Gary Sirmon spent the last seven years transforming Banner Corp. from a small, local thrift to a regional commercial banking company with operations in three states.
Apparently, though, the Walla Walla, Wash., company has grown too big for Mr. Sirmon. 
Last week the $2.1 billion-asset parent of Banner Bank said that it was replacing its longtime president and chief executive officer with a veteran banker who has far more experience running larger companies.
D. Michael Jones will take over as president and CEO at Banners annual shareholder meeting on April 19. Mr. Sirmon will become the companys chairman succeeding Dean W. Mitchell, who will remain on Banners board.
Mr. Sirmon said Banner has suffered growing pains and sorely needs a banker of Mr. Jones stature to help the company get back on track.
Banner, which was known as First Washington Bancorp until 1998, grew from a $450 million-asset eastern Washington thrift in 1995 to its current size by converting to a commercial bank charter and acquiring six banks in western Washington, Idaho, and Oregon.
Mr. Jones has been able to integrate lots of acquisitions very effectively, said Mr. Sirmon, who has held the top job at Banner for more than 20 years. When we had the opportunity to hire him, we jumped at the chance.
Before joining Banner last month as the president and CEO of its Banner Bank, Mr. Jones was the president and CEO of Source Capital Corp., a subprime commercial real estate specialty lending company.
Before that he had been the president of the $9 billion-asset West One Bancorp of Boise, Idaho, which the old U.S. Bancorp acquired in 1995. Earlier he had been the president of the $2 billion-asset Old National Bancorp of Spokane, which the old U.S. Bancorp also bought in 1987. (Firstar Corp. acquired U.S. Bancorp last year and adopted its name.)
Banner is now the fifth-largest banking company headquartered in Washington, but its path to growth has hardly been smooth. Last year it spent $1.4 million centralizing the various data processing systems left over from earlier acquisitions. The costly conversion boosted its efficiency ratio from 59.65% in 2000 to 70.01% last year. The average efficiency ratio for comparable banking companies nationwide last year was 55.75%, according to the Federal Deposit Insurance Corp.
To make matters worse, last summer the company reported that it discovered a check-kiting scheme perpetrated by a Seattle loan officer, who had also allegedly concealed the credit weaknesses of several additional loan customers. The alleged fraud resulted in $11.9 million of chargeoffs last year, as well as increases in nonperforming assets and loan-loss provisions.
The problems, exacerbated by a slowdown in the Pacific Northwest economy, caused Banners net income last year to slide 59%, to $7.5 million. Last month it said that its earnings this year could fall short of the Wall Street consensus forecast of $2.05 per share because of an expected $1.2 million increase in loan-loss provisions. The increase is necessary because of the problems caused by the former Seattle employee, according to Banner, which projects 2002 earnings of between $1.90 to $2 a share.
James Bradshaw, an analyst at the Portland, Ore., office of D.A. Davidson & Co., said that the check-kiting scandal indicates that Banner grew too fast.
When a lot of community banks grow up, staff will wear eight to 10 hats for a while, he said. Oftentimes scandals like this end up falling through the cracks.
However, Mr. Jones has experience with reorganizing large institutions after several acquisitions and morphing them into regional networks, Mr. Bradshaw said. After he feels that he has his hands around the current situation, hell be able to stretch the network out a little bit.
Mr. Jones says he plans to take things slowly. The company will concentrate first on cleaning up its balance sheet, and it will limit its growth mostly to its existing markets, including Seattle and Portland.
Right now we have to do basic blocking and tackling to get back to good, solid banking, he said in an interview Tuesday.
Mr. Bradshaw said that the lingering problems created by the former Seattle loan officer will dampen Banners performance in the short-term, but he is confident that, it will rebound under Mr. Jones. Now that theyve got somebody to reinvigorate the troops, they should have a very nice story.
