| 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 24, 2003 | ||
| 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 24, 2003.
Item 9. Regulation FD Disclosure
On April 24, 2003, Banner Corporation issued its earnings release for the first quarter ended March 31, 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>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 24, 2003 | By: /s/D. Michael Jones |
| D. Michael Jones | |
| President and Chief Executive Officer |
<PAGE>
BANNER CORPORATION REPORTS FIRST QUARTER NET INCOME OF $3.4 MILLION;
REVENUES INCREASE 9% TO $24 MILLION
After a significant loan loss provision in the fourth quarter, we have returned to profitability and we are looking forward to building earnings to more acceptable levels," said D. Michael Jones, President and Chief Executive Officer. "We have worked hard to strengthen the balance sheet, significantly growing customer deposits and adding to our franchise while working to collect amounts owed on problem assets and improve our overall credit culture. While our results are not yet where I would like them to be, we are making progress."
Income Statement Review
Revenues (net interest income before the provision for loan losses plus other operating income) for the first quarter increased 9% to $24.2 million, compared to $22.1 million in the same quarter of 2002, but decreased 3% from $25.1 for the fourth quarter of 2002. Net interest margin was 3.66%, compared to 3.86% in the prior quarter and 3.90% in the same quarter a year ago. "The most recent rate cut by the Federal Reserve has caused asset yields to drop more sharply than deposit costs. This, combined with the Bank's level of non-performing assets, has put downward pressure on our net interest margin," said Jones.
"Mortgage banking operations continued to excel in the current interest rate environment," added Jones. For the quarter, mortgage banking operations, including loan servicing fees, increased 59%, to $2.6 million, compared to $1.6 million in the first quarter of 2002, but declined from the record level of $3.1 million in the fourth quarter of 2002. Other fees and service charges for the first quarter increased $400,000, or 32%, to $1.7 million, compared to $1.2 million for the comparable quarter a year earlier, reflecting growth in deposits and customer activity.
"We continue to dedicate significant resources toward moving problem loans through the system toward resolution," said Jones. "Progress is being made, but it will take time to work through these loans as the borrowers are generally marginal credits operating in a slow economy in the Puget Sound area. Meanwhile, we believe our disproportionate problem loan issue has crested." Non-performing assets were $42.4 million, or 1.76% of total assets at March 31, 2003, compared to $42.2 million, or 1.86% of total assets at December 31, 2002 and $31.5 million, or 1.46% of total assets at March 31, 2002. The loan loss provision for the quarter was $2.3 million, compared to $3.0 million a year ago and $10.0 million in the prior quarter. At March 31, 2003, the allowance for loan losses totaled $25.6 million, representing 1.61% of total loans outstanding, compared to $18.9 million, or 1.18% of total loans outstanding a year earlier.
"Since August, we have opened new Banner Bank branches in Spokane and Pasco, Washington, as well as new loan centers in the Tri-Cities, Spokane and Bellevue, Washington and Lake Oswego, Oregon. These new offices and their experienced banking personnel are bringing in significant deposits and approved loan commitments. As their success continues, we expect their contribution to the bottom line to increase as well," Jones said.
Other operating expenses were $17.1 million for the quarter compared to $18.0 million in the fourth quarter of 2002 and $13.3 million in the first quarter of 2002. Banner's efficiency ratio for the quarter ended March 31, 2003 was 70.41%, a slight improvement from 71.74% in the prior quarter. The efficiency ratio was 60.21% in the first quarter of 2002.
<PAGE>
BANR-First Quarter Results
April 24, 2003
Page 2
Balance Sheet Review
"We have been restructuring our balance sheet to improve liquidity and rely less on borrowed funds," said Jones. Deposits grew 14%, to $1.6 billion, compared to $1.4 billion at March 31, 2002, while total assets increased 12%, to $2.4 billion at March 31, 2003 from $2.2 billion a year earlier. Stockholders' equity increased to $192.4 million, from $191.9 million a year ago, and book value per share increased to $17.77 at March 31, 2003, from $17.38 per share a year earlier.
"While our overall loan portfolio contracted slightly compared to a year earlier, primarily due to prepayments on one-to-four family mortgages and sales of new originations, agricultural and commercial business loans continued to grow steadily, increasing 22% and 12%, respectively," said Jones. "Business and agricultural loans now represent 25% of the total loan portfolio, compared to 22% a year ago." Banner's loan portfolio was $1.56 billion at March 31, 2003, compared to $1.58 billion at March 31, 2002 and $1.55 billion at December 31, 2002.
Conference Call
The Company will host a conference call today, Thursday, April 24, 2002 at 8:00 a.m. PDT, to discuss the first quarter results. The conference call can be accessed live by telephone at 303-262-2175. To listen to the call online, go to the company's website at www.banrbank.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 535575, until May 1, 2003 or via the Internet at www.companyboardroom.com through May 7, 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.banrbank.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, 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.
<PAGE>
BANR-First Quarter Results
April 24, 2003
Page 3
| RESULTS OF OPERATIONS | Quarters Ended | |||||
| (In thousands except share and per share data) | Mar 31, 2003 | Dec 31, 2002 | Mar 31, 2002 | |||
| INTEREST INCOME: | ||||||
| Loans receivable | $ | 28,844 | $ | 30,492 | $ | 31,251 |
| Mortgage-backed securities | 3,052 | 2,526 | 2,556 | |||
| Securities and deposits | 2,822 | 2,615 | 2,211 | |||
| 34,718 | 35,633 | 36,018 | ||||
| INTEREST EXPENSE: | ||||||
| Deposits | 8,871 | 9,455 | 10,144 | |||
| Federal Home Loan Bank advances | 5,700 | 5,604 | 6,468 | |||
| Trust preferred securities | 567 | 467 | - - | |||
| Other borrowings | 172 | 226 | 492 | |||
| 15,310 | 15,752 | 17,104 | ||||
| Net Interest Income Before Provision For Loan Losses | 19,408 | 19,881 | 18,914 | |||
| PROVISION FOR LOAN LOSSES | 2,250 | 10,000 | 3,000 | |||
| Net Interest Income After Provision For Loan Losses | 17,158 | 9,881 | 15,914 | |||
| OTHER OPERATING INCOME: | ||||||
| Loan servicing fees | 530 | 475 | 344 | |||
| Other fees and service charges | 1,658 | 1,473 | 1,258 | |||
| Mortgage banking operations | 2,062 | 2,674 | 1,291 | |||
| Gain (loss) on sale of securities | 3 | - - | 5 | |||
| Miscellaneous |
565
|
557 | 320 | |||
| 18 | 5,179 | 3,218 | ||||
| OTHER OPERATING EXPENSE: | ||||||
| Salary and employee benefits | 11,211 | 10,505 | 8,694 | |||
| Less capitalized loan origination costs | (1,575) | (1,737) | (1,313) | |||
| Occupancy and equipment | 2,372 | 2,259 | 2,083 | |||
| Information/computer data services | 838 | 1,069 | 613 | |||
| Advertising | 866 | 900 | 299 | |||
| Amortization of intangibles | 50 | 63 | 75 | |||
| Miscellaneous | 3,295 | 4,920 | 2,875 | |||
| 17,057 | 17,979 |
13,326
| ||||
| Income ( Loss ) Before Provision For Income Taxes | 4,919 | (2,919) | 5,806 | |||
| PROVISION FOR (BENEFIT FROM) INCOME TAXES | 1,490 | (1,362) | 1,897 | |||
| NET INCOME (LOSS) | $ | 3,429 | $ | (1,557) | $ | 3,909 |
| Earnings (Loss) Per Share | ||||||
| Basic | $ | 0.32 | $ | (0.14) | $ | 0.35 |
| Diluted | $ | 0.31 | $ | (0.14) | $ | 0.34 |
| Cumulative Dividend Per Share | $ | 0.15 | $ | 0.15 | $ | 0.15 |
| Weighted Average Shares Outstanding | ||||||
| Basic | 10,786,474 | 10,892,122 | 11,033,366 | |||
| Diluted | 11,040,425 | 11,286,894 | 11,448,741 | |||
| Shares repurchased during the period | - - | 324,354 | 40,000 |
<PAGE>
BANR-First Quarter Results
April 24, 2003
Page 4
| FINANCIAL CONDITION | ||||||
| ( In thousands except share and per share data ) | Mar 31, 2003 | Dec 21, 2002 | Mar 31, 2002 | |||
| ASSETS | ||||||
| Cash and due from banks | $ | 126,396 | $ | 132,910 | $ | 85,165 |
| Securities available for sale | 567,592 | 421,222 | 345,682 | |||
| Securities held to maturity | 11,469 | 13,253 | 15,022 | |||
| Federal Home Loan Bank stock | 33,378 | 32,831 | 31,330 | |||
| Loans receivable: | ||||||
| Held for sale | 47,213 | 39,366 | 14,240 | |||
| Held for portfolio | 1,543,325 | 1,534,100 | 1,583,121 | |||
| Allowance for loan losses | (25,551) | (26,539) | (18,899) | |||
| 1,564,987 | 1,546,927 | 1,578,462 | ||||
| Accrued interest receivable | 13,775 | 13,689 | 13,485 | |||
| Real estate held for sale, net | 5,183 | 6,062 | 2,762 | |||
| Property and equipment, net | 20,629 | 20,745 | 18,299 | |||
| Costs in excess of net assets acquired ( goodwill ), net | 36,664 | 36,714 | 36,742 | |||
| Deferred income tax asset, net | 1,658 | 2,786 | 2,782 | |||
| Bank owned life insurance | 32,260 | 31,809 | 20,535 | |||
| Other assets |
3,863
|
4,224 | 1,993 | |||
| $ | 2,417,854 | $ | 2,263,172 | $ | 2,152,259 | |
| LIABILITIES | ||||||
| Deposits: | ||||||
| Non-interest-bearing | $ | 192,287 | $ | 200,500 | $ | 199,328 |
| Interest-bearing | 1,422,060 | 1,297,278 | 1,213,409 | |||
| 1,614,347 | 1,497,778 | 1,412,737 |
| Borrowings: | |||||||
| Advances from Federal Home Loan Bank | 511,452 | 465,743 | 461,182 | ||||
| Trust preferred securities | 40,000 | 40,000 | - - | ||||
| Other borrowings | 41,400 | 41,202 | 72,677 | ||||
| 592,852 | 546,945 | 533,859 | |||||
| Accrued expenses and other liabilities | 14,623 | 24,700 | 10,210 | ||||
| Deferred compensation | 3,601 | 3,372 | 2,826 | ||||
| Income taxes payable | - - | - - | 708 | ||||
| 2,225,423 | 2,072,795 | 1,960,340 | |||||
| STOCKHOLDERS' EQUITY | |||||||
| Common stock and additional paid in capital | 121,119 | 120,554 | 126,375 | ||||
| Retained earnings | 72,545 | 70,813 | 70,276 | ||||
| Accumulated other comprehensive income | 3,576 | 3,488 | 133 | ||||
| Unearned shares of common stock issued to Employee Stock | |||||||
| Ownership Plan ( ESOP ) trust: at cost | (4,264) | (4,262) | (4,769) | ||||
| Net carrying value of stock related deferred compensation plans | (545) | (216) | (96) | ||||
| 192,431 | 190,377 | 191,919 | |||||
| $ | 2,417,854 | $ | 2,263,172 | $ | 2,152,259 | ||
| Shares Issued: | |||||||
| Shares outstanding at end of period | 11,347,571 | 11,306,977 | 11,621,426 | ||||
| Less unearned ESOP shares at end of period | 515,707 | 515,707 | 577,039 | ||||
| Shares outstanding at end of period excluding unearned ESOP | |||||||
| shares | 10,831,864 | 10,791,270 | 11,044,387 | ||||
| Book Value Per Share (1) | $ | 17.77 | $ | 17.64 | $ | 17.38 | |
| Tangible Book Value Per Share (1) | $ | 14.38 | $ | 14.24 | $ | 14.05 | ||
| Consolidated Tier 1 Leverage Capital Ratio | 8.48% | 8.77% | 7.51% | |||||
| (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-First Quarter Results
April 24, 2003
Page 5
| ADDITIONAL FINANCIAL INFORMATION | |||||||||
| ( Dollars in thousands ) | |||||||||
| LOANS ( including loans held for sale ): | Mar 31, 2003 | Dec 31, 2002 | Mar 31, 2002 | ||||||
| Secured by real estate: | |||||||||
| One-to-four family | $ | 323,495 | $ | 329,314 | $ | 364,611 | |||
| Consumer secured by one-to-four family | 25,004 | 26,195 | 23,898 | ||||||
| Total one-to-four family | 348,499 | 355,509 | 388,509 | ||||||
| Commercial | 384,589 | 379,099 | 379,448 | ||||||
| Multifamily | 68,494 | 72,333 | 80,264 | ||||||
| Construction and land | 347,956 | 339,516 | 352,076 | ||||||
| Commercial business | 301,418 | 285,231 | 269,713 | ||||||
| Agricultural business | 102,737 | 102,626 | 84,233 | ||||||
| Consumer | 36,845 | 39,152 |
43,118
| ||||||
| Total loans outstanding | $ | 1,590,538 | $ | 1,573,466 | $ | 1,597,361 | |||
| NON-PERFORMING ASSETS: | Mar 31, 2003 | Dec 31, 2002 | Mar 31, 2002 | ||||||
| Loans on non-accrual status | $ | 36,834 | $ | 34,249 | $ | 28,488 | |||
| Accruing loans greater than 90 days delinquent | 290 | 1,859 | 222 | ||||||
| Total non-performing loans | 37,124 | 36,108 | 28,710 | ||||||
| Real estate owned ( REO ) / Repossessed assets | 5,319 | 6,062 |
2,762
| ||||||
| Total non-performing assets | $ | 42,443 | $ | 42,170 | $ | 31,472 | |||
| Total non-performing assets / Total assets | 1.76% | 1.86% | 1.46% | ||||||
| Quarters Ended | |||||||||
| CHANGE IN THE | Mar 31, 2003 |
Dec 31, 2002
|
Mar 31, 2002 | ||||||
| ALLOWANCE FOR LOAN LOSSES: | |||||||||
| Balance at beginning of period | $ | 26,539 | $ | 19,150 | $ | 17,552 | |||
| Acquisitions | - - | - - | 460 | ||||||
| Provision for loan losses | 2,250 | 10,000 | 3,000 | ||||||
| Recoveries | 110 | 208 | 19 | ||||||
| Charge-offs | (3,348) | (2,819) | (2,132) | ||||||
| Net charge-offs | (3,238) | (2,611) | (2,113) | ||||||
| Balance at end of period | $ | 25,551 | $ | 26,539 | $ | 18,899 | |||
| Net charge-offs / Average loans outstanding | 0.20% | 0.16% | 0.13% | ||||||
| Allowance for loan losses / Total loans outstanding | 1.61% | 1.69% | 1.18% | ||||||
BANR-First Quarter Results
April 24, 2003
Page 6
|
ADDITIONAL FINANCIAL INFORMATION |
||||||
| ( Dollars in thousands ) | ||||||
| ( Rates / Ratios annualized ) | ||||||
| Quarters Ended | ||||||
| OPERATING PERFORMANCE: | Mar 31, 2003 | Dec 31, 2002 | Mar 31, 2002 | |||
| Average loans | $ | 1,582,231 | $ | 1,589,608 | $ | 1,607,697 |
| Average securities and deposits | 565,400 | 454,671 | 356,817 | |||
| Average non-interest-earning assets | 157,412 | 162,595 | 134,909 | |||
| Total Average Assets | $ | 2,305,043 | $ | 2,206,874 | $ | 2,099,423 |
| Average deposits | $ | 1,506,427 | $ | 1,481,623 | $ | 1,335,890 |
| Average borrowings | 588,517 | 515,612 | 556,274 | |||
| Average non-interest-earning liabilities | 17,120 | 14,582 | 11,040 | |||
| Total Average Liabilities | 2,112,064 | 2,011,817 | 1,903,204 | |||
| Total average equity | 192,979 | 195,057 | 196,219 | |||
| Total Average Liabilities And Equity | $ | 2,305,043 | $ |
2,206,874 |
$ | 2,099,423 |
| Interest rate yield on loans | 7.39% | 7.61% | 7.88% | |||
| Interest rate yield on securities and deposits | 4.21% | 4.49% | 5.42% | |||
| Interest Rate Yield On Interest-Earning Assets | 6.56% | 6.92% | 7.44% | |||
| Interest rate expense on deposits | 2.39% | 2.53% | 3.08% | |||
| Interest rate expense on borrowings | 4.44% | 4.85% | 5.07% | |||
| Interest Rate Expense On Interest-Bearing Liabilities | 2.96% | 3.13% | 3.67% | |||
| Interest rate spread | 3.60% | 3.79% | 3.77% | |||
| Net interest margin | 3.66% | 3.86% | 3.90% | |||
| Other operating income / Average assets | 0.85% | 0.93% | 0.62% | |||
| Other operating expense / Average assets | 3.00% | 3.23% | 2.57% | |||
| Efficiency ratio ( other operating expense / revenue ) | 70.41% | 71.74% | 60.21% | |||
| Return on average assets | 0.60% | (0.28%) | 0.76% | |||
| Return on average equity | 7.21% | (3.17%) | 8.08% | |||
| Average equity / Average assets | 8.37% | 8.84% | 9.35% | |||
<PAGE>