SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 22, 2004
Banner Corporation
------------------
(Exact name of registrant as specified in its charter)
Washington 0-26584 91-1691604
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State or other jurisdiction Commission (I.R.S. Employer
of incorporation File Number Identification No.)
10 S. First Avenue, Walla Walla, Washington 99362
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number (including area code) (509) 527-3636
Not Applicable
--------------
(Former name or former address, if changed since last report)
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
---------------------------------------------------------------------------
(c) Exhibits
99.1 Press Release of Banner Corporation dated April 22, 2004.
Item 12. Results of Operations and Financial Condition
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On April 22, 2004, Banner Corporation issued its earnings release for the
first quarter ended March 31, 2004. A copy of the earnings release is
attached hereto as Exhibit 99.1, which is incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
BANNER CORPORATION
DATE: April 22, 2004 By:/s/D. Michael Jones
--------------------------
D. Michael Jones
President and Chief Executive Officer
Exhibit 99.1
Contact: D. Michael Jones,
President and CEO
Lloyd W. Baker, CFO
(509) 527-3636
News Release
==============================================================================
BANNER CORPORATION FIRST QUARTER NET INCOME INCREASES
27% TO $4.4 MILLION AS NET INTEREST MARGIN AND
KEY LOAN QUALITY RATIOS IMPROVE
Walla Walla, WA - April 22, 2004 - Banner Corporation (Nasdaq: BANR), the
parent company of Banner Bank, today reported improved net interest margin
contributed to an increase in net income for the first quarter ended March 31,
2004, compared to the first quarter a year ago. For the first quarter of
2004, the Company's net income increased 27% to $4.4 million, or $0.38 per
diluted share, compared to $3.4 million, or $0.31 per diluted share, for the
first quarter of 2003.
"We experienced continued improvement in our net interest margin during the
first three months of 2004, as our cost of funds declined and earning assets
increased. In addition, we expanded our franchise significantly during the
quarter, opening four new branches and three new loan offices in key markets,"
said D. Michael Jones, President and Chief Executive Officer. "We have also
made significant improvements in loan quality from the fourth quarter of 2003
and over the last 12 months. The ratio of net charge-offs to average loans
outstanding was 0.04% for the current quarter, compared to 0.09% in the fourth
quarter and 0.20% in the first quarter a year ago."
Credit Quality
Non-performing assets were $29.6 million, or 1.09% of total assets, at March
31, 2004, a 30% reduction from $42.4 million, or 1.76% of total assets, at
March 31, 2003. The loan loss provision for the first quarter was $1.5
million, a slight increase from the provision in the fourth quarter as a
result of substantial loan growth, and a 36% reduction from the $2.3 million
provision for the first quarter a year ago. At March 31, 2004, the allowance
for loan losses totaled $26.9 million, representing 1.50% of total loans
outstanding, compared to $26.1 million, or 1.51% of total loans, at December
31, 2003, and $25.6 million, or 1.61% of total loans, at March 31, 2003.
Income Statement Review
Banner's net interest margin increased 13 basis points to 3.70% for the
quarter ended March 31, 2004, compared to 3.57% for the prior quarter, and
increased four basis points from 3.66% in the first quarter of 2003. "The
continued decline in funding costs, as well as growth in earning assets, has
contributed to this expansion in our net interest margin," said Jones. "While
recent increases in market interest rates may limit further declines in
funding costs, we expect continued loan growth to improve net interest income
in future periods."
For the quarter, net interest income before the provision for loan losses
increased 17% to $22.7 million, compared to $19.4 million in the first quarter
of 2003. Revenues (net interest income before the provision for loan losses
plus other operating income) for the first quarter of 2004 increased 9% to
$26.5 million, compared to $24.2 million for the same quarter of 2003.
"Income from fees and service charges increased 11% from the first quarter of
2003 as new deposit accounts and balances both increased. At the same time,
mortgage banking operations remained about level with the fourth quarter,
although down from the first quarter a year ago. We believe we are at a
relatively sustainable level of activity for this division, although it is
somewhat dependent upon what happens with interest rates in the future," said
Jones. For the quarter, income from mortgage banking operations, including
loan servicing fees, was $1.5 million, compared to $2.6 million for the first
quarter of 2003. Deposit fees and other service charges increased to $1.8
million, compared to $1.7 million for the same quarter of 2003. Total other
operating income for the quarter was $3.8 million, compared to $4.8 million
for the same quarter last year.
(more)
BANR - First Quarter Results
April 22, 2004
Page 2
"We have expanded into the Idaho market with new branches in Boise and Twin
Falls. In addition, we have added to our Portland, Oregon-area presence with
a new branch in the rapidly growing community of Tanasbourne, located in
Hillsboro, the heart of Oregon's Silicon Forest. We opened another branch in
our hometown of Walla Walla, Washington, and three loan offices in the cities
of Burlington, Seattle and Federal Way, Washington. This franchise expansion
has already started adding to our balance sheet, with new loans and deposits.
While these new locations will increase our overhead expense, we expect that
the branches will break even in 14 to 18 months," said Jones. Other operating
expense was $18.8 million for the quarter ended March 31, 2004, compared to
$17.7 million for the fourth quarter of 2003 and $17.1 million for the first
quarter of 2003. The ratio of other operating expense to average assets was
2.88% for the first quarter, compared to 2.75% for the fourth quarter of 2003
and 3.00% for the first quarter of 2003.
Balance Sheet Review
"Our loan portfolio continued to grow at a double digit rate during the
quarter," said Jones. "Commercial and multifamily real estate, construction
and land development loans have increased 23% from a year ago and now account
for 55% of the loan portfolio, compared to 50% of the portfolio at March 31,
2003. Commercial business and agricultural lending has increased 14% over the
past twelve months and now represents 26% of the total portfolio." Net loans
grew 13%, to $1.8 billion at March 31, 2004, from $1.6 billion a year ago.
Assets increased 12%, to $2.7 billion at March 31, 2004, compared to $2.4
billion a year earlier. Deposits grew 8%, to $1.7 billion, compared to $1.6
billion at March 31, 2003, while the cost of deposits declined nine basis
points compared to the fourth quarter of 2003 and was 50 basis points lower
than a year earlier. Book value per share increased to $18.81 at March 31,
2004, from $17.77 per share a year earlier. Tangible book value totaled
$15.53 per share at March 31, 2004, compared to $14.38 a year earlier.
The Company also completed the issuance of an additional $15 million in trust
preferred securities during the quarter. "We continue to believe trust
preferred securities are a cost effective way to augment our capital structure
to support our growth plans," said Jones.
On December 18, 2003, the Company announced a 7% increase in its quarterly
cash dividend to $0.16 per share. The most recent dividend was paid April 9,
2004, to shareholders of record on March 31, 2004.
Conference Call
The Company will host a conference call today, Thursday, April 22, 2004, at
8:00 a.m. PDT, to discuss the first quarter results. The conference call can
be accessed live by telephone at 303-262-2211. To listen to the call online,
go to the Company's website at www.bannerbank.com or to
www.fulldisclosure.com. Institutional investors may access the call via the
subscriber-only site, www.streetevents.com. An archived recording of the call
can be accessed by dialing 303-590-3000, passcode 576707 until Thursday, April
29, 2004 or via the Internet at www.fulldisclosure.com through May 6, 2004.
About the Company
Banner Corporation is the parent company of Banner Bank, a commercial bank
which operates a total of 46 branch offices and 12 loan offices in 23 counties
in Washington, Oregon and Idaho. Banner Bank serves the Pacific Northwest
region with a full range of deposit services and business, commercial real
estate, construction, residential, agricultural and consumer loans. Visit
Banner Bank on the Web at www.bannerbank.com.
Statements concerning future performance, developments or events, expectations
for earnings, growth and market forecasts, and any other guidance on future
periods, constitute forward-looking statements, which are subject to a number
of risks and uncertainties that are beyond the Company's control and might
cause actual results to differ materially from the expectations and stated
objectives. Factors which could cause actual results to differ materially
include, but are not limited to, regional and general economic conditions,
management's ability to generate continued improvement in asset quality and
profitability, changes in interest rates, deposit flows, demand for mortgages
and other loans, real estate values, competition, loan delinquency rates, the
successful operation of the newly-opened branches and loan offices, changes in
accounting principles, practices, policies or guidelines, changes in
legislation or regulation, other economic, competitive, governmental,
regulatory and technological factors affecting operations, pricing, products
and services and Banner's ability to successfully resolve the outstanding
credit issues and/or recover check kiting losses. Accordingly, these factors
should be considered in evaluating the forward-looking statements, and undue
reliance should not be placed on such statements. Banner undertakes no
responsibility to update or revise any forward-looking statements.
(tables follow)
BANR - First Quarter Results
April 22, 2004
Page 3
RESULTS OF OPERATIONS
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(In thousands except share and per share data)
Quarters Ended
------------ ------------ ------------
Mar 31, 2004 Dec 31, 2003 Mar 31, 2003
------------ ------------ ------------
INTEREST INCOME:
Loans receivable $ 29,019 $ 28,711 $ 28,844
Mortgage-backed securities 4,527 3,857 3,052
Securities and cash
equivalents 3,081 3,221 2,822
--------- --------- --------
36,627 35,789 34,718
INTEREST EXPENSE:
Deposits 7,864 8,373 8,871
Federal Home Loan Bank
advances 5,125 5,056 5,700
Junior subordinated deben-
tures/trust preferred
securities 692 674 567
Other borrowings 237 226 172
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13,918 14,329 15,310
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Net interest income
before provision for
loan losses 22,709 21,460 19,408
PROVISION FOR LOAN LOSSES 1,450 1,400 2,250
--------- --------- --------
Net interest income 21,259 20,060 17,158
OTHER OPERATING INCOME:
Loan servicing fees 266 368 530
Other fees and service
charges 1,843 1,832 1,658
Mortgage banking operations 1,252 1,217 2,062
Gain (loss) on sale of
securities 11 45 3
Miscellaneous 444 379 565
--------- --------- --------
Total other operating
income 3,816 3,841 4,818
OTHER OPERATING EXPENSE:
Salary and employee
benefits 12,103 11,737 11,211
Less capitalized loan
origination costs (1,487) (1,618) (1,575)
Occupancy and equipment 2,487 2,407 2,372
Information/computer
data services 1,026 896 838
Professional services 915 784 430
Advertising 1,108 788 866
Miscellaneous 2,676 2,682 2,915
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Total other operating
expense 18,828 17,676 17,057
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Income before provision
for income taxes 6,247 6,225 4,919
PROVISION FOR INCOME TAXES 1,884 1,821 1,490
--------- --------- --------
NET INCOME $ 4,363 $ 4,404 $ 3,429
========= ========= ========
Earnings per share
Basic $ 0.39 $ 0.40 $ 0.32
Diluted $ 0.38 $ 0.39 $ 0.31
Cumulative dividends declared
per common share $ 0.16 $ 0.16 $ 0.15
Weighted average shares
outstanding
Basic 11,051,187 10,885,611 10,786,474
Diluted 11,634,105 11,423,747 11,040,425
Shares repurchased during
the period 7,729 14,931 - -
(more)
BANR - First Quarter Results
April 22, 2004
Page 4
FINANCIAL CONDITION
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(In thousands except share
and per share data)
Mar 31, 2004 Dec 31, 2003 Mar 31, 2003
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ASSETS
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Cash and due from banks $ 61,894 $ 77,298 $ 126,396
Securities available for
sale 693,257 674,942 567,592
Securities held to maturity 31,498 27,232 11,469
Federal Home Loan Bank stock 35,038 34,693 33,378
Loans receivable:
Held for sale 12,100 15,912 47,213
Held for portfolio 1,784,482 1,711,013 1,543,325
Allowance for loan
losses (26,885) (26,060) (25,551)
----------- ----------- -----------
1,769,697 1,700,865 1,564,987
Accrued interest receivable 13,889 13,410 13,775
Real estate owned held
for sale, net 2,077 2,967 5,183
Property and equipment, net 24,779 22,818 20,629
Goodwill and other
intangibles, net 36,477 36,513 36,664
Deferred income tax asset,
net 1,335 1,941 1,658
Bank-owned life insurance 34,143 33,669 32,260
Other assets 8,901 8,965 3,863
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$ 2,712,985 $ 2,635,313 $ 2,417,854
=========== =========== ===========
LIABILITIES
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Deposits:
Non-interest-bearing $ 203,695 $ 205,656 $ 192,287
Interest-bearing 1,546,195 1,465,284 1,422,060
----------- ----------- -----------
1,749,890 1,670,940 1,614,347
Borrowings:
Advances from Federal
Home Loan Bank 585,158 612,552 511,452
Junior subordinated
debentures 72,168 56,703 - -
Trust preferred
securities - - - - 40,000
Other borrowings 74,445 69,444 41,400
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731,771 738,699 592,852
Accrued expenses and
other liabilities 16,538 18,444 14,623
Deferred compensation 4,500 4,252 3,601
Income taxes payable 751 178 --
----------- ----------- -----------
2,503,450 2,432,513 2,225,423
STOCKHOLDERS' EQUITY
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Common stock 124,730 123,375 121,119
Retained earnings 82,801 80,286 72,545
Accumulated other
comprehensive income 6,062 3,191 3,576
Unearned shares of common
stock issued to Employee
Stock Ownership Plan (ESOP)
trust: at cost (3,628) (3,589) (4,264)
Net carrying value of stock
related deferred compen-
sation plans (430) (463) (545)
----------- ----------- -----------
209,535 202,800 192,431
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$ 2,712,985 $ 2,635,313 $ 2,417,854
=========== =========== ===========
Shares Issued:
Shares outstanding at end
of period 11,578,934 11,473,331 11,347,571
Less unearned ESOP
shares at end of
period 438,985 434,299 515,707
----------- ----------- -----------
Shares outstanding at end
of period excluding
unearned ESOP shares 11,139,949 11,039,032 10,831,864
=========== =========== ===========
Book value per share (1) $ 18.81 $ 18.37 $ 17.77
Tangible book value per
share (1) $ 15.53 $ 15.06 $ 14.38
Consolidated Tier 1
leverage capital ratio 9.07% 8.73% 8.48%
(1) - Calculation is based on number of shares outstanding at the end of the
period rather than weighted average shares outstanding and excludes
unallocated shares in the employee stock ownership plan (ESOP).
(more)
BANR - First Quarter Results
April 22, 2004
Page 5
ADDITIONAL FINANCIAL INFORMATION
(Dollars in thousands)
LOANS (including loans Mar 31, 2004 Dec 31, 2003 Mar 31, 2003
---------------------- ----------- ----------- -----------
held for sale):
--------------
Secured by real estate:
One- to four-family $ 279,497 $ 275,197 $ 323,495
Consumer secured by one
to four-family 32,600 31,277 25,004
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Total one to four-family 312,097 306,474 348,499
Commercial 488,137 455,964 384,589
Multifamily 92,687 89,072 68,494
Construction and land 407,561 398,954 347,956
Commercial business 321,979 321,671 301,418
Agricultural business
including secured
by farmland 138,501 118,903 102,737
Consumer 35,620 35,887 36,845
---------- ---------- ----------
Total loans outstanding $1,796,582 $1,726,925 $1,590,538
========== ========== ==========
NON-PERFORMING ASSETS: Mar 31, 2004 Dec 31, 2003 Mar 31, 2003
--------------------- ----------- ----------- -----------
Loans on non-accrual status $ 26,686 $ 28,010 $ 36,834
Loans more than 90 days
delinquent, still on accrual 766 421 290
---------- ---------- ----------
Total non-performing loans 27,452 28,431 37,124
Real estate owned (REO)/
Repossessed assets 2,166 3,132 5,319
---------- ---------- ----------
Total non-performing
assets $ 29,618 $ 31,563 $ 42,443
========== ========== ==========
Total non-performing
assets/Total assets 1.09% 1.20% 1.76%
Quarters Ended
------------------------------------------------
Mar 31, 2004 Dec 31, 2003 Mar 31, 2003
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CHANGE IN THE
ALLOWANCE FOR LOAN LOSSES:
-------------------------
Balance, beginning of
period $ 26,060 $ 26,161 $ 26,539
Provision 1,450 1,400 2,250
Recoveries of loans previously
charged off: 151 155 110
Loans charged-off: (776) (1,656) (3,348)
---------- ---------- ----------
Net (charge-offs)
recoveries (625) (1,501) (3,238)
---------- ---------- ----------
Balance at end of period $ 26,885 $ 26,060 $ 25,551
========== ========== ==========
Net charge-offs/Average
loans outstanding 0.04% 0.09% 0.20%
Allowance for loan
losses/Total loans
outstanding 1.50% 1.51% 1.61%
(more)
BANR - First Quarter Results
April 22, 2004
Page 6
ADDITIONAL FINANCIAL INFORMATION
(Dollars in thousands)
(Rates/Ratios Annualized)
Quarters Ended
------------------------------------------------
OPERATING PERFORMANCE: Mar 31, 2004 Dec 31, 2003 Mar 31, 2003
--------------------- ----------- ----------- -----------
Average loans $ 1,750,998 $ 1,701,335 $ 1,582,231
Average securities and
deposits 716,046 685,836 565,400
Average non-interest-
earning assets 163,435 167,042 157,412
----------- ----------- -----------
Total average assets $ 2,630,479 $ 2,554,213 $ 2,305,043
=========== =========== ===========
Average deposits $ 1,670,509 $ 1,678,097 $ 1,506,427
Average borrowings 732,789 654,057 588,517
Average non-interest-
earning liabilities 19,467 22,407 17,120
----------- ----------- -----------
Total average
liabilities 2,422,765 2,354,561 2,112,064
Total average stockholders'
equity 207,714 199,652 192,979
----------- ----------- -----------
Total average
liabilities
and equity $ 2,630,479 $ 2,554,213 $ 2,305,043
=========== =========== ===========
Interest rate yield
on loans 6.67% 6.70% 7.39%
Interest rate yield on
securities and
deposits 4.27% 4.09% 4.21%
----------- ----------- -----------
Interest rate yield
on interest-
earning assets 5.97% 5.95% 6.56%
----------- ----------- -----------
Interest rate expense
on deposits 1.89% 1.98% 2.39%
Interest rate expense
on borrowings 3.32% 3.61% 4.44%
----------- ----------- -----------
Interest rate expense
on interest-bearing
liabilities 2.33% 2.44% 2.96%
----------- ----------- -----------
Interest rate spread 3.64% 3.51% 3.60%
=========== =========== ===========
Net interest margin 3.70% 3.57% 3.66%
=========== =========== ===========
Other operating income/
Average assets 0.58% 0.60% 0.85%
Other operating expense/
Average assets 2.88% 2.75% 3.00%
Efficiency ratio (other
operating expense/revenue) 70.98% 69.86% 70.41%
Return on average assets 0.67% 0.68% 0.60%
Return on average equity 8.45% 8.75% 7.21%
Average equity/Average
assets 7.90% 7.82% 8.37%
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