8-K 1 k8earn.txt BANNER CORPORATION 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): April 22, 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 April 22, 2004. Item 12. Results of Operations and Financial Condition ------------------------------------------------------ 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 --------------------- (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 --------- --------- -------- 13,918 14,329 15,310 --------- --------- -------- 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 --------- --------- -------- Total other operating expense 18,828 17,676 17,057 --------- --------- -------- 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 -------------------- (In thousands except share and per share data) Mar 31, 2004 Dec 31, 2003 Mar 31, 2003 ----------- ----------- ----------- ASSETS ------ 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 ----------- ----------- ----------- $ 2,712,985 $ 2,635,313 $ 2,417,854 =========== =========== =========== LIABILITIES ----------- 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 ----------- ----------- ----------- 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 -------------------- 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 ----------- ----------- ----------- $ 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 ---------- ---------- ---------- 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 ----------- ----------- ----------- 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% # # #