sep 30, 2012 Jun 30, 2012 Mar 31, 2012
Balance, beginning of period $15,778 $20,356 $25,816 $27,723 $42,965
Additions from loan foreclosures 1,086 2,332 3,111 6,886 1,601
Additions from capitalized costs 46 17 97 7 127
Proceeds from dispositions of REO (6,481) (7,306) (10,368) (7,799) (15,441)
Gain on sale of REO 804 1,105 2,955 566 100
Valuation adjustments in the period (73) (726) (1,255) (1,567) (1,629)
Balance, end of period $11,160 $15,778 $20,356 $25,816 $27,723
REAL ESTATE OWNED- BY TYPE AND STATE
March 31, 2013 Washington Oregon Idaho Total
Commercial real estate $— $198 $198
One- to four-family construction 401 401
Land development- commercial
Land development- residential 1,610 6,321 70 8,001
Agricultural land
One- to four-family real estate 1,077 1,483 2,560
Total $3,088 $7,804 $268 $11,160
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
DEPOSITS & OTHER BORROWINGS
Mar 31, 2013 Dec 31, 2012 Mar 31, 2012
DEPOSIT COMPOSITION
Non-interest-bearing $962,156 $981,240 $771,812
Interest-bearing checking 400,598 410,316 368,810
Regular savings accounts 759,866 727,957 673,704
Money market accounts 415,061 408,998 414,516
Interest-bearing transaction & savings accounts 1,575,525 1,547,271 1,457,030
Interest-bearing certificates 982,903 1,029,293 1,197,328
Total deposits $3,520,584 $3,557,804 $3,426,170
INCLUDED IN TOTAL DEPOSITS
Public transaction accounts $73,273 $79,955 $68,590
Public interest-bearing certificates 53,552 60,518 69,856
Total public deposits $126,825 $140,473 $138,446
Total brokered deposits $15,709 $15,702 $30,978
OTHER BORROWINGS
Customer repurchase agreements / "Sweep accounts" $88,446 $76,633 $91,253
GEOGRAPHIC CONCENTRATION OF DEPOSITS AT
March 31, 2013 Washington Oregon Idaho Total
$2,665,776 $618,161 $236,647 $3,520,584
Minimum for Capital Adequacy
REGULATORY CAPITAL RATIOS AT Actual or "Well Capitalized"
March 31, 2013 Amount Ratio Amount Ratio
Banner Corporation-consolidated:
Total capital to risk-weighted assets $600,052 17.06% $281,339 8.00%
Tier 1 capital to risk-weighted assets 555,684 15.80% 140,670 4.00%
Tier 1 leverage capital to average assets 555,684 13.28% 167,373 4.00%
Banner Bank:
Total capital to risk-weighted assets 540,659 16.19% 334,048 10.00%
Tier 1 capital to risk-weighted assets 498,503 14.92% 200,429 6.00%
Tier 1 leverage capital to average assets 498,503 12.57% 198,241 5.00%
Islanders Bank:
Total capital to risk-weighted assets 33,369 18.20% 18,335 10.00%
Tier 1 capital to risk-weighted assets 31,068 16.94% 11,001 6.00%
Tier 1 leverage capital to average assets 31,068 13.53% 11,481 5.00%

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
Quarters Ended
OPERATING PERFORMANCE Mar 31, 2013 Dec 31, 2012 Mar 31, 2012
Average loans $3,215,228 $3,201,389 $3,250,767
Average securities 673,298 660,731 660,638
Average interest earning cash 107,950 175,441 111,536
Average non-interest-earning assets 219,211 227,728 185,035
Total average assets $4,215,687 $4,265,289 $4,207,976
Average deposits $3,501,972 $3,507,202 $3,421,448
Average borrowings 210,462 214,275 280,439
Average non-interest-bearing other liabilities (1) (11,558) (2,208) (36,699)
Total average liabilities 3,700,876 3,719,269 3,665,188
Total average stockholders' equity 514,811 546,020 542,788
Total average liabilities and equity $4,215,687 $4,265,289 $4,207,976
Interest rate yield on loans 5.23% 5.31% 5.49%
Interest rate yield on securities 1.78% 1.85% 1.92%
Interest rate yield on cash 0.25% 0.26% 0.23%
Interest rate yield on interest-earning assets 4.52% 4.52% 4.76%
Interest rate expense on deposits 0.31% 0.35% 0.52%
Interest rate expense on borrowings 1.58% 1.68% 2.33%
Interest rate expense on interest-bearing liabilities 0.39% 0.43% 0.66%
Interest rate spread 4.13% 4.09% 4.10%
Net interest margin 4.16% 4.13% 4.15%
Other operating income / Average assets 0.96% 1.21% 1.01%
Other operating income EXCLUDING fair value adjustments / Average assets (2) 1.05% 1.17% 0.85%
Other operating expense / Average assets 3.28% 3.22% 3.62%
Efficiency ratio (other operating expense / revenue) 66.91% 62.94% 72.77%
Efficiency ratio EXCLUDING fair value adjustments(2) 65.70% 63.39% 75.21%
Return on average assets 1.11% 1.37% 0.88%
Return on average equity 9.12% 10.70% 6.81%
Return on average tangible equity (3) 9.20% 10.79% 6.88%
Average equity / Average assets 12.21% 12.80% 12.90%
(1) Average non-interest-bearing liabilities include fair value adjustments related to FHLB advances and Junior Subordinated Debentures.
(2) 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.
(3) Average tangible equity excludes other intangibles and represents a non-GAAP financial measure.

CONTACT: MARK J. GRESCOVICH, PRESIDENT & CEO LLOYD W. BAKER, CFO (509) 527-3636Source:Banner Corporation