Banner Corp (BANR) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Banner Corporation's fourth-quarter 2011 and year-end results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded today, January 26, 2012 and I would now like to turn the conference over to Mark Grescovich, President and CEO of Banner Corporation. Please go ahead, sir.

Thank you, Douglas and good morning, everyone. I would also like to welcome you to the fourth-quarter and full-year earnings call for Banner Corporation. Joining me on the call today is Rick Barton, our Credit Officer; Lloyd Baker, our Chief Financial Officer; and Albert Marshall, the Secretary of the Corporation. Albert, would you please read our forward-looking Safe Harbor statement?

Certainly. 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, forecasted financial or other performing measures and statements about Banner's general outlook for economic and other conditions.

We also may make other forward-looking statements in the question-and-answer period following management's discussion. These forward-looking statements are subject to a number of risks and uncertainties and actual results may differ materially from those discussed today. Information on the risk factors that could cause actual results to differ are available from the earnings press release that was released yesterday and a recently filed form 10-Q for the quarter ended September 30, 2011. Forward-looking statements are effective only as of the date they are made and Banner assumes no obligation to update information concerning its expectations. Thank you.

Thank you, Albert. As announced, Banner Corporation sustained our return to profitability again in the fourth quarter, reporting a net profit available to common shareholders of $3.1 million, or $0.18 per share for the period ended 12/31/2011. This compared to a net profit to common shareholders of $4.1 million, or $0.24 per share for the third quarter of 2011 and a net loss of $14.6 million, or a loss of $0.91 per share in the fourth quarter of 2010. For the full year ended December 31, 2011, Banner reported a loss available to common shareholders of $0.15 per share compared to a loss of $7.21 per share for the full year of 2010.

Looking at earnings before preferred stock dividends and discount accretion, Banner had a net income of $0.33 per share for the full year of 2011 compared to a net loss of $6.40 per share for the same period of 2010. The fourth-quarter performance provided consistent evidence and confirmed that through the hard work of our employees throughout the Company, we are successfully executing on our strategies and priorities to strengthen our franchise and deliver sustainable profitability to Banner. And further, that our strategic turnaround plan is effective and we are building shareholder value.

Our operating performance again showed improvement on every metric when compared to the linked quarter and compared to a year ago. Our 12-month core revenue increased 4% when compared to 2010. Our net interest margin expanded to 4.07% in the fourth quarter of 2011 compared to 3.75% in the fourth quarter of 2010 and our cost of deposits decreased to 59 basis points in the most recent quarter compared to 103 basis points in the same quarter of 2010.

These improvements are reflective of our super community bank strategy. That is reducing our funding costs by remixing our deposits away from high-priced CDs, growing new client relationships and improving our core funding position. To that point, our core deposits again increased in the most recent quarter and increased 9.4% compared to December 31, 2010. Also, our net interest-bearing deposits increased 29% -- our non-interest-bearing deposits, excuse me, increased 29% from a year ago. It is important to note that this is organic growth from our existing branch network. In a moment, Lloyd Baker will discuss our operating performance in more detail.

Clearly, improving the risk profile of Banner and aggressively managing our troubled assets has been and will remain the primary focus of the Company. We continued to show very good progress here as well. Our non-performing assets have been reduced nearly 22% compared to the third quarter of 2011 and 53% compared to December 31, 2010.

Further, the most problematic part of the portfolio, our one to four family residential construction lot and land portfolio has reduced $80 million from the fourth quarter of 2010 and $830 million from the peak outstanding. That portfolio now stands at just 7.3% of total loans.

In a few moments, Rick Barton, our Chief Credit Officer, will discuss the credit metrics of the Company and provide some context around the loan portfolio, along with our continued successful execution in aggressively managing our problem assets. Although we are making good progress reducing troubled assets, we recorded a still large $5 million provision for loan losses in the quarter. As a result, the coverage of our allowance to non-performing loans again increased and is now 110% at December 31, 2011, up substantially from the fourth quarter of 2010.

Also, for the quarter, we recorded $2.7 million of valuation adjustments on real estate owned. While credit costs remained elevated in the fourth quarter and above our long-term goal, Banner's reserve levels are substantial and our capital position and liquidity remains strong. At the end of the quarter, our ratio allowance for loan and lease losses to total loans was 2.52%. Our total capital to risk-weighted assets ratio improved to 18.07%. Our tangible common equity ratio improved to 9.54% and our loan-to-deposit ratio was 95%.

In the quarter and throughout 2011, we continued to invest in our franchise. We have added additional commercial and retail banking talent to our Company in all of our markets and we have been recognized as the number one SBA 504 lender in the Seattle Spokane District.

Finally, our persistent focus on improving the risk profile of Banner that I just spoke to has significantly reduced our volume of classified assets. For many quarters now, the pipeline of loans leaving the bank by design has exceeded the production of new funded loan originations. In the fourth quarter, we experienced some evidence that those flows might be balancing out and that our investments to build new borrower relationships is having a positive effect.

I will now turn the call over to Rick Barton to discuss the trends in our loan portfolio and our credit metrics. Rick?

Thanks, Mark. I would like to break my comments this morning into two parts. First, a recap of year-over-year credit metrics is in order to highlight the progress made during 2011. And then a look will be taken at some significant fourth-quarter accomplishments.

But before turning to these remarks, it would be remiss not to again recognize the hard work and creativeness of our workout officers who have driven our success.

Now let me turn to the year-over-year comparison of Banner's credit metrics. Net charge-offs were down $20 million to $49 million and decreased each quarter during the year. Non-performing assets declined from $254 million to $119 million, or 53%. Looked at differently, non-performing assets went from 5.77% to 2.79% of total assets.

Non-performing loans decreased from $151 million to $75 million at December 31, 2011. This was a decrease of just over 50% during the year. This puts non-performing loans at 2.3% of total loans. At the end of 2010, this ratio was 4.5%.

REO also declined significantly during the year, falling from $101 million to $43 million, a decline of over 57%. REO sales for all of 2011 were $99 million and at the time of sale, our average net proceeds were 97.7% of book value. This performance again demonstrates our ability to not only liquidate REO assets, but also accurately value them. It should be noted here that accurately valuing REO comes at a cost as our 2011 valuation adjustments were $15 million.

During the year, all categories of residential land loans decreased meaningfully and were $97 million at year-end versus $168 million at year-end 2010. This was a decrease of 42%. Residential construction loans also declined modestly during 2011, falling $9 million to $144 million. Even though performing, new loan commitments in this category totaled nearly $150 million.

And the quality of these residential portfolios improved during the year. Construction non-performing loans were just $7 million while land non-performing loans were $19 million at year-end. Classified loan totals fell from $343 million to $202 million for a decline of 41%. Delinquent loans, including non-performing loans, decreased $95 million during the year to $85 million, or 2.59% of total loans.

At the end of 2010, delinquencies were 5.3% of total loans and importantly, loans 30 to 89 days past due and on accrual were only $10 million, or 0.3% of total loans outstanding.

Now allow me to make some comments specific to the fourth quarter. Because of the continued improvement of our credit metrics, we chose again not to match net charge-offs with ALLL provision. Despite this, we feel the reserve continues to be a source of strength for the Company. Our riskiest portfolios -- residential, construction and land -- continued to shrink as already discussed. While our reserve to total loans did contract 25 basis points in the quarter to 2.52%, it is still strong from a historical perspective.

Critically, the coverage of non-performing loans continued to increase and stands at 110%, up from 104% last quarter and 64% at the end of 2010. And the unallocated portion of the reserve remains significant at $13.4 million.

REO sales were strong during the quarter and totaled $28.3 million. These sales were essentially at par as the loss on sale was only $170,000. And significantly included in this activity was the sale of our two largest residential land assets totaling nearly $16 million. Both of these assets were located in south King County. The balance of the sales activity was spread throughout our geographic footprint and included a variety of property types. One of these transactions disposed of our largest commercial landholding.

Additionally, valuation adjustments of $2.7 million for the quarter were down significantly from the linked quarter $5.2 million and were at the lowest level since the quarter ended June 30, 2010. While non-performing loans did decrease in the quarter, the pace was slower than in the third quarter as new non-performing loan migration was up from $11.8 million to $14.6 million quarter-over-quarter. However, migration during the quarter was still well below first and second-quarter levels and was a result of further deterioration of problem loans identified during previous portfolio reviews, not new problem loans.

During the quarter, our annual regulatory examination was conducted. We do not yet have a final report of examination, but the preliminary findings we were given have been reflected in our year-end credit metrics. We are delighted with the progress we are making in problem asset resolution and to have the opportunity to spend more time on growing the portfolio with new quality loans. However, we still realize much hard work will be needed to normalize our credit metrics and that the pace of economic recovery and the competitive environment will be neutral factors at best for the next several quarters.

With that, I will turn the stage over to Lloyd for his comments.

Thank you, Rick and good morning, everyone. As reported in our press release, Banner Corporation improved operating results for the fourth quarter and the year ended December 31, 2012, capped a year of significant progress, highlighted by much improved credit quality, strong revenue generation and importantly, net income. This is progress that our employees should be proud of, our shareholders should appreciate and that we believe should result in sustained profitability going forward.

Rick has already addressed the improved credit quality metrics thoroughly, so I will just note the obvious, the significant reduction in non-performing loans and real estate owned are having a very positive impact on our reported earnings. For Banner, this trend of improving credit quality, which has been consistently unfolding over the course of the past two years, has not only resulted in lower levels of loan loss provisioning and expenses related to real estate owned, but it has also significantly contributed to our improved net interest margin as the drag from these non-accruing assets has been substantially reduced.

Our provision for loan loss for the fourth quarter matched the $5 million we reported in the third quarter, but was well below the amounts reported earlier this year and in the fourth quarter a year ago. More importantly, reflecting the reduction in problem loans, our provision for loan losses for the full year ended December 31, 2011 was half the level recorded in 2010.

In addition, our expenses related to real estate owned, although still high, were materially reduced in the fourth quarter and on a year-to-date basis. While these credit costs remained above long-term acceptable levels, we expect this trend of improved asset quality will continue and will result in further reductions in credit costs in future periods.

On our last call, I noted that the third quarter of 2011 represented a record quarter for Banner with respect to generating revenues from core operations. The trend of strong revenue generation that I highlighted at that time and that we have been commenting on throughout this year continued over the current quarter.

As a result, the fourth quarter of 2011 again reflected a new level, new record level of revenues from core operations for Banner. For the quarter ended December 31, 2011, our revenues from core operations, which includes net interest income before provision for loan losses, plus other non-interest operating income, but excludes fair value and other-than-temporary impairment adjustments, were $50.5 million, a modest increase over the preceding quarter, but $1.5 million, or 3% greater than the fourth quarter a year ago.

For the full year ended December 31, our revenues from core operations were $196.2 million, which, as Mark noted, is a 4% increase compared to the year ended December 31, 2010 and was also a new record. The continuing trend of year-over-year increases in core revenues that we have been reporting has been driven by a significant improvement in our net interest margin and resulting net interest income, as well as solid deposit fee revenues fueled by growth in core deposit accounts.

For the fourth quarter of 2011, Banner's net interest income was $41.5 million, which, although slightly lower than the immediately preceding quarter, it was 2% greater than the fourth quarter of 2010. You will recall that our net interest income in the third quarter was augmented by the collection of $881,000 of delinquent interest on a trust preferred security that had previously been in deferral. Considering that one-time event and the continuing assault on asset yields from the low rate environment, our net interest income for the fourth quarter was remarkably strong by comparison.

For the full year ended December 31, 2011, net interest income increased to $164.6 million, which was an increase of just over 4% compared to a year earlier. Our net interest margin was 4.07% in the fourth quarter of 2011, nearly unchanged from the preceding quarter, but 26 basis points stronger than the fourth quarter a year ago.

For the year 2011, our net interest margin was 4.05%, an increase of 38 basis points compared to the year 2010. This margin improvement largely reflects continuing reductions in our funding costs, more specifically in our deposit costs and as I previously noted, a significant reduction in the adverse effect of non-performing assets.

Deposit costs decreased by another 11 basis points during the fourth quarter and were 44 basis points lower than a year ago, reflecting further changes to the deposit mix, as well as additional downward pricing on maturing certificates of deposit and on transaction and savings accounts. For the year ended December 31, 2011, our costs decreased by 64 basis points, dramatically contributing to our improved margin and increased net interest income.

As we have noted repeatedly on previous calls, Banner Corporation's growth of core deposits and reduced deposit costs have been fundamental to our improving operating trends. As a result of the growth in these transactions and savings accounts and planned reductions in high-cost certificate of deposits, core deposits now total 64% of total deposits.

Importantly, we are not just adding balances, but instead continue to see solid growth in the number of accounts and customer relationships. However, for 2011, we also had exceptional growth in non-interest-bearing account balances, which, in addition to account growth, reflects significant average balance increases for many of our business customers. As I noted last quarter, this is a trend to which we are paying close attention, but seems to be consistent with the strengthening balance sheets that many businesses are reporting on a national basis and that we are observing in our ongoing credit reviews.

The very low interest rate environment has continued to put downward pressure on asset yields, which is particularly evident in the performance of our securities portfolio. Fortunately, in the fourth quarter, our loan yields and net interest margin further benefited from the declining level of non-accruing loans that has offset some of this pressure. Loan yields were 5.53% in the fourth quarter, which was unchanged from the third quarter, but was 14 basis points lower than the fourth quarter of 2010. The adverse margin impact of non-accruing loans decreased to 14 basis points in the current quarter compared to 21 basis points in the preceding quarter and 33 basis points in the fourth quarter a year ago.

For the full year ended December 31, loan yields declined by just 11 basis points as the positive effect of fewer non-accruing loans offset much of the impact of the low level of market interest rates. Going forward, further reductions in the drag from non-accruing loans and other non-earning assets will be critical for us to maintain our improved net interest margin as yields on performing assets should continue to decline in the current interest rate environment and we will have less opportunity to reduce funding costs.

Loan balances increased by $74 million in the fourth quarter, primarily as a result of growth in commercial real estate, commercial and agricultural business loans. This was an encouraging confirmation of what we noted last quarter concerning the calling efforts of our bankers and their production of targeted loans. However, demand for new loans, particularly consumer loans, remain modest and line utilizations for commercial business loans remained low.

While the calling efforts and responsiveness of our bankers are resulting in a consistent pipeline of lending opportunities, we expect some seasonal reductions in agricultural loan balances in the quarter and further reduction in land loan balances over time.

In addition to the positive effect on our net interest margin, the other important aspect of continuing growth in core deposit accounts has been the impact on deposit fees. As we have discussed before, for the first half of 2011, the positive impact of that growth was somewhat masked by the decline in overdraft revenues subsequent to changes in the regulatory guidelines in the summer of 2010.

Those changes, which had not been implemented in the first half of last year, had a dampening effect on deposit fees, which is reflected in the year-to-date comparison. However, for Banner, the reduction in this source of revenue has been offset by an increase in the number of accounts, as well as increased interchange revenues from higher customer usage of debit and credit cards.

As a result, for the full-year 2011, total deposit fees and service charges increased by 4% compared to the same period a year ago despite the marked reduction in overdraft revenues and for the fourth quarter of 2011, deposit fees and service charges were nearly 7% greater than the same quarter a year ago.

Revenues for mortgage banking activities picked up in the fourth quarter, increasing to $1.9 million compared to $1.4 million in the third quarter, although they were slightly below the fourth quarter of 2010. Mortgage banking revenues for the year ended December 31, 2011 were $5.2 million compared to $6.4 million in 2010. However, the very low mortgage rates currently available in the market have caused the application activity to remain high, which likely will positively impact at least the first quarter of 2012.

Similar to recent periods, for the fourth quarter, controllable operating expenses in aggregate were only modestly changed from the preceding quarter and the same quarter last year. The increases in compensation expense and advertising costs were partially offset by decreased information processing expenses and costs for professional services. Expenses related to real estate owned, while still high, declined, reflecting the reduced number of properties and fewer valuation adjustments. Although we expect these real estate owned expenses and other related credit costs to remain elevated for a few more quarters, we do expect that they will decrease substantially over time as additional problem asset resolution occurs.

Fair value adjustments for the fourth quarter resulted in a net charge of $1.8 million compared to a net charge of $1 million in the preceding quarter. However, the preceding quarter also included a $3 million recovery as a result of the full cash repayment of a security that had been written off as an other-than-temporary impairment charge in the third quarter of 2010.

Finally, as Mark noted, the capital base of the Company and the subsidiary banks remain substantial. At December 31, 2011, Banner Corporation's ratio of tangible common equity to tangible assets increased to 9.54%. Its total risk-based capital ratio was 18.07% and its Tier 1 leverage capital ratio was 13.44%.

Further, although we made no additional capital contributions to Banner Bank for the quarter or during the past year, its capital base also increased from the prior quarter. As a result, at December 31, 2011, Banner Bank's total risk-based capital ratio was 15.81% and its total Tier 1 leverage capital ratio was 11.71%, which, of course, continues to be well in excess of the level targeted in our agreement with the FDIC.

While this strong capital position is prudent in the current uncertain economic environment, it is significantly above the current regulatory guidelines and also well above the level that most observers expect will be reflected in future guidelines.

To reiterate a point I made on our last call, if the current regulatory guidelines for leveraged capital ratio necessary to be considered well-capitalized were to be doubled to 10%, Banner Corporation would currently exceed the required capital amount by approximately $148 million. Obviously, this strong capital position will provide Banner considerable flexibility with regard to capital management as we move forward.

So with that final thought, I will turn the call back to Mark. As always, I look forward to your questions.

Thank you, Lloyd and thank you, Rick, for your comments. That concludes our prepared remarks and Douglas, we will now open the call and we welcome your questions.

(Operator Instructions). Jeff Rulis, D.A. Davidson.

Good morning. A couple housekeeping items, Lloyd. I am sorry I have to ask. I guess just a follow-up on the capital surplus comment you made. I guess that $148 million surplus above the 10% level, that is just within the holding company, correct?

Correct, that is a consolidated number.

Okay. And then any update on the size of the net benefit of the DTA recovery potential? I think you couched it as $11 million to $13 million last quarter.

Yes, it hasn't changed a great deal. The profitability in the current quarter, I think the DTA at the end of September was about $37 million, the allowance. The profitability in the current quarter reduces that by a couple million dollars. So there is $35 million there and you are right. I have been, I think, consistent in cautioning people to recall that the fair value adjustment on the junior subordinated debentures are more likely to occur at the same time as the DTA recovery will offset a meaningful portion of that. I think the net of all of that right now, my best guess would be $12 million to $15 million deposited when those adjustments occur. And I guess the other point that I would make is, obviously, as we get closer and closer to that date as we continue to report profitability and improved asset quality numbers.

Okay. That is helpful. And Mark, I guess you kind of touched on just kind of loan growth expectations or maybe you alluded to them, I guess with Q4 being an inflection point and maybe inconsistent going forward perhaps, I guess any further color on your expectations for maybe net loan growth for 2012?

Obviously, we are not giving guidance on net loan growth for the full year, but I think the more important way to look at it for us is the fourth quarter was an inflection point for us. Our pipelines continue to be strong. Our commercial loan production was up 33% in 2011 versus 2010. So I would expect a modest growth in the loan book. And again, it will be a little lumpy, as Lloyd pointed out, because there is some seasonality clearly in our portfolio with the agricultural portfolio.

Okay, thanks.

Tim Coffey, FIG Partners.

Good morning, gentlemen. I have got a couple questions on credit costs. First on the provision, how much of that was allocated for new loan growth in the quarter?

I think your question was how much was allocated for new loan growth during the quarter?

Yes, the provision.

Is that correct?

Yes.

I think a minor portion of it was to be considered allocated to new loan growth as that did occur.

It's a very nominal number, Tim.

Okay, okay. And then, Rick, taking your comments in aggregate, what is your feeling about the valuation adjustment going forward on OREO? Is this a new run rate?

I think we have to look at how long some of this stuff has been subject to reappraisal both in the loan and the REO state and consider that the $2.7 million that we took in the fourth quarter probably is a high point. I don't know exactly how to phrase that, but you take a look at the relative size of the REO portfolio to what it has been and it has significantly decreased. And the land portion of the REO portfolio was now less than half of what remains in the REO portfolio. So the remaining valuation risk there I believe is decreased.

Okay, okay, that's helpful. And then, Mark, what were some of the yields on the investor commercial real estate loans that you booked? What were the yields on those?

Well, clearly, the yields have come in because it is a much more competitive environment. So our overall loan yield at 553 has come in on new production. So you would see new loan production anywhere between 425 and 5.

Okay. And Lloyd, can you give me some details on the fair valuation adjustment? What type of securities those are on and how the fair value transpired?

Sure. Well, the fair value adjustment for the quarter was, as you know, was about $1.8 million and about $1.1 million, $1.2 million of that related to the valuation of our subordinated debt, which increased by that amount primarily as a result of the increase in three-month LIBOR rates. We didn't adjust the spreads in our discounting process, but LIBOR moved up. So that, combined with the small effect of getting to 90 days closer to final maturity, both impacted that.

There was a little bit of offset to that in the asset side as a result of the trust preferred securities that we have that have similar characteristics, but there are far fewer of those, as you know. And the balance of it just related to interest rate impact on non-subordinated type of securities.

Okay. (multiple speakers)

Primarily two-thirds of that adjustment for the quarter reflects the change in the value of the debt.

Okay, but when we talk about the value of the debt, you didn't adjust the discount rate?

We did not, other than the impact of three-month LIBOR. We didn't adjust the spread.

Yes, right.

Three-month LIBOR was up about 25, 30 basis points for the quarter.

Okay. In terms of recognizing the valuation allowance of the DTA, are you still thinking four quarters of profitability is appropriate?

Well, I think I have been pretty consistent in hedging that question consistently with the idea that it is a function of profitability, asset quality, the nature of the profits, sustainability, all of that stuff. Having said that, I will be very disappointed if it doesn't occur sometime in 2012. That is as narrow as I'm going -- that is as far out on the limb as I will go right now, Tim.

Good enough. Thanks. Those are all my questions.

(Operator Instructions). Sara Hasan, McAdams Wright Ragen.

Hi, guys. I am wondering if you could talk about your TARP repayment plans and your thoughts on that.

Sara, this is Mark. I think we have been pretty clear and quite frankly consistent in our approach here. What we outlined 18 months ago is that we were going to improve the capitalization and liquidity of the Company. We were going to reduce the risk, dramatically reduce the risk in our balance sheet. We needed to improve our core earnings power of the Company and finally then get the MOU terminated.

Clearly, we have made great progress in all those areas and as you progress as an organization being successful with that approach, that should allow us, as an organization, to repay TARP over time through earnings generation and capital accretion in the Company.

So we still believe that to be the case. We are exploring various alternatives and if something presents itself that is beneficial to the shareholders, we will look to do that. But right now, our interpretation is that we still believe our original plan of repayment of TARP over time is still effective.

Great. Thank you.

Jim Simmons, ICM Asset Management.

Thank you. Congratulations, gentlemen. That is an excellent quarter.

Thank you, Jim.

You bet. As you evolve from essentially a perspective for investors of looking mostly at balance sheet quality and strength of the Company to one where you put that in almost a totally passed context now. The questions start shifting over to future growth directions. Can you give us, and you did a pretty good job of commercial loan generation in the last quarter from what I heard, but can you give us a little more sense of how you see the region's growth potential at this point, what is bottoming out in terms of real estate and just kind of a general backdrop in terms of what you hope to see in your banking region as we go forward in terms of how it is going to bear on your future earnings growth?

Jim, this is Mark. First of all, thank you for the question. It is an excellent one. And obviously, with the conditions that are occurring with the general economy, the reduced confidence in the business environment in terms of clarity of where the economy is going has provided a cloud. So that being the backdrop, more importantly for our region, which is the Pacific Northwest, I think we need to take into consideration a couple of different things.

First and foremost, if you look, obviously, at the drivers of our economy, you have Boeing, which is doing very well and has significant back orders should take it out over seven years. So they have renegotiated the labor contract, so there is employment add there along with stability in their performance.

We have the agricultural belt, which has done very well through this cycle and it is continuing to do well and has added for significant improvement in shipments coming out of the port, which is a very big business for the Pacific Northwest. So the ports are doing well.

You have the technology companies of Microsoft and Amazon that are doing well also and have just -- Microsoft, the merit increase that they pushed through through their entire organization, the latest statistic I heard from the economic development area was it should add somewhere around $400 million to the local economies.

So there is a number of positive factors of our geography here that are doing well versus other parts of the United States. So I would tend to think that, as the economy continues to mend and there becomes more clarity as to the political policy going forward, that our economy will do very well in terms of growth.

So I view this area as very positive. We are still outstripping the national numbers in terms of per capita income. And while the housing market is still strained and we are seeing pockets of valuation diminution in various areas, the pace of that valuation diminution is reducing dramatically. So I view the next slow growth economy for our area, but we have some things that are a little bit more positive than other parts of the country.

Great, thank you.

Joe Stieven.

Hi, Mark. Sorry, something happened technically a few seconds ago.

Hi, Joe, how are you?

Great. Hey, first of all, good quarter. And I don't know if you answered this or not, but I have got a couple questions. Number one, when you look at your other expenses, the real estate, quote/unquote, real estate operations of $4.4 million, I am assuming that is mainly -- is that mainly foreclosed real estate expenses or am I misconstruing that number?

No, that is all related to foreclosed real estate, Joe.

So in theory, as you guys keep doing better and better, those numbers have got to come down. Okay, that is question number one. Question number two is we are watching banks, especially more and more are bringing their DTAs back on after four quarters, give or take and I would -- because, obviously, you guys paid no taxes, so I'm assuming sometime soon you will be paying taxes, but you should have the DTA back on relatively soon is probably a fair way. So I don't know if you had commented about that, but that is sort of my question.

This is Lloyd. I tap-danced around that one quite a bit, but summing it up, we think that sometime in 2012 that event will occur and it is a function of profitability and asset quality and all of the things that will allow you to get to the conclusion that you have a reasonable expectation of utilizing that.

Okay. Well, you are there, so. Okay, thank you, guys. Good quarter.

Thank you. Now that there are no further questions in queue, I would like to turn the call back over to Mr. Grescovich for closing remarks.

Great, thanks, Douglas. For the full-year 2011, our performance demonstrated that we are making substantial and sustainable progress on our disciplined strategic plan to strengthen Banner by achieving a moderate risk profile and at the same time executing on our super community bank model by growing marketshare and improving our core operating performance. While we are pleased with our results for 2011, we still have quite a bit of work to do and we remain focused at delivering improved results in 2012.

Thank you for your interest in Banner and for joining our call today. We look forward to reporting our results to you again in the future. Have a great day, everyone.

Thank you, ladies and gentlemen. That does conclude our conference for today. If you would like to listen to a replay of today's conference, please dial 303-590-3030 or 800-406-7325 and enter the access code 4503316. We would like to thank you for your participation and you may now disconnect.