UNITED STATES
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): October 22, 2004
Banner Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 0-26584 91-1691604
---------------------------- ----------- ------------------
(State or other jurisdiction (Commission (IRS 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
--------------
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of
the following provisions.
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition
--------------------------------------------------------
On October 22, 2004, Banner Corporation issued its earnings release for
the quarter ended September 30, 2004. A copy of the earnings release is
attached hereto as Exhibit 99.1, which is incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits
--------------------------------------------
(c) Exhibits
99.1 Press Release of Banner Corporation dated October 22, 2004.
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: October 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'S THIRD QUARTER PROFITS INCREASE 24% TO $5.2 MILLION
-----------------------------------------------------------------------
AS LOANS INCREASE 17%, MARGINS EXPAND AND LOAN QUALITY IMPROVES
---------------------------------------------------------------
Walla Walla, WA--October 22, 2004--Banner Corporation (Nasdaq:BANR), the
parent company of Banner Bank, today reported that improved net interest
income and continued growth in loans and deposits contributed to a 24%
increase in profits for the third quarter of 2004. For the quarter ended
September 30, 2004, net income was $5.2 million, or $0.44 per diluted share,
compared to $4.2 million, or $0.37 per diluted share, for the same period a
year earlier. For the first nine months of 2004, net income grew 20% to $14.1
million, or $1.20 per diluted share, compared to $11.7 million, or $1.05 per
diluted share, for the first nine months of 2003.
"We have generated both top and bottom line improvements, with revenues
increasing 18%, loans expanding 17% and net income improving 24% from year ago
levels," said D. Michael Jones, President and Chief Executive Officer. "We
also continue to focus efforts into growing our franchise in key markets. Last
week we announced plans to build three new full-service branches in the Boise
and Twin Falls markets, which we expect to open during the summer of 2005.
These branches complement our existing network and will allow us to deliver
improved customer service and convenient locations to new and existing
customers. Earlier this year, we opened new offices in Hillsboro, Oregon,
Walla Walla, Washington, and Boise and Twin Falls, Idaho. The previously
announced purchased branches in Kent, Edmonds and Everett, Washington will
also open later this year."
Third Quarter 2004 Highlights (Compared to Third Quarter 2003)
. Net income increased 24% to $5.2 million.
. Net interest income, after the provision for loan loss, increased 30%
to $23.7 million.
. Non-performing assets are 25% lower.
. Net interest margin improved by 44 basis points.
. Revenues increased 18% to $29.9 million.
. Assets grew 13% to $2.8 billion.
. Loans grew 17% to $1.95 billion.
. Deposits grew 12% to $1.91 billion.
Income Statement Review
Third quarter revenues (net interest income before the provision for loan
losses plus other operating income) increased 18% to $29.9 million, compared
to $25.2 million for the same quarter of 2003. For the first nine months,
revenues increased 12% to $83.9 million, compared to $74.9 million for the
same period of 2003. For the quarter, net interest income before the provision
for loan losses increased 28% to $25.1 million, compared to $19.7 million in
the third quarter of 2003. For the first nine months of the year, net interest
income before the provision for loan losses increased 20% to $71.2 million,
compared to $59.1 million in the same period of 2003.
"We experienced improved performance in our net interest margin during the
third quarter, aided by the collection of more than $600,000 of delinquent
interest on non-accrual loans, as strong loan growth and increasing asset
yields more than offset recent pressures on funding costs," said Jones.
Banner's net interest margin increased 44 basis points to 3.79% for the
quarter ended September 30, 2004, from 3.35% in the third quarter of 2003 and
14 basis points from 3.65% in the quarter ended June 30, 2004. While funding
costs increased modestly, up six basis points compared to the previous
quarter, they remained significantly -- 21 basis points -- below the same
quarter a year earlier. By contrast, asset yields were higher by 20 and 21
basis points, respectively, compared to the quarters ended June 30, 2004 and
September 30, 2003. For the first nine months of 2004, net interest margin
increased to 3.71%, from 3.52% in the first nine months of 2003, as
substantially lower funding costs led to an improved net interest rate spread.
BANR-Third Quarter Results
October 22, 2004
Page 2
Income from fees and service charges increased 13% for the quarter and 12% for
the first nine months compared to the respective periods last year. Deposit
fees and other service charges increased to $2.1 million in the third quarter,
compared to $1.9 million for the third quarter of 2003, reflecting core
deposit growth. Mortgage banking operations declined from the third quarter a
year ago when refinancing activity was at higher levels. For the third quarter
of 2004, income from mortgage banking operations, including loan servicing
fees, was $2.1 million compared to $3.2 million for the third quarter of 2003.
Total other operating income for the quarter ended September 30, 2004 was $4.8
million compared to $5.5 million for the same quarter last year, declining
principally as a result of the decrease in mortgage banking operations.
"Over the last nine months, we have been building our franchise through the
addition of four branches, three lending centers and one operations center.
Hiring personnel to staff this expansion and increased occupancy costs have
contributed to a higher level of non-interest expenses," said Jones. "In
addition, the continued legal and collection costs associated with certain
non-performing assets, and expenses related to compliance with the
Sarbanes-Oxley Act also added to operating expense in the period." Other
operating expense was $20.9 million for the quarter ended September 30, 2004,
compared to $17.9 million in the third quarter of 2003. For the first nine
months of the year, other operating expense was $59.3 million compared to
$52.2 million for the first nine months of 2003.
Balance Sheet Review
Net loans increased 17%, to $2.0 billion at September 30, 2004, from $1.7
billion a year ago. "Our lending personnel have generated steady growth in
commercial and multifamily real estate loans, construction and land loans, and
agricultural business loans," said Jones. "Commercial and multifamily real
estate and construction and land development loans have increased 20% from
year ago levels and now represent 55% of the loan portfolio. Commercial
business and agricultural lending has increased 16% over the past twelve
months and now represents 26% of the total portfolio."
Assets reached record levels, closing the quarter at $2.8 billion, a 13%
increase from $2.5 billion a year earlier. Deposits grew 12%, to $1.9 billion,
compared to $1.7 billion at September 30, 2003, including a 13% increase in
non-interest-bearing deposits. "Strong deposit growth reflecting our
significant commitment to growing our franchise continues to be an important
element of our strategic plan which is producing improving results," said
Jones. Book value per share increased to $18.77 at September 30, 2004, from
$18.18 per share a year earlier. Tangible book value increased to $15.53 per
share at September 30, 2004, compared to $14.83 a year earlier.
Credit Quality
"Our key credit quality ratios have improved significantly, with a 25%
reduction in non-performing assets since the first of the year," continued
Jones. "Net charge-offs to average loans outstanding, at five basis points
year-to-date, also shows dramatic improvement from 38 basis points at the same
time last year." Non-performing assets were $23.7 million, or 0.84% of total
assets, at September 30, 2004, a 25% improvement from $31.6 million, or 1.26%
of total assets, at September 30, 2003. The loan loss provision for the third
quarter of 2004 was $1.4 million, which is about level with the provision in
the second quarter and the provision for the third quarter a year ago. At
September 30, 2004, the allowance for loan losses totaled $29.4 million,
representing 1.48% of total loans outstanding.
Conference Call
The Company will host a conference call today, Friday, October 22, 2004, at
8:00 a.m. PDT, to discuss the third 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 11010735# until Friday,
October 29, 2004 or via the Internet at www.fulldisclosure.com.
BANR-Third Quarter Results
October 22, 2004
Page 3
About the Company
Banner Corporation is the parent company of Banner Bank, a commercial bank
which operates a total of 46 branch offices and twelve 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-Third Quarter Results
October 22, 2004
Page 4
RESULTS OF OPERATIONS
---------------------
(In thousands except share and per share data)
Quarters Ended 9 Months Ended
------------------------------------- ---------------------------
Sept 30, Jun 30, Sep 30, Sept 30, Sep 30,
2004 2004 2003 2004 2003
----------- ----------- ----------- ------------ -----------
INTEREST INCOME:
Loans receivable $ 33,051 $ 30,298 $ 29,260 $ 92,368 $ 87,500
Mortgage-backed securities 4,155 4,394 2,227 13,076 8,462
Securities and cash
equivalents 3,194 3,140 3,035 9,415 8,690
----------- ----------- ----------- ----------- -----------
40,400 37,832 34,522 114,859 104,652
INTEREST EXPENSE:
Deposits 9,074 8,404 8,889 25,342 26,611
Federal Home Loan Bank
advances 5,058 4,962 5,339 15,145 16,786
Junior subordinated
debentures
/ trust preferred
securities 911 843 446 2,446 1,559
Other borrowings 257 223 188 717 563
----------- ----------- ----------- ----------- -----------
15,300 14,432 14,862 43,650 45,519
----------- ----------- ----------- ----------- -----------
Net interest income before
provision for loan losses 25,100 23,400 19,660 71,209 59,133
PROVISION FOR LOAN LOSSES 1,444 1,450 1,400 4,344 5,900
----------- ----------- ----------- ----------- -----------
Net interest income 23,656 21,950 18,260 66,865 53,233
OTHER OPERATING INCOME:
Deposit fees and other
service charges 2,148 2,057 1,895 6,048 5,392
Mortgage banking operations 1,383 1,452 2,924 4,087 8,230
Loan servicing fees 711 347 241 1,324 688
Gain (loss) on sale of
securities 67 62 15 140 18
Miscellaneous 441 207 464 1,092 1,412
----------- ----------- ----------- ----------- -----------
Total other operating income 4,750 4,125 5,539 12,691 15,740
OTHER OPERATING EXPENSE:
Salary and employee benefits 13,719 13,024 12,495 38,846 35,295
Less capitalized loan
origination costs (1,806) (1,891) (2,028) (5,184) (5,578)
Occupancy and equipment 2,791 2,645 2,447 7,923 7,168
Information / computer data
services 1,107 1,016 930 3,149 2,636
Professional services 746 790 626 2,451 1,899
Advertising 1,108 1,341 919 3,557 2,586
Miscellaneous 3,257 2,611 2,479 8,544 8,194
----------- ----------- ----------- ----------- -----------
Total other operating expense 20,922 19,536 17,868 59,286 52,200
----------- ----------- ----------- ----------- -----------
Income before provision for
income taxes 7,484 6,539 5,931 20,270 16,773
PROVISION FOR INCOME TAXES 2,322 1,991 1,778 6,197 5,070
----------- ----------- ----------- ----------- -----------
NET INCOME $ 5,162 $ 4,548 $ 4,153 $ 14,073 $ 11,703
=========== =========== =========== =========== ===========
Earnings per share
Basic $ 0.46 $ 0.41 $ 0.38 $ 1.27 $ 1.08
Diluted $ 0.44 $ 0.39 $ 0.37 $ 1.20 $ 1.05
Cumulative dividends declared
per common share $ 0.16 $ 0.16 $ 0.15 $ 0.48 $ 0.45
Weighted average shares
outstanding
Basic 11,168,735 11,140,502 10,842,791 11,120,318 10,811,745
Diluted 11,736,415 11,720,499 11,268,718 11,702,890 11,147,048
Shares repurchased during the
period 104 11,953 5,701 19,786 8,726
(more)
BANR-Third Quarter Results
October 22, 2004
Page 5
FINANCIAL CONDITION
-------------------
In thousands except share and per share data)
Sept 30, Jun 30, Sept 30, Dec 31,
ASSETS 2004 2004 2003 2003
------ ----------- ----------- ----------- -----------
Cash and due from
banks $ 65,800 $ 53,699 $ 72,320 $ 77,298
Securities
available for
sale 583,196 600,048 592,830 674,942
Securities held to
maturity 49,554 51,211 12,528 27,232
Federal Home Loan
Bank stock 35,698 35,387 34,262 34,693
Loans receivable:
Held for sale 8,303 5,887 23,593 15,912
Held for
portfolio 1,976,100 1,903,532 1,668,392 1,711,013
Allowance for
loan losses (29,407) (28,037) (26,161) (26,060)
----------- ----------- ----------- -----------
1,954,996 1,881,382 1,665,824 1,700,865
Accrued interest
receivable 14,930 14,341 13,944 13,410
Real estate owned
held for sale,
net 2,923 3,564 6,849 2,967
Property and
equipment, net 35,351 32,815 22,074 22,818
Goodwill and other
intangibles, net 36,405 36,441 36,563 36,513
Deferred income
tax asset, net 5,266 7,024 1,391 1,941
Bank-owned life
insurance 34,957 34,529 33,218 33,669
Other assets 11,086 9,629 10,563 8,965
----------- ----------- ----------- -----------
$ 2,830,162 $ 2,760,070 $ 2,502,366 $ 2,635,313
=========== =========== =========== ===========
LIABILITIES
-----------
Deposits:
Non-interest-
bearing $ 229,624 $ 209,704 $ 203,396 $ 205,656
Interest-bearing 1,681,548 1,622,889 1,502,324 1,465,284
----------- ----------- ----------- -----------
1,911,172 1,832,593 1,705,720 1,670,940
Borrowings:
Advances from
Federal Home
Loan Bank 530,958 555,058 461,552 612,552
Junior
subordinated
debentures 72,168 72,168 55,000 56,703
Other borrowings 79,080 72,539 58,764 69,444
----------- ----------- ----------- -----------
682,206 699,765 575,316 738,699
Accrued expenses
and other
liabilities 21,288 17,911 19,139 18,444
Deferred
compensation 4,931 4,739 4,006 4,252
Income taxes
payable 50 2,768 - - 178
----------- ----------- ----------- -----------
2,619,647 2,557,776 2,304,181 2,432,513
STOCKHOLDERS' EQUITY
---------------------
Common stock 125,672 125,438 121,383 123,375
Retained earnings 88,796 85,494 77,411 80,286
Accumulated other
comprehensive
income 183 (4,461) 4,166 3,191
Unearned shares of
common stock
issued to
Employee Stock
Ownership Plan
(ESOP) trust: at
cost (3,628) (3,628) (4,264) (3,589)
Net carrying value
of stock related
deferred
compensation
plans (508) (549) (511) (463)
----------- ----------- ----------- -----------
210,515 202,294 198,185 202,800
----------- ----------- ----------- -----------
$ 2,830,162 $ 2,760,070 $ 2,502,366 $ 2,635,313
=========== =========== =========== ===========
Shares Issued:
Shares outstanding
at end of period 11,652,816 11,630,434 11,415,636 11,473,331
Less unearned
ESOP shares at
end of period 438,985 438,985 515,960 434,299
----------- ----------- ----------- -----------
Shares outstanding
at end of period
excluding
unearned ESOP
shares 11,213,831 11,191,449 10,899,676 11,039,032
=========== =========== =========== ===========
Book value per
share (1) $ 18.77 $ 18.08 $ 18.18 $ 18.37
Tangible book
value per share
(1) $ 15.53 $ 14.82 $ 14.83 $ 15.06
Consolidated
Tier 1 leverage
capital ratio 8.85% 8.86% 8.64% 8.73%
(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-Third Quarter Results
October 22, 2004
Page 6
ADDITIONAL FINANCIAL INFORMATION
(Dollars in thousands)
LOANS (including loans
---------------------- Sept 30, Jun 30, Sept 30, Dec 31,
held for sale): 2004 2004 2003 2003
------------- ---------- ---------- ---------- ----------
Commercial real estate $ 531,714 $ 506,411 $ 433,800 $ 455,964
Multifamily real
estate 104,713 104,936 76,397 89,072
Construction and land 451,393 433,611 392,819 398,954
Commercial business 364,235 340,493 326,368 321,671
Agricultural business
including secured by
farmland 156,110 160,920 122,890 118,903
One- to four-family
real estate 298,759 287,990 274,723 275,197
Consumer 77,479 75,058 64,988 67,164
---------- ---------- ---------- ----------
Total loans
outstanding $1,984,403 $1,909,419 $1,691,985 $1,726,925
========== ========== ========== ==========
Sept 30, Jun 30, Sept 30, Dec 31,
NON-PERFORMING ASSETS: 2004 2004 2003 2003
--------------------- ---------- ---------- ---------- ----------
Loans on non-accrual
status $ 20,091 $ 24,118 $ 23,209 $ 28,010
Loans more than 90
days delinquent,
still on accrual 579 1,139 1,227 421
---------- ---------- ---------- ----------
Total non-performing
loans 20,670 25,257 24,436 28,431
Real estate owned
(REO) / Repossessed
assets 3,051 3,613 7,164 3,132
---------- ---------- ---------- ----------
Total non-performing
assets $ 23,721 $ 28,870 $ 31,600 $ 31,563
========== ========== ========== ==========
Total non-performing
assets / Total assets 0.84% 1.05% 1.26% 1.20%
Quarters Ended 9 Months Ended
-------------------------- -----------------
CHANGE IN THE ALLOWANCE Sept 30, Jun 30, Sept 30, Sept 30, Sept 30,
FOR LOAN LOSSES: 2004 2004 2003 2004 2003
--------------- ------- ------- ------- ------- -------
Balance, beginning of
period $28,037 $26,885 $26,075 $26,060 $26,539
Provision 1,444 1,450 1,400 4,344 5,900
Recoveries of loans
previously charged off 975 285 566 1,411 920
Loans charged-off (1,049) (583) (1,880) (2,408) (7,198)
------- ------- ------- ------- -------
Net ( charge-offs )
recoveries (74) (298) (1,314) (997) (6,278)
------- ------- ------- ------- -------
Balance, end of period $29,407 $28,037 $26,161 $29,407 $26,161
======= ======= ======= ======= =======
Net charge-offs / Average
loans outstanding 0.00% 0.02% 0.08% 0.05% 0.38%
Allowance for loan losses
/ Total loans
outstanding 1.48% 1.47% 1.55% 1.48% 1.55%
(more)
BANR-Third Quarter Results
October 22, 2004
Page 7
ADDITIONAL FINANCIAL INFORMATION
(Dollars in thousands)
(Rates / Ratios Annualized)
Quarters Ended 9 Months Ended
----------------------------------- -------------------------
Sept 30, Jun 30, Sep 30, Sept 30, Sep 30,
OPERATING PERFORMANCE: 2004 2004 2003 2004 2003
---------------------- ---------- ---------- ---------- ---------- ----------
Average loans $1,952,163 $1,858,449 $1,698,796 $1,854,229 $1,638,508
Average securities and deposits 683,520 721,778 628,485 706,990 605,574
Average non-interest-earning
assets 155,668 149,293 170,972 156,169 162,623
---------- ---------- ---------- ---------- ----------
Total average assets $2,791,351 $2,729,520 $2,498,253 $2,717,388 $2,406,705
========== ========== ========== ========== ==========
Average deposits $1,858,240 $1,776,837 $1,691,159 $1,768,856 $1,599,482
Average borrowings 700,034 725,047 586,894 719,220 594,292
Average non-interest-earning
liabilities 24,321 20,468 23,470 21,429 17,840
---------- ---------- ---------- ---------- ----------
Total average liabilities 2,582,595 2,522,352 2,301,523 2,509,505 2,211,614
Total average stock-holders'
equity 208,756 207,168 196,730 207,883 195,091
---------- ---------- ---------- ---------- ----------
Total average liabilities and
equity $2,791,351 $2,729,520 $2,498,253 $2,717,388 $2,406,705
========== ========== ========== ========== ==========
Interest rate yield on loans 6.74% 6.56% 6.83% 6.65% 7.14%
Interest rate yield on securities
and deposits 4.28% 4.20% 3.32% 4.25% 3.79%
---------- ---------- ---------- ---------- ----------
Interest rate yield on interest-
earning assets 6.10% 5.90% 5.89% 5.99% 6.24%
---------- ---------- ---------- ---------- ----------
Interest rate expense on deposits 1.94% 1.90% 2.09% 1.91% 2.22%
Interest rate expense on
borrowings 3.54% 3.34% 4.04% 3.40% 4.25%
---------- ---------- ---------- ---------- ----------
Interest rate expense on interest-
bearing liabilities 2.38% 2.32% 2.59% 2.34% 2.77%
---------- ---------- ---------- ---------- ----------
Interest rate spread 3.72% 3.58% 3.30% 3.65% 3.47%
========== ========== ========== ========== ==========
Net interest margin 3.79% 3.65% 3.35% 3.71% 3.52%
========== ========== ========== ========== ==========
Other operating income / Average
assets 0.68% 0.61% 0.88% 0.62% 0.87%
Other operating expense / Average
assets 2.98% 2.88% 2.84% 2.91% 2.90%
Efficiency ratio (other operating
expense / revenue) 70.09% 70.98% 70.91% 70.66% 69.72%
Return on average assets 0.74% 0.67% 0.66% 0.69% 0.65%
Return on average equity 9.84% 8.83% 8.38% 9.04% 8.02%
Average equity / Average assets 7.48% 7.59% 7.87% 7.65% 8.11%
(# # #)