8-K 1 k8-earn.txt BANNER CORP. FORM 8-K 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): January 27, 2004 Banner Corporation ------------------ (Exact name of registrant as specified in its charter) Washington 0-26584 91-1691604 ---------------------------- ------------ ----------------- State or other jurisdiction Commission (I.R.S. Employer of incorporation File Number Identification No.) 10 S. First Avenue, Walla Walla, Washington 99362 ------------------------------------------- --------- (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 January 27, 2004. Item 12. Results of Operations and Financial Condition ------------------------------------------------------ On January 27, 2004, Banner Corporation issued its earnings release for the third quarter ended December 31, 2003. 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: January 27, 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 FOURTH QUARTER NET INCOME INCREASES TO $4.4 MILLION; ----------------------------------------------------------------------- 2003 PROFITS INCREASE 74%TO $16.1 MILLION AS LOAN AND DEPOSIT PORTFOLIOS GROW ----------------------------------------------------------------------------- Walla Walla, WA January 27, 2004 Banner Corporation (Nasdaq: BANR), the parent of Banner Bank, today reported improved net interest income and growth in assets and deposits contributed to the increase in net income for the quarter and year ended December 31, 2003, compared to the quarter and year ended December 31, 2002. For all of 2003, net income increased 74% to $16.1 million, or $1.44 per diluted share, compared to $9.3 million, or $0.82 per diluted share, for 2002. For the fourth quarter of 2002, the Company reported a loss of $1.6 million, or $0.14 per diluted share, compared to net income of $4.4 million, or $0.39 per diluted share, for the fourth quarter of 2003. "It is particularly encouraging to end 2003 with an improving net interest margin for the fourth quarter, compared to the third quarter. We also continued to grow our balance sheet, which allowed net interest income to increase compared to a year ago despite the margin pressure caused by an extended period of exceptionally low market interest rates," said D. Michael Jones, President and Chief Executive Officer. "And despite a disappointment in the most recent quarter, we have made important strides over the past year addressing asset quality." Credit Quality Non-performing assets were $31.6 million, or 1.20% of total assets, at December 31, 2003, a 25% reduction from $42.2 million, or 1.86% of total assets, at December 31, 2002. The loan loss provision for the fourth quarter was $1.4 million, level with the provision in the third quarter, and a substantial reduction from the $10.0 million provision for the fourth quarter a year ago. At December 31, 2003, the allowance for loan losses totaled $26.1 million, representing 1.51% of total loans outstanding, compared to $26.2 million, or 1.55% of total loans, at September 30, 2003, and $26.5 million, r 1.69% of total loans, at December 31, 2002. "Unfortunately, during the fourth quarter, we placed one large agricultural borrowing relationship on non-accrual status, which offset a significant amount of improvement with respect to other non-performing assets. Nonetheless, for the year, we made meaningful progress improving asset quality," said Jones. "We are committed to achieving and maintaining a high quality loan portfolio." Income Statement Review Net interest margin increased 22 basis points to 3.57% for the quarter ended December 31, 2003, compared to 3.35% for the prior quarter. In the fourth quarter of 2002 the net interest margin was 3.86%. For the full year, the net interest margin was 3.53%, compared to 3.91% for the prior year. "After declining to a low point in the third quarter as a result of accelerated prepayments on mortgage-related assets, the yield on the securities portfolio rebounded to over 4%, while the cost of deposits and borrowing continued to decline. The combined effect contributed to the expansion in our fourth quarter net interest margin," said Jones. "While we expect continued pressure on the margin in the current low rate environment, this improvement is notable." Revenues (net interest income before the provision for loan losses plus other operating income) for 2003 increased 6% to $100.2 million, compared to $94.2 million for 2002. For the fourth quarter, revenues increased to $25.3 million, compared to $25.1 million for the same quarter of 2002. "As refinancing activity slows, mortgage banking operations are returning to more normal levels. While this decreases our other operating income, it also decreases related expenses," said Jones. For the quarter, income from mortgage banking operations, including loan servicing fees, was $1.6 million, compared to $3.1 million for the fourth quarter of 2002. Deposit fees and other service charges increased 24% for the quarter and year ended December 31, 2003, to $1.8 million and $7.2 million, respectively, compared to $1.5 million and $5.8 million for the same periods of 2002. Total other operating income for the quarter was $3.8 million, compared to $5.2 million for the same quarter last year. For 2003, other operating income grew 23% to $19.6 million, compared to $15.9 million for 2002. (more) BANR - Fourth Quarter Results January 27, 2004 Page 2 Other operating expense was $17.7 million for the quarter ended December 31, 2003, compared to $17.9 million for the third quarter of 2003 and $18.0 million for the fourth quarter of 2002, in part reflecting the decline in mortgage banking activity. For 2003, other operating expense totaled $69.9 million, compared to $60.4 million for the prior year. The ratio of other operating expense to average assets was 2.75% for the fourth quarter, compared to 2.84% for the third quarter of 2003 and 3.23% for the fourth quarter of 2002. For the year, the expense ratio was 2.86%, compared to 2.81% for 2002. Factors contributing to the higher annual operating expenses include the increase in branches and lending centers, substantially augmented lending staff, increases in compensation to real estate lenders due to their exceptional volumes, higher problem loan collection costs, and increased marketing expenditures. Balance Sheet Review "While loan payoffs and sales reduced the balance of one- to four-family loans, our loan portfolio continued its overall growth," said Jones. "Commercial and multifamily real estate, construction and land development loans have grown 19% from a year ago and now account for 55% of the portfolio, compared to 50% of the portfolio at December 31, 2002. Commercial business and agricultural lending has increased 14% over the past twelve months and now represents 26% of the total portfolio." Net loans grew 10%, to $1.7 billion at December 31, 2003, from $1.6 billion a year ago, despite a $49 million, or 14%, decline in one- to four-family loans. Excluding the one- to four-family loan portfolio, net loans increased 17% for the year. Assets increased 16%, to $2.6 billion at December 31, 2003, compared to $2.3 billion a year earlier. Deposits grew 12%, to $1.7 billion, compared to $1.5 billion at December 31, 2002. "The growth of deposits, and the declining cost of these deposits, is a welcome sign of our success in attracting and retaining good quality customers," Jones added. Book value per share increased to $18.37 at December 31, 2003, from $17.64 per share a year earlier. Tangible book value totaled $15.06 per share at December 31, 2003, compared to $14.24 a year earlier. On December 18, 2003, the company announced a 7% increase in its quarterly cash dividend to $0.16 per share. The dividend was paid January 9, 2004, to shareholders of record on December 31, 2003. Conference Call The company will host a conference call today, Tuesday, January 27, 2004, at 8:00 a.m. PST, to discuss the fourth quarter and full year 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 567992 until Tuesday, February 3, 2004 or via the Internet at www.fulldisclosure.com through February 10, 2004. About the Company Banner Corporation is the parent of Banner Bank, a commercial bank which operates a total of 42 branch offices and nine loan offices in 20 counties in Washington, Oregon and Idaho. Banner 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, 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 - Fourth Quarter Results January 27, 2004 Page 3 RESULTS OF OPERATIONS --------------------- (In thousands except share and per share data ) Quarters Ended Year Ended ------------ ------------ ------------ ------------ ------------ Dec 31, 2003 Sep 30, 2003 Dec 31, 2002 Dec 31, 2003 Dec 31, 2002 ------------ ------------ ------------ ------------ ------------ INTEREST INCOME: Loans receivable $ 28,711 $ 29,260 $ 30,492 $ 116,211 $ 123,352 Mortgage-backed securities 3,857 2,227 2,526 12,319 10,738 Securities and cash equivalents 3,221 3,035 2,615 11,911 10,186 --------- --------- -------- --------- --------- 35,789 34,522 35,633 140,441 144,276 INTEREST EXPENSE: Deposits 8,373 8,889 9,455 34,984 39,206 Federal Home Loan Bank advances 5,056 5,339 5,604 21,842 24,094 Trust preferred securities 674 446 467 2,233 1,151 Other borrowings 226 188 226 789 1,518 --------- --------- -------- --------- --------- 14,329 14,862 15,752 59,848 65,969 --------- --------- -------- --------- --------- Net interest income before provision for loan losses 21,460 19,660 19,881 80,593 78,307 PROVISION FOR LOAN LOSSES 1,400 1,400 10,000 7,300 21,000 --------- --------- -------- --------- --------- Net interest income after provision for loan losses 20,060 18,260 9,881 73,293 57,307 OTHER OPERATING INCOME: Loan servicing fees 368 241 475 1,056 1,471 Deposit fees and other service charges 1,832 1,895 1,473 7,224 5,804 Mortgage banking revenues 1,217 2,924 2,674 9,447 6,695 Gain (loss) on sale of securities 45 15 - - 63 27 Miscellaneous 379 464 557 1,791 1,880 --------- --------- -------- --------- --------- Total other operating income 3,841 5,539 5,179 19,581 15,877 OTHER OPERATING EXPENSE: Salary and employee benefits 11,737 12,495 10,505 47,032 38,262 Less capitalized loan origination costs (1,618) (2,028) (1,737) (7,196) (5,780) Occupancy and equipment 2,407 2,447 2,259 9,575 8,522 Information / computer data services 896 930 1,069 3,532 3,331 Miscellaneous 4,254 4,024 5,883 16,933 16,110 --------- --------- -------- --------- --------- Total other operating expense 17,676 17,868 17,979 69,876 60,445 --------- --------- -------- --------- --------- Income before provision for income taxes 6,225 5,931 (2,919) 22,998 12,739 PROVISION FOR INCOME TAXES 1,821 1,778 (1,362) 6,891 3,479 --------- --------- -------- --------- --------- NET INCOME $ 4,404 $ 4,153 $ (1,557) $ 16,107 $ 9,260 ========= ========= ======== ========= ========= Earnings per share Basic $ 0.40 $ 0.38 $ (0.14) $ 1.49 $ 0.85 Diluted $ 0.39 $ 0.37 $ (0.14) $ 1.44 $ 0.82 Cumulative dividends declared per common share $ 0.16 $ 0.15 $ 0.15 $ 0.61 $ 0.60 Weighted average shares outstanding Basic 10,885,611 10,842,791 10,738,460 10,830,365 10,932,573 Diluted 11,423,747 11,268,718 11,094,056 11,216,784 11,351,647 Shares repurchased during the period 14,931 5,701 58,490 23,657 422,844 (more)
BANR - Fourth Quarter Results January 27, 2004 Page 4 FINANCIAL CONDITION -------------------- (In thousands except share and per share data ) Dec 31, 2003 Sep 30, 2003 Dec 31, 2002 ----------- ----------- ----------- ASSETS ------ Cash and due from banks $ 77,298 $ 72,320 $ 132,910 Securities available for sale 674,942 592,830 421,222 Securities held to maturity 27,232 12,528 13,253 Federal Home Loan Bank stock 34,693 34,262 32,831 Loans receivable: Held for sale 15,912 23,593 39,366 Held for portfolio 1,711,013 1,668,392 1,534,100 Allowance for loan losses (26,060) (26,161) (26,539) ----------- ----------- ----------- 1,700,865 1,665,824 1,546,927 Accrued interest receivable 13,410 13,944 13,689 Real estate held for sale, net 2,967 6,849 6,062 Property and equipment, net 22,818 22,074 20,745 Goodwill and other intangibles 36,513 36,563 36,714 Deferred income tax asset, net 1,941 1,391 2,786 Bank owned life insurance 33,669 33,218 31,809 Other assets 8,965 10,563 4,224 ----------- ----------- ----------- $ 2,635,313 $ 2,502,366 $ 2,263,172 =========== =========== =========== LIABILITIES ----------- Deposits: Non-interest-bearing $ 205,656 $ 203,396 $ 200,500 Interest-bearing 1,465,284 1,502,324 1,297,278 ----------- ----------- ----------- 1,670,940 1,705,720 1,497,778 Borrowings: Advances from Federal Home Loan Bank 612,552 461,552 465,743 Trust preferred securities 56,703 55,000 40,000 Other borrowings 69,444 58,764 41,202 ----------- ----------- ----------- 738,699 575,316 546,945 Accrued expenses and other liabilities 18,444 19,139 24,700 Deferred compensation 4,252 4,006 3,372 Income taxes payable 178 - - - - ----------- ----------- ----------- 2,432,513 2,304,181 2,072,795 STOCKHOLDERS' EQUITY -------------------- Common stock and additional paid in capital 123,375 121,383 120,554 Retained earnings 80,286 77,411 70,813 Accumulated other comprehensive income 3,191 4,166 3,488 Unearned shares of common stock issued to Employee Stock Ownership Plan (ESOP) trust: at cost (3,589) (4,264) (4,262) Net carrying value of stock related deferred compen- sation plans (463) (511) (216) ----------- ----------- ----------- 202,800 198,185 190,377 ----------- ----------- ----------- $ 2,635,313 $ 2,502,366 $ 2,263,172 =========== =========== =========== Shares Issued: Shares outstanding at end of period 11,473,331 11,415,636 11,306,977 Less unearned ESOP shares at end of period 434,299 515,960 515,707 ----------- ----------- ----------- Shares outstanding at end of period excluding unearned ESOP shares 11,039,032 10,899,676 10,791,270 =========== =========== =========== Book value per share (1) $ 18.37 $ 18.18 $ 17.64 Tangible book value per share (1) $ 15.06 $ 14.83 $ 14.24 Consolidated Tier 1 leverage capital ratio 8.67% 8.64% 8.77% (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 - Fourth Quarter Results January 27, 2004 Page 5 ADDITIONAL FINANCIAL INFORMATION ( Dollars in thousands ) LOANS ( including loans held for sale ): Dec 31, 2003 Sep 30, 2003 Dec 31, 2002 --------------------------------------- ------------ ------------ ------------ Secured by real estate: One- to four-family $ 275,197 $ 274,723 $ 329,314 Consumer secured by one to four-family 31,277 28,243 26,195 ---------- ---------- ---------- Total one to four-family 306,474 302,966 355,509 Commercial 455,964 433,800 379,099 Multifamily 89,072 76,397 72,333 Construction and land 398,954 392,819 339,516 Commercial business 321,671 326,368 285,231 Agricultural business including secured by farmland 118,903 122,890 102,626 Consumer 35,887 36,745 39,152 ---------- ---------- ---------- Total loans outstanding $1,726,925 $1,691,985 $1,573,466 ========== ========== ==========
NON-PERFORMING ASSETS: Dec 31, 2003 Sep 30, 2003 Dec 31, 2002 --------------------- ------------ ------------ ------------ Loans on non-accrual status $ 28,010 $ 23,209 $ 34,249 Accruing loans greater than 90 days delinquent 421 1,227 1,859 ---------- ---------- ---------- Total non-performing loans 28,431 24,436 36,108 Real estate owned ( REO ) /Repossessed assets 3,132 7,164 6,062 ---------- ---------- ---------- Total non-performing assets $ 31,563 $ 31,600 $ 42,170 ========== ========== ========== Total non-performing assets / Total assets 1.20% 1.26% 1.86%
Quarters Ended Year Ended ------------------------------------------ --------------------------- CHANGE IN THE Dec 31, 2003 Sep 30, 2003 Dec 31, 2002 Dec 31, 2003 Dec 31, 2002 ALLOWANCE FOR LOAN LOSSES: ------------ ------------ ------------ ------------ ------------ ------------------------- Balance at beginning of period $ 26,161 $ 26,075 $ 19,150 $ 26,539 $ 17,552 Acquisitions / ( divestitures ) - - - - - - - - 460 Provision for loan losses 1,400 1,400 10,000 7,300 21,000 Recoveries 155 566 208 1,075 325 Charge-offs (1,656) (1,880) (2,819) (8,854) (12,798) -------- -------- -------- -------- -------- Net ( charge-offs ) recoveries (1,501) (1,314) (2,611) (7,779) (12,473) -------- -------- -------- -------- -------- Balance at end of period $ 26,060 $ 26,161 $ 26,539 $ 26,060 $ 26,539 ======== ======== ======== ======== ======== Net charge-offs / Average loans outstanding 0.09% 0.08% 0.16% 0.47% 0.78% Allowance for loan losses / Total loans outstanding 1.51% 1.55% 1.69% 1.51% 1.69%
(more) BANR - Fourth Quarter Results January 27, 2004 Page 6 ADDITIONAL FINANCIAL INFORMATION ( Dollars in thousands ) ( Rates / Ratios Annualized ) Quarters Ended Year Ended ------------------------------------------ --------------------------- OPERATING PERFORMANCE: Dec 31, 2003 Sep 30, 2003 Dec 31, 2002 Dec 31, 2003 Dec 31, 2002 --------------------- ------------ ------------ ------------ ------------ ------------ Average loans $ 1,701,335 $ 1,698,796 $ 1,589,608 $ 1,654,344 $ 1,589,035 Average securities and deposits 685,836 628,485 454,671 625,804 413,419 Average non-interest-earning assets 167,042 170,972 162,595 163,481 148,706 ----------- ----------- ----------- ----------- ----------- Total average assets $ 2,554,213 $ 2,498,253 $ 2,206,874 $ 2,443,629 $ 2,151,160 =========== =========== =========== =========== =========== Average deposits $ 1,678,097 $ 1,691,159 $ 1,481,623 $ 1,619,297 $ 1,404,426 Average borrowings 654,057 586,894 515,612 609,356 537,079 Average non-interest-earning liabilities 22,407 23,470 14,582 18,735 13,177 ----------- ----------- ----------- ----------- ----------- Total average liabilities 2,354,561 2,301,523 2,011,817 2,247,388 1,954,682 Total average equity 199,652 196,730 195,057 196,241 196,478 ----------- ----------- ----------- ----------- ----------- Total average liabilities and equity $ 2,554,213 $ 2,498,253 $ 2,206,874 $ 2,443,629 $ 2,151,160 =========== =========== =========== =========== =========== Interest rate yield on loans 6.70% 6.83% 7.61% 7.02% 7.76% Interest rate yield on securities and deposits 4.09% 3.32% 4.49% 3.87% 5.06% ----------- ----------- ----------- ----------- ----------- Interest rate yield on interest- earning assets 5.95% 5.89% 6.92% 6.16% 7.20% ----------- ----------- ----------- ----------- ----------- Interest rate expense on deposits 1.98% 2.09% 2.53% 2.16% 2.79% Interest rate expense on borrowings 3.61% 4.04% 4.85% 4.08% 4.98% ----------- ----------- ----------- ----------- ----------- Interest rate expense on interest- bearing liabilities 2.44% 2.59% 3.13% 2.69% 3.40% ----------- ----------- ----------- ----------- ----------- Interest rate spread 3.51% 3.30% 3.79% 3.47% 3.80% =========== =========== =========== =========== =========== Net interest margin 3.57% 3.35% 3.86% 3.53% 3.91% =========== =========== =========== =========== =========== Other operating income / Average assets 0.60% 0.88% 0.93% 0.80% 0.74% Other operating expense / Average assets 2.75% 2.84% 3.23% 2.86% 2.81% Efficiency ratio ( other operating expense / revenue ) 69.86% 70.91% 71.74% 69.75% 64.18% Return on average assets 0.68% 0.66% (0.28%) 0.66% 0.43% Return on average equity 8.75% 8.38% (3.17%) 8.21% 4.71% Average equity / Average assets 7.82% 7.87% 8.84% 8.03% 9.13%
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