BANR-06.30.2015-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015. |
OR
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[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ to ______________ |
Commission File Number 0-26584
BANNER CORPORATION
(Exact name of registrant as specified in its charter)
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Washington | | 91-1691604 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
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| 10 South First Avenue, Walla Walla, Washington 99362 | |
| (Address of principal executive offices and zip code) | |
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| Registrant's telephone number, including area code: (509) 527-3636 | |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |
| | | | | | | | Yes | [x] | | No | [ ] |
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). |
| | | | | | | | | | | | | | | | | | | Yes | [x] | | No | [ ] |
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. |
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Large accelerated filer [x] | Accelerated filer [ ] | Non-accelerated filer [ ] | Smaller reporting company [ ] |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | Yes | [ ] | | No | [x] |
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APPLICABLE ONLY TO CORPORATE ISSUERS |
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. |
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Title of class: | | As of July 31, 2015 |
Common Stock, $.01 par value per share | | 20,962,398 shares * |
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BANNER CORPORATION AND SUBSIDIARIES
Table of Contents
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PART I – FINANCIAL INFORMATION | |
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Item 1 – Financial Statements. The Unaudited Condensed Consolidated Financial Statements of Banner Corporation and Subsidiaries filed as a part of the report are as follows: | |
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Consolidated Statements of Financial Condition as of June 30, 2015 and December 31, 2014 | |
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Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2015 and 2014 | |
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Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2015 and 2014 | |
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Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2015 and the Year Ended December 31, 2014 | |
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Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014 | |
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Selected Notes to the Consolidated Financial Statements | |
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Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations | |
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Executive Overview | |
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Comparison of Financial Condition at June 30, 2015 and December 31, 2014 | |
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Comparison of Results of Operations for the Three and Six Months Ended June 30, 2015 and 2014 | |
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Asset Quality | |
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Liquidity and Capital Resources | |
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Capital Requirements | |
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Item 3 – Quantitative and Qualitative Disclosures About Market Risk | |
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Market Risk and Asset/Liability Management | |
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Sensitivity Analysis | |
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Item 4 – Controls and Procedures | |
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PART II – OTHER INFORMATION | |
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Item 1 – Legal Proceedings | |
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Item 1A – Risk Factors | |
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Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds | |
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Item 3 – Defaults upon Senior Securities | |
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Item 4 – Mine Safety Disclosures | |
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Item 5 – Other Information | |
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Item 6 – Exhibits | |
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SIGNATURES | |
Special Note Regarding Forward-Looking Statements
Certain matters in this report on Form 10-Q contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, liquidity, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future economic performance and projections of financial items. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated or implied by our forward-looking statements, including, but not limited to: expected revenues, cost savings, synergies and other benefits from the merger of Banner Bank and Siuslaw Bank and of the proposed merger of Banner Bank and AmericanWest Bank ("AmericanWest") might not be realized within the expected time frames or at all and costs or difficulties relating to integration matters, including but not limited to customers, systems and employee retention, might be greater than expected; the requisite regulatory approvals for the AmericanWest transaction might not be obtained; the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets and may lead to increased losses and non-performing assets, and may result in our allowance for loan losses not being adequate to cover actual losses and require us to materially increase our reserves; changes in economic conditions in general and in Washington, Idaho, Oregon, Utah and California in particular; changes in the levels of general interest rates and the relative differences between short and long-term interest rates, loan and deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; secondary market conditions for loans and our ability to sell loans in the secondary market; results of examinations of us by the Board of Governors of the Federal Reserve System (the Federal Reserve Board) and of our bank subsidiaries by the Federal Deposit Insurance Corporation (the FDIC), the Washington State Department of Financial Institutions, Division of Banks (the Washington DFI) or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, institute an informal or formal enforcement action against us or any of our bank subsidiaries which could require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds, or maintain or increase deposits, or impose additional requirements and restrictions on us, any of which could adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules, including changes related to Basel III; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the implementing regulations; our ability to attract and retain deposits; increases in premiums for deposit insurance; our ability to control operating costs and expenses; the use of estimates in determining fair value of certain of our assets and liabilities, which estimates may prove to be incorrect and result in significant changes in valuation; difficulties in reducing risk associated with the loans on our balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force and potential associated charges; the failure or security breach of computer systems on which we depend; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to implement our business strategies; future goodwill impairment due to changes in our business, changes in market conditions, or other factors; our ability to manage loan delinquency rates; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; our ability to pay dividends on our common stock and interest or principal payments on our junior subordinated debentures; 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 including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; the economic impact of war or any terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and other risks detailed from time to time in our filings with the Securities and Exchange Commission. Any forward-looking statements are based upon management’s beliefs and assumptions at the time they are made. We do not undertake and specifically disclaim any obligation to update any forward-looking statements included in this report or the reasons why actual results could differ from those contained in such statements whether as a result of new information, future events or otherwise. These risks could cause our actual results to differ materially from those expressed in any forward-looking statements by, or on behalf of, us. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur, and you should not put undue reliance on any forward-looking statements.
As used throughout this report, the terms “we,” “our,” “us,” or the “Company” refer to Banner Corporation and its consolidated subsidiaries, unless the context otherwise requires.
BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited) (In thousands, except shares)
June 30, 2015 and December 31, 2014 |
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ASSETS | June 30 2015 |
| | December 31 2014 |
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Cash and due from banks | $ | 85,598 |
| | $ | 71,077 |
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Interest bearing deposits | 98,376 |
| | 54,995 |
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Total cash and cash equivalents | 183,974 |
| | 126,072 |
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Securities—trading, amortized cost $37,055 and $47,480, respectively | 32,404 |
| | 40,258 |
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Securities—available-for-sale, amortized cost $387,521 and $411,424, respectively | 387,876 |
| | 411,021 |
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Securities—held-to-maturity, fair value $137,267 and $137,608, respectively | 132,197 |
| | 131,258 |
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Federal Home Loan Bank (FHLB) stock | 6,120 |
| | 27,036 |
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Loans receivable: | | | |
Held for sale | 1,154 |
| | 2,786 |
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Held for portfolio | 4,245,322 |
| | 3,831,034 |
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Allowance for loan losses | (77,329 | ) | | (75,907 | ) |
| 4,169,147 |
| | 3,757,913 |
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Accrued interest receivable | 16,792 |
| | 15,279 |
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Real estate owned (REO), held for sale, net | 6,105 |
| | 3,352 |
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Property and equipment, net | 101,141 |
| | 91,185 |
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Goodwill and other intangibles, net | 26,891 |
| | 2,831 |
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Bank-owned life insurance (BOLI) | 71,744 |
| | 63,759 |
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Deferred tax assets, net | 23,680 |
| | 23,871 |
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Other assets | 36,187 |
| | 29,328 |
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| $ | 5,194,258 |
| | $ | 4,723,163 |
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LIABILITIES | | | |
Deposits: | | | |
Non-interest-bearing | $ | 1,484,315 |
| | $ | 1,298,866 |
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Interest-bearing transaction and savings accounts | 2,047,050 |
| | 1,829,568 |
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Interest-bearing certificates | 765,780 |
| | 770,516 |
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| 4,297,145 |
| | 3,898,950 |
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Advances from FHLB at fair value | 236 |
| | 32,250 |
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Other borrowings | 94,523 |
| | 77,185 |
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Junior subordinated debentures at fair value (issued in connection with Trust Preferred Securities) | 84,694 |
| | 78,001 |
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Accrued expenses and other liabilities | 36,131 |
| | 37,082 |
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Deferred compensation | 20,879 |
| | 16,807 |
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| 4,533,608 |
| | 4,140,275 |
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COMMITMENTS AND CONTINGENCIES (Note 15) |
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STOCKHOLDERS’ EQUITY | | | |
Preferred stock - $0.01 par value per share, 500,000 shares authorized; no shares outstanding at June 30, 2015 and December 31, 2014 | — |
| | — |
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Common stock and paid in capital - $0.01 par value per share, 50,000,000 shares authorized; 20,970,681 shares issued and outstanding at June 30, 2015; 19,571,548 shares issued and outstanding at December 31, 2014 | 628,327 |
| | 568,882 |
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Common stock (non-voting) - $0.01 par value per share, 5,000,000 shares authorized; no shares issued and outstanding at June 30, 2015; no shares issued and outstanding at December 31, 2014 | — |
| | — |
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Retained earnings | 32,096 |
| | 14,264 |
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Carrying value of shares held in trust for stock related compensation plans | (6,993 | ) | | (6,669 | ) |
Liability for common stock issued to deferred, stock related, compensation plans | 6,993 |
| | 6,669 |
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Accumulated other comprehensive income (loss) | 227 |
| | (258 | ) |
| 660,650 |
| | 582,888 |
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| $ | 5,194,258 |
| | $ | 4,723,163 |
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See Selected Notes to the Consolidated Financial Statements
BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In thousands except for per share amounts)
For the Three and Six Months Ended June 30, 2015 and 2014
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| | | | | | | | | | | | | | | |
| Three Months Ended June 30 | | Six Months Ended June 30 |
| 2015 |
| | 2014 |
| | 2015 |
| | 2014 |
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INTEREST INCOME: | | | | | | | |
Loans receivable | $ | 51,078 |
| | $ | 43,199 |
| | $ | 97,443 |
| | $ | 84,942 |
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Mortgage-backed securities | 1,275 |
| | 1,446 |
| | 2,302 |
| | 2,917 |
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Securities and cash equivalents | 1,723 |
| | 1,895 |
| | 3,400 |
| | 3,787 |
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| 54,076 |
| | 46,540 |
| | 103,145 |
| | 91,646 |
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INTEREST EXPENSE: | | | | | | | |
Deposits | 1,768 |
| | 1,910 |
| | 3,501 |
| | 3,874 |
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FHLB advances | 3 |
| | 51 |
| | 20 |
| | 90 |
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Other borrowings | 48 |
| | 45 |
| | 91 |
| | 89 |
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Junior subordinated debentures | 800 |
| | 726 |
| | 1,541 |
| | 1,446 |
|
| 2,619 |
| | 2,732 |
| | 5,153 |
| | 5,499 |
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Net interest income before provision for loan losses | 51,457 |
| | 43,808 |
| | 97,992 |
| | 86,147 |
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PROVISION FOR LOAN LOSSES | — |
| | — |
| | — |
| | — |
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Net interest income | 51,457 |
| | 43,808 |
| | 97,992 |
| | 86,147 |
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OTHER OPERATING INCOME: | | | | | | | |
Deposit fees and other service charges | 9,563 |
| | 7,346 |
| | 17,689 |
| | 13,947 |
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Mortgage banking operations | 4,703 |
| | 2,600 |
| | 8,812 |
| | 4,440 |
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Miscellaneous | 1,106 |
| | 821 |
| | 2,027 |
| | 1,632 |
|
| 15,372 |
| | 10,767 |
| | 28,528 |
| | 20,019 |
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Gain (loss) on sale of securities | (28 | ) | | — |
| | (537 | ) | | 35 |
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Net change in valuation of financial instruments carried at fair value | 797 |
| | 464 |
| | 1,847 |
| | 209 |
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Acquisition bargain purchase gain | — |
| | 9,079 |
| | — |
| | 9,079 |
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Total other operating income | 16,141 |
| | 20,310 |
| | 29,838 |
| | 29,342 |
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OTHER OPERATING EXPENSES: | | | | | | | |
Salary and employee benefits | 26,744 |
| | 22,330 |
| | 51,031 |
| | 43,486 |
|
Less capitalized loan origination costs | (3,787 | ) | | (3,282 | ) | | (6,625 | ) | | (5,477 | ) |
Occupancy and equipment | 6,357 |
| | 5,540 |
| | 12,363 |
| | 11,236 |
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Information/computer data services | 2,273 |
| | 1,918 |
| | 4,526 |
| | 3,853 |
|
Payment and card processing expenses | 3,742 |
| | 2,746 |
| | 6,758 |
| | 5,261 |
|
Professional services | 721 |
| | 1,109 |
| | 1,536 |
| | 2,115 |
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Advertising and marketing | 2,198 |
| | 1,370 |
| | 3,808 |
| | 2,425 |
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Deposit insurance | 625 |
| | 637 |
| | 1,192 |
| | 1,213 |
|
State/municipal business and use taxes | 455 |
| | 388 |
| | 908 |
| | 547 |
|
REO operations | 167 |
| | (109 | ) | | 191 |
| | (70 | ) |
Amortization of core deposit intangibles | 367 |
| | 450 |
| | 983 |
| | 929 |
|
Miscellaneous | 3,987 |
| | 3,359 |
| | 7,445 |
| | 6,473 |
|
| 43,849 |
| | 36,456 |
| | 84,116 |
| | 71,991 |
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Acquisition-related costs | 3,885 |
| | 1,979 |
| | 5,533 |
| | 2,024 |
|
Total other operating expenses | 47,734 |
| | 38,435 |
| | 89,649 |
| | 74,015 |
|
Income before provision for income taxes | 19,864 |
| | 25,683 |
| | 38,181 |
| | 41,474 |
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PROVISION FOR INCOME TAXES | 6,615 |
| | 8,696 |
| | 12,798 |
| | 13,937 |
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NET INCOME | $ | 13,249 |
| | $ | 16,987 |
| | $ | 25,383 |
| | $ | 27,537 |
|
Earnings per common share: | | | | | | | |
Basic | $ | 0.64 |
| | $ | 0.88 |
| | $ | 1.25 |
| | $ | 1.42 |
|
Diluted | $ | 0.64 |
| | $ | 0.88 |
| | $ | 1.25 |
| | $ | 1.42 |
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Cumulative dividends declared per common share | $ | 0.18 |
| | $ | 0.18 |
| | $ | 0.36 |
| | $ | 0.36 |
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See Selected Notes to the Consolidated Financial Statements
BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) (In thousands)
For the Three and Six Months Ended June 30, 2015 and 2014
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30 | | Six Months Ended June 30 |
| 2015 |
| | 2014 |
| | 2015 |
| | 2014 |
|
NET INCOME | $ | 13,249 |
| | $ | 16,987 |
| | $ | 25,383 |
| | $ | 27,537 |
|
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAXES: | | | | | | | |
Unrealized holding gain (loss) on available-for-sale securities arising during the period | (1,400 | ) | | 2,330 |
| | 883 |
| | 4,836 |
|
Income tax benefit (expense) related to available-for-sale securities unrealized holding gain (loss) | 504 |
| | (845 | ) | | (318 | ) | | (1,747 | ) |
Reclassification for net gains on available-for-sale securities realized in earnings | (21 | ) | | — |
| | (125 | ) | | (34 | ) |
Income tax benefit related to available-for-sale securities realized gains | 8 |
| | — |
| | 45 |
| | 12 |
|
Other comprehensive income (loss) | (909 | ) | | 1,485 |
| | 485 |
| | 3,067 |
|
COMPREHENSIVE INCOME | $ | 12,340 |
| | $ | 18,472 |
| | $ | 25,868 |
| | $ | 30,604 |
|
See Selected Notes to the Consolidated Financial Statements
BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited) (In thousands, except for shares)
For the Six Months Ended June 30, 2015 and the Year Ended December 31, 2014
|
| | | | | | | | | | | | | | | | | | | | | | |
| Common Stock and Paid in Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) | | Unearned Restricted ESOP Shares | | Stockholders’ Equity |
| Shares | | Amount | | | |
Balance, January 1, 2014 | 19,543,769 |
| | $ | 569,028 |
| | $ | (25,714 | ) | | $ | (2,996 | ) | | $ | (1,987 | ) | | $ | 538,331 |
|
Net income | | | | | 54,070 |
| | | | | | 54,070 |
|
Other comprehensive income, net of income tax | | | | | | | 2,738 |
| | | | 2,738 |
|
Accrual of dividends on common stock ($0.54/share cumulative) | | | | | (14,092 | ) | | | | | | (14,092 | ) |
Redemption of unallocated shares upon termination of ESOP | (34,340 | ) | | (1,987 | ) | | | | | | 1,987 |
| | — |
|
Repurchase of shares upon termination of ESOP | (13,550 | ) | | (555 | ) | | | | | | | | (555 | ) |
Proceeds from issuance of common stock for stockholder reinvestment program | 3,170 |
| | 127 |
| | | | | | | | 127 |
|
Issuance of restricted stock and recognition of share-based compensation | 72,499 |
| | 2,269 |
| | | | | | | | 2,269 |
|
BALANCE, December 31, 2014 | 19,571,548 |
| | $ | 568,882 |
| | $ | 14,264 |
| | $ | (258 | ) | | $ | — |
| | $ | 582,888 |
|
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| | | | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2015 | 19,571,548 |
| | $ | 568,882 |
| | $ | 14,264 |
| | $ | (258 | ) | | $ | — |
| | $ | 582,888 |
|
Net income | | | | | 25,383 |
| | | | | | 25,383 |
|
Other comprehensive income, net of income tax | | | | | | | 485 |
| | | | 485 |
|
Accrual of dividends on common stock ($0.36/share cumulative) | | | | | (7,551 | ) | | | | | | (7,551 | ) |
Proceeds from issuance of common stock for stockholder reinvestment program | 810 |
| | 33 |
| | | | | | | | 33 |
|
Issuance of restricted stock and recognition of share-based compensation | 78,469 |
| | 1,313 |
| | | | | | | | 1,313 |
|
Issuance of shares for acquisitions | 1,319,854 |
| | 58,099 |
| | | | | | | | 58,099 |
|
BALANCE, June 30, 2015 | 20,970,681 |
| | $ | 628,327 |
| | $ | 32,096 |
| | $ | 227 |
| | $ | — |
| | $ | 660,650 |
|
See Selected Notes to the Consolidated Financial Statements
BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
For the Six Months Ended June 30, 2015 and 2014
|
| | | | | | | |
| Six Months Ended June 30 |
| 2015 |
| | 2014 |
|
OPERATING ACTIVITIES: | | | |
Net income | $ | 25,383 |
| | $ | 27,537 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation | 4,098 |
| | 4,053 |
|
Deferred income and expense, net of amortization | 1,307 |
| | 1,883 |
|
Amortization of core deposit intangibles | 983 |
| | 929 |
|
Loss (gain) on sale of securities | 537 |
| | (35 | ) |
Net change in valuation of financial instruments carried at fair value | (1,847 | ) | | (209 | ) |
Purchases of securities—trading | — |
| | (2,387 | ) |
Proceeds from sales of securities—trading | 2,485 |
| | 2,387 |
|
Principal repayments and maturities of securities—trading | 7,263 |
| | 4,702 |
|
Bargain purchase gain on acquisition | — |
| | (9,079 | ) |
Change in deferred taxes | (46 | ) | | 5,455 |
|
Increase (decrease) in current taxes payable | (982 | ) | | 9,562 |
|
Equity-based compensation | 1,313 |
| | 818 |
|
Increase in cash surrender value of BOLI | (880 | ) | | (858 | ) |
Gain on sale of loans, net of capitalized servicing rights | (5,548 | ) | | (2,528 | ) |
Gain on disposal of real estate held for sale and property and equipment | (225 | ) | | (453 | ) |
Provision for losses on real estate held for sale | 182 |
| | 37 |
|
Origination of loans held for sale | (289,311 | ) | | (160,625 | ) |
Proceeds from sales of loans held for sale | 296,490 |
| | 158,565 |
|
Net change in: | | | |
Other assets | (3,024 | ) | | (1,967 | ) |
Other liabilities | (1,394 | ) | | 2,946 |
|
Net cash provided from operating activities | 36,784 |
| | 40,733 |
|
INVESTING ACTIVITIES: | | | |
Purchases of securities—available-for-sale | (51,600 | ) | | (30,272 | ) |
Principal repayments and maturities of securities—available-for-sale | 45,548 |
| | 20,085 |
|
Proceeds from sales of securities—available-for-sale | 40,293 |
| | 28,207 |
|
Purchases of securities—held-to-maturity | (10,765 | ) | | (33,686 | ) |
Principal repayments and maturities of securities—held-to-maturity | 9,188 |
| | 2,603 |
|
Loan originations, net of principal repayments | (64,249 | ) | | (155,279 | ) |
Purchases of loans and participating interest in loans | (120,563 | ) | | (101,840 | ) |
Proceeds from sales of other loans | 17,212 |
| | 2,491 |
|
Net cash received from acquisitions | 78,599 |
| | 127,557 |
|
Purchases of property and equipment | (5,927 | ) | | (2,617 | ) |
Proceeds from sale of real estate held for sale, net | 2,249 |
| | 2,672 |
|
Proceeds from FHLB stock repurchase program | 21,453 |
| | 4,199 |
|
Other | (206 | ) | | (2,054 | ) |
Net cash used by investing activities | (38,768 | ) | | (137,934 | ) |
FINANCING ACTIVITIES: | | | |
Increase in deposits, net | 81,790 |
| | 88,907 |
|
Advances (repayments) of FHLB borrowings, net | (32,004 | ) | | 17,996 |
|
Increase in other borrowings, net | 17,338 |
| | 5,889 |
|
Cash dividends paid | (7,272 | ) | | (6,439 | ) |
Cash proceeds from issuance of stock for stockholder reinvestment plan | 34 |
| | 60 |
|
Net cash provided from financing activities | 59,886 |
| | 106,413 |
|
NET CHANGE IN CASH AND CASH EQUIVALENTS | 57,902 |
| | 9,212 |
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 126,072 |
| | 137,349 |
|
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 183,974 |
| | $ | 146,561 |
|
(Continued on next page)
BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited) (In thousands)
For the Six Months Ended June 30, 2015 and 2014
|
| | | | | | | |
| Six Months Ended June 30 |
| 2015 |
| | 2014 |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | |
Interest paid in cash | $ | 5,192 |
| | $ | 5,527 |
|
Taxes paid, net of refunds received in cash | 13,610 |
| | 292 |
|
NON-CASH INVESTING AND FINANCING TRANSACTIONS: | | | |
Loans, net of discounts, specific loss allowances and unearned income, transferred to real estate owned and other repossessed assets | 2,166 |
| | 2,885 |
|
ACQUISITIONS (Note 4): | | | |
Assets acquired | 370,306 |
| | 221,206 |
|
Liabilities assumed | 327,548 |
| | 212,127 |
|
See Selected Notes to the Consolidated Financial Statements
BANNER CORPORATION AND SUBSIDIARIES
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1: BASIS OF PRESENTATION AND CRITICAL ACCOUNTING POLICIES
The accompanying unaudited consolidated interim financial statements include the accounts of Banner Corporation (the Company or Banner), a bank holding company incorporated in the State of Washington and its wholly-owned subsidiaries, Banner Bank and Islanders Bank (the Banks).
These unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (SEC). In preparing these condensed consolidated financial statements, the Company has evaluated events and transactions subsequent to June 30, 2015 for potential recognition or disclosure. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. Certain reclassifications have been made to the 2014 Consolidated Financial Statements and/or schedules to conform to the 2015 presentation. These reclassifications may have affected certain ratios for the prior periods. The effect of these reclassifications is considered immaterial. All significant intercompany transactions and balances have been eliminated.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements. Various elements of the Company’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, management has identified several accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of Banner’s financial statements. These policies relate to (i) the methodology for the recognition of interest income, (ii) determination of the provision and allowance for loan and lease losses, (iii) the valuation of financial assets and liabilities recorded at fair value, including other-than-temporary impairment (OTTI) losses, (iv) the valuation of intangibles, such as goodwill, core deposit intangibles and mortgage servicing rights, (v) the valuation of or recognition of deferred tax assets and liabilities, and (vi) the application of acquisition accounting standards to business combinations including purchased credit-impaired loans. These policies and judgments, estimates and assumptions are described in greater detail in subsequent notes to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations (Critical Accounting Policies) in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC. There have been no significant changes in our application of accounting policies during the first six months of 2015.
The information included in this Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the SEC (2014 Form 10-K). Interim results are not necessarily indicative of results for a full year or any other interim period.
Note 2: RECENT DEVELOPMENTS AND SIGNIFICANT EVENTS
Proposed Acquisition of AmericanWest Bank
On November 5, 2014, Banner announced the execution of a definitive agreement to purchase Starbuck Bancshares, Inc. (Starbuck) the bank holding company of AmericanWest Bank (AmericanWest), a Washington state chartered commercial bank headquartered in Spokane, Washington, with 94 branches serving markets in Washington, Oregon, Idaho, California and Utah. The merger agreement provides that Starbuck will merge with and into a wholly-owned subsidiary of the Company. Immediately following the merger, Starbuck's wholly owned bank subsidiary, AmericanWest will merge with Banner Bank. At June 30, 2015, Starbuck had $4.6 billion in assets, $3.0 billion in net loans, $3.6 billion in deposits and equity of $594 million, including AmericanWest's recent acquisition of Greater Sacramento Bancorp which was completed on February 6, 2015. The merged banks will operate under the Banner Bank brand. Under the terms of the agreement, the aggregate consideration to be received by Starbuck equity holders will consist of a fixed amount of 13.23 million shares of Banner common stock and $130.0 million in cash. Upon completion of the transaction, such shares will represent an approximately 38.8% pro forma ownership interest in Banner. The merger is expected to close late in the third quarter or in the fourth quarter of 2015 and is subject to approval by regulatory agencies as well as other customary closing conditions. Upon completion of the AmericanWest merger, Banner Bank will have more than 190 locations in five western states, a significantly expanded customer base and meaningfully increased business opportunities.
Acquisition of Siuslaw Financial Group, Inc.
As of the close of business on March 6, 2015, the Company completed its acquisition of Siuslaw Financial Group (Siuslaw) and its subsidiary, Siuslaw Bank, an Oregon state chartered commercial bank with ten branches in Lane County, Oregon, including Eugene, Oregon. On that date Siuslaw was merged into Banner Corporation and Siuslaw Bank was merged into Banner Bank. The operating results produced by the ten branches acquired in the Siuslaw acquisition are included in Banner Bank's financial results beginning March 7, 2015 and the combined banks are operating under the Banner Bank name and brand. (See Note 4, Business Combinations, below in this Form 10-Q for additional information regarding the acquisition).
Note 3: ACCOUNTING STANDARDS RECENTLY ISSUED OR ADOPTED
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which creates Topic 606 and supersedes Topic 605, Revenue Recognition. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In general, the new guidance requires companies to use more judgment and make more estimates than under current guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. Under the terms of a proposed ASU, subsequently affirmed by FASB, the standard is effective for public entities for interim and annual periods beginning after December 15, 2017; early adoption is not permitted. For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. The Company is currently evaluating the provisions of ASU No. 2014-09 to determine the potential impact the standard will have on the Company’s Consolidated Financial Statements.
Customer's Accounting for Fees Paid in a Cloud Computing Arrangement
In April 2015, FASB issued ASU No. 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. The amendments in this ASU provide guidance to customers in cloud computing arrangements about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. This ASU is not expected to have a material effect on the Company's Consolidated Financial Statements.
Note 4: BUSINESS COMBINATIONS
Acquisition of Siuslaw Financial Group, Inc.
Effective as of the close of business on March 6, 2015, the Company completed the purchase of Siuslaw, the holding company of Siuslaw Bank. Siuslaw merged with and into the Company and, immediately following, Siuslaw Bank merged with and into Banner Bank. Siuslaw shareholders received 0.32231 shares of the Company's common stock and $1.41622 in cash in exchange for each share of Siuslaw common stock. The acquisition provided $370 million in assets, $316 million in deposits and $247 million in loans.
The assets acquired and liabilities assumed in the purchase have been accounted for under the acquisition method of accounting and, accordingly, the assets and liabilities, both tangible and intangible, were recorded at their estimated fair value as of the acquisition date. The application of the acquisition method of accounting resulted in recognition of a core deposit intangible asset of $3.9 million and goodwill of $21.1 million. The acquired core deposit intangible has been determined to have a useful life of approximately eight years and will be amortized on an accelerated basis. Goodwill is not amortized but will be evaluated for impairment on an annual basis or more often if circumstances dictate to determine if the carrying value remains appropriate. Goodwill will not be deductible for income tax purposes as the acquisition is accounted for as a tax-free exchange for tax purposes.
The following table presents a summary of the consideration paid and the estimated fair values as of the acquisition date for each major class of assets acquired and liabilities assumed (in thousands):
|
| | | | | | | |
| Siuslaw |
| March 6, 2015 |
Consideration to Siuslaw shareholders: | | | |
Cash paid | | | $ | 5,806 |
|
Fair value of common shares issued | | | 58,100 |
|
Total consideration | | | 63,906 |
|
Fair value of assets acquired: | | | |
Cash and cash equivalents | $ | 84,405 |
| | |
Securities—available-for-sale | 12,865 |
| | |
Loans receivable (contractual amount of $252.2 million) | 247,098 |
| | |
Real estate owned, held for sale | 2,525 |
| | |
Property and equipment | 8,127 |
| | |
Core deposit intangible | 3,895 |
| | |
Other assets | 11,391 |
| | |
Total assets acquired | 370,306 |
| | |
Fair value of liabilities assumed: | | | |
Deposits | 316,406 |
| | |
Junior subordinated debentures | 5,959 |
| | |
Other liabilities | 5,183 |
| | |
Total liabilities assumed | 327,548 |
| | |
Net assets acquired | | | 42,758 |
|
Goodwill | | | $ | 21,148 |
|
Acquired goodwill represents the premium the Company paid over the fair value of the net tangible and intangible assets acquired. The Company paid this premium for a number of reasons, including growing the Company's customer base, acquiring assembled workforces, and expanding its presence in new markets. See Note 9, Goodwill, Other Intangible Assets and Mortgage Servicing Rights for the accounting for goodwill and other intangible assets.
Amounts recorded are preliminary estimates of fair value. Additional adjustments to the purchase price allocation may be required and would most likely involve loans or property and equipment. The primary reason for the acquisition was to continue the Company's growth strategy, including expanding our geographic footprint in markets throughout the Northwest. As of March 6, 2015, the unpaid principal balance on purchased non-credit-impaired loans was $244.2 million. The fair value of the purchased non-credit-impaired loans was $241.4 million, resulting in a discount of $2.8 million recorded on these loans.
The following table presents the acquired purchased credit-impaired loans as of the acquisition date (in thousands):
|
| | | | |
| | Siuslaw |
| | March 6, 2015 |
Acquired purchased credit-impaired loans: | | |
Contractually required principal and interest payments | | $ | 11,134 |
|
Nonaccretable difference | | (3,238 | ) |
Cash flows expected to be collected | | 7,896 |
|
Accretable yield | | (2,239 | ) |
Fair value of purchased credit-impaired loans | | $ | 5,657 |
|
The following table presents certain unaudited pro forma information for illustrative purposes only, for the three and six months ended June 30, 2015 and 2014 as if Siuslaw had been acquired on January 1, 2014. This unaudited estimated pro forma financial information combines the historical results of Siuslaw with the Company’s consolidated historical results. The pro forma information is not indicative of what would have occurred had the acquisition actually occurred on January 1, 2014. In particular, no adjustments have been made to eliminate the impact of other-than-temporary impairment losses and losses recognized on the sale of securities that may not have been necessary had the investment securities been recorded at fair value as of January 1, 2014. The unaudited pro forma information does not consider any changes to the provision for credit losses resulting from recording loan assets at fair value. Additionally, Banner expects to achieve further operating cost savings and other business synergies, including revenue growth, as a result of the acquisition which are not reflected in the pro forma amounts that follow. As a result, actual amounts would have differed from the unaudited pro forma information presented (in thousands except per share amounts):
|
| | | | | | | | | | | | | | | |
| Pro Forma |
| Three Months Ended June 30 | | Six Months Ended June 30 |
| 2015 |
| | 2014 |
| | 2015 |
| | 2014 |
|
Total revenues (net interest income plus non-interest income | $ | 67,598 |
| | $ | 68,671 |
| | $ | 130,762 |
| | $ | 124,500 |
|
Net income | $ | 13,249 |
| | $ | 17,977 |
| | $ | 25,767 |
| | $ | 28,526 |
|
Earnings per share - basic | $ | 0.64 |
| | $ | 0.87 |
| | $ | 1.24 |
| | $ | 1.38 |
|
Earnings per share - diluted | $ | 0.64 |
| | $ | 0.87 |
| | $ | 1.24 |
| | $ | 1.38 |
|
The operating results of the Company include the operating results produced by the acquired assets and assumed liabilities of Siuslaw for the period March 7, 2015 to June 30, 2015. Disclosure of the amount of Siuslaw’s revenue and net income (excluding integration costs) included in the Company’s Consolidated Statements of Operations is impracticable due to the integration of the operations and accounting for this acquisition.
Acquisition of Six Oregon Branches
Effective as of the close of business on June 20, 2014, Banner Bank completed the purchase of six branches from Umpqua Bank, successor to Sterling Savings Bank (the Branch Acquisition). Five of the six branches are located in Coos County, Oregon and the sixth branch is located in Douglas County, Oregon. The purchase provided $212 million in deposit accounts, $88 million in loans, and $3 million in branch properties. Banner Bank received $128 million in cash from the transaction.
The assets acquired and liabilities assumed in the purchase have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the acquisition date. The application of the acquisition method of accounting resulted in recognition of a core deposit intangible asset of $2.4 million and an acquisition bargain purchase gain of $9.1 million. The bargain purchase gain represents the excess fair value of the net assets acquired over the purchase price, including fair value of liabilities assumed. The bargain purchase gain consisted primarily of a $7.0 million discount on the assets acquired in this required branch divestiture combined with a $2.4 million core deposit intangible, net of approximately $300,000 in other fair value adjustments. The acquired core deposit intangible was determined to have a useful life of approximately eight years and is being amortized on an accelerated basis.
The following table displays the fair value as of the acquisition date for each major class of assets acquired and liabilities assumed (in thousands):
|
| | | | | | | |
| Branch Acquisition |
| June 20, 2014 |
Total consideration | | | $ | — |
|
Fair value of assets acquired: | | | |
Cash and cash equivalents | $ | 127,557 |
| | |
Loans receivable (contractual amount of $88.3 million) | 87,923 |
| | |
Property and equipment | 3,079 |
| | |
Core deposit intangible | 2,372 |
| | |
Other assets | 275 |
| | |
Total assets acquired | 221,206 |
| | |
| | | |
Fair value of liabilities assumed: | | | |
Deposits | 212,085 |
| | |
Other liabilities | 42 |
| | |
Total liabilities assumed | 212,127 |
| | |
Net assets acquired | | | $ | 9,079 |
|
Acquisition bargain purchase gain | | | $ | (9,079 | ) |
The primary reason for the Branch Acquisition was to continue the Company's growth strategy, including expanding its geographic footprint in markets throughout the Northwest. As of June 20, 2014, the transaction had no remaining contingencies. The operating results of the Company include the operating results produced by the Branch Acquisition since June 21, 2014. Pro forma results of operations for the six months ended June 30, 2015 and 2014, as if the Branch Acquisition had occurred on January 1, 2014, have not been presented because historical financial information was not available. There were no purchased credit-impaired loans acquired in connection with the Branch Acquisition.
Acquisition Related Costs
The following table presents the key components of acquisition related costs in connection with the Branch Acquisition, the acquisition of Siuslaw, and the proposed acquisition of AmericanWest for the three and six months ended June 30, 2015 and 2014 (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30 | | Six Months Ended June 30 |
| 2015 | | 2014 | | 2015 | | 2014 |
Acquisition-related costs recognized in other operating expenses: | | | | | | | |
Personnel severance/retention fees | $ | 216 |
| | $ | — |
| | $ | 216 |
| | $ | — |
|
Non-capitalized equipment and repairs | 26 |
| | 29 |
| | 50 |
| | 29 |
|
Client communications | 4 |
| | 236 |
| | 70 |
| | 238 |
|
Information/computer data services | 466 |
| | 632 |
| | 506 |
| | 632 |
|
Payment and processing expenses | — |
| | 271 |
| | — |
| | 271 |
|
Professional services | 2,946 |
| | 587 |
| | 4,226 |
| | 619 |
|
Miscellaneous | 227 |
| | 224 |
| | 465 |
| | 235 |
|
| $ | 3,885 |
| | $ | 1,979 |
| | $ | 5,533 |
| | $ | 2,024 |
|
Note 5: INTEREST-BEARING DEPOSITS AND SECURITIES
The following table sets forth additional detail regarding our interest-bearing deposits and securities at the dates indicated (includes securities—trading, available-for-sale and held-to-maturity, all at carrying value) (in thousands):
|
| | | | | | | |
| June 30, 2015 | | December 31, 2014 |
Interest-bearing deposits | $ | 98,376 |
| | $ | 54,995 |
|
U.S. Government and agency obligations | 14,374 |
| | 33,421 |
|
Municipal bonds: |
|
| |
|
|
Taxable | 29,172 |
| | 29,566 |
|
Tax exempt | 153,105 |
| | 141,853 |
|
Total municipal bonds | 182,277 |
| | 171,419 |
|
Corporate bonds | 19,406 |
| | 25,936 |
|
Mortgage-backed or related securities: |
|
| |
|
|
One- to four-family residential agency guaranteed | 64,731 |
| | 58,825 |
|
One- to four-family residential other | 548 |
| | 713 |
|
Multifamily agency guaranteed | 229,278 |
| | 256,272 |
|
Multifamily other | 10,551 |
| | 10,497 |
|
Total mortgage-backed or related securities | 305,108 |
| | 326,307 |
|
Asset-backed securities: |
|
| |
|
|
Student Loan Marketing Association (SLMA) | 15,533 |
| | 15,629 |
|
Other asset-backed securities | 15,719 |
| | 9,766 |
|
Total asset-backed securities | 31,252 |
| | 25,395 |
|
Equity securities (excludes FHLB stock) | 60 |
| | 59 |
|
Total securities | 552,477 |
| | 582,537 |
|
Total interest-bearing deposits and securities | $ | 650,853 |
| | $ | 637,532 |
|
Securities—Trading: The amortized cost and estimated fair value of securities—trading at June 30, 2015 and December 31, 2014 are summarized as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | |
| June 30, 2015 | | December 31, 2014 |
| Amortized Cost | | Fair Value | | Percent of Total | | Amortized Cost | | Fair Value | | Percent of Total |
U.S. Government and agency obligations | $ | 1,340 |
| | $ | 1,492 |
| | 4.6 | % | | $ | 1,340 |
| | $ | 1,505 |
| | 3.7 | % |
Municipal bonds: |
|
| |
|
| | | | | | | | |
Tax exempt | 1,403 |
| | 1,426 |
| | 4.4 |
| | 1,405 |
| | 1,440 |
| | 3.6 |
|
Corporate bonds | 18,735 |
| | 12,571 |
| | 38.8 |
| | 27,995 |
| | 19,118 |
| | 47.5 |
|
Mortgage-backed or related securities: |
|
| |
|
| | | | | | | | |
One- to four-family residential agency guaranteed | 7,001 |
| | 7,556 |
| | 23.3 |
| | 8,077 |
| | 8,726 |
| | 21.7 |
|
Multifamily agency guaranteed | 8,562 |
| | 9,299 |
| | 28.7 |
| | 8,649 |
| | 9,410 |
| | 23.4 |
|
Total mortgage-backed or related securities | 15,563 |
| | 16,855 |
| | 52.0 |
| | 16,726 |
| | 18,136 |
| | 45.1 |
|
Equity securities | 14 |
| | 60 |
| | 0.2 |
| | 14 |
| | 59 |
| | 0.1 |
|
| $ | 37,055 |
| | $ | 32,404 |
| | 100.0 | % | | $ | 47,480 |
| | $ | 40,258 |
| | 100.0 | % |
There were two sales of securities—trading totaling $2.5 million with a resulting net book loss of $690,000; during the six months ended June 30, 2015; however, the book loss was offset by the reversal of fair value allowances totaling $1.2 million resulting in net gains on these securities sales of $550,000. There were three sales of securities—trading totaling $2.4 million with a resulting net gain of $1,000 during the six months ended June 30, 2014. The Company did not recognize any OTTI charges or recoveries on securities—trading during the six months ended June 30, 2015 or 2014. There were no securities—trading on nonaccrual status at June 30, 2015 or 2014.
The amortized cost and estimated fair value of securities—trading at June 30, 2015 and December 31, 2014, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because some securities may be called or prepaid with or without call or prepayment penalties.
|
| | | | | | | | | | | | | | | |
| June 30, 2015 | | December 31, 2014 |
| Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| | | | | | | |
Maturing in one year or less | $ | 1,070 |
| | $ | 1,083 |
| | $ | 1,071 |
| | $ | 1,094 |
|
Maturing after one year through five years | 9,205 |
| | 9,927 |
| | 6,595 |
| | 7,097 |
|
Maturing after five years through ten years | 3,806 |
| | 4,181 |
| | 7,035 |
| | 7,727 |
|
Maturing after ten years through twenty years | 4,298 |
| | 4,582 |
| | 11,196 |
| | 10,083 |
|
Maturing after twenty years | 18,662 |
| | 12,571 |
| | 21,569 |
| | 14,198 |
|
| 37,041 |
| | 32,344 |
| | 47,466 |
| | 40,199 |
|
Equity securities | 14 |
| | 60 |
| | 14 |
| | 59 |
|
| $ | 37,055 |
| | $ | 32,404 |
| | $ | 47,480 |
| | $ | 40,258 |
|
Securities—Available-for-Sale: The amortized cost and estimated fair value of securities—available-for-sale at June 30, 2015 and December 31, 2014 are summarized as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | |
| June 30, 2015 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Percent of Total |
U.S. Government and agency obligations | $ | 11,829 |
| | $ | 1 |
| | $ | (74 | ) | | $ | 11,756 |
| | 3.0 | % |
Municipal bonds: |
|
| |
|
| |
|
| |
|
| | |
Taxable | 16,483 |
| | 70 |
| | (15 | ) | | 16,538 |
| | 4.3 |
|
Tax exempt | 42,646 |
| | 82 |
| | (212 | ) | | 42,516 |
| | 10.9 |
|
Total municipal bonds | 59,129 |
| | 152 |
| | (227 | ) | | 59,054 |
| | 15.2 |
|
Corporate bonds | 5,000 |
| | 35 |
| | — |
| | 5,035 |
| | 1.3 |
|
Mortgage-backed or related securities: |
|
| |
|
| |
|
| |
|
| | |
One- to four-family residential agency guaranteed | 55,178 |
| | 699 |
| | (459 | ) | | 55,418 |
| | 14.3 |
|
One- to four-family residential other | 518 |
| | 30 |
| | — |
| | 548 |
| | 0.2 |
|
Multifamily agency guaranteed | 214,102 |
| | 804 |
| | (644 | ) | | 214,262 |
| | 55.2 |
|
Multifamily other | 10,453 |
| | 98 |
| | — |
| | 10,551 |
| | 2.7 |
|
Total mortgage-backed or related securities | 280,251 |
| | 1,631 |
| | (1,103 | ) | | 280,779 |
| | 72.4 |
|
Asset-backed securities: |
|
| |
|
| |
|
| |
|
| | |
SLMA | 15,419 |
| | 114 |
| | — |
| | 15,533 |
| | 4.0 |
|
Other asset-backed securities | 15,893 |
| | — |
| | (174 | ) | | 15,719 |
| | 4.1 |
|
Total asset-backed securities | 31,312 |
| | 114 |
| | (174 | ) | | 31,252 |
| | 8.1 |
|
| $ | 387,521 |
| | $ | 1,933 |
| | $ | (1,578 | ) | | $ | 387,876 |
| | 100.0 | % |
| | | | | | | | | |
| December 31, 2014 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Percent of Total |
U.S. Government and agency obligations | $ | 29,973 |
| | $ | 8 |
| | $ | (211 | ) | | $ | 29,770 |
| | 7.2 | % |
Municipal bonds: | | | | | | | | | |
Taxable | 16,565 |
| | 65 |
| | (52 | ) | | 16,578 |
| | 4.0 |
|
Tax exempt | 33,394 |
| | 125 |
| | (69 | ) | | 33,450 |
| | 8.2 |
|
Total municipal bonds | 49,959 |
| | 190 |
| | (121 | ) | | 50,028 |
| | 12.2 |
|
Corporate bonds | 5,000 |
| | 18 |
| | — |
| | 5,018 |
| | 1.2 |
|
Mortgage-backed or related securities: | | | | | | | | | |
One- to four-family residential agency guaranteed | 48,001 |
| | 758 |
| | (240 | ) | | 48,519 |
| | 11.8 |
|
One- to four-family residential other | 675 |
| | 38 |
| | — |
| | 713 |
| | 0.2 |
|
Multifamily agency guaranteed | 241,800 |
| | 627 |
| | (1,346 | ) | | 241,081 |
| | 58.7 |
|
Multifamily other | 10,503 |
| | 6 |
| | (12 | ) | | 10,497 |
| | 2.5 |
|
Total mortgage-backed or related securities | 300,979 |
| | 1,429 |
| | (1,598 | ) | | 300,810 |
| | 73.2 |
|
Asset-backed securities: | | | | | | | | | |
SLMA | 15,462 |
| | 167 |
| | — |
| | 15,629 |
| | 3.8 |
|
Other asset-backed securities | 10,051 |
| | — |
| | (285 | ) | | 9,766 |
| | 2.4 |
|
Total asset-backed securities | 25,513 |
| | 167 |
| | (285 | ) | | 25,395 |
| | 6.2 |
|
| $ | 411,424 |
| | $ | 1,812 |
| | $ | (2,215 | ) | | $ | 411,021 |
| | 100.0 | % |
At June 30, 2015 and December 31, 2014, an aging of unrealized losses and fair value of related securities—available-for-sale was as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2015 |
| Less Than 12 Months | | 12 Months or More | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
U.S. Government and agency obligations | $ | 796 |
| | $ | (9 | ) | | $ | 9,935 |
| | $ | (65 | ) | | $ | 10,731 |
| | $ | (74 | ) |
Municipal bonds: |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Taxable | 1,972 |
| | (7 | ) | | 2,237 |
| | (8 | ) | | 4,209 |
| | (15 | ) |
Tax exempt | 19,904 |
| | (204 | ) | | 1,208 |
| | (8 | ) | | 21,112 |
| | (212 | ) |
Total municipal bonds | 21,876 |
| | (211 | ) | | 3,445 |
| | (16 | ) | | 25,321 |
| | (227 | ) |
Mortgage-backed or related securities: |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
One- to four-family residential agency guaranteed | 28,664 |
| | (308 | ) | | 3,305 |
| | (151 | ) | | 31,969 |
| | (459 | ) |
Multifamily agency guaranteed | 24,385 |
| | (53 | ) | | 86,847 |
| | (591 | ) | | 111,232 |
| | (644 | ) |
Total mortgage-backed or related securities | 53,049 |
| | (361 | ) | | 90,152 |
| | (742 | ) | | 143,201 |
| | (1,103 | ) |
Asset-backed securities: |
|
| |
|
| |
|
| |
|
| |
|
| | |
Other asset-backed securities | 5,847 |
| | (1 | ) | | 9,871 |
| | (173 | ) | | 15,718 |
| | (174 | ) |
| $ | 81,568 |
| | $ | (582 | ) | | $ | 113,403 |
| | $ | (996 | ) | | $ | 194,971 |
| | $ | (1,578 | ) |
| | | | | | | | | | | |
| December 31, 2014 |
| Less Than 12 Months | | 12 Months or More | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
U.S. Government and agency obligations | $ | 15,983 |
| | $ | (58 | ) | | $ | 9,847 |
| | $ | (153 | ) | | $ | 25,830 |
| | $ | (211 | ) |
Municipal bonds: | | | | | | | | | | | |
Taxable | 7,247 |
| | (23 | ) | | 3,461 |
| | (29 | ) | | 10,708 |
| | (52 | ) |
Tax exempt | 9,075 |
| | (38 | ) | | 3,668 |
| | (31 | ) | | 12,743 |
| | (69 | ) |
Total municipal bonds | 16,322 |
| | (61 | ) | | 7,129 |
| | (60 | ) | | 23,451 |
| | (121 | ) |
Mortgage-backed or related securities: | | | | | | | | | | | |
One- to four-family residential agency guaranteed | 6,287 |
| | (57 | ) | | 11,744 |
| | (183 | ) | | 18,031 |
| | (240 | ) |
Multifamily agency guaranteed | 76,309 |
| | (167 | ) | | 95,522 |
| | (1,179 | ) | | 171,831 |
| | (1,346 | ) |
Multifamily other | 8,450 |
| | (12 | ) | | — |
| | — |
| | 8,450 |
| | (12 | ) |
Total mortgage-backed or related securities | 91,046 |
| | (236 | ) | | 107,266 |
| | (1,362 | ) | | 198,312 |
| | (1,598 | ) |
Asset-backed securities: | | | | | | | | | | | |
Other asset-backed securities | — |
| | — |
| | 9,765 |
| | (285 | ) | | 9,765 |
| | (285 | ) |
| $ | 123,351 |
| | $ | (355 | ) | | $ | 134,007 |
| | $ | (1,860 | ) | | $ | 257,358 |
| | $ | (2,215 | ) |
There were 44 sales of securities—available-for-sale totaling $40.3 million with a resulting net gain of $126,000 during the six months ended June 30, 2015. There were six sales of securities—available-for-sale totaling $28.2 million with a resulting net gain of $34,000 during the six months ended June 30, 2014. At June 30, 2015, there were 88 securities—available for sale with unrealized losses, compared to 94 securities at December 31, 2014. Management does not believe that any individual unrealized loss as of June 30, 2015 represents OTTI. The decline in fair market values of these securities was generally due to changes in interest rates and changes in market-desired spreads subsequent to their purchase. There were no securities—available-for-sale on nonaccrual status at June 30, 2015 or 2014.
The amortized cost and estimated fair value of securities—available-for-sale at June 30, 2015 and December 31, 2014, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because some securities may be called or prepaid with or without call or prepayment penalties.
|
| | | | | | | | | | | | | | | |
| June 30, 2015 | | December 31, 2014 |
| Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| | | | | | | |
Maturing in one year or less | $ | 15,643 |
| | $ | 15,703 |
| | $ | 9,334 |
| | $ | 9,364 |
|
Maturing after one year through five years | 236,092 |
| | 235,929 |
| | 278,629 |
| | 277,439 |
|
Maturing after five years through ten years | 42,275 |
| | 42,470 |
| | 45,425 |
| | 45,610 |
|
Maturing after ten years through twenty years | 20,571 |
| | 20,449 |
| | 13,846 |
| | 13,879 |
|
Maturing after twenty years | 72,940 |
| | 73,325 |
| | 64,190 |
| | 64,729 |
|
| $ | 387,521 |
| | $ | 387,876 |
| | $ | 411,424 |
| | $ | 411,021 |
|
Securities—Held-to-Maturity: The amortized cost and estimated fair value of securities—held-to-maturity at June 30, 2015 and December 31, 2014 are summarized as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | |
| June 30, 2015 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Percent of Total Amortized Cost |
U.S. Government and agency obligations | $ | 1,126 |
| | $ | — |
| | $ | (9 | ) | | $ | 1,117 |
| | 0.9 | % |
Municipal bonds: | | | | | | | | | |
Taxable | 12,634 |
| | 225 |
| | (36 | ) | | 12,823 |
| | 9.5 |
|
Tax exempt | 109,163 |
| | 5,128 |
| | (350 | ) | | 113,941 |
| | 82.6 |
|
Total municipal bonds | 121,797 |
| | 5,353 |
| | (386 | ) | | 126,764 |
| | 92.1 |
|
Corporate bonds | 1,800 |
| | — |
| | — |
| | 1,800 |
| | 1.4 |
|
Mortgage-backed or related securities: | | | | | | | | | |
One- to four-family residential agency guaranteed | 1,757 |
| | 13 |
| | (4 | ) | | 1,766 |
| | 1.3 |
|
Multifamily agency guaranteed | 5,717 |
| | 103 |
| | — |
| | 5,820 |
| | 4.3 |
|
Total mortgage-backed or related securities | 7,474 |
| | 116 |
| | (4 | ) | | 7,586 |
| | 5.6 |
|
| $ | 132,197 |
| | $ | 5,469 |
| | $ | (399 | ) | | $ | 137,267 |
| | 100.0 | % |
| | | | | | | | | |
| December 31, 2014 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Percent of Total Amortized Cost |
U.S. Government and agency obligations | $ | 2,146 |
| | $ | — |
| | $ | (19 | ) | | $ | 2,127 |
| | 1.6 | % |
Municipal bonds: | | | | | | | | | |
Taxable | 12,988 |
| | 371 |
| | (1 | ) | | 13,358 |
| | 9.9 |
|
Tax exempt | 106,963 |
| | 5,948 |
| | (47 | ) | | 112,864 |
| | 81.5 |
|
Total municipal bonds | 119,951 |
| | 6,319 |
| | (48 | ) | | 126,222 |
| | 91.4 |
|
Corporate bonds | 1,800 |
| | — |
| | — |
| | 1,800 |
| | 1.4 |
|
Mortgage-backed or related securities: | | | | | | | | | |
One- to four-family residential agency guaranteed | 1,580 |
| | 1 |
| | (7 | ) | | 1,574 |
| | 1.2 |
|
Multifamily agency guaranteed | 5,781 |
| | 104 |
| | — |
| | 5,885 |
| | 4.4 |
|
Total mortgage-backed or related securities | 7,361 |
| | 105 |
| | (7 | ) | | 7,459 |
| | 5.6 |
|
| $ | 131,258 |
| | $ | 6,424 |
| | $ | (74 | ) | | $ | 137,608 |
| | 100.0 | % |
At June 30, 2015 and December 31, 2014, an age analysis of unrealized losses and fair value of related securities—held-to-maturity was as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2015 |
| Less Than 12 Months | | 12 Months or More | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
U.S. Government and agency obligations | $ | 1,117 |
| | $ | (9 | ) | | $ | — |
| | $ | — |
| | $ | 1,117 |
| | $ | (9 | ) |
Municipal bonds: | | | | | | | | | | | |
Taxable | 2,653 |
| | (36 | ) | | — |
| | — |
| | 2,653 |
| | (36 | ) |
Tax exempt | $ | 16,997 |
| | $ | (345 | ) | | $ | 255 |
| | $ | (5 | ) | | $ | 17,252 |
| | $ | (350 | ) |
Total municipal bonds | 19,650 |
| | (381 | ) | | 255 |
| | (5 | ) | | 19,905 |
| | (386 | ) |
Mortgage-backed or related securities: | | | | | | | | | | | |
One- to four-family residential agency guaranteed | 417 |
| | (2 | ) | | 326 |
| | (2 | ) | | 743 |
| | (4 | ) |
| $ | 21,184 |
| | $ | (392 | ) | | $ | 581 |
| | $ | (7 | ) | | $ | 21,765 |
| | $ | (399 | ) |
| | | | | | | | | | | |
| December 31, 2014 |
| Less Than 12 Months | | 12 Months or More | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
U.S. Government and agency obligations | |