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STOCK-BASED COMPENSATION PLANS
12 Months Ended
Dec. 31, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
STOCK-BASED COMPENSATION PLANS
STOCK-BASED COMPENSATION PLANS

The Company operates the following stock-based compensation plans as approved by the shareholders: the 1996 Stock Option Plan, the 1998 Stock Option Plan and the 2001 Stock Option Plan (collectively, SOPs) and the Banner Corporation 2012 Restricted Stock Plan.  In addition, during 2006 the Board of Directors approved the Banner Corporation Long-Term Incentive Plan, an account-based benefit plan which for reporting purposes is considered a stock appreciation rights plan.

Restricted Stock Grants. The Company granted shares of restricted common stock to Mark J. Grescovich, President and Chief Executive Officer of Banner Bank and Banner Corporation on August 22, 2010 and on August 23, 2011.  The restricted shares were granted to Mr. Grescovich in accordance with his employment agreement, which, as an inducement material to his joining the Company and the Bank, provided for the granting of restricted shares on the six-month and the 18-month anniversaries of the effective date of the agreement.  The shares vest in one-third annual increments over the subsequent three-year periods following the grants.  Under the 2012 Restricted Stock Plan, which was approved by shareholders on April 24, 2012, the Company is authorized to issue up to 300,000 shares of its common stock to provide a means for attracting and retaining highly skilled officers of Banner Corporation and its affiliates.  Shares granted under the Plan have a minimum vesting period of three years.  The Plan will continue in effect for a term of ten years, after which no further awards may be granted.  Concurrent with the approval of the Plan was the approval of a grant of $300,000 of restricted stock (14,535 restricted shares) to Mr. Grescovich. Subsequent to that initial issuance from this new plan was the issuance of 78,500 additional shares to certain other officers of the Company.  All of these shares also vest in one-third annual increments over the subsequent three-year period following the grant.

The expense associated with restricted stock was $434,000 and $111,000 and 28,000 respectively, for the years ended December 31, 2012, 2011 2010.  Unrecognized compensation expense for these awards as of December 31, 2012 was $1.8 million and will be amortized over the next 33 months.

A summary of the Company's unvested Restricted Stock activity during the years ended December 31, 2010, 2011 and 2012 follows:
 
Shares
 
Weighted Average
Grant-Date
Fair Value
Unvested at December 31, 2009

 
$

Granted
16,565

 
15.09

Vested

 

Forfeited

 

Unvested at December 31, 2010
16,565

 
15.09

Granted
17,692

 
14.13

Vested
(5,522
)
 
15.09

Forfeited

 

Unvested at December 31, 2011
28,735

 
14.50

Granted
92,035

 
21.77

Vested
(11,419
)
 
14.60

Forfeited
(1,500
)
 
21.94

Unvested at December 31, 2012
107,851

 
20.59




Stock Options.  Under the SOPs, Banner reserved 2,284,186 shares for issuance pursuant to the exercise of stock options to be granted to directors and employees.  Authority to grant additional options under the 1996 Stock Option Plan terminated on July 26, 2006.  Authority to grant additional options under the 1998 Stock Option Plan terminated on July 24, 2008 with all options having been granted.  Authority to grant additional options under the 2001 Stock Option Plan terminated on April 20, 2011.  The exercise price of the stock options is set at 100% of the fair market value of the stock price on the date of grant.  Options granted vest at a rate of 20% per year from the date of grant and any unexercised incentive stock options will expire ten years after date of grant or 90 days after employment or service ends.

During the years ended December 31, 2012, 2011 and 2010, the Company did not grant any stock options.  Additionally, there were no significant modifications made to any stock option grants during the period.  The fair values of stock options granted are amortized as compensation expense on a straight-line basis over the vesting period of the grant.

For the years ended December 31, 2012, 2011 and 2010, stock-based compensation costs related to the SOPs were $7,000, $25,000 and $53,000, respectively.  The SOPs' stock option grant compensation costs are generally based on the fair value calculated from the Black-Scholes option pricing on the date of the grant award.  The Black-Scholes model assumes an expected stock price volatility based on the historical volatility at the date of the grant and an expected term based on the remaining contractual life of the vesting period.  The Company bases the estimate of risk-free interest rate on the Treasury's Constant Maturities Indices in effect at the time of the grant.  The dividend yield is based on the current quarterly dividend in effect at the time of the grant.

The Company is required to estimate potential forfeitures of stock option grants and adjust compensation cost recorded accordingly.  The estimate of forfeitures is adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates.  Changes in estimated forfeitures are recognized through a cumulative catch-up adjustment in the period of change and also impact the amount of stock compensation expense to be recognized in future periods.

A summary of the Company’s stock option award activity (post reverse split) for the years ended December 31, 2010, 2011 and 2012 follows:
 
Shares
 
Weighted
Average
Exercise Price
 
Weighted
Average
Remaining
Contractual
Term, In Years
 
Aggregate
Intrinsic Value
Outstanding at December 31, 2009
70,769

 
$
156.38

 
3.8
 
n/a
Granted

 

 
 
 
 
Exercised

 

 
 
 
 
Forfeited
(9,044
)
 
117.39

 
 
 
 
Outstanding at December 31, 2010
61,725

 
162.12

 
3.1
 
n/a
Granted

 

 
 
 
 
Exercised

 

 
 
 
 
Forfeited
(9,996
)
 
127.54

 
 
 
 
Outstanding at December 31, 2011
51,729

 
168.98

 
2.4
 
n/a
Granted

 

 
 
 
 
Exercised

 

 
 
 
 
Forfeited
(9,208
)
 
145.97

 
 
 
 
Outstanding at December 31, 2012
42,521

 
173.98

 
1.75
 
n/a
Outstanding at December 31, 2012, net of expected forfeitures

 

 
n/a
 
n/a
Exercisable at December 31, 2012
42,521

 

 
1.75
 



The intrinsic value of stock options is calculated as the amount by which the market price of Banner's common stock exceeds the exercise price at the time of exercise or the end of the period as applicable.

A summary of the Company’s unvested stock option activity for the years ended December 31, 2010, 2011 and 2012 follows:
 
Shares
 
Weighted Average Grant-Date
Fair Value
Unvested at December 31, 2009
5,247

 
$
54.74

Granted

 

Vested
(2,247
)
 
57.47

Forfeited

 

Unvested at December 31, 2010
3,000

 
52.78

Granted

 

Vested
(1,500
)
 
57.12

Forfeited

 

Unvested at December 31, 2011
1,500

 
48.37

Granted

 

Vested
(1,500
)
 
48.37

Forfeited

 

Unvested at December 31, 2012

 



At December 31, 2012, financial data pertaining to outstanding stock options was as follows:
Exercise Price
 
Weighted Average Exercise Price of Option Shares Granted
 
Number of Option Shares Granted
 
Weighted Average Option Shares Vested and Exercisable
 
Weighted Average Exercise Price of Option Shares Exercisable
 
Remaining Contractual Life
$0.00 to $110.00
 
$
109.69

 
11,193

 
11,193

 
$
109.69

 
0.6 years
$110.01 to $184.00
 
156.52

 
11,657

 
11,657

 
156.52

 
0.3 years
$184.01 to $220.00
 
203.76

 
9,643

 
9,643

 
203.76

 
0.9 years
greater than $220.00
 
221.97

 
10,028

 
10,028

 
221.97

 
0.5 years
 
 
173.98

 
42,521

 
42,521

 
173.98

 
 


During the year ended December 31, 2012, there were no exercises of stock options.  Cash was not used to settle any equity instruments previously granted.  The Company issues shares from authorized but unissued shares upon the exercise of stock options.  The Company does not currently expect to repurchase shares from any source to satisfy such obligations under the SOPs.

The following are the stock-based compensation costs recognized in the Company’s consolidated statements of operations for the years ended December 31, 2012, 2011 and 2010 (in thousands):
 
Years Ended December 31
 
2012

 
2011

 
2010

Salary and employee benefits
$
11

 
$
39

 
$
83

Decrease in provision for income taxes
(4
)
 
(14
)
 
(30
)
Decrease in equity, net
$
7

 
$
25

 
$
53



Banner Corporation Long-Term Incentive Plan:  In June 2006, the Board of Directors adopted the Banner Corporation Long-Term Incentive Plan effective July 1, 2006.  The Plan is an account-based type of benefit, the value of which is directly related to changes in the value of Company common stock, dividends declared on Company common stock and changes in Banner Bank’s average earnings rate, and is considered a stock appreciation right (SAR).  Each SAR entitles the holder to receive cash, upon vesting, equal to the excess of the fair market value of a share of the Company’s common stock on the date of exercise over the fair market value of such share on the date granted plus, for some grants, the dividends declared on the stock from the date of grant to the date of vesting.  On April 27, 2008, the Board of Directors amended the Plan and also authorized the repricing of certain awards to non-executive officers based upon the price of Banner common stock three business days following the public announcement of the Company’s earnings for the quarter ended March 31, 2008.  The primary objective of the Plan is to create a retention incentive by allowing officers who remain with the Company or the Banks for a sufficient period of time to share in the increases in the value of Company stock.  Detailed information with respect to the Plan and the amendments to the Plan were disclosed on Forms 8-K filed with SEC on July 19, 2006 and May 6, 2008.  The Company re-measures the fair value of SARs each reporting period until the award is settled and compensation expense is recognized each reporting period for changes in fair value and vesting.  The Company recognized compensation expense of $314,000, $148,000, and $228,000, respectively, for the years ended December 31, 2012, 2011 and 2010 related to the increase in the fair value of SARs and additional vesting during the period.  At December 31, 2012, the aggregate liability related to SARs was $591,000 and is included in deferred compensation.