Edgar Filing: BANNER CORP

BANR-3.31.2013-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2013.

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ to ______________

Commission File Number 0-26584

BANNER CORPORATION

(Exact name of registrant as specified in its charter)





Washington		91-1691604
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

	10 South First Avenue, Walla Walla, Washington 99362
	(Address of principal executive offices and zip code)

	Registrant's telephone number, including area code: (509) 527-3636

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

[x]

[ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes

[x]

[ ]

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 Exchange Act.

Large accelerated filer [ ]

Accelerated filer [x]

Non-accelerated filer [ ]

Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

[ ]

[x]

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Title of class:

As of April 30, 2013

Common Stock, $.01 par value per share

19,461,758 shares *

* Includes 34,340 shares held by the Employee Stock Ownership Plan that have not been released, committed to be released, or allocated to participant accounts.

BANNER CORPORATION AND SUBSIDIARIES

Table of Contents



PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements. The Consolidated Financial Statements of Banner Corporation and Subsidiaries filed as a part of the report are as follows:

Consolidated Statements of Financial Condition as of March 31, 2013 and December 31, 2012	4

Consolidated Statements of Operations for the Three Months Ended March 31, 2013 and 2012	5

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2013 and 2012	6

Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2013 and the Year Ended December 31, 2012	7

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012	9

Selected Notes to the Consolidated Financial Statements	11

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview	47

Comparison of Financial Condition at March 31, 2013 and December 31, 2012	52

Comparison of Results of Operations for the Three Months Ended March 31, 2012 and 2011	53

Asset Quality	57

Liquidity and Capital Resources	60

Capital Requirements	61

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

Market Risk and Asset/Liability Management	62

Sensitivity Analysis	62

Item 4 - Controls and Procedures	66

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings	67

Item 1A - Risk Factors	67

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	67

Item 3 - Defaults upon Senior Securities	67

Item 4 – Mine Safety Disclosures	67

Item 5 - Other Information	67

Item 6 - Exhibits	68

SIGNATURES	70

Special Note Regarding Forward-Looking Statements

Certain matters in this report on Form 10-Q contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning our future operations. 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: 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 nonperforming 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 general economic conditions, either nationally or in our market areas; 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 Board of Governors of the Federal Reserve System (the Federal Reserve Board) and of our bank subsidiaries by the Federal Deposit Insurance Corporation (the FDIC), the Washington State Department of Financial Institutions, Division of Banks (the Washington DFI) or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, institute a formal or informal 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 Wall Street Reform and Consumer Protection 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 loans on our balance sheet; 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; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; 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 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 Securities and Exchange Commission. 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 in this report 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 in this report might not occur, and you should not put undue reliance on any forward-looking statements.

As used throughout this report, the terms “we,” “our,” “us,” or the “Company” refer to Banner Corporation and its consolidated subsidiaries, unless the context otherwise requires.

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited) (In thousands, except shares)

March 31, 2013 and December 31, 2012



ASSETS	March 31 2013			December 31 2012
Cash and due from banks	$	155,714		$	181,298
Securities—trading, amortized cost $80,193 and $90,339, respectively	67,761			71,232
Securities—available-for-sale, amortized cost $473,908 and $469,650, respectively	476,683			472,920
Securities—held-to-maturity, fair value $93,785 and $92,458, respectively	88,408			86,452
Federal Home Loan Bank (FHLB) stock	36,373			36,705
Loans receivable:
Held for sale	5,384			11,920
Held for portfolio	3,234,937			3,223,794
Allowance for loan losses	(77,128		)	(77,491		)
	3,163,193			3,158,223
Accrued interest receivable	15,235			13,930
Real estate owned (REO), held for sale, net	11,160			15,778
Property and equipment, net	88,414			89,117
Intangible assets, net	3,724			4,230
Bank-owned life insurance (BOLI)	60,425			59,891
Income taxes	34,242			35,007
Other assets	36,294			40,781
	$	4,237,626		$	4,265,564
LIABILITIES
Deposits:
Non-interest-bearing	$	962,156		$	981,240
Interest-bearing transaction and savings accounts	1,575,525			1,547,271
Interest-bearing certificates	982,903			1,029,293
	3,520,584			3,557,804
Advances from FHLB at fair value	278			10,304
Other borrowings	88,446			76,633
Junior subordinated debentures at fair value (issued in connection with Trust Preferred Securities)	73,220			73,063
Accrued expenses and other liabilities	24,157			26,389
Deferred compensation	14,879			14,452
	3,721,564			3,758,645
COMMITMENTS AND CONTINGENCIES (Note 15)
STOCKHOLDERS’ EQUITY
Common stock and paid in capital - $0.01 par value per share, 50,000,000 shares authorized, 19,462,483 shares issued and 19,428,143 shares outstanding at March 31, 2013; 19,454,965 shares issued and 19,420,625 shares outstanding at December 31, 2012	568,116			567,907
Accumulated deficit	(51,851		)	(61,102		)
Accumulated other comprehensive income	1,784			2,101
Unearned shares of common stock issued to Employee Stock Ownership Plan (ESOP) trust at cost: 34,340 restricted shares outstanding at March 31, 2013 and December 31, 2012	(1,987		)	(1,987		)
	516,062			506,919
	$	4,237,626		$	4,265,564

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited) (In thousands except for per share amounts)

For the Three Months Ended March 31, 2013 and 2012



	Three Months Ended March 31
	2013			2012
INTEREST INCOME:
Loans receivable	$	41,489		$	44,352
Mortgage-backed securities	1,172			927
Securities and cash equivalents	1,847			2,283
	44,508			47,562
INTEREST EXPENSE:
Deposits	2,719			4,448
FHLB advances	24			63
Other borrowings	56			549
Junior subordinated debentures	741			1,012
	3,540			6,072
Net interest income before provision for loan losses	40,968			41,490
PROVISION FOR LOAN LOSSES	—			5,000
Net interest income	40,968			36,490
OTHER OPERATING INCOME:
Deposit fees and other service charges	6,301			5,869
Mortgage banking operations	2,838			2,475
Miscellaneous	790			578
	9,929			8,922
Gain on sale of securities	1,006			—
Other-than-temporary impairment recovery	409			—
Net change in valuation of financial instruments carried at fair value	(1,347		)	1,685
Total other operating income	9,997			10,607
OTHER OPERATING EXPENSES:
Salary and employee benefits	20,729			19,510
Less capitalized loan origination costs	(2,871		)	(2,250		)
Occupancy and equipment	5,329			5,477
Information/computer data services	1,720			1,515
Payment and card processing expenses	2,305			1,890
Professional services	905			1,344
Advertising and marketing	1,499			2,066
Deposit insurance	645			1,363
State/municipal business and use taxes	464			568
REO operations	(251		)	2,598
Amortization of core deposit intangibles	505			552
Miscellaneous	3,120			3,280
Total other operating expenses	34,099			37,913
Income before provision for income taxes	16,866			9,184
PROVISION FOR INCOME TAXES	5,284			—
NET INCOME	11,582			9,184
PREFERRED STOCK DIVIDEND, DISCOUNT ACCRETION AND GAINS
Preferred stock dividend	—			1,550
Preferred stock discount accretion	—			454
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	11,582		$	7,180
Earnings per common share:
Basic	$	0.60		$	0.40
Diluted	$	0.60		$	0.40
Cumulative dividends declared per common share	$	0.12		$	0.01

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (In thousands)

For the Three Months Ended March 31, 2013 and 2012



	Three Months Ended March 31
	2013			2012
NET INCOME	$	11,582		$	9,184
OTHER COMPREHENSIVE INCOME (LOSS), NET OF INCOME TAXES:
Unrealized holding gain (loss) on AFS securities arising during the period	(378		)	(55		)
Income tax benefit (expense) related to AFS unrealized holding gains (losses)	136			20
Reclassification for net (gains) losses on AFS securities realized in earnings	(117		)	—
Income tax benefit (expense) related to AFS unrealized holding gains (losses)	42			—
Amortization of unrealized gain on tax exempt securities transferred from available-for-sale to held-to-maturity	—			2
Other comprehensive income (loss)	(317		)	(33		)
COMPREHENSIVE INCOME	$	11,265		$	9,151

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited) (In thousands, except for shares)

For the Three Months Ended March 31, 2013



	Preferred Stock			Common Stock and Paid in Capital			(Accumulated Deficit)			Accumulated Other Comprehensive Income (loss)			Unearned Restricted ESOP Shares			Stockholders’ Equity
	Shares	Amount		Shares	Amount		(Accumulated Deficit)			Accumulated Other Comprehensive Income (loss)			Unearned Restricted ESOP Shares			Stockholders’ Equity
Balance, January 1, 2013	—	$	—	19,420,625	$	567,907	$	(61,102	)	$	2,101		(1,987		)	$	506,919
Net income							11,582									11,582
Change in valuation of securities—available-for-sale, net of income tax										(317		)				(317		)
Accrual of dividends on common stock ($.12/share cumulative)							(2,331		)							(2,331		)
Proceeds from issuance of common stock for stockholder reinvestment program				58	2											2
Amortization of compensation related to restricted stock grant				7,460	207											207
BALANCE, March 31, 2013	—	$	—	19,428,143	$	568,116	$	(51,851	)	$	1,784		$	(1,987	)	$	516,062

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited) (In thousands, except for shares)

For the Year Ended December 31, 2012



	Preferred Stock					Common Stock and Paid in Capital			(Accumulated Deficit)			Accumulated Other Comprehensive Income		Unearned Restricted ESOP Shares			Stockholders’ Equity
	Shares		Amount			Shares	Amount
Balance, January 1, 2012	124,000		$	120,702		17,519,132	$	531,149	$	(119,465	)	$	2,051	$	(1,987	)	$	532,450
Net income									64,882								64,882
Change in valuation of securities—available-for-sale, net of income tax												42					42
Amortization of unrealized loss on tax exempt securities transferred from available-for-sale to held-to-maturity, net of income tax												8					8
Accretion of preferred stock discount			3,298						(3,298		)						—
Accrual of dividends on preferred stock									(4,938		)						(4,938		)
Repurchase of preferred stock	(124,000	)	(124,000		)												(124,000		)
Gain on repurchase of preferred stock									2,471								2,471
Accrual of dividends on common stock ($.04/share cumulative)									(754		)						(754		)
Proceeds from issuance of common stock for stockholder reinvestment program						1,814,320	36,317										36,317
Amortization of compensation related to restricted stock grant						87,173	434										434
Amortization of compensation related to stock options							7										7
BALANCE, December 31, 2012	—		$	—		19,420,625	$	567,907	$	(61,102	)	$	2,101	$	(1,987	)	$	506,919

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)

For the Three Months Ended March 31, 2013 and 2012



	Three Months Ended March 31
	2013			2012
OPERATING ACTIVITIES:
Net income	$	11,582		$	9,184
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	1,852			1,907
Deferred income and expense, net of amortization	1,516			542
Amortization of core deposit intangibles	505			552
Gain on sale of securities	(1,006		)	—
Other-than-temporary impairment recovery	(409		)	—
Net change in valuation of financial instruments carried at fair value	1,347			(1,685		)
Purchases of securities-trading	(4,190		)	—
Proceeds from sales of securities-trading	6,070			—
Principal repayments and maturities of securities—trading	1,948			4,046
Decrease in deferred taxes	6,212			—
Decrease in current taxes payable	(6,537		)	—
Equity-based compensation	207			45
Increase in cash surrender value of bank-owned life insurance	(528		)	(489		)
Gain on sale of loans, net of capitalized servicing rights	(2,130		)	(1,736		)
Gain on disposal of real estate held for sale and property and equipment	(816		)	(113		)
Provision for losses on loans and real estate held for sale	73			6,629
Origination of loans held for sale	(127,214		)	(122,732		)
Proceeds from sales of loans held for sale	135,880			122,853
Net change in:
Other assets	3,707			1,360
Other liabilities	(2,885		)	(1,866		)
Net cash provided from operating activities	25,184			18,497
INVESTING ACTIVITIES:
Purchases of available-for-sale securities	(52,673		)	(46,409		)
Principal repayments and maturities of available-for-sale securities	33,055			124,547
Proceeds from sales of securities available-for-sale	13,900			—
Purchases of securities held-to-maturity	(2,083		)	(1,896		)
Principal repayments and maturities of securities held-to-maturity	54			451
Principal repayments of loans, net of originations	(12,985		)	65,012
Purchases of loans and participating interest in loans	(91		)	(4,635		)
Purchases of property and equipment	(1,133		)	(587		)
Proceeds from sale of real estate held for sale, net	6,464			15,410
Other	326			(3		)
Net cash (used by) provided from investing activities	(15,166		)	151,890
FINANCING ACTIVITIES:
Decrease in deposits, net	(37,220		)	(49,483		)
Repayment of FHLB advances	(10,002		)	(2		)
Increase (decrease) in other borrowings, net	11,813			(60,878		)
Cash dividends paid	(195		)	(1,725		)
Cash proceeds from issuance of stock for stockholder reinvestment plan	2			8,874
Net cash used by financing activities	(35,602		)	(103,214		)
NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS	(25,584		)	67,173
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD	181,298			132,436
CASH AND DUE FROM BANKS, END OF PERIOD	$	155,714		$	199,609

(Continued on next page)

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited) (In thousands)

For the Three Months Ended March 31, 2013 and 2012



	Three Months Ended March 31
	2013		2012
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid in cash	$	3,710	$	6,715
Taxes paid in cash	5,431		—
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Loans, net of discounts, specific loss allowances and unearned income, transferred to real estate owned and other repossessed assets	1,341		1,611

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1: BASIS OF PRESENTATION AND CRITICAL ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements include the accounts of Banner Corporation (the Company or Banner), a bank holding company incorporated in the State of Washington and its wholly-owned subsidiaries, Banner Bank and Islanders Bank (the Banks).

These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (SEC). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. Certain reclassifications have been made to the 2012 Consolidated Financial Statements and/or schedules to conform to the 2013 presentation. These reclassifications may have affected certain ratios for the prior periods. The effect of these reclassifications is considered immaterial. All significant intercompany transactions and balances have been eliminated.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements. Various elements of the Company’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, management has identified several accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of Banner’s financial statements. These policies relate to (i) the methodology for the recognition of interest income, (ii) determination of the provision and allowance for loan and lease losses, (iii) the valuation of financial assets and liabilities recorded at fair value, including other-than-temporary impairment (OTTI) losses, (iv) the valuation of intangibles, such as core deposit intangibles and mortgage servicing rights, (v) the valuation of real estate held for sale and (vi) the valuation of or recognition of deferred tax assets and liabilities. These policies and judgments, estimates and assumptions are described in greater detail in subsequent notes to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations (Critical Accounting Policies) in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission (SEC). Management believes that the judgments, estimates and assumptions used in the preparation of the financial statements are appropriate based on the factual circumstances at the time. However, given the sensitivity of the financial statements to these critical accounting policies, the use of other judgments, estimates and assumptions could result in material differences in the Company’s results of operations or financial condition. Further, subsequent changes in economic or market conditions could have a material impact on these estimates and the Company’s financial condition and operating results in future periods.

The information included in this Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC (2012 Form 10-K). Interim results are not necessarily indicative of results for a full year.

Note 2: RECENT DEVELOPMENTS AND SIGNIFICANT EVENTS

Regulatory Actions: On March 19, 2012, the Memorandum of Understanding (MOU) by and between Banner Bank and the FDIC and Washington State Department of Financial Institutions, Division of Banks (originally effective March 29, 2010) was terminated. On April 10, 2012, a similar MOU by and between the Company and the Federal Reserve Bank of San Francisco (originally effective March 23, 2010) was also terminated.

Income Tax Reporting and Accounting:

Amended Federal Income Tax Returns: The Company has years 2008-2012 open under the Statute of Limitations provisions of the Internal Revenue Code of 1986. Refund claims have been filed for 2008 and 2009 for which carry back of NOLs and tax credits has been applied for in 2005-2007. Aside from the refund claims applied for in 2005-2007, those years are otherwise closed under the Statute of Limitations. The amended tax returns, which are under review by the Internal Revenue Service (IRS), could significantly affect the timing for recognition of credit losses within previously filed income tax returns and, if approved, would result in the refund of up to $13.6 million of previously paid taxes from the utilization of net operating loss carryback claims into prior tax years. The outcome of the IRS review is inherently uncertain, and since there can be no assurance of approval of some or all of the tax carryback claims, no asset has been recognized to reflect the possible results of these amendments as of March 31, 2013 and 2012. Accordingly, the Company does not anticipate recognizing any tax benefit until the results of the IRS review have been determined. We expect this review to be completed and the issue resolved during 2013.

Deferred Tax Asset Valuation Allowance: The Company and its wholly-owned subsidiaries file consolidated U.S. federal income tax returns, as well as state income tax returns in Oregon and Idaho. Income taxes are accounted for using the asset and liability method. Under this method a deferred tax asset or liability is determined based on the enacted tax rates which are expected to be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in the Company’s income tax returns. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Under GAAP, a valuation allowance is required to be recognized if it is “more likely than not” that all or a portion of Banner’s deferred tax assets will not be realized. During the quarter ended September 30, 2010, the Company evaluated its net deferred tax asset and determined it was prudent to establish a full valuation allowance against the net asset. At each subsequent quarter-end, the Company has re-analyzed that position and the Company continued to maintain a full valuation allowance through March 31, 2012. During the quarter ended June 30, 2012, management analyzed the Company’s performance and trends over the previous five quarters, focusing on trends in asset quality, loan loss provisioning, capital position, net interest margin, core operating income and net income and the likelihood of continued profitability. Based on this analysis,

management determined that a full valuation allowance was no longer appropriate and reversed nearly all of the valuation allowance at that time. The Company utilized the remaining valuation allowance to offset tax expense in the third and fourth quarters of 2012. The ultimate utilization of a deferred tax valuation allowance and realization of deferred tax assets is dependent upon the existence, or generation, of taxable income in the periods when those temporary differences and net operating loss and credit carryforwards are deductible. See Note 12 of the Selected Notes to the Consolidated Financial Statements for more information.

Stockholder Equity Transactions:

Restricted Stock Grants: On April 24, 2012, shareholders approved the Banner Corporation 2012 Restricted Stock Plan (the Plan). Under the Plan, the Company was authorized to issue up to 300,000 shares of its common stock to provide a means for attracting and retaining highly skilled officers of Banner and its affiliates. Shares granted under the Plan have a minimum vesting period of three years. The Plan shall continue in effect for a term of ten years, after which no further awards may be granted. As of March 31, 2013, the Company had granted 97,995 shares of restricted stock from the 2012 Restricted Stock Plan and 34,257 shares in accordance with the CEO's employment agreement.

Preferred Stock: On March 29, 2012, the Company’s $124 million of senior preferred stock with a liquidation value of $1,000 per share, originally issued to the U.S. Treasury as part of its Capital Purchase Program, was sold by the Treasury as part of its efforts to manage and recover its investments under the Troubled Asset Relief Program (TARP). While the sale of these preferred shares to new owners did not result in any proceeds to the Company and did not change the Company’s capital position or accounting for these securities, it did eliminate restrictions put in place by the Treasury on TARP recipients. The Treasury retained its related warrants to purchase up to $18.6 million in Banner common stock (243,998 shares). Subsequent to March 29, 2012 and by the end of the year ended December 31, 2012, the Company repurchased or redeemed all of its Series A Preferred Stock.

Note 3: ACCOUNTING STANDARDS RECENTLY ADOPTED

Offsetting Assets and Liabilities

In December 2011, the Financial Accounting Standards Board (the "FASB") issued Accounting Standard Update ("ASU") No. 2011-11, "Disclosures About Offsetting Assets and Liabilities." The new disclosure requirements mandate that entities disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial condition as well as instruments and transactions subject to an agreement similar to a master netting arrangement. ASU No. 2011-11 also requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements.

In January 2013, the FASB issued ASU No. 2013-01, "Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities." The provisions of ASU No. 2013-01 limits the scope of the new balance sheet offsetting disclosures to the following financial instruments, to the extent they are offset in the financial statements or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in the statement of financial position: (1) derivative financial instruments; (2) repurchase agreements and reverse repurchase agreements; and (3) securities borrowing and securities lending transactions.

The Company adopted the provisions of ASU No. 2011-11 and ASU No. 2013-01 effective January 1, 2013. As the provisions of ASU No. 2011-11 and ASU No. 2013-01 only impact disclosure requirements related to the offsetting of assets and liabilities and information instruments and transactions eligible for offset in the statement of financial condition, the adoption had no impact on the Company's consolidated statements of operations and financial condition.

Reclassifications Out of Accumulated Other Comprehensive Income

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU No. 2013-02 does not amend any existing requirements for reporting net income or other comprehensive income in the financial statements. ASU No. 2013-02 requires an entity to disaggregate the total change of each component of other comprehensive income (e.g., unrealized gains or losses on available-for-sale investment securities) and separately present reclassification adjustments and current period other comprehensive income. The provisions of ASU No. 2013-02 also require that entities present, either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source (e.g., unrealized gains or losses on available-for-sale investment securities). The Company adopted the provisions of ASU No. 2013-02 effective January 1, 2013. The adoption of this guidance did not have a material effect on the Company's consolidated financial statements.

Note 4: BUSINESS SEGMENTS

The Company is managed by legal entity and not by lines of business. Each of the Banks is a community oriented commercial bank chartered in the State of Washington. The Banks’ primary business is that of a traditional banking institution, gathering deposits and originating loans for portfolio in its respective primary market areas. The Banks offer a wide variety of deposit products to their consumer and commercial customers. Lending activities include the origination of real estate, commercial/agriculture business and consumer loans. Banner Bank is also an active participant in the secondary market, originating residential loans for sale on both a servicing released and servicing retained basis. In addition to interest income on loans and investment securities, the Banks receive other income from deposit service charges, loan servicing fees and from the sale of loans and investments. The performance of the Banks is reviewed by the Company’s executive management and Board of Directors on a monthly basis. All of the executive officers of the Company are members of Banner Bank’s management team.

Generally accepted accounting principles establish standards to report information about operating segments in annual financial statements and require reporting of selected information about operating segments in interim reports to stockholders. The Company has determined that its current business and operations consist of a single business segment.

Note 5: INTEREST-BEARING DEPOSITS AND SECURITIES

The following table sets forth additional detail regarding our interest-bearing deposits and securities at the dates indicated (includes securities—trading, available-for-sale and held-to-maturity, all at carrying value) (in thousands):



	March 31 2013		December 31 2012		March 31 2012
Interest-bearing deposits included in cash and due from banks	$	96,300	$	114,928	$	143,885
U.S. Government and agency obligations	79,959		98,617		238,866
Municipal bonds:
Taxable	43,921		31,480		18,071
Tax exempt	110,062		103,545		90,965
Total municipal bonds	153,983		135,025		109,036
Corporate bonds	47,233		48,519		43,674
Mortgage-backed or related securities:
One- to four-family residential agency guaranteed	89,036		105,770		112,328
One- to four-family residential other	1,282		1,299		1,808
Multifamily agency guaranteed	200,012		188,136		35,156
Multifamily other	10,787		10,659		—
Total mortgage-backed or related securities	301,117		305,864		149,292
Asset-backed securities:
Student Loan Marketing Association (SLMA)	32,239		32,474		—
Other asset-backed securities	18,261		10,042		—
Total asset-backed securities	50,500		42,516		—
Equity securities (excludes FHLB stock)	60		63		407
Total securities	632,852		630,604		541,275
FHLB stock	36,373		36,705		37,371
	$	765,525	$	782,237	$	722,531

Securities—Trading: The amortized cost and estimated fair value of securities—trading at March 31, 2013 and December 31, 2012 are summarized as follows (dollars in thousands):



	March 31, 2013						December 31, 2012
	Amortized Cost		Fair Value		Percent of Total		Amortized Cost		Fair Value		Percent of Total
U.S. Government and agency obligations	$	1,370	$	1,617	2.4	%	$	1,380	$	1,637	2.3	%
Municipal bonds:
Tax exempt	5,245		5,347		7.9		5,590		5,684		8.0
Corporate bonds	49,678		34,520		50.9		57,807		35,741		50.2
Mortgage-backed or related securities:
One- to four-family residential agency guaranteed	14,952		16,166		23.9		16,574		17,911		25.1
Multifamily agency guaranteed	8,934		10,051		14.8		8,974		10,196		14.3
Total mortgage-backed or related securities	23,886		26,217		38.7		25,548		28,107		39.4
Equity securities	14		60		0.1		14		63		0.1
	$	80,193	$	67,761	100.0	%	$	90,339	$	71,232	100.0	%

There were 21 sales of securities—trading totaling $6.1 million with a resulting net gain of $1.1 million during the three months ended March 31, 2013, including $1.0 million which represented recoveries on certain collateralized debt obligations that had previously been written off. There were no sales of securities—trading during the three months ended March 31, 2012. The Company recognized a $409,000 OTTI recovery on securities—trading related to the sale of certain equity securities issued by government sponsored entities during the three months ended March 31, 2013 and no OTTI charges or recoveries during the three months ended March 31, 2012. As of March 31, 2013 and 2012, there were no securities—trading in a nonaccrual status.

The amortized cost and estimated fair value of securities—trading at March 31, 2013 and December 31, 2012, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because some securities may be called or prepaid with or without call or prepayment penalties.



	March 31, 2013				December 31, 2012
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	—	$	—	$	—	$	—
Due after one year through five years	4,390		4,732		4,496		4,867
Due after five years through ten years	13,830		15,021		14,251		15,536
Due after ten years through twenty years	11,882		10,945		12,055		11,346
Due after twenty years	50,077		37,003		59,523		39,420
	80,179		67,701		90,325		71,169
Equity securities	14		60		14		63
	$	80,193	$	67,761	$	90,339	$	71,232

Securities—Available-for-Sale: The amortized cost and estimated fair value of securities—available-for-sale at March 31, 2013 and December 31, 2012 are summarized as follows (dollars in thousands):



	March 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Percent of Total
U.S. Government and agency obligations	$	78,085	$	295	$	(38	)	$	78,342	16.4	%
Municipal bonds:
Taxable	32,613		232		(39		)	32,806		6.9
Tax exempt	29,272		254		(54		)	29,472		6.2
Total municipal bonds	61,885		486		(93		)	62,278		13.1
Corporate bonds	10,629		35		(1		)	10,663		2.2
Mortgage-backed or related securities:
One- to four-family residential agency guaranteed	72,468		954		(552		)	72,870		15.3
One- to four-family residential other	1,195		87		—			1,282		0.3
Multifamily agency guaranteed	188,553		1,691		(283		)	189,961		39.8
Multifamily other	10,677		110		—			10,787		2.3
Total mortgage-backed or related securities	272,893		2,842		(835		)	274,900		57.7
Asset-backed securities:
SLMA	32,083		173		(17		)	32,239		6.8
Other asset-backed securities	18,333		—		(72		)	18,261		3.8
Total asset-backed securities	50,416		173		(89		)	50,500		10.6
	$	473,908	$	3,831	$	(1,056	)	$	476,683	100.0	%

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Percent of Total
U.S. Government and agency obligations	$	96,666	$	367	$	(53	)	$	96,980	20.5	%
Municipal bonds:
Taxable	20,987		233		(67		)	21,153		4.5
Tax exempt	23,575		221		(11		)	23,785		5.0
Total municipal bonds	44,562		454		(78		)	44,938		9.5
Corporate bonds	10,701		37		(9		)	10,729		2.3
Mortgage-backed or related securities:
One- to four-family residential agency guaranteed	87,392		1,051		(584		)	87,859		18.6
One- to four-family residential other	1,223		76		—			1,299		0.3
Multifamily agency guaranteed	176,026		2,140		(226		)	177,940		37.6
Multifamily other	10,700		4		(45		)	10,659		2.2
Total mortgage-backed or related securities	275,341		3,271		(855		)	277,757		58.7
Asset-backed securities:
SLMA	32,309		210		(45		)	32,474		6.9
Other asset-backed securities	10,071		—		(29		)	10,042		2.1
Total asset-backed securities	42,380		210		(74		)	42,516		9.0
	$	469,650	$	4,339	$	(1,069	)	$	472,920	100.0	%

At March 31, 2013 and December 31, 2012, an aging of unrealized losses and fair value of related securities—available-for-sale was as follows (in thousands):



	March 31, 2013
	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government and agency obligations	$	15,964	$	(38	)	$	—	$	—		$	15,964	$	(38	)
Municipal bonds:
Taxable	11,776		(39		)	—		—			11,776		(39		)
Tax exempt	10,574		(53		)	382		(1		)	10,956		(54		)
Total municipal bonds	22,350		(92		)	382		(1		)	22,732		(93		)
Corporate bonds	3,179		(1		)	—		—			3,179		(1		)
Mortgage-backed or related securities:
One- to four-family residential agency guaranteed	23,923		(309		)	10,798		(243		)	34,721		(552		)
Multifamily agency guaranteed	49,007		(283		)	—		—			49,007		(283		)
Total mortgage-backed or related securities	72,930		(592		)	10,798		(243		)	83,728		(835		)
Asset-backed securities:
SLMA	16,451		(17		)	—		—			16,451		(17		)
Other asset-backed securities	18,261		(72		)	—		—			18,261		(72		)
Total asset-backed securities	34,712		(89		)	—		—			34,712		(89		)
	$	149,135	$	(812	)	$	11,180	$	(244	)	$	160,315	$	(1,056	)

	December 31, 2012
	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government and agency obligations	$	22,955	$	(53	)	$	—	$	—		$	22,955	$	(53	)
Municipal bonds:
Taxable	11,009		(67		)	—		—			11,009		(67		)
Tax exempt	4,619		(11		)	—		—			4,619		(11		)
Total municipal bonds	15,628		(78		)	—		—			15,628		(78		)
Corporate bonds	6,670		(9		)	—		—			6,670		(9		)
Mortgage-backed or related securities:
One- to four-family residential agency guaranteed	32,459		(503		)	5,746		(81		)	38,205		(584		)
Multifamily agency guaranteed	32,170		(226		)	—		—			32,170		(226		)
Multifamily other	7,279		(45		)	—		—			7,279		(45		)
Total mortgage-backed or related securities	71,908		(774		)	5,746		(81		)	77,654		(855		)
Asset-backed securities:
SLMA	9,674		(45		)	—		—			9,674		(45		)
Other asset-backed securities	10,042		(29		)	—		—			10,042		(29		)
Total asset-backed securities	19,716		(74		)	—		—			19,716		(74		)
	$	136,877	$	(988	)	$	5,746	$	(81	)	$	142,623	$	(1,069	)

Proceeds from the sale of four securities—available-for-sale during the three months ended March 31, 2013 were $13.9 million with a resulting loss of $117,000. There were no sales of securities—available-for-sale during the three months ended March 31, 2012. At March 31, 2013, there were 59 securities—available for sale with unrealized losses, compared to 52 securities at December 31, 2012. Management does not believe that any individual unrealized loss as of March 31, 2013 represents OTTI. The decline in fair market values of these securities was generally due to changes in interest rates and changes in market-desired spreads subsequent to their purchase.

The amortized cost and estimated fair value of securities—available-for-sale at March 31, 2013 and December 31, 2012, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because some securities may be called or prepaid with or without call or prepayment penalties.



	March 31, 2013				December 31, 2012
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	9,539	$	9,576	$	16,369	$	16,393
Due after one year through five years	250,405		251,532		205,913		207,147
Due after five years through ten years	115,019		115,980		132,372		133,407
Due after ten years through twenty years	39,877		39,892		43,386		43,414
Due after twenty years	59,068		59,703		71,610		72,559
	$	473,908	$	476,683	$	469,650	$	472,920

Securities—Held-to-Maturity: The amortized cost and estimated fair value of securities—held-to-maturity at March 31, 2013 and December 31, 2012 are summarized as follows (dollars in thousands):



	March 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Percent of Total
Municipal bonds:
Taxable	$	11,115	$	461	$	(18	)	$	11,558	12.3	%
Tax exempt	75,243		5,008		(74		)	80,177		85.5
Total municipal bonds	86,358		5,469		(92		)	91,735		97.8
Corporate bonds	2,050		—		—			2,050		2.2
	$	88,408	$	5,469	$	(92	)	$	93,785	100.0	%

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Percent of Total
Municipal bonds:
Taxable	$	10,326	$	436	$	(157	)	$	10,605	11.5	%
Tax exempt	74,076		5,757		(30		)	79,803		86.3
Total municipal bonds	84,402		6,193		(187		)	90,408		97.8
Corporate bonds	2,050		—		—			2,050		2.2
	$	86,452	$	6,193	$	(187	)	$	92,458	100.0	%

At March 31, 2013 and December 31, 2012, an age analysis of unrealized losses and fair value of related securities—held-to-maturity was as follows (in thousands):



	March 31, 2013
	Less Than 12 Months					12 Months or More				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Municipal bonds:
Taxable	$	3,313	$	(18	)	$	—	$	—	$	3,313	$	(18	)
Tax exempt	5,354		(74		)	—		—		5,354		(74		)
	$	8,667	$	(92	)	$	—	$	—	$	8,667	$	(92	)

	December 31, 2012
	Less Than 12 Months					12 Months or More				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Municipal bonds:
Taxable	$	4,137	$	(157	)	$	—	$	—	$	4,137	$	(157	)
Tax exempt	910		(30		)	—		—		910		(30		)
	$	5,047	$	(187	)	$	—	$	—	$	5,047	$	(187	)

There were no sales of securities—held-to-maturity and the Company recognized no OTTI charges on securities—held-to-maturity during the three months ended March 31, 2013 and 2012. As of March 31, 2013, there were no securities—held-to-maturity in a nonaccrual status. There were seven securities—held-to-maturity with unrealized losses at March 31, 2013, compared to five securities at December 31, 2012. Management does not believe that any individual unrealized loss as of March 31, 2013 represents OTTI. The decline in fair market value of these securities was generally due to changes in interest rates and changes in market-desired spreads subsequent to their purchase.

The amortized cost and estimated fair value of securities—held-to-maturity at March 31, 2013 and December 31, 2012, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because some securities may be called or prepaid with or without call or prepayment penalties.



	March 31, 2013				December 31, 2012
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	3,322	$	3,383	$	3,323	$	3,410
Due after one year through five years	13,634		14,261		13,641		14,335
Due after five years through ten years	13,230		13,475		13,295		13,452
Due after ten years through twenty years	55,097		59,403		53,031		57,868
Due after twenty years	3,125		3,263		3,162		3,393
	$	88,408	$	93,785	$	86,452	$	92,458

Pledged Securities: The following table presents, as of March 31, 2013, investment securities which were pledged to secure borrowings, public deposits or other obligations as permitted or required by law (in thousands):



	Amortized Cost		Fair Value
Purpose or beneficiary:
State and local governments public deposits	$	116,343	$	121,720
Interest rate swap counterparties	10,967		11,152
Retail repurchase agreements	104,594		106,562
Total pledged securities	$	231,904	$	239,434

The carrying value of investment securities pledged to secure borrowings as of March 31, 2013 was $235 million.

Note 6: FHLB STOCK

The Banks’ investments in Federal Home Loan Bank of Seattle stock are carried at par value ($100 per share), which reasonably approximates its fair value. As members of the FHLB system, the Banks are required to maintain a minimum level of investment in FHLB stock based on specific percentages of their outstanding FHLB advances. For the three months ended March 31, 2013 and 2012, the Banks did not receive any dividend income on FHLB stock. At March 31, 2013 and December 31, 2012, respectively, the Company had recorded $36.4 million and $36.7 million in FHLB stock. This stock is generally viewed as a long-term investment and is carried at par. 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.

Management periodically evaluates FHLB stock for impairment. Management’s determination of whether these investments are impaired is based on its assessment of the ultimate recoverability of cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of cost is influenced by criteria such as (1) the significance of any decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, (3) the impact of legislative and regulatory changes on institutions and, accordingly, the customer base of the FHLB, and (4) the liquidity position of the FHLB.

The FHLB of Seattle announced that it had a risk-based capital deficiency under the regulations of the Federal Housing Finance Agency (the FHFA), its primary regulator, as of December 31, 2008, and that it would suspend future dividends and the repurchase and redemption of outstanding common stock. The FHLB of Seattle announced on September 7, 2012 that the FHFA now considers the FHLB of Seattle to be adequately capitalized. Dividends on, or repurchases of, the FHLB of Seattle stock continue to require consent of the FHFA. The FHFA subsequently approved the repurchase of portions of FHLB of Seattle stock, and as of March 31, 2013, the FHLB had repurchased $998,500 of the Banks' stock, including $332,600 during the quarter ending March 31, 2013. The Company will continue to monitor the financial condition of the FHLB as it relates to, among other things, the recoverability of Banner's investment. Based on the above, the Company has determined there is not any impairment on the FHLB stock investment as of March 31, 2013.

Note 7: LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES

We originate residential mortgage loans for both portfolio investment and sale in the secondary market. At the time of origination, mortgage loans are designated as held for sale or held for investment. Loans held for sale are stated at the lower of cost or estimated market value determined on an aggregate basis. Net unrealized losses on loans held for sale are recognized through a valuation allowance by charges to income. The Banks also originate construction, land and land development, commercial and multifamily real estate, commercial business, agricultural business and consumer loans for portfolio investment. Loans receivable not designated as held for sale are recorded at the principal amount outstanding, net of allowance for loan losses, deferred fees, discounts and premiums. Premiums, discounts and deferred loan fees are amortized to maturity using the level-yield methodology.

Interest is accrued as earned unless management doubts the collectability of the loan or the unpaid interest. Interest accruals are generally discontinued when loans become 90 days past due for scheduled interest payments. All previously accrued but uncollected interest is deducted from interest income upon transfer to nonaccrual status. Future collection of interest is included in interest income based upon an assessment of the likelihood that the loans will be repaid or recovered. A loan may be put on nonaccrual status sooner than this policy would dictate if, in management’s judgment, the loan may be uncollectable. Such interest is then recognized as income only if it is ultimately collected.

Loans receivable, including loans held for sale, at March 31, 2013, December 31, 2012 and March 31, 2012 are summarized as follows (dollars in thousands):



	March 31, 2013					December 31, 2012					March 31, 2012
	Amount			Percent of Total		Amount			Percent of Total		Amount			Percent of Total
Commercial real estate:
Owner-occupied	$	497,442		15.3	%	$	489,581		15.1	%	$	468,318		14.5	%
Investment properties	602,761			18.6		583,641			18.0		612,617			19.0
Multifamily real estate	134,290			4.1		137,504			4.3		132,306			4.1
Commercial construction	34,762			1.1		30,229			0.9		40,276			1.2
Multifamily construction	34,147			1.1		22,581			0.7		20,654			0.6
One- to four-family construction	171,876			5.3		160,815			5.0		148,717			4.6
Land and land development:
Residential	78,446			2.4		77,010			2.4		89,329			2.7
Commercial	12,477			0.4		13,982			0.4		12,044			0.4
Commercial business	619,478			19.1		618,049			19.1		609,497			18.9
Agricultural business, including secured by farmland	210,225			6.5		230,031			7.1		188,955			5.9
One- to four-family real estate	566,730			17.5		581,670			18.0		619,511			19.2
Consumer:
Consumer	112,382			3.5		120,498			3.7		106,978			3.3
Consumer secured by one- to four-family	165,305			5.1		170,123			5.3		180,460			5.6
Total loans outstanding	3,240,321			100.0	%	3,235,714			100.0	%	3,229,662			100.0	%
Less allowance for loan losses	(77,128		)			(77,491		)			(81,544		)
Net loans	$	3,163,193				$	3,158,223				$	3,148,118

Loan amounts are net of unearned loan fees and unamortized costs of $9 million as of March 31, 2013 and December 31, 2012 and $10 million as of March 31, 2012.

The Company’s total loans by geographic concentration at March 31, 2013 were as follows (dollars in thousands):

Washington

Oregon

Idaho

Other

Total

Commercial real estate:

Owner-occupied

376,330

58,671