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As filed with the Securities and Exchange Commission on December 11, 2015

Registration No. 333-                    

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

BANNER CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Washington		6021		91-1691604
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

10 South First Avenue

Walla Walla, Washington 99362

(509) 527-3636

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Albert H. Marshall

Senior Vice President and Secretary

Banner Corporation

10 South First Avenue

Walla Walla, WA 99362

(509) 527-3636

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Pamela L. Marcogliese		Paul D. Tropp
Cleary Gottlieb Steen & Hamilton LLP		Freshfields Bruckhaus Deringer US LLP
One Liberty Plaza		601 Lexington Avenue, 31st Floor
New York, New York 10006		New York, NY 10022
(212) 225-2000		(212) 277-4000

 

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933 check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.

 

Large accelerated filer		x		Accelerated filer		¨
Non-accelerated filer		¨  (Do not check if a smaller reporting company)		Smaller reporting company		¨

 

CALCULATION OF REGISTRATION FEE

 

Title of each Class of Securities to be Registered		Amount to be Registered (1)(2)		Amount of Registration Fee
Common Stock, $0.01 par value per share		$100,000,000		$10,070

(1)	Includes shares that the underwriters have an option to purchase from                                              .

(2)	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933, as amended.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, Dated December 11, 2015

Prospectus

             Shares

 

 

Banner Corporation

Common Stock

 

 

The selling stockholders identified in “Principal and Selling Stockholders” (the “Selling Stockholders”) are offering                  shares of our common stock. The Selling Stockholders will receive all of the net proceeds from the sale of these shares, and we will not receive any of the proceeds from the sale of the shares being sold by the Selling Stockholders. We will bear the costs associated with this offering, other than underwriting discounts and commissions and transfer taxes. The Selling Stockholders will bear any underwriting commissions and discounts and transfer taxes and any expenses required by applicable law attributable to their sale of our common stock.

Our common stock is listed on The NASDAQ Stock Market (“NASDAQ”) under the symbol “BANR.” The last reported closing sale price of our common stock on NASDAQ on December 9, 2015 was $48.44 per share.

 

 

Investing in our common stock involves risks. See “Risk Factors” beginning on page 23 to read about certain factors you should consider before buying our common stock.

 

		Per Share				Total
Public offering price		$				$
Underwriting discounts and commissions (1)		$				$
Proceeds, before expenses, to the Selling Stockholders		$				$

 

(1)	See “Underwriting” for additional information regarding underwriter compensation.

The underwriters may also exercise their option to purchase up to an additional             shares from             , at the public offering price, less the underwriting discount and commissions, for 30 days following the date of this prospectus.

Delivery of the shares of common stock will be made on or about                     .

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

Joint Book-Running Managers

 

BofA Merrill Lynch		Goldman, Sachs & Co.			Keefe, Bruyette & Woods, Inc. A Stifel Company

Prospectus dated                     , 2015

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TABLE OF CONTENTS

 

		Page
PROSPECTUS SUMMARY			1
RISK FACTORS			23
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS			40
USE OF PROCEEDS			42
MARKET PRICE OF OUR COMMON STOCK			43
DIVIDEND POLICY			44
CAPITALIZATION			45
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL INFORMATION			46
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA			62
MANAGEMENT AND BOARD OF DIRECTORS			66
PRINCIPAL AND SELLING STOCKHOLDERS			72
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			75
DESCRIPTION OF OUR CAPITAL STOCK			79
DESCRIPTION OF CERTAIN INDEBTEDNESS			84
SHARES ELIGIBLE FOR FUTURE SALE			85
CERTAIN MATERIAL U.S. TAX CONSIDERATIONS TO NON-U.S. HOLDERS			87
UNDERWRITING			90
Conflicts of Interest			92
LEGAL MATTERS			97
EXPERTS			97
WHERE YOU CAN FIND MORE INFORMATION			97
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE			98

We have not, the Selling Stockholders have not, and the underwriters have not, authorized anyone to give you any information other than that contained in or incorporated by reference into this prospectus, and we take no responsibility for any other information that others may give you. We are not, the Selling Stockholders are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in or incorporated by reference into this prospectus is accurate as of any date other than the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date. We will update these documents to reflect material changes only as required by law.

 

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OPERATING DATA:

 

(in thousands except shares and per share data)		(unaudited)				(unaudited)
		Nine months ended September 30, 2015				Twelve months ended December 31, 2014
Interest income		$	293,809			$	384,966
Interest expense			15,427				20,345
Net interest income before provision for loan losses			278,382				364,621
Loan loss provision expense (benefit)			(1,189	)			339
Net interest income			279,571				364,282
Deposit fees and other service charges			39,802				47,559
Mortgage banking operations revenue			17,751				16,182
Net change in valuation of financial instruments carried at fair value			735				1,374
All other operating income			13,862				39,697
Total other operating income			72,150				104,812
Real estate operations expense (recovery)			3,480				5,553
All other operating expenses			238,991				319,970
Total other operating expense			242,471				325,523
Income before provision for income taxes			109,250				143,571
Provision for income tax expense (benefit)			39,346				46,462
Net income (loss)		$	69,904			$	97,109

Comparative Unaudited Pro Forma Per Share Data

The table below sets forth the book value per common share, cash dividends per common share, and basic and diluted earnings per common share data for each of Banner and Starbuck on a historical basis, for Banner on a pro forma combined basis and on a pro forma combined basis for Starbuck equivalent shares. The pro forma combined and pro forma per equivalent shares information give effect to Banner’s acquisition of Siuslaw and the Merger as if each acquisition had been effective on the dates presented in the case of the book value per common share data, and as if each acquisition had been effective as of January 1, 2014, in the case of the cash dividends paid per common share and earnings per common share data. The pro forma combined and per share equivalents are calculated by combining the Banner historical share amounts with the 13,230,000 shares of Banner’s common stock and non-voting common stock issued to the equity holders of SKBHC, and the 1,319,995 shares of Banner common stock issued to Siuslaw stockholders. The pro forma combined amounts for Banner reflect certain purchase accounting adjustments, which are preliminary and subject to change depending on fair values. These adjustments are described in the notes to unaudited pro forma combined condensed consolidated financial information contained elsewhere in this document under the heading “Unaudited Pro Forma Combined Condensed Consolidated Financial Information.” The pro forma combined per Starbuck equivalent share data shows the effect of the Merger from the perspective of an owner of Starbuck common stock. The pro forma data combine the historical results of Siuslaw, GSB and Starbuck into Banner’s consolidated statement of income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what could have occurred had the acquisitions taken place on January 1, 2014.

 

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The pro forma financial information in the table below is provided for illustrative purposes, does not include any projected cost savings, revenue enhancements or other possible financial benefits of the Merger to the combined company and does not attempt to suggest or predict future results. This information also does not necessarily reflect what the historical financial condition or results of operations of the combined company would have been had Banner, Siuslaw, GSB and Starbuck been combined as of the dates and for the periods shown.

 

		Banner				Starbuck				Pro Forma Combined Amounts(4)
Book value per common share:(1)
September 30, 2015		$	32.02				n/a			$	37.45
Cash dividends paid per common share:(2)
Year ended December 31, 2014		$	0.72				n/a			$	0.72
Nine months ended September 30, 2015		$	0.54				n/a			$	0.54
Basic and diluted earnings per share:(3)
Year ended December 31, 2014
Basic		$	2.79				n/a			$	2.86
Diluted		$	2.79				n/a			$	2.86
Nine months ended September 30, 2015
Basic		$	1.88				n/a			$	2.06
Diluted		$	1.87				n/a			$	2.06

 

(1)	Calculated by dividing the total equity by total common shares outstanding.

(2)	Represents the historical cash dividends per share paid by Banner and Siuslaw for the period.

(3)	Pro forma earnings per common share are based on pro forma combined net income and pro forma combined weighted average shares outstanding during the period.

(4)

Pro forma adjustments include new Banner common equity issued to former Siuslaw stockholders (1,319,995 shares) and former Starbuck equity holders (13,230,000 shares) and the impact of the pro forma adjustments for the acquisitions as noted in the pro forma financial statements for the periods indicated.

 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as all of the other information contained in this prospectus and the documents incorporated by reference herein, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, our Quarterly Reports on Form 10-Q for the periods ended March 31, 2015, June 30, 2015 and September 30, 2015 and our consolidated financial statements and the related notes thereto, before deciding to invest in our common stock. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition, capital levels, cash flows, liquidity, results of operations and prospects. The market price of our common stock could decline significantly due to any of these identified or other risks, and you could lose some or all of your investment. The risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. The additional risks and uncertainties that are described in the documents incorporated by reference herein may also materially affect our business, financial condition, results of operations and prospects. See “Incorporation of Certain Information by Reference.”

Risks Related to the Company

Our business may be adversely affected by downturns in the national economy and the regional economies on which we depend.

Our operations are significantly affected by national and regional economic conditions. Weakness in the national economy or the economies of the markets in which we operate could have a material adverse effect on our financial condition, results of operations and prospects. Most of our loans are to businesses and individuals in the states of Washington, California, Oregon, Utah and Idaho. All of our branches and most of our deposit customers are also located in these five states. Further, as a result of a high concentration of our customer base in the Puget Sound area and eastern Washington state regions, the deterioration of businesses in these areas, or one or more businesses with a large employee base in these areas, could have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects. Weakness in the global economy has adversely affected many businesses operating in our markets that are dependent upon international trade. In addition, adverse weather conditions as well as decreases in market prices for agricultural products grown in our primary markets can adversely affect agricultural businesses in our markets. As we expand our presence in areas such as San Diego and Sacramento, California and Salt Lake City, Utah, we will be exposed to concentration risks in those areas as well.

A deterioration in economic conditions in the market areas we serve, in particular the Puget Sound area of Washington State, the Portland, Oregon metropolitan area, Spokane, Washington, the agricultural regions of the Columbia Basin, Boise, Idaho, southwestern Oregon, San Diego and Sacramento, California and Salt Lake City, Utah, could result in the following consequences, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations:

 

•

demand for our products and services may decline;

 

•

loan delinquencies, problem assets and foreclosures may increase;

 

•

collateral for loans, especially real estate, may decline in value, in turn reducing customers’ borrowing power, reducing the value of assets and collateral associated with existing loans;

 

•

the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; and

 

•

the amount of our low-cost or non-interest-bearing deposits may decrease.

 

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A return of recessionary conditions could result in increases in our level of non-performing loans and/or reduce demand for our products and services, which could have a material adverse effect on our results of operations.

Economic conditions have improved since the end of the economic recession that officially ended in June, 2009; however, economic growth has been slow and uneven, unemployment remains relatively high and concerns still exist over the federal deficit, government spending and global geopolitical risks, which have all contributed to diminished expectations for the economy. A return of recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability. Declines in real estate values and sales volumes and high unemployment levels may result in higher than expected loan delinquencies and a decline in demand for our products and services. These negative events may cause us to incur losses and may adversely affect our capital, liquidity, and financial condition.

Furthermore, the Federal Reserve Board, in an attempt to help the economy, has, among other things, kept interest rates low through its targeted federal funds rate and the purchase of U.S. Treasury and mortgage-backed securities. If the Federal Reserve Board increases the federal funds rate market interest rates would likely rise, which may negatively affect the housing markets and the U.S. economic recovery. In addition, deflationary pressures, while possibly lowering our operating costs, could have a significant negative effect on our borrowers, especially our business borrowers, and the values of underlying collateral securing loans, which could negatively affect our financial performance.

Our loan portfolio includes loans with a higher risk of loss.

In addition to first-lien one- to four-family residential real estate lending, we originate construction and land loans, commercial and multifamily mortgage loans, commercial business loans, agricultural mortgage loans and agricultural loans, and consumer loans, primarily within our market areas. We had $3.29 billion outstanding in these types of higher risk loans at December 31, 2014 compared to $2.89 billion at December 31, 2013. We had $6.19 billion outstanding in these types of loans at September 30, 2015 on a pro forma basis. These loans typically present different risks to us for a number of reasons, including those discussed below. As a result of the Merger, a lower percentage of our total loan portfolio consists of these types of higher risk loans, and the concentration of these types of loans as between construction and land loans, commercial and multifamily mortgage loans, commercial business loans, agricultural mortgage loans and agricultural loans, and consumer loans has shifted due to different historical concentrations in the AmericanWest loan portfolio, as has the concentration of non-performing loans in our loan portfolio. However, we do not believe the Merger meaningfully affected the percentage of non-performing loans on a pro forma basis. As a result of purchase accounting rules under GAAP, many of the non-performing loans we acquired from AmericanWest will be reclassified as purchase credit impaired loans and no longer be included in non-performing loans.

 

•

Commercial Business Loans. At December 31, 2014, commercial business loans were $724 million, or 19% of our total loan portfolio. At September 30, 2015 on a pro forma basis, commercial business loans were $1.20 billion, or 16% of our total loan portfolio. Our commercial business loans are primarily made based on the cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The borrowers’ cash flow may prove to be unpredictable and collateral securing these loans may fluctuate in value. Most often, this collateral is accounts receivable, inventory, equipment or real estate. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. Other collateral securing loans may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business. At December 31, 2014, commercial business loans that were non-performing were $537,000 and at September 30, 2015 on a pro forma basis, $19 million.

 

•

Agricultural Loans. At December 31, 2014, agricultural loans were $238 million, or 6% of our total loan portfolio. At September 30, 2015 on a pro forma basis, agricultural loans were $388 million, or

 

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5% of our total loan portfolio. Repayment is dependent upon the successful operation of the business, which is greatly dependent on many things outside the control of either us or the borrowers. These factors include weather, commodity prices and interest rates, among others. Collateral securing these loans may be difficult to evaluate, manage or liquidate and may not provide an adequate source of repayment. At December 31, 2014, agricultural loans that were non performing were $2 million and at September 30, 2015 on a pro forma basis, $3 million.

 

•

Commercial and Multifamily Real Estate Loans. At December 31, 2014, commercial and multifamily real estate loans were $1.571 billion, or 41% of our total loan portfolio. At September 30, 2015 on a pro forma basis, commercial and multifamily real estate loans were $3.63 billion, or 50% of our total loan portfolio. These loans typically involve higher principal amounts than other types of loans and some of our commercial borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a one to four-family residential mortgage loan. Repayment of these loans is dependent upon income being generated from the property securing the loan in amounts sufficient to cover operating expenses and debt service, which may be adversely affected by changes in the economy or local market conditions. In addition, many of our commercial and multifamily real estate loans are not fully amortizing and contain large balloon payments upon maturity. Such balloon payments may require the borrower to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or non-payment. This risk was exacerbated in the recent recession and could remain an elevated risk in the current slow recovery economic environment. At December 31, 2014, commercial and multifamily real estate loans that were non-performing were $1 million and at September 30, 2015 on a pro forma basis, $70 million.

 

•

Construction and Land Loans. At December 31, 2014, construction and land loans were $411 million, or 11% of our total loan portfolio. At September 30, 2015 on a pro forma basis, construction and land loans were $558 million, or 8% of our total loan portfolio. This type of lending contains the inherent difficulty in estimating both a property’s value at completion of the project and the estimated cost (including interest) of the project. If the estimate of construction cost proves to be inaccurate, we may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of value upon completion proves to be inaccurate, we may be confronted at, or prior to, the maturity of the loan with a project the value of which is insufficient to assure full repayment. In addition, speculative construction loans to a builder are often associated with homes that are not pre-sold, and thus pose a greater potential risk to us than construction loans to individuals on their personal residences. Loans on land under development or held for future construction also pose additional risk because of the lack of income being produced by the property and the potential illiquid nature of the collateral. These risks can be significantly impacted by supply and demand conditions. As a result, this type of lending often involves the disbursement of substantial funds with repayment dependent on the success of the ultimate project and the ability of the borrower to sell the property, rather than the ability of the borrower or guarantor to independently repay principal and interest. While our origination of these types of loans has decreased significantly from earlier periods, as a result of the recent improvement in real estate values in certain of our market areas, this category of lending has increased in recent years and our investment in construction and land loans increased by $60 million or 17% in 2014. At December 31, 2014, construction and land loans that were non-performing were $1 million and at September 30, 2015 on a pro forma basis, $9 million.

 

•

Consumer Loans. At December 31, 2014, consumer loans were $349 million, or 9% of our total loan portfolio. At September 30, 2015 on a pro forma basis, consumer loans were $639 million, or 9% of our total loan portfolio. Consumer loans (such as personal lines of credit) are collateralized, if at all, with assets that may not provide an adequate source of payment of the loan due to depreciation, damage, or loss. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or

 

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personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on these loans. At December 31, 2014, consumer loans that were non-performing were $1 million and at September 30, 2015 on a pro forma basis, $3 million.

Our allowance for loan losses may prove to be insufficient to absorb losses in our loan portfolio, which would cause our results of operations, liquidity and financial condition to be adversely affected.

Lending money is a substantial part of our business and each loan carries a certain risk that it will not be repaid in accordance with its terms or that any underlying collateral will not be sufficient to assure repayment. This risk is affected by, among other things:

 

•

cash flow of the borrower and/or the project being financed;

 

•

in the case of a collateralized loan, the changes and uncertainties as to the future value of the collateral;

 

•

the duration of the loan;

 

•

the character and creditworthiness of a particular borrower; and

 

•

changes in economic and industry conditions.

We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, which we believe is appropriate to provide for probable losses in our loan portfolio. The amount of this allowance is determined by our management through periodic reviews and consideration of several factors, including, but not limited to:

 

•

our general reserve, based on our historical default and loss experience, certain macroeconomic factors, and management’s expectations of future events;

 

•

our specific reserve, based on our evaluation of non-performing loans and their underlying collateral; and

 

•

an unallocated reserve to provide for other credit losses inherent in our portfolio that may not have been contemplated in the other loss factors.

The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for loan losses. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. In addition, if charge-offs in future periods exceed the allowance for loan losses, we may need additional provisions to replenish the allowance for loan losses. Any increases in the allowance for loan losses will result in a decrease in net income and, most likely, capital, and may have a material negative effect on our financial condition and results of operations.

We pursue a strategy of supplementing internal growth by acquiring other financial companies or their assets and liabilities that we believe will help us fulfill our strategic objectives and enhance our earnings. There are risks associated with this strategy, including the following:

 

•

We may be exposed to potential asset quality issues or unknown or contingent liabilities of the banks, businesses, assets, and liabilities we acquire. If these issues or liabilities exceed our estimates, our results of operations and financial condition may be materially negatively affected;

 

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•

Prices at which acquisitions can be made fluctuate with market conditions. We have experienced times during which acquisitions could not be made in specific markets at prices we considered acceptable and expect that we will experience this condition in the future;

 

•

The acquisition of other entities generally requires integration of systems, procedures and personnel of the acquired entity into our company to make the transaction economically successful. This integration process is complicated and time consuming and can also be disruptive to the customers of the acquired business. If the integration process is not conducted successfully and with minimal adverse effect on the acquired business and its customers, we may not realize the anticipated economic benefits of particular acquisitions within the expected time frame, and we may lose customers or employees of the acquired business. We may also experience greater than anticipated customer losses even if the integration process is successful;

 

•

To the extent our costs of an acquisition exceed the fair value of the net assets acquired, the acquisition will generate goodwill. As discussed below under “—We may experience future goodwill impairment,” we are required to assess our goodwill for impairment at least annually, and any goodwill impairment charge could have a material adverse effect on our results of operations and financial condition; and

 

•

To finance an acquisition, we may borrow funds, thereby increasing our leverage and diminishing our liquidity, or raise additional capital, which could dilute the interests of our existing stockholders.

The success of our acquisitions of Siuslaw and AmericanWest is dependent on a number of factors beyond our control.

The success of our acquisitions of Siuslaw and AmericanWest (including GSB, which had recently been acquired by AmericanWest at the time of the Merger) is subject to a number of uncertain factors, including, but not limited to:

 

•

our ability to realize expected revenues, cost savings, synergies and other benefits from the Siuslaw and AmericanWest acquisitions within the expected time frames or at all, and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; and

 

•

the credit quality of loans and other assets acquired from AmericanWest and Siuslaw.

Banner, AmericanWest, GSB and Siuslaw each operated independently before the completion of the relevant acquisitions. The success of the acquisitions, including anticipated benefits and cost savings, will depend, in part, on Banner’s ability to successfully combine the businesses of Banner, AmericanWest, GSB and Siuslaw. To realize these anticipated benefits and cost savings, Banner has begun to integrate AmericanWest’s, GSB’s and Siuslaw’s businesses into its own. It is possible that as we continue to fully integrate these businesses, the process could result in the loss of key employees, the disruption of our ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees to achieve the anticipated benefits and cost savings of the mergers. The loss of key employees could adversely affect Banner’s ability to successfully conduct its business in the markets in which AmericanWest, GSB or Siuslaw’s branches have operated and could have an adverse effect on Banner’s financial results and the value of its common stock.

Prior to the acquisitions, neither AmericanWest, GSB nor Siuslaw was subject to the requirements of the Exchange Act with respect to internal controls over financial reporting. If the internal controls over financial reporting by AmericanWest, GSB or Siuslaw was found to be ineffective, a material weakness in internal controls could result and the integrity of our financial reporting could be compromised, which could result in a material adverse effect on our reported financial results. In addition, the integration of the financial reporting functions of each of AmericanWest, GSB and Siuslaw into our own will require significant effort and any failure could affect the quality of our financial reporting, and could result in a material adverse effect on our reported financial results.

 

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If Banner experiences difficulties with the integration process, the anticipated benefits of the acquisitions may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions, including upon the conversion of customers from the legacy systems of AmericanWest, GSB or Siuslaw to our own, that cause Banner, AmericanWest, GSB or Siuslaw to lose customers or cause customers to close their accounts with Banner, AmericanWest, GSB or Siuslaw and move their business to competing financial institutions. Integration efforts between the companies will also divert management attention and require significant resources, including an increase in our compliance costs. Any such distraction on the part of management, if significant, could affect Banner’s ability to service existing business and develop new business and adversely affect our business and earnings.

These acquisitions may also have an effect on the value of Banner common stock because market participants may look at factors different from those currently affecting the values of Banner common stock. See also “—We may be subject to additional regulatory scrutiny if and when Banner Bank’s total assets exceed $10.0 billion.”

In connection with any acquisition, we may incur material acquisition-related or restructuring charges, which may have a material adverse effect on our results of operations. For example, following the Merger, we expect to incur approximately $33 million of acquisition-related costs through the second quarter of 2016, with the majority being incurred in the fourth quarter of 2015 and the first quarter of 2016. These charges will relate to items such as severance and benefits costs, expenses related to branch consolidation charges, vendor contract termination costs, expenses related to IT systems integration and conversion, incurrence of professional services and consulting fees and other items. See “Prospectus Summary—The Merger.”

The required accounting treatment of troubled loans we acquire through acquisitions could result in higher net interest margins and interest income in current periods and lower net interest margins and interest income in future periods.

Under GAAP, we are required to record troubled loans acquired through acquisitions at fair value, which may differ from the actual performance of such loans. Estimating the fair value of such loans requires management to make estimates based on available information and facts and circumstances on the acquisition date. Actual performance could differ from management’s initial estimates. If these loans outperform our original fair value estimates, the difference between our original estimate and the actual performance of the loan (the “discount”) is accreted into net interest income. This accretable yield may change due to changes in expected timing and amount of future cash flows. The yields on our loans could decline as our acquired loan portfolio pays down or matures, and we expect downward pressure on our interest income to the extent that the runoff on our acquired loan portfolio is not replaced with comparable high-yielding loans. This could result in higher net interest margins and interest income in current periods and lower net interest rate margins and lower interest income in future periods.

Our expansion into new market areas in California and Utah may present increased risk.

AmericanWest’s lending operations are concentrated in the states of California, Utah, Oregon, Idaho and Washington. The merger with AmericanWest resulted in Banner’s initial entry into the states of California and Utah where Banner has little or no operating experience. Although Banner retained a number of AmericanWest’s lending and business development officers with experience in these markets, Banner is new to these market areas and has conducted only limited banking business in California and Utah. Our entry into these markets presents us with different competitive conditions, customer preferences and banking products than we have experienced in the Pacific Northwest markets we know. As a result, it is possible that our operations in these states may be less successful than our operations in the Pacific Northwest. In addition, our financial condition and results of operations will be subject to general economic conditions and the conditions in the real estate markets prevailing in California and Utah as well as the Pacific Northwest markets we know. If economic conditions in any one of these states worsens or if the real estate market declines, we may suffer decreased net income or losses associated with higher default rates and decreased collateral values on our existing portfolio, and we may not be able to originate loans at acceptable risk levels and upon acceptable terms to maintain our risk profile and asset quality.

 

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Our growth or future losses may require us to raise additional capital in the future, but that capital may not be available when it is needed or the cost of that capital may be very high.

We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations. We may at some point, however, need to raise additional capital to support continued growth or be required by our regulators to increase our capital resources. Any capital we obtain may result in the dilution of the interests of existing holders of our common stock. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial condition and performance. Accordingly, we cannot make assurances that we will be able to raise additional capital if needed on terms that are acceptable to us, or at all. If we cannot raise additional capital when needed, our ability to further expand our operations could be materially impaired and our financial condition and liquidity could be materially and adversely affected. In addition, if we are unable to raise additional capital when required by our bank regulators, we may be subject to adverse regulatory action.

If our investments in real estate are not properly valued or sufficiently reserved to cover actual losses, or if we are required to increase our valuation reserves, our earnings could be reduced.

We obtain updated valuations in the form of appraisals and broker price opinions when a loan has been foreclosed and the property taken in as Real Estate Owned (“REO”) and at certain other times during the asset’s holding period. Our net book value (“NBV”) in the loan at the time of foreclosure and thereafter is compared to the updated market value of the foreclosed property less estimated selling costs (fair value). A charge-off is recorded for any excess in the asset’s NBV over its fair value. If our valuation process is incorrect, or if property values decline, the fair value of the investments in real estate may not be sufficient to recover our carrying value in such assets, resulting in the need for additional writedowns. Significant writedowns to our investments in real estate could have a material adverse effect on our financial condition, liquidity and results of operations.

In addition, bank regulators periodically review our REO and may require us to recognize further writedowns. Any increase in our writedowns, as required by the bank regulators, may have a material adverse effect on our financial condition, liquidity and results of operations.

Our securities portfolio may be negatively impacted by fluctuations in market value and interest rates.

Our securities portfolio may be impacted by fluctuations in market value, potentially reducing accumulated other comprehensive income and/or earnings. Fluctuations in market value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand. Our securities portfolio is evaluated for other-than-temporary impairment. If this evaluation shows impairment to the actual or projected cash flows associated with one or more securities, a potential loss to earnings may occur. Changes in interest rates can also have an adverse effect on our financial condition, as our available-for-sale securities are reported at their estimated fair value, and therefore are impacted by fluctuations in interest rates. We increase or decrease our stockholders’ equity by the amount of change in the estimated fair value of the available-for-sale securities, net of taxes. There can be no assurance that the declines in market value will not result in other-than-temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels.

An increase in interest rates, change in the programs offered by secondary market purchasers or our ability to qualify for their programs may reduce our mortgage banking revenues, which would negatively impact our non-interest income.

Our mortgage banking operations provide a significant portion of our non-interest income. We generate mortgage revenues primarily from gains on the sale of one- to four- family and multifamily mortgage loans pursuant to programs currently offered by Fannie Mae, Freddie Mac, Ginnie Mae and non-GSE investors. These entities account for a substantial portion of the secondary market in residential and multifamily mortgage loans.

 

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Any future changes in these programs, our eligibility to participate in such programs, a reduction in the size of the secondary market for multifamily loans, the criteria for loans to be accepted or laws that significantly affect the activity of such entities could, in turn, materially adversely affect our results of operations. Mortgage banking is generally considered a volatile source of income because it depends largely on the level of loan volume which, in turn, depends largely on prevailing market interest rates. In a rising or higher interest rate environment, our originations of mortgage loans may decrease, resulting in fewer loans that are available to be sold to investors. This would result in a decrease in mortgage banking revenues and a corresponding decrease in non-interest income. In addition, our results of operations are affected by the amount of non-interest expense associated with mortgage banking activities, such as salaries and employee benefits, occupancy, equipment and data processing expense and other operating costs. During periods of reduced loan demand, our results of operations may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in loan originations. In addition, although we sell loans into the secondary market without recourse, we are required to give customary representations and warranties about the loans to the buyers. If we breach those representations and warranties, the buyers may require us to repurchase the loans and we may incur a loss on the repurchase.

Our results of operations, liquidity and cash flows are subject to interest rate risk.

Our earnings and cash flows are largely dependent upon our net interest income. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board. Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but these changes could also affect (i) our ability to originate loans and obtain deposits, (ii) the fair value of our financial assets and liabilities and (iii) the average duration of our mortgage-backed securities portfolio and other interest-earning assets. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. As a result of the exceptionally low interest rate environment, an increasing percentage of our deposits have been comprised of deposits bearing no or a relatively low rate of interest. We would incur a higher cost of funds to retain these deposits in a rising interest rate environment. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. In addition, a substantial amount of our loans have adjustable interest rates. As a result, these loans may experience a higher rate of default in a rising interest rate environment. Further, a significant portion of our adjustable rate loans have interest rate floors below which the loan’s contractual interest rate may not adjust. Approximately 66% of our loan portfolio was comprised of adjustable or floating-rate loans at December 31, 2014, and approximately $1.6 billion, or 64%, of those loans contained interest rate floors, below which the loans’ contractual interest rate may not adjust. At December 31, 2014, the weighted average floor interest rate of these loans was 4.79%. At that date, approximately $1.4 billion, or 85%, of these loans were at their floor interest rate. Approximately 74% of our loan portfolio was comprised of adjustable or floating-rate loans at September 30, 2015 on a pro forma basis, and approximately $27 billion, or 4.65%, of those loans contained interest rate floors, below which the loans’ contractual interest rate may not adjust. At Setpember 30, 2015 on a pro forma basis, the weighted average floor interest rate of these loans was 4.65%. At that date, approximately $22 billion, or 83%, of these loans were at their floor interest rate. The inability of our loans to adjust downward can contribute to increased income in periods of declining interest rates, although this result is subject to the risks that borrowers may refinance these loans during periods of declining interest rates. Also, when loans are at their floors, there is a further risk that our interest income may not increase as rapidly as our cost of funds during periods of increasing interest rates which could have a material adverse effect on our results of operations.

Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations. Further, a prolonged period of exceptionally low market interest rates, such as we are currently experiencing, limits our ability to lower our interest expense, while the average yield on our interest-earning assets may continue to decrease as our loans reprice or are originated at these low market rates. Accordingly, our net interest income may continue to decrease, which may have an

 

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adverse effect on our profitability. Also, our interest rate risk modeling techniques and assumptions may not fully predict or capture the impact of actual interest rate changes on our balance sheet or projected operating results.

We operate in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations that are expected to increase our costs of operations.

As state-chartered, federally insured commercial banks, the Banks are currently subject to extensive examination, supervision and comprehensive regulation by the FDIC and the Washington DFI and as a bank holding company Banner is subject to examination, supervision and regulation by the Federal Reserve Board. These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the ability to impose restrictions on an institution’s operations, reclassify assets, determine the adequacy of an institution’s allowance for loan losses and determine the level of deposit insurance premiums assessed.

Additionally, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) has significantly changed the bank regulatory structure and will affect the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently many of the details and much of the impact of the Dodd-Frank Act still may not be known for many months or years.

Certain provisions of the Dodd-Frank Act are expected to have a near term impact on us. For example, a provision of the Dodd-Frank Act eliminates the federal prohibitions on paying interest on demand deposits, thus allowing businesses to have interest bearing checking accounts. Depending on competitive responses, this significant change to existing law could have an adverse impact on our interest expense.

The Dodd-Frank Act created a new Consumer Financial Protection Bureau (the “CFPB”) with broad powers to supervise and enforce consumer protection laws. The CFPB has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Financial institutions such as Banner Bank with $10 billion or less in assets will continue to be examined for compliance with the consumer laws by their primary bank regulators but are subject to the rules of the CFPB. See “—We may be subject to additional regulatory scrutiny if and when Banner or Banner Bank’s total assets exceed $10.0 billion.”

In January of 2013, the CFPB issued several final regulations and changes to certain consumer protections under existing laws. These final rules, most of the provisions of which (including the qualified mortgage rule) became effective January 10, 2014, generally prohibit creditors from extending mortgage loans without regard for the consumer’s ability to repay and add restrictions and requirements to mortgage origination and servicing practices. In addition, these rules limit prepayment penalties and require the creditor to retain evidence of compliance with the ability-to-repay requirement for three years. Compliance with these rules will likely increase our overall regulatory compliance costs and may require changes to our underwriting practices with respect to mortgage loans. Moreover, these rules may adversely affect the volume of mortgage loans that we underwrite and may subject us to increased potential liabilities related to such residential loan origination activities.

The Dodd-Frank Act requires minimum leverage (Tier 1) and risk-based capital requirements for bank holding companies and savings and loan holding companies that are no less stringent than those applicable to banks, which will limit our ability to borrow at the holding company level and invest the proceeds from such borrowings as capital in the Banks, and will exclude certain instruments that previously have been eligible for inclusion by bank holding companies as Tier 1 capital, such as trust preferred securities (or “TPS”).

 

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It is difficult to predict at this time what specific impact the yet to be written implementing rules and regulations of the Dodd-Frank Act will have on community banks. However, it is expected that at a minimum they will increase our operating and compliance costs, which could adversely affect key operating efficiency ratios, and could increase our interest expense. See “Business—Regulation” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which is incorporated by reference herein.

New or changing tax, accounting, and regulatory rules and interpretations could significantly impact strategic initiatives, results of operations, cash flows, and financial condition.

The banking industry is extensively regulated. Federal and state banking regulations are designed primarily to protect the deposit insurance funds and consumers, not to benefit a company’s stockholders. These regulations may sometimes impose significant limitations on operations. The significant federal and state banking regulations that affect us are described under the heading “Item 1. Business—Regulation” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which is incorporated by reference herein. These regulations, along with the currently existing tax, accounting, securities, insurance, and monetary laws, regulations, rules, standards, policies, and interpretations control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. These laws, regulations, rules, standards, policies, and interpretations are constantly evolving and may change significantly over time. Any new regulations or legislation, change in existing regulations or oversight, whether a change in regulatory policy or a change in a regulator’s interpretation of a law or regulation, could have a material impact on our operations, increase our costs of regulatory compliance and of doing business and or otherwise adversely affect us and our profitability. Further, changes in accounting standards can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent registered public accounting firm. These changes could materially impact, potentially even retroactively, how we report our financial condition and results of our operations as could our interpretation of those changes.

Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions and limit our ability to get regulatory approval of acquisitions.

The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions and limit our ability to get regulatory approval of acquisitions. Recently, several banking institutions have received large fines for non-compliance with these laws and regulations. While we have developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance can be given that these policies and procedures will be effective in preventing violations of these laws and regulations.

We may be subject to additional regulatory scrutiny if and when Banner or Banner Bank’s total assets exceed $10.0 billion.

Banner’s total assets were $4.724 billion at December 31, 2014 and AmericanWest had $4.095 billion in total assets at that date. Following the closing of the Merger, Banner’s assets were $9.9 billion. Following the fourth consecutive quarter where the total assets of Banner or Banner Bank exceeds $10 billion, Banner or Banner Bank, as applicable, will become subject to a number of additional requirements (such as annual stress testing requirements implemented pursuant to the Dodd-Frank Act and general oversight by the CFPB) that will impose additional compliance costs on our business. As a result, there may also be additional higher expectations from regulators. The CFPB has near exclusive supervision authority, including examination authority, over “very large” institutions and their affiliates to assess compliance with federal consumer financial laws, to obtain information about the institutions’ activities and compliance systems and procedures, and to detect and assess risks to consumers and markets.

 

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Under the Dodd-Frank Act, the minimum ratio of net worth to insured deposits of the FDIC’s deposit insurance fund was increased from 1.15% to 1.35%, and the FDIC is required, in setting deposit insurance assessments, to offset the effect of the increase on institutions with assets of less than $10 billion, which results in institutions with assets greater than $10 billion paying higher assessments. In addition, when Banner Bank exceeds $10 billion in assets, its assessment base for federal deposit insurance would change from the amount of insured deposits to consolidated average assets less tangible capital to a scorecard method. The scorecard method uses a performance score and a loss severity score, which are combined and converted into an initial base assessment rate. The performance score is based on measures of the bank’s ability to withstand asset-related stress and funding-related stress and weighted CAMELS ratings, which are ratings ascribed under the CAMELS supervisory rating system and assigned based on a supervisory authority’s analysis of a bank’s financial statements and on-site examinations. The loss severity score is a measure of potential losses to the FDIC in the event of the bank’s failure. Under a formula, the performance score and loss severity score are combined and converted to a total score that determines the bank’s initial base assessment rate. The FDIC has the discretion to alter the total score based on factors not captured by the scorecard. The resulting initial base assessment rate is also subject to adjustments downward based on long term unsecured debt issued by the bank, to adjustment upward based on long term unsecured debt held by the bank that is issued by other FDIC-insured institutions, and to further adjustment upward if the bank’s brokered deposits exceed 10% of its domestic deposits.

Further, Banner Bank may be impacted by the Durbin Amendment to the Dodd-Frank Act regarding limits on debit card interchange fees. The Durbin Amendment gave the Federal Reserve Board the authority to establish rules regarding interchange fees charged for electronic debit transactions by a payment card issuer that, together with its affiliates, has assets of $10 billion or more and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer. The Federal Reserve Board has adopted rules under this provision that limit the swipe fees that a debit card issuer can charge a merchant for a transaction to the sum of 21 cents and five basis points times the value of the transaction, plus up to one cent for fraud prevention costs. Based on the post-Merger pro forma debit card volume, we believe Banner Bank could experience a reduction of approximately $10 million a year in debit card related fee income and pre-tax earnings following the implementation of the Durbin Amendment if future debit card volumes remain similar to our current pro forma volumes.

The Dodd-Frank Act also requires publicly-traded bank holding companies with assets of $10 billion or more to perform capital stress testing (DFAST) and establish a risk committee responsible for enterprise-wide risk management practices, comprised of independent directors, including one risk management expert.

As a result of the above, if and when Banner Bank’s total assets exceed $10 billion, deposit insurance assessments and expenses related to regulatory compliance are likely to increase, and such increases may be significant.

We may experience future goodwill impairment.

In accordance with GAAP, we record assets acquired and liabilities assumed at their fair value with the excess of the purchase consideration over the net assets acquired resulting in the recognition of goodwill. As a result, acquisitions typically result in recording goodwill. We perform a goodwill evaluation at least annually to test for goodwill impairment. As part of its testing, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine the fair value of a reporting unit is less than its carrying amount, we then compare the fair value of goodwill with its carrying amount, and then measures impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill. Adverse conditions in our business climate, including a significant decline in future operating cash flows, a significant change in our stock price or market capitalization, or a deviation from our expected growth rate and performance may significantly affect the fair value of our goodwill and may trigger additional impairment losses, which could be materially adverse to our operating results and financial position.

 

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We cannot provide assurance that we will not be required to take an impairment charge in the future. Any impairment charge has an adverse effect on our results of stockholders’ equity and financial results and could cause a decline in our stock price. The recent completion of the Merger and the Siuslaw acquisition has increased our goodwill.

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.

Liquidity is essential to our business. We rely on a number of different sources in order to meet our potential liquidity demands. Our primary sources of liquidity are increases in deposit accounts, cash flows from loan payments and our securities portfolio. Borrowings also provide us with a source of funds to meet liquidity demands. An inability to raise funds through deposits, borrowings, the sale of loans or investment securities and other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities or on terms which are acceptable to us could be impaired by factors that affect us specifically, or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated, negative operating results or adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry or deterioration in credit markets.

Additionally, collateralized public funds are bank deposits of state and local municipalities. These deposits are required to be secured by certain investment grade securities to ensure repayment, which on the one hand tends to reduce our contingent liquidity risk by making these funds somewhat less credit sensitive, but on the other hand reduces standby liquidity by restricting the potential liquidity of the pledged collateral. Although these funds historically have been a relatively stable source of funds for us, availability depends on the individual municipality’s fiscal policies and cash flow needs.

We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects.

Competition for qualified employees and personnel in the banking industry is intense and there are a limited number of qualified persons with knowledge of, and experience in, the community banking industry where the Banks conduct their business. The process of recruiting personnel with the combination of skills and attributes required to carry out our strategies is often lengthy. Our success depends to a significant degree upon our ability to attract and retain qualified management, loan origination, finance, administrative, marketing and technical personnel and upon the continued contributions of our management and personnel. In particular, our success has been and continues to be highly dependent upon the abilities of key executives, including our President, and certain other employees. Our ability to retain our key personnel throughout the integration process following our recent acquisitions, including the Merger, may be challenging. In addition, our success has been and continues to be highly dependent upon the services of our directors, many of whom are at or nearing retirement age, and we may not be able to identify and attract suitable candidates to replace such directors. The loss of these key persons could negatively impact the affected banking operations.

Our business may be adversely affected by an increasing prevalence of fraud and other financial crimes.

Our loans to businesses and individuals and our deposit relationships and related transactions are subject to exposure to the risk of loss due to fraud and other financial crimes. Nationally, reported incidents of fraud and other financial crimes have increased. We have also experienced losses due to apparent fraud and other financial crimes. While we have policies and procedures designed to prevent such losses, there can be no assurance that such losses will not occur.

 

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Managing reputational risk is important to attracting and maintaining customers, investors and employees.

Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality or operational failures due to integration or conversion challenges as a result of acquisitions we undertake, compliance deficiencies, and questionable or fraudulent activities of our customers. We have policies and procedures in place to protect our reputation and promote ethical conduct, but these policies and procedures may not be fully effective. Negative publicity regarding our business, employees, or customers, with or without merit, may result in the loss of customers, investors and employees, costly litigation, a decline in revenues and increased governmental regulation.

We are subject to certain risks in connection with our use of technology.

Our security measures may not be sufficient to mitigate the risk of a cyber attack. Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger and virtually all other aspects of our business. Our operations rely on the secure processing, storage, and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber attacks that could have a security impact. If one or more of these events occur, this could jeopardize our or our customers’ confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our customers or counterparties. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us. We could also suffer significant reputational damage.

Security breaches in our Internet banking activities could further expose us to possible liability and damage our reputation. Any compromise of our security also could deter customers from using our Internet banking services that involve the transmission of confidential information. We rely on standard Internet security systems to provide the security and authentication necessary to effect secure transmission of data. These precautions may not protect our systems from compromises or breaches of our security measures, which could result in significant legal liability and significant damage to our reputation and our business.

Our security measures may not protect us from systems failures or interruptions. While we have established policies and procedures to prevent or limit the impact of systems failures and interruptions, there can be no assurance that such events will not occur or that they will be adequately addressed if they do. The conversion of customers from legacy communication and information systems to our systems following the Merger will be challenging and the complexity of the conversion may result in systems failures and interruptions.

In addition, we outsource certain aspects of our data processing and other operational functions to certain third-party providers. If our third-party providers encounter difficulties, or if we have difficulty in communicating with them, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely impacted. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.

The occurrence of any failures or interruptions may require us to identify alternative sources of such services, and we cannot assure you that we could negotiate terms that are as favorable to us, or could obtain services with similar functionality as found in our existing systems without the need to expend substantial resources, if at all. Further, the occurrence of any systems failure or interruption could damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability. Any of these occurrences could have a material adverse effect on our financial condition and results of operations.

 

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Sales of substantial amounts of Banner’s common stock in the open market by former Siuslaw and SKBHC stockholders could depress Banner’s stock price.

Sales of a substantial number of shares of our common stock in the public markets and the availability of those shares for sale could adversely affect the market price of our common stock. The 1,319,854 shares of Banner common stock that were issued to stockholders of Siuslaw in the Siuslaw merger are freely tradeable without restrictions or further registration under the Securities Act. The 13.23 million shares of Banner common stock and non-voting common stock that were issued to equity holders of SKBHC in the Merger who did not become affiliates of Banner will be freely tradeable without restrictions or further registration in April 2016. In addition, certain of such equity holders of SKBHC benefit from registration rights that permit them to cause Banner to register their shares of Banner common stock and non-voting common stock for resale. See “Certain Relationships and Related Party Transactions—Investor Letter Agreements—Registration Rights.” Although the holders of the currently outstanding 1,424,466 shares of Banner non-voting common stock issued in connection with the Merger cannot vote on most matters today, upon a permitted transfer, such shares of non-voting common stock will convert into Banner common stock. Permitted transfers include, among others, transfers as a part of a widely distributed public offering of Banner common stock. See “Description of Our Capital Stock—Non-voting Common Stock.” This offering and any future sales of our common stock by former stockholders of Siuslaw and SKBHC, or anticipation that such sales may occur, may cause the market price of Banner common stock to decrease. These sales might also make it more difficult for Banner to sell equity or equity—related securities at a time and price that it otherwise would deem appropriate.

We rely on dividends from Banner Bank for substantially all of our revenue at the holding company level.

We are an entity separate and distinct from our principal subsidiary, Banner Bank, and derive substantially all of our revenue at the holding company level in the form of dividends from that subsidiary. Accordingly, we are, and will be, dependent upon dividends from Banner Bank to pay the principal of and interest on our indebtedness, to satisfy our other cash needs and to pay dividends on our common stock. Banner Bank’s ability to pay dividends is subject to its ability to earn net income and to meet certain regulatory requirements. In the event Banner Bank is unable to pay dividends to us, we may not be able to pay dividends on our common stock. Also, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.

Our articles of incorporation contains a provision which could limit the voting rights of a holder of our common stock.

Our charter provides that any person or group who acquires beneficial ownership of our common stock in excess of 10% of the outstanding shares may not vote the excess shares. Accordingly, if you acquire beneficial ownership of more than 10% of the outstanding shares of our common stock, your voting rights with respect to our common stock will not be commensurate with your economic interest in our company.

Anti-takeover provisions could negatively affect our stockholders.

Provisions in our articles of incorporation and bylaws, the corporate laws of the state of Washington and federal laws and regulations could delay or prevent a third party from acquiring us, despite the possible benefit to our stockholders, or otherwise negatively affect the market value of our stock. These provisions include: a prohibition on voting shares of our common stock beneficially owned in excess of 10% of total shares outstanding; advance notice requirements for nominations for election to our board of directors (the “Board”) and for proposing matters that stockholders may act on at stockholder meetings; and staggered three-year terms for directors. Our articles of incorporation also authorizes our Board to issue preferred or other stock, and preferred or other stock could be issued as a defensive measure in response to a takeover proposal. In addition, because we are a bank holding company, the ability of a third party to acquire us is limited by applicable banking laws and regulations. The Bank Holding Company Act requires any bank holding company to obtain the approval of the

 

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Federal Reserve Board before acquiring 5% or more of any class of our voting securities. Any entity that is a holder of 25% or more of any class of our voting securities, or a holder of a lesser percentage if such holder otherwise exercises a “controlling influence” over us, is subject to regulation as a bank holding company under the Bank Holding Company Act. Under the Change in Bank Control Act of 1978, as amended, any person (or persons acting in concert), other than a bank holding company, is required to notify the Federal Reserve Board before acquiring 10% or more of any class of our voting securities.

If our investment in the FHLB-Des Moines becomes impaired, our earnings and stockholders’ equity could decrease.

At December 31, 2014, the Company had recorded $27.0 million in FHLB stock, compared to $35.4 million at December 31, 2013. As a result of the Merger, we acquired an additional $13.7 million in FHLB stock. The Banks’ investments in FHLB stock are generally viewed as a long-term investment and are carried at par value ($100 per share), which reasonably approximates its fair value. It does not have a readily determinable fair value. Ownership of FHLB stock is restricted to the FHLB and member institutions and can only be purchased and redeemed at par. As members of the FHLB system, the Banks are required to maintain a minimum level of investment in FHLB stock. This requirement is based, in part, upon the outstanding principal balance of advances from the FHLB and is calculated in accordance with the capital plan of the FHLB. We monitor on a recurring basis the financial condition of the FHLB as it relates to, among other things, the recoverability of our investment. As a result of its recent merger with Federal Home Loan Bank-Seattle, FHLB-Des Moines could experience a period of increased operational risk that could negatively affect the liquidity and the value of our investment in FHLB stock. If our investment in stock of the FHLB-Des Moines became impaired, our earnings and stockholders’ equity could decrease.

Risks Related to This Offering

The market price and trading volume of our common stock may be volatile, which could result in rapid and substantial losses for our stockholders.

The market price of our common stock may be volatile and could be subject to wide fluctuations. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. If the market price of our common stock declines significantly, you may be unable to resell your shares at or above the price at which you purchased them, if at all. The market price of our common stock may fluctuate or decline significantly in the future. Factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include, but are not limited to, those listed elsewhere in this “Risk Factors” section and the following, some of which are beyond our control regardless of our actual operating performance:

 

•

actual or anticipated quarterly variations in operational results and reactions to earning releases or other presentations by company executives;

 

•

failure to meet the expectations of securities analysts and investors;

 

•

rating agency credit rating actions;

 

•

the contents of published research reports about us or our industry or the failure of securities analysts to cover our common stock;

 

•

any increased indebtedness we may incur in the future;

 

•

actions by institutional stockholders;

 

•

speculation or reports by the press or the investment community with respect to us or our industry in general;

 

•

increases in market interest rates that may lead purchasers of our shares to demand a higher yield;

 

•

changes in our capital structure;

 

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•

announcements of dividends;

 

•

additional future sales of our common stock by us, the stockholders list under “Principal and Selling Stockholders” or members of our management;

 

•

announcements of technological innovations or new services by us or our competitors;

 

•

announcements by us, our competitors or vendors of significant contracts, acquisitions, joint marketing relationships, joint ventures or capital commitments;

 

•

third-party claims or proceedings against us or adverse developments in pending proceedings;

 

•

additions or departures of key personnel;

 

•

changes in applicable laws and regulations;

 

•

negative publicity for us, our business or our industry;

 

•

changes in expectations or estimates as to our future financial performance or market valuations of competitors;

 

•

results of operations of our competitors; and

 

•

general market, political and economic conditions, including any such conditions and local conditions in the markets in which our customers are located.

Any future volatility in our stock price could also make us less attractive to certain investors, and/or invite speculative trading in our common stock or debt instruments.

In addition, the stock market recently has experienced extreme price and volume fluctuations that, in some cases, has been unrelated or disproportionate to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance.

In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from our business.

Any future offerings of debt, preferred stock, or TPS, each of which would be senior to our common stock upon liquidation and for purposes of dividend distributions, and any future equity offerings may adversely affect the market price of our common stock.

We may attempt to increase our capital resources or we could be forced by federal and state bank regulators to raise additional capital, by making offerings of debt or preferred equity securities, including medium-term notes, TPS, senior or subordinated notes and preferred stock. Upon liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive distributions of our available assets prior to the holders of our outstanding shares of common stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our common stock, or both. Holders of our common stock are not entitled to preemptive rights or other protections against dilution.

Our Board is authorized to issue one or more classes or series of preferred stock from time to time without any action on the part of our stockholders. Our Board also has the power, without stockholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights, and preferences over our common stock with respect to dividends or upon our dissolution, winding-up and liquidation and other terms. Therefore, if we issue preferred stock in the future that has a preference over our common stock with respect to the payment of dividends or upon our liquidation, dissolution, or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of holders of our common stock or the market price of our common stock could be adversely affected.

 

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Our actual financial position and results of operations may differ materially from the unaudited pro forma combined condensed consolidated financial information included in this prospectus and the unaudited pro forma combined condensed consolidated financial statements incorporated by reference into this prospectus and, accordingly, you have limited financial information on which to evaluate the combined company and your investment decision.

The pro forma financial information included and incorporated by reference into this prospectus is presented for illustrative purposes only and may not be an indication of what our financial position or results of operations are or would have been for several reasons. For example, the unaudited pro forma financial statements have been derived from the historical financial statements of Banner and Starbuck, and include the acquisitions of Siuslaw and GSB by Banner and Starbuck, respectively, and certain adjustments and assumptions have been made regarding the combined company after giving effect to the mergers and the bank mergers by which each entity became a part of the combined company. The information upon which these adjustments and assumptions have been made is preliminary, and such adjustments and assumptions are difficult to make with complete accuracy.

In addition, the assumptions used in preparing the pro forma financial statements may not prove to be accurate, and other factors may affect the combined company’s financial condition or results of operations in the future. Any potential decline in the combined company’s financial condition or results of operations may cause significant variations in the stock price of the combined company. See our Current Report on Form 8-K, filed with the SEC on December 11, 2015, including the pro forma financial information contained therein, and “Unaudited Pro Forma Combined Condensed Consolidated Financial Information” herein.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements in this prospectus and in the documents incorporated by reference herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, liquidity, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future economic performance and projections of financial items. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated or implied by our forward-looking statements, including, but not limited to:

 

•

expected revenues, cost savings, synergies and other benefits from the merger of Banner Bank and Siuslaw Bank and of the merger of Banner Bank and AmericanWest and costs or difficulties relating to integration matters, including but not limited to customers, systems and employee retention, might be greater than expected or occur at different times than expected;

 

•

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 economic conditions in general and in Washington, Idaho, Oregon, Utah and California in particular;

 

•

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 Federal Reserve Board and of our bank subsidiaries by the FDIC, the Washington State Department of the DFI or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, institute an informal or formal enforcement action against us or any of our bank subsidiaries 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 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 valuation;

 

•

difficulties in reducing risk associated with the assets from our combined securities portfolio and our and AmericanWest’s loan portfolios on our balance sheet;

 

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•

staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force 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;

 

•

future goodwill impairment due to changes in our business, changes in market conditions, or other factors;

 

•

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, non-voting common stock and any preferred 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 any terrorist activities;

 

•

other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and

 

•

other risks detailed from time to time in our filings with the SEC.

Any forward-looking statements are based upon management’s beliefs and assumptions at the time they are made. We do not undertake and specifically disclaim any obligation to update any forward-looking statements included or incorporated by reference in this prospectus or the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. These risks could cause our actual results to differ materially from those expressed in any forward-looking statements by, or on behalf of, us. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed or incorporated by reference in this prospectus might not occur, and you should not put undue reliance on any forward-looking statements.

 

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USE OF PROCEEDS

The shares of common stock to be offered and sold pursuant to this prospectus will be offered and sold solely by the Selling Stockholders. The Selling Stockholders will receive all of the net proceeds from the sale of shares of our common stock and we will not receive any proceeds from the sale of shares of our common stock by the Selling Stockholders. We will bear the costs associated with this offering, other than underwriting discounts and commissions and transfer taxes. The Selling Stockholders will bear any underwriting commissions and discounts and transfer taxes and any expenses required by applicable law attributable to their sale of our common stock, in accordance with the Registration Rights Annex. See “Principal and Selling Stockholders.”

 

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MARKET PRICE OF OUR COMMON STOCK

Our common stock trades on NASDAQ under the symbol “BANR.” The following are the high and low sale prices for our common stock during the periods indicated as reported by NASDAQ, and the quarterly cash dividends per share declared. The high and low sales prices are based on intraday sales for the periods reported.

 

		High				Low				Dividends
Quarterly for 2015:
First Quarter		$	46.26			$	39.00			$	0.18
Second Quarter			50.50				43.87				0.18
Third Quarter			50.16				42.42				0.18
Fourth Quarter (through December 9, 2015)			53.55				45.27				N/A
Quarterly for 2014:
First Quarter			45.08				35.51				0.18
Second Quarter			42.29				37.03				0.18
Third Quarter			40.78				37.50				0.18
Fourth Quarter			44.05				37.52				0.18
Quarterly for 2013:
First Quarter			32.03				29.14				0.12
Second Quarter			34.30				29.33				0.12
Third Quarter			38.44				33.78				0.15
Fourth Quarter			45.15				35.62				0.15

On December 9, 2015, the last trading day before the date of this prospectus, the high and low sales prices of shares of Banner common stock as reported on NASDAQ were $49.64 and $47.79, respectively.

 

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DIVIDEND POLICY

Since 1996, we have paid a quarterly cash dividend to all common stockholders. The timing and amount of cash dividends paid on our common stock depends on our earnings, capital requirements, financial condition and other relevant factors and is subject to the discretion of our Board. As a result of improved earnings, levels of capital, asset quality and financial condition, beginning in the first quarter of 2013, we increased the dividend, further increased it in the third quarter of 2013 and again increased it in the first quarter of 2014. There can be no assurance that we will pay dividends on our common stock in the future or of the amounts of any such dividends.

Our ability to pay dividends on our common stock depends primarily on dividends we receive from the Banks. Under federal regulations, the dollar amount of dividends the Banks may pay depends upon their capital position and recent net income. Generally, if a bank satisfies its regulatory capital requirements, it may make dividend payments up to the limits prescribed under state law and FDIC regulations. In addition, an institution that has converted to a stock form of ownership may not declare or pay a dividend on, or repurchase any of, its common stock if the effect thereof would cause the regulatory capital of the institution to be reduced below the amount required for the liquidation account which was established in connection with the conversion. Banner Bank, our primary subsidiary, converted to a stock form of ownership and is therefore subject to the limitation described in the preceding sentence. In addition, under Washington law, no bank may declare or pay any dividend in an amount greater than its retained earnings without the prior approval of the Washington DFI. The Washington DFI also has the power to require any bank to suspend the payment of any and all dividends.

Further, under Washington law, Banner is prohibited from paying a dividend if, after making such dividend payment, it would be unable to pay its debts as they become due in the usual course of business, or if its total liabilities, plus the amount that would be needed, in the event Banner were to be dissolved at the time of the dividend payment, to satisfy preferential rights on dissolution of holders of preferred stock ranking senior in right of payment to the capital stock on which the applicable distribution is to be made, exceed our total assets.

In addition to the foregoing regulatory considerations, there are numerous governmental requirements and regulations that affect our business activities. A change in applicable statutes, regulations or regulatory policy may have a material effect on our business and on our ability to pay dividends on our common stock.

Payments of the distributions on our TPS from the special purpose subsidiary trusts we sponsored are fully and unconditionally guaranteed by us. The junior subordinated debentures that we have issued to our subsidiary trusts are ranked senior to our shares of common stock. We must make required payments on the junior subordinated debentures before any dividends can be paid on our TPS and our common stock and, in the event of our bankruptcy, dissolution or liquidation, the interest and principal obligations under the junior subordinated debentures must be satisfied before any distributions can be made on our common stock. We may defer the payment of interest on each of the junior subordinated debentures for a period not to exceed 20 consecutive quarters, provided that the deferral period does not extend beyond the stated maturity. During such deferral period, distributions on the corresponding TPSs will also be deferred and we may not pay cash dividends to the holders of shares of our common stock. At September 30, 2015, we were current on all interest payments.

 

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CAPITALIZATION

The following table sets forth:

 

•

our actual consolidated capitalization at September 30, 2015; and

 

•

our consolidated capitalization on a pro forma basis at September 30, 2015 to give effect to the Merger.

Amounts included in this table are derived from unaudited financial statements incorporated by reference into this prospectus. This table should be read in conjunction with the information contained or incorporated by reference herein, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, our Quarterly Report on Form 10-Q for the period ended September 30, 2015 and our Current Report on Form 8-K filed on December 11, 2015.

 

		As of September 30, 2015				Pro Forma As of September 30, 2015
		(unaudited) (dollars in thousands)				(dollars in thousands)
Cash and cash equivalents		$	135,239			$	81,437
Liabilities (1)
Deferred compensation		$	20,910			$	42,024
Advances from FHLB at fair value			16,435				251,435
Other borrowings			88,083				93,158
Junior subordinated debentures at fair value			85,183				90,989
Stockholders’ equity:
Preferred stock, par value $0.01 per share; 500,000 shares authorized on an actual and pro forma basis; no shares issued and outstanding on an actual and pro forma basis			—				—
Common stock and paid in capital, par value $0.01 per share; 50,000,000 shares authorized on an actual and pro forma basis; 20,962,300 shares issued and outstanding on an actual basis and 32,823,123 shares issued and outstanding on a pro forma basis			628,958				1,191,728
Common stock (non-voting), par value $0.01 per share; 5,000,000 shares authorized on an actual and pro forma basis; no shares issued and outstanding on an actual basis and 1,424,466 shares issued and outstanding on a pro forma basis			—				67,904
Accumulated other comprehensive income			975				975
Retained earnings			41,269				19,819
Total stockholders’ equity			671,202				1,280,426
Total capitalization		$	881,813			$	1,758,032

 

(1)	Excludes all deposit liabilities.

 

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UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The following is the unaudited pro forma combined condensed consolidated financial information for Banner and Starbuck, giving effect to the Merger. The unaudited pro forma combined condensed consolidated statement of financial condition as of September 30, 2015 is presented as if the Merger occurred as of that date. The unaudited pro forma combined condensed consolidated statements of operations for the nine months ended September 30, 2015 and the year ended December 31, 2014 are presented as if the Merger occurred on January 1, 2014. The unaudited pro forma combined condensed consolidated financial statements also reflect the segregation of Starbuck from its parent holding company SKBHC.

The unaudited pro forma combined condensed consolidated statement of operations for the nine months ended September 30, 2015 and the year ended December 31, 2014 also gives effect to the acquisition by Starbuck of GSB, which closed on February 2, 2015, and the acquisition by Banner of Siuslaw, which closed on March 6, 2015, presented as if those acquisitions occurred on January 1, 2014.

All of the unaudited pro forma combined condensed consolidated financial information is not intended to reflect the actual results that would have been achieved had the acquisitions actually occurred on those dates.

The unaudited pro forma combined condensed consolidated financial information has been prepared using the acquisition method of accounting for business combinations under GAAP. Banner was the acquirer for accounting purposes in the Merger. Banner and Starbuck were the acquirers for accounting purposes in their respective acquisitions of Siuslaw and GSB. Certain reclassifications have been made to the historical data of Starbuck, SKBHC, GSB and Siuslaw to conform to Banner’s classifications. These reclassifications had no impact on net income.

The pro forma adjustments are preliminary, based on estimates, and are subject to change as more information becomes available and after final analyses of the fair values of both tangible and intangible assets acquired and liabilities assumed are completed. Accordingly, the final fair value adjustments may be materially different from those presented in the unaudited pro forma financial information.

Under the acquisition method of accounting, the assets and liabilities and any identifiable intangible assets being acquired are generally recorded at the respective fair values on the acquisition date. The fair values on the acquisition date represent management’s best estimates based on available information and facts and circumstances in existence on the acquisition date. There may be differences between these preliminary estimates of fair value and the final acquisition accounting, which differences could have a material impact on the accompanying unaudited pro forma condensed combined financial information and the combined company’s future results of operations and financial position.

In connection with the plan to integrate the operations of Banner and Starbuck, as well as those of GSB and Siuslaw, Banner anticipates that non-recurring charges, such as costs associated with systems implementation, severance and other costs related to exit or disposal activities, will be incurred. Banner estimates that it will incur approximately $33 million of merger related costs subsequent to the closing of the Merger. These charges will affect the consolidated results of operations of Banner in the periods in which they are recorded. The unaudited pro forma combined condensed consolidated statements of operations do not include the effects of any non-recurring costs associated with any restructuring or integration activities resulting from the acquisitions that had not been incurred as of September 30, 2015, as they are non-recurring in nature and not factually supportable at this time. Additionally, the unaudited pro forma adjustments to the unaudited pro forma combined condensed consolidated statements of operations do not give effect to any non-recurring or restructuring charges that may be incurred as a result of the integration of Banner, Starbuck, GSB and Siuslaw, or any anticipated disposition of assets that may result from such integration. The unaudited pro forma condensed combined statements of operations do not include any expected cost savings, operating synergies or revenue enhancements that may be realized subsequent to the Merger.

 

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The unaudited pro forma combined condensed consolidated financial information is provided for informational purposes only. The unaudited pro forma combined condensed consolidated financial information is not necessarily, and should not be assumed to be, an indication of the results that would have been achieved had the transactions been completed as of the dates indicated or that may be achieved in the future. The preparation of the unaudited pro forma combined condensed consolidated financial information and related adjustments required management to make certain assumptions and estimates.

As of January 1, 2015, Banner adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standard Update (“ASU”) No. 2014-01, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. As required by ASU No. 2014-01, the new accounting methodology has been retrospectively applied to all prior periods presented, resulting in changes to other non-interest income, tax expense, and net income, deferred tax asset, other assets, and retained earnings in the prior periods presented. The ASU No. 2014-01 was effective beginning after December 15, 2014 and does not have a material impact on the Company’s consolidated financial statements. The effect of this change on the revised annual statement of operations was a decrease in net income of $95,000 for the year ended December 31, 2014. All prior periods have been reclassified to conform to the current presentation and therefore the information may not be comparable to the information included in reports previously filed by the Company with the SEC.

The unaudited pro forma combined condensed consolidated financial information is based on, and should be read together with, the historical consolidated financial statements and related notes of Banner’s Quarterly Report on Form 10-Q for the period ended September 30, 2015 and its Annual Report on Form 10-K for the fiscal year ended December 31, 2014, and the historical consolidated financial statements and related notes of Starbuck. Audited financial information for Starbuck alone is not available; however, Starbuck comprises more than 100.0% of the consolidated assets and equity of SKBHC as of September 30, 2015, and more than 127.2% of SKBHC’s consolidated net income for the nine months ended September 30, 2015 and more than 105.0% for the twelve months ended December 31, 2014. See “Where You Can Find More Information”.

 

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Unaudited Pro Forma Combined Condensed Consolidated Statements of Financial Condition

September 30, 2015

(in thousands)

 

		Banner				Starbuck Bancshares (AmWest)				Pro Forma Adjustments				Notes		Banner & Starbuck Combined Pro Forma
ASSETS
Cash and equivalents		$	135,239			$	97,648			$	(151,450	)		A		$	81,437
Investment securities			587,919				1,028,975				(5,439	)		B			1,611,455
Total cash and securities			723,158				1,126,623				(156,889	)					1,692,892
Loans receivable			4,372,594				2,991,920				(1,793	)		C			7,362,721
Allowance for loan losses			(77,320	)			(16,602	)			16,602			D			(77,320	)
Net loans			4,295,274				2,975,318				14,809						7,285,401
OREO			6,363				8,362				(1,500	)		E			13,225
Premises and equipment			102,881				70,223				(3,332	)		F			169,772
Intangibles/CDI			5,457				20,970				12,330			G			38,757
Goodwill			21,148				77,958				153,303			H			252,409
Deferred taxes			23,536				117,697				(12,903	)		I			128,330
Other assets			134,493				129,634				476			J			264,603
Total Assets		$	5,312,310			$	4,526,785			$	6,294					$	9,845,389
LIABILITIES
Non-interest bearing		$	1,561,516			$	966,946			$	—					$	2,528,462
Interest bearing deposits			2,826,137				2,653,607				2,256			K			5,482,000
Total deposits			4,387,653				3,620,553				2,256						8,010,462
Borrowings			104,518				240,141				(66	)		L			344,593
Junior subordinated debentures			85,183				7,058				(1,252	)		M			90,989
Other liabilities			63,754				54,057				1,108			N			118,919
Total liabilities			4,641,108				3,921,809				2,046						8,564,963
EQUITY
Equity (Banner)			671,202				—				609,224			O			1,280,426
Equity (AmWest)			—				604,976				(604,976	)		P			—
Total Equity			671,202				604,976				4,248						1,280,426
Total Liabilities and Equity		$	5,312,310			$	4,526,785			$	6,294					$	9,845,389

 

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Unaudited Pro Forma Combined Condensed Consolidated Statements of Financial Condition

September 30, 2015

(in thousands)

 

		SKBHC				Eliminations				Notes		Starbuck Bancshares (AmWest)
ASSETS
Cash and equivalents		$	97,648			$	—					$	97,648
Investment securities			1,028,975				—						1,028,975
Total cash and securities			1,126,623				—						1,126,623
Loans receivable			2,991,920				—						2,991,920
Allowance for loan losses			(16,602	)			—						(16,602	)
Net loans			2,975,318				—						2,975,318
OREO			8,362				—						8,362
Premises and equipment			70,223				—						70,223
Intangibles/CDI			20,970				—						20,970
Goodwill			77,958				—						77,958
Deferred taxes			117,697				—						117,697
Other assets			129,634				—						129,634
Total Assets		$	4,526,785			$	—					$	4,526,785
LIABILITIES
Non-interest bearing		$	966,647			$	299			A		$	966,946
Interest bearing deposits			2,653,607				—						2,653,607
Total deposits			3,620,254				299						3,620,553
Borrowings			240,141				—						240,141
Junior subordinated debentures			7,058				—						7,058
Other liabilities			68,046				(13,989	)		B			54,057
Total liabilities			3,935,499				(13,690	)					3,921,809
EQUITY
Equity (AmWest)			591,286				13,690			C			604,976
Equity (GSB)			—				—						—
Total Equity			591,286				13,690						604,976
Total Liabilities and Equity		$	4,526,785			$	—					$	4,526,785

 

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Unaudited Pro Forma Combined Condensed Consolidated Statement of Operations

Nine Months Ended September 30, 2015

(in thousands)

 

		Banner				Siuslaw (1/1/2015 to 3/6/2015)				Pro Forma Adjustments				Notes		Banner & Siuslaw Combined Pro Forma
Interest income:
Interest and fees on loans		$	149,192			$	2,257			$	629			A		$	152,078
Interest on cash and securities			8,747				131				(16	)		B			8,862
Total interest income			157,939				2,388				613						160,940
Interest expense:
Interest on deposits			5,240				60				2			C			5,302
Interest on borrowings			2,518				44				—						2,562
Total interest expense			7,758				104				2						7,864
Net interest income before provision			150,181				2,284				611						153,076
Loan loss provision expense			—				—				—						—
Net interest income after provision for loan losses			150,181				2,284				611						153,076
Other operating income:
Deposit fees and charges			27,435				125				—						27,560
Mortgage banking operations			13,238				332				—						13,570
Other			3,262				391				—						3,653
Total other operating income			43,935				848				—						44,783
Other operating expense:
Compensation			88,429				3,641				—						92,070
Occupancy and equipment			18,833				135				—						18,968
Amortization of core deposit intangibles			1,268				—				98			D			1,366
Other			27,817				1,916				(1,897	)		E			27,836
Total other operating expense			136,347				5,692				1,799						140,240
Pre-tax income			57,769				(2,560	)			2,410						57,619
Provision for income taxes			19,440				(293	)			844			F			19,991
Net income		$	38,329			$	(2,267	)		$	1,566					$	37,628

 

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Unaudited Pro Forma Combined Condensed Consolidated Statement of Operations

Nine Months Ended September 30, 2015

(in thousands)

 

		SKBHC				Eliminations				Notes		Starbuck				GSB (1/1/2015 to 1/31/2015) (1)				Pro Forma Adjustments				Notes		Starbuck Combined Pro Forma
Interest income:
Interest and fees on loans		$	107,833			$	—					$	107,833			$	1,055			$	131			A		$	109,019
Interest on cash and securities			17,172				—						17,172				319				(66	)		B			17,425
Total interest income			125,005				—						125,005				1,374				65						126,444
Interest expense:
Interest on deposits			6,224				—						6,224				115				(1	)		C			6,338
Interest on borrowings			1,349				—						1,349				33				—						1,382
Total interest expense			7,573				—						7,573				148				(1	)					7,720
Net interest income before provision			117,432				—						117,432				1,226				66						118,724
Loan loss provision expense (benefit)			(1,189	)			—						(1,189	)			—				—						(1,189	)
Net interest income after provision for loan losses			118,621				—						118,621				1,226				66						119,913
Other operating income:
Deposit fees and charges			12,217				—						12,217				25				—						12,242
Mortgage banking operations			4,181				—						4,181				—				—						4,181
Other			10,768				158			D			10,926				18				—						10,944
Total other operating income			27,166				158						27,324				43				—						27,367
Other operating expense:
Compensation			61,106				(1,232	)		E			59,874				621				—						60,495
Occupancy and equipment			10,908				—						10,908				105				—						11,013
Amortization of core deposit intangibles			2,205				—						2,205				—				(5	)		D			2,200
Other			36,115				(242	)		F			35,873				957				(925	)		E			35,905
Total other operating expense			110,334				(1,474	)					108,860				1,683				(930	)					109,613
Pre-tax income			35,453				1,632						37,085				(414	)			996						37,667
Provision for income taxes			13,695				571			G			14,266				(147	)			349			F			14,468
Net income		$	21,758			$	1,061					$	22,819			$	(267	)		$	647					$	23,199

 

(1)	Starbuck completed its acquisition of GSB on February 2, 2015. Because financial data for GSB is only available from January 1, 2015 to January 31, 2015, operating activity for February 1, 2015 and February 2, 2015 is not included.

 

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Unaudited Pro Forma Combined Condensed Consolidated Statement of Operations

Nine Months Ended September 30, 2015

(in thousands)

 

		Banner & Siuslaw Combined Pro Forma				Starbuck Combined Pro Forma				Pro Forma Adjustments				Notes		Pro Forma Totals
Interest income:
Interest and fees on loans		$	152,078			$	109,019			$	(2,807	)		Q		$	258,290
Interest on cash and securities			8,862				17,425				9,232			R			35,519
Total interest income			160,940				126,444				6,425						293,809
Interest expense:
Interest on deposits			5,302				6,338				(157	)		S			11,483
Interest on borrowings			2,562				1,382				—						3,944
Total interest expense			7,864				7,720				(157	)					15,427
Net interest income before provision			153,076				118,724				6,582						278,382
Loan loss provision expense (benefit)			—				(1,189	)			—						(1,189	)
Net interest income after provision for loan losses			153,076				119,913				6,582						279,571
Other operating income:
Deposit fees and charges			27,560				12,242				—						39,802
Mortgage banking operations			13,570				4,181				—						17,751
Other			3,653				10,944				—						14,597
Total other operating income			44,783				27,367				—						72,150
Other operating expense:
Compensation			92,070				60,495				—						152,565
Occupancy and equipment			18,968				11,013				—						29,981
Amortization of core deposit intangibles			1,366				2,200				1,562			T			5,128
Other			27,836				35,905				(8,944	)		U			54,797
Total other operating expense			140,240				109,613				(7,382	)					242,471
Pre-tax income			57,619				37,667				13,964						109,250
Provision for income taxes			19,991				14,468				4,887			V			39,346
Net income		$	37,628			$	23,199			$	9,077					$	69,904

 

		Historical Banner				Historical Starbuck				Pro Forma Adjustments (1)				Pro Forma Totals
Earnings per common share:
Basic		$	1.88				n/a			$	0.18			$	2.06
Diluted		$	1.87				n/a			$	0.19			$	2.06
Weighted average number of common shares outstanding:
Basic			20,417,601				n/a				13,523,332				33,940,933
Diluted			20,467,609				n/a				13,523,332				33,990,941

 

(1)	Pro forma share adjustment includes 13.2 million shares issued in the Starbuck acquisition and 1.3 million shares issued in the Siuslaw acquisition.

 

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Unaudited Pro Forma Combined Condensed Consolidated Statement of Operations

Twelve Months Ended December 31, 2014

(in thousands)

 

		Banner				Siuslaw				Pro Forma Adjustments				Notes		Banner & Siuslaw Combined Pro Forma
Interest income:
Interest and fees on loans		$	177,541			$	12,492			$	1,206			A		$	191,239
Interest on cash and securities			13,120				795				(22	)		B			13,893
Total interest income			190,661				13,287				1,184						205,132
Interest expense:
Interest on deposits			7,578				387				7			C			7,972
Interest on borrowings			3,211				246				—						3,457
Total interest expense			10,789				633				7						11,429
Net interest income before provision			179,872				12,654				1,177						193,703
Loan loss provision expense			—				—				—						—
Net interest income after provision for loan losses			179,872				12,654				1,177						193,703
Other operating income:
Deposit fees and charges			30,553				637				—						31,190
Mortgage banking operations			10,249				1,952				—						12,201
Other			14,189				2,929				—						17,118
Total other operating income			54,991				5,518				—						60,509
Other operating expense:
Compensation			78,048				7,589				—						85,637
Occupancy and equipment			22,743				935				—						23,678
Amortization of core deposit intangibles			1,990				—				617			D			2,607
Other			50,960				5,547				(748	)		E			55,759
Total other operating expense			153,741				14,071				(131	)					167,681
Pre-tax income			81,122				4,101				1,308						86,531
Provision for income taxes			27,052				318				458			F			27,828
Net income		$	54,070			$	3,783			$	850					$	58,703

 

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Unaudited Pro Forma Combined Condensed Consolidated Statement of Operations

Twelve Months Ended December 31, 2014

(in thousands)

 

		SKBHC				Eliminations				Notes		Starbuck				GSB				Pro Forma Adjustments				Notes		Starbuck Combined Pro Forma
Interest income:
Interest and fees on loans		$	129,587			$	—					$	129,587			$	12,606			$	1,677			A		$	143,870
Interest on cash and securities			24,879				—						24,879				3,864				(797	)		B			27,946
Total interest income			154,466				—						154,466				16,470				880						171,816
Interest expense:
Interest on deposits			6,148				—						6,148				1,256				(51	)		C			7,353
Interest on borrowings			886				—						886				436				—						1,322
Total interest expense			7,034				—						7,034				1,692				(51	)					8,675
Net interest income before provision			147,432				—						147,432				14,778				931						163,141
Loan loss provision expense (benefit)			1,489				—						1,489				(1,150	)			—						339
Net interest income after provision for loan losses			145,943				—						145,943				15,928				931						162,802
Other operating income:
Deposit fees and charges			15,644				—						15,644				725				—						16,369
Mortgage banking operations			3,981				—						3,981				—				—						3,981
Other			23,435				518			D			23,953				—				—						23,953
Total other operating income			43,060				518						43,578				725				—						44,303
Other operating expense:
Compensation			88,574				(8,631	)		E			79,943				7,418				—						87,361
Occupancy and equipment			12,155				—						12,155				1,455				—						13,610
Amortization of core deposit intangibles			3,385				—						3,385				—				(52	)		D			3,333
Other			53,068				54			F			53,122				3,230				(84	)		E			56,268
Total other operating expense			157,182				(8,577	)					148,605				12,103				(136	)					160,572
Pre-tax income			31,821				9,095						40,916				4,550				1,067						46,533
Provision for income taxes			9,869				3,183			G			13,052				1,532				373			F			14,957
Net income		$	21,952			$	5,912					$	27,864			$	3,018			$	694					$	31,576

 

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Unaudited Pro Forma Combined Condensed Consolidated Statement of Operations

Twelve Months Ended December 31, 2014 (in thousands)

 

		Banner & Siuslaw Combined Pro Forma				Starbuck Combined Pro Forma				Pro Forma Adjustments				Notes		Pro Forma Totals
Interest income:
Interest and fees on loans		$	191,239			$	143,870			$	(2,623	)		Q		$	332,486
Interest on cash and securities			13,893				27,946				10,641			R			52,480
Total interest income			205,132				171,816				8,018						384,966
Interest expense:
Interest on deposits			7,972				7,353				241			S			15,566
Interest on borrowings			3,457				1,322				—						4,779
Total interest expense			11,429				8,675				241						20,345
Net interest income before provision			193,703				163,141				7,777						364,621
Loan loss provision expense			—				339				—						339
Net interest income after provision for loan losses			193,703				162,802				7,777						364,282
Other operating income:
Deposit fees and charges			31,190				16,369				—						47,559
Mortgage banking operations			12,201				3,981				—						16,182
Other			17,118				23,953				—						41,071
Total other operating income			60,509				44,303				—						104,812
Other operating expense:
Compensation			85,637				87,361				—						172,998
Occupancy and equipment			23,678				13,610				—						37,288
Amortization of core deposit intangibles			2,607				3,333				1,879			T			7,819
Other			55,759				56,268				(4,609	)		U			107,418
Total other operating expense			167,681				160,572				(2,730	)					325,523
Pre-tax income			86,531				46,533				10,507						143,571
Provision for income taxes			27,828				14,957				3,677			V			46,462
Net income		$	58,703			$	31,576			$	6,830					$	97,109

 

		Historical Banner				Historical Starbuck				Pro Forma Adjustments (1)				Pro Forma Totals
Earnings per common share:
Basic		$	2.79				n/a			$	0.07			$	2.86
Diluted		$	2.79				n/a			$	0.07			$	2.86
Weighted average number of common shares outstanding:
Basic			19,359,409				n/a				14,549,995				33,909,404
Diluted			19,402,656				n/a				14,549,995				33,952,651

 

(1)	Pro forma share adjustment includes 13.2 million shares issued in the Starbuck acquisition and 1.3 million shares issued in the Siuslaw acquisition.

 

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Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial Information

Note 1—Basis of Presentation

The unaudited pro forma combined condensed consolidated financial information has been prepared using the acquisition method of accounting for business combinations under GAAP. Banner was the acquirer for accounting purposes in the acquisition of Starbuck and Siuslaw. Starbuck was the acquirer for accounting purposes in the acquisition of GSB. The unaudited pro forma combined condensed consolidated statements of financial condition as of September 30, 2015 is presented as if the acquisition of Starbuck occurred as of that date. The unaudited pro forma combined condensed consolidated statements of operations for the nine months ended September 30, 2015 and the year ended December 31, 2014 are presented as if the acquisitions occurred on January 1, 2014. This information is not intended to reflect the actual results that would have been achieved had the acquisitions actually occurred on those dates.

The pro forma adjustments are preliminary, based on estimates, and are subject to change as more information becomes available and after final analyses of the fair values of both tangible and intangible assets acquired and liabilities assumed are completed. Accordingly, the final fair value adjustments may be materially different from those presented in this document.

Under the acquisition method of accounting, the assets and liabilities and any identifiable intangible assets being acquired are recorded at the respective fair values on the acquisition date. The fair values on the acquisition date represent management’s best estimates based on available information and facts and circumstances in existence on the acquisition date.

Certain historical data of the entities being acquired has been reclassified on a pro forma basis to conform to Banner’s classifications.

Note 2—Purchase Price

Starbuck Acquisition: The aggregate consideration received by SKBHC equity holders consisted of 13.23 million shares of Banner common stock and $130.0 million in cash. The aggregate value of the consideration paid was approximately $761 million.

Note 3—Allocation of Purchase Price

Starbuck Acquisition. Following the Merger, Starbuck’s assets and liabilities are required to be adjusted to their estimated fair values. The purchase price is then allocated to the identifiable assets and liabilities based on the fair values. The excess of the purchase price over the fair value of the net assets acquired is allocated to goodwill.

 

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The purchase price was preliminarily allocated to the assets acquired and liabilities assumed based on their estimated fair values as summarized in the following table:

 

		Pro Forma As of September 30, 2015
		(in thousands)
Preliminary Acquisition of Starbuck
Fair value of 13,230,000 shares of Banner common stock at $47.67 per share (price as of closing date)						$	630,674
Cash paid							130,000
Total purchase price							760,674
Fair value of assets acquired:
Cash		$	97,648
Investment securities			1,023,536
Loans			2,990,127
OREO			6,862
Premises and equipment			66,891
Intangible assets			33,300
Deferred Taxes			104,794
Other assets			130,110
Total assets acquired			4,453,268
Fair value of liabilities assumed:
Deposits			3,622,809
Borrowings			240,075
Junior subordinated debentures			5,806
Accrued expenses and other liabilities			55,165
Total liabilities assumed			3,923,855
Fair value of net assets acquired							529,413
Excess of consideration paid over the net assets acquired (Goodwill)						$	231,261

 

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Note 4—Pro Forma Combined Condensed Consolidated Financial Information Adjustments

The following pro forma adjustments have been included in the unaudited pro forma condensed combined financial information. Estimated fair value adjustments are based upon available information, and certain assumptions considered reasonable, and may be revised as additional information becomes available.

Notes to Pro Forma Adjustments for Siuslaw Merging Into Banner

 

Statement of Operations
(in thousands)
				For the Nine Months Ended Sep. 30, 2015				For the Twelve Months Ended Dec. 31, 2014
A		Adjustments to interest income on loans
		To reflect accretion to income of purchased loan discounts on non-impaired loans.		$	422			$	930
		To reflect accretion to income of purchased loan discounts on impaired loans.		$	207			$	276
				$	629			$	1,206
B		Adjustments to Interest on cash and securities		$	(16	)		$	(22	)
		To reflect amortization of purchased securities premium.
C		Adjustments to Deposit interest expense		$	2			$	7
		To reflect the amortization of deposit premium.
D		Adjustments to Amortization of core deposit intangibles		$	98			$	617
		To reflect the amortization of the core deposit intangible asset based on an amortization period of eight years and using an accelerated amortization method.
E		Adjustments to Non-interest Expense		$	(1,897	)		$	(748	)
		To reverse Banner’s historical acquisition expenses
F		Adjustments to Provision for income taxes		$	844			$	458
		To reflect the income tax effect of the adjustments above at the effective rate of 35%.

Notes to Pro Forma Adjustments to Segregate Starbuck Bancshares from SKBHC LLC

 

Statement of Financial Condition
As of September 30, 2015
(in thousands)
A		Non-interest bearing deposits		$	299
		To recognize parent company deposits at AmericanWest Bank.
B		Other liabilites		$	(13,989	)
		To eliminate parent company other liabilities.
C		Equity		$	13,690
		To eliminate parent company impact on equity.

 

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Statement of Operations
(in thousands)
				For the Nine Months Ended Sep. 30, 2015				For the Twelve Months Ended Dec. 31, 2014
D		Other operating income		$	158			$	518
		To eliminate management fee income recorded at Starbuck Bancshares for services provided to and paid for by the SKBHC Holdings LLC stand-alone entity.
E		Compensation expense		$	(1,232	)		$	(8,631	)
		To eliminate management unit compensation expense recorded by the SKBHC Holdings LLC stand-alone entity as required by the LLC operating agremeent.
F		Other operating expense		$	(242	)		$	54
		To eliminate other operating expense attributed to the SKBHC Holdings LLC stand-alone entity.
G		Adjustments to Provision for income taxes		$	571			$	3,183
		To reflect the income tax effect of the adjustments above at the statutory rate of 35%.

Notes to Pro Forma Adjustments for Greater Sacramento Bancorp Merging Into Starbuck

 

Statement of Operations
(in thousands)
				For the Nine Months Ended Sep. 30, 2015				For the Twelve Months Ended Dec. 31, 2014
A		Adjustments to Interest and fee income on loans		$	131			$	1,677
		To reflect accretion of interest income for acquired impaired and non-impaired loans, using the effective interest method of amortization over the estimated lives of the acquired loan portfolio of approximately five years, as adjusted for expected prepayments.
B		Adjustments to Interest on cash and securities
		To reflect the accretion of the mark to fair value on security portfolio.		$	(66	)		$	(797	)
C		Adjustments to Interest expense on deposits		$	(1	)		$	(51	)
		To reflect the amortization of deposit premium resulting from time deposit fair value adjustments based on a weighted average life of time deposits of approximately one year using contractual time deposit maturities.
D		Adjustments to Other operating expense		$	(5	)		$	(52	)
		To reflect the amortization of the core deposit intangible asset based on an amortization		$	—			$	2
		To reflect the amortization of the leasehold interest intangible.		$	(5	)		$	(54	)
E		Adjustments to Non-interest Expense		$	(925	)		$	(84	)
		To reverse AmericanWest’s historical acquisition expenses.
F		Adjustments to Provision for income taxes		$	349			$	373
		To reflect the income tax effect of the adjustments above at the statutory rate of 35%.

 

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Notes to Pro Forma Adjustments for Starbuck Bank Merger into Banner

 

Statement of Financial Condition
As of September 30, 2015
(in thousands)
A		Adjustments to Cash and cash equivalents						$	(151,450	)
		To reflect cash used to purchase AmericanWest.		$	(130,000	)
		To reflect cash to be paid for after-tax merger expenses.		$	(21,450	)
B		Adjustments to Investment Securities						$	(5,439	)
		Reverse existing unamortized/unaccreted premiums/discounts		$	(68,289	)
		Adjust securities to fair value.		$	62,850
C		Adjustments to Loans receivable, excluding allowance for loan losses						$	(1,793	)
		To eliminate AmericanWest prior loan discount.		$	43,577
		To eliminate AmericanWest prior loan deferred fees and costs.		$	(240	)
		A total discount of 1.5% was estimated to reflect the fair value of loans at merger date, including (2.1%) for credit losses and 0.6% for market yield premium.		$	(45,130	)
D		Adjustments to Allowance for loan losses						$	16,602
		To eliminate the allowance for loan losses at the acquisition date as the credit risk is accounted for in the fair value adjustment for the loans receivable.
E		Adjustment to OREO						$	(1,500	)
		To mark OREO to estimated fair value.
F		Adjustments to Premises and Equipment						$	(3,332	)
		To record fair value adjustment to acquired premises owned.		$	1,816
		To record fair value adjustment to acquired equipment.		$	(5,148	)
G		Adjustments to Intangibles/Core Deposit Intangible (“CDI”)						$	12,330
		To eliminate AmericanWest prior CDI and other intangibles		$	(20,970	)
		To record the estimated fair value of the CDI. The CDI will be amortized to expense over 8 years on an accelerated basis.		$	33,300
H		Adjustment to Goodwill						$	153,303
		To eliminate AmericanWest prior goodwill.		$	(77,958	)
		To record the difference between the consideration paid and the estimated fair value of net assets acquired assumed in the merger.		$	231,261
I		Adjustments to Deferred Tax Asset						$	(12,903	)
		To reflect the deferred taxes related to the net fair value adjustments at Banner’s estimated statutory rate of 35%.
J		Adjustment to Other Assets						$	476
		To record fair value adjustment on Other Repossessed Assets.		$	(300	)
		To record favorable fair value adjustment on real property leases.		$	776
K		Adjustment to Time Deposits						$	2,256
		To record fair value adjustments based upon current market interest rates for similar products.
L		Adjustment to Borrowings						$	(66	)
		To record fair value adjustments based upon current market interest rates for similar borrowings.		$	75
		To reverse AmericanWest’s prior fair value adjustment		$	(141	)
M		Adjustment to Junior Subordinated Debentures						$	(1,252	)
		To eliminate AmericanWest prior fair value adjustment		$	1,190
		To record fair value adjustments based upon current market interest rates and credit spreads for similar junior subordinated debentures.		$	(2,442	)

 

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Statement of Financial Condition
As of September 30, 2015
(in thousands)

N		Adjustments to Other Liabilities						$	1,108
		To reverse the previous fair value adjustment on real property leases.		$	(1,657	)
		To record unfavorable fair value adjustment on real property leases.		$	2,765
O		Adjustments to Equity-Banner						$	609,224
		To record the issuance of Banner common stock as purchase price consideration (13,230,000 shares at $47.67 per share).		$	630,674
		To adjust for after tax merger expenses		$	(21,450	)
P		Adjustments to Equity-AmericanWest						$	(604,976	)
		To eliminate the equity of AmericanWest.

Notes to Pro Forma Adjustments for Starbuck Merging Into Banner

 

Statement of Operations
(in thousands)
				For the Nine Months Ended Sep. 30, 2015				For the Twelve Months Ended Dec. 31, 2014
Q		Adjustments to Interest and Fees on Loans
		To reflect accretion to income of purchased loan discounts on non-impaired loans.		$	4,520			$	11,705
		To reflect accretion to income of purchased loan discounts on impaired loans.			3,017				3,703
		To reverse historical accretion of AmericanWest’s previous purchased loan discounts on non-impaired loans.			(1,172	)			(1,367	)
		To reverse historical accretion of AmericanWest’s previous purchased loan discounts on impaired loan.			(9,172	)			(16,664	)
				$	(2,807	)		$	(2,623	)
R		Adjustments to Interest on Investment Securities
		Fair value marks on investments amortized/accreted against/into income similar to premiums/discounts.		$	(3,416	)		$	(4,555	)
		To reverse historical amortization of premium on securities			12,648				15,196
				$	9,232			$	10,641
S		Adjustments to Deposit Interest Expense
		To reflect the amortization of deposit premium		$	(625	)		$	(1,225	)
		To reverse historical amortization of deposit premium			468				1,466
				$	(157	)		$	241
T		Adjustments to Non-interest Expense
		To reflect the amortization of the core deposit intangible asset based on an amortization period of eight years and using an accelerated amortization method.		$	3,767			$	5,264
		To reverse AmericanWest’s historical core deposit intangible amortization.		$	(2,205	)			(3,385	)
				$	1,562			$	1,879
U		Adjustments to Non-interest Expense
		To reverse AmericanWest’s historical acquisition expenses.		$	(1,203	)		$	(284	)
		To reverse Banner’s historical acquisition expenses.			(7,741	)			(4,325	)
				$	(8,944	)		$	(4,609	)
V		Adjustments to Income Tax Expense		$	4,887			$	3,677
		To reflect the income tax effect of the adjustments above at the statutory rate of 35%.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

Selected Consolidated Historical Financial Information of Banner

The following tables set forth selected consolidated historical financial data for Banner. The annual consolidated historical information for Banner is derived from its audited consolidated financial statements as of and for each of the years ended December 31, 2010 through 2014, before the retrospective adjustments for the adoption of ASU 2014-01. The information is only a summary and should be read in conjunction with Banner’s historical consolidated financial statements and related notes. Banner’s audited consolidated financial statements as of and for the years ended December 31, 2014, 2013 and 2012 are contained in its Annual Report on Form 10-K for the fiscal year ended December 31, 2014 filed with the SEC, which is incorporated by reference herein. Banner’s audited consolidated financial statements as of and for the years ended December 31, 2011 and 2010 are not incorporated by reference into this prospectus. The unaudited consolidated financial information as of and for the nine months ended September 30, 2015 and 2014 is derived from Banner’s unaudited consolidated financial statements, which are included in Banner’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, which is incorporated by reference herein, and which, in Banner’s opinion, include all adjustments (consisting of normal, recurring adjustments) necessary for a fair statement of Banner’s financial position and results of operations for such periods. The results of operations for the nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the entire fiscal year ending 2015 and do not reflect any adjustments as a result of the Merger. You should not assume the results of operations for any past periods indicate results for any future period. See “Where You Can Find More Information.”

Our consolidated financial statements for the years ended December 31, 2014, 2013, 2012, 2011 and 2010 and for the period from January 1, 2015 through March 6, 2015 reflect only the historic results of Banner prior to our acquisition of Siuslaw and the Merger. Commencing on March 7, 2015, our consolidated financial statements also include the financial condition and results of operations of Siuslaw.

As of January 1, 2015, Banner adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standard Update (“ASU”) No. 2014-01, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. As required by ASU No. 2014-01, the new accounting methodology has been retrospectively applied to all prior periods presented, resulting in changes to other non-interest income, tax expense, and net income, deferred tax asset, other assets, and retained earnings in the prior periods presented. The ASU No. 2014-01 was effective beginning after December 15, 2014 and does not have a material impact on the Company’s consolidated financial statements. The effect of this change was a decrease in net income of $65,000 for the nine months ended September 30, 2014. The effect of this change on the revised annual statement of operations was a decrease in net income of $95,000, $341,000, $25,000, $0 and $228,000 for the years ended December 31, 2014, 2013, 2012, 2011 and 2010 respectively. All prior periods have been reclassified to conform to the current presentation and therefore the information may not be comparable to the information included in reports previously filed by the Company with the SEC.

 

FINANCIAL CONDITION DATA:
		As of September 30,				As of December 31,
(In thousands) (unaudited)		2015				2014				2013				2012				2011				2010
Total assets		$	5,312,310			$	4,723,163			$	4,388,257			$	4,265,264			$	4,257,465			$	4,406,082
Cash and securities (1)			723,158				708,609				772,614				811,902				754,396				729,345
Loans receivable, net			4,295,274				3,757,913				3,344,187				3,158,223				3,213,426				3,305,716
Deposits			4,387,653				3,898,950				3,617,926				3,557,804				3,475,654				3,591,198
Borrowings			189,701				187,436				184,234				160,000				212,649				267,761
Common stockholders’ equity			671,202				582,888				538,331				506,619				411,748				392,472
Preferred stockholders’ equity			—				—				—				—				120,702				119,000
Total stockholders’ equity			671,202				582,888				538,331				506,619				532,450				511,472
Shares outstanding			20,962				19,572				19,544				19,455				17,553				16,165
Shares outstanding excluding unearned, restricted shares held in ESOP			20,962				19,572				19,509				19,421				17,519				16,130

 

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OPERATING DATA:

 

		For the Nine Months Ended September 30,								For the Year Ended December 31,
(In thousands) (unaudited)		2015				2014				2014				2013				2012				2011				2010
Interest income		$	157,939			$	141,410			$	190,661			$	179,712			$	187,162			$	197,563			$	218,082
Interest expense			7,758				8,199				10,789				12,996				19,514				32,992				60,312
Net interest income before provision for loan losses			150,181				133,211				179,872				166,716				167,648				164,571				157,770
Provision for loan losses			—				—				—				—				13,000				35,000				70,000
Net interest income			150,181				133,211				179,872				166,716				154,648				129,571				87,770
Deposit fees and other service charges			27,435				22,237				30,553				26,581				25,266				22,962				22,009
Mortgage banking operations revenue			13,238				7,282				10,249				11,170				13,812				6,146				7,321
Other-than-temporary impairment recoveries (losses)			—				—				—				409				(409	)			3,000				(4,231	)
Net change in valuation of financial instruments carried at fair value			735				1,662				1,374				(2,278	)			(16,515	)			(624	)			1,747
All other operating income			2,527				11,697				12,815				8,780				5,136				3,531				3,257
Total other operating income			43,935				42,878				54,991				44,662				27,290				35,015				30,103
OREO operations expense (recoveries), net			190				(260	)			(446	)			(689	)			3,354				22,262				26,025
All other operating expenses			136,157				112,772				154,187				141,664				138,099				135,842				134,776
Total other operating expense			136,347				112,512				153,741				140,975				141,453				158,104				160,801
Income (loss) before provision for income tax expense (benefit)			57,769				63,577				81,822				70,403				40,485				6,482				(42,928	)
Provision for income tax expense (benefit)			19,440				21,221				27,052				24,189				(24,372	)			1,025				19,196
Net income (loss)		$	38,329			$	42,356			$	54,070			$	46,214			$	64,857			$	5,457			$	(62,124	)

PER COMMON SHARE DATA:

 

		For the Nine Months Ended September 30,								For the Year Ended December 31,
		2015				2014				2014				2013				2012				2011				2010
Net income (loss):
Basic		$	1.88			$	2.19			$	2.79			$	2.39			$	3.17			$	(0.15	)		$	(7.23	)
Diluted			1.87				2.18				2.79				2.38				3.16				(0.15	)			(7.23	)
Common stockholders’ equity per share (2)(9)			32.02				29.29				29.78				27.59				26.09				23.50				24.33
Common stockholders’ tangible equity per share (2)(9)			30.75				29.12				29.64				27.47				25.87				23.14				23.80
Cash dividends			0.54				0.54				0.72				0.54				0.04				0.10				0.28
Dividend payout ratio (basic)			28.77	%			24.67	%			25.78	%			22.62	%			1.26	%			(66.43	)%			(3.87	)%
Dividend payout ratio (diluted)			28.83	%			24.72	%			25.84	%			22.67	%			1.27	%			(66.55	)%			(3.87	)%

OTHER DATA:

 

		As of September 30,				As of December 31,
		2015				2014				2013				2012				2011				2010
Full time equivalent employees			1,240				1,150				1,084				1,074				1,078				1,060
Number of branches			93				93				88				88				89				89

 

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KEY FINANCIAL RATIOS:

 

		At or For the Nine Months Ended September 30,								At or For the Year Ended December 31,
		2015				2014				2014				2013				2012				2011				2010
Performance Ratios:
Return on average assets (3)			1.00	%			1.24	%			1.17	%			1.09	%			1.54	%			0.13	%			(1.36	)%
Return on average common equity (4)			7.93				10.15				9.60				8.79				11.63				1.37				(17.25	)
Average common equity to average assets			12.65				12.17				12.18				12.35				13.22				9.31				7.90
Interest rate spread (5)			4.13				4.05				4.04				4.08				4.13				3.99				3.61
Net interest margin (6)			4.14				4.07				4.07				4.11				4.17				4.05				3.67
Non-interest income to average assets			1.15				1.25				1.19				1.05				0.65				0.82				0.66
Non-interest expense to average assets			3.57				3.28				3.32				3.31				3.35				3.69				3.53
Efficiency ratio (7)			70.24				63.89				65.67				67.11				72.71				79.62				86.03
Average interest-earning assets to funding liabilities			108.77				108.72				108.78				108.28				109.11				106.90				104.32
Selected Financial Ratios:
Allowance for loan losses as a percent of total loans at end of period			1.77				1.95				1.98				2.17				2.37				2.52				2.86
Net charge-offs (recoveries) as a percent of average outstanding loans during the period			0.03				—				(0.05	)			0.08				0.57				1.50				1.88
Non-performing assets as a percent of total assets			0.56				0.50				0.43				0.66				1.18				2.79				5.77
Allowance for loan losses as a percent of non-performing loans (8)			328.60				375.81				453.56				299.81				223.20				110.09				64.30
Common stockholders’ tangible equity to tangible assets (9)			12.20				11.99				12.30				12.23				11.80				9.54				8.73
Consolidated Capital Ratios:
Total capital to risk-weighted assets			15.67				16.62				16.80				16.99				16.96				18.07				16.92
Tier 1 capital to risk-weighted assets			14.41				15.36				15.54				15.73				15.70				16.80				15.65
Tier 1 leverage capital to average assets			13.85				13.17				13.41				13.64				12.74				13.44				12.24

 

(1)	Includes securities trading, available-for-sale and held-to-maturity.

(2)	Calculated using shares outstanding excluding unearned restricted shares held in ESOP and adjusted for 1-for-7 reverse stock split.

(3)	Net income divided by average assets.

(4)	Net income divided by average common equity.

(5)	Difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(6)	Net interest income before provision for loan losses as a percent of average interest-earning assets.

(7)	Other operating expenses divided by the total of net interest income before loan losses and other operating income (non-interest income).

(8)	Non-performing loans consist of nonaccrual and 90 days past due loans.

(9)

Common stockholders’ tangible equity per share and the ratio of tangible common stockholders’ equity to tangible assets are non-GAAP financial measures. We calculate tangible common equity by excluding the balance of goodwill, other intangible assets and preferred equity from stockholders’ equity. We calculate tangible assets by excluding the balance of goodwill and other intangible assets from total assets. We believe that this is consistent with the treatment by our bank regulatory agencies, which exclude goodwill and other intangible assets from the calculation of risk-based capital ratios. In addition, excluding preferred equity, the level of which may vary from company to company, allows investors to more easily compare our capital adequacy to other companies in the industry that also use this measure. Management believes that these non-GAAP financial measures provide information to investors that is useful in understanding the basis of our capital position. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non–GAAP measures, see Item 7, “Management’s Discussion and Analysis of Financial Condition—Executive Overview,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

Selected Consolidated Historical Financial Information of Starbuck

The following tables set forth selected consolidated historical financial and other data of SKBHC, the holding company of Starbuck for the periods and at the dates indicated. Audited financial information for Starbuck alone is not available; however, as noted in the pro forma financial statements, Starbuck comprised more than 100.0% of the consolidated assets of SKBHC as of September 30, 2015 and more than 127.2% of

 

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SKBHC’s net income for the nine months ended September 30, 2015 and more than 105.0% for the twelve months ended December 31, 2014. The information in the tables is derived in part from the audited financial statements of SKBHC for the fiscal years ended December 31, 2014, 2013 and 2012. Such information should be read in conjunction with SKBHC’s audited consolidated financial statements for the years ended December 31, 2014, 2013 and 2012 in Banner’s Current Report on Form 8-K filed on December 11, 2015, which is incorporated by reference into this prospectus. The selected unaudited interim consolidated financial information as of September 30, 2015 and for the nine months ended September 30, 2015 and 2014 are derived from the unaudited interim consolidated financial statements of SKBHC, which are also contained in Banner’s Current Report on Form 8-K filed on December 11, 2015, which is incorporated by reference herein, and which, in Starbuck’s opinion, include all adjustments (consisting of normal, recurring adjustments) necessary for a fair statement of Starbuck’s financial position and results of operations for such periods. See the section entitled “Where You Can Find More Information”.

SKBHC’s consolidated financial statements for the years ended December 31, 2014, 2013 and 2012 and for the period from January 1, 2015 through February 2, 2015 reflect only the historic results of SKBHC prior to its acquisition of GSB. Commencing on February 3, 2015, SKBHC’s consolidated financial statements also include the financial condition and results of operations of GSB.

FINANCIAL CONDITION DATA:

 

		As of September 30,				As of December 31,
		(unaudited)				(audited)
		2015				2014				2013				2012
Total assets		$	4,526,785			$	4,211,976			$	3,943,195			$	2,763,445
Cash and securities			1,126,623				1,147,363				1,217,242				723,685
Total net loans			2,975,318				2,658,325				2,283,548				1,717,631
Deposits			3,620,254				3,294,605				3,274,081				2,196,530
Borrowings			247,199				283,752				73,095				88,179
Total members’ equity			591,286				564,582				530,161				444,036
OPERATING DATA:

 

		For the Nine Months Ended September 30,								For the Year Ended December 31,
		(unaudited)								(audited)
		2015				2014				2014				2013				2012
Interest income		$	125,005			$	115,028			$	154,466			$	149,298			$	113,111
Interest expense			7,573				4,976				7,034				5,739				4,594
Net interest income before provision for loan losses			117,432				110,052				147,432				143,559				108,517
Provision for loan losses			(1,189	)			997				1,489				4,211				3,807
Net interest income			118,621				109,055				145,943				139,348				104,710
Deposit fees and other service charges			12,217				11,312				15,644				13,999				10,306
Mortgage banking operations revenue			4,181				2,851				3,981				6,846				7,202
All other non-interest income			10,768				19,726				23,435				22,210				13,153
Total non-interest income			27,166				33,889				43,060				43,055				30,661
REO expense			3,290				4,638				5,999				8,560				7,929
All other non-interest expenses			107,044				108,716				151,183				166,243				120,665
Total non-interest expenses			110,334				113,354				157,182				174,803				128,594
Income before income tax expense (benefit)			35,453				29,590				31,821				7,600				6,777
Income tax expense			13,695				12,604				9,869				579				(63,307	)
Net income		$	21,758			$	16,986			$	21,952			$	7,021			$	70,084

 

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MANAGEMENT AND BOARD OF DIRECTORS

The information below is a summary. In addition to the other information contained in or incorporated by reference herein, you should consider the information under the caption, “Meetings and Committees of the Board of Directors” beginning on page 8 in our Annual Proxy Statement filed with the SEC on March 24, 2015. See “Where You Can Find More Information.”

The following table sets forth information regarding our executive officers and directors, as of the date of this prospectus:

 

Name		Age		Position with Banner Corporation		Position with Banner Bank
Mark J. Grescovich		51		President and Chief Executive Officer, Director		President and Chief Executive Officer, Director
Lloyd W. Baker		67		Executive Vice President and Chief Financial Officer		Executive Vice President
Richard B. Barton		72				Executive Vice President and Chief Lending Officer
Douglas M. Bennett		63				Executive Vice President, Real Estate Lending Operations
Tyrone J. Bliss		58				Executive Vice President, Risk Management and Compliance Officer
James R. Claffee		70				Executive Vice President and Chief Integration Officer
Peter J. Conner		50				Executive Vice President and Chief Financial Officer
Kenneth A. Larsen		46				Executive Vice President, Mortgage Banking
Cynthia D. Purcell		58				Executive Vice President of Retail Banking and Administration
M. Kirk Quillin		53				Executive Vice President, East Region, Commercial Banking
James T. Reed, Jr.		53				Executive Vice President, West Region Commercial Banking
Steven W. Rust		68				Executive Vice President and Chief Information Officer
Gary W. Wagers		55				Executive Vice President, Retail Products and Services
Keith A. Western		60				Executive Vice President, California & S. Oregon Commercial Banking
Gary Sirmon		72		Chairman of the Board, Director		Chairman of the Board, Director

 

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Name		Age		Position with Banner Corporation		Position with Banner Bank
Jesse G. Foster		77		Vice Chairman of the Board, Director		Vice Chairman of the Board, Director
Robert D. Adams		74		Director		Director
Gordon E. Budke		74		Director		Director
Connie R. Collingsworth		57		Director		Director
Spencer C. Fleischer		62		Director		Director
Michael J. Gillfillan		67		Director		Director
D. Michael Jones		73		Director		Director
David A. Klaue		62		Director		Director
Constance H. Kravas		69		Director		Director
John R. Layman		57		Director		Director
Brent A. Orrico		66		Director		Director
Michael M. Smith		61		Director		Director

Executive Officers

Mark J. Grescovich is President and Chief Executive Officer, and a director, of Banner Corporation and Banner Bank. Mr. Grescovich joined the Bank in April 2010 and became Chief Executive Officer in August 2010 following an extensive banking career specializing in finance, credit administration and risk management. Prior to joining the Bank, Mr. Grescovich was the Executive Vice President and Chief Corporate Banking Officer for Akron, Ohio-based FirstMerit Corporation and FirstMerit Bank N.A., a commercial bank with $14.5 billion in assets and over 200 branch offices in three states. He assumed the role and responsibility for FirstMerit’s commercial and regional line of business in 2007, having served since 1994 in various commercial and corporate banking positions, including that of Chief Credit Officer. Prior to joining FirstMerit, Mr. Grescovich was a Managing Partner in corporate finance with Sequoia Financial Group, Inc. of Akron, Ohio and a commercial and corporate lending officer and credit analyst with Society National Bank of Cleveland, Ohio.

Lloyd W. Baker joined First Savings Bank of Washington (now Banner Bank) in 1995 as Asset/Liability Manager, has been a member of the executive management committee since 1998 and has served as the Chief Financial Officer of Banner Corporation since 2000 and of Banner Bank from 2000 to October 2015. His banking career began in 1973.

Richard B. Barton joined Banner Bank in 2002 as Chief Credit Officer. Mr. Barton’s banking career began in 1972 with Seafirst Bank and Bank of America, where he served in a variety of commercial lending and credit risk management positions. In his last positions at Bank of America before joining Banner Bank, he served as the senior real estate risk management executive for the Pacific Northwest and as the credit risk management executive for the west coast home builder division. Mr. Barton was named Chief Lending Officer in 2008.

Douglas M. Bennett, who joined First Federal Savings and Loan (now Banner Bank) in 1974, has over 38 years of experience in real estate lending. He has served as a member of Banner Bank’s executive management committee since 2004.

Tyrone J. Bliss joined Banner Bank in 2002 and has served in his current position since 2006. Mr. Bliss is a Certified Regulatory Compliance Manager with more than 35 years of commercial banking experience. Prior to joining Banner Bank, his career included senior risk management and compliance positions with Bank of America’s Consumer Finance Group, Barnett Banks, Inc., and Florida-based community banks.

 

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James Claffee joined Banner Bank in 2015 with the acquisition of AmericanWest Bank. Mr. Claffee has more than 40 years of experience in banking and has served in senior executive positions with banks in Washington, Arizona, California and New England. Mr. Claffee was President and Chief Operating Officer of AmericanWest Bank and Starbuck Bancshares, responsible for strategic growth in the region and for the integration of nine acquisitions over the previous four years prior to that. Mr. Claffee is a graduate of Tufts University. He holds an M.B.A. from San Diego State University. He also completed the Liberal Arts Program for Senior Managers at Stanford, The J.L. Kellogg School of International Management and attended the Stonier Graduate School of Banking. He has been active in charitable and philanthropic organizations throughout his career. Mr. Claffee is a Vietnam veteran and served as an officer in the U.S. Navy.

Peter J. Conner joined Banner Bank in 2015 with the acquisition of AmericanWest Bank. Prior to joining Banner, Mr. Conner was the Chief Financial Officer for SKBHC LLC and AmericanWest Bank since 2010. Mr. Conner has 25 years of experience in executive finance positions at Wells Fargo Bank as well as regional community banks. Additionally, he spent time as a managing director for FSI Group, where he evaluated and placed equity fund investments in community banks. He earned a B.S. in Quantitative Economics from the University of California at San Diego and a Masters of Business from the Haas School of Business at U.C. Berkeley.

Kenneth A. Larsen joined Banner Bank in 2005 as the Real Estate Administration Manager and was promoted to his current position in 2010. Mr. Larsen currently serves as Mortgage Banking Director and is responsible for the Bank’s mortgage banking activities from origination, administration, secondary marketing, through loan servicing. Mr. Larsen has had a 24-year career in mortgage banking, including all facets of the industry and management. A graduate of Eastern Washington University, he earned a Bachelor of Arts in Education with a degree in Social Science and earned certificates from the Pacific Coast Banking School and the School of Mortgage Banking. He is also a Certified Mortgage Banker, the highest designation recognized by the Mortgage Bankers Association. Mr. Larsen began his career at Action Mortgage/Sterling Savings, later moving to Peoples Bank of Lynden where he managed the mortgage banking operation. Mr. Larsen served as the 90th President of the Seattle Mortgage Bankers Association. Currently he is the Chairman of the Washington Mortgage Bankers Association and a recent appointee by the Governor of Washington State to serve as a commissioner on the Washington State Housing Finance Commission. He was promoted to Executive Vice President in 2015.

Cynthia D. Purcell was formerly the Chief Financial Officer of Inland Empire Bank (now Banner Bank), which she joined in 1981. She has served as Executive Vice President since 2000. Ms. Purcell is responsible for managing Retail Banking including Mortgage Banking, Small Business Banking and Digital Delivery Channels, as well as administrative support functions for the organization.

M. Kirk Quillin joined Banner Bank’s commercial banking group in 2002 as a Senior Vice President and commercial loan manager and was named to his current position as the East Region Commercial Banking Executive in July 2012. He is responsible for commercial and specialty banking for all locations in Eastern Washington, Eastern Oregon and Idaho. Mr. Quillin began his career in the banking industry in 1984 with Idaho First National Bank, which is now U.S. Bank. His career also included management positions in commercial lending with Washington Mutual. He earned a B.S. in Finance and Economics from Boise State University and was certified by the Pacific Coast Banking School and Northwest Intermediate Commercial Lending School.

James T. Reed, Jr. joined Towne Bank (now Banner Bank) as a Vice President and Commercial Branch Manager in July 1995 and was named to his current position as the West Region Commercial Banking Executive in July 2012. He is responsible for Commercial Banking in Western Washington and Western Oregon as well as Specialty Banking. Mr. Reed began his banking career with Rainier Bank, which later became Security Pacific Bank and later still West One Bank. He earned a Bachelor of Arts in Interdisciplinary Arts and Sciences from the University of Washington and earned certificates from Pacific Coast Banking School, Northwest Intermediate Banking School and Northwest Intermediate Commercial Lending School. Currently, Mr. Reed sits on the University of Washington Bothell Advisory Board, the University of Washington Foundation Board and the Association of Washington Business Board of Directors.

 

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Steven W. Rust joined Banner Bank in October 2005. Mr. Rust has over 36 years of relevant industry experience prior to joining Banner Bank and was founder and President of InfoSoft Technology, through which he worked for nine years as a technology consultant and interim Chief Information Officer for banks and insurance companies. He worked 19 years with US Bank/West One Bancorp as Senior Vice President & Manager of Information Systems.

Gary W. Wagers joined Banner Bank as Senior Vice President, Consumer Lending Administration in 2002 and was named to his current position in Retail Products and Services in January 2008. Mr. Wagers began his banking career in 1982 at Idaho First National Bank. Prior to joining Banner Bank, his career included senior management positions in retail lending and branch banking operations with West One Bank and US Bank.

Keith A. Western is Executive Vice President, Commercial Banking for Banner Bank, joining Banner with the merger of AmericanWest Bank and Banner Bank. Prior to the merger, Mr. Western was President of Northwest Banking for AmericanWest Bank since 2011. Mr. Western has 38 years of banking experience across multiple markets including the western, eastern and mid-western United States and Canada. The bulk of Mr. Western’s career was with Bank of America (approximately 15 years) and Citibank (approximately 12 years) in a variety of assignments including asset based lending, commercial and business banking, and credit risk management.

Directors

Gary Sirmon is Chairman of the Board and a director of Banner and Banner Bank. He joined Banner Bank in 1980 as an Executive Vice President and served as its Chief Executive Officer from 1982 until February 2002. Mr. Sirmon’s extensive career in banking has given him expertise in management, strategic planning, risk management, and mergers and acquisitions.

Jesse G. Foster is Vice Chairman of the Board and a director of Banner and Banner Bank. Mr. Foster retired as an officer of Banner in 2003 and s