Profile: Banner Corporation (BANR.O)

Banner Corporation is a bank holding company. The Company is primarily engaged in the business of planning, directing and coordinating the business activities of its wholly owned subsidiaries, Banner Bank and Islanders Bank. Banner Bank is a Washington-chartered commercial bank that conducts business from its main office in Walla Walla, Washington and, as of December 31, 2008, its 83 branch offices and 10 loan production offices located in Washington, Oregon and Idaho. Islanders Bank is also a Washington-chartered commercial bank that conducts business from three locations in San Juan County, Washington. As of December 31, 2008, the Company had total consolidated assets of $4.6 billion, total deposits of $3.8 billion and total stockholders’ equity of $433 million.

Banner Bank is a regional bank which offers a variety of commercial banking services and financial products to individuals, businesses and public sector entities in its primary market areas. Islanders Bank is a community bank, which offers similar banking services to individuals, businesses and public entities located in the San Juan Islands. The Company’s primary business is that of traditional financial institutions, accepting deposits and originating loans in locations surrounding its offices in portions of Washington, Oregon and Idaho. Banner Bank is also an active participant in the secondary market, engaging in mortgage banking operations largely through the origination and sale of one- to four-family residential loans. Lending activities include commercial business and commercial real estate loans, agriculture business loans, construction and land development loans, one- to four-family residential loans and consumer loans. A portion of Banner Bank’s construction and mortgage lending activities are conducted through its subsidiary, Community Financial Corporation (CFC), which is located in the Lake Oswego area of Portland, Oregon.

Lending Activities

All of the Company’s lending activities are conducted through Banner Bank, its subsidiary, Community Financial Corporation, and Islanders Bank. It offers a range of loan products to meet the demands of its customers. The Company has developed a variety of floating or adjustable interest rate products. At December 31, 2008, construction and land loans represent over one fourth of its loan portfolio. Its lending activities have also included the origination of multifamily and commercial real estate loans. Commercial business lending has been directed toward meeting the credit and related deposit needs of various small- to medium-sized business and agri-business borrowers operating in its primary market areas. At December 31, 2008, its net loan portfolio totaled $3.9 billion. At both Banner Bank and Islanders Bank, it originates loans secured by first mortgages on one- to four-family residences in the Northwest communities where it has offices. Banner Bank’s mortgage lending subsidiary, CFC, provides residential lending primarily in the greater Portland, Oregon and Pasco (Tri Cities), Washington market areas.

The Company offers fixed- and adjustable-rate mortgages (ARMs). At December 31, 2008, construction and land loans totaled $1.045 billion, or 26% of total loans of the Company, consisting of $421 million of one- to four-family construction loans, $486 million of land or land development loans and $138 million of commercial and multifamily real estate construction loans. At December 31, 2008, its loan portfolio included $151 million in multifamily and $1.014 billion in commercial real estate loans, which together comprised 29% of its total loans. The Company is active in small- to medium-sized business lending and are engaged to a lesser extent in agricultural lending primarily by providing crop production loans. At December 31, 2008, commercial loans totaled $680 million, or 17% of its total loans. At December 31, 2008, it had $268 million, or 7% of its loans receivable, in consumer related loans.

Investment Activities

At December 31, 2008, the Company’s consolidated investment portfolio totaled $317 million and consisted principally of United States Government agency obligations, mortgage-backed securities, municipal bonds and corporate debt obligations. During the year ended December 31, 2008, holdings of mortgage-backed securities increased $35 million to $134 million, United States Treasury and agency obligations increased $40 million to $70 million, corporate securities including equities decreased $24 million (largely as a result of fair value adjustments) to $49 million, and municipal bonds increased $9 million to $64 million.

Sources of Funds

Deposits, Federal Home Loan Bank (FHLB) advances (or other borrowings) and loan repayments are the Company’s major sources of funds for lending and other investment purposes. Borrowings may be used on a short-term basis to compensate for reductions in the availability of funds from other sources. Borrowings may also be used on a longer-term basis for general business purposes, including funding loans and investments. Te Company attracts deposits from within its primary market areas by offering a selection of deposit instruments, including demand checking accounts, negotiable order of withdrawal (NOW) accounts, money market deposit accounts, regular savings accounts, certificates of deposit, cash management services and retirement savings plans. At December 31, 2008, it had $3.8 billion of deposits, including $1.7 billion of transaction and savings accounts and $2.1 billion in time deposits. At December 31, 2008, it had $109 million of borrowings from the FHLB-Seattle. At December 31, 2008, based upon its available unencumbered collateral, Banner Bank was eligible to borrow $853 million from the Federal Reserve Bank of San Francisco (FRBSF).