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
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(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
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(Former name or former address, if changed since last report)
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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(c) Exhibits
99.1 Press Release of Banner Corporation dated January 27, 2004.
Item 12. Results of Operations and Financial Condition
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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;
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2003 PROFITS INCREASE 74%TO $16.1 MILLION AS LOAN AND DEPOSIT PORTFOLIOS GROW
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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
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(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
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(In thousands except share
and per share data )
Dec 31, 2003 Sep 30, 2003 Dec 31, 2002
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ASSETS
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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
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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
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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 - - - -
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2,432,513 2,304,181 2,072,795
STOCKHOLDERS' EQUITY
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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
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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
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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
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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
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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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