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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Ladies and gentlemen, thank you for standing by and welcome to the Banner Corporation Second Quarter 2008 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. (OPERATOR INSTRUCTIONS.) As a reminder, this call is being recorded today, Tuesday, July 29, 2008. I would now like to turn the conference over to Mr. Mike Jones. Please go ahead, sir.
MIKE JONES, PRESIDENT, CEO, BANNER CORPORATION: Thank you, Patty, and thank you all for listening to our second quarter conference call. First of all, I want to be able to apologize to all of you for the somewhat lateness of our release of earnings, which normally would have been a week earlier than today. However, at the end of June, the FDIC in the State of Washington were conducting their annual examination of our bank and we wanted to make sure that they were done with that examination, which they completed prior to last week, and to be sure that they would not object to our assessments and estimates and provisions that were in the second quarter results. They've completed that examination and therefore we're comfortable in having this conference call with you and releasing our earnings yesterday afternoon.
I actually want to start off and talk about three areas, but before I do that, I need Al Marshall to read a paragraph, if you would please. Al? He's the Secretary of the Corporation.
AL MARSHALL, SECRETARY, BANNER CORPORATION: Good morning. Our presentation today discusses Banner's business outlook and will include forward-looking statements. Those statements include descriptions of management's plans, objectives, or goals for future operations, products, or services, forecasts of financial or other performance measures, and statements about Banner's general outlook for economic and other conditions. We also may make other forward-looking statements in the question and answer period following management's discussion. These forward-looking statements are subject to a number of risks and uncertainties and actual results may differ materially from those discussed today. Information on the risk factors that could cause actual results to differ are available from the earnings press release that was released yesterday and a recently filed Form 10-Q for the quarter ended March 31, 2008. Forward-looking statements are effective only as of the date they are made and Banner assumes no obligation to update information concerning its expectations. Thank you.
MIKE JONES: Thanks, Albert. I should also mention before I get started that sitting here with me is Lloyd Baker, the Chief Financial Officer of the Company. And Lloyd will have some comments here in a minute. But before we get started, I really kind of wanted to address three major areas in this quarterly earnings release and talk a little bit about those.
The first and probably the most important one is the loan loss provision in the level of nonperforming loans and charge-offs. As you probably were somewhat surprised, we decided to significantly increase our provision for loan losses to the area of approximately $15 million for the quarter. And except for the provision that go -- that's in there, as it relates to the growth that's taken place in other segments of our loan portfolio, except for one-to-four residential and land and lots, all of the additional provision relates to the activities taking forth in that one-to-four construction area and related A&D loans.
The level of charge-offs of $7 million, which is a very high number for us, is, frankly, a way of us being proactive in recognizing the changing in values that were taking place in some of this real estate as we went forward, and we have elected to write down some of these loans as we see these new appraisals at lower levels than they previously were at.
The level of $90 million of nonperforming loans is extraordinarily high for us. But it also almost all relates to the one-to-four construction and related A&D loans that we have in the portfolio. By way of refreshing you people's memory, 80% of our A&D and one-to-four construction portfolio is done west of the Cascades in the Greater Seattle/Puget Sound area and in the Greater Portland, Oregon area. And approximately that's split a little bit, 50/50, maybe slightly larger in the Puget Sound area than it is in the Portland area at the end of June.
However, during that -- and, frankly, the biggest growth that took place in our nonperforming loans in the second quarter was in the Puget Sound area and around -- in and around the Greater Seattle area. And actually, as we look at it much more close geographically, it's the classic case that always happens in real estate of the puddle tends to dry from the edges. And the edges around Greater Seattle are in the areas south of Tacoma in the area going south, down south, towards our state capital, Olympia, but in the Lacey/Thurston County area, over in the area of Puyallup and out into the area of Auburn and that particular area out there. And then going north, you run into an area north of Paine Field, which is where Boeing builds their airplanes, area called Marysville and Arlington, those are the edges of the puddles for us. We don't have a lot in those areas, but whatever we have in that area is troubled. And as a result of that, that's primarily the buildup that's taking place in our nonperforming loans.
We, on the other hand, are feeling much better about how things are going in Portland and Boise as it relates to our portfolios there. The collection activities have been robust and we've actually had some significant successes in collecting a number of those loans in those two markets. We actually think at the end of the day, as it turns out, that the one-to-four construction portfolio in Boise, Idaho will clear up faster than any of the others. But in a way that's to be expected because that's a market we sensed a problem in first and backed away from it some 18 months ago, versus some of the other markets where we continued to go for a few months beyond that. But, nevertheless, Boise is seeming to clear itself up fairly nicely and Portland also is making real progress in those particular areas. Properties are selling and they're selling at a more rapid rate than they were earlier this year.
Another area that I wanted to touch on just briefly is our net interest margin, which at 3.5% for the...
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