In the fourth quarter, Banner repurchased 43,375 shares of its senior preferred stock in private transactions at an average price of $991 per share and on December 24, 2012 redeemed the remaining 30,041 shares at a liquidation value of $1,000 per share. As a result, Banner realized gains of $401,000 on the repurchases, which partially offset accelerated accretion of the remaining portion of the initial discount recognized when the preferred shares were issued. In addition, the accrual for the quarterly dividend was reduced by the retirement of the repurchased shares. Including the preferred stock dividend, related accretion and gains on repurchases, net income available to common shareholders was $0.69 per diluted share for the fourth quarter of 2012, compared to $0.79 per diluted share in the third quarter of 2012 and $0.18 per diluted share in the fourth quarter a year ago. For the year ended December 31, 2012, net income available to common shareholders was $3.16 per diluted share compared to a net loss of $0.15 per diluted share in 2011.
Fourth Quarter 2012 Highlights (compared to fourth quarter 2011 except as noted)
- Net income was $14.7 million, compared to $5.1 million in the fourth quarter a year ago.
- Revenues from core operations* increased 8% to $54.5 million.
- Net interest margin was 4.09%, compared to 4.22% in the preceding quarter and 4.07% in the fourth quarter a year ago.
- Deposit fees and other service charges increased 9%.
- Revenues from mortgage banking increased 136%.
- Non-performing assets decreased to $50.2 million, or 1.18% of total assets, at December 31, 2012, a 15% decrease compared to three months earlier and a 58% decrease compared to a year earlier.
- Non-performing loans decreased to $34.4 million at December 31, 2012, an 11% decrease compared to three months earlier and a 54% decrease compared to a year earlier.
- The ratio of tangible common equity to tangible assets increased to 11.80% at December 31, 2012.*
- Banner retired the remaining shares of its senior preferred stock.
*Earnings information excluding fair value and other-than-temporary impairment (OTTI) adjustments (alternately referred to as other operating income from core operations or revenues from core operations) and the ratio of tangible common equity (which excludes other intangible assets and preferred stock) to tangible assets 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 useful and comparative information to assess trends in Banner's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers. Where applicable, comparable earnings information using GAAP financial measures is also presented.
Income Statement Review"The net interest margin expansion compared to a year ago, for both the quarter and full year, reflects important reductions in deposit and other funding costs, as well as a significant reduction in the adverse effect of non-performing assets," said Grescovich. "However, the continuing impact of exceptionally low market interest rates is clearly evident in declining asset yields and the contraction of our net interest margin compared to the immediately preceding quarter." Banner's net interest margin was 4.09% in the fourth quarter of 2012, compared to 4.22% in the preceding quarter and 4.07% in the fourth quarter a year ago. The margin in the third quarter benefited by nine basis points from the collection of previously unrecognized interest on certain nonaccrual loans, while collections on those loans added just three basis points to the margin in the current quarter. For all of 2012, the net interest margin was 4.17% compared to 4.05% in 2011.