Banner Corp (BANR) 2009 Q2 法說會逐字稿

Ladies and gentlemen, welcome to the Banner's second quarter 2009 results conference call on the 30th of July, 2009. For today's recorded presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. (Operator Instructions). I'll now hand the conference over to Mike Jones. Please go ahead, sir.

Thank you very much, David. Now, thank you all for listening this morning to our results conference call. Notice we didn't call it our earnings call, and we did manage to do that very well.

Sitting here with me today is Lloyd Baker, who is our Chief Financial Officer and Albert Marshall, who is the Secretary of the Corporation. And listening in, but also available to answer questions is our Chief Credit Officer and Chief Lending Officer, Rick Barton, who is actually in our Bellevue office at this time. So, with that, Albert, would you read the first paragraph?

Sure thing. Good morning. Our presentation today discusses Banner's business outlook and will include forward-looking statements. Those statements include descriptions of management's plans, objectives or goals for future operations, products or services, forecast of financial or other performance measures, and statements about Banner's general outlook for economic and other conditions.

We also may make other forward-looking statements in the question and answer period following management discussion. These forward-looking statements are subject to a number of risks and uncertainties, and actual results may differ materially from those discussed today. Information on the risk factors that could cause actual results to differ are available from the earnings press release that was released yesterday and our recently filed Form 10-Q for the quarter ended March 31, 2009. Forward-looking statements are effective only as of the date they are made and Banner assumes no obligation to update information concerning its expectations.

Thanks, Albert. What I'd like to do is start off having Lloyd kind of go through some of the significant events that took place in the second quarter and then I'll have a few comments after that and then we'll open it up to questions and answers. So, Lloyd, why don't you go ahead?

Great, thanks, Mike. And good morning, everyone. I hope you all had a chance to read the press release as I did. The obvious question is what can you say about the second quarter of 2009? It was a tough quarter. It generally was reflecting continued economic weakness. And more particularly for financial institutions operating in the Pacific Northwest, including Banner Corporation, reflecting further deterioration in property values, especially values for residential land and developed building lots.

The decline in values or at least the decline in appraised values of many of these properties led us to record additional charge-offs and the need for a substantial level of loan loss provisioning, which was the most important factor adversely impacting our operating results for the quarter.

And as if the economic environment wasn't challenging enough, this was the quarter the FDIC decided to increase the level of deposit insurance premium charges and apply a special assessment, which of course ballooned some of our operating expenses at a time when revenues were significantly under pressure.

So for a quarter when we reported a $45 million loan loss provision and a $16.5 million operating loss, you would have to wonder if I could find anything good to say. Well, actually I can. I think we made a significant progress during the quarter in a number of areas; perhaps most important was the solid deposit growth that our branches delivered. Deposit growth for the quarter was $122 million, which at our choice was net of further runoff of public funds and brokered deposits.

Excluding those public funds and brokered deposits, our retail deposits were up $164 million, 5.2% increase for the quarter, which represents more than a 20% annualized growth rate. Some really good work by the deposit gathering franchises out there. And importantly, this growth was accompanied with an 18 basis point reduction in the cost of those deposits. And as aside, looking at our maturity schedules and re-pricing opportunities, we're fairly confident that the cost of deposits will continue to decline over the second half of this year.

Progress was also made in our loan portfolio, excluding construction and development lending, which we are obviously working hard to reduce. Loan balances increased by $70 million during the quarter. That represents a 9.5% annualized growth rate in the segments of the portfolio that we want to see increase.

We think it's really important to note that we are making loans, that we intend to continue to make loans and that while we will, of course, apply appropriate underwriting standards, we intend to support the credit needs of our customers and our communities in this difficult economic environment.

We also made great progress working with our builders to reduce the inventory of unsold homes as we continued our Great Northwest Home Rush promotion. As we noted in our press release, we worked with our builders and identified 617 homes for participation in this program. And to date, we have accepted offers for 300 now. We haven't accepted the offers, our builders have accepted the offers. And it's an important distinction.

For 300 of those homes, and 173 of those having closed at June 30. Not only did these sales contribute to a reduction in balances at the end of the year, but we believe clearing the overhang of completed inventory sets the stage for the ultimate resolution of the more challenging issue that we and others face with respect to land and land lot loans.

Similar to other banks, we also observed improvement in home sales throughout the quarter, really beginning about March 1 in the first quarter. Home sales obviously were not strong but improving, and that's an encouraging sign.

Couple of other encouraging signs include stabilization of our net interest margin with the -- even given the still stubbornly low interest rate environment and the higher level of non-performing assets, the margin has really stabilized at these current levels. And barring unexpected changes in the level of non-performing assets, because of the improvement that we anticipate in funding costs, we're fairly confident that that margin can expand over the balance of the year.

We're also encouraged to see a recovery in our payment processing business compared to the first quarter levels. In the first quarter, as you all know, we were exceptionally low and we saw a definite pickup in the second quarter. Which not only results in improved revenues for us but it's an encouraging sign for the economy and for our customers' business activity as well. And so a particularly important area.

Similar to the first quarter, we had strong results in our mortgage banking operations that helped boost our non-interest revenues. And another encouraging sign, if you will, in that mortgage banking activity. The level of purchase transactions; proportionate level of purchase transactions to refinance transactions strengthened during the quarter. So another reason to be encouraged and to show some progress.

Now obviously, as I noted, those levels of sales activity were still down from what we would all like to see but they're moving in the right direction.

In the second quarter, we were also able to keep manageable operating expenses well under control. Again, this is a theme that we've been pushing hard on for a number of quarters now. Operating expenses were essentially flat in the manageable areas. Interestingly, compensation expense was unchanged from the first quarter but down 11% from the levels that we were experiencing a year ago. That's actually true for the year-to-date compensation expenses as well.

And that's in part reflecting a reduction that we've had in our staffing from our peak levels in January of '08, 18 months ago down to now a reduction of about 6% in total staffing levels and some real improvements in efficiencies. Now obviously, the FDIC insurance charges and some uncontrollable expenses related to our collection activities and real estate owned, offset a good portion of that but the effort that our people are making to manage controllable cost is certainly significant.

And finally, I think in terms of progress, it's important to note the significant decline in delinquencies, and particularly 30 to 89-day delinquencies compared to where we were at just the end of March. While those levels are still too high, we are hopeful that we've seen a crest in new delinquencies and the identification of problem loans.

It does not mean we are going to work our way out of problem loans without a lot of effort and some time. But it does allow us to look forward a little more optimistically than we were just 120 days ago.

So, as I said, a tough quarter. A tough economic environment but some signs of life that were encouraging and I'm looking forward to answering questions after we've given Mike and Rick a chance to give some introductory comments as well.

Thanks, Lloyd. I just have few things that I would add to that. Of those 300 homes that we had in the Great Northwest Home Rush that our builders have accepted offers, it's about a little less than 12 of them had short sale implications to the builders for us, which is a very good sign for us and we actually see some strengthening taking place in the pricing of the homes in the particular areas that we have been building.

We actually have seen some very high-end homes that for some builders that are not in any trouble at all but some homes that are in the Bellevue area, particularly in the Medina Bellevue area and in the Redmond area where homes have sold significant price homes that prior to this quarter that has not happened and we clearly see a lot more activity at that level too.

Now, I should add to that, that we don't have very many homes that are for sale over $1 million, probably less than 25 in the total portfolio. But that's good news as it relates to the particular areas where our properties are.

As Lloyd indicated to you, the provisioning was primarily driven by an effort on our part to get very current appraisals on all of our property, and it also drove some expenses because that was a pretty expensive process during the quarter to get that all done. But nevertheless, if the values that came in were very low, frankly below what we think they will end up being. But we have no anecdotal evidence at this point in time to refute it.

So it required us to take the charge down to where they are. On the other hand, we expect to come back with some recoveries from those levels because we actually think there is a better way to do this.

In some of the markets that we're in, particularly in King County in the Bellevue Redmond area as an example, we have new homes available for sale at less than a three-month inventory level. And we've actually started the process of working with some of our stronger builders to take some of the lots that some of our builders have that at this point in time don't have the strength to build. And having them build through some of those lots for us.

And that clearly will be at a level much higher than the appraised values for those lots that are coming in. And frankly, that's beginning to work for us, not just in Puget Sound but also in the Oregon marketplace.

So, we're encouraged by that, we're encouraged by the level of the past dues which frankly, if you -- you can't do this, but if you knock out the non-performing loans and look what's left in the past dues 30 and 90 days, it's a very reputable number under almost any economic times.

So, we're pleased about what we think we're going in the future as it relates to the movement from performing to non-performing loans. And we actually have also shown some fairly significant progress. And once we can finally get our hands on the property and clear off some of the second mortgage holders and some of the other people that have liens against the property, we have a staff that has done a very good job of moving property and we're moving it at prices that we're pretty comfortable with and not have to take additional losses.

So, all in all even though the quarter was not very good at all, I do believe it was progress in on getting this issue resolved and behind us. So, Rick, do you want to add anything to that or you want to just wait for the Q&A.

I think I'll just wait for questions. I think you've covered things quite well, Mike.

Right. Thank you. David, at this point, we'd like to open it up for questions, if we could, please.

Thank you, sir. (Operator Instructions).

We were so good. They didn't want to ask any questions.

And the first question comes from Matthew Clark from KBW. Please go ahead.

Hey, good morning, guys.

Hi, Matthew.

Can you first touch on TDRs and I guess your internal policy there? Everybody seems to be a bit different across the country here. But just whether or not any of those are on non-accrual or not, and how you are recasting those loans these days?

Matt, this is Lloyd. If a TDR was in a non-accrual status, it would be reflected in the total non-accrual numbers and I'm reasonably confident that there is a few of them in there. But what we -- and we don't break those out. We do disclose that we had restructured loans that were performing, not non-performing but performing under their terms of $55 million at the end of the quarter.

Okay. I'm assuming you are extending them a lower rate and I guess you could also extend the term there?

Yes, rate and term can be options. We actually -- I know that included in their total specifically [hard-sell] loans, some builder loans where we actually -- and possibly C&I loans -- where we actually reduced some floors, and so those got classified as restructures.

And do they take -- is it six months if they continue to perform with the new P&I that they can return back into accrual?

Well they are in accrual. They are not necessarily in non-accrual.

I mean that's true, exactly.

They're clearly disclosed and they'll be disclosed if they are performing -- my understanding is if they are performing, you stop disclosing them in the next calendar year.

Okay, so maybe just move into performing status?

They would just be in performing status.

Okay. On the land development exposure that you have, can you give us a sense for how much of that portfolio still needs to come due and that it might still be living on the interest reserves?

This is Rick Barton, Matthew. There are very few loans with any interest reserve remaining. Right now, they've either migrated to non-performing or the borrowers have brought in additional cash to replenish the interest reserves. We are not re-leveraging the property to reestablish interest reserves.

Okay. And then one more, if I may. On the home -- the mortgage offering that you guys have for your builders, can you update us on the latest terms on those? Are those situations where there could be a home buyer that doesn't have to put any money down, and I'm just curious how big that portfolio is now for you guys that you've kept on balance sheet? Because obviously, there is some redeployment risk with that portfolio, I would think.

Yes, that's certainly true, Matthew. We really haven't changed the terms of the offer. So there is a very attractive interest rate associated with qualifying down payments. There is a less attractive interest rate but an option available for those who do want to -- who choose not to make a large down payment. And in fact in some cases, as we pointed out, there may be no down payment.

Two things, I guess, we have about $55 million of those loans in portfolio today. And second thing, a really interesting phenomenon that's happened in our Home Rush over the last, really about the last 60 days is that a meaningful portion of those homes that are receiving offers are being financed by other lenders.

Yes. [That's the case].

Which was a surprise to us, but it's happening.

Okay, great. And then a quick one, I'm sorry. Any non-performing loan sales in the quarter?

Any non-performing sales, no.

No.

Thank you.

The next question comes from Jeff Rulis from D.A. Davidson. Please go ahead.

Good morning.

Hi, Jeff.

I don't know if you have the cumulative write-down amount or percent on the current NPA balance?

I don't.

No, I don't have that, Matthew. Actually I was -- it's a number that will end up in the Q but we haven't got it accumulated yet.

Okay.

Or Jeff, I'm sorry.

It's okay. On the net charge-offs, is it possible to discuss what the $34 million was applied to the other real estate owned or non-performing loans, the breakout there?

Well, none of the charge-offs were applied to the REO portfolio. We charge it off before it moves into the REO portfolio.

Right. Okay.

And the bulk of the charge-offs that were taken, were taken out of the non-performing asset category.

Got you.

Well, the preponderance went against land and lots. We did have one commercial real estate loan we charged off a couple of million dollars on and we had one sick dairy operation we charged off a couple of million dollars on, but the rest of them went against the land essentially.

Okay. And then lastly, on the construction segment, just sort of a strategic goal, where do you -- would you like to run that down as a percent of the portfolio? I mean, we're approaching 20%, would you like to get to 15% or 10%? Just kind of on a follow-on question. How is the pipeline of origination so far in Q3 elsewhere in the portfolio?

Well, right now, it's in a very slow state. We're really trying to liquidate inventory. Our builders that are -- we're talking to them but actually started building some of the subdivisions that we have loans out on, are just now starting. And that process will ramp up as we go forward.

In a long-term sense, what I view was wrong with us was, we would not like to have that portfolio be larger than about 20% of the overall portfolio. But what we had before was, we had almost as much in land as we had in vertical construction and that's not something we should do.

So, you will see us significantly cutback on the allowable level of land in our loan portfolio on a go-forward basis. If land is one-third of the value of a house, you ought not to have equal to what you've got in vertical construction.

So, if you've got just a quick rundown on -- you probably break this out on the release, but the current percent of lands as a percent of the total construction is what again?

50%. In fact it's slightly larger than 50%.

But -- and that's what I was trying to indicate. Clearing -- we've had great success clearing the vertical construction and that's critical to the next phase, which is going to be clearing the land and land development. As the inventory of vertical disappears, there will be opportunities, as Mike said, to start working out of those projects with high-quality builders.

And very low valued and very valuable land in some markets.

Okay, thanks.

Jeff, you may have been asking another question there which is demand in the non-real estate construction and development area?

Right. I mean, that was sort of a one-off.

Yes. And as I indicated, we had some pretty decent growth in the first quarter, but I don't want to overstate that because certainly in this environment, the biggest challenge in that is finding customers who actually want to borrow money. There are opportunities out there. We have some really good people working on those opportunities, but it's still a slow economy.

Great, thanks.

The next question comes from Donald Worthington from Howe Barnes. Please go ahead.

Good morning.

Good morning.

A couple of questions. One, on the significant reduction in the 30 to 89 day. Roughly how much of that was brought current versus moved into non-accrual?

Rick?

Well, I would say that a good portion of it ended up being cycled back into the current category. There were a number of significant-sized credits that we were working on that we resolved during the second quarter. I'd say, while I haven't calculated the number that no more than 25% to 30% of that improvement fell into the non-performing category, so the lion's share of it went back to current.

Okay, good. And then in terms of your regulatory exam, have you had one recently or when's the next one scheduled?

We've been told that we can't talk about that. So I am sorry.

Even the schedule, okay.

And I don't have. I have no idea why we got that edict but we did.

Okay. Thank you.

You bet.

The next question comes from Sara Hasan from McAdams Wright Ragen. Please go ahead.

Hi, guys.

Hi, Sara.

Just to clarify, did you say that you got new appraisals on all of your construction and land or was that just the construction and land in nonperforming?

Rick? All is a vast overstatement but a large majority of it we got very current appraisals on it.

Yes.

Like it was like this quarter, last quarter, are they all mostly 2009?

No, they're all second quarter and third quarter.

Great

July period.

And then, could you shift gears and talk a little about what you're seeing in commercial real estate and how you're positioning yourselves for any deterioration that might occur there?

Rick, you want to do that?

Yes, I'll take that one on. Right now, our commercial real estate portfolio continues to perform quite well, probably less than 1% is past due and even less than that is in a non-performing status. What we have done is we've -- and we're largely complete now with this process.

We've gone through the portfolio loan by loan and performed a stress test at the loan level to try to determine where we think the problems are going to come out of that portfolio before they actually begin to show up in elevated delinquency and non-performing assets. And we're going to institutionalize this so that it will be an ongoing process that we have done -- will build into the management of that portfolio.

Do you have any steps that you could share with us on like average loan to values for the portfolio coverage ratios, etcetera?

We haven't run and calculated that yet. If you -- sorry, I'm not even going to venture a guess at it, but what we do in this stress testing is we look at elevated -- what creates an elevated loan-to-value, what creates a reduced coverage ratio. And then perform a site visit and do a deeper dive into those loans that we feel have the potential for being problems.

And what percent of that book is owner occupied?

I would say about a third of it is owner occupied and that is included in the stress testing.

Rick, and Sara, this is Lloyd, I actually believe the number is a little higher than that. We're reporting that now for regulatory purposes and it's in excess of 45%.

Okay. Could you -- do you have a rough breakdown of the categories of properties that those are?

Yes. The non-owner occupied, about 24% is in office. Roughly 23% is in multi-family. Retail is 19%, warehouse about 9%, hospitality 7%, healthcare 5%, mini-storage 6%, and then the balance is in other which is 7%. So no over concentrations and it mirrors that fairly well in the owner occupied, maybe a little heavier in the office/warehouse category.

Okay. Thank you so much.

You bet.

Thank you. (Operator Instructions). And the next question comes from [Victor Crest from CAS Capital]. Please go ahead.

Good morning.

Good morning.

Just a follow-up on the appraisal question. So which portfolios? Was it just the land or was it all the construction that you went through? And then what percentage of the loans do you think that you've got updated appraisals on/ And kind of what was the typical type of value declines versus the last time you had went through the process?

The re-appraisals were throughout the residential construction portfolio, vertical and land. So, I would say that most of that portfolio from stem to stern has been re-appraised there. Some of the vertical that is performing with performing builders that was not re-appraised. But anything that has any issue or performance issue associated with it has been covered by the re-appraisal.

As Mike outlined, as far as the value declines that is all over the board. It really depends somewhat on where you want to have your comparison to; whether it's original appraisal at the time of origination or a decline since the last appraisal.

The very worst declines have been in undeveloped land in the Boise market. We have seen decline there as much as 85%, basically down to agricultural land values. In some of the urban markets, the declines have been significantly less than that even for the undeveloped land. And in some cases, the undeveloped land has held its value relatively well. Declines in lots have been across the board and they have ranged anywhere from the low-teens to as much as 25% to 30% in the last 12 months.

Gotcha. And is there going to be any residual impact of continuing this process into the third quarter? Do you feel like this kind of true-up was largely captured here in the second quarter in terms of the updates?

There is a handful of appraisals that are yet to come in. We took the old appraisals that we had and applying some discounting to those and that discounting is reflected in the second quarter numbers. We'll see how accurate our estimates work once we get the actual appraisals.

Gotcha.

This may be a good time for Albert to re-read that forward-looking statement disclosure. Obviously, as Rick indicated, the appraisal process is an ongoing process and in very current status, but we don't know where markets are going, for sure.

They appear to be stabilized.

Yes, we're encouraged by the market activity, but --

Actually where some of these properties are valued at right now, they become some of our most potential properties for having real profit generated out of these as we build through them later on. I mean there is real upside in a lot of this at these current appraisal levels, which in effect primarily reflect distressed property sales of which they aren't very many in the marketplace. We just don't have any anecdotal evidence to refute what they're coming up with. So we had to go along with it.

Gotcha. And that kind of leads into my next question, you mentioned that you're starting to work with a few of your builders to build out some lots. And could you talk about how that process is going? How you're working with the builders differently today than you would have in the past in terms of how many homes you might be looking to build at a time? How much traction you've seen so far with that effort?

Actually, some real positive responses. And I don't want to say we're doing this in great numbers. But we have started and we've got a number of those going. But we have some buildings, some lots and construction going on as an example, in the Portland marketplace.

And we have Builder A building houses on 20 lots and right next door to him is Builder B, who has 12 lots and six unsold houses someplace else in the marketplace. And doesn't have the financial strength to build these lots next to Builder A. So, Builder A being very strong and selling homes and doing very well, we've made deals. In some cases, they've made joint ventures between the two builders and Builder A builds out Builder B's lots for him at an agreed price per lot. And that process has started and has been well received by both Builder A and Builder B for different reasons but it's helpful to both of them.

And that's where I think this will go for a while until we really clear the inventories down to a level where Builder B could then start to build and he sold some of his vertical construction.

And are you expanding the credit lines for the builders to help them do this or does they kind of have --?

If they're Builder A, we are. If it's Builder B, no.

Gotcha.

Builder A is the strong builder with lots of money in the bank.

Okay. Great. Thanks a lot.

You bet.

We have a follow-up question from Matthew Clark. Please go ahead.

Hi guys, sorry. Just a quick follow-up. You guys overall I guess on the construction book have about 20%, I think, in non-accrual right now. We've seen others with kind of 30%, 35% of the book in non-performing, even over 50%. In trying to get some visibility, what might be behind the curtain.

Can you give us a sense for what might be criticized in that construction book whereby you might have -- you're honing in on a portion of that, maybe the land A&B book where there might be -- they're currently carrying the credits but there might be some concern about their ability to continue to do so for another, say, six months.

Rick, do you want to talk about that?

Well, the longer the recession goes on and the longer the markets remained soft, it brings additional builders into risk of running out of the capacity to carry their projects. Is there a potential for some down exposure as a result of that? Sure, there is. But our builders are working extremely hard to come up with some creative solutions to keep that from happening.

And the process that Mike is talking about is something that isn't being employed with the performing portfolio as well. As we see the Builder Bs begin to have a limited amount of liquidity left, they are working with the Builder A category to try to take over some of the subdivisions and get after them before they become non-performing assets. So, that's a long way of saying, we're working both sides of the portfolio with the same kinds of strategies.

Okay. And then just one more. Last quarter, I think we had talked about the non-performers being marked roughly -- I'm digging through my notes, but I recall it being about 15%. And if we gross up the change in non-accruals this quarter about what you charged off and if we know I guess how much is attributed to the -- just construction, we should be able to back into the mark now. I guess just -- can you just clarify, I guess, how much of the charge-offs this quarter related to construction?

Actually, there is a table in there.

No, I think that's what I thought. That's what I thought.

[$27 million] of the $34.5 million of charge-offs related to construction and development.

Got it. I assumed -- I forgot, it'd probably be in there. Okay. So we should be able to come up with something close, I guess.

A fair amount, at least 80% of it was the land.

Okay. Okay, that's great. Thanks, guys.

Okay.

The next question comes from [Trent Green from Wells Fargo Advisors]. Please go ahead.

Hi. My question is similar to the last caller's and you've addressed why this may not happen a couple of times, but the 1% in the commercial portfolio, 1% past due and non-performing is -- it just seems like an unsustainably low number to me. And I guess my question is, if it does increase to 3%, 4%, 5%, something like that, can the Company stay solvent and is there a government backstop? Could you address that, please?

What company?

What company do you work for?

I'm not worried about us. First of all, you've got to understand most of that is -- 40% plus of that is owner occupied stuff that is there and half that portfolio was underwritten more than four years ago and put on the books at much higher cap rates.

Probably it was a question earlier about what the current value is versus the value at the time it was -- the loans were made. If you've put all those loans through that, my best guess is the values today on a consolidated basis are higher than they were even after the appraisals than they were when they were originally underwritten just because the appreciation in the time that's gone by in those portfolios.

We didn't do a lot of this during the underwrite -- during the '06-'07 time frame. We just were not there because of cap rate concerns we had. And so we just didn't have a lot of that, that's seriously at risk and that's been proven out to us in the stress tests. And frankly, I don't really expect our past dues in that portfolio to elevate to those kinds of levels, just because of the age of the portfolio.

Okay.

The next question comes from Kipling Peterson from Columbia Ventures Corporation, please go ahead.

Good morning. In some previous calls, you've ranked your different major markets as far as the ones you think looked the best to the ones that you're more concerned about. Could you give a thumbnail sketch about Puget Sound, the Portland market, Idaho, Spokane, Tri-Cities?

Sure. And there is a little chart back there that shows you kind of percentage wise where it is and so forth. But in terms of economic strength and where we're seeing the sales, in our Home Rush -- and this is a little bit because we had more homes in the market ready to sell in that market. We've sold a lot more homes in Portland than we have in the other markets. But that's a little misleading, it's because we had a lot more to sell in that particular marketplace.

And Portland is bumping along and actually in the [case] Schiller thing that just came out this week of last month had a slight increase in the value or price of home sales in that marketplace. Now, one month doesn't make a trend but it looks it's coming along pretty well. And frankly, a lot of the better homes in that marketplace are clearing fairly nicely for us, as we speak. I still think that that's amongst our weakest economies that we have.

Puget Sound, we don't have a lot of vertical construction in that marketplace. We were very fortunate. Actually sometimes it's very fortunate to be lucky instead of being good. Because I can remember being pretty upset with our lenders because we weren't getting much business from Snohomish County and Pierce County, and it turns out that that was a very good thing for us that we didn't get those.

But a lot of what we have is concentrated in the Greater Bellevue, Redmond, Kirkland areas, just a little bit in Seattle and then down towards Kent. Fortunately, we've avoided a big chunk of what's in the Pierce County market.

In the markets that we're in, we're beginning to see real movement in the value of property in those particular markets. So that seems to be moving along.

To the extent we do have some amounts in the Pierce and Snohomish County, some of that's doing okay. We actually have builders, believe it or not, in Snohomish County that are doing very well; building homes and selling. But that's not unusual, you've got good builders and you've got builders that are average builders, and the good builders sell homes. But by and large, those are much slower, we just don't have very much in those markets.

The market where we've taken in terms of percentage write-downs the biggest hits, and you jump in here, Rick, if you don't agree with me, is the Boise marketplace. That really had some down values and -- downgrades in terms of values in that particular property, in that particular market. And it's still that way. It's just that in terms of absolute dollars, it's not that big of an impact to us as it is the other two markets.

And then the last market we have some building going on with low concentration is Spokane. We sell houses, we build them, we sell them and it's really not a problem in that marketplace. It didn't go up much in value and it's not going down much in value. It just kind of rocks along. So it's not a big concern for us.

We did take a couple of write-downs in the current quarter on two projects we have in the Bend, Oregon marketplace. I think we have a grand total of three of them over there, but we did take a couple of write-downs in that market. That market is better than door nail right now. So, I'd have to rank it as worst, just thankfully I don't have very much there. So I hope that's helpful.

Thank you.

And we have a follow-up question again from Matthew Clark, please go ahead.

Hi, guys. I'm sorry, I'm looking at my model here for a second. In terms of the DTA, deferred tax asset, I guess, at what level do we come at risk of the valuation allowance being dinged?

One more quarter like we've got, we're going to have to generate some taxable income.

Okay. So is it $18 million, is that the threshold or is it $20 million?

No, I --

We're not that specific on that, but obviously it's a concern going forward if we don't see improvement in other taxable operations.

Okay. And I guess that gets to the provisioning. I mean you guys have your pre-provision income, at least if you back out the FAS 159 mark was about $7 million. Obviously there's also the FDIC insurance assessment there as well. But assuming it improves to $8 million to $9 million, I mean, can we get a provision back down towards that level in the second half-year or not?

Third quarter, not for the whole second half. And that would be a good thing for us. That's an optimistic projection for us.

Right. Okay. Okay, thanks again guys. And then the DRIP program, and I think you guys have that still underway as a way to kind of add some additional capital?

We do.

We do. We added just under $4 million during the quarter.

Okay. And then any other ideas to come up with some additional capital if you need it? Do you guys have to shelf offering out there?

We do.

How much?

Just $100 million.

The shelf is $100 million.

Okay. Okay, that's all. Thank you.

You bet.

Thank you. And there appears to be no further questions. Please continue with any further points, sir.

Thank you, David. We do appreciate you all taking time to listen in for this conference call, and we'll look forward to talking to you at the end of the third quarter and sometime later in October. So, again thank you for listening.

Thank you. This concludes the Banner's second quarter 2009 results conference call. Thank you for participating. You may now disconnect.