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): July 23, 2003
Banner Corporation
(Exact name of registrant as specified in its charter)
| Washington | 0-26584 | 91-1691604 |
| State or other jurisdiction of incorporation |
Commission File Number |
(I.R.S. Employer 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)
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits
99.1 Press Release of Banner Corporation dated July 23, 2003.
Item 9. Regulation FD Disclosure
On July 23, Banner Corporation issued its earnings release for the second quarter ended June 30, 2003. A copy of the earnings release is attached hereto as Exhibit 99.1, which is incorporated herein by reference.
The information being furnished under this "Item 9. Regulation FD Disclosure" is intended to be furnished under "Item 12. Disclosure of Results of Operations and Financial Condition."
<PAGE>
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: July 23, 2003 | By: /s/ D. Michael Jones D. Michael Jones President and Chief Executive Officer |
<PAGE>
Exhibit 99.1
<PAGE>
Walla Walla, WA - July 23, 2003 - Banner Corporation (Nasdaq: BANR), the parent of Banner Bank, today reported that strong growth in assets and deposits, as well as increased mortgage banking activities, contributed to a 17% growth in net income for the quarter ended June 30, 2003. For the second quarter, net income was $4.1 million, or $0.37 per diluted share, a 17% improvement compared to $3.5 million, or $0.30 per diluted share, in the same quarter a year earlier. For the first six months of the year, net income reached $7.6 million, or $0.68 per diluted share, compared to $7.4 million, or $0.65 per diluted share, in the same period of 2002. (more) <PAGE>
THE CEREGHINO GROUP
CONTACT: D. MICHAEL JONES
CORPORATE INVESTOR RELATIONS
PRESIDENT AND CEO
1403 SE 44th AVENUE
BANNER
LLOYD W. BAKER, CFO
PORTLAND, OR 97215
CORPORATION
(509) 527-3636
503.421.4168
www.stockvalues.com
NEWS RELEASE
TOP $2.5 BILLION AND KEY CREDIT QUALITY RATIOS IMPROVE
"We are making progress toward generating improved earnings, better asset quality and growing our franchise," said D. Michael Jones, President and Chief Executive Officer. "While we continue to work to collect problem assets and strengthen our loan portfolio and credit culture, we are seeing significant growth in loans and deposits. We are also expanding our franchise with new branch openings in Yakima and the Belltown neighborhood of Seattle during 2003. In 2004, we expect to add branches in Walla Walla and Federal Way, Washington and in Hillsboro, Oregon near Portland. These branches complement our existing network and will help us deliver improved customer service and banking products more conveniently to new and existing customers."
Credit Quality
Non-performing assets were $37.1 million, or 1.48% of total assets, at June 30, 2003, a 12% reduction from both $42.4 million or 1.76% of total assets at March 31, 2003, and $42.2 million or 1.86% of total assets at December 31, 2002. The loan loss provision for the second quarter was $2.3 million, equal to the provision in the prior quarter and a reduction from $4.0 million in the second quarter a year ago. At June 30, 2003, the allowance for loan losses totaled $26.1 million, representing 1.57% of total loans outstanding, compared to $25.6 million or 1.61% of total loans at March 31, 2003, and $16.6 million or 1.06% of loans at June 30, 2002.
Income Statement Review
Revenues (net interest income before the provision for loan losses plus other operating income) for the second quarter increased 11% to $25.4 million, compared to $23.0 million in the same quarter of 2002. For the first half of the year, revenues increased 10% to $49.7 million, compared to $45.1 million in the same period of 2002. Net interest margin was 3.57% for the quarter, compared to 3.66% in the prior quarter and 3.90% in the same quarter a year ago. "The decrease in net interest margin was largely the result of changes in the asset mix, with a higher percentage of investments in 2003 than in 2002, and the effect of the lower interest rate environment on investment yields as well as the higher level of non-performing assets in 2003 compared to the second quarter of 2002," said Jones.
"The significant growth in our deposit base contributed to a 19% increase in other fees and service charges. In addition, a record quarter for mortgage banking operations contributed to the 52% increase in other operating income despite a second quarter $300,000 impairment charge related to accelerated loan payoffs of the residential loan servicing portfolio," added Jones. For the quarter, mortgage banking operations, including loan servicing fees, more than doubled to $3.2 million, compared to $1.5 million in the second quarter of 2002, and increased 22% from the first quarter level of $2.6 million.
"Over the last twelve months, we have added two branches and three loan offices, moved one loan office to an expanded facility and added experienced personnel in a variety of positions, most importantly in our lending departments. Staffing has increased 10% from levels a year ago. These significant investments in people and facilities are beginning to produce the increased asset growth and revenues we were expecting," Jones said.
BANR - Second Quarter Results
July 23, 2003
Page 2
Other operating expense was $17.3 million for the quarter ended June 30, 2003, compared to $17.1 million in the first quarter of 2003 and $13.8 million in the second quarter of 2002. The increased branches, lending centers, substantially augmented lending staff, along with increases in compensation to our real estate lenders due to their exceptional volumes, higher problem loan collection costs and increased marketing expenditures all contributed to the higher level of expenses.
Balance Sheet Review
Assets reached a record $2.5 billion at June 30, 2003, a 16% increase from $2.2 billion a year earlier. Deposits grew 19%, to $1.7 billion, compared to $1.4 billion at June 30, 2002. Book value per share increased to $17.96 at June 30, 2003, from $17.75 per share a year earlier. Tangible book value totaled $14.59 per share at June 30, 2003, compared to $14.44 a year earlier.
"The experienced commercial lending staff we have been building over the past year is now generating significant growth in C&I loans, including commercial and agricultural business loans," said Jones. "These loans grew 24% year-over-year and now account for 27% of the total loan portfolio, compared to 23% a year ago. Our construction and land development lending operations also continue to produce strong results in the current interest rate environment. Despite record one-to-four family loan production, this portion of our portfolio continues to decline as a result of refinancing activity and our strategy of selling current production of these long-term, low-interest rate mortgages into the secondary market. Excluding one-to-four family loans, the remainder of the loan portfolio increased more than 12%.
"We are particularly pleased that strong deposit growth for the quarter and year-to-date has improved our balance sheet fundamentals and provided funding for our loan growth. Combined with increases in our cash and securities portfolio, we now have a stronger balance sheet and higher levels of liquidity than in prior years," concluded Jones.
Conference Call
The Company will host a conference call today, Wednesday, July 23, 2003 at 9:00 a.m. PDT, to discuss the second quarter results. The conference call can be accessed live by telephone at 303-262-2130. To listen to the call online, go to the company's website at www.bannerbank.com or to www.companyboardroom.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 545010, until Wednesday, July 30, 2003 or via the Internet at www.companyboardroom.com through August 5, 2003.
About the Company
Banner Corporation is the parent of Banner Bank, a commercial bank which operates a total of 41 branch offices and eight loan offices in 19 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, the Bank's ability to profitably expand its branch network and to meet branch opening schedules, 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)
<PAGE>
BANR - Second Quarter Results (more) <PAGE>
July 23, 2003
Page 3
RESULTS OF OPERATIONS
Quarters Ended
Six Months Ended
(In thousands except share and per share data)
Jun 30, 2003
Mar 31,2003
Jun 30, 2002
Jun 30, 2003
Jun 30, 2002
INTEREST INCOME:
Loans receivable
$ 29,396
$ 28,844
$ 30,702
$ 58,240
$ 61,953
Mortgage-backed securities
3,183
3,052
2,886
6,235
5,442
Securities and cash equivalents
2,833
2,822
2,688
5,655
4,899
35,412
34,718
36,276
70,130
72,294
INTEREST EXPENSE:
Deposits
8,851
8,871
9,874
17,722
20,018
Federal Home Loan Bank advances
5,747
5,700
6,231
11,447
12,699
Trust preferred securities
546
567
338
1,113
338
Other borrowings
203
172
400
375
892
15,347
15,310
16,843
30,657
33,947
Net interest income before provision
for loan losses
20,065
19,408
19,433
39,473
38,347
PROVISION FOR LOAN LOSSES
2,250
2,250
4,000
4,500
7,000
Net interest income after provision
for loan losses
17,815
17,158
15,433
34,973
31,347
OTHER OPERATING INCOME:
Loan servicing fees
(83)
530
413
447
757
Other fees and service charges
1,839
1,658
1,548
3,497
2,806
Mortgage banking revenues
3,244
2,062
1,128
5,306
2,419
Gain (loss) on sale of securities
- -
3
12
3
17
Miscellaneous
383
565
448
948
768
Total other operating income
5,383
4,818
3,549
10,201
6,767
OTHER OPERATING EXPENSE:
Salary and employee benefits
11,589
11,211
9,090
22,800
17,784
Less capitalized loan origination costs
(1,975)
(1,575)
(1,292)
(3,550)
(2,605)
Occupancy and equipment
2,349
2,372
2,039
4,721
4,122
Information/computer data services
868
838
724
1,706
1,337
Miscellaneous
4,444
4,211
3,279
8,655
6,528
Total other operating expense
17,275
17,057
13,840
34,332
27,166
Income before provision for income taxes
5,923
4,919
5,142
10,842
10,948
PROVISION FOR INCOME TAXES
1,802
1,490
1,615
3,292
3,512
NET INCOME
$ 4,121
$ 3,429
$ 3,527
$ 7,550
$ 7,436
Earnings per share
Basic
$ 0.38
$ 0.32
$ 0.32
$ 0.70
$ 0.67
Diluted
$ 0.37
$ 0.31
$ 0.30
$ 0.68
$ 0.65
Cumulative dividend per share
$ 0.15
$ 0.15
$ 0.15
$ 0.30
$ 0.30
Weighted average shares outstanding
Basic
10,805,856
10,786,474
11,070,028
10,796,218
11,051,798
Diluted
11,130,330
11,040,425
11,581,510
11,085,621
11,515,479
Shares repurchased during the period
- -
- -
- -
- -
40,000
BANR - Second Quarter Results (more) <PAGE>
July 23, 2003
Page 4
FINANCIAL CONDITION
(In thousands except share and per share data)
Jun 30, 2003
Mar 31,2003
Jun 30, 2002
Dec 31, 2002
ASSETS
Cash and due from banks
$ 143,945
$ 126,396
$ 93,276
$ 132,910
Securities available for sale
563,969
567,592
361,604
421,222
Securities held to maturity
11,191
11,469
14,435
13,253
Federal Home Loan Bank stock
33,814
33,378
31,800
32,831
Loans receivable:
Held for sale
39,602
47,213
10,491
39,366
Held for portfolio
1,624,514
1,543,325
1,558,176
1,534,100
Allowance for loan losses
(26,075)
(25,551)
(16,646)
(26,539)
1,638,041
1,564,987
1,552,021
1,546,927
Accrued interest receivable
14,293
13,775
13,994
13,689
Real estate held for sale, net
8,691
5,183
6,253
6,062
Property and equipment, net
20,216
20,629
18,502
20,745
Goodwill and other intangibles
36,613
36,664
36,817
36,714
Deferred income tax asset, net
1,810
1,658
1,910
2,786
Bank owned life insurance
32,748
32,260
30,895
31,809
Other assets
9,368
3,863
3,191
4,224
$ 2,514,699
$ 2,417,854
$ 2,164,698
$ 2,263,172
LIABILITIES
Deposits:
Non-interest-bearing
$ 191,134
$ 192,287
$ 196,221
$ 200,500
Interest-bearing
1,501,730
1,422,060
1,230,667
1,297,278
1,692,864
1,614,347
1,426,888
1,497,778
Borrowings:
Advances from Federal Home Loan Bank
507,952
511,452
431,183
465,743
Trust preferred securities
40,000
40,000
25,000
40,000
Other borrowings
42,014
41,400
68,723
41,202
589,966
592,852
524,906
546,945
Accrued expenses and other liabilities
31,537
14,623
12,406
24,700
Deferred compensation
3,728
3,601
2,960
3,372
Income taxes payable
1,723
- -
555
- -
2,319,818
2,225,423
1,967,715
2,072,795
STOCKHOLDERS' EQUITY
Common stock and additional paid in capital
121,384
121,119
127,250
120,554
Retained earnings
74,966
72,545
72,054
70,813
Accumulated other comprehensive income
3,340
3,576
2,534
3,488
Unearned shares of common stock issued to Employee Stock
Ownership Plan (ESOP) trust: at cost
(4,264)
(4,264)
(4,769)
(4,262)
Net carrying value of stock related deferred compensation plans
(545)
(545)
(86)
(216)
194,881
192,431
196,983
190,377
$ 2,514,699
$ 2,417,854
$ 2,164,698
$ 2,263,172
Shares Issued:
Shares outstanding at end of period
11,366,835
11,347,571
11,671,937
11,306,977
Less unearned ESOP shares at end of period
515,707
515,707
577,039
515,707
Shares outstanding at end of period excluding unearned
ESOP shares
10,851,128
10,831,864
11,094,898
10,791,270
Book value per share (1)
$ 17.96
$ 17.77
$ 17.75
$ 17.64
Tangible book value per share (1)
$ 14.59
$ 14.38
$ 14.44
$ 14.24
Consolidated Tier 1 leverage capital ratio
8.20%
8.48%
8.69%
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).
BANR - Second Quarter Results (more) <PAGE>
July 23, 2003
Page 5
ADDITIONAL FINANCIAL INFORMATION
(Dollars in thousands)
LOANS (including loans held for sale)
Jun 30, 2003
Mar 31,2003
Jun 30, 2002
Dec 31, 2002
Secured by real estate:
One- to four-family
$ 299,524
$ 323,495
$ 353,819
$ 329,314
Consumer secured by one to four-family
25,875
25,004
24,747
26,195
Total one to four-family
325,399
348,499
378,566
355,509
Commercial
407,419
384,589
367,166
379,099
Multifamily
76,598
68,494
81,942
72,333
Construction and land
376,385
347,956
340,117
339,516
Commercial business
328,130
301,418
263,796
285,231
Agricultural business including secured by farmland
113,445
102,737
95,375
102,626
Consumer
36,740
36,845
41,705
39,152
Total loans outstanding
$ 1,664,116
$ 1,590,538
$ 1,568,667
$ 1,573,466
NON-PERFORMING ASSETS:
Jun 30, 2003
Mar 31,2003
Jun 30, 2002
Dec 31, 2002
Loans on non-accrual status
$ 27,196
$ 36,834
$ 19,562
$ 34,249
Accruing loans greater than 90 days delinquent
926
290
314
1,859
Total non-performing loans
28,122
37,124
19,876
36,108
Real estate owned (REO)/Repossessed assets
9,018
5,319
6,253
6,062
Total non-performing assets
$ 37,140
$ 42,443
$ 26,129
$ 42,170
Total non-performing assets/Total assets
1.48%
1.76%
1.21%
1.86%
Quarters Ended
Six Months Ended
CHANGE IN THE
ALLOWANCE FOR LOAN LOSSES:
Jun 30, 2003
Mar 31,2003
Jun 30, 2002
Jun 30, 2003
Jun 30, 2002
Balance at beginning of period
$ 25,551
$ 26,539
$ 18,899
$ 26,539
$ 17,552
Acquisitions/(divestitures)
- -
- -
- -
- -
460
Provision for loan losses
2,250
2,250
4,000
4,500
7,000
Recoveries
244
110
51
354
70
Charge-offs
(1,970)
(3,348)
(6,304)
(5,318)
(8,436)
Net (charge-offs) recoveries
(1,726)
(3,238)
(6,253)
(4,964)
(8,366)
Balance at end of period
$ 26,075
$ 25,551
$ 16,646
$ 26,075
$ 16,646
Net charge-offs/Average loans outstanding
0.11%
0.20%
0.39%
0.31%
0.52%
Allowance for loan losses/Total loans outstanding
1.57%
1.61%
1.06%
1.57%
1.06%
BANR - Second Quarter Results # # # NOTE: Transmitted on Business Wire at 5:00 a.m. PDT on July 23, 2003. <PAGE>
July 23, 2003
Page 6
ADDITIONAL FINANCIAL INFORMATION
(Dollars in thousands)
(Rates/Ratios annualized)
Quarters Ended
Six Months Ended
OPERATING PERFORMANCE:
Jun 30, 2003
Mar 31,2003
Jun 30, 2002
Jun 30, 2003
Jun 30, 2002
Average loans
$ 1,633,218
$ 1,582,231
$ 1,586,389
$ 1,607,865
$ 1,596,968
Average securities and deposits
622,141
565,400
413,038
593,927
385,208
Average non-interest-earning assets
160,455
157,412
139,813
158,950
137,061
Total average assets
$ 2,415,814
$ 2,305,043
$ 2,139,240
$ 2,360,742
$ 2,119,237
Average deposits
$ 1,598,829
$ 1,506,427
$ 1,386,332
$ 1,552,883
$ 1,361,457
Average borrowings
607,483
588,517
542,339
598,053
549,280
Average non-interest-earning liabilities
13,980
17,120
13,191
15,548
11,716
Total average liabilities
2,220,292
2,112,064
1,941,862
2,166,484
1,922,453
Total average equity
195,522
192,979
197,378
194,258
196,784
Total average liabilities and equity
$ 2,415,814
$ 2,305,043
$ 2,139,240
$ 2,360,742
$ 2,119,237
Interest rate yield on loans
7.22%
7.39%
7.76%
7.30%
7.82%
Interest rate yield on securities and deposits
3.88%
4.21%
5.41%
4.04%
5.41%
Interest rate yield on interest-earning assets
6.30%
6.56%
7.28%
6.42%
7.35%
Interest rate expense on deposits
2.22%
2.39%
2.86%
2.30%
2.97%
Interest rate expense on borrowings
4.29%
4.44%
5.15%
4.36%
5.11%
Interest rate expense on interest-bearing liabilities
2.79%
2.96%
3.50%
2.87%
3.58%
Interest rate spread
3.51%
3.60%
3.78%
3.55%
3.77%
Net interest margin
3.57%
3.66%
3.90%
3.62%
3.90%
Other operating income/Average assets
0.89%
0.85%
0.67%
0.87%
0.64%
Other operating expense/Average assets
2.87%
3.00%
2.59%
2.93%
2.58%
Efficiency ratio (other operating expense/revenue)
67.88%
70.41%
60.22%
69.11%
60.22%
Return on average assets
0.68%
0.60%
0.66%
0.64%
0.71%
Return on average equity
8.45%
7.21%
7.17%
7.84%
7.62%
Average equity/Average assets
8.09%
8.37%
9.23%
8.23%
9.29%