DEFM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant  x                             Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

¨      

Preliminary Proxy Statement
¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x Definitive Proxy Statement
¨ Definitive Additional Materials
¨ Soliciting Material Pursuant to §240.14a-12

BANNER CORPORATION

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

¨      

No fee required.

¨      

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1)

Title of each class of securities to which transaction applies:

 

 

(2)

Aggregate number of securities to which transaction applies:

 

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

(4)

Proposed maximum aggregate value of transaction:

 

 

(5)

Total fee paid:

 

 

x      

Fee paid previously with preliminary materials.

¨      

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
(1)

Amount Previously Paid:

 

     

(2)

Form, Schedule or Registration Statement No.:

 

     

(3)

Filing Party:

 

     

(4)

Date Filed:

 

     

 

 

 


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BANNER CORPORATION

10 S. FIRST AVENUE

WALLA WALLA, WASHINGTON 99362

(509) 527-3636

February 17, 2015

Dear Shareholders:

MERGER PROPOSED—YOUR VOTE IS IMPORTANT

We cordially invite you to attend a special meeting of shareholders of Banner Corporation to be held at 10 S. First Avenue, Walla Walla, Washington, on Tuesday, March 17, 2015. The meeting will begin at 10:00 a.m. local time.

On November 5, 2014, we entered into an Agreement and Plan of Merger, which we refer to as the merger agreement, with SKBHC Holdings LLC and Starbuck Bancshares, Inc. whereby Starbuck Bancshares, Inc. will merge with and into a subsidiary of Banner. Immediately following the merger, Starbuck’s wholly owned subsidiary bank, AmericanWest Bank, a Washington state-chartered commercial bank, will merge with and into Banner’s wholly owned subsidiary bank, Banner Bank, a Washington state-chartered commercial bank. Pursuant to the merger agreement, we will acquire all the outstanding shares of Starbuck for $130 million in cash and an aggregate of 13,230,000 shares of Banner common stock and a new class of Banner non-voting common stock to be approved by the Banner shareholders, which we refer to as the stock consideration. The stock consideration to be issued in connection with the merger will represent an ownership in Banner of approximately 38.77% immediately following the effective time of the merger, based on the number of shares of Banner common stock outstanding as of February 13, 2015 and after giving effect to the merger and including the Banner common stock to be issued upon the completion of Banner’s pending acquisition of Siuslaw Financial Group, Inc. As of November 4, 2014, based on the closing price of Banner common stock of $43.20, the transaction was valued at approximately $702 million, and based on the closing price of the Banner common stock as of February 13, 2015, the transaction is valued at approximately $724 million.

At the special meeting, we will ask you to:

 

    approve an amendment to Banner’s articles of incorporation creating a new class of Banner non-voting common stock of 5,000,000 authorized shares;

 

    approve the issuance of an aggregate of 13,230,000 shares of Banner common stock and Banner non-voting common stock in accordance with the Agreement and Plan of Merger, dated as of November 5, 2014, by and among SKBHC Holdings LLC, Starbuck Bancshares, Inc. and Banner Corporation; and

 

    approve adjournments or postponements of the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting in favor of the foregoing proposals.

This proxy statement provides information about the merger and Starbuck that holders of Banner common stock should know when they vote. We urge you to read this entire proxy statement carefully.

The Banner board of directors unanimously recommends that holders of common stock vote “for” each of the proposals. While each of the proposals is being voted upon separately, each of proposals 1 and 2 relate to the merger and each of proposals 1 and 2 must be approved in order for the merger to be consummated. The amendment to Banner’s articles of incorporation will go into effect if approved at the special meeting even if the merger is not consummated.

Your vote is very important, regardless of the number of shares you own. Whether or not you plan to attend the special meeting, please submit a proxy as soon as possible to make sure your shares are represented at the special meeting. Please take the time to submit your proxy by following the instructions presented in this proxy statement.

I strongly support this combination of our companies and join with our board of directors in recommending that you vote in favor of each of the proposals described in this proxy statement.

 

LOGO

Mark J. Grescovich

President and Chief Executive Officer

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the merger, passed upon the merits or fairness of the merger agreement or the transactions contemplated thereby, including the proposed merger, or passed upon the adequacy or accuracy of the information contained in this document. Any representation to the contrary is a criminal offense.

The accompanying proxy statement is dated February 17, 2015, and is first being mailed to Banner shareholders on or about February 17, 2015.


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BANNER CORPORATION

10 S. FIRST AVENUE

WALLA WALLA, WASHINGTON 99362

(509) 527-3636

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

A special meeting of shareholders of Banner will be held on Tuesday, March 17, 2015 at 10:00 a.m. local time at 10 S. First Avenue, Walla Walla, Washington for the following matters:

 

    Proposal 1: To approve an amendment to Banner’s articles of incorporation creating a new class of Banner non-voting common stock of 5,000,000 authorized shares;

 

    Proposal 2: To approve the issuance of an aggregate of 13,230,000 shares of Banner common stock and Banner non-voting common stock in accordance with the Agreement and Plan of Merger, dated as of November 5, 2014, by and among SKBHC Holdings LLC, Starbuck Bancshares, Inc. and Banner Corporation; and

 

    Proposal 3: To approve adjournments or postponements of the special meeting if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting in favor of the foregoing proposals.

The Banner board of directors unanimously recommends that you vote FOR all of the proposals described above.

Only shareholders of record at the close of business on February 13, 2015 are entitled to receive notice of and to vote at the special meeting and any adjournment or postponement of the special meeting. A list of shareholders entitled to vote will be available for examination at the meeting by any shareholder for any purpose germane to the meeting. The list will also be available for the same purpose beginning ten days prior to the meeting and continuing through the meeting at our principal executive office at 10 S. First Avenue, Walla Walla, Washington 99362.

Your vote is important, regardless of the number of shares you own. Whether or not you plan to attend the special meeting, please submit a proxy as soon as possible to make sure your shares are represented at the special meeting. Please take the time to submit your proxy by following the instructions presented in this proxy statement.

By Order of the Board of Directors

 

LOGO

Albert H. Marshall,

Secretary

Walla Walla, Washington,

February 17, 2015


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SUMMARY TERM SHEET

This summary term sheet highlights selected information contained in this proxy statement and may not contain all of the information that is important to you. You are urged to read the entire proxy statement, along with the annexes, carefully.

 

    Merger and Merger Agreement—On November 5, 2014, we entered into an Agreement and Plan of Merger, which, as may be amended and together with the joinder agreement described below, we refer to as the merger agreement, with SKBHC Holdings LLC, which we refer to as Holdings, and Starbuck Bancshares, Inc., which we refer to as Starbuck, whereby Starbuck will merge with and into a subsidiary of Banner Corporation, with the Banner subsidiary surviving, which we refer to as the merger. As of November 4, 2014, based on the closing price of Banner common stock of $43.20, the transaction was valued at approximately $702 million, and based on the closing price of the Banner common stock as of February 13, 2015, the transaction is valued at approximately $724 million. Subsequent to signing the merger agreement, on December 17, 2014, Elements Merger Sub, LLC, a wholly owned subsidiary of Banner, which we refer to as merger sub, Banner, Holdings and Starbuck entered into a joinder agreement, which we refer to as the joinder agreement, pursuant to which merger sub agreed to be bound by the merger agreement and will be the Banner subsidiary into which Starbuck will merge at the effective time of the merger. Immediately following the merger, Starbuck’s wholly owned subsidiary bank, AmericanWest Bank, a Washington state-chartered commercial bank, will merge with and into Banner Corporation’s wholly owned subsidiary bank, Banner Bank, a Washington state-chartered commercial bank, with Banner Bank surviving, which we refer to as the bank merger. For a description of the merger, bank merger, joinder agreement and the merger agreement see the sections entitled “The Merger” and “The Agreement and Plan of Merger” beginning on pages 59 and 78 respectively.

In connection with Banner’s acquisition of all of the outstanding shares of common stock of Starbuck, pursuant to the merger agreement, Banner will:

 

    pay $130 million in cash; and

 

    issue an aggregate of 13,230,000 shares of Banner common stock and Banner non-voting common stock, which we refer to as the stock consideration, and together with the cash consideration, we refer to as the merger consideration.

At the effective time of the merger, we will deliver the merger consideration to Holdings, who will distribute the merger consideration to the holders of outstanding equity interests of Holdings, who we refer to as the Starbuck holders, in accordance with the terms of the Holdings organizational documents. The stock consideration will represent an ownership in Banner of approximately 38.77% immediately following the effective time of the merger, based on the number of shares of Banner common stock outstanding as of February 13, 2015 and after giving effect to the merger and including the Banner common stock to be issued upon the completion of Banner’s pending acquisition of Siuslaw.

 

   

Investor Letter Agreements—Also on November 5, 2014, Banner entered into letter agreements, which we refer to as the investor letter agreements, with investment funds affiliated with each of Oaktree Principal Fund V (Delaware), L.P. and certain of its respective affiliates, which we refer to collectively as Oaktree, Friedman Fleischer & Lowe Capital Partners III, L.P. and certain of its respective affiliates, which we refer to collectively as Friedman Fleischer & Lowe, and GS Capital Partners VI Fund, L.P. and certain of its respective affiliates, which we refer to collectively as GS Capital (each of which we also refer to as a Starbuck investor), who in the aggregate own a majority of the outstanding equity interests of Holdings. Based on certain assumptions, Banner expects that the shares included in the merger consideration issued to each Starbuck investor will represent approximately 7.79% of the number of outstanding shares of Banner common stock and Banner non-voting common stock, based on the number of shares of Banner stock outstanding as of February 13, 2015 and after giving effect to the merger and including the Banner common stock to be issued upon


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the completion of Banner’s pending acquisition of Siuslaw Financial Group, Inc., which we refer to as Siuslaw. For a description of the investor letter agreements see the section entitled “Investor Letter Agreements” beginning on page 91.

 

    Shareholder Vote—You, as a holder of Banner common stock, are being asked to consider and vote upon certain proposals in connection with the merger. You are being asked to vote on a total of three proposals, two of which are a condition to the completion of the merger. A “FOR vote on these proposals will approve (i) an amendment to Banner’s articles of incorporation, which we refer to as the amendment to the articles of incorporation, to create a new class of non-voting common stock, par value $0.01, which we refer to as the Banner non-voting common stock, (ii) the issuance of an aggregate of 13,230,000 shares of Banner common stock and Banner non-voting common stock in accordance with the merger agreement and (iii) any necessary adjournments and postponements of the special meeting in order to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting in favor of the proposals. For a description of the proposals and the votes necessary for the proposals to be approved see the section entitled “Information about the Special Meeting and Voting” beginning on page 51.

 

    Effect of the Merger on Banner Shareholders—Because Starbuck is merging with and into merger sub, a wholly owned subsidiary of Banner, the shares of Banner common stock held by Banner shareholders will not be changed by the merger and Banner shareholders will continue to hold their existing shares following completion of the merger. Upon completion of the merger, current holders of Banner common stock will own approximately 57.36% and the Starbuck holders will own approximately 38.77% of Banner’s outstanding common stock and Banner non-voting common stock, based on the number of shares of Banner common stock outstanding as of February 13, 2015 and after giving effect to the merger and including the Banner common stock to be issued upon the completion of Banner’s pending acquisition of Siuslaw. See the section entitled “The Agreement and Plan of Merger” beginning on page 78.

 

    Reasons for Merger—In evaluating the merger, the Banner board of directors consulted with senior management, legal and financial advisers and considered certain factors to reach its decision to approve and adopt the merger agreement. Among other factors considered by the Banner board of directors, the Banner board of directors considered that the merger will establish the combined company as the twelfth largest publicly owned bank headquartered in the Western United States, will provide entry into attractive markets with compelling demographic trends, will combine our complementary lending strategies and lower the combined company’s loan / deposit ratio, given AmericanWest Bank’s low-cost core deposit base, and will provide Banner Bank with additional net interest margin protection. See the section entitled “The Merger—Reasons for Merger; Recommendation of the Banner Board of Directors” beginning on page 61.

 

    Conditions to Completion of Merger—Completion of the merger is subject to the approval of the amendment to the articles of association and the issuance of the stock consideration at the special meeting, as well as other conditions, including the accuracy of certain representations and warranties made by each party to the merger agreement, the receipt of required regulatory approvals and expiration or termination of any applicable waiting periods, certain amendments to the bylaws of Banner Bank, the receipt of an executed copy of certain consents by Holdings, and that the stock consideration shall have been authorized for listing on the Nasdaq Global Select Market, which we refer to as NASDAQ, among others. See the section entitled “The Agreement and Plan of Merger—Conditions to the Merger” beginning on page 88.

 

    Risk Factors—In deciding how to vote your shares of common stock on the matters described in this proxy statement, you should carefully consider the risks related to the merger. These risks include, among other things, risks related to the uncertainty that Banner will be able to realize the anticipated benefits and cost savings of the merger and integrate successfully its existing business with the Starbuck business. See the section entitled “Risk Factors” beginning on page 16.

 

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TABLE OF CONTENTS

 

     Page  

SUMMARY TERM SHEET

     i   

QUESTIONS AND ANSWERS ABOUT THE MERGER AND SPECIAL MEETING OF SHAREHOLDERS

     1   

SUMMARY

     7   

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     14   

RISK FACTORS

     16   

PRICE RANGE OF BANNER COMMON STOCK AND RELATED SHAREHOLDER MATTERS

     21   

SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION OF BANNER

     22   

SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION OF STARBUCK

     25   

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     27   

COMPARATIVE UNAUDITED PRO FORMA PER SHARE DATA

     28   

UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL INFORMATION

     29   

INFORMATION ABOUT THE SPECIAL MEETING AND VOTING

     51   

PROPOSALS TO BE CONSIDERED AND VOTED UPON BY HOLDERS OF BANNER STOCK AT THE SPECIAL MEETING

     54   

THE PARTIES TO THE MERGER

     57   

THE MERGER

     59   

THE AGREEMENT AND PLAN OF MERGER

     78   

INVESTOR LETTER AGREEMENTS

     91   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—SKBHC HOLDINGS LLC AND SUBSIDIARIES

     94   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     126   

SHAREHOLDER PROPOSALS

     129   

WHERE YOU CAN FIND MORE INFORMATION

     129   

ANNEX A—AMENDMENT TO ARTICLES OF INCORPORATION

     A-1   

ANNEX B—AGREEMENT AND PLAN OF MERGER

     B-1   

ANNEX C—JOINDER AGREEMENT

     C-1   

ANNEX D—INVESTOR LETTER AGREEMENTS

     D-1   

ANNEX E—OPINION OF SANDLER O’NEILL & PARTNERS, L.P

     E-1   

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER

AND SPECIAL MEETING OF SHAREHOLDERS

The following questions and answers are intended to address briefly some commonly asked questions regarding the special meeting and the merger. These questions and answers may not address all of the information that may be important to you. Please refer to the more detailed information contained elsewhere in this proxy statement and the annexes to this proxy statement.

 

Q: What are the merger agreement and the merger?

 

A. On November 5, 2014, we entered into the merger agreement with Holdings and Starbuck, pursuant to which Starbuck will merge with and into merger sub, with merger sub as the surviving company in the merger. Immediately following the merger, Starbuck’s wholly owned subsidiary bank, AmericanWest Bank, will merge with and into Banner’s wholly owned subsidiary bank, Banner Bank.

 

Q: Why am I receiving this proxy statement?

 

A. You are receiving this proxy statement because you have been identified as a holder of Banner common stock. This proxy statement is being used to solicit proxies on behalf of the Banner board of directors for the special meeting. This proxy statement contains important information about the merger and related transactions and the special meeting, and you should read it carefully.

 

Q: What am I being asked to vote upon?

 

A. You are being asked to consider and vote upon the following proposals:

Proposal 1—To approve an amendment to Banner’s articles of incorporation creating a new class of Banner non-voting common stock of 5,000,000 authorized shares;

Proposal 2—To approve the issuance of an aggregate of 13,230,000 shares of Banner common stock and Banner non-voting common stock in accordance with the merger agreement; and

Proposal 3—To approve adjournments or postponements of the special meeting if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting in favor of the foregoing proposals.

 

Q: What is required to complete the merger?

 

A. To complete the merger, Banner shareholders must approve proposals 1 and 2.

In addition to obtaining approval of these proposals, Banner and Holdings must satisfy or waive all other closing conditions set forth in the merger agreement. For a more complete discussion of the conditions to the closing, see the section entitled “The Agreement and Plan of Merger—Conditions to the Merger” on page 88.

 

Q: Why do I need to approve the issuance of the Banner common stock?

 

A. The issuance of the common stock in connection with the merger requires the approval of holders of Banner under NASDAQ Stock Market rules because the number of shares of common stock to be issued in the merger is in excess of 20% of the number of shares of Banner common stock currently outstanding.

 

Q: What happens to existing shares of Banner common stock in the merger?

 

A. Because Starbuck is merging into merger sub, a wholly owned subsidiary of Banner, the shares of Banner common stock held by Banner shareholders will not be changed by the merger and Banner shareholders will continue to hold their existing shares following completion of the merger.


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Q: What will the Starbuck shareholders be entitled to receive pursuant to the merger?

 

A. Holdings, as the sole shareholder of Starbuck, will be entitled to receive $130 million in cash and an aggregate of 13,230,000 shares of newly issued Banner common stock and newly issued Banner non-voting common stock. The exact number of Banner non-voting common shares will be determined shortly before consummation of the merger, but in no event will we issue more than 3 million shares of Banner non-voting common stock pursuant to the merger. Following the merger, the merger consideration will be distributed to the Starbuck holders in accordance with the terms of the Holdings organizational documents, which we refer to as the distribution.

 

Q: Upon completion of the merger, will Starbuck holders have the ability to exert influence over Banner?

 

A. After completion of the merger and the distribution, the Starbuck holders in the aggregate will own approximately 38.77% of Banner common stock and Banner non-voting common stock, based on the number of shares of Banner common stock outstanding as of February 13, 2015 and after giving effect to the merger and including the Banner common stock to be issued upon the completion of Banner’s pending acquisition of Siuslaw. However, no Starbuck holder will have more than 8.00% of the outstanding voting shares of the combined company. The Starbuck investors will each have the right to appoint one director to the Banner board of directors, subject to maintaining continued ownership of at least 5% of the outstanding shares of Banner common stock and Banner non-voting common stock on an as-converted basis (calculated to exclude the dilutive impact of any primary issuance of shares by Banner).

As a result of the merger, each of the Starbuck investors would have the ability to exert some influence over Banner’s management policies and affairs, but none of them would control the outcome of any matter submitted to Banner’s shareholders. See “Investor Letter Agreements” beginning on page 91.

 

Q: Why does Banner need to amend its articles of incorporation to issue the Banner non-voting common stock?

 

A. The amendment to the articles of incorporation authorizing the creation of the Banner non-voting common stock is a condition to the closing of the merger and is necessary for Banner to issue the Banner non-voting common stock as part of the consideration for the merger. Certain of the Starbuck holders have requested a portion of the stock consideration in non-voting common stock, to limit their ownership of Banner common stock to no more than 4.9% of the outstanding Banner common stock. The Banner non-voting common stock to be issued to Starbuck holders in the merger in no event shall exceed 3,000,000 shares of Banner non-voting common stock.

Banner’s articles of incorporation currently does not currently authorize the issuance of Banner non-voting common stock. Authorizing the creation of the Banner non-voting common stock is required to enable Banner to have sufficient shares of Banner non-voting common stock authorized for issuance in the merger.

At present, the Banner board of directors has no plans to issue the additional shares of Banner non-voting common stock authorized by the amendment to the articles of incorporation. However, it is possible that some of these additional shares could be used in the future for various other purposes without further shareholder approval, except as such approval may be required in particular cases by Banner’s articles of incorporation or bylaws, applicable law or the rules of any stock exchange or other quotation system on which our securities may then be listed. These purposes may include raising capital, providing equity incentives to employees, officers or directors, establishing strategic relationships with other companies and expanding our business or product lines through the acquisition of other businesses or products.

 

Q: When do you expect the merger to be completed?

 

A.

We anticipate that the closing of the merger will occur in the second quarter of 2015, assuming the requisite shareholder approvals at the special meeting are received and all regulatory approvals are received, and assuming the other conditions to closing of the merger are satisfied or waived. The merger will become effective as set forth in the articles of merger to be filed with the Secretary of State of the State of

 

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  Washington and the Secretary of State of the State of Minnesota on the closing date of the merger. For more information, see “The Agreement and Plan of Merger—Expected Timing of the Merger” and “The Agreement and Plan of Merger—Conditions to the Merger” on pages 79 and 88 respectively.

 

Q: Am I entitled to appraisal rights?

 

A. Holders of Banner common stock are not entitled to appraisal rights in connection with the merger under the Washington Business Corporation Act of the State of Washington, which we refer to as the WBCA, or Banner’s articles of incorporation.

 

Q: Who may vote at the special meeting?

 

A. Holders of record of common stock at the close of business on February 13, 2015, which we refer to as the record date, are entitled to notice of and to vote at the special meeting. As of the record date, 19,572,141 shares of Banner common stock were issued and outstanding. A list of shareholders entitled to vote will be available for examination at the meeting by any shareholder for any purpose germane to the meeting. The list will also be available for the same purpose beginning ten days prior to the meeting and continuing through the meeting at our principal executive office at 10 S. First Avenue, Walla Walla, Washington 99362.

 

Q: How many votes do Banner shareholders have?

 

A. Each holder of record of Banner common stock as of the close of business on the record date will be entitled to one vote, in person or by proxy, for each share of Banner common stock held in his, her or its name on the books of Banner on that date.

As of the record date, directors and executive officers of Banner and their affiliates as a group beneficially owned and were entitled to vote approximately 450,512 shares of Banner common stock, representing approximately 2.30% of the shares of Banner common stock issued and outstanding as of February 13, 2015. To Banner’s knowledge, all of the directors and executive officers of Banner who are entitled to vote at the special meeting intend to vote their shares of Banner common stock in favor of each of the proposals, although such persons have not entered into agreements obligating them to do so.

 

Q: What shareholder approvals are required for Banner?

 

A. Proposal 1 requires the affirmative vote of holders of at least a majority of our outstanding common stock as of the record date of the special meeting. As of the record date, there were 19,572,141 shares of Banner common stock outstanding and therefore 9,786,071 votes are required for proposal 1 to be approved by Banner shareholders. Abstentions and broker non-votes will have the same effect as a vote against the proposal.

Proposal 2 requires the affirmative vote of a majority of those shares voting on the proposal. Any shareholder represented in person or by proxy at the meeting and entitled to vote on the subject matter may elect to abstain from voting on this proposal. If so, such abstention will not be counted as a vote cast on the proposal and, therefore, will have no effect on the outcome of the vote on the proposal. Provided there is a quorum of shareholders present in person or by proxy, shareholders not attending the meeting, in person or by proxy, will also have no effect on the outcome of this proposal.

Proposal 3 requires the affirmative vote of a majority of those shares voting on the proposal to authorize the Banner board of directors to adjourn, postpone or continue the special meeting, should such authorization be necessary for an adjournment, postponement or continuation. Any shareholder represented in person or by proxy at the meeting and entitled to vote on the subject matter may elect to abstain from voting on this proposal. If so, such abstention will not be counted as a vote cast on the proposal and, therefore, will have no effect on the outcome of the vote on the proposal. Provided there is a quorum of shareholders present in person or by proxy, shareholders not attending the meeting, in person or by proxy, will also have no effect on the outcome of this proposal.

 

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Q: Why did I receive more than one proxy card?

 

A. You will receive multiple proxy cards if you hold your shares in multiple accounts or in different ways (e.g., custodial accounts, trusts, joint tenancy). If your shares are held by a broker (i.e., in “street name”), you will receive your proxy card or other voting information from your broker, and you will need to return your proxy card or cards to your broker.

 

Q: What constitutes a quorum?

 

A. In order to conduct business at the special meeting, a quorum must be present. The holders of a majority of the votes entitled to be cast at the special meeting, present in person or represented by proxy, constitute a quorum under Banner’s bylaws. Banner will treat shares of Banner’s common stock represented by a properly signed and returned proxy, including abstentions and broker non-votes, as present at the Banner special meeting for the purposes of determining the existence of a quorum.

 

Q: What if a quorum is not present at the meeting?

 

A. If a quorum is not present at the scheduled time of the meeting, a majority of the shareholders present or represented by proxy may adjourn the meeting until a quorum is present. The time and place of the adjourned meeting will be announced at the time the adjournment is taken, and no other notice will be given unless the meeting is adjourned for 120 days or more. An adjournment will have no effect on the business that may be conducted at the meeting.

 

Q: How are votes counted?

 

A. For all proposals, you may vote “for,” “against” or “abstain.” If you “abstain,” it has the same effect as a vote “against” proposal 1. Abstentions will have no effect on proposal 2 or proposal 3 but will reduce the number of votes required to approve such proposals. With respect to any other matter that properly comes before the meeting, the proxy holders will vote as recommended by the Banner board of directors or, if no recommendation is given, in their own discretion.

 

Q: What are the Board’s recommendations on how I should vote my shares?

 

A. The Banner board of directors recommends that you vote your shares “FOR” each of the proposals.

While each of the proposals is being voted upon separately, each of proposals 1 and 2 relate to the merger and related matters and each of proposals 1 and 2 must be approved in order for the merger to be consummated. The amendment to the articles of incorporation will go into effect if approved at the special meeting even if the merger is not consummated.

 

Q: When and where is the special meeting?

 

A. The special meeting of shareholders will be held on Tuesday, March 17, 2015 at 10:00 a.m. local time at 10 S. First Avenue, Walla Walla, Washington.

 

Q: What is the difference between a “shareholder of record” and a “street name” holder?

 

A. These terms describe how shares are held. If your shares are registered directly in your name with Computershare Trust Company, N.A., our transfer agent, you are a “shareholder of record.” If your shares are held in the name of a brokerage, bank, trust or other nominee as a custodian, you are a “street name” holder.

 

Q: What do I need to do now and how do I vote?

 

A. We encourage you to read this proxy statement carefully, including its annexes, and then vote your proxy for the relevant proposals.

 

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If you are a “shareholder of record,” you have several choices. You can vote your proxy:

 

    by mailing the enclosed proxy card using the enclosed envelope;

 

    over the telephone; or

 

    via the Internet.

Please refer to the specific instructions set forth on the enclosed proxy card.

If you hold your shares in “street name,” your broker/bank/trust/nominee will provide you with materials and instructions for voting your shares. Please follow those instructions carefully.

 

Q: Can I vote my shares in person at the special meeting?

 

A. If you are a “shareholder of record,” you may vote your shares in person at the special meeting. If you hold your shares in “street name,” you must obtain a legal proxy from your broker, banker, trustee or nominee, giving you the right to vote the shares at the special meeting.

 

Q: May I change my vote after I have submitted my proxy?

 

A. Yes. You may revoke your proxy by doing one of the following:

 

    by sending a written notice of revocation to the Secretary of Banner that is received by Banner prior to the special meeting, stating that you revoke your proxy;

 

    by signing a later-dated proxy card and submitting it so that it is received prior to the special meeting in accordance with the instructions included in the proxy card(s); or

 

    by attending the special meeting and voting your shares in person.

 

Q: Are there risks associated with the merger that shareholders of Banner should be aware of?

 

A. In deciding how to vote your shares of common stock on the matters described in this proxy statement, you should carefully consider the risks related to the merger. These risks include, among other things, risks related to the uncertainty that Banner will be able to realize the anticipated benefits and cost savings of the merger and integrate successfully its existing business with Starbuck. For a discussion of these risks and other risks, see “Risk Factors” beginning on page 16 of this proxy statement.

 

Q: Who is paying for this proxy solicitation?

 

A. Banner pays the costs of soliciting proxies. Upon request, we will reimburse brokers, dealers, banks and trustees, or their nominees, for reasonable expenses incurred by them in forwarding proxy materials to beneficial owners of shares of our common stock.

 

Q: Is this proxy statement the only way that proxies are being solicited?

 

A. In addition to mailing these proxy materials, certain directors, officers or employees of Banner may solicit proxies by telephone, facsimile, e-mail or personal contact. They will not be specifically compensated for doing so.

 

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Q: Who can help answer my questions?

 

A. If you would like to receive additional copies of this proxy statement, without charge, or if you have questions about the special meeting, including the procedures for voting your shares, you should contact us at:

(800) 272-9933 (U.S. and Canada)

(509) 526-8894 (International).

You may also obtain additional information about Banner from the documents we file with the Securities and Exchange Commission, which we refer to as the SEC, or by following the instructions in the section entitled “Where You Can Find More Information” beginning on page 129.

 

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SUMMARY

The following summary highlights selected information from this proxy statement and may not contain all of the information that is important to you. You should carefully read this proxy statement, including the annexes, for a more complete understanding of the merger and the proposals described in this summary. Each item in this summary includes a page reference directing you to a more complete description of that topic. You may obtain the information incorporated by reference into this proxy statement without charge by following the instructions under the section entitled “Where You Can Find More Information” beginning on page 129.

The Parties to the Merger (Page 57)

Banner Corporation

10 S. First Avenue

Walla Walla, Washington 99362

(509) 527-3636

Banner is a bank holding company incorporated in the State of Washington. It is primarily engaged in the business of planning, directing and coordinating the business activities of its wholly-owned subsidiaries, Banner Bank and Islanders Bank. Banner Bank is a Washington-chartered commercial bank that conducts business from its main office in Walla Walla, Washington and, as of September 30, 2014, its 90 branch offices included 60 offices located in Washington, 21 offices located in Oregon and nine offices located in Idaho. Islanders Bank is also a Washington-chartered commercial bank that conducts business from three locations in San Juan County, Washington. Banner is subject to regulation by the Board of Governors of the Federal Reserve System, which we refer to as the Federal Reserve Board.

Banner Bank is a regional bank which offers a wide variety of commercial banking services and financial products to individuals, businesses and public sector entities in its primary market areas. Islanders Bank is a community bank which offers similar banking services to individuals, businesses and public entities located primarily in the San Juan Islands. The Banks’ primary business is that of traditional banking institutions, accepting deposits and originating loans in locations surrounding their offices in portions of Washington, Oregon and Idaho. Banner Bank is also an active participant in the secondary market, engaging in mortgage banking operations largely through the origination and sale of one- to four-family residential loans. Lending activities include commercial business and commercial real estate loans, agriculture business loans, construction and land development loans, one- to four-family residential loans and consumer loans. A portion of Banner Bank’s construction and mortgage lending activities are conducted through its subsidiary, Community Financial Corporation (CFC), which is located in the Lake Oswego area of Portland, Oregon.

Elements Merger Sub, LLC

10 S. First Avenue

Walla Walla, Washington 99362

(509) 527-3636

Merger sub, a Washington limited liability company and a wholly owned subsidiary of Banner, was formed solely for the purpose of facilitating the merger. Merger sub has not carried on any activities or operations to date, except for those activities incidental to its formation and undertaken in connection with the transactions contemplated by the merger agreement. By operation of the merger, Starbuck will be merged with and into merger sub, with merger sub surviving the merger as a wholly owned subsidiary of Banner.

 

 

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SKBHC Holdings LLC

1201 Third Ave., Ste. 1580

Seattle, WA 98101

(509) 467-6993

Holdings is a bank holding company organized as a limited liability company under the laws of the state of Delaware. It is engaged in the planning, directing and coordinating the business activities of its wholly-owned subsidiaries, Starbuck and AmericanWest Bank. Holdings is subject to regulation by the Federal Reserve Board.

Starbuck Bancshares, Inc.

1201 Third Ave., Ste. 1580

Seattle, WA 98101

(509) 467-6993

Starbuck is a bank holding company incorporated in the State of Minnesota. It is primarily engaged in the business of planning, directing and coordinating the business activities of its wholly-owned subsidiary, AmericanWest Bank. Based in Spokane, Washington, AmericanWest Bank is a regional business-focused community bank offering commercial and business banking, mortgage lending, treasury management products and a full line of consumer products and services. The bank currently operates 94 branches in California, Washington, Idaho, Oregon and Utah.

The Merger and the Agreement and Plan of Merger (pages 59 and 78)

The terms and conditions of the merger are contained in the merger agreement, which is attached to this proxy statement as Annex B. We encourage you to read the merger agreement carefully, as it is the legal document that governs the merger.

On November 5, 2014, we entered into the merger agreement with Holdings and Starbuck, whereby Starbuck will merge with and into merger sub, with merger sub surviving. Immediately following the merger, Starbuck’s wholly owned subsidiary bank, AmericanWest Bank, a Washington state-chartered commercial bank, will merge with and into Banner Corporation’s wholly owned subsidiary bank, Banner Bank, a Washington state-chartered commercial bank, with Banner Bank surviving, in the bank merger.

In connection with Banner’s acquisition of all of the outstanding shares of common stock of Starbuck, pursuant to the merger agreement, Banner will:

 

    pay $130 million in cash; and

 

    issue an aggregate of 13,230,000 shares of Banner common stock and Banner non-voting common stock.

At the effective time of the merger and subject to the closing conditions of the merger being satisfied, we will deliver the merger consideration to Holdings, who will distribute the merger consideration to the Starbuck holders in accordance with the terms of Holdings organizational documents. The stock consideration will represent an ownership in Banner of approximately 38.77% of the shares outstanding of Banner common stock and Banner non-voting common stock, based on the number of shares of Banner common stock outstanding as of February 13, 2015 and after giving effect to the merger and including the Banner common stock to be issued upon the completion of Banner’s pending acquisition of Siuslaw. As of November 4, 2014, based on the closing price of Banner common stock of $43.20, the transaction was valued at approximately $702 million, and based on the closing price of the Banner common stock as of February 13, 2015, the transaction is valued at approximately $724 million.

 

 

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Investor Letter Agreements (page 91)

On November 5, 2014, concurrent with the execution of the merger agreement, Banner entered into the investor letter agreements with the Starbuck investors (Oaktree, Friedman Fleischer & Lowe and GS Capital). Pursuant to the investor letter agreements, Banner has agreed to provide the Starbuck investors with certain registration rights and the right of each Starbuck investor to appoint one independent director to the Banner board of directors and the Banner Bank board of directors, and the Starbuck investors have agreed to certain transfer restrictions on the stock consideration received pursuant to the merger and certain commitments related to the regulatory approvals required for the merger and the bank merger.

Proposals to be Considered and Voted Upon by Holders of Banner Stock at the Special Meeting (page 54)

In order to complete the merger, at the special meeting to be held on March 17, 2015, holders of Banner common stock must vote to approve the amendment to the articles of incorporation to create a new class of Banner non-voting common stock and to approve the issuance of an aggregate of 13,230,000 shares of Banner common stock and Banner non-voting common stock in accordance with the merger agreement.

Proposal 1: Approval of an Amendment to Banner’s Articles of Incorporation to Create a New Class of Banner Non-Voting Common Stock (page 54)

The merger agreement requires that Banner issue no more than 3,000,000 shares of Banner non-voting common stock as part of the merger consideration, which number will be determined shortly before the consummation of the merger. In order to create a class of Banner non-voting common stock, it is necessary to amend our articles of incorporation. The Banner board of directors has unanimously adopted resolutions approving and declaring advisable, and recommending that our shareholders approve, the adoption of the amendment to the articles of incorporation, which will authorize the creation of five million shares of Banner non-voting common stock. Holders of shares of Banner non-voting common stock will have no voting rights, unless otherwise required by the WBCA, but will otherwise have all the rights of holders of Banner common stock. The Banner non-voting common stock will automatically convert to Banner common stock upon transfer of such stock, subject to certain exceptions. Accordingly, if this proposal is not approved by shareholders at the special meeting, a condition to the closing of the merger will not be satisfied and the merger will not be consummated. The amendment to the articles of incorporation will go into effect if approved at the special meeting even if the merger is not consummated.

Proposal 2: Approval of the Issuance of an Aggregate of 13,230,000 shares of Banner Common Stock and Banner Non-Voting Common Stock (page 56)

We are seeking the approval of holders of common stock for the issuance of an aggregate of 13,230,000 shares of Banner common stock and Banner non-voting common stock in accordance with the merger agreement. These shares, if all Banner non-voting common stock to be issued in the merger were converted into Banner common stock, represent approximately 38.77% of the shares of Banner common stock outstanding as of February 13, 2015 and after giving effect to the merger and including the Banner common stock to be issued upon the completion of Banner’s pending acquisition of Siuslaw. The issuance of the Banner common stock and Banner non-voting common stock in connection with the merger requires the approval of holders of Banner common stock under NASDAQ Stock Market rules because the aggregate number of shares of Banner common stock and Banner non-voting common stock is in excess of 20% of the number of shares of Banner common stock currently outstanding. Accordingly, if this proposal is not approved by shareholders at the special meeting, a condition to the closing of the merger will not be satisfied and the merger will not be consummated.

 

 

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Proposal 3: Approval of Adjournments or Postponements of the Special Meeting (page 56)

Banner is asking holders of common stock to approve adjournments or postponements of the special meeting if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting in favor of the foregoing proposals.

Approval of proposal 3 is not a condition to the completion of the merger.

Recommendation of the Banner Board of Directors (page 61)

The Banner board of directors unanimously recommends a vote “FOR” each of the proposal described above. While each of the proposals is being voted upon separately, each of proposals 1 and 2 must be approved in order for the merger to be consummated.

Reasons for the Merger (page 61)

In reaching its decision to approve the merger agreement, the Banner board of directors consulted with Banner management, our legal and financial advisors, and considered a number of factors, including among others and not necessarily in order of relative importance, the following factors:

 

    its knowledge of Starbuck’s business, operations, financial condition, earnings and prospects, taking into account the results of Banner’s due diligence review of Starbuck, including Banner’s assessments of Starbuck’s credit policies, asset quality, adequacy of loan loss reserves, interest rate risk and litigation;

 

    the fact that Starbuck would enable Banner to meaningfully expand its strategic presence in Oregon, Washington and Idaho, as well as expand into Utah and California;

 

    the reports of Banner’s management and the financial presentation of Banner’s financial advisor concerning the business, operations, financial condition and earnings of Starbuck on an historical and prospective basis and the pro forma financial impact of the merger;

 

    Banner management’s belief that the merger will be accretive to Banner’s earnings per share under generally accepted accounting principles in the United States, consistently applied, which we refer to as GAAP, in periods subsequent to the period in which Banner will incur certain non-recurring acquisition, conversion and integration costs;

 

    the likelihood of a successful integration of Starbuck’s business, operations and workforce with those of Banner; and

 

    the fact that the merger is likely to provide an increase in shareholder value, including the benefits of a stronger strategic position.

The Banner board of directors also considered in its deliberations a number of uncertainties and risks and other potentially negative factors concerning the merger agreement, including those listed in “The Merger—Reasons for the Merger; Recommendation of the Banner Board of Directors” beginning on page 61. The Banner board of directors determined that these uncertainties, risks and other potentially negative factors were outweighed by the benefits that the Banner board of directors expects to achieve for its shareholders as a result of the merger.

Opinion of Banner’s Financial Advisor (page 63)

At the November 5, 2014 meeting of the Banner board of directors, Sandler O’Neill & Partners, L.P., which we refer to as Sandler O’Neill, delivered to the Banner board of directors its oral opinion, which was subsequently confirmed in writing, that as of November 5, 2014, the merger consideration was fair to Banner

 

 

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from a financial point of view. The full text of Sandler O’Neill’s opinion is attached as Annex E to this proxy statement. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler O’Neill in rendering its opinion. The description of the opinion set forth below is qualified in its entirety by reference to the full text of the opinion. Holders of Banner common stock are urged to read the entire opinion carefully in connection with their consideration of the proposed merger.

Sandler O’Neill’s opinion speaks only as of the date of the opinion. The opinion was directed to the Banner board of directors and is directed only to the fairness of the merger consideration to Banner from a financial point of view. It does not address the underlying business decision of Banner to engage in the merger or any other aspect of the merger and is not a recommendation to any holder of Banner common stock as to how such holder of Banner common stock should vote at Banner’s special meeting with respect to the amendment to the articles of incorporation and the issuance of the stock consideration or any other matter. Sandler O’Neill did not express any opinion as to the fairness of the amount or nature of the compensation to be received in connection with the merger by Banner’s or Starbuck’s officers, directors, or employees, or any class of such persons, relative to the merger consideration to be received in the merger by any other shareholders of Banner

For further information, please see the section entitled “The Merger— Opinion of Banner’s Financial Advisor” beginning on page 63.

Expected Timing of the Merger (page 79)

We anticipate that the closing of the merger will occur in the second quarter of 2015, assuming the requisite shareholder approvals at the special meeting are received and all regulatory approvals are received and assuming the other conditions to closing of the merger are satisfied or waived. The merger will become effective as set forth in the articles of merger to be filed with the Secretary of State of the State of Washington and the Secretary of State of the State of Minnesota on the closing date of the merger.

Conditions to the Merger (page 88)

Completion of the merger is subject to various conditions, including, among others:

 

    approval by Banner shareholders of the amendment to the articles of incorporation and the issuance of the stock consideration;

 

    the representations and warranties of each party must be true and correct at and as of November 5, 2014 and at and as of the closing date with the same effect as though such representations and warranties had been made on and as of such date (except to the extent such representations and warranties speak as of an earlier date, in which case such representation and warranty shall be true and correct as of such earlier date), subject to the materiality standards provided in the merger agreement;

 

    all of the permits, consents, approvals and authorizations applicable to the merger agreement and the transactions contemplated thereby from the regulatory agencies and governmental entities will have been obtained and remain in full force and effect and all waiting periods will have expired;

 

    the shares of Banner common stock to be issued in the merger (including upon conversion of the shares of Banner non-voting common stock issued in the merger) will have been authorized for listing on NASDAQ, subject to official notice of issuance; and

 

    Each party must have performed in all material respects all of the obligations required to be performed by it under the merger agreement at or prior to the closing date of the merger.

Banner cannot be certain when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed.

 

 

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Termination (page 89)

The merger agreement may be terminated at any time before the effective time of the merger, in any of the following circumstances:

 

    by mutual written consent of Banner and Starbuck;

 

    by either Banner or Starbuck, should any of the following occur:

 

    the approval of the issuance of the Banner common stock and Banner non-voting common stock in accordance with the merger agreement and the approval of the amendment to the articles of incorporation are not obtained at the special meeting or any adjournment or postponement of such meeting;

 

    any regulatory agency or governmental authority that must grant an approval of the merger, the bank merger or the transactions contemplated by the merger agreement as described in the section entitled “The Merger—Regulatory Approvals” beginning on page 77 have issued a nonappealable order, injunction or decree permanently enjoining or otherwise prohibiting the consummation of the transactions contemplated by the merger agreement;

 

    the merger shall have not been consummated on or before November 5, 2015, which we refer to as the termination date; or

 

    there has been a breach or an aggregate of breaches of any representations and warranties, covenants or agreements to be performed by either Banner and merger sub (in the case of Starbuck) or Holdings and Starbuck (in the case of Banner) in a manner such that the closing conditions described in “—Conditions to Each Party’s Obligations” and “—Conditions to Obligations of Banner” or “—Conditions to Obligations of Starbuck” would not be satisfied, provided that such breaches of representations or warranties, covenants and agreements have not been cured by the earlier of the termination date or within 10 business days following receipt by the breaching party of written notice of such breach or breaches;

provided that such right to terminate the merger agreement shall not be available to either Banner or Starbuck, as the case may be, if it is in material breach of any of its representations, warranties, covenants or agreements under the merger agreement and that such material breach of any of its representations, warranties, covenants or agreements under the merger agreement shall be the cause of the failure of the closing to occur.

Regulatory Approvals (page 77)

Under applicable law, the merger must be approved by the Federal Reserve Board, and the bank merger must be approved by the Federal Deposit Insurance Corporation, which we refer to as the FDIC, and the Washington State Director of the Department of Financial Institutions, which we refer to as the Washington DFI. The U.S. Department of Justice may also review the impact of the merger and the bank merger on competition. We filed the necessary applications with the Federal Reserve Board and the FDIC on December 23, 2014. We also filed the necessary application with the Washington DFI on December 29, 2014.

There can be no assurance that the regulatory approvals received will not contain a condition or requirement that results in a failure to satisfy the conditions to closing set forth in the merger agreement. See the section entitled “The Agreement and Plan of Merger—Conditions to the Merger” beginning on page 88.

No Appraisal Rights (page 77)

Under Washington law and Banner’s articles of incorporation, Banner shareholders will not have appraisal rights pursuant to the merger and the other transactions contemplated by the merger agreement.

 

 

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Risk Factors (page 16)

You should consider all the information contained in or incorporated by reference into this proxy statement in deciding how to vote for the proposals presented in the proxy statement. In particular, you should consider the factors described under “Risk Factors” beginning on page 16.

 

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement contains or incorporates by reference a number of forward-looking statements regarding the financial condition, results of operations, earnings outlook and business prospects of Banner, Starbuck and the potential combined company and may include statements for the period following the completion of the merger. You can find many of these statements by looking for words such as “believe,” “will,” “will likely result,” “may,” “shall,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” “forecast,” “initiative,” “objective,” “goal,” “outlook,” “priorities,” “target,” “intend,” “evaluate,” “pursue,” “commence,” or the negative of any of those words or phrases or similar expressions are intended to identify “forward-looking statements” within the meaning of applicable federal securities laws, including the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date such statements are made. These statements may relate to future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial information. By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements. Statements about the expected timing, completion and effects of the proposed transactions and all other statements in this proxy statement other than historical facts constitute forward-looking statements.

Some of the factors that may cause actual results or earnings to differ materially from those contemplated by forward-looking statements include, but are not limited to, those discussed under “Risk Factors” beginning on page 16 and those discussed in the filings of Banner that are incorporated into this proxy statement by reference, as well as the following:

 

  (1) expected revenues, cost savings, synergies and other benefits from the proposed business combination of Banner and Starbuck might not be realized 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;

 

  (2) the requisite shareholder and regulatory approvals for the transactions might not be obtained;

 

  (3) the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses, which could necessitate additional provisions for loan losses, resulting both from loans originated and loans acquired from other financial institutions;

 

  (4) changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, net interest margin and funding sources;

 

  (5) risks related to acquiring assets in or entering markets in which Banner has not previously operated and may not be familiar;

 

  (6) results of examinations by bank regulators or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require increases to the allowance for loan losses, the write-down of assets or a change in regulatory capital position of our banks, or affect the ability of our banks to borrow funds or maintain or increase deposits, which could adversely affect liquidity and earnings;

 

  (7) increased competitive pressures among financial services companies;

 

  (8) changes in consumer spending, borrowing and savings habits;

 

  (9) the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions;

 

  (10) Banner’s ability to pay dividends on its common stock;

 

  (11) increases in premiums for deposit insurance;

 

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  (12) the use of estimates in determining fair value of certain assets, which estimates may prove to be incorrect and result in significant declines in valuation;

 

  (13) difficulties in reducing risk associated with the loans on our balance sheet;

 

  (14) staffing fluctuations in response to product demand or the implementation of corporate strategies that affect the workforce and potential associated changes;

 

  (15) failure or security breach of computer systems on which we depend;

 

  (16) our ability to retain key members of the senior management team;

 

  (17) interest rate movements and their impact on customer behavior and net interest margin;

 

  (18) the impact of repricing and competitors’ pricing initiatives on loan and deposit products;

 

  (19) fluctuations in the demand for loans, the number of unsold homes and other properties and real estate values;

 

  (20) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place;

 

  (21) the ability to access cost-effective funding;

 

  (22) adverse changes in the securities markets;

 

  (23) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular;

 

  (24) the costs, effects and outcomes of litigation, including settlements and judgments;

 

  (25) Banner’s ability to implement its business strategies;

 

  (26) new legislation or regulatory changes, including but not limited to the Dodd-Frank Act and regulations adopted thereunder, changes in capital requirements pursuant to the Dodd-Frank Act and the implementation of the Basel III capital standards, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities;

 

  (27) changes in accounting principles, policies practices or guidelines, 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;

 

  (28) future acquisitions by Banner or Starbuck of other depository institutions or lines of business;

 

  (29) inability of key third-party providers to perform their obligations to us;

 

  (30) Banner’s pending acquisition of Siuslaw Financial Group, Inc. or Starbuck’s pending acquisition of Greater Sacramento Bancorp, which we refer to as GSB, may fail to be consummated;

 

  (31) future goodwill impairment due to changes in Banner’s business, changes in market conditions, or other factors;

 

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

 

  (33) other risks detailed from time to time in Banner’s filings with the SEC.

All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this proxy statement and attributable to Banner or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Banner does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date on which the forward-looking statement is made except where expressly required by law.

 

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RISK FACTORS

In addition to general investment risks and the other information contained in or incorporated by reference into this proxy statement, including the matters addressed under the caption “Cautionary Statement Regarding Forward-Looking Statements” on page 14 and the discussion under “Risk Factors” in Banner’s Annual Report on Form 10-K for the year ended December 31, 2013, as updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, you should carefully consider the following risk factors in deciding how to vote your shares. You should also consider the other documents incorporated by reference into this proxy statement. See “Where You Can Find More Information” beginning on page 129.

Banner may fail to realize all of the anticipated benefits of the merger.

The success of the merger will depend on, among other things, Banner’s ability to realize anticipated cost savings and to combine the businesses of Banner and Starbuck in a manner that does not materially disrupt the existing customer relationships of the companies or result in decreased revenues from their customers. If Banner is not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully, if at all, or may take longer to realize than expected.

It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect Banner’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the merger. Integration efforts between the two companies will also divert management attention and resources. 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 the business and earnings of each of Banner and Starbuck during the transition period and on the combined company following completion of the merger.

The value of Banner common stock after the merger may be affected by factors different from those currently affecting the values of Banner common stock.

The number of shares of Banner common stock and Banner non-voting common stock to be issued in the merger to the Starbuck holders is not adjustable based on the market price of Banner common stock, so the merger consideration at the closing may have a greater or lesser implied value than at the time the merger agreement was signed.

The parties to the merger agreement have determined the number of shares of Banner common stock and Banner non-voting common stock to be issued to the Starbuck holders, and this number is not adjustable based on changes in the market price of Banner common stock. Any changes in the market price of Banner common stock will not affect the number of shares that the Starbuck holders will be entitled to receive pursuant to the merger. Therefore, if the market price of Banner common stock declines from the market price on the date of the merger agreement prior to the consummation of the merger, the Starbuck holders could receive merger consideration with considerably less implied value. Similarly, if the market price of Banner common stock increases from the market price on the date of the merger agreement prior to the consummation of the merger, the Starbuck holders could receive merger consideration with considerably more implied value than their Starbuck shareholdings, and Banner shareholders immediately prior to the merger will not be compensated for the increased market value of Banner common stock. Because the number of shares of Banner common stock and Banner non-voting common stock to be issued in the merger to the Starbuck holders does not adjust as a result of changes in the value of Banner common stock, for any amount that the market value of Banner common stock rises or declines, there is a corresponding rise or decline, respectively, in the value of the total merger consideration issued to the Starbuck holders.

 

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Holders of Banner common stock will have a reduced ownership and voting interest after the merger and will exercise less influence over management.

Holders of Banner common stock currently possess all voting rights with respect to the election of the Banner board of directors and on other matters affecting Banner. Upon the completion of the merger, the former shareholders of Holdings as a group will receive shares in the merger constituting approximately 38.77% of the outstanding shares of Banner common stock immediately after the merger. As a result, current shareholders of Banner as a group will own approximately 57.36% of the outstanding shares of Banner common stock immediately after the merger. In addition, the Starbuck investors will have certain rights to appoint directors to the Banner board of directors. As a result, current Banner shareholders may have less influence on the management and policies of Banner than they now have on the management and policies of the company.

The unaudited pro forma combined condensed consolidated financial statements, which we refer to as the pro forma financial statements, are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the merger.

The pro forma financial statements contained in this proxy statement are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the merger for several reasons. For example, the pro forma financial statements have been derived from the historical financial statements of Banner and Starbuck, and include the proposed 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 merger and the bank merger by which each entity would become 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.

Moreover, the pro forma financial statements do not reflect all costs that are expected to be incurred by the combined company in connection with the merger and the bank merger. For example, the impact of any incremental costs incurred in integrating the companies is not reflected in the pro forma financial statements. As a result, the actual financial condition and results of operations of the combined company following the merger and the bank merger may differ significantly from these pro forma financial statements.

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 following the merger and the bank merger. 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 the sections entitled “Selected Unaudited Pro Forma Condensed Combined Financial Information” and “Unaudited Pro Forma Combined Condensed Consolidated Financial Information” beginning on pages 27 and 29 respectively.

If the Starbuck holders, or other holders of Banner common stock, immediately sell Banner common stock or Banner non-voting common stock received in the merger, they could depress Banner’s stock price.

If the Starbuck holders who receive Banner common stock or Banner non-voting common stock in the merger, or other holders of Banner common stock, sell significant amounts of Banner common stock following the merger (in the case of the Starbuck investors, after the shares are released from lockups, and in the case of certain Starbuck holders, other transfer restrictions specified in the registration rights agreements as described in the section entitled “Investor Letter Agreements—Registration Rights” beginning on page 92), the market price of Banner common stock could decrease. These sales may also make it more difficult for Banner to sell equity securities or equity-related securities in the future at a time and at a price that we otherwise would deem appropriate.

 

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The market price of Banner common stock after the merger may be affected by factors different from those affecting Banner currently.

The results of operations of the combined company and the market price of Banner common stock after the completion of the merger may be affected by factors different from those currently affecting the independent results of operations of each of Banner and Starbuck. For a discussion of the businesses of Banner and Starbuck and of some important factors to consider in connection with those businesses, please read this proxy statement carefully and see the documents incorporated by reference in this proxy statement and referred to under “Where You Can Find More Information” on page 129.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the merger.

Before the merger and the bank merger may be completed, Banner must obtain approvals from the Federal Reserve Board, the FDIC and the Washington DFI. The U.S. Department of Justice may also review the impact of the merger and the bank merger on competition. Other approvals, waivers or consents from regulators may also be required. An adverse development in either Banner’s or Starbuck’s regulatory standing or other factors could result in an inability to obtain approvals or delay their receipt. These regulators may impose conditions on the completion of the merger or the bank merger or require changes to the terms of the merger or the bank merger. Such conditions or changes could have the effect of delaying or preventing completion of the merger or the bank merger or imposing additional costs on or limiting the revenues of the combined company following the merger and the bank merger, any of which might have an adverse effect on the combined company following the merger. See the section entitled “The Merger—Regulatory Approvals” beginning on page 77.

The fairness opinion obtained by Banner from its financial advisor will not reflect changes in circumstances subsequent to the date of the fairness opinion.

Sandler O’Neill, Banner’s financial advisor in connection with the merger, has delivered to the Banner board of directors its opinion dated as of November 5, 2014, that as of such date, and based upon and subject to the factors and assumptions set forth therein, the merger consideration to be paid to the holders of the outstanding shares of Starbuck common stock pursuant to the merger agreement was fair from a financial point of view to Banner. The opinion does not reflect changes that may occur or may have occurred after the date of the opinion, including changes to the operations and prospects of Banner or Starbuck, changes in general market and economic conditions or regulatory or other factors. Any such changes, or changes in other factors on which the opinion is based, may materially alter or affect the relative values of Banner and Starbuck. The fairness opinion will not be updated as of the date of the mailing of the proxy statement.

Starbuck will be subject to business uncertainties and contractual restrictions while the merger is pending.

Banner and Starbuck have operated and, until the completion of the merger, will continue to operate, independently. Uncertainty about the effect of the merger on employees and customers may have an adverse effect on Starbuck and consequently on Banner. These uncertainties may impair Starbuck’s ability to attract, retain or motivate key personnel until the merger is consummated, and could cause customers and others that deal with Starbuck to seek to change existing business relationships with Starbuck. Retention of certain employees may be challenging during the pendency of the merger, as certain employees may experience uncertainty about their future roles with Banner. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with Banner, Banner’s business following the merger could be harmed. In addition, the merger agreement restricts Starbuck from making certain acquisitions and taking other specified actions until the merger occurs without the consent of Banner. These restrictions may prevent Starbuck from pursuing attractive business opportunities that may arise prior to the completion of the merger. Please see the section entitled “The Agreement and Plan of Merger—Covenants and Agreements—Conduct of Business of Starbuck Pending the Merger” beginning on page 83 for a description of the restrictive covenants to which Starbuck is subject.

 

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The merger is subject to closing conditions, including the approval of the amendment to the articles of incorporation and the issuance of the stock consideration by the Banner shareholders at the special meeting or an adjournment or postponement thereof, that, if not satisfied or waived, will result in the merger not being completed, which may result in material adverse consequences to Banner’s business and operations.

The merger is subject to closing conditions, including the approval of the amendment to the articles of incorporation and the issuance of the stock consideration by the Banner shareholders at the special meeting or an adjournment or postponement thereof, that, if not satisfied, will prevent the merger from being completed. To Banner’s knowledge, all of the directors and executive officers of Banner who are entitled to vote at the special meeting intend to vote their shares of Banner common stock in favor of each of the proposals, although such persons have not entered into agreements obligating them to do so If the merger is not completed, Banner’s business and operations could be adversely affected by the loss of employees and customers, the costs incurred in pursuing the transaction, and potential reputational harm. In addition to the required approvals and consents from regulatory agencies and governmental entities and the approval of Banner shareholders, the merger is subject to other conditions beyond Banner’s control that may prevent, delay or otherwise materially adversely affect its completion. Banner cannot predict whether and when these other conditions will be satisfied. See “The Agreement and Plan of Merger—Conditions to the Merger” beginning on page 88.

If the merger is not completed, Banner will have incurred substantial expenses without realizing the expected benefits of the merger.

Banner has incurred and will incur substantial expenses in connection with the due diligence, negotiation and completion of the transactions contemplated by the merger agreement, as well as the costs and expenses of preparing, filing, printing and mailing this proxy statement and all filing fees paid to the SEC in connection with the merger. If the merger is not completed, Banner would have to recognize these expenses without realizing the expected benefits of the merger.

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

Starbuck’s lending operations are concentrated in the states of California, Utah, Oregon and Washington. The merger with Starbuck will result in Banner’s initial entry into the states of California and Utah where Banner has little or no operating experience. Although Banner will retain a number of Starbuck’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 will present 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, the financial condition and results of operations of the combined company 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, the combined company may suffer decreased net income or losses associated with higher default rates and decreased collateral values on its existing portfolio, and may not be able to originate loans at acceptable risk levels and upon acceptable terms, to maintain Banner’s risk profile and asset quality.

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

Banner Bank’s total assets were $4.759 billion at September 30, 2014 and AmericanWest Bank had $4.095 billion in total assets at that date. Following the closing of the merger with AmericanWest Bank, Banner Bank’s assets will be approaching $10 billion. If and when Banner Bank’s total assets exceed $10.0 billion, it will be considered a “very large” institution by bank regulators under The Dodd-Frank Wall Street Reform and Consumer Protection Act, which we refer to as the Dodd-Frank Act. As a result, there may be higher expectations from regulators, and there will be formal capital stress testing requirements and direct examination

 

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by the Consumer Financial Protection Bureau or CFPB. 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.

Under the Dodd-Frank Act, the minimum ratio of net worth to insured deposits of the 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 of $10 billion or more paying higher assessments. In addition, if Banner Bank has $10 billion or more in assets, its assessment rate will be determined, in part, by the 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. 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.

The Dodd-Frank Act also requires publicly traded bank holding companies with assets of $10 billion or more to 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 are likely to increase, as well as expenses related to regulatory compliance, which may be significant. In addition, compliance with the Durbin Amendment would reduce our non-interest income significantly. We currently believe the impact of the Durbin Amendment on combined debit card revenues for Banner Bank and AmericanWest Bank could be a reduction of approximately $8.0 million annually.

Risk Factors Relating to Banner and Banner’s Business.

Banner is, and will continue to be, subject to the risks described in the section entitled “Risk Factors” beginning on page 16 and in Banner’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, all of which are filed with the SEC and incorporated by reference into this proxy statement. See “Where You Can Find More Information” beginning on page 129.

 

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PRICE RANGE OF BANNER COMMON STOCK AND RELATED SHAREHOLDER MATTERS

Our common stock trades on NASDAQ under the symbol “BANR.” Starbuck common stock is not publicly traded. The following are the high and low sale prices for our common stock during the periods indicated as reported by the NASDAQ Stock Market, 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 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   

Quarterly for 2012:

        

First Quarter

     22.97         17.13         0.01   

Second Quarter

     22.80         18.05         0.01   

Third Quarter

     27.41         20.04         0.01   

Fourth Quarter

     31.32         26.49         0.01   

We had approximately 1,437 holders of record of our common stock on February 13, 2015, and we estimate that we have more than 7,010 beneficial owners of our common stock.

On November 4, 2014 the day immediately prior to the public announcement of the merger agreement, the high and low sales prices of shares of Banner common stock as reported on NASDAQ were $43.38 and $42.41, respectively. On February 13, 2015, the last trading day before the date of this proxy statement, the high and low sales prices of shares of Banner common stock as reported on NASDAQ were $45.00 and $44.38, respectively.

 

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SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION OF BANNER

The following selected consolidated financial information is intended to help you in understanding certain financial aspects of the merger. The tables on the following pages present 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 2009 through 2013. The information is only a summary and should be read with Banner’s historical consolidated financial statements and related notes. Banner’s audited consolidated financial statements as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011 are contained in its Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC. The unaudited consolidated financial information as of and for the nine months ended September 30, 2014 and 2013 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, 2014, which is incorporated by reference into this proxy statement, 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, 2014 are not necessarily indicative of the results that may be expected for the entire fiscal year ending 2014. You should not assume the results of operations for any past periods indicate results for any future period. See the section entitled “Where You Can Find More Information” beginning on page 129.

 

Selected Financial Data:    (unaudited)
September 30,
2014
                                    
      December 31,  
(In thousands)       2013      2012      2011      2010      2009  

Total assets

   $ 4,759,389       $ 4,388,166       $ 4,265,564       $ 4,257,312       $ 4,406,082       $ 4,722,221   

Cash and securities (1)

     769,615         772,614         811,902         754,396         729,345         640,657   

Loans receivable, net

     3,732,364         3,343,455         3,158,223         3,213,426         3,305,716         3,694,852   

Deposits

     3,991,181         3,617,926         3,557,804         3,475,654         3,591,198         3,865,550   

Borrowings

     145,479         184,234         160,000         212,649         267,761         414,315   

Common shareholders’ equity

     574,058         538,972         506,919         411,748         392,472         287,721   

Total stockholders’ equity

     574,058         538,972         506,919         532,450         511,472         405,128   

Shares outstanding

     19,572         19,544         19,455         17,553         16,165         3,077   

Shares outstanding excluding unearned, restricted shares held in the Banner Employee Stock Ownership Plan (ESOP)

     19,572         19,509         19,421         17,519         16,130         3,042   

 

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Operating Data:   (unaudited)                                
    Nine Months Ended
September 30,
    For the Years Ended December 31,  
(In thousands)   2014     2013     2013     2012     2011     2010     2009  

Interest income

  $ 141,410        135,116      $ 179,712      $ 187,162      $ 197,563      $ 218,082      $ 237,370   

Interest expense

    8,199        10,007        12,996        19,514        32,992        60,312        92,797   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income before provision for loan losses

    133,211        125,109        166,716        167,648        164,571        157,770        144,573   

Provision for loan losses

    —          —          —          13,000        35,000        70,000        109,000   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

    133,211        125,109        166,716        154,648        129,571        87,770        35,573   

Deposit fees and other service charges

    22,237        19,911        26,581        25,266        22,962        22,009        21,394   

Mortgage banking operations revenue

    7,282        9,002        11,170        13,812        6,146        6,370        8,893   

Other-than-temporary impairment recoveries (losses)

    —          409        409        (409     3,000        (4,231     (1,511

Net change in valuation of financial instruments carried at fair value

    1,662        (1,954     (2,278     (16,515     (624 )     1,747        12,529   

All other operating income

    11,161        3,395        7,460        4,748        2,506        3,253        2,385   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other operating income

    42,342        30,763        43,342        26,902        33,990        29,148        43,690   

REO operations expense (recoveries), net

    (260     (1,047     (689     3,354        22,262        26,025        7,147   

All other operating expenses

    112,772        105,093        141,664        138,099        135,842        134,776        134,933   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other operating expense

    112,512        104,046        140,975        141,453        158,104        160,801        142,080   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision for income tax expense (benefit)

    63,041        51,826        69,083        40,097        5,457        (43,883     (62,817

Provision for income tax expense (benefit)

    20,620        16,825        22,528        (24,785     —          18,013        (27,053
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 42,421        35,001      $ 46,555      $ 64,882      $ 5,457      $ (61,896   $ (35,764
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Per Common Share Data:    (unaudited)                                
     Nine Months Ended
September 30,
    At or For the Years Ended December 31,  
         2014             2013         2013     2012     2011     2010     2009  

Net income (loss):

              

Basic

   $ 2.19      $ 1.81      $ 2.40      $ 3.17      $ (0.15   $ (7.21   $ (16.31

Diluted

     2.19        1.80        2.40        3.16        (0.15     (7.21     (16.31

Common stockholders’ equity per share (2)(9)

     29.33        27.17        27.63        26.10        23.50        24.33        94.58   

Cash dividends

     0.54        0.39        0.54        0.04        0.10        0.28        0.28   

Dividend payout ratio (basic)

     24.66     21.55     22.50     1.26     (66.67 )%      (3.88 )%      (1.72 )% 

Dividend payout ratio (diluted)

     24.66     21.67     22.50     1.27     (66.67 )%      (3.88 )%      (1.72 )% 

 

Other Data: (unaudited)    September 30,
2014
     December 31,  
        2013      2012      2011      2010      2009  

Full time equivalent employees

     1,106         1,104         1,074         1,078         1,060         1,060   

Number of branches

     93         88         88         89         89         89   

 

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Key Financial Ratios: (unaudited)    At or For the
Nine Months
Ended September 30,
    At or For the Years Ended December 31,  
      
         2014             2013         2013     2012     2011     2010     2009  

Performance Ratios:

              

Return on average assets (3)(9)

     1.24     1.10     1.09     1.54     0.13     (1.36 )%      (0.78 )% 

Return on average common equity (4)(9)

     10.17        8.97        8.85        14.03        1.37        (17.19     (11.69 )% 

Average common equity to average assets

     12.17        12.31        12.36        10.96        9.31        7.90        6.71   

Interest rate spread (5)(9)

     4.05        4.12        4.08        4.13        3.99        3.61        3.23   

Net interest margin (6)(9)

     4.07        4.15        4.11        4.17        4.05        3.67        3.33   

Non-interest income to average assets (9)

     1.23        0.97        1.02        0.64        0.79        0.64        0.96   

Non-interest expense to average assets (9)

     3.28        3.28        3.31        3.35        3.69        3.53        3.12   

Efficiency ratio (7)

     64.09        66.75        67.11        72.71        79.62        86.03        75.47   

Average interest-earning assets to interest-bearing liabilities

     108.72        108.10        108.28        109.11        106.90        104.32        104.55   

Selected Financial Ratios:

              

Allowance for loan losses as a percent of total loans at end of period

     1.95        2.32        2.19        2.39        2.52        2.86        2.51   

Net charge-offs as a percent of average outstanding loans during the period

     —          0.03        0.30        0.57        1.50        1.88        2.28   

Non-performing assets as a percent of total assets

     0.50        0.70        0.66        1.18        2.79        5.77        6.27   

Allowance for loan losses as a percent of non-performing loans (8)

     375.81        305.39        302.77        225.33        110.09        64.30        44.55   

Consolidated Capital Ratios:

              

Total capital to risk-weighted assets

     16.59        17.41        16.99        16.96        18.07        16.92        12.73   

Tier 1 capital to risk-weighted assets

     15.33        16.15        15.73        15.70        16.80        15.65        11.47   

Tier 1 leverage capital to average assets

     13.14        13.63        13.64        12.74        13.44        12.24        9.62   

 

(1) Includes securities available-for-sale and held-to-maturity and held for trading.
(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) Results for nine month periods annualized.

 

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SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION OF STARBUCK

The following tables set forth selected historical consolidated financial and other data of Holdings, 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 beginning on pages 27 and 29 of this document, Starbuck comprises more than 99.9% of the consolidated assets of Holdings as of September 30, 2014 and more than 105.0% of Holdings’ net income for the nine months ended September 30, 2014 and the twelve months ended December 31, 2013. The information in the tables is derived in part from the audited financial statements of Holdings for the years ended December 31, 2010 to 2013 and should be read in conjunction with Holdings annual audited financial statements and unaudited interim financial statements which have been filed with the SEC in Banner’s Current Report on Form 8-K filed on December 4, 2014, which is incorporated by reference into this proxy statement. The selected financial data tables below reflect only four years as Holdings was organized in 2009 and it did not begin acquiring any substantial subsidiaries through Starbuck until 2010. In 2010 and subsequent years additional acquisitions continued to add to the size of the consolidated company and contributed to the year-over-year growth trends noted below. See “Where You Can Find More Information” beginning on page 129. The selected financial and other data as of and for the nine months ended September 30, 2014 and 2013 are derived from the unaudited financial statements of Holdings which are also contained in Banner’s Current Report on Form 8-K filed on December 4, 2014, and which, in Holdings’ opinion, include all adjustments (consisting of normal, recurring adjustments) necessary for a fair statement of Holdings’ financial position and results of operations for such periods. The results of operations for the nine months ended September 30, 2014 and 2013 are not necessarily indicative of the results of operations to be expected for any subsequent period or for the entire year.

 

Selected Financial Data:    (unaudited)
September 30,
     December 31,  
(In thousands)    2014      2013      2012      2011      2010  

Total assets

   $ 4,094,783       $ 3,943,195       $ 2,763,445       $ 2,299,081       $ 1,664,456   

Cash and securities

     1,144,057         1,217,242         723,685         725,269         524,191   

Loans receivable, net

     2,543,034         2,283,548         1,717,631         1,350,073         965,896   

Deposits

     3,228,776         3,274,081         2,196,530         1,901,990         1,418,393   

Borrowings

     251,473         73,095         88,179         1,104         10,600   

Total members’ equity

     561,312         534,131         444,036         368,408         202,924   

 

Operating Data:

  (unaudited)
Nine Months Ended September 30,
    Years Ended December 31,  
(In thousands)         2014                 2013           2013     2012     2011     2010  

Interest income

  $ 115,028      $ 110,499      $ 149,298      $ 113,111      $ 86,102      $ 2,738   

Interest expense

    4,976        3,998        5,739        4,594        4,149        159   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income before provision for loan losses

  110,052      106,501      143,559      108,517      81,953      2,579   

Provision for loan losses

  997      4,148      4,211      3,807      366      203   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

  109,055      102,353      139,348      104,710      81,587      2,376   

Deposit fees and other service charges

  11,312      10,445      13,999      10,306      8,702      311   

Mortgage banking operations revenue

  2,851      5,766      6,846      7,202      2,408      131   

All other non-interest income

  19,726      15,164      22,210      13,153      9,388      334   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-interest income

  33,889      31,375      43,055      30,661      20,498      776   

REO operations expense

  4,638      6,585      8,560      7,929      5,753      273   

All other non-interest expenses

  108,716      129,000      166,243      120,665      90,138      20,658   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-interest expense

  113,354      135,585      174,803      128,594      95,891      20,931   

Income (loss) before provision for income tax expense (benefit)

  29,590      (1,857   7,600      6,777      6,194      (17,779

Provision for income tax expense (benefit)

  12,604      (294   579      (63,307   (56   —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

$ 16,986    $ (1,563 $ 7,021    $ 70,084    $ 6,250    $ (17,779
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Condensed Quarterly Results of Operations for the each of the Quarters

for the Periods/Years Ended 2014, 2013, 2012:

 

     2014 Quarter Ended  
(In thousands)         September 30,     June 30,      March 31,  

Interest income

      $ 36,995      $ 37,400       $ 40,633   

Interest expense

        1,870        1,585         1,521   
     

 

 

   

 

 

    

 

 

 

Net interest income

        35,125        35,815         39,112   

Provision for loan losses

        (77     295         779   

Non-interest income

        10,530        9,838         13,521   

Non-interest expenses

        36,177        36,831         40,346   
     

 

 

   

 

 

    

 

 

 

Income before income taxes

        9,555        8,527         11,508   

Income tax provision

        3,916        3,261         5,427   
  

 

  

 

 

   

 

 

    

 

 

 

Net income

      $ 5,639      $ 5,266       $ 6,081   
     

 

 

   

 

 

    

 

 

 

 

     2013 Quarter Ended  
(In thousands)    December 31,      September 30,     June 30,     March 31,  

Interest income

   $ 38,799       $ 40,075      $ 41,509      $ 28,915   

Interest expense

     1,741         1,429        1,365        1,204   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net interest income

     37,058         38,646        40,144        27,711   

Provision for loan losses

     63         1,110        1,604        1,434   

Non-interest income

     11,612         10,836        10,585        10,022   

Non-interest expenses

     39,150         53,202        49,867        32,584   
  

 

 

    

 

 

   

 

 

   

 

 

 

Income before income taxes

     9,457         (4,830     (742     3,715   

Income tax provision

     873         (1,924     197        1,433   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income

   $ 8,584       $ (2,906   $ (939   $ 2,282   
  

 

 

    

 

 

   

 

 

   

 

 

 

 

     2012 Quarter Ended  
(In thousands)    December 31,     September 30,     June 30,      March 31,  

Interest income

   $ 30,095      $ 29,923      $ 25,968       $ 27,125   

Interest expense

     1,279        1,265        953         1,097   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net interest income

     28,816        28,658        25,015         26,028   

Provision for loan losses

     1,458        1,234        1,110         5   

Non-interest income

     8,603        9,156        7,449         5,453   

Non-interest expenses

     35,801        34,085        29,023         29,685   
  

 

 

   

 

 

   

 

 

    

 

 

 

Income before income taxes

     160        2,495        2,331         1,791   

Income tax provision

     (4,658     (58,652     —           3   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income

   $ 4,818      $ 61,147      $ 2,331       $ 1,788   
  

 

 

   

 

 

   

 

 

    

 

 

 

 

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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following selected preliminary unaudited pro forma condensed combined financial data give effect to the merger based on the assumption that the merger occurred as of September 30, 2014 for the preliminary unaudited selected financial and other data, as of January 1, 2013 for the preliminary unaudited results of operations for the year ended December 31, 2013 and as of January 1, 2013 for the nine months ended September 30, 2014.

The selected preliminary unaudited pro forma condensed combined financial data is presented for illustrative purposes only and should not be read for any other purpose. Banner and Starbuck may have performed differently had they always been combined. You should not rely on this information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that Banner will experience after the merger. The selected preliminary unaudited pro forma condensed combined financial data (i) has been derived from and should be read in conjunction with the section entitled “Unaudited Pro Forma Combined Condensed Consolidated Financial Information” and the related notes beginning on page 29 of this proxy statement/prospectus and (ii) should be read in conjunction with the historical consolidated financial statements of Banner and Starbuck incorporated by reference into this proxy statement.

 

Selected Financial Data:    (unaudited)  
(In thousands)    At September 30, 2014  

Total assets

   $ 9,676,709   

Cash and securities (1)

     2,041,175   

Loans receivable, net

     6,786,911   

Deposits

     7,977,548   

Borrowings

     428,750   

Common stockholders’ equity

     1,159,557   

Total stockholders’ equity

     1,159,557   

Shares outstanding

     34,122   

 

OPERATING DATA:    (unaudited)      (unaudited)  
(in thousands except shares and per share data)    Nine months ended
September 30, 2014
     Twelve months ended
December 31, 2013
 

Interest income

   $ 281,711       $ 361,849   

Interest expense

     15,026         21,298   
  

 

 

    

 

 

 

Net interest income before provision for loan losses

  266,685      340,351   

Provision for loan losses

  1,314      4,761   
  

 

 

    

 

 

 

Net interest income

  265,371      335,790   

Deposit fees and other service charges

  34,294      41,850   

Mortgage banking operations revenue

  11,609      20,830   

Other-than-temporary impairment recoveries (losses)

  —        409   

Net change in valuation of financial instruments carried at fair value

  1,452      (2,278

All other operating income

  34,170      34,073   
  

 

 

    

 

 

 

Total other operating income

  81,525      94,884   

Real estate operations

  —        (689

All other operating expenses

  249,279      349,537   
  

 

 

    

 

 

 

Total other operating expense

  249,279      348,848   
  

 

 

    

 

 

 

Income before provision for income taxes

  97,617      81,826   

Provision for income tax expense (benefit)

  33,955      23,774   
  

 

 

    

 

 

 

Net income (loss)

$ 63,622    $ 58,052   
  

 

 

    

 

 

 

 

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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 and for Banner on a pro forma combined basis. The pro forma combined information give effect to the merger of Banner with Siuslaw and of Banner with Starbuck, assuming Starbuck had completed the acquisition of GSB as if each merger had been effective on the dates presented in the case of the book value per common share data, and as each merger had been effective as of January 1 of the applicable pro forma period, in the case of the cash dividends paid per common share and earnings per common share data. The pro forma combined amounts are calculated by combining the Banner historical share amounts with pro forma amounts from Siuslaw, assuming an exchange ratio of 0.32231, and pro forma amounts from Starbuck, assuming 13,230,000 shares of Banner are issued to the Starbuck holders, along with a cash payment by Banner of $130,000,000 to the Starbuck holders. The pro forma combined amounts for Banner reflect certain acquisition accounting adjustments, which are based on estimates that are subject to change depending on fair values as of each merger completion date. 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” of Banner beginning on page 29. 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 merger-related activity, they are not indicative of what could have occurred had the merger taken place on January 1 of the applicable pro forma period.

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, 2014

   $ 29.33         n/a       $ 33.98   

Cash dividends paid per common share: (2)

        

Year ended December 31, 2013

   $ 0.54         n/a       $ 0.54   

Nine months ended September 30, 2014

   $ 0.54         n/a       $ 0.54   

Basic and diluted earnings per common share: (3)

        

Year ended December 31, 2013

        

Basic

   $ 2.40         n/a       $ 1.71   

Diluted

   $ 2.40         n/a       $ 1.71   

Nine months ended September 30, 2014

        

Basic

   $ 2.19         n/a       $ 1.88   

Diluted

   $ 2.19         n/a       $ 1.87   

 

(1) Calculated by dividing the total equity by total common shares outstanding
(2) Represents the historical cash dividends per share paid by Banner 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 shareholders (1,319,995 shares times $40.50) and former Starbuck equity holders (13,230,000 shares times $40.50) 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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UNAUDITED PRO FORMA COMBINED CONDENSED

CONSOLIDATED FINANCIAL INFORMATION

The following is the unaudited pro forma combined condensed consolidated financial information for Banner, Siuslaw, GSB and Starbuck, giving effect to the mergers. The unaudited pro forma combined condensed consolidated balance sheet as of September 30, 2014 gives effect to the merger of Banner with Siuslaw, Starbuck with GSB, and Banner with Starbuck, as if the mergers had occurred on that date. The unaudited pro forma combined condensed consolidated statements of operations for the nine months ended September 30, 2014 and the year ended December 31, 2013 give effect to the merger of Banner with Siuslaw, Starbuck with GSB, and Banner with Starbuck, as if the mergers had occurred on January 1, 2013.

The unaudited pro forma combined condensed consolidated financial statements have been prepared using the acquisition method of accounting for business combinations under GAAP. Banner will be the acquirer for accounting purposes in its acquisitions, and Starbuck will be the acquirer in its acquisition of GSB. Certain reclassifications have been made to the historical financial statements of Siuslaw, GSB and Starbuck to conform to the presentation in Banner’s financial statements. These reclassifications had no impact on net income.

A final determination of the fair values of Siuslaw’s, GSB’s and Starbuck’s assets and liabilities, which cannot be made prior to the completion of each merger, will be based on the actual net tangible and intangible assets of Siuslaw, GSB and Starbuck that exist as of the dates of completion of the transactions. Consequently, fair value adjustments and amounts preliminarily attributed to goodwill and identifiable intangibles could change significantly from those adjustments used in the unaudited pro forma combined condensed consolidated financial statements presented herein and could result in a material change in amortization of acquired intangible assets. In addition, the value of the final purchase price of the mergers will be based on the closing price of Banner common stock on the closing dates of the merger of Banner with Siuslaw and Banner with Starbuck. For purposes of the accompanying pro forma financial information, the closing price of Banner common stock on December 1, 2014 was used for purposes of presenting the pro forma combined consolidated balance sheet at September 30, 2014.

In connection with the plan to integrate the operations of Banner, Siuslaw, GSB and Starbuck following the completion of the merger of Banner with Siuslaw and Banner with Starbuck, Banner anticipates that nonrecurring charges, such as costs associated with systems implementation, severance and other costs related to exit or disposal activities, will be incurred. Banner is not able to determine the timing, nature and amount of these charges as of the date of this document. However, these charges will affect the results of operations of Banner, Siuslaw, GSB and Starbuck, as well as those of the combined company following the completion of the mergers, in the periods in which they are recorded. The unaudited pro forma combined condensed consolidated statements of operations do not include the effects of the non-recurring costs associated with any restructuring or integration activities resulting from the mergers, as they are nonrecurring in nature and not factually supportable at this time. Additionally, the unaudited pro forma adjustments do not give effect to any nonrecurring or unusual restructuring charges that may be incurred as a result of the integration of the two companies or any anticipated disposition of assets that may result from such integration. However, the unaudited pro forma combined condensed consolidated balance sheet includes a pro forma adjustment to reduce cash and equity to reflect the payment of certain anticipated merger costs and the write off, as of the date of closing, of certain assets with little to no utility or value.

The actual amounts recorded as of the completion of the mergers may differ materially from the information presented in these unaudited pro forma combined condensed consolidated financial statements as a result of:

 

    changes in the trading price for Banner’s common stock;

 

    capital used or generated in Siuslaw’s, GSB’s and Starbuck’s operations before completion of their respective mergers;

 

    changes in the fair values of Siuslaw’s, GSB’s and Starbuck’s assets and liabilities;

 

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    other changes in Siuslaw’s, GSB’s and Starbuck’s net assets that occur prior to the completion of their respective mergers, which could cause material changes in the information presented below; and

 

    the actual financial results of the combined company.

The unaudited pro forma combined condensed consolidated financial statements are provided for informational purposes only. These financial statements reflect the merger of Siuslaw into Banner, the segregation of Starbuck from its parent holding company Holdings, the merger of GSB into Starbuck, and the merger of Starbuck into Banner, with all appropriate adjustments for each combination. The unaudited pro forma combined condensed consolidated financial statements are 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 statements and related adjustments required management to make certain assumptions and estimates. 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 incorporated into this document by reference from its Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 and its Annual Report on Form 10-K for the year ended December 31, 2013, and the historical consolidated financial statements and related notes of Holdings incorporated into this document by reference to Banner’s Current Report on Form 8-K filed on December 4, 2014. Audited financial information for Starbuck alone is not available; however, Starbuck comprises more than 99.9% of the consolidated assets and equity of Holdings as of September 30, 2014, and more than 105.0% of Holdings’ consolidated net income for the nine months ended September 30, 2014 and the twelve months ended December 31, 2013. See the section entitled “Where You Can Find More Information” beginning on page 129.

 

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Pro Forma Consolidated Statements of Financial Condition

September 30, 2014

(in thousands)

 

     Banner     Siuslaw     Pro Forma
Adjustments
    Notes      Banner &
Siuslaw
Combined
Pro Forma
 

ASSETS

           

Cash and equivalents

   $ 151,725      $ 114,851      $ (7,691     A       $ 258,885   

Investment securities

     646,996        13,178        —             660,174   
  

 

 

   

 

 

   

 

 

      

 

 

 

Total cash and securities

     798,721        128,029        (7,691        919,059   

Loans receivable

     3,806,695        250,111        (5,000     B         4,051,806   

Allowance for loan losses

     (74,331     (4,070     4,070        C         (74,331
  

 

 

   

 

 

   

 

 

      

 

 

 

Net loans

     3,732,364        246,041        (930        3,977,475   

OREO

     3,928        3,172        —             7,100   

Premises and equipment

     91,291        5,769        2,000        D         99,060   

Intangibles/CDI

     3,362        —          5,600        E         8,962   

Goodwill

     —          —          13,808        F         13,808   

Deferred taxes

     21,830        3,617        (1,520     G         23,927   

Other assets

     107,893        12,852        —             120,745   
  

 

 

   

 

 

   

 

 

      

 

 

 

Total Assets

   $ 4,759,389      $ 399,480      $ 11,267         $ 5,170,136   
  

 

 

   

 

 

   

 

 

      

 

 

 

LIABILITIES

           

Non-interest bearing

   $ 1,304,720      $ 101,706      $ —           $ 1,406,426   

Interest bearing deposits

     2,686,398        245,606        —             2,932,004   
  

 

 

   

 

 

   

 

 

      

 

 

 

Total deposits

     3,991,118        347,312        —             4,338,430   

Borrowings

     67,855        —          —             67,855   

Junior subordinated debentures

     77,624        8,248        (2,327     H         83,545   

Other liabilities

     48,734        4,438        —             53,172   
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities

     4,185,331        359,998        (2,327        4,543,002   

EQUITY

           

Equity (Banner)

     574,058        —          53,076        I         627,134   

Equity (Siuslaw)

     —          39,482        (39,482     J         —     
  

 

 

   

 

 

   

 

 

      

 

 

 

Total Equity

     574,058        39,482        13,594           627,134   
  

 

 

   

 

 

   

 

 

      

 

 

 

Total Liabilities and Equity

   $ 4,759,389      $ 399,480      $ 11,267         $ 5,170,136   
  

 

 

   

 

 

   

 

 

      

 

 

 

 

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Pro Forma Consolidated Statements of Financial Condition

September 30, 2014

(in thousands)

 

    Holdings     Eliminations     Notes   Starbuck     GSB     Pro Forma
Adjustments
    Notes   Starbuck
Combined
Pro Forma
 

ASSETS

               

Cash and equivalents

  $ 85,230      $ —          $ 85,230      $ 25,690      $ (60,319   A   $ 50,601   

Investment securities

    1,058,827        —            1,058,827        160,896        1,504      B     1,221,227   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total cash and securities

    1,144,057        —            1,144,057        186,586        (58,815       1,271,828   

Loans receivable

    2,558,193        —            2,558,193        273,279        (5,938   C     2,825,534   

Allowance for loan losses

    (15,159     —            (15,159     (3,717     3,717      D     (15,159
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Net loans

    2,543,034        —            2,543,034        269,562        (2,221       2,810,375   

OREO

    16,335        —            16,335        2,462        (1,619   E     17,178   

Premises and equipment

    72,487        —            72,487        172        (31   F     72,628   

Intangibles/CDI

    24,713        —            24,713        —          423      G     25,136   

Goodwill

    57,219        —            57,219        —          21,615      H     78,834   

Deferred taxes

    128,124        —            128,124        4,836        76      I     133,036   

Other assets

    108,813        (2   A     108,811        17,256        (74   J     125,993   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total Assets

  $ 4,094,782      $ (2     $ 4,094,780      $ 480,874      $ (40,646     $ 4,535,008   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

LIABILITIES

               

Non-interest bearing

  $ 809,248      $ 519      B   $ 809,767      $ 135,002      $ —          $ 944,769   

Interest bearing deposits

    2,419,527        —            2,419,527        274,749        73      K     2,694,349   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total deposits

    3,228,775        519          3,229,294        409,751        73          3,639,118   

Borrowings

    251,473        —            251,473        20,039        —            271,512   

Junior subordinated debentures

    —          —            —          8,248        (2,410   L     5,838   

Other liabilities

    53,222        (67   C     53,155        3,991        536      M     57,682   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities

    3,533,470        452          3,533,922        442,029        (1,801       3,974,150   

EQUITY

               

Equity (Starbuck)

    561,312        (454   D     560,858        —          —            560,858   

Equity (GSB)

    —          —            —          38,845        (38,845   N     —     
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total Equity

    561,312        (454       560,858        38,845        (38,845       560,858   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total Liabilities and Equity

  $ 4,094,782      $ (2     $ 4,094,780      $ 480,874      $ (40,646     $ 4,535,008   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

 

32


Table of Contents

Pro Forma Consolidated Statements of Financial Condition

September 30, 2014

(in thousands)

 

     Banner &
Siuslaw
Combined
Pro Forma
    Starbuck
Combined
Pro Forma
    Pro Forma
Adjustments
    Notes    Pro Forma
Totals
 

ASSETS

           

Cash and equivalents

   $ 258,885      $ 50,601      $ (149,712   A    $ 159,774   

Investment securities

     660,174        1,221,227        —             1,881,401   
  

 

 

   

 

 

   

 

 

      

 

 

 

Total cash and securities

     919,059        1,271,828        (149,712        2,041,175   

Loans receivable

     4,051,806        2,825,534        (16,098   B      6,861,242   

Allowance for loan losses

     (74,331     (15,159     15,159      C      (74,331
  

 

 

   

 

 

   

 

 

      

 

 

 

Net loans

     3,977,475        2,810,375        (939        6,786,911   

OREO

     7,100        17,178        —             24,278   

Premises and equipment

     99,060        72,628        (8,000   D      163,688   

Intangibles/CDI

     8,962        25,136        17,971      E      52,069   

Goodwill

     13,808        78,834        115,406      F      208,048   

Deferred taxes

     23,927        133,036        (3,161   G      153,802   

Other assets

     120,745        125,993        —             246,738   
  

 

 

   

 

 

   

 

 

      

 

 

 

Total Assets

   $ 5,170,136      $ 4,535,008      $ (28,435      $ 9,676,709   
  

 

 

   

 

 

   

 

 

      

 

 

 

LIABILITIES

           

Non-interest bearing

   $ 1,406,426      $ 944,769      $ —           $ 2,351,195   

Interest bearing deposits

     2,932,004        2,694,349        —             5,626,353   
  

 

 

   

 

 

   

 

 

      

 

 

 

Total deposits

     4,338,430        3,639,118        —             7,977,548   

Borrowings

     67,855        271,512        —             339,367   

Junior subordinated debentures

     83,545        5,838        —             89,383   

Other liabilities

     53,172        57,682        —             110,854   
  

 

 

   

 

 

        

 

 

 

Total liabilities

     4,543,002        3,974,150        —             8,517,152   

EQUITY

           

Equity (Banner)

     627,134        —          532,423      H      1,159,557   

Equity (Starbuck)

     —          560,858        (560,858   I      —     
  

 

 

   

 

 

   

 

 

      

 

 

 

Total Equity

     627,134        560,858        (28,435        1,159,557   
  

 

 

   

 

 

   

 

 

      

 

 

 

Total Liabilities and Equity

   $ 5,170,136      $ 4,535,008      $ (28,435      $ 9,676,709   
  

 

 

   

 

 

   

 

 

      

 

 

 

 

33


Table of Contents

Pro Forma Consolidated Statement of Operations

Nine Months Ended September 30, 2014

(in thousands)

 

     Banner      Siuslaw      Pro Forma
Adjustments
    Notes      Banner &
Siuslaw
Combined
Pro Forma
 

Interest income:

             

Interest and fees on loans

   $ 131,439       $ 9,377       $ —           $ 140,816   

Interest on cash and securities

     9,971         540         (93     K         10,418   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total interest income

     141,410         9,917         (93        151,234   

Interest expense:

             

Interest on deposits

     5,776         301         —             6,077   

Interest on borrowings

     2,423         184         54        L         2,661   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total interest expense

     8,199         485         54           8,738   
  

 

 

    

 

 

    

 

 

      

 

 

 

Net interest income before provision

     133,211         9,432         (147        142,496   

Loan loss provision expense

     —           —           —             —     
  

 

 

    

 

 

    

 

 

      

 

 

 

Net interest income after provision for loan losses

     133,211         9,432         (147        142,496   

Other operating income:

             

Deposit fees and charges

     22,237         493         —             22,730   

Mortgage banking operations

     7,282         1,476         —             8,758   

Other

     12,823         2,397         —             15,220   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total other operating income

     42,342         4,366         —             46,708   

Other operating expense:

             

Compensation

     57,777         5,558         —             63,335   

Occupancy and equipment

     17,055         684         150        M         17,889   

Amortization of core deposit intangibles

     1,460         —           630        N         2,090   

Other

     36,220         4,196         —             40,416   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total other operating expense

     112,512         10,438         780           123,730   
  

 

 

    

 

 

    

 

 

      

 

 

 

Pre-tax income

     63,041         3,360         (927        65,474   

Provision for income taxes

     20,620         277         (324     O         20,573   
  

 

 

    

 

 

    

 

 

      

 

 

 

Net income

   $ 42,421       $ 3,083       $ (603      $ 44,901   
  

 

 

    

 

 

    

 

 

      

 

 

 

 

34


Table of Contents

Pro Forma Consolidated Statement of Operations

Nine Months Ended September 30, 2014

(in thousands)

 

    Holdings     Eliminations     Notes     Starbuck     GSB     Pro Forma
Adjustments
    Notes     Starbuck
Combined
Pro Forma
 

Interest income:

               

Interest and fees on loans

  $ 96,110      $ —          $ 96,110      $ 9,524      $ 437        O      $ 106,071   

Interest on cash and securities

    18,918        —            18,918        2,915        204        P        22,037   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total interest income

    115,028        —            115,028        12,439        641          128,108   

Interest expense:

               

Interest on deposits

    4,430        —            4,430        917        21        Q        5,368   

Interest on borrowings

    546        —            546        312        62        R        920   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total interest expense

    4,976        —            4,976        1,229        83          6,288   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Net interest income before provision

    110,052        —            110,052        11,210        558          121,820   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Loan loss provision expense

    1,714        —            1,714        (400     —            1,314   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Net interest income after provision for loan losses

    108,338        —            108,338        11,610        558          120,506   

Other operating income:

               

Deposit fees and charges

    11,312        —            11,312        252        —            11,564   

Mortgage banking operations

    2,851        —            2,851        —          —            2,851   

Other

    19,727        387        E        20,114        288        —            20,402   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total other operating income

    33,890        387          34,277        540        —            34,817   

Other operating expense:

               

Compensation

    60,725        (1,054     F        59,671        5,383        —            65,054   

Occupancy and equipment

    17,362        —            17,362        1,100        —            18,462   

Amortization of core deposit intangibles

    2,598        —            2,598        —          48        S        2,646   

Other

    31,953        134        H        32,087        2,451        —            34,538   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total other operating expense

    112,638        (920       111,718        8,934        48          120,700   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Pre-tax income

    29,590        1,307          30,897        3,216        510          34,623   

Provision for income taxes

    12,604        457        I        13,061        1,010        179        T        14,250   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Net income

  $ 16,986      $ 850        $ 17,836      $ 2,206      $ 331        $ 20,373   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

 

35


Table of Contents

Pro Forma Consolidated Statement of Operations

Nine Months Ended September 30, 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

   $ 140,816       $ 106,071       $ 1,785      J    $ 248,672   

Interest on cash and securities

     10,418         22,037         584      K      33,039   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total interest income

     151,234         128,108         2,369           281,711   

Interest expense:

             

Interest on deposits

     6,077         5,368         —             11,445   

Interest on borrowings

     2,661         920         —             3,581   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total interest expense

     8,738         6,288         —             15,026   
  

 

 

    

 

 

    

 

 

      

 

 

 

Net interest income before provision

     142,496         121,820         2,369           266,685   

Loan loss provision expense

     —           1,314         —             1,314   
  

 

 

    

 

 

    

 

 

      

 

 

 

Net interest income after provision for loan losses

     142,496         120,506         2,369           265,371   

Other operating income:

             

Deposit fees and charges

     22,730         11,564         —             34,294   

Mortgage banking operations

     8,758         2,851         —             11,609   

Other

     15,220         20,402         —             35,622   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total other operating income

     46,708         34,817         —             81,525   

Other operating expense:

             

Compensation

     63,335         65,054         —             128,389   

Occupancy and equipment

     17,889         18,462         —             36,351   

Amortization of core deposit intangibles

     2,090         2,646         4,849      L      9,585   

Other

     40,416         34,538         —             74,954   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total other operating expense

     123,730         120,700         4,849           249,279   
  

 

 

    

 

 

    

 

 

      

 

 

 

Pre-tax income

     65,474         34,623         (2,480        97,617   

Provision for income taxes

     20,573         14,250         (868   M      33,955   
  

 

 

    

 

 

    

 

 

      

 

 

 

Net income

   $ 44,901       $ 20,373       $ (1,612      $ 63,622   
  

 

 

    

 

 

    

 

 

      

 

 

 

 

36


Table of Contents

Pro Forma Consolidated Statement of Operations

Twelve Months Ended December 31, 2013

(in thousands)

 

     Banner      Siuslaw      Pro Forma
Adjustments
    Notes    Banner &
Siuslaw
Combined
Pro Forma
 

Interest income:

             

Interest and fees on loans

   $ 167,204       $ 11,923       $ —           $ 179,127   

Interest on cash and securities

     12,508         675         (121   K      13,062   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total interest income

     179,712         12,598         (121        192,189   

Interest expense:

             

Interest on deposits

     9,737         506         —             10,243   

Interest on borrowings

     3,259         249         68      L      3,576   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total interest expense

     12,996         755         68           13,819   
  

 

 

    

 

 

    

 

 

      

 

 

 

Net interest income before Provision

     166,716         11,843         (189        178,370   

Loan loss provision expense

     —           550         —             550   
  

 

 

    

 

 

    

 

 

      

 

 

 

Net interest income after provision for loan losses

     166,716         11,293         (189        177,820   

Other operating income:

             

Deposit fees and charges

     26,581         586         —             27,167   

Mortgage banking operations

     11,170         2,814         —             13,984   

Other

     5,591         3,352         —             8,943   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total other operating income

     43,342         6,752         —             50,094   

Other operating expense:

             

Compensation

     73,161         8,088         —             81,249   

Occupancy and equipment

     21,423         861         200      M      22,484   

Amortization of core deposit intangibles

     1,941         —           896      N      2,837   

Other

     44,450         5,540         —             49,990   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total other operating expense

     140,975         14,489         1,096           156,560   
  

 

 

    

 

 

    

 

 

      

 

 

 

Pre-tax income

     69,083         3,556         (1,285        71,354   

Provision for income taxes

     22,528         466         (450   O      22,544   
  

 

 

    

 

 

    

 

 

      

 

 

 

Net income

   $ 46,555       $ 3,090       $ (835      $ 48,810   
  

 

 

    

 

 

    

 

 

      

 

 

 

 

37


Table of Contents

Pro Forma Consolidated Statement of Operations

Twelve Months Ended December 31, 2013

(in thousands)

 

    Holdings     Eliminations     Notes   Starbuck     GSB     Pro Forma
Adjustments
    Notes   Starbuck
Combined
Pro Forma
 

Interest income:

               

Interest and fees on loans

  $ 133,195      $ —          $ 133,195      $ 12,779      $ 582      O   $ 146,556   

Interest on cash and securities

    16,103        —            16,103        3,458        268      P     19,829   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total interest income

    149,298        —            149,298        16,237        850          166,385   

Interest expense:

               

Interest on deposits

    5,273        —            5,273        1,313        28      Q     6,614   

Interest on borrowings

    466        —            466        320        79      R     865   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total interest expense

    5,739        —            5,739        1,633        107          7,479   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Net interest income before Provision

    143,559        —            143,559        14,604        743          158,906   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Loan loss provision expense

    4,211        —            4,211        —          —            4,211   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Net interest income after provision for loan losses

    139,348        —            139,348        14,604        743          154,695   

Other operating income:

               

Deposit fees and charges

    13,999        —            13,999        684        —            14,683   

Mortgage banking operations

    6,846        —            6,846        —          —            6,846   

Other

    22,210        426      E     22,636        625        —            23,261   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total other operating income

    43,055        426          43,481        1,309        —            44,790   

Other operating expense:

               

Compensation

    87,759        (1,389   F     86,370        6,805        —            93,175   

Occupancy and equipment

    37,274        (6   G     37,268        1,480        —            38,748   

Amortization of core deposit intangibles

    3,376        —            3,376        —          67      S     3,443   

Other

    46,394        (26   H     46,368        3,656        —            50,024   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total other operating expense

    174,803        (1,421       173,382        11,941        67          185,390   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Pre-tax income

    7,600        1,847          9,447        3,972        676          14,095   

Provision for income taxes

    579        646      I     1,225        1,036        237      T     2,498   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Net income

  $ 7,021      $ 1,201        $ 8,222      $ 2,936      $ 439        $ 11,597   
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

 

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Table of Contents

Pro Forma Consolidated Statement of Operations

Twelve Months Ended December 31, 2013

(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

  $ 179,127      $ 146,556      $ 2,512      J   $ 328,195   

Interest on cash and securities

    13,062        19,829        763      K     33,654   
 

 

 

   

 

 

   

 

 

     

 

 

 

Total interest income

    192,189        166,385        3,275          361,849   

Interest expense:

         

Interest on deposits

    10,243        6,614        —            16,857   

Interest on borrowings

    3,576        865        —            4,441   
 

 

 

   

 

 

   

 

 

     

 

 

 

Total interest expense

    13,819        7,479        —            21,298   
 

 

 

   

 

 

   

 

 

     

 

 

 

Net interest income before provision

    178,370        158,906        3,275          340,351   

Loan loss provision expense

    550        4,211        —            4,761   
 

 

 

   

 

 

   

 

 

     

 

 

 

Net interest income after provision for loan losses

    177,820        154,695        3,275          335,790   

Other operating income:

         

Deposit fees and charges

    27,167        14,683        —            41,850   

Mortgage banking operations

    13,984        6,846        —            20,830   

Other

    8,943        23,261        —            32,204   
 

 

 

   

 

 

   

 

 

     

 

 

 

Total other operating income

    50,094        44,790        —            94,884   

Other operating expense:

         

Compensation

    81,249        93,175        —            174,424   

Occupancy and equipment

    22,484        38,748        —            61,232   

Amortization of core deposit intangibles

    2,837        3,443        6,898      L     13,178   

Other

    49,990        50,024        —            100,014   
 

 

 

   

 

 

   

 

 

     

 

 

 

Total other operating expense

    156,560        185,390        6,898          348,848   
 

 

 

   

 

 

   

 

 

     

 

 

 

Pre-tax income

    71,354        14,095        (3,623       81,826   

Provision for income taxes

    22,544        2,498        (1,268   M     23,774   
 

 

 

   

 

 

   

 

 

     

 

 

 

Net income

  $ 48,810      $ 11,597      $ (2,355     $ 58,052   
 

 

 

   

 

 

   

 

 

     

 

 

 

 

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Table of Contents

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 under the acquisition method of accounting for business combinations. The unaudited pro forma combined condensed consolidated statements of operations for the year ended December 31, 2013 and nine months ended September 30, 2014, are presented as if the acquisitions occurred on January 1, 2013. The unaudited pro forma combined condensed consolidated statements of financial condition as of September 30, 2014 are presented as if the acquisitions occurred as of that date. This information is not intended to reflect the actual results that would have been achieved had the acquisition 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 of entities being acquired, Siuslaw Bank, GSB and Starbuck, will be recorded at the respective fair values on the merger date. The fair values on the merger date are to represent management’s best estimates based on available information and facts and circumstances in existence on the merger date. The pro forma adjustments reflected in the unaudited pro forma combined condensed consolidated financial information are subject to adjustment and may vary from the actual purchase price allocation that will be recorded at the time the merger is completed. Adjustments may include, but not be limited to, changes in (i) the acquired entity’s balance sheets through the effective time of the mergers; (ii) the aggregate value of merger consideration paid if the price of Banner’s stock varies from the assumed prices per share; (iii) total merger related expenses if consummation and/or implementation costs vary from currently estimated amounts; and (iv) the underlying values of assets and liabilities if market conditions differ from current assumptions.

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

Siuslaw Acquisition: Each share of Siuslaw common stock will be converted into the right to receive, promptly following completion of the merger, (1) 0.32231 shares of Banner common stock and (2) $1.41622 in cash. Banner will issue approximately 1,319,995 shares of common stock in the merger, resulting in approximately 20,891,500 shares of common stock outstanding after the merger, and pay aggregate cash consideration in the merger of approximately $5.8 million, representing an aggregate consideration mix of approximately 90% Banner stock and 10% cash. All preferred stock of Siuslaw will be converted to common stock of Siuslaw immediately prior to the merger and preferred shareholders will receive the same merger consideration as the other Siuslaw common shareholders.

Any changes in the price of Banner common stock would change the purchase price and goodwill. The following table presents the sensitivity of purchase price and resulting goodwill to changes in the price of Banner’s common stock using a price of $40.50 as of December 1, 2014 as the baseline.

 

Price Sensitivity

   Banner
Stock Price
     Siuslaw
Purchase Price

(in thousands)
     Estimated
Goodwill
(in thousands)
 

Up 20%

   $ 48.600       $ 69,952       $ 24,500   

Up 10%

   $ 44.550       $ 64,606       $ 19,154   

Baseline presented in pro forma

   $ 40.500       $ 59,260       $ 13,808   

Down 10%

   $ 36.450       $ 53,914       $ 8,462   

Down 20%

   $ 32.400       $ 48,568       $ 3,116   

 

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Table of Contents

GSB Acquisition: Each share of GSB common stock will be converted into the right to receive, promptly following completion of the merger with Starbuck, $22.05 in cash.

Starbuck Acquisition: The aggregate consideration to be received by Starbuck holders will consist of a fixed amount of 13.23 million shares of Banner common stock and $130.0 million in cash. Upon completion of the transaction, such shares will represent an approximately 38.77% pro forma ownership interest in Banner assuming completion of merger with Siuslaw. Based on the closing price of Banner common stock on February 13, 2015, the aggregate value of the transaction is approximately $724 million.

Note 3—Allocation of Purchase Price

Siuslaw Acquisition: At the merger date, Siuslaw’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.

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

 

     September 30, 2014  
     (in thousands)  

Pro forma purchase price of Siuslaw Bank

  

Fair value of Banner common stock at $40.50 per share

      $ 53,460   

Cash to be paid

        5,800   
     

 

 

 

Total consideration paid

  59,260   

Fair value of assets acquired:

Cash

$ 113,344   

Investment securities

  13,178   

Loans, net

  245,111   

OREO

  3,172   

Premises and equipment

  7,769   

Intangible assets

  5,600   

Other assets

  14,949   
  

 

 

    

Total assets acquired

  403,123   

Fair value of liabilities assumed:

Deposits

  347,312   

Junior subordinated debentures

  5,921   

Accrued expenses and other liabilities

  4,438   
  

 

 

    

Total liabilities assumed

  357,671   
     

 

 

 

Fair value of net assets acquired

  45,452   
     

 

 

 

Excess of consideration paid over the net assets acquired (Goodwill)

$ 13,808   
     

 

 

 

 

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Table of Contents

GSB Acquisition. At the merger date, GSB’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.

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

 

     September 30, 2014  
     (in thousands)  

Pro forma purchase price of GSB

  

Cash to be paid

      $ 59,633   
     

 

 

 

Total pro forma purchase price

        59,633   

Fair value of assets acquired:

     

Cash

   $ 25,004      

Investment securities

     162,400      

Loans, net

     267,341      

OREO

     843      

Premises and equipment

     141      

Intangible assets

     423      

Other assets

     22,094      
  

 

 

    

Total assets acquired

     478,246      

Fair value of liabilities assumed:

     

Deposits

     409,824      

Borrowings

     20,039      

Junior subordinated debentures

     5,838      

Accrued expenses and other liabilities

     4,527      
  

 

 

    

Total liabilities assumed

     440,228      
     

 

 

 

Fair value of net assets acquired

        38,018   
     

 

 

 

Excess of consideration paid over the net assets acquired (Goodwill)

      $ 21,615   
     

 

 

 

 

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Table of Contents

Starbuck Acquisition. At the merger date, 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.

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

 

     September 30, 2014  
     (in thousands)  

Pro forma purchase price of Starbuck

  

Fair value of Banner common stock at $40.50 per share

      $ 535,815   

Cash to be paid

        130,000   
     

 

 

 

Total pro forma purchase price

        665,815   

Fair value of assets acquired:

     

Cash

   $ 34,281      

Investment securities

     1,221,227      

Loans

     2,809,436      

OREO

     17,178      

Premises and equipment

     64,628      

Intangible assets

     43,107      

Other assets

     255,868      
  

 

 

    

Total assets acquired

     4,445,725      

Fair value of liabilities assumed:

     

Deposits

     3,639,118      

Borrowings

     271,512      

Junior subordinated debentures

     5,838      

Accrued expenses and other liabilities

     57,682      
  

 

 

    

Total liabilities assumed

     3,974,150      
     

 

 

 

Fair value of net assets acquired

        471,575   
     

 

 

 

Excess of consideration paid over the net assets acquired (Goodwill)

      $ 194,240   
     

 

 

 

 

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Table of Contents

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. The following are the pro forma adjustments made to record the transactions and to adjust Siuslaw’s, GSB’s and Starbuck’s assets and liabilities to their estimated fair values at September 30, 2014.

Notes to Pro Forma Adjustments for Siuslaw Merging Into Banner

Statement of Financial Condition

As of September 30, 2014

 

(in thousands)

 

A

   Adjustments to Cash and cash equivalents      $ (7,691
   To reflect cash used to purchase Siuslaw Financial Group shares (4,095,421 common shares outstanding at September 30, 2014 at $1.41622 cash consideration per share).    $ (5,800  
   Payment of after-tax merger costs    $ (1,891  

B

   Adjustments to Loans receivable, excluding allowance for loan losses      $ (5,000
   A total discount of 2% was estimated to reflect the fair value of loans at merger date. This discount represents the expected credit losses. The net interest rate adjustments and resulting accretable yield are estimated to be immaterial.     

C

   Adjustments to Allowance for loan losses      $ 4,070   
   To remove the Siuslaw allowance for loan losses at period end as the credit risk is accounted for in the fair value adjustment for the loans receivable.     

D

   Adjustments to Premises and equipment      $ 2,000   
   To reflect the estimated fair value of premises and equipment.     

E

   Adjustments to Intangibles/CDI      $ 5,600   
   To record the estimated fair value of the core deposit intangible (CDI).     

F

   Adjustment to Goodwill      $ 13,808   
   To record the difference between the consideration paid and the estimated fair value of assets acquired and liabilities assumed in the merger.     

G

   Adjustments to Deferred taxes      $ (1,520
   To reflect the deferred taxes related to the net fair value adjustments of $4.3 million at Banner’s estimated statutory rate of 35%.     

H

   Adjustments to Junior subordinated debentures      $ (2,327
   To reflect the fair value of Siuslaw’s junior subordinated debentures.     

I

   Adjustments to Equity-Banner      $ 53,076   
   To record the issuance of Banner common stock as purchase price consideration (1,319,995 shares at $40.50 per share).    $ 53,460     
   Payment of after-tax merger costs by Banner    $ (384  

J

   Adjustments to Equity-Siuslaw      $ (39,482

 

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Table of Contents

Notes to Pro Forma Adjustments for Siuslaw Merging Into Banner

Statement of Operations

 

(in thousands)

 

          For the Nine
Months
Ended
Sep. 30, 2014
    For the
Twelve
Months
Ended
Dec. 31, 2013
 

K

   Adjustments to Interest on cash and securities    $ (93   $ (121
   AFS securities’ mark-to market balance sheet adjustments are reclassified on the balance sheet as a net premium and are being amortized against income over the weighted average life of 5.1 years.     

L

   Adjustments to Interest expense on borrowings    $ 54      $ 68   
   To reflect the amortization of the discount resulting from the pro forma junior subordinated debenture fair value adjustment using the effective yield method over the remaining 20 year life of the debentures.     

M

   Adjustments to Occupancy and equipment expense    $ 150      $ 200   
   To reflect the increase of the estimated depreciation expense on the premises and equipment resulting from the pro forma fair value adjustment using straight line method over the estimated weighted average life of 10 years.     

N

   Adjustments to Amortization of core deposit intangibles    $ 630      $ 896   
   To reflect the amortization of the core deposit intangible asset based on an amortization period of eight years and using an accelerated amortization method.     

O

   Adjustments to Provision for income taxes    $ (324   $ (450
   To reflect the income tax effect of the pro forma adjustments above at the statutory rate of 35%.     

 

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Table of Contents

Notes to Pro Forma Adjustments to Segregate Starbuck from Holdings

Statement of Financial Condition

As of September 30, 2014

 

(in thousands)

 

A

   Other assets    $ (2
   To eliminate parent company other assets.   

B

   Non-interest bearing deposits    $ 519   
   To recognize parent company deposits at AmericanWest Bank.   

C

   Other liabilities    $ (67
   To eliminate parent company other liabilities.   

D

   Equity    $ (454
   To eliminate parent company impact on equity.   

Statement of Operations

 

(in thousands)

 

          For the Nine
Months

Ended Sep. 30,
2014
    For the
Twelve
Months
Ended
Dec. 31, 2013
 

E

   Other operating income    $ 387      $ 426   
   To eliminate management fee income recorded at Starbuck     
   for services provided to and paid for by the Holdings stand-alone entity.     

F

   Compensation expense    $ (1,054   $ (1,389
   To eliminate management unit compensation expense recorded by the Holdings stand-alone entity as required by the LLC operating agreement.     

G

   Occupancy and equipment expense    $ —        $ (6
   To eliminate occupancy and equipment expense attributed to the Holdings stand-alone entity.     

H

   Other operating expense    $ 134      $ (26
   To eliminate other operating expense attributed to the Holdings stand-alone entity.     

I

   Adjustments to Provision for income taxes    $ 457      $ 646   
   To reflect the income tax effect of the pro forma adjustments above at the statutory rate of 35%.     

 

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Table of Contents

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

Statement of Financial Condition

As of September 30, 2014

 

(in thousands)

 

A

   Adjustments to Cash and cash equivalents      $ (60,319
   To reflect cash used to purchase GSB shares and payout options ($57.7 million for 2,617,347 shares outstanding, plus $1.9 million for 179,024 options outstanding).    $ (59,633  
   Payment of after-tax merger costs    $ (686  

B

   Adjustments to Investment securities      $ 1,504   
   To reflect the estimated fair value of acquired held to maturity securities.     

C

   Adjustments to Loans receivable      $ (5,938
   A total discount of 2.2% was estimated to adjust loans to fair value at merger date, including 2.4% for credit losses and (0.2%) for accretable yield.     

D

   Adjustments to Allowance for loan losses      $ 3,717   
   To eliminate the allowance for loan losses at period end as the credit risk is accounted for in the fair value adjustment for the loans receivable.     

E

   Adjustments to OREO      $ (1,619
   To reflect the estimated fair value of other real estate owned.     

F

   Adjustments to Premises and equipment      $ (31
   To reflect the estimated fair value of premises and equipment.     

G

   Adjustments to Intangibles/CDI      $ 423   
   To record the estimated fair value of the CDI.     

H

   Adjustments to Goodwill      $ 21,615   
   To record the difference between the consideration paid and the estimated fair value of assets acquired and liabilities assumed in the merger.     

I

   Adjustments to Deferred taxes      $ 76   
   To reflect the deferred taxes related to the net fair value adjustments of ($217,000) at Banner’s estimated statutory rate 35%     

J

   Adjustments to Other assets      $ (74
   Write-off CD placement costs and debt issuance costs.     

K

   Adjustments to Interest bearing deposits      $ 73   
   To record time deposit premium of 0.06% based on estimated fair value     

L

   Adjustments to Junior subordinated debentures      $ (2,410
   To reflect the fair value of junior subordinated debentures.     

M

   Adjustments to Other liabilities      $ 536   
   To mark to fair value certain employee benefit liabilities, write off deferred rent, and record leasehold intangible liability.     

N

   Adjustments to Equity      $ (38,845
   To eliminate the equity of GSB.     

 

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Table of Contents

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

Statement of Operations

 

(in thousands)

 

          For the Nine
Months

Ended
Sep. 30, 2014
    For the
Twelve
Months
Ended

Dec. 31, 2013
 

O

   Adjustments to Interest and fee income on loans    $ 437      $ 582   
   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.     

P

   Adjustments to Interest on cash and securities     
  

To reflect the amortization of the estimated fair value adjustment of held-to-maturity securities using the effective interest method of amortization over the estimated lives of the portfolio of approximately eight years.

   $ (131   $ (167
   Accumulated other comprehensive income on GSB’s books at acquisition is considered the mark to fair value and no additional balance sheet adjustment is needed. The AOCI of $2.8 million is amortized against interest income over the weighted average life of 6.0 years.    $ 335      $ 435   

Q

   Adjustments to Interest expense on deposits    $ 21      $ 28   
   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.     

R

   Adjustments to Interest expense on borrowings    $ 62      $ 79   
   To reflect the amortization of the discount resulting from the pro forma junior subordinated debenture fair value adjustment using the effective yield method over the remaining 20 year life of the debentures.     

S

   Adjustments to Other operating expense    $ 48      $ 67   
   To reflect the amortization of the core deposit intangible asset based on an amortization period of eight years and using an accelerated amortization method.     

T

   Adjustments to Provision for income taxes    $ 179      $ 237   
   To reflect the income tax effect of the pro forma adjustments above at the statutory rate of 35%.     

 

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Table of Contents

Notes to Pro Forma Adjustments for Starbuck Merging Into Banner

Statement of Financial Condition

As of September 30, 2014

 

(in thousands)

 

A

   Adjustments to Cash and cash equivalents      $ (149,712
   To reflect cash used to purchase Starbuck.    $ (130,000  
   Payment of after-tax merger costs    $ (19,712  

B

   Adjustments to Loans receivable, excluding allowance for loan losses      $ (16,098
   To eliminate Starbuck prior loan discount.    $ 55,938     
   A total discount of 2.5% was estimated to reflect the fair value of loans at merger date, including 2.0% for credit losses and 0.5% for accretable yield.    $ (72,036  

C

   Adjustments to Allowance for loans      $ 15,159   
   To eliminate the allowance for loan losses at period end as the credit risk is accounted for in the fair value adjustment for the loans receivable.     

D

   Adjustments to Premises and equipment      $ (8,000
   To reflect the estimated fair value of premises and equipment.     

E

   Adjustments to Intangibles/CDI      $ 17,971   
   To eliminate Starbuck prior CDI.    $ (25,136  
   To record the estimated fair value of the CDI.    $ 43,107     

F

   Adjustment to Goodwill      $ 115,406   
   To eliminate Starbuck prior goodwill.    $ (78,834  
   To record the difference between the consideration paid and the estimated fair value of assets acquired and liabilities assumed in the merger.    $ 194,240     

G

   Adjustments to Deferred taxes      $ (3,161
   To reflect the deferred taxes related to the net fair value adjustments of $9.0 million at Banner’s estimated statutory rate of 35%.     

H

   Adjustments to Equity-Banner      $ 532,423   
   To record the issuance of Banner common stock as purchase price consideration (13,230,000 shares at $40.50 per share).    $ 535,815     
   Payment of after-tax merger costs by Banner    $ (3,392  

I

   Adjustments to Equity- Starbuck      $ (560,858
   To eliminate the equity of Starbuck.     

 

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Table of Contents

Notes to Pro Forma Adjustments for Starbuck Merging Into Banner

Statement of Operations

 

(in thousands)

 

          For the Nine
Months

Ended
Sep. 30, 2014
    For the
Twelve
Months
Ended
Dec. 31, 2013
 

J

   Adjustments to Interest and fees on loans    $ 1,785      $ 2,512   
   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 nine years, as adjusted for expected prepayments.     

K

   Adjustments to interest on cash and securities    $ 584      $ 763   
   AFS securities’ mark-to-market balance sheet adjustments are reclassified on the balance sheet as a net discount and are being accreted into income over the weighted average life of 4.9 years.     

L

   Adjustments to Noninterest expense    $ 4,849      $ 6,898   
   To reflect the amortization of the core deposit intangible asset based on an amortization period of eight years and using an accelerated amortization method.     

M

   Adjustments to income tax expense (benefit)    $ (868   $ 1,268   
   To reflect the income tax effect of the pro forma adjustments above at the statutory rate of 35%.     

 

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Table of Contents

INFORMATION ABOUT THE SPECIAL MEETING AND VOTING

Banner is furnishing this proxy statement to you in order to provide you with important information regarding the matters to be considered at the special meeting and at any adjournment or postponement of the special meeting. Banner first mailed this proxy statement and the accompanying form of proxy to its shareholders on or about February 17, 2015.

Special Meeting Date, Time and Place

A special meeting of shareholders will be held on Tuesday, March 17, 2015, at 10:00 a.m. local time at 10 S. First Avenue, Walla Walla, Washington.

Agenda

At the special meeting, shareholders of Banner will be asked to consider and vote upon the following proposals:

 

    Proposal 1: To approve an amendment to Banner’s articles of incorporation creating a new class of Banner non-voting common stock of 5,000,000 authorized shares;

 

    Proposal 2: To approve the issuance of an aggregate of 13,230,000 shares of Banner common stock and Banner non-voting common stock in accordance with the merger agreement; and

 

    Proposal 3: To approve adjournments or postponements of the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting in favor of the foregoing proposals.

These proposals are being voted upon separately, and the approval of both proposal 1 and proposal 2 is a condition to completion of the merger. The amendment to the articles of incorporation will go into effect if approved at the special meeting even if the merger is not consummated.

Record Date; Shareholders Entitled to Vote

Only shareholders of record at the close of business on February 13, 2015 are entitled to receive notice of and to vote at the meeting and any adjournment or postponement of the special meeting.

As of the record date, directors and executive officers of Banner and their affiliates as a group beneficially owned and were entitled to vote approximately 450,512 shares of Banner common stock, representing approximately 2.30% of the shares of Banner common stock issued and outstanding as of February 13, 2015. To Banner’s knowledge, all of the directors and executive officers of Banner who are entitled to vote at the special meeting intend to vote their shares of Banner common stock in favor of each of the proposals, although such persons have not entered into agreements obligating them to do so.

Voting and Revocation of Proxies

The proxy accompanying this proxy statement is solicited on behalf of the Banner board of directors for use at the special meeting.

General. Assuming a quorum is present, shares represented by a properly signed and dated proxy will be voted at the special meeting in accordance with the instructions indicated on the proxy. Proxies that are properly signed and dated but that do not contain voting instructions will be voted FOR each of the proposals.

Abstentions. Banner will count a properly executed proxy marked “abstain” with respect to a particular proposal as present for purposes of determining whether a quorum is present. If you “abstain” from voting with respect to proposal 1 it will have the same effect as if you voted “against” such proposal.

 

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Broker Non-Votes. Proxies submitted by brokers that do not indicate a vote for some or all of the proposals because the brokers do not have discretionary voting authority and have not received instructions from you as to how to vote on those proposals (so-called “broker non-votes”) are considered “shares present” for purposes of determining whether a quorum exists. Broker non-votes with respect to each of the proposals are not deemed to be “present.”

Voting Shares in Person that are Held Through Brokers. If you are a “shareholder of record,” you may vote your shares in person at the special meeting. If you hold your shares in “street name,” you must obtain a legal proxy from your broker, banker, trustee or nominee, giving you the right to vote the shares at the special meeting.

Submitting a Proxy by Telephone or Through the Internet. You may vote your shares by telephone or electronically through the Internet, instead of submitting proxies by mail on the enclosed proxy card. Thus, shareholders of record and many shareholders who hold their shares through a broker or bank will have the option to submit their proxies or voting instructions by telephone or electronically through the Internet. Please note that there are separate arrangements for using the telephone and the Internet depending on whether your shares are registered in Banner’s stock records in your name or in the name of a broker/bank/trust/nominee. If you hold your shares through a broker/bank/trust/nominee, your broker/bank/trust/nominee will provide you with materials and instructions for voting your shares.

Revocation of Proxies. You may revoke your proxy by doing one of the following:

 

    by sending a written notice of revocation to the Secretary of Banner that is received by Banner prior to the special meeting, stating that you revoke your proxy;

 

    by signing a later-dated proxy card and submitting it so that it is received prior to the special meeting in accordance with the instructions included in the proxy card(s); or

 

    by attending the special meeting and voting your shares in person.

Required Shareholder Vote

In order to conduct business at the special meeting, a quorum must be present. The holders of a majority of the votes entitled to be cast at the special meeting, present in person or represented by proxy, constitute a quorum under Banner’s bylaws. Banner will treat shares of Banner common stock represented by a properly signed and returned proxy, including abstentions and broker non-votes, as present at the Banner special meeting for the purposes of determining the existence of a quorum.

With respect to any matter submitted to a vote of Banner shareholders, each holder of Banner common stock will be entitled to one vote, in person or by proxy, for each share of Banner common stock held in his, her or its name on the books of Banner on the record date.

Proposal 1 requires the affirmative vote of holders of at least a majority of our outstanding common stock as of the record date of the special meeting. As of the record date, there were 19,572,141 shares of Banner common stock outstanding and therefore 9,786,071 votes are required for proposal 1 to be approved by Banner shareholders. Abstentions and broker non-votes will have the same effect as a vote against the proposal.

Proposal 2 requires the affirmative vote of a majority of those shares voting on the proposal. Any shareholder represented in person or by proxy at the meeting and entitled to vote on the subject matter may elect to abstain from voting on this proposal. If so, such abstention will not be counted as a vote cast on the proposal and, therefore, will have no effect on the outcome of the vote on the proposal. Provided there is a quorum of shareholders present in person or by proxy, shareholders not attending the meeting, in person or by proxy, will also have no effect on the outcome of this proposal.

Proposal 3 requires the affirmative vote of a majority of those shares voting on the proposal to authorize the Banner board of directors to adjourn, postpone or continue the special meeting, should such authorization be necessary for an adjournment, postponement or continuation. Any shareholder represented in

 

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person or by proxy at the meeting and entitled to vote on the subject matter may elect to abstain from voting on this proposal. If so, such abstention will not be counted as a vote cast on the proposal and, therefore, will have no effect on the outcome of the vote on the proposal. Provided there is a quorum of shareholders present in person or by proxy, shareholders not attending the meeting, in person or by proxy, will also have no effect on the outcome of this proposal.

All other actions considered at the meeting may be taken upon the affirmative vote of a majority of those shares present in person or represented by proxy and voting thereon at the special meeting.

As of the record date, directors and executive officers of Banner and their affiliates as a group beneficially owned and were entitled to vote approximately 450,512 shares of Banner common stock, representing approximately 2.30% of the shares of Banner common stock issued and outstanding as of February 13, 2015. To Banner’s knowledge, all of the directors and executive officers of Banner who are entitled to vote at the special meeting intend to vote their shares of Banner common stock in favor of each of the proposals, although such persons have not entered into agreements obligating them to do so.

Recommendations by the Banner Board of Directors

The Banner board of directors unanimously recommends that Banner shareholders vote FOR each of the proposals.

The matters to be considered at the special meeting are of great importance to the shareholders of Banner. Accordingly, you are encouraged to read and carefully consider the information presented in this proxy statement, and to submit your proxy by telephone or mail in the enclosed postage-paid envelope.

Proxy Solicitation

Banner will pay the costs of soliciting proxies. Pursuant to the terms of the merger agreement, the fees and expenses associated with the filing, printing and mailing of this proxy statement will be borne by Banner. Certain directors, officers or employees of Banner may solicit proxies by telephone, facsimile, email or personal contact. They will not be specifically compensated for doing so. The extent to which any proxy soliciting efforts will be necessary depends upon how promptly proxies are received. You should send in your proxy by mail without delay or vote by telephone. Banner also reimburses brokers and other custodians, nominees and fiduciaries for their expenses in sending these materials to you and getting your voting instructions. A more complete description of how to send your proxy is included on the proxy accompanying this proxy statement.

Other Business

Banner is not currently aware of any business other than the named proposals to be acted upon at the special meeting. If, however, any other matters are properly brought before the meeting, or any adjournment or postponement thereof, the persons named in the enclosed form of proxy, and acting under that proxy, will have discretion to vote or act on those matters in accordance with their best judgment.

No Appraisal Rights

Under the WBCA and our articles of incorporation, holders of Banner common stock are not entitled to appraisal rights with respect to the matters to be considered at the special meeting.

Other Information

Representatives of Moss Adams LLP, our principal accounting firm and also the principal accountants of Starbuck, are not expected to be present at the special meeting, will not have an opportunity to make a statement, and are not expected to be available to respond to questions from shareholders.

 

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PROPOSALS TO BE CONSIDERED AND VOTED UPON BY HOLDERS OF BANNER STOCK AT

THE SPECIAL MEETING

Proposal One

Approval of an Amendment to Banner’s Articles of Incorporation

to Create a New Class of Banner Non-Voting Common Stock

The merger agreement requires that Banner issue up to a maximum of 3,000,000 shares of Banner non-voting common stock, par value $0.01, as part of the merger consideration. In order to issue the Banner non-voting common stock, it is necessary to amend our articles of incorporation. The Banner board of directors has unanimously adopted resolutions approving and declaring advisable, and recommending that our shareholders approve, the adoption of the amendment to the articles of incorporation, which will authorize the creation of five million shares of Banner non-voting common stock. Holders of shares of Banner non-voting common stock will have no voting rights, unless otherwise required by the WBCA, but will otherwise have all the rights of holders of Banner common stock. The Banner non-voting common stock will automatically convert to Banner common stock upon transfer of such stock, subject to certain exceptions.

The amendment to the articles of incorporation is required under the terms of the merger agreement and is necessary to enable Banner to have enough shares of Banner non-voting common stock to issue shares of Banner non-voting common stock in connection with the merger. Accordingly, if this proposal is not approved by shareholders at the special meeting, a condition to the closing of the merger will not be satisfied and the merger will not be consummated. The amendment to the articles of incorporation will go into effect if approved at the special meeting even if the merger is not consummated. If this proposal is approved by shareholders, Banner will have the ability to issue the remaining unissued shares of Banner non-voting common stock in the future.

Summary of the Terms of the Banner Non-Voting Common Stock

The following is a summary of the material provisions of the amendment to the articles of incorporation of Banner, which is included as Annex A, and is incorporated by reference into this proxy statement. This summary describes the material provisions of the Banner non-voting common stock. We encourage you to read the amendment to the articles of incorporation.

Rights and Privileges; Ranking; Dividends and Other Matters. Except as set forth in the amendment to the articles of incorporation with respect to voting, Banner common stock and Banner non-voting common stock shall have the same rights, preferences and privileges, share ratably in all assets of Banner upon its liquidation, dissolution or winding-up, be entitled to receive dividends in the same amount per share and at the same time when, as and if declared by the Banner board of directors, and be equal and identical in all other respects as to all other matters.

Voting Rights. The holders of Banner non-voting common stock will have no voting rights except as required by the WBCA. Without limiting the generality of the preceding sentence, the application of separate voting group rights under sections 23B.10.040(1)(a), (e) or (f), or 23B.11.035 of the Revised Code of Washington (or any related section concerning voting group rights as to mergers or share exchanges), is explicitly denied in the amendment to the articles of incorporation. Notwithstanding the foregoing, and in addition to any other vote required by law, the affirmative vote of the holders of a majority of the outstanding shares of Banner non-voting common stock, voting separately as a class, will be required to amend Banner’s articles of incorporation, as amended, to alter or change the designation, preferences, limitations or relative rights of all or part of the shares of Banner non-voting common stock. Where shares of Banner non-voting common stock are entitled to vote, each holder of Banner non-voting common stock will have one vote in respect of each share of Banner non-voting common stock held of record solely on the matters as to which such shares are entitled to vote and subject to the rights and limitations specified by the WBCA.

 

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Stock Splits; Combinations; Reclassifications of Shares. In the event of any stock split, combination or other reclassification of shares of either the Banner common stock or the Banner non-voting common stock, the outstanding shares of the other class will be proportionately split, combined or reclassified in a similar manner; provided, however, that in any such transaction, holders of Banner common stock will receive only shares of Banner common stock in respect of their shares of Banner common stock and holders of Banner non-voting common stock will receive only shares of Banner non-voting common stock in respect of their shares of Banner non-voting common stock.

Transfer Restrictions; Automatic Conversion to Banner Common Stock. No transfer of shares of Banner non-voting common stock by the initial holder thereof (or by any affiliate of the initial holder to which such shares are transferred pursuant to clause (ii) of this sentence) will be permitted, except (i) in certain permitted transfers or (ii) to an affiliate of the initial holder of the Banner non-voting common stock. Any transfer in violation of the foregoing sentence shall be null and void and Banner shall not have any obligation to recognize such transfer. Each share of Banner non-voting common stock will be converted automatically into one share of Banner common stock upon a permitted transfer of such share of Banner non-voting common stock, and shall be registered as one share of Banner common stock on the books and records of Banner. Banner shall cooperate with the timely conversion of Banner non-voting common stock subject to compliance with applicable law and regulations.

Reservation of Banner Common Stock. Banner shall at all times reserve and keep available out of its authorized but unissued shares of Banner common stock, such number of its shares of Banner common stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Banner non-voting common stock into Banner common stock.

Fundamental Transactions. In the event of any merger, consolidation, reclassification or other transaction in which the shares of Banner common stock are exchanged for or changed into other stock or securities, cash and/or any other property, each share of Banner non-voting common stock will at the same time be similarly exchanged or changed into an amount per whole share equal to the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, that such share of Banner non-voting common stock would be entitled to receive if it was converted into a share of Banner common stock immediately prior to such transaction. In the event of any pro rata subscription offer, rights offer or similar offer to holders of Banner common stock, Banner shall provide the holders of Banner non-voting common stock the right to participate based upon the number of shares of Banner common stock such holders would be entitled to receive if such shares were converted into shares of Banner common stock immediately prior to such offering.

If this proposal is not approved by shareholders at the special meeting, a condition to the closing of the merger will not be satisfied and the merger will not be consummated.

Effects of the Authorization of Banner Non-Voting Common Stock

The additional shares of Banner non-voting common stock authorized by the amendment to the articles of incorporation but not issued in the merger will have the same rights as the shares issued in the merger as described above. Although the authorization of additional shares will not, in itself, have any effect on the rights of any holder of Banner common stock, the future issuance of additional shares of Banner non-voting common stock (other than by way of a stock split or dividend) could, as with any other issuances of common stock, have the effect of diluting earnings per share and book value per share of existing shareholders.

At present, the Banner board of directors has no plans to issue the additional shares of Banner non-voting common stock authorized by the amendment to the articles of incorporation. However, it is possible that some of these additional shares could be used in the future for various other purposes without further shareholder approval, except as such approval may be required in particular cases by Banner’s articles of incorporation or bylaws, applicable law or the rules of any stock exchange or other quotation system on which our securities may

 

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then be listed. These purposes may include raising capital, providing equity incentives to employees, officers or directors, establishing strategic relationships with other companies and expanding our business or product lines through the acquisition of other businesses or products.

Proposal Two

Approval of the Issuance of an Aggregate of 13,230,000 Shares

of Banner Common Stock and Banner Non-Voting Common Stock

Banner is seeking the approval of holders of Banner common stock for the issuance of an aggregate of 13,230,000 shares of Banner common stock and Banner non-voting common stock in accordance with the merger agreement.

These shares, if all Banner non-voting common stock to be issued in the merger were converted into Banner common stock, represent approximately 38.77% of the number of shares of Banner common stock outstanding as of February 13, 2015. The issuance of the Banner common stock and Banner non-voting common stock in connection with the merger requires the approval of holders of Banner common stock under NASDAQ Stock Market rules because the number of shares of Banner common stock and Banner non-voting common stock to be issued in the merger is in excess of 20% of the number of shares of Banner common stock currently outstanding. Accordingly, if this proposal is not approved by shareholders at the special meeting, a condition to the closing of the merger will not be satisfied and the merger will not be consummated.

Proposal Three

Approval of Adjournments or Postponements of the Special Meeting

Banner is asking holders of Banner common stock to approve adjournments or postponements of the special meeting if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting in favor of the foregoing proposals. Approval of this proposal is not a condition to the completion of the merger.

 

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THE PARTIES TO THE MERGER

Banner Corporation

10 S. First Avenue

Walla Walla, Washington 99362

(509) 527-3636

Banner is a bank holding company incorporated in the State of Washington. It is primarily engaged in the business of planning, directing and coordinating the business activities of its wholly-owned subsidiaries, Banner Bank and Islanders Bank. Banner Bank is a Washington-chartered commercial bank that conducts business from its main office in Walla Walla, Washington and, as of September 30, 2014, its 90 branch offices included 60 offices located in Washington, 21 offices located in Oregon and nine offices located in Idaho. Islanders Bank is also a Washington-chartered commercial bank that conducts business from three locations in San Juan County, Washington. Banner is subject to regulation by the Federal Reserve Board.

Banner Bank is a regional bank which offers a wide variety of commercial banking services and financial products to individuals, businesses and public sector entities in its primary market areas. Islanders Bank is a community bank which offers similar banking services to individuals, businesses and public entities located primarily in the San Juan Islands. The Banks’ primary business is that of traditional banking institutions, accepting deposits and originating loans in locations surrounding their offices in portions of Washington, Oregon and Idaho. Banner Bank is also an active participant in the secondary market, engaging in mortgage banking operations largely through the origination and sale of one- to four-family residential loans. Lending activities include commercial business and commercial real estate loans, agriculture business loans, construction and land development loans, one- to four-family residential loans and consumer loans. A portion of Banner Bank’s construction and mortgage lending activities are conducted through its subsidiary, Community Financial Corporation (CFC), which is located in the Lake Oswego area of Portland, Oregon.

Elements Merger Sub, LLC

10 S. First Avenue

Walla Walla, Washington 99362

(509) 527-3636

Merger sub, a Washington limited liability company and a wholly owned subsidiary of Banner, was formed solely for the purpose of facilitating the merger. Merger sub has not carried on any activities or operations to date, except for those activities incidental to its formation and undertaken in connection with the transactions contemplated by the merger agreement. By operation of the merger, Starbuck will be merged with and into merger sub, with merger sub surviving the merger as a wholly owned subsidiary of Banner.

SKBHC Holdings LLC

1201 Third Ave., Ste. 1580

Seattle, WA 98101

(509) 467-6993

Holdings is a bank holding company organized as a limited liability company under the laws of the state of Delaware. It is engaged in the planning, directing and coordinating the business activities of its wholly-owned subsidiaries, Starbuck and AmericanWest Bank. Holdings is subject to regulation by the Federal Reserve Board.

 

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Starbuck Bancshares, Inc.

1201 Third Ave., Ste. 1580

Seattle, WA 98101

(509) 467-6993

Starbuck is a bank holding company incorporated in the State of Minnesota. It is primarily engaged in the business of planning, directing and coordinating the business activities of its wholly-owned subsidiary, AmericanWest Bank. Based in Spokane, Washington, AmericanWest Bank is a regional business-focused community bank offering commercial and business banking, mortgage lending, treasury management products and a full line of consumer products and services. The bank currently operates 94 branches in California, Washington, Idaho, Oregon and Utah.

 

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THE MERGER

Background of the Merger

The Banner board of directors has periodically participated with senior management in reviews of the business and strategic direction of Banner and has considered ways to enhance the company’s performance and prospects in light of competitive and other relevant developments. These reviews have focused on, among other things, the business environment facing financial institutions generally, as well as conditions and ongoing consolidation in the financial services industry. These reviews have also included periodic discussions with respect to potential transactions that would further the company’s strategic objectives, and the potential benefits and risks of those transactions, and from time to time have focused on the possibility of a merger with another major regional banking organization in the Western region of the United States.

Over the past several years at industry conferences and in other settings, members of senior management of Banner and Starbuck have had informal discussions about their respective companies and trends in the banking industry. On March 11, 2014, members of senior management of Banner met with representatives of Sandler O’Neill, Banner’s financial advisor in the merger, and discussed generally the possibility of a potential combination with Starbuck. Following that meeting, at the request of senior management of Banner, Sandler O’Neill contacted senior management of Starbuck on a very preliminary basis to inquire about Starbuck’s interest in considering a merger of the two companies. Following this initial contact, informal discussions continued between senior management of the two companies and representatives of Sandler O’Neill during March and April. In addition, during this period Banner senior management briefed the Banner board of directors and the board’s executive committee about the course of discussions, and were authorized to continue to explore a possible transaction with Starbuck.

On April 21, 2014, Mark Grescovich, Banner’s President and Chief Executive Officer, and Scott Kisting, Starbuck’s Chairman and Chief Executive Officer had a meeting. During the meeting, Messrs. Grescovich and Kisting discussed the companies’ respective corporate cultures and a range of possible valuations in the event of a merger.

On April 22, 2014 at its regularly scheduled meeting, Banner senior management briefed the Banner board of directors about the discussions with Starbuck, including the potential financial, operational, governance and other terms and conditions of a combination with Starbuck. At this meeting, the Banner board of directors authorized senior management to further evaluate a possible transaction with Starbuck.

Over the course of late April through June 2014, after entering into a mutual nondisclosure agreement, in order to conduct due diligence of each company for a potential merger, Banner senior management and representatives of Sandler O’Neill had several meetings and conversations with Starbuck senior management and Starbuck’s financial advisor, Jefferies LLC, which we refer to as Jefferies. In addition, Banner and Starbuck senior management each provided diligence materials in response to diligence requests of the other party.

At a regularly scheduled meeting on June 24, 2014, the Banner board of directors was briefed on the status of discussions with Starbuck senior management. During and after a presentation by Sander O’Neill with respect to certain financial analyses related to the potential merger, the Banner board of directors discussed various aspects of the proposed combination of Banner and Starbuck. The board of directors instructed Banner senior management, with the assistance of Sandler O’Neill, to continue exploring the merger with its Starbuck counterparts.

On July 15, 2014, Banner senior management reviewed materials prepared by Sandler O’Neill regarding the potential transaction structure with the executive committee, after which the executive committee authorized senior management to proceed with the due diligence process to facilitate a potential business combination.

At a regularly scheduled meeting on July 22, 2014, the Banner board of directors was further briefed on the status of Banner senior management’s discussions with Starbuck senior management. The board of directors

 

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instructed management to continue exploring the potential business combination with its Starbuck counterparts, and authorized management to propose non-binding terms for a potential transaction structure to Starbuck and to request exclusivity for negotiations with Starbuck.

Over the course of July and August, the two companies, with the assistance of their financial advisors, engaged in a series of discussions and negotiations around the merger consideration, transaction structure and certain other terms of a potential combination.

On August 26, 2014, Starbuck and Banner entered into a non-binding letter of intent that outlined certain terms of a proposed merger between Banner and Starbuck, including, among other things, that the consideration to be delivered to Starbuck holders in the merger would be 13,230,000 shares of Banner stock and $130 million in cash, equal to 137% of Starbuck’s tangible book value as of June 30, 2014, that the combined company’s headquarters would be located in Walla Walla, Washington and that Banner’s Chief Executive Officer would be the Chief Executive Officer of the combined company, that the Banner board of directors would be increased by up to five directors, two of which would be independent directors of Starbuck’s current board of directors, and one director would be appointed by each of the Starbuck investors. In addition, as a condition for proceeding with the negotiations, Banner required that Starbuck enter into an exclusivity agreement, which committed the parties to negotiate on an exclusive basis for 45 days during which each party would complete its due diligence review of the other and endeavor to negotiate a definitive merger agreement and related transaction documents.

Also at this time, counsel for the parties, Cleary Gottlieb Steen & Hamilton LLP, which we refer to as Cleary Gottlieb, as counsel to Banner and Wachtell, Lipton, Rosen & Katz, which we refer to as Wachtell Lipton, as counsel to Starbuck, began drafting the transaction documents to reflect the terms and conditions outlined in the non-binding letter of intent. On September 17, 2014, Cleary Gottlieb, on behalf of Banner, distributed an initial draft of the merger agreement to Starbuck and Wachtell Lipton. Mutual due diligence reviews also continued over the course of the next several weeks, as the parties and their counsel continued to negotiate the terms of the definitive merger agreement and other related agreements.

At a meeting of the Banner board of directors on September 22 and 23, 2014, Banner’s senior management and advisors updated the Banner board of directors on the status of their due diligence review of Starbuck and the related negotiations and discussions with Starbuck on the terms of the merger agreement and related transaction documents.

On September 24, 2014, at a meeting of the Holdings board of directors, Holdings’ senior management and advisors updated the board on the status of their due diligence review of Banner and the status of the negotiations with Banner. In addition, at the invitation of the Holdings board, Mr. Grescovich attended the Holdings board meeting to review and discuss with the Starbuck board among other things, the strategic value to Starbuck holders of a merger of Banner and Starbuck and financial information and other analyses related to Banner and Starbuck.

On October 3, 2014, Banner’s senior management and advisors updated the Banner board of directors on the status of the negotiations and discussions with Starbuck. At this meeting, the Banner board of directors authorized senior management to negotiate an extension of the exclusivity period of the negotiations between Banner and Starbuck for another 30-day period.

Following the meeting, on October 7, 2014, Banner and Starbuck executed a revised letter of intent that extended the exclusivity of Banner and Starbuck’s negotiations, due to expire on October 10, 2014, for another 30-day period ending on November 10, 2014.

In late October, 2014, Cleary Gottlieb sent drafts of the investor letter agreements to counsel for the Starbuck investors, who thereafter negotiated the terms of such agreements, including terms related to transfer restrictions on shares of Banner common stock received as part of the merger consideration, the right of each such investor to designate a member of the Banner board of directors and the registration rights with respect to such shares.

 

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On November 3, 2014, at a meeting of the Holdings board of directors, at the invitation of the Starbuck board, Mr. Grescovich reviewed with the Starbuck board an overview of a communication strategy for announcing the merger, a potential integration plan for the combined company, and a plan for mitigating risks related to the merger, including, among others, employee and customer retention risks, and operational and system conversion risks.

On November 4, 2014, at a special meeting of the Banner board of directors, Banner’s senior management and advisors updated the Banner board of directors on the status of the negotiations and discussions with Starbuck. Also, at that meeting, management reviewed for the Banner board of directors the progress of its negotiations with Starbuck and reported on the status of its due diligence investigation of Starbuck. Sandler O’Neill reviewed with the Banner board of directors the structure and other terms of the proposed transaction and financial information regarding Starbuck, Banner and the transaction, information regarding peer companies and comparable transactions and other relevant analyses.

Also at the November 4 meeting, representatives of Cleary Gottlieb reviewed with the Banner board of directors (i) the legal standards applicable to its decisions and actions with respect to its consideration of the proposed merger, (ii) the legal terms of the proposed merger agreement and related transaction agreements, including the proposed terms of the investor letter agreements with the Starbuck investors granting, among other things, registration rights and board representation, as described in the section entitled “Investor Letter Agreements” beginning on page 91, (iii) the composition of the Banner board and senior management subsequent to the closing of the proposed merger, and (iv) the proposed employment agreements with Peter Conner and James Claffee and consulting agreement with Mr. Kisting that would become effective upon completion of the merger.

On November 5, 2014, the Banner board of directors held another special meeting with its outside financial and legal advisors. At that meeting, representatives of Cleary Gottlieb reviewed with the board changes to the terms of the merger agreement and investor letter agreements that had changed since the November 4 meeting and Sandler O’Neill delivered to the Banner board of directors its oral opinion, which was subsequently confirmed in writing, as described in the section entitled “The Merger—Opinion of Banner’s Financial Advisor” beginning on page 63, that as of November 5, 2014, the merger consideration was fair to Banner from a financial point of view. After review and discussion among members of the Banner board of directors, including consideration of the factors described under “The Merger—Reasons for the Merger; Recommendation of the Banner Board of Directors” beginning on page 61, the Banner board of directors determined that the transactions contemplated by the merger agreement and the related transactions and agreements were advisable and in the best interests of Banner and its shareholders and the directors voted unanimously to approve the merger with Starbuck, to approve and adopt the merger agreement and the related transactions and agreements, including the investor letter agreements, and to recommend that the Banner shareholders approve the amendment to the articles of association and the issuance of the stock consideration in accordance with the merger agreement.

Following completion of the meeting of the Banner board of directors on November 5, 2014, the merger agreement and related agreements were placed in final form and were executed and delivered. The transaction was announced after the market closed on November 5, 2014 in a joint press release issued by Banner and Starbuck.

Reasons for the Merger; Recommendation of the Banner Board of Directors

After careful consideration, at a meeting held on November 5, 2014, the Banner board of directors determined that the merger is in the best interests of Banner and its shareholders and unanimously recommended its shareholders approve the amendment to the articles of incorporation and the issuance of an aggregate of 13,230,000 shares of Banner common stock and Banner non-voting common stock.

 

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In reaching its decision to recommend, the Banner board of directors consulted with Banner management, our legal and financial advisors, and considered a number of factors, including the following material factors:

 

    its knowledge of Starbuck’s business, operations, financial condition, earnings and prospects, taking into account the results of Banner’s due diligence review of Starbuck, including Banner’s assessments of Starbuck’s credit policies, asset quality, adequacy of loan loss reserves, interest rate risk and litigation;

 

    the fact that Starbuck would enable Banner to meaningfully expand its strategic presence in Oregon, Washington and Idaho, as well as expand into Utah and California;

 

    that the merger will establish the combined company as the twelfth largest publicly-owned bank headquartered in the Western United States, will improve provide entry into attractive markets with compelling demographic trends, and will combine complementary lending strategies;

 

    that the merger will lower the combined company’s loan / deposit ratio, given AmericanWest Bank’s low-cost core deposit base and will provide Banner with additional net interest margin protection;

 

    the reports of Banner’s management and the financial presentation of Banner’s financial advisor concerning the business, operations, financial condition and earnings of Starbuck on an historical and prospective basis and the pro forma financial impact of the merger;

 

    the fact that the Starbuck holders would own approximately 38.77% of the shares outstanding of Banner common stock and Banner non-voting common stock, based on the number of shares of Banner common stock outstanding as of February 13, 2015 and after giving effect to the merger and including the Banner common stock to be issued upon the completion of