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)
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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."
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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 |
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Exhibit 99.1
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| 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 | ||
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.
"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.
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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 atwww.bannerbank.com or towww.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 atwww.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 atwww.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)
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BANR - Second Quarter Results
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 |
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BANR - Second Quarter Results
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). | ||||
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BANR - Second Quarter Results
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% |
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BANR - Second Quarter Results
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% |
# # #
NOTE: Transmitted on Business Wire at 5:00 a.m. PDT on July 23, 2003.
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