Good day ladies and gentlemen, and thank you for standing by. Welcome to the Banner Corporation Third Quarter 2013 Earnings Conference Call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Thursday, October 24, 2013. I would now like to turn the conference over to Mr. Grescovich, CEO and President of Banner Corporation. Please go ahead, sir. And pardon me sir, we’re unable to hear you in the conference please take yourself off of mute. Yes sir, please go ahead.

I’m sorry, are we beginning the call, Cheryl?

Yes sir, please go ahead.

Okay, thank you. And good morning everyone, I apologize for the technical difficulty. I would also like to welcome you to the third quarter earnings call for Banner Corporation this morning. As is customary, joining me on the call today is Rick Barton, our Chief 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 and 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'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 June ended 30, 2013. 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, Al. As announced, Banner Corporation had another strong quarter of performance reporting a net profit available to common shareholders of $11.7 million or $0.60 per share for the period ended September 30, 2013. This compared to a net profit to common shareholders of $0.60 per share for the second quarter of 2013 and $0.79 per share in the third quarter of 2012. As you know the third quarter of 2012 had some extraordinary accounting items including a significantly reduced tax expense. When looking at earnings before tax and changes in fair value Banner's income was $0.92 per share for the third quarter of 2013, compared to $0.91 in the second quarter of 2013, and $0.87 in the first quarter of 2013 and $0.93 per share in the third quarter of 2012. The third quarter performance continued our positive momentum and solidified through the hard work of our employees throughout the company, we continue the successful execution of our strategies and priorities to deliver sustainable profitability to Banner, and our return to profitability for the last ten quarters further demonstrates that our strategic plan is effective and we continue building shareholder value. Our operating performance again this quarter was very solid when analyzing our core key metrics. Our third quarter of 2013 core revenue was a strong $52.4 million despite slowing mortgage banking revenue due to a reduction in refinance activity. Our net interest margin remained above 4% and was 4.09% in the third quarter of 2013, and our cost to deposits again decreased in the most recent quarter to 26 basis points compared to 29 basis points in the second quarter of 2013 and 41 basis points in the same quarter of 2012. This performance resulted in a solid return on average assets of 1.09% in the quarter.…

Thanks Mark. As you’ve read the third quarter of 2013, again showed solid improvement in Banner’s credit metrics. Let me comment on a few highlights. Net charge offs for the quarter were only a $196,000, down from an already low $275,000 in the linked quarter. For both of the last two quarters net charge offs were just 0.01% of average loans outstanding. Non-performing assets ended the quarter at $30 million, a reduction of $3 million or 10% for the quarter. Non-performing assets now stand at 0.7% of total assets. The reduction in non-accrual loans was $4 million or 17%, and OREO decreased $1.9 million or 28%. Other non-performing loans, loans 90 days or more past to and on accrual did increase $2.8 million or 140% during the quarter. $1.7 million of the increase was in a single loan that has now been renewed on terms that did not constitute a troubled debt restructure. The balance of the increase came from normal activity in the one to four family permanent portfolio. When compared September 30, 2012, the reduction in non-performing assets is $29 million or 50%. For the past seven quarters, Banner has recorded a net gain on the sale of OREO assets and for the past five quarters, the net gain has exceeded any valuation adjustments. As I noted in last quarter's call, these statistics highlight not only the effectiveness of our OREO staff and valuation methodology, but also continuing the stabilization in our major real estate markets. Performing troubled debt restructures again decreased during the quarter ending at $51.3 million down nominally from the linked quarter total at $51.7 million. Compared to a year ago September 30, 2012, performing troubled debt restructures are down at $11.1 million or 18%. Once again, it is important to note that these reductions…

Thank you, Rich and good morning everyone. As Rich and Mark have indicated and is reported in our press release Banner Corporation’s operating results for the third quarter were again very good, continued to demonstrate the strength of our commercial banking franchise and position the company well for continued solid performance in future period. However, as I noted on last quarter's call, our past success is making comparison to prior period more challenging. And the impact of the difficult operating environment presented by the prolonged period of very low interest rates and slow economic growth as well as the decline in mortgage banking activity, it was clearly evident in the quarter's results. Our net income available to shareholders was $11.7 million or $0.60 per diluted share in the third quarter of 2013 compared to $11.8 million also $0.60 per diluted share in the immediately preceding quarter and $15.2 million or $0.79 per diluted share in the same quarter a year ago. It’s important to note that the current quarter’s net income reflects a normal provision for income taxes of $5.9 million at an effective rate of 33.5%. While the results for the third quarter of 2012 included a much lower $2.4 million tax provision as the effective rate was reduced to just over 13% as a result of reversing a portion of the remaining valuation allowance for our deferred tax asset. You will recall that most of the deferred tax asset valuation allowance was reversed in the second quarter of 2012, but additional portions of the reversal occurred in the third and fourth quarters. That tax benefit contributed in an additional $0.21 per diluted share to last year's third quarter earnings. As Rick has noted, our credit metrics continued to improve during the quarter and as a result, similar to…

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

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions) And our first question comes from the line of Joe Fenech with Sandler O'Neill & Partners. Please go ahead. Joseph Fenech – Sandler O'Neill & Partners, L.P.: Good morning Mark, good morning Lloyd and Rick. Couple of questions if I can, related to the announcement last night. Mark, can you give us your updated thoughts on Boise, you mentioned that you are still committed to growing share in Boise, are there other potential partners maybe in that market for you and if not, how are you thinking about your strategic position there and then your alternatives for improving that positioning?

Yes, good morning, Joe and thank you for the question. So one of the things that Banner has been extremely successful at from our organic business model is having a very solid product offering that deal with the larger institutions and we deliver in a very localized fashion. So we have been able to grow our client base by 50% since 2009, so effectively our business model or our organic growth model is very effective. So one of the things that’s benefited us from that to grow our client base has been market disruption. So if you think of the Boise market, you now have a situation where the Bank of America branches are being in transition. You have the Home Fed and Cascade branches in transition and so the market is quite disrupted for Boise and will present us a significant opportunity to organically grow our market. Clearly, the acquisition or merger between Cascade and Home is going to have substantial branch overlap that will be beneficial for us. So as we look at the marketplace, we are going to continue to monitor it closely, but there are other opportunities in the Boise market and the Idaho market in particular that would be beneficial for us to add the market share. So while this particular situation, we are not simply going to pay up substantially for because we believe our organic model will work more effectively and there are other opportunities in the market. Joseph Fenech – Sandler O'Neill & Partners, L.P.: Okay, fair enough and then second, does the termination of the deal, Mark, make you rethink your capital management priorities in the short term, in other words, in the months leading up to the deal, were you holding back of all and certain capital management alternatives that might maybe now move to the affordable line here with the deal off or do you want to keep as much pedal drive as possible for other potential acquisition opportunities?

I think in the immediate term, we are going to stick very much with our capital plan. Clearly, as I’ve said before, if we start to see a situation where we can't deploy the capital effectively through market in market fillings, we will want the other sources of utilization of that capital including special dividends, including share repurchase. Joseph Fenech – Sandler O'Neill & Partners, L.P.: Okay and then lastly, I know this is hypothetical, but just interested in your thoughts on it. When you think longer term, let's assume there was a larger partner out there that you thought might make sense for you guys a couple of years down the road for various reasons, with this pick up in M&A in the region where it seems like most of the larger relevant players in the region are looking around for a partner, is there any increased sense of urgency on your part, that not to say you would do something just to do something and maybe a better way to ask the question, is the pickup in activity alter your longer term thinking on M&A in the region at all and your place in it?

Our overall mission Joe, is to be the best bank in the Pacific Northwest and we measure that by several categories, including client service and including product offerings to make sure that we’re relevant in the communities which we do business. We believe that the best way to do that is to be a top quartile performing bank and that’s what we’re driving our entire business forward. We don’t concentrate on size as being the source of relevance, it is financial performance and stability and a business model that can be successful for all economic cycles because we’re the primary source of capital and the primary source of commerce in most of the communities in which we operate. So the short answer to your question is, no this does not cause us to have some sense of urgency because we actually have a business model that is very successful and it’s demonstrated through our financial performance. Now, clearly we’ll look to maximize shareholder value and our board remains committed to value in the best way we can. Joseph Fenech – Sandler O'Neill & Partners, L.P.: The scale matter maybe marked a little more in some of the larger metro markets, now maybe look at the landscape and say okay there is some larger competitors in those larger markets, I hear what you’re saying is some of the world markets, but do you think that what you just said apply you think to the entire franchise or is the metro market sort of a different animal?

Well, the major metro markets also have pockets inside of them. So in terms of certain communities associated with the major metro markets and we feel by being dedicated to those sub markets inside the major metro markets, we can become extremely effective. Obviously, scale does matter in those markets and we will look to augment our position as we have said before in each of those major metro markets. Joseph Fenech – Sandler O'Neill & Partners, L.P.: Fair enough, thank you guys.

Thank you.

Thank you. Our next question comes from Jeff Rulis with D.A. Davidson & Co. Please go ahead. Jeff Rulis – D.A. Davidson & Co.: Thanks, good morning guys.

Good morning, Jeff. Jeff Rulis – D.A. Davidson & Co.: Mark, maybe question for Mark on the -- just trying to think about sort of loan growth in 2014, your tone sound positive on the production side and then, I guess outside of some pay offs, I guess as you kind of roll into 2014, I kind of view 2013 as sort of transitional in terms of the finalizing kind of the credit DTA and all that stuff behind you. I guess this 14 look like a more of a breakout on a loan growth fund and I guess what are the components of the drivers that you see effect in that number?

So I would characterize your comments as generally accurate. When we have items before in terms of long growth, I think, what we’ve indicated is that we thought the fourth quarter was going to begin, the fourth quarter of 2013 was going to be the time in which we started to see our balance sheet expand. The good news is it happened, started happening in the second quarter but we indicated that that was going to be lumpy at the time. So I feel very positive about our production pipeline, I feel very positive barring any economic event that occurs whether it’s coming through Washington or continue to lack of confidence in the economy, I feel very positive about our market share gains and our loan pipeline is going into 2014. And quite frankly Joe, that’s going to be going across all product lines. Our targeted markets which were C&I, owner occupied real estate and Ag has voided our dimension have grown 5%. Just the owner occupied piece and our C&I has grown 6%. So we would be, actually effectively growing our commercial banking franchise so I see that growth continuing. The refinance of our mortgage banking portfolio, our own balance sheet portfolio has slowed dramatically. So you will begin to see some earning asset growth, some loan growth, I think start out strip beginning in the fourth quarter and into 2014. Jeff Rulis – D.A. Davidson & Co.: Okay. And then, coupling that with Lloyd’s comments about sort of spread income really tied to that success or not on loan production, I mean, should it play out to be a positive loan production year, I guess maybe Lloyd or Mark, I guess the outlook on the margin for the year as well. I mean it’s difficult question but --

Jeff, you always ask difficult questions. One of the things it happened in the quarter that just ended is, as Mark pointed out we had really solid loan growth in the second quarter and the reality is in today's interest rate environment, when you grow loans, you add loans that yields below your existing book. So as I’ve mentioned a number of times, I mentioned again this morning that means you are going to have to grow it at a pace that compensates for that compression in the margin. We think that’s possible. We obviously continue to reduce our funding costs, but 26 basis points cost to deposits we are not going to go a lot more. So the pressure will be there on the margin. The compensating activity will be to grow those balances fast enough to have net interest income, have positive growth even while the margin is going to be under some pressure. Jeff Rulis – D.A. Davidson & Co.: Got you, okay. And then, maybe one last one on the termination fee, is there any offset or I guess extended costs on the merger that that are offsetting that maybe in Q4?

Yes, there will be some costs. There won’t be $3 million worth of costs obviously, but as you would expect, we do a lot of work with attorneys and investment bankers and others and there will be some expenses offsetting that. Jeff Rulis – D.A. Davidson & Co.: Okay, thanks.

Thank you. (Operator Instructions) Our next question comes from the line of Jacque Chimera with KBW. Please go ahead. Jacquelynne Chimera – Keefe, Bruyette & Woods: Hi! good morning everyone.

Good morning Jacque. Jacquelynne Chimera – Keefe, Bruyette & Woods: I know we always touch on the construction, Mark, but I wondered if you could just talk about compared to last quarter velocity if that anything to do with the decline and if that bounces back up after the quarter end, it's such an arbitrary number I am just looking at, what you expect average balances to do maybe up in the next couple of weeks?

Well, our products, Jacque this is Mark, our production in the construction and development portfolio has been quite positive and as we have said in the previous quarters, _ our production is again somewhere in the neighborhood of 25% to 30%. What happens in that construction portfolio is you know, is if you are doing it effectively, you are going to have some pay outs, pay downs because they go to permanent financing and that’s exactly what happens. So we saw ramp up and then as construction was completed, you saw some permanent takeout in payment and also some of the property is actually sold. So that velocity of the construction development portfolio has picked up and it still remains very strong. I would anticipate that those balances will continue to increase over the short term. Jacquelynne Chimera – Keefe, Bruyette & Woods: And then, obviously we all know what the effect of higher interest rates is doing on refinance and all the activities that’s associated with that, what kind of an effect are they having on some of your other portfolios outside of just slowing pay downs from refinance as far as new generations go? Does that come in at all or you’re seeing borrowers set back as rates rise or they perhaps more interested to go higher?

Jacque, this is Mark, I think the general tone is that as long as economic activity continues at a reasonable pace, people are going to start investing. They aren’t completely confident obviously what happened here with the pull back in consternation with the government has caused people to take pause. So reinvestment activity or investment in the business community is still I think somewhat muted until there is more clarity around where the economy is going in tax plans and the like. That being said, the impact that it has had for us is that the ultra competitive rates or the falling rates as with new loan originations has abated a bit. So what you are seeing is the pace of decline of new loan origination yields has slowed dramatically. So you are kind of flat toed at the bottom which is beneficial for us obviously. So new originations are coming, they are not getting any worse in terms of where they had been say six months ago. Jacquelynne Chimera – Keefe, Bruyette & Woods: Okay. And then, the increase in consumer that secured by real estate, would that just higher usage on e-locks or you are doing extra bookings there?

Yeah, I think it's a combination of things we have had a few campaigns to increase those loans outstanding and we have seen some marginal increase in the usage of e-locks. Jacquelynne Chimera – Keefe, Bruyette & Woods: Okay. So a little bit of both?

Yes. As values, Jacque, as you know in our market is values return to the home, you start to see some pickup. Jacquelynne Chimera – Keefe, Bruyette & Woods: People are maybe doing some projects they have had on the backburner for a couple of years.

Correct and now they actually have equity. Jacquelynne Chimera – Keefe, Bruyette & Woods: Which we like to see.

Yes. Jacquelynne Chimera – Keefe, Bruyette & Woods: Okay that was all I had, thank you very much.

Thanks Jacque.

Thank you and our next question comes from the line of Tim Coffey with FIG Partners, please go ahead. Tim Coffey – FIG Partners: Thanks, good morning gentlemen.

Good morning Tim. Tim Coffey – FIG Partners: Mark, I wonder you talk little more about how your business model operates in disrupted markets, clearly there is a lot going on, better start this quarter. Do you see potential clients looking to various companies that have announced the mergers already or do you see a more waiting to kind of see how this integration checks out?

Well, I think it’s, there’s two facets, okay. So if you consider the larger institutions such as the money centre banks like BO Bay when there is a disruption in the market or they are closing branches or changing hands, branches are changing hands. Client chose them for a particular reason and it’s generally because of product depth. And if the new entity does not have the same product depth that those clients are looking for, they recognize they are going to have to change banks, they want they become used to a certain product set. And if that product set is not available to them with the acquiring institution they will make a choice that is ideal for Banner because we are right in a position of having that broad product depth. For the products that they are looking for, but at the same time having a service commitment that exceeds the other institutions as evidenced by JD Power, so that’s the larger regional impact. On the community bank basis, clients dealing with community banks in particular are dealing with people and they get very concerned of what happens to the people in the market that they do business with their particular bankers that they deal with on a day-to-day basis. And if those people are impacted they will make choices on where they decide to bank and that Banner has particular attractive offer with our personnel, our services to be able to attract that client base. So by and large it’s beneficial for our business model all the way around. Tim Coffey – FIG Partners: Okay. Are you feeling that increase in volatility of customers where banking is, or banking sector where you are right now?

Well, I think from our -- the current markets what we’re talking about, it’s a little too early to talk about, but our client acquisition is still running at a 12% net annual growth rate on a quarter basis. So we’re still seeing extreme inflows of clients into our footprint. So and that’s been very beneficial. Tim Coffey – FIG Partners: All right. Well, thank you very much, those are my questions.

Thanks Tim.

Thank you. And there are no further questions that this time, I would like to hand the call back to Mr. Grescovich for closing remarks.

Thank you, Cheryl. As I stated, we are pleased with our strong third quarter performance and the reinforcing evidence that we are making substantial and sustainable progress on our disciplined strategic plan to build shareholder value by executing on our super community bank model, by growing market share, strengthening our deposit franchise, improving our core operating performance and maintaining a moderate risk profile. I would like to thank all my colleagues who are driving this solid performance for our company. 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 and I apologize again for the technical issues we had at the beginning of the call. Have a great day.

Ladies and gentlemen, this concludes the Banner Corporation’s third quarter 2013 earnings conference call. If you'd like to listen to a replay of today’s conference please dial 303-590-3030 or 1-800-406-7325 with the access code 4641430. We thank you for your participation, and at this time you may now disconnect.