BANR

Banner Corporation (BANR)

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Banner Corporation (BANR)

Q4 2008 Earnings Call

January 29, 2009 10:00 AM ET

Executives

D. Michael Jones - President and Chief Executive Officer

Albert H. Marshall - Secretary

Lloyd W. Baker - Executive Vice President and Chief Financial Officer

Analysts

Timothy Coffey - Fig Partners

Jeffrey Rulis - D.A. Davidson

Kipling Peterson - Columbia Ventures Corp

Presentation

Operator

Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Banner Corporation's 4Q 2008 Conference Call. During today's presentation all participants will be in a listen-only mode. And following the presentation the conference will be open for questions. (Operator Instructions)

This conference is being recorded today Thursday, January 29th of 2009. At this time I'd like to turn the conference over to Mr. Mike Jones, Chief Executive Officer. Please go ahead sir.

D. Michael Jones

Thanks Vince. And I want to express my appreciation to all of you for dialing in to listen to our fourth quarter conference call. It's not a great story to tell but nevertheless we'll get to it.

So before I start with that sitting with me is Al Marshall who is the Secretary of the Corporation and Lloyd Baker, who is the Chief Financial Officer of the Corporation. And we need to start off with the opening paragraph. Al if you'll read it now, please.

Albert H. Marshall

Good morning. Our presentation today discusses Banner's business outlook and will include forward-looking statements. Those statements include descriptions of management's plans, objectives or goals for future operations, products or services, forecasts of financial or other performance measures, and statements about Banner's general outlook for economic and other conditions. We also may make other forward-looking statements in the question and answer period following management's discussion. These forward-looking statements are subject to a number of risks and uncertainties and actual results may differ materially from those discussed today.

Information on the risk factors that could cause actual results to differ are available from the earnings press release that was released yesterday and recently filed Form 10-Q for the quarter ended September 30, 2008. Forward-looking statements are effective only as of the date they are made and Banner assumes no obligation to update information concerning its expectations.

D. Michael Jones

Thanks Al. What I'd like to do next is have Lloyd Baker go through the quarterly earnings release and probably embellish s with some thoughts along the way and then I'll come in and finish up after he completes his presentation. So, Lloyd go ahead.

Lloyd W. Baker

Okay. Thanks Mike. And good morning everyone. As Mike has already indicated that there is not a lot of good news in this morning news release, press release, earnings.

There are... in the first paragraph three is very large numbers that I think I want to deal with before we get into the sort of the core operations.

The first one is as we noted, we did record a $71 million charge to write-off the remaining balance of goodwill that we had, the goodwill as you recall is a result of, not only the three acquisitions that we did last year but some acquisitions dating all the way back to 1996. The accounting treatment of goodwill is a difficult and complex subject for most people to understand and it really has very little economic consequence beyond the date of the transitions that creates the goodwill.

But clearly the standard requires that we take a look at if the markets indication of the value of the company is reflected in stock prices, it's no secret to anyone listening to this call that the stock prices have been very weak. When we compare that price to the book value of the company which includes the goodwill and that triggers an analysis that causes us to fair value all our assets and liabilities.

In that process, goodwill then falls out as the remaining asset. The market capitalization of the company clearly has fallen, do we think that that market capitalization is reflective of true intrinsic value of the company? No. But it's clearly that the market has applied very different valuation standards to not only Banner but to bank stocks in general.

So, when we look at that and go through the analysis that I indicated, it just becomes fairly obvious that goodwill is not being given any value in the market today and so we decided that it was appropriate to write it off.

The good news of course is that the regulators, banks and regulators came to the same conclusion years ago when they decided to exclude goodwill from regulatory capital calculations. And so while it results in a large reported loss it does have no impact on either our liquidity or operations or our regulatory capital ratios going-forward.

The second large number in this morning's release is a little more fundamental and that's of course the provision for loan loss as we've noted. We did provide for $33 million of loan losses in the fourth quarter. It has brought our total loan loss for the full year up to $62.5 million.

As the quarter progressed -- the fourth quarter progressed, it became more and more evident that weak housing markets and fallen home prices were taking a real toll on many of our borrowers. Non-performing loans increased. Short sales increased. Net charge-offs increased and evaluations declined as I indicated.

As a result, we did record the $33 million provision for loan loss and our methodology not only that we did report about $17 million in charge-offs for the quarter. So $33 million provision was double the amount of charge-offs that our methodology for addressing the adequacy allowance, factors recent history and charge-offs experience and very heavily when we determine the amount of allowance necessary for currently performing loans as well as smaller non-performing loans that aren't subject to individual impairment analysis.

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