Banner Corporation · NASDAQ:BANR
Banner — IPO Roadshow (June 2010)
50 slides from Banner's IPO roadshow presentation, Jun 17, 2010
Slide 1: $150 Million Offering of Common Stock
Filed Pursuant to Rule 433 Issuer Free Writing Prospectus dated June 17, 2010 Relating to Preliminary Prospectus Supplement dated June 17, 2010 Registration No. 333-164259 Registration No. 333-167597 Better ideas. Better banking. $150 Million Offering of Common Stock June 2010
Slide 2: Disclosure Statement
Disclosure Statement The Company proposes to issue the common shares pursuant to a prospectus supplement that will be filed as part of an existing shelf registration statement previously filed with the Securities and Exchange Commission on Form S-3. The offering may be made only by means of a prospe
Slide 3: Use of Non-GAAP Financial Measures
Use of Non-GAAP Financial Measures Tangible equity, tangible common equity and tangible common equity to tangible assets are non- GAAP financial measures. We calculate tangible equity by excluding the balance of goodwill and other intangible assets from shareholders’ equity. We calculate tangible co
Slide 4: Transaction Overview
Transaction Overview Issuer: Banner Corporation Ticker / Exchange: BANR / NASDAQ GSM Type of Offering: Follow-on Public Offering Type of Security: Common Stock Transaction Size: $150 million Over-Allotment Option: 15% Use of Proceeds: Provide capital to Banner Bank to strengthen the bank’s regulator
Slide 5: Key Management Personnel
Key Management Personnel D. Michael Jones, Chief Executive Officer Mark J. Grescovich, President Lloyd W. Baker, Executive Vice President & Chief Financial Officer Richard B. Barton, Executive Vice President & Chief Lending/Credit Officer 5
Slide 6: Presentation Contents
Presentation Contents 1. Strategy and Opportunities 2. Credit Quality 3. Capital Position 4. Funding 5. Earnings Power 6. Final Considerations Appendix A. Loan Breakdown and Credit Metrics B. Non-Interest Income and Expense C. Demographic Information D. Reconciliation of Non-GAAP Financial Measures
Slide 7: Strategy and Opportunities
1. Strategy and Opportunities 7
Slide 8: Strategy and Opportunities
Strategy and Opportunities Banner Corporation (“Banner” or “BANR”) is raising capital to allow it to focus on three key areas Core Strengths – continue to invest in those areas that have established Banner as a strong franchise in its market areas Areas for Attention – credit quality and improved de
Slide 9: Market Overview
Market Overview While regional factors influence the market as a whole, BANR operates in distinct markets with unique drivers Stable base of rural markets Strong platform in metropolitan areas will provide growth when recovery occurs Eastern WA Deposits: $628 million Loans: $506 million Puget Sound
Slide 10: Banner Strategy and Opportunity
Banner Strategy and Opportunity Internal Focus Transitioning to External Opportunities 9 to 18 month Strategy 18 to 36 month Strategy 1) Improve capitalization to continue to 1) Market environment presents weather the storm opportunities - Improved pricing on assets 2) Continue to focus on aggressiv
Slide 11: Core Strengths
Core Strengths Large, diversified financial institution with a mix of markets, each driven by diverse economic factors Over 55% of deposit customer base in stable, rural markets Columbia Basin Financial Highlights (3/31/2010): Eastern WA (Spokane) (2) Total Assets: $4.6 billion Platform in higher-gr
Slide 12: Core Strengths
Core Strengths Diversified loan portfolio Stable pre-tax, pre-provision earnings (1) Stable trends in last three quarters $14 1.20% Loan Composition – Q1 2010 Farm & Ag. $12 1.00% 5.1% Consumer C&D 3.0% 18.1% $10 0.80% C&I 16.7% $8 0.60% $6 1-4 Family 0.40% Non-Owner 24.0% $4 Occ. CRE 15.1% 0.20% $2
Slide 13: Areas for Attention
Areas for Attention Improve funding costs Continue to aggressively manage the loan portfolio and resolve problem Focus on core deposits assets Improvement as branch network Stable trends over the last four quarters matures Cost of Funds NPAs/Assets 3.50% 7% Most recent safety & soundness FDIC exam c
Slide 14: Credit Quality
2. Credit Quality 14
Slide 15: Loan Review and Monitoring
Loan Review and Monitoring Internal Key staffing additions/changes have been made: Hired new President with significant credit experience Restructured Mortgage Lending Division and hired senior level workout officers Added to Real Estate and Commercial Special Assets groups Added to/strengthened com
Slide 16: Loan Composition is Improving
Loan Composition is Improving Problem assets are principally in C&D portfolio (75% of NPA’s) Reduced C&D portfolio by approximately $557 million since 12/31/2007 Aggressive management includes Early identification Proactive management Creative internal programs to facilitate problem resolution (Grea
Slide 17: Early Problem Asset Recognition
Early Problem Asset Recognition Proactive credit management and problem recognition NCOs/Avg. Loans 4.00% Commercial real estate portfolios are being 3.50% proactively managed including loan by loan stress Most recent testing to identify potential problem assets 3.00% safety & soundness FDIC 2.50% N
Slide 18: Positive Recent Credit Quality Trends
Positive Recent Credit Quality Trends Credit quality began to stabilize late in 2009 Nonperforming loans decreased in the most recent quarter Credit Quality History OREO has increased as Banner has taken (000s) Nonaccrual Loans Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010
Slide 19: Asset Resolution is Critical
Asset Resolution is Critical Over the last 4 quarters Approximately $50 million of OREO has been sold OREO was sold at approximately 97% of carrying value OREO Summary (000s) Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Balance, beginning of period $ 1,867 $ 7,572 $ 11,390
Slide 20: Capital Position
3. Capital Position 20
Slide 21: Capital is Critical to the Strategy
Capital is Critical to the Strategy Provides cushion to sustain the Company through prolonged downturn Strengthens balance sheet position when external opportunities present themselves Risk Based Capital Ratios (Holding Company) Before and After $150 million Capital Raise (1) (000s) At 3/31/2010 Act
Slide 22: Stress Tests
Stress Tests Asset Category (Q4 2008) More Adverse Loss Scenario SCAP (000s) Balance % $ Amt. First Lien 1-4 Family $ 612,692 3.50% $ (21,444) Loss scenario based on loss Closed-End Jr Lien 1-4 Family $ 50,669 23.50% $ (11,907) Revolving 1-4 Family (HE lines) $ 153,327 9.50% $ (14,566) rates used in
Slide 23: Capital Cushion Provides Room for Additional Loan Stress
Capital Cushion Provides Room for Additional Loan Stress SCAP Loss Estimates (1) (000s) More Adverse Possible Loss $ (386,000) Excess Provision above 1.5% 40,000 Capital Impact (346,000) (2) Future core earnings 68,000 (3) DRIP / DPP proceeds 30,000 (4) Net Charge-off Recapture 102,000 Pro Forma Cap
Slide 24: Funding
4. Funding 24
Slide 25: Deposit Snapshot
Deposit Snapshot (1) Regional Deposit Market Share Cost of Funds Number of Total BANR BANR 3.50% Total BANR Total Deposits Regional Branches Branches Deposits in in Region Market 3.00% Region in Region in Region Region ($000) ($000) Share Columbia Basin 230 25 $9,102,925 $1,590,208 17.5% 2.50% Puget
Slide 26: Core Deposit Summary
Core Deposit Summary Opportunities with immature branch network 27 branches less than five years old 3 acquisitions since 2006 Significant improvement in non-CD deposit accounts – 21.5% growth year-over-year Low reliance on wholesale funding Deposit Balances Q1 2009 to Q1 2010 (000s) Q1 2009 Q1 2010
Slide 27: Area of Opportunity
Area of Opportunity Rate by Category (1) $1.6 billion in CDs maturing over next four quarters Interest bearing checking 0.56% Savings 1.04% Cost of funds reduction of 173 bps over last Money market 1.27% 8 quarters ended 3/31/2010 Retail CDs 2.52% Jumbo CDs 2.51% Brokered Deposits Public Funds Total
Slide 28: Earnings Power
5. Earnings Power 28
Slide 29: Core Earnings Strength
Core Earnings Strength NIM improved consistently, up 36 bps over the last three quarters, despite continued drag from NPAs Loan yields are stable and cost of funds continues to decline Disciplined expense control Pre-tax, Pre-Provision Earnings (1) Net Interest Margin $14 1.20% 4.00% $12 1.00% 3.50%
Slide 30: Performance Initiatives to Bolster Core Earnings
Performance Initiatives to Bolster Core Earnings Comprehensive Portfolio Management Continue portfolio review process to quickly detect and react to any deteriorating trends Aggressively manage criticized and classified relationships Aggressively manage NPAs and OREO for maximum realizationof asset
Slide 31: Final Considerations
6. Final Considerations 31
Slide 32: What has Changed Since December 2009 Roadshow
What has Changed Since December 2009 Roadshow Two additional quarters of results that confirm: Stabilization of credit quality Improvement of core earnings Further additions to the management team Better visibility on regional economic conditions $150 million capital raise provides significant cushi
Slide 33: Relative Valuation
Relative Valuation Mkt. Cap to Current Price as of Mkt. Cap. Price / LTM PTPP Dividend Company Name Ticker State 6/16/2010 ($M) Tang. Book (1) Earnings (2) Yield Banner’s stock valuation Peer Group A (3) is well below both peer Umpqua Holdings Corporation UMPQ OR $ 12.48 $ 1,429.1 155.0% 10.7x 1.60%
Slide 34: Key Considerations
Key Considerations Large, diversified platform with strong presence in stable markets and opportunities in growth markets Diversified loan portfolio with stable/improving credit quality trends Opportunities to continue to grow core earnings through improving funding mix and cost Strong additions to
Slide 35: A. Loan Breakdown and Credit Metrics
A. Loan Breakdown and Credit Metrics 35
Slide 36: Largest Lending Relationships
Largest Lending Relationships Top 25 Commitment Balance Relationships Business Risk Rating Amount 3/31/10 1 Coml RE / Animal Feed Products Pass $38,563,481 $36,404,817 2 Homebuilder Substandard 20,468,995 20,468,995 3 Investment Banking Pass 20,000,000 - 4 Individual - various investments Pass 20,00
Slide 37: Loan and Credit Quality Comparison
Loan and Credit Quality Comparison 54% of Q1 2010 NCOs were related to construction & development loans (000s) Balances Classified NPL Q1 2010 NCOs Past Due Loan Category $ % $ % $ % $ % $ % Commercial real estate owner occupied $ 515,542 14.0% $ 30,609 5.9% $ 3,663 0.7% $ - 0.0% 8,465 1.6% Commerci
Slide 38: Breakdown – Construction & Development
Breakdown – Construction & Development C&D Concentrations Amount % of Total Residential A&D $129 19% Eastern WA Loans: $65 million Residential improved lots 77 12% NPLs: $7 million Residential unimproved 51 8% Commercial A&D 9 1% Puget Sound Improved land 20 3% Loans: $217 million Unimproved land 19
Slide 39: Breakdown – Commercial Real Estate
Breakdown – Commercial Real Estate Owner Occupied Non-Owner Occupied CRE Concentrations Amount % of Total Amount % of Total Eastern WA Loans: $242 million Office $86 17% $151 21% NPLs: $400 thousand Retail 85 16% 120 17% Warehouse/Industrial 131 26% 45 6% Puget Sound Multifamily 0 0% 147 21% Loans:
Slide 40: Breakdown – Commercial & Industrial
Breakdown – Commercial & Industrial C&I Concentrations Amount % of Total Manufacturing $102 17% Eastern WA Loans: $122 million RE, rental & leasing 94 15% NPLs: $2 million Construction 76 13% Finance & Insurance 67 11% Puget Sound Health care 49 8% Loans: $235 million Wholesale Trade 50 8% NPLs: $12
Slide 41: Breakdown – Residential Real Estate
Breakdown – Residential Real Estate Eastern WA 1-4 Family Concentrations Amount % of Total Loans: $63 million 1-4 Family 1st liens $698 78% NPLs: $2 million 1-4 Family Jr. Liens 171 19% 1-4 Family Home Equity LOCs 23 3% Puget Sound Total $892 Loans: $350 million NPLs: $6 million Boise/SW Idaho Large
Slide 42: Breakdown – Farm & Agriculture
Breakdown – Farm & Agriculture Ag Concentrations Amount % of Total Field Crops $57 30% Eastern WA Loans: $3 million Grains 28 15% NPLs: $0 Livestock 39 21% Dairies 27 15% Puget Sound Potato 14 7% Loans: $8 million Wineries 5 3% NPLs: $0 Other 17 9% Total $187 Boise/SW Idaho Loans: $53 million Divers
Slide 43: Breakdown – Consumer
Breakdown – Consumer Eastern WA Loans: $11 million Cons. Concentrations Amount % of Total NPLs: $0 Credit Cards $17 16% Other Cons Revolv 11 10% Puget Sound Other Cons Loans 81 74% Loans: $47 million Total $109 NPLs: $400 thousand Boise/SW Idaho Loans: $6 million Small portfolio of credit cards, car
Slide 44: B. Non-Interest Income and Expense
B. Non-Interest Income and Expense 44
Slide 45: Other Revenue Opportunities
Other Revenue Opportunities Account acquisition and retention yielding consistent service charge income Core competency in mortgage banking (000s) $ % Non-Interest Income Q1 2009 Q1 2010 Change Change Deposit fees and other service charges $ 4,936 $ 5,169 $ 233 4.7% Net change in valuation of financ
Slide 46: Control Over Non-Interest Expense
Control Over Non-Interest Expense Core non-interest expense items decreased (000s) $ % 5.1% in Q1 2010 Non-Interest Expense Q1 2009 Q1 2010 Change Change Core non-interest expense items Salary & employee benefits $ 15,485 $ 14,954 $ (531) -3.4% Salary and employee Occupancy & equipment 6,054 5,604 (
Slide 47: C. Demographic Information
C. Demographic Information 47
Slide 48: Demographics by Region
Demographics by Region BANR operates in attractive regions; all of the regions BANR serves have higher projected population and income growth rates than the national average Population Avg. Population Avg. Projected Total Population Change Pop. Change Region 2009 (actual) 2000 - 2009 2009 - 2014 Col
Slide 49: D. Reconciliation of Non-GAAP Financial Measures
D. Reconciliation of Non-GAAP Financial Measures 49
Slide 50: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Normalized Pre-Tax, Pre-Provision Earnings (000s) Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Income (Loss) Before Provision For Income Taxes $5,343 ($54,610) ($2,338) ($83,473) ($16,186) ($26,989) ($11,824) ($7,818) ($3,541)