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Banner Corp. Reports Operating Results (10-K)

March 11, 2011 | About:

10qk

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Banner Corp. (BANR) filed Annual Report for the period ended 2010-12-31.

Banner Corp. has a market cap of $267.1 million; its shares were traded at around $2.36 with and P/S ratio of 1.1. The dividend yield of Banner Corp. stocks is 1.6%.

Highlight of Business Operations:

Banner Corporation is a bank holding company incorporated in the State of Washington. We are primarily engaged in the business of planning, directing and coordinating the business activities of our wholly-owned subsidiaries, Banner Bank and Islanders Bank. Banner Bank is a Washington-chartered commercial bank that conducts business from its main office in Walla Walla, Washington and, as of December 31, 2010, its 86 branch offices and seven loan production offices located in Washington, Oregon and Idaho. Islanders Bank is also a Washington-chartered commercial bank that conducts business from three locations in San Juan County, Washington. Banner Corporation is subject to regulation by the Board of Governors of the Federal Reserve System (the Federal Reserve Board). Banner Bank and Islanders Bank (the Banks) are subject to regulation by the Washington State Department of Financial Institutions, Division of Banks and the Federal Deposit Insurance Corporation (the FDIC). As of December 31, 2010, we had total consolidated assets of $4.4 billion, net loans of $3.3 billion, total deposits of $3.6 billion and total stockholders equity of $511 million.

Weak economic conditions and ongoing strains in the financial and housing markets which accelerated throughout 2008 and generally continued in 2009 and 2010 have presented an unusually challenging environment for banks and their holding companies, including Banner Corporation. This has been particularly evident in our need to provide for credit losses during this period at significantly higher levels than our historical experience and has also adversely affected our net interest income and other operating revenues and expenses. As a result of these factors, for the year ended December 31, 2010, we had a net loss of $61.9 million which, after providing for the preferred stock dividend and related discount accretion, resulted in a net loss to common shareholders of $69.7 million, or ($1.03) per diluted share, compared to a net loss to common shareholders of $43.5 million, or ($2.33) per diluted share, for the year ended December 31, 2009. Our provision for loan losses was $70.0 million for the year ended December 31, 2010, compared to $109.0 million recorded in the prior year. Throughout the period 2008 through 2010, higher than historical provision for loan losses has been the most significant factor affecting our operating results and, while we are encouraged by the continuing reduction in our exposure to residential construction loans and the recent slowdown in the emergence of new problem assets, looking forward we anticipate our credit costs will remain elevated for a number of quarters. (See Note 6 of the Notes to the Consolidated Financial Statements, as well as “Asset Quality” below.) Although there have been indications that economic conditions are improving, the pace of recovery has been modest and uneven and the ongoing stress in the economy has been the most significant challenge impacting our recent operating results. As a result, like most financial institutions, our future operating results and financial performance will be significantly affected by the course of recovery from the recessionary downturn. However, improving our risk profile and aggressively managing problem assets is a primary focus in the current environment which we believe will lead to improved results in future periods.

Aside from the level of loan loss provision, our operating results depend primarily on our net interest income, which is the difference between interest income on interest-earning assets, consisting of loans and investment securities, and interest expense on interest-bearing liabilities, composed primarily of customer deposits and borrowings. Net interest income is primarily a function of our interest rate spread, which is the difference between the yield earned on interest-earning assets and the rate paid on interest-bearing liabilities, as well as a function of the average balances of interest-earning assets and interest-bearing liabilities. As more fully explained below, our net interest income before provision for loan losses increased by $13.2 million, or 9.1%, for the year ended December 31, 2010 to $157.8 million compared to $144.6 million for the prior year, primarily as a result of an expansion of our net interest spread and net interest margin due to a lower cost of funds. This trend to

Our net income also is affected by the level of our other operating income, including deposit fees and service charges, loan origination and servicing fees, and gains and losses on the sale of loans and securities, as well as our non-interest operating expenses and income tax provisions. In addition, our net income is affected by the net change in the value of certain financial instruments carried at fair value. (See Note 22 of the Notes to the Consolidated Financial Statements.) For the year ended December 31, 2010, we recorded a net gain of $1.7 million ($1.4 million after tax) in fair value adjustments compared to a net gain of $12.5 million ($8.0 million after tax) for the year ended December 31, 2009. Further, in 2010 we recorded a full valuation allowance for our net deferred tax assets, which resulted in an $18.0 million provision for income taxes for the year ended December 31, 2010 compared to a tax benefit of $27.1 million for the year ended December 31, 2009. That significant swing in our income tax provision somewhat masked a meaningful reduction in our pre-tax loss, which decreased to $43.9 million for the year ended December 31, 2010 compared to $62.8 million for the year ended December 31, 2009.

Secondary Offering of Common Stock: On June 30, 2010, the Company announced the initial closing of its offering of 75,000,000 shares of its common stock and the sale of an additional 3,500,000 shares pursuant to the partial exercise of the underwriters over-allotment option, at a price to the public of $2.00 per share. On July 2, 2010, the Company further announced the completion of this offering as the underwriters exercised their over-allotment option for an additional 7,139,000 shares, at a price to the public of $2.00 per share. Together with the 78,500,000 shares the Company issued on June 30, 2010 (including 3,500,000 shares issued pursuant to the underwriters initial exercise of their over-allotment option), the Company issued a total of 85,639,000 shares in the offering, resulting in net proceeds, after deducting underwriting discounts and commissions and offering expenses, of approximately $161.6 million.

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