WALLA WALLA, WA-Banner Corp. on Friday said rising loan-loss provisions will “substantially eliminate” fourth quarter profitability for Banner Bank, its commercial bank subsidiary.

The company is reporting that during the fourth quarter and particularly in December, Banner Bank’s loan portfolio quality, as measured by the levels of past due, classified or non-performing loans, shows deterioration. Based that level of deterioration, the company says it expects to increase the provision for loan losses from a $4 million level recorded in the third quarter to approximately $7 million in the fourth quarter.

“This increase in the provision for loan losses will substantially eliminate fourth quarter profitability for the Company,” states a Friday morning news release. As a result, the company’s share price was off $0.33 in afternoon trading to $18.02 despite an up day for the Nasdaq and triple digit gains the in the Dow Jones Industrial Average.

The problem loans are primarily due from borrowers located in the Puget Sound region, according to the company, and are the result of poor risk assessment at the time they were originated, coupled with weakened economic conditions in that area.

Banner Bank operates a total of 41 branch offices and six loan offices in Washington, Oregon and Idaho. During the third quarter, the company reported profits of $3.38 million on revenue of $40.2 million.

Also on Friday, the company announced a $0.15 per share cash dividend to be paid on Jan. 10, 2003, to shareholders of record on Dec. 31, 2002. The company also confirmed the completion of the issuance of $15 million of Trust Preferred Securities in a private placement. Banner says the proceeds may be used to augment the capital to fund growth, including acquisitions, or may be used to fund Banner’s stock repurchase program and for other general corporate purposes.

Issued by a special purpose business trust owned by the Company and sold to a pooled investment vehicle sponsored by Sandler O’Neill & Partners and Salomon Smith Barney, the securities will have a maturity of 30 years and are redeemable after five years with certain exceptions. The holders of the Trust Preferred Securities will be entitled to receive cumulative cash distributions at a variable annual rate, with an initial interest rate of 4.76% reset quarterly to equal three month LIBOR plus 3.35%.

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