WALLA WALLA, Wash., July 28, 2008 (PRIME NEWSWIRE) -- Banner Corporation (Nasdaq:BANR), the parent company of Banner Bank and Islanders Bank, today reported that, as a result of the significant decline in its stock price and market capitalization during the second quarter in conjunction with similar declines in the value of most financial institutions and the ongoing disruption in related financial markets, it has decided to reduce the carrying value of goodwill by $50 million in its Statement of Financial Condition as of June 30, 2008. While this write-down of goodwill is a non-cash charge that does not affect the Company's or the Banks' liquidity or operations, the adjustment brings the Company's book value and tangible book value more closely in line with each other and more accurately reflects current market conditions. Also, since goodwill is excluded from regulatory capital, this impairment charge (which is not deductible for tax purposes) does not have an adverse effect on the regulatory capital ratios of the Company or either of its subsidiary banks, each of which continues to remain "well capitalized" under the regulatory requirements.
Banner also reported that, as a result of a $15 million provision for loan losses, the Company recorded a net operating loss, excluding fair value adjustments and the goodwill impairment charge*, of $2.7 million, or $0.17 per diluted share, for the quarter ended June 30, 2008, compared to net operating income, excluding fair value adjustments, of $8.3 million, or $0.56 per diluted share, for the quarter ended June 30, 2007. For the six months ended June 30, 2008, net operating income, excluding fair value adjustments and the goodwill impairment charge, was $587,000, or $0.04 per share, compared to $15.4 million, or $1.12 per diluted share, for the six months ended June 30, 2007.
"The first half of 2008 has presented a challenging operating environment for Banner, as well as for the entire financial services industry," stated D. Michael Jones, President and Chief Executive Officer. "This difficult environment has led to a great deal of uncertainty with respect to the valuation of certain assets, including goodwill. As goodwill is deducted for the purpose of regulatory capital calculations, is ignored by most institutional investors and has no effect on liquidity or operations, there is no meaningful economic effect from this non-cash accounting entry. At least annually and more often if appropriate, all companies are required to determine the appropriate carrying value of goodwill as an asset. As a result of the significant decline in many banks' common stock prices, including Banner's, and the lack of merger transactions in recent months, measuring the value of goodwill at June 30, 2008 has become difficult and imprecise at best; however, it is clear that the value has declined. Therefore, we have taken this action to reflect current market conditions as of June 30, 2008. It is important to note that this change is not a result of any concern with the performance of any of last year's acquisitions, each of which is performing in line with our expectations at the time of purchase."
"This difficult environment, including in particular a weakened housing market, also required that we significantly increase our provision for loan losses in order to build our reserves," Jones added. "This elevated level of loan loss provisioning depressed our operating results but was an appropriate response to an increase in non-performing loans and further stress in housing markets which in the second quarter became more apparent in the Puget Sound (Seattle) region as well as in the greater Portland, Oregon and Boise, Idaho areas. Aside from the obvious concerns related to housing markets, the Company's operations continued to progress well during the quarter, reflecting the commitment of our dedicated employees. We are particularly pleased to have added two new branches during the quarter, one in Bellevue, Washington, and one in the Pearl District of Portland, Oregon, two important locations for the long-term success of the Company. And, as we have indicated before, we continue to have a very positive view on the future economic prospects for the Northwest markets that we serve."
Banner's results included a net gain of $649,000 ($415,000 after tax) in the second quarter of 2008, compared to a net loss of $1.9 million ($1.2 million after tax) in the second quarter of 2007 for fair value adjustments* as a result of changes in the valuation of financial instruments carried at fair value in accordance with the adoption of Statement of Financial Accounting Standards (SFAS) Nos. 157 and 159. For the six months ended June 30, 2008, the fair value adjustments resulted in a net gain of $1.5 million ($942,000 after tax), compared to a net loss of $697,000 ($446,000 after tax) for the first six months of 2007.
* Earnings information excluding the goodwill impairment charge and fair value adjustments (net income from recurring operations) represent non-GAAP (Generally Accepted Accounting Principles) financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide more useful and comparative information to assess trends in the Company's core operations reflected in the current quarter and year-to-date results. Where applicable, the Company has also presented comparable earnings information using GAAP financial measures.
Credit Quality
"The housing market has continued to soften in our primary markets in the Puget Sound, Portland and Boise, resulting in increasing delinquencies and non-performing assets, primarily construction and land development loans," said Jones. "As a result, we have chosen again this quarter to increase our reserves through a higher level of provisioning, as property values have clearly declined. As well as covering known issues and net charge-offs, the second quarter's provision allowed us to maintain an appropriate portion of the allowance for loan losses against loans that are currently performing according to their repayment terms."
Banner added $15.0 million to its provision for loan losses in the second quarter of 2008, compared to $6.5 million in the first quarter of 2008 and $1.4 million in the second quarter of 2007. The allowance for loan losses at June 30, 2008 was $58.6 million, representing 1.47% of total loans outstanding. Non-performing loans were $89.9 million at June 30, 2008, compared to $54.4 million in the previous quarter and $13.2 million at June 30, 2007. In addition, Banner's real estate owned and repossessed assets increased to $11.4 million at June 30, 2008 compared to $7.6 million in the previous quarter and $1.7 million at June 30, 2007. Banner's net charge-offs in the current quarter totaled $6.9 million, or 0.18% of average loans.
"Although one-to-four family residential construction and related lot and land loans represent 26% of our portfolio and 81% of our nonperforming assets, they are significantly diversified with respect to geography and sub-markets, price ranges and borrowers," added Jones. "We are proactively monitoring and managing this portion of our portfolio and we are actively engaged with our borrowers in resolving problem loans." The geographic distribution of construction and land development loans is approximately 29% in the greater Puget Sound market, 33% in the greater Portland, Oregon market, and 7% in the greater Boise, Idaho market, with the remaining 31% distributed in various eastern Washington, eastern Oregon and northern Idaho markets served by Banner Bank. While nonperforming assets are similarly geographically disbursed, they are concentrated largely in land and land development loans. The geographic distribution of nonperforming construction, land and land development loans and real estate owned included approximately $34.2 million, or 42%, in the Puget Sound region, $17.6 million, or 22%, in the greater Portland market area and $18.6 million, or 23%, in the greater Boise market area. "Although additional charge-offs will undoubtedly occur, based on recent appraisals, regular inspections and our understanding of the local markets, we are confident losses will not approach the overly pessimistic projections of certain analysts and equity market participants," stated Jones. "And, while the current imbalance in the housing markets will likely require twelve to eighteen months to be fully resolved, we believe we have the management and resources to address these challenges and still maintain a strong forward momentum that will allow Banner Corporation and our talented employees to prosper from the many business opportunities available across our Northwest franchise."
Income Statement Review
Banner's net interest margin was 3.50% for the second quarter of 2008, compared to 3.63% in the preceding quarter and 4.11% for the second quarter of 2007. For the first half of 2008, the net interest margin was 3.56% compared to 4.04% in the first half of 2007. Funding costs decreased 44 basis points compared to the previous quarter and decreased 105 basis points from the second quarter a year earlier, while asset yields decreased 55 basis points from the prior linked quarter and 160 basis points from the second quarter a year ago.
"During the second quarter we continued to experience decreasing asset yields which significantly reduced our net interest margin, as the full impact of the Federal Reserve's earlier rate cuts were realized and changes in the mix of the loan portfolio reduced the proportional contribution of some of the higher yielding loan categories," said Jones. "Deposit costs also declined in the second quarter of 2008, but have not yet matched the more immediate impact of lower market interest rates on a substantial portion of our loan portfolio. In addition, the higher level of delinquencies is also reflected in our lower net interest margin, as non-accruing loans reduced the margin by approximately 16 basis points in this year's second quarter compared to approximately three basis points in the same quarter a year earlier."
In the second quarter of 2008, net interest income before the provision for loan losses was $37.0 million, compared to $37.4 million in the preceding quarter and $38.1 million in the same quarter a year ago. In the first half of 2008, net interest income before the provision for loan losses increased 6% to $74.3 million, compared to $70.3 million in the first half of 2007. Revenues from recurring operations (net interest income before the provision for loan losses plus other operating income excluding fair value adjustments) were $45.0 million in the second quarter of 2008, up slightly from $44.7 million for the first quarter of 2008 and essentially unchanged from the second quarter a year ago. Revenues from recurring operations for the first half of 2008 increased 9% to $89.7 million, compared to $82.3 million in the first half of 2007.
Total other operating income from recurring operations (excluding fair value adjustments) for the second quarter increased to $8.0 million up from $7.4 million in the preceding quarter and increased 16% compared to $6.9 million for the same quarter a year ago. For the first half of 2008, total other operating income from recurring operations increased 28% to $15.3 million, compared to $12.0 million in the first half of 2007. Income from deposit fees and other service charges increased to $5.5 million in the second quarter of 2008, compared to $5.0 million for the preceding quarter, and increased 34% from $4.1 million in the second quarter a year ago. Income from mortgage banking operations, at $1.6 million, was nearly unchanged in the second quarter compared to the preceding quarter but decreased slightly from $1.8 million in the same period a year ago. For the first half of the year, mortgage banking revenues were essentially unchanged but are likely to decline modestly over the remainder of the year given the lower levels of residential sales activity.
"Our expense ratios were higher in the second quarter, compared to the first quarter of the year, largely as a result of higher collection costs and other professional fees, as well as $678,000 of combined operating expenses and valuation adjustments for real estate owned and other repossessed assets and $306,000 of increased costs of FDIC insurance," said Jones. "During the quarter we incurred additional costs associated with the opening of our two new offices. Although we anticipate collection costs will continue to be above historical levels for the next few quarters, we expect little change in total operating expense levels going forward this year and have no plans to add additional branches during the remainder of the year." Other operating expenses from recurring operations (excluding the goodwill write-off) were $35.2 million in the second quarter of 2008, compared to $33.7 million in the preceding quarter and $31.3 million in the second quarter a year ago. The increase from the prior year reflects the effects of new branch openings and last year's acquisitions. For the first half of the year other operating expenses from recurring operations were $68.9 million compared to $57.4 million in the first half of 2007. Operating expenses from recurring operations as a percentage of average assets was 3.08% in the second quarter of 2008, compared to 3.01% in the previous quarter and 3.14% in the second quarter a year ago.
Balance Sheet Review
"We have significantly slowed our origination of construction and land development loans as we remain very cautious in our underwriting," said Jones. "As a result, our construction and development loan balances declined by $32 million during the most recent quarter compared to March 31, 2008 balances, including a $31 million decrease in one-to-four family construction loans. By contrast, we continued to have good growth in all other loan categories." Net loans increased 9% to $3.91 billion at June 30, 2008, compared to $3.58 billion a year earlier. Assets increased 9% to $4.64 billion at June 30, 2008, compared to $4.27 billion a year earlier.
Total deposits increased 5% to $3.76 billion at June 30, 2008, compared to $3.59 billion at the end of June 2007. Non-interest-bearing accounts increased 5% and certificates of deposit increased 13% during the twelve months ending June 30, 2008, while total transaction and savings accounts decreased 7%. "Our retail deposit activity has been steady, although we have seen a decline in average deposit balances for certain real estate-related customers as their business activity has slowed," said Jones. "We are optimistic that our expanded branch network will deliver continued deposit growth and related fee income as we have experienced a healthy increase in the number of transaction deposit accounts."
Tangible shareholders' equity at June 30, 2008 was $295.2 million compared to $273.6 million at June 30, 2007. Tangible book value per share was $18.38 at quarter-end, compared to $17.72 a year earlier. During the quarter ended June 30, 2008, the Company issued 402,000 shares of common stock through its Dividend Reinvestment and Stock Purchase Plan and in connection with the exercise of vested stock options at an average price of $18.13 per share. At June 30, 2008, Banner had 16.3 million shares outstanding, while it had 15.7 million shares outstanding a year ago.
"In the past few months, the market price of Banner's common stock has significantly declined due in part to the uncertainty revolving around the U.S. housing market and Banner's commitment to loans for construction of one-to-four family dwellings and related land and lot loans," said Jones. "Further, we believe the price has been partially influenced by speculation by short sellers concerning our potential need to raise additional capital. To set the record straight, aside from continuation of our dividend reinvestment and stock purchase plan, Banner Corporation does not now intend to sell common stock or issue other capital instruments as our analysis indicates that the Company and its subsidiary banks have sufficient capital to accommodate the orderly collection of existing housing and land loan portfolios at current price levels and absorption rates and remain well capitalized during the entire process.
Accounting Treatments
Banner Corporation adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, and SFAS No. 157, Fair Value Measurements, effective January 1, 2007. SFAS No. 159, which was issued in February 2007, generally permits the measurement of selected eligible financial instruments at fair value at specified election dates. SFAS No. 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles (GAAP), and expands disclosures about fair value measurement. The Company has chosen to apply SFAS No. 159 to certain investment securities and wholesale borrowings, including its junior subordinated debentures, to allow it more flexibility with respect to the management of those assets and liabilities and its interest rate risk position.
Restatement and Reclassification
The Statement of Financial Condition for the quarter ended June 30, 2007 has been restated to reflect non-material cumulative adjustments to the common stock and retained earnings components of stockholders' equity related to the tax treatment of certain elements of stock-based compensation for periods prior to January 1, 2007. The effects of these adjustments are reductions of $380,000 in income taxes payable and $2.4 million in retained earnings and increases of $2.8 million and $380,000, respectively, in common stock (paid-in capital) and total stockholders' equity as of December 31, 2006. These adjustments have immaterially affected certain previously reported ratios for the quarter ended June 30, 2007.
In addition, certain reclassifications have been made to the prior periods' consolidated financial statements and/or schedules to conform to the current period's presentation. These reclassifications may have slightly affected certain ratios for the prior periods. These reclassifications had no effect on retained earnings or net income as previously presented and the effect of these reclassifications is considered immaterial.
Conference Call
Banner will host a conference call on Tuesday, July 29, 2008, at 7:00 a.m. PDT, to discuss second quarter results. The conference call can be accessed live by telephone at 303-205-0044. To listen to the call online, go to the Company's website at www.bannerbank.com. An archived recording of the call can be accessed by dialing 303-590-3000, passcode 11116845# until Tuesday, August 5, 2008, or via the Internet at www.bannerbank.com.
About the Company
Banner Corporation is a $4.6 billion bank holding company operating two commercial banks 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.
This press release contains statements that the Company believes are "forward-looking statements." These statements relate to the Company's financial condition, results of operations, plans, objectives, future performance or business. You should not place undue reliance on these statements, as they are subject to risks and uncertainties. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Company may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Company. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors which could cause actual results to differ materially include, but are not limited to, the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes and other properties and fluctuations in real estate values in our market areas; results of examinations of us by the Board of Governors of the Federal Reserve System and our bank subsidiaries by the Federal Deposit Insurance Corporation, the Washington State Department of Financial Institutions, Division of Banks or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses or to write-down assets; fluctuations in agricultural commodity prices, crop yields and weather conditions; our ability to control operating costs and expenses; our ability to implement our branch expansion strategy; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired or may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; legislative or regulatory changes that adversely affect our business; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board; war or terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and other risks detailed in Banner's reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
RESULTS OF OPERATIONS
---------------------
(in thousands except shares and per share data)
Quarters Ended Six Months Ended
-------------------------------- ---------------------
Jun 30, Mar 31, Jun 30, Jun 30, Jun 30,
2008 2008 2007 2008 2007
---------- ---------- ---------- ---------- ----------
INTEREST INCOME:
Loans
receivable $ 64,094 $ 68,073 $ 71,047 $ 132,167 $ 132,875
Mortgage-
backed
securities 1,087 1,153 1,535 2,240 3,310
Securities
and cash
equivalents 2,861 2,727 1,829 5,588 3,672
---------- ---------- ---------- ---------- ----------
68,042 71,953 74,411 139,995 139,857
INTEREST
EXPENSE:
Deposits 27,565 30,063 32,378 57,628 59,988
Federal Home
Loan Bank
advances 1,301 1,849 1,164 3,150 3,441
Other
borrowings 530 610 790 1,140 1,718
Junior
subordinated
debentures 1,666 2,064 1,969 3,730 4,423
---------- ---------- ---------- ---------- ----------
31,062 34,586 36,301 65,648 69,570
---------- ---------- ---------- ---------- ----------
Net interest
income before
provision
for loan
losses 36,980 37,367 38,110 74,347 70,287
PROVISION FOR
LOAN LOSSES 15,000 6,500 1,400 21,500 2,400
---------- ---------- ---------- ---------- ----------
Net interest
income 21,980 30,867 36,710 52,847 67,887
OTHER OPERATING
INCOME:
Deposit fees
and other
service
charges 5,494 5,013 4,090 10,507 7,053
Mortgage
banking
operations 1,579 1,615 1,808 3,194 3,163
Loan servicing
fees 547 402 373 949 748
Miscellaneous 363 331 592 694 1,053
---------- ---------- ---------- ---------- ----------
7,983 7,361 6,863 15,344 12,017
Increase
(Decrease)
in valuation
of financial
instruments
carried at
fair value 649 823 (1,877) 1,472 (697)
---------- ---------- ---------- ---------- ----------
Total other
operating
income 8,632 8,184 4,986 16,816 11,320
OTHER OPERATING
EXPENSE:
Salary and
employee
benefits 19,744 19,638 19,635 39,382 36,103
Less
capitalized
loan origin-
ation costs (2,728) (2,241) (3,175) (4,969) (5,769)
Occupancy
and equipment 5,989 5,868 5,106 11,857 9,458
Information /
computer data
services 1,840 1,989 1,767 3,829 3,136
Payment and
card process-
ing services 1,768 1,531 1,298 3,299 2,286
Professional
services 1,331 755 723 2,086 1,282
Advertising
and marketing 1,677 1,418 1,867 3,095 3,724
State/municipal
business and
use taxes 576 564 470 1,140 878
Amortization
of core
deposit
intangibles 725 736 352 1,461 352
Miscellaneous 4,300 3,450 3,256 7,750 5,920
---------- ---------- ---------- ---------- ----------
35,222 33,708 31,299 68,930 57,370
Goodwill
write-off 50,000 -- -- 50,000 --
---------- ---------- ---------- ---------- ----------
Total other
operating
expense 85,222 33,708 31,299 118,930 57,370
---------- ---------- ---------- ---------- ----------
Income (Loss)
before
provision
(benefit)
for income
taxes (54,610) 5,343 10,397 (49,267) 21,837
PROVISION
(BENEFIT) FOR
INCOME TAXES (2,305) 1,509 3,286 (796) 6,913
---------- ---------- ---------- ---------- ----------
NET INCOME
(LOSS) $ (52,305)$ 3,834 $ 7,111 $ (48,471)$ 14,924
========== ========== ========== ========== ==========
Earnings (Loss)
per share
Basic $ (3.31)$ 0.24 $ 0.49 $ (3.06)$ 1.11
Diluted $ (3.30)$ 0.24 $ 0.48 $ (3.05)$ 1.09
Cumulative
dividends
declared per
common share $ 0.20 $ 0.20 $ 0.19 $ 0.40 $ 0.38
Weighted average
shares
outstanding
Basic 15,821,934 15,847,921 14,519,669 15,834,728 13,426,939
Diluted 15,872,604 15,965,032 14,791,195 15,877,093 13,727,889
Shares repurch-
ased during
the period -- 613,903 2,624 613,903 10,610
Shares issued
in connection
with acquis-
itions -- -- 2,592,611 -- 2,592,611
Shares issued
in connection
with exercise
of stock
options or DRIP 401,645 251,391 110,820 653,036 784,215
---------------------------------------------------------------------
PRO FORMA DISCLOSURES EXCLUDING THE EFFECTS OF THE CHANGE IN THE
VALUATION OF FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE AND
GOODWILL WRITE-OFF
NET INCOME
(LOSS) from
above $ (52,305)$ 3,834 $ 7,111 $ (48,471)$ 14,924
ADJUSTMENTS
FOR CHANGE
IN VALUATION
OF FINANCIAL
INSTRUMENTS
AND GOODWILL
WRITE-OFF
Change in
valuation of
financial
instruments
carried at
fair value (649) (823) 1,877 (1,472) 697
Goodwill
write-off 50,000 -- -- 50,000 --
Income tax
provision
(benefit)
related to
above items 234 296 (676) 530 (251)
---------- ---------- ---------- ---------- ----------
Above items,
net of income
tax provision
(benefit) 49,585 (527) 1,201 49,058 446
---------- ---------- ---------- ---------- ----------
NET INCOME
(LOSS) FROM
RECURRING
OPERATIONS $ (2,720)$ 3,307 $ 8,312 $ 587 $ 15,370
========== ========== ========== ========== ==========
Earnings (Loss)
per share
EXCLUDING the
effects of
change in
valuation of
financial
instruments
carried at
fair value and
goodwill
write-off
Basic $ (0.17)$ 0.21 $ 0.57 $ 0.04 $ 1.14
Diluted $ (0.17)$ 0.21 $ 0.56 $ 0.04 $ 1.12
FINANCIAL CONDITION
--------------------
(in thousands except shares and per share data)
Jun 30, 2008 Mar 31, 2008 Jun 30, 2007 Dec 31, 2007
----------- ----------- ----------- -----------
Restated(1)
ASSETS
------
Cash and due from
banks $ 91,953 $ 93,634 $ 81,366 $ 98,120
Federal funds and
interest-bearing
deposits 430 28,760 25,437 310
Securities - at
fair value 238,670 226,910 182,969 202,863
Securities - held
to maturity 55,612 55,647 48,196 53,516
Federal Home Loan
Bank stock 37,371 37,371 37,291 37,371
Loans receivable:
Held for sale 6,817 6,118 8,178 4,596
Held for portfolio 3,966,482 3,833,875 3,610,174 3,805,021
Allowance for
loan losses (58,570) (50,446) (43,248) (45,827)
----------- ----------- ----------- -----------
3,914,729 3,789,547 3,575,104 3,763,790
Accrued interest
receivable 22,890 23,795 24,885 24,980
Real estate owned
held for sale, net 11,390 7,572 1,700 1,867
Property and
equipment, net 97,928 98,808 87,327 98,098
Goodwill and other
intangibles, net 86,205 136,918 129,126 137,654
Bank-owned life
insurance 52,213 51,725 50,441 51,483
Other assets 26,953 21,538 25,207 22,606
----------- ----------- ----------- -----------
$ 4,636,344 $ 4,572,225 $ 4,269,049 $ 4,492,658
=========== =========== =========== ===========
LIABILITIES
-----------
Deposits:
Non-interest-
bearing $ 477,144 $ 486,201 $ 455,628 $ 484,251
Interest-bearing
transaction and
savings accounts 1,216,217 1,297,215 1,307,680 1,288,112
Interest-bearing
certificates 2,063,392 1,909,894 1,829,473 1,848,230
----------- ----------- ----------- -----------
3,756,753 3,693,310 3,592,781 3,620,593
Advances from
Federal Home Loan
Bank at fair value 182,496 155,405 33,826 167,045
Customer repurchase
agreements and
other borrowings 164,192 135,032 71,926 91,724
Junior subordinated
debentures at
fair value 101,358 105,516 98,419 113,270
Accrued expenses
and other
liabilities 37,438 39,263 51,792 47,989
Deferred
compensation 12,694 12,224 10,497 11,596
Deferred income
tax liability, net -- 38 -- 2,595
Income taxes
payable (1) -- 1,899 7,121 --
----------- ----------- ----------- -----------
4,254,931 4,142,687 3,866,362 4,054,812
STOCKHOLDERS' EQUITY
--------------------
Common stock (1) 299,425 292,061 281,279 300,486
Retained
earnings (1) 84,204 139,722 123,797 139,636
Other components of
stockholders'
equity (2,216) (2,245) (2,389) (2,276)
----------- ----------- ----------- -----------
381,413 429,538 402,687 437,846
----------- ----------- ----------- -----------
$ 4,636,344 $ 4,572,225 $ 4,269,049 $ 4,492,658
=========== =========== =========== ===========
Shares Issued:
Shares outstanding
at end of period 16,305,282 15,903,637 15,680,486 16,266,149
Less unearned
ESOP shares at
end of period 240,381 240,381 240,381 240,381
----------- ----------- ----------- -----------
Shares outstanding
at end of period
excluding unearned
ESOP shares 16,064,901 15,663,256 15,440,105 16,025,768
=========== =========== =========== ===========
Book value per
share (1) (2) $ 23.74 $ 27.42 $ 26.08 $ 27.32
Tangible book value
per share (1) (2)
(3) $ 18.38 $ 18.68 $ 17.72 $ 18.73
Consolidated Tier 1
leverage capital
ratio 8.80% 9.15% 9.67% 10.04%
(1) - Income taxes payable, common stock and retained earnings have
been restated to reflect adjustments related to the tax
treatment of certain elements of stock-based compensation.
(2) - 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 ESOP.
(3) - Tangible book value excludes goodwill, core deposit and other
intangibles.
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Jun 30, Mar 31, Jun 30, Dec 31,
2008 2008 2007 2007
---------- ---------- ---------- ----------
LOANS
(including loans
held for sale):
-----------------
Commercial real
estate $ 983,732 $ 899,333 $ 811,072 $ 882,523
Multifamily real
estate 145,016 163,110 174,315 165,886
Commercial
construction 103,009 75,849 87,821 74,123
Multifamily
construction 17,681 38,434 35,552 35,318
One- to
four-family
construction 540,718 571,720 654,558 613,779
Land and land
development 494,944 502,077 457,264 497,962
Commercial business 709,109 735,802 595,250 696,350
Agricultural business
including secured by
farmland 212,397 181,403 181,505 186,305
One- to four-family
real estate 511,611 456,199 445,585 445,222
Consumer 255,082 216,066 175,430 212,149
---------- ---------- ---------- ----------
Total loans
outstanding $3,973,299 $3,839,993 $3,618,352 $3,809,617
========== ========== ========== ==========
Restructured loans
performing under
their restructured
terms $ 7,771 $ 2,026 $ -- $ 2,750
========== ========== ========== ==========
Total delinquent loans $ 96,530 $ 85,927 $ 22,391 $ 69,031
========== ========== ========== ==========
Total delinquent
loans / Total loans
outstanding 2.43% 2.24% 0.62% 1.81%
LOANS BY GEOGRAPHIC CONCENTRATION AT
Jun 30,
2008 Washington Oregon Idaho Other Total
-------- ---------- ---------- ---------- ---------- ----------
Commercial
real
estate $ 731,519 $ 158,421 $ 83,629 $ 10,163 $ 983,732
Multifamily
real estate 127,617 10,219 3,726 3,454 145,016
Commercial
construc-
tion 72,758 23,943 5,940 368 103,009
Multifamily
construc-
tion 16,066 1,615 -- -- 17,681
One- to
four-family
construc-
tion 276,695 236,084 27,939 -- 540,718
Land and
land
development 235,486 179,746 79,712 -- 494,944
Commercial
business 521,004 90,654 81,373 16,078 709,109
Agricultural
business
including
secured by
farmland 89,886 49,910 71,629 972 212,397
One- to
four-family
real estate 437,383 47,043 23,710 3,475 511,611
Consumer 203,560 38,514 13,008 -- 255,082
---------- ---------- ---------- ---------- ----------
Total
loans
outstand-
ing $2,711,974 $ 836,149 $ 390,666 $ 34,510 $3,973,299
========== ========== ========== ========== ==========
Percent
of total
loans 68.3% 21.0% 9.8% 0.9% 100.0%
DETAIL OF LAND AND LAND DEVELOPMENT LOANS AT
Jun 30,
2008 Washington Oregon Idaho Other Total
-------- ---------- ---------- ---------- ---------- ----------
Residential
Acquisi-
tion &
devel-
opment $ 110,562 $ 121,380 $ 24,916 $ -- $ 256,858
Improved
lots 42,423 31,736 10,893 -- 85,052
Unimproved
land 39,918 12,245 30,403 -- 82,566
Commercial
& indus-
trial
Acquisi-
tion &
devel-
opment 2,590 9,999 226 -- 12,815
Improved
land 18,555 2,795 6,344 -- 27,694
Unimproved
land 21,438 1,591 6,930 -- 29,959
---------- ---------- ---------- ---------- ----------
Total
land &
land
develop-
ment
loans
outstand-
ing $ 235,486 $ 179,746 $ 79,712 $ -- $ 494,944
========== ========== ========== ========== ==========
ADDITIONAL INFORMATION ON DEPOSITS & OTHER BORROWINGS
-----------------------------------------------------
Jun 30, Mar 31, Jun 30, Dec 31,
BREAKDOWN OF DEPOSITS 2008 2008 2007 2007
--------------------- ---------- ---------- ---------- ----------
Non-interest-
bearing $ 477,144 $ 486,201 $ 455,628 $ 484,251
---------- ---------- ---------- ----------
Interest-bearing
checking 411,571 452,531 461,749 430,636
Regular savings
accounts 580,482 610,085 570,117 609,073
Money market accounts 224,164 234,599 275,814 248,403
---------- ---------- ---------- ----------
Interest-bearing
transaction &
savings accounts 1,216,217 1,297,215 1,307,680 1,288,112
---------- ---------- ---------- ----------
Three-month maturity
money market
certificates 163,980 174,957 176,107 165,693
Other certificates 1,899,412 1,734,937 1,653,366 1,682,537
---------- ---------- ---------- ----------
Interest-bearing
certificates 2,063,392 1,909,894 1,829,473 1,848,230
---------- ---------- ---------- ----------
Total deposits $3,756,753 $3,693,310 $3,592,781 $3,620,593
========== ========== ========== ==========
INCLUDED IN OTHER
BORROWINGS
-----------------
Customer repurchase
agreements / "Sweep
accounts" $ 91,192 $ 85,032 $ 69,726 $ 91,724
========== ========== ========== ==========
Washington Oregon Idaho Total
---------- ---------- ---------- ----------
GEOGRAPHIC
CONCENTRATION OF
DEPOSITS AT
Jun 30, 2008 $2,985,817 $ 514,784 $ 256,152 $3,756,753
----------------- ========== ========== ========== ==========
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Quarters Ended Six Months Ended
--------------------------- -----------------
Jun 30, Mar 31, Jun 30, Jun 30, Jun 30,
2008 2008 2007 2008 2007
------- ------- ------- ------- -------
CHANGE IN THE
ALLOWANCE FOR LOAN
LOSSES
--------------------
Balance, beginning
of period $50,446 $45,827 $36,299 $45,827 $35,535
Acquisitions /
(divestitures) -- -- 5,957 -- 5,957
Provision 15,000 6,500 1,400 21,500 2,400
Recoveries of loans
previously charged
off 255 144 231 399 895
Loans charged-off (7,131) (2,025) (639) (9,156) (1,539)
------- ------- ------- ------- -------
Net (charge-offs)
recoveries (6,876) (1,881) (408) (8,757) (644)
------- ------- ------- ------- -------
Balance, end of
period $58,570 $50,446 $43,248 $58,570 $43,248
======= ======= ======= ======= =======
Net charge-offs
(recoveries) /
Average loans
outstanding 0.18% 0.05% 0.01% 0.23% 0.02%
ALLOCATION OF ALLOWANCE FOR Jun 30, Mar 31, Jun 30, Dec 31,
LOAN LOSSES 2008 2008 2007 2007
--------------------------- ------- ------- ------- -------
Specific or allocated loss
allowance
Commercial real estate $ 4,518 $ 4,180 $ 5,905 $ 3,771
Multifamily real estate 524 587 939 934
Construction and land 19,991 11,117 14,490 7,569
One- to four-family real
estate 2,322 2,054 1,465 1,987
Commercial business 21,494 17,842 13,881 19,026
Agricultural business,
including secured by
farmland 1,634 1,397 2,796 1,419
Consumer 2,583 2,807 1,604 3,468
------- ------- ------- -------
Total allocated 53,066 39,984 41,080 38,174
Estimated allowance for
undisbursed commitments 543 599 327 330
Unallocated 4,961 9,863 1,841 7,323
------- ------- ------- -------
Total allowance for loan
losses $58,570 $50,446 $43,248 $45,827
======= ======= ======= =======
Allowance for loan losses /
Total loans outstanding 1.47% 1.31% 1.20% 1.20%
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Jun 30, Mar 31, Jun 30, Dec 31,
2008 2008 2007 2007
-------- -------- -------- --------
NON-PERFORMING ASSETS
---------------------
Loans on non-accrual
status
Secured by real
estate:
Commercial $ 5,907 $ 3,273 $ 3,557 $ 1,357
Multifamily -- -- -- 1,222
Construction and
land 70,340 44,192 1,690 33,432
One- to four-family 5,526 2,869 1,627 3,371
Commercial business 6,875 3,114 5,040 2,250
Agricultural business,
including secured
by farmland 265 386 987 436
Consumer -- 40 83 --
-------- -------- -------- --------
88,913 53,874 12,984 42,068
Loans more than 90 days
delinquent, still on
accrual
Secured by real estate:
Commercial -- -- -- --
Multifamily -- -- -- --
Construction and land -- -- -- --
One- to four-family 889 488 175 221
Commercial business -- -- 8 --
Agricultural business,
including secured
by farmland -- -- -- --
Consumer 116 73 10 94
-------- -------- -------- --------
1,005 561 193 315
-------- -------- -------- --------
Total non-performing
loans 89,918 54,435 13,177 42,383
Real estate owned (REO) /
Repossessed assets 11,397 7,579 1,712 1,885
-------- -------- -------- --------
Total non-performing
assets $101,315 $ 62,014 $ 14,889 $ 44,268
======== ======== ======== ========
Total non-performing
assets / Total assets 2.19% 1.36% 0.35% 0.99%
DETAIL & GEOGRAPHIC
CONCENTRATION OF
NON-PERFORMING
ASSETS AT
Jun 30, 2008 Washington Oregon Idaho Other Total
------------------- -------- -------- -------- -------- --------
Secured by real
estate:
Commercial $ 3,931 $ 991 $ 985 $ -- $ 5,907
Multifamily -- -- -- -- --
Construction and
land
One- to four-
family
construction 21,233 6,466 4,412 -- 32,111
Residential land
acquisition &
development 14,556 5,991 4,875 -- 25,422
Residential land
improved lots 4,062 945 1,354 -- 6,361
Residential land
unimproved 1,136 -- 5,310 -- 6,446
Commercial land
acquisition &
development -- -- -- -- --
Commercial land
improved -- -- -- -- --
Commercial land
unimproved -- -- -- -- --
-------- -------- -------- -------- --------
Total
construction
and land 40,987 13,402 15,951 -- 70,340
One- to four-family 6,140 103 172 -- 6,415
Commercial business 161 89 6,625 -- 6,875
Agricultural
business, including
secured by farmland 265 -- -- -- 265
Consumer 116 -- -- -- 116
-------- -------- -------- -------- --------
Total non-performing
loans 51,600 14,585 23,733 -- 89,918
Real estate owned
(REO) / Repossessed
assets 3,487 5,293 2,617 -- 11,397
-------- -------- -------- -------- --------
Total non-
performing
assets at end
of the period $ 55,087 $ 19,878 $ 26,350 $ -- $101,315
======== ======== ======== ======== ========
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
Quarters Ended Six Months Ended
---------------------------------- ----------------------
OPERATING Jun 30, Mar 31, Jun 30, Jun 30, Jun 30,
PERFORMANCE 2008 2008 2007 2008 2007
----------- --------- ---------- ---------- ---------- ----------
Restated(1) Restated(1)
Average
loans $3,917,563 $3,830,992 $3,413,095 $3,874,277 $3,193,662
Average
securities
and dep-
osits 336,662 312,596 302,971 324,605 313,318
Average non-
interest-
earning
assets 352,639 359,474 286,725 354,960 237,133
---------- ---------- ---------- ---------- ----------
Total
average
assets $4,606,864 $4,503,062 $4,002,791 $4,553,842 $3,744,113
========== ========== ========== ========== ==========
Average
deposits $3,719,748 $3,606,121 $3,302,750 $3,662,934 $3,043,663
Average
borrowings 419,280 411,560 278,366 415,421 335,856
Average non-
interest-
earning
liabilities 31,475 42,997 60,776 36,130 54,667
---------- ---------- ---------- ---------- ----------
Total
average
liabil-
ities 4,170,503 4,060,678 3,641,892 4,114,485 3,434,186
Total
average
stockholders'
equity 436,361 442,384 360,899 439,357 309,927
---------- ---------- ---------- ---------- ----------
Total
average
liabil-
ities and
equity $4,606,864 $4,503,062 $4,002,791 $4,553,842 $3,744,113
========== ========== ========== ========== ==========
Interest
rate yield
on loans 6.58% 7.15% 8.35% 6.86% 8.39%
Interest
rate yield
on secur-
ities and
deposits 4.72% 4.99% 4.45% 4.85% 4.49%
---------- ---------- ---------- ---------- ----------
Interest
rate
yield on
interest-
earning
assets 6.43% 6.98% 8.03% 6.70% 8.04%
---------- ---------- ---------- ---------- ----------
Interest
rate
expense on
deposits 2.98% 3.35% 3.93% 3.16% 3.97%
Interest
rate
expense on
borrowings 3.35% 4.42% 5.65% 3.88% 5.75%
---------- ---------- ---------- ---------- ----------
Interest
rate
expense on
interest-
bearing
liabilities 3.02% 3.46% 4.07% 3.24% 4.15%
---------- ---------- ---------- ---------- ----------
Interest
rate spread 3.41% 3.52% 3.96% 3.46% 3.89%
========== ========== ========== ========== ==========
Net interest
margin 3.50% 3.63% 4.11% 3.56% 4.04%
========== ========== ========== ========== ==========
Other
operating
income /
Average
assets 0.75% 0.73% 0.50% 0.74% 0.61%
Other
operating
expense /
Average
assets 7.44% 3.01% 3.14% 5.25% 3.09%
Efficiency
ratio
(other
operating
expense /
revenue) 186.84% 74.00% 72.63% 130.46% 70.30%
Return
(Loss) on
average
assets (4.57%) 0.34% 0.71% (2.14%) 0.80%
Return
(Loss) on
average
equity (48.21%) 3.49% 7.90% (22.19%) 9.71%
Return
(Loss) on
average
tangible
equity (2) (66.67%) 4.80% 10.31% (30.60%) 11.98%
Average
equity /
Average
assets 9.47% 9.82% 9.02% 9.65% 8.28%
(1) - Average non-interest-earning liabilities and average
stockholders' equity have been restated to reflect adjustments
related to the tax treatment of certain elements of stock-based
compensation.
(2) - Average tangible equity excludes goodwill, core deposit and
other intangibles.
---------------------------------------------------------------------
Operating performance for the periods presented excluding the effects
of change in valuation of financial instruments carried at fair
value and goodwill write-off
Other
operating
income
(loss)
EXCLUDING
change in
valuation
of financial
instruments
carried at
fair value
and goodwill
write-off /
Average
assets 0.70% 0.66% 0.69% 0.68% 0.65%
Other
operating
expense
EXCLUDING
goodwill
write-off /
Average
assets 3.08% 3.01% 3.14% 3.04% 3.09%
Efficiency
ratio (other
operating
expense /
revenue)
EXCLUDING
change in
valuation
of financial
instruments
carried at
fair value
and goodwill
write-off 78.34% 75.36% 69.60% 76.85% 69.70%
Return (Loss)
on average
assets
EXCLUDING
change in
valuation
of financial
instruments
carried at
fair value
and goodwill
write-off (0.24%) 0.30% 0.83% 0.03% 0.83%
Return (Loss)
on average
equity
EXCLUDING
change in
valuation
of financial
instruments
carried at
fair value
and goodwill
write-off (2.51%) 3.01% 9.24% 0.27% 10.00%
Return (Loss)
on average
tangible
equity
EXCLUDING
change in
valuation
of financial
instruments
carried at
fair value
and goodwill
write-off (3.47%) 4.14% 12.05% 0.37% 12.33%
CONTACT: Banner Corporation
D. Michael Jones, President and CEO
Lloyd W. Baker, CFO
(509) 527-3636
