For the year ended December 31, 2007, net interest income before the provision for loan losses increased 18% to $149.6 million, compared to $126.9 million a year ago. Revenues increased 20% to $176.6 million, excluding fair value adjustments, in 2007, compared to $147.5 million in 2006. Total other operating income increased 32% to $27.0 million, excluding fair value adjustments, in 2007, compared to $20.5 million in full-year 2006.

"On October 10, 2007, we completed the acquisition of NCW Community Bank. Additionally, during the current quarter we opened two new branches and relocated two other branches," said Jones. "For the full year ended December 31, 2007, through acquisitions and new branch openings, we added 26 locations to our distribution network. These new and acquired branches have increased expenses over the quarter and year-to-date; however, they are proving to be very successful in helping us reach new customers and grow deposits. While we need to reduce our level of expenses from what we incurred in the fourth quarter, recurring operating expenses exclusive of the NCW Community Bank acquisition in October were slightly reduced from the level of those expenses in the third quarter. Over time we expect these new offices and acquisitions will add to our profitability by providing low-cost core deposits and additional revenue generating opportunities." Other operating expenses increased to $35.3 million in the fourth quarter of 2007, compared to $25.8 million in the fourth quarter a year ago, reflecting both new branches and acquisition activity. For the full year, other operating expenses were $127.5 million, compared to $99.7 million, excluding the insurance recovery, and $94.4 million after the recovery in 2006. "Approximately 50% of the year-over-year increase in operating expenses was due to the three acquisitions. However, we clearly have work to do in reducing our expense levels by capturing more cost savings in the acquired banks and substantially slowing our de novo branch expansion," said Jones.

Assets increased 29% to $4.5 billion at December 31, 2007, compared to $3.5 billion a year earlier. "Loan growth, exclusive of the NCW Community Bank acquisition, improved to an annualized rate of 11% in the fourth quarter and was strongest in the commercial business and consumer sectors, reflecting the still solid Northwest economy," said Jones. "However, we have continued to be very cautious in our underwriting and we have significantly slowed our production of construction and land development loans." Net loans increased 28% (20% from acquisitions) to $3.76 billion at December 31, 2007, compared to $2.93 billion a year earlier.

Total deposits increased 30% (20% from acquisitions) to $3.62 billion at December 31, 2007, compared to $2.79 billion at December 31, 2006. Non-interest-bearing accounts increased 46% and total transaction and savings accounts increased 43% during the twelve months ending December 31, 2007, while certificates of deposit increased 19%. "We chose not to renew approximately $86 million of matured brokered certificates of deposit in the second half of the year, which resulted in slower deposit growth; however, our retail growth for the whole year was very encouraging," said Jones. "We are optimistic that our expanded branch network will deliver continued deposit growth and related fee income as we have experienced excellent growth in the number of transaction deposit accounts throughout the system."

Shareholders' equity for the year ended December 31, 2007 increased 75% year over year. At December 31, 2007, shareholders' equity was $437.8 million compared to $250.6 million at December 31, 2006. The $187.2 million rise in equity primarily reflects the issuance of stock associated with the three acquisitions in 2007. During the fourth quarter of 2007, the Company issued 340,000 shares of common stock in connection with the acquisition of NCW Community Bank, resulting in $11.8 million of additional equity. During the quarter ended June 30, 2007, the Company issued 2.6 million shares of common stock in connection with the acquisitions of F&M Bank and San Juan Financial Holding Company (Islanders Bank), resulting in $113.1 million of additional equity. The three acquisitions also resulted in a combined increase of $103.1 million of goodwill and other intangibles. The Company has also issued shares through its Dividend Reinvestment and Stock Purchase Plan and in connection with the exercise of vested stock options. At December 31, 2006, Banner had 12.3 million shares outstanding, but as a result of the three acquisitions and the stock issuance noted above, it had 16.3 million shares outstanding at December 31, 2007.

Book value per share increased 32% to $27.32 at year-end, from $20.76 a year earlier, and tangible book value per share was up 6% to $18.73 at year-end, compared to $17.75 a year earlier.

Banner Corporation elected early adoption of SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, and SFAS No. 157, Fair Value Measurements, effective January 1, 2007. SFAS No. 159, which was issued in February 2007, generally permits the measurement of selected eligible financial instruments at fair value at specified election dates. SFAS No. 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles (GAAP), and expands disclosures about fair value measurement. The Company made this election to allow it more flexibility with respect to the management of its investment securities, wholesale borrowings and interest rate risk position in future periods.

Upon adoption of SFAS No.159, the Company selected fair value measurement for all of its "available for sale" investment securities, Federal Home Loan Bank advances and junior subordinated debentures, which had fair values of approximately $226.2 million, $176.8 million and $124.4 million, respectively, on January 1, 2007. The initial fair value measurement of these instruments resulted

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BANR - Fourth Quarter 2007 Results
January 22, 2008
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