Banner Corp (BANR) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Banner Corporation’s fourth quarter 2004 and year-end conference call. (OPERATOR INSTRUCTIONS.) As a reminder, this conference is being recorded on Wednesday, January 26, 2005. I would now like to turn the conference over to Mr. Michael Jones, President of Banner Corporation. Please go ahead, sir.

Thank you very much and welcome, everybody. We appreciate you taking the time to have a conversation with us about our fourth quarter and year 2004 results.

I think we’ll follow the same format that we followed in the past on these conference calls. We’ll start off with Mr. Al Marshall, who’s the Secretary of the Corporation reading the paragraph that’s a requirement to be read, and then followed by Lloyd Baker, who is our Chief Financial Officer who will have some prepared remarks for all of you, at the end of which, I may have some additional remarks and then we’ll open it up to questions from all of you. Again, we appreciate your participation.

So, Al, would you go forward?

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 today and a recently- filed Form 10Q for the quarter ended September 30, 2004. Forward-looking statements are effective only as of the date they are made and Banner assumes no obligation to update information concerning its expectations.

Thanks, Al. Now, from Lloyd Baker to talk a little bit about the results.

Thank you, Mike, and good morning, everyone. I echo Mike’s comments, thanking all of you for joining us this morning.

December 31, 2004, marked the close of another fairly encouraging quarter for Banner Bank, as well as the end of a significantly improved year. By nearly every measure of comparison, the quarterly and year-to-date performance metrics reflect solid year-over-year improvement and importantly, the strong loan and deposit growth, which is fueling that improvement.

I’ll point out a few additional numbers before we open up for questions, but I believe 3 numbers pretty well sum up this earnings release -- 21 percent loan growth for the year; 15 percent deposit growth; and net income, which was 20 percent greater for both the quarter and the year-to-date, ended December of ’04, compared to the same periods earlier.

In terms of dollars, that represents $366 million worth of loan growth for the year for the year, $255 million of increased deposits and earnings of $5.3 million for the quarter. Compared to $4.4 million a year earlier, you can see the improvement. And that brings our net income for all of 2004 to 19.3 million compared to 16.1 million a year earlier, which, as we noted in the report is also a 20 percent increase in after-tax earnings.

On a per-share basis, earnings for the quarter just ended were 45 cents, compared to 39 cents in the fourth quarter of 2003 and compared to 44 cents in the preceding quarter, September of ’04. So the comparison on a quarterly basis was favorable for both year-over-year and on a linked quarter. For the year ended, we earned $1.65 compared to $1.44 for the year ended December 2003.

As we note in the press release, this performance flows from significantly increased amount of net interest income, reflecting earning asset growth as well as a generally improving net interest margin. For the year, net interest income also increased 20 percent from just over $80 million to slightly more than $96 million for the year ended December ’04.

And our net interest margin increased by 18 basis points to 3.71 percent. The net interest margin for the quarter was 372, up 15 basis points from the same period a year ago, but down from 379 recorded in the previous quarter. However, as we reminded you in the press release, the third quarter’s margin was boosted by collection of approximately $600,000 of delinquent interest.

As we have noted in previous calls, this margin improvement generally reflects improvement in the mix of our assets and our funding, although the increase in short-term interest rates in the second half of 2004, to date, appears to have added more to loan yields than deposit costs. While this yield and deposit cost behavior has been positive to this point, I want to caution you not to read too much into it.

As I believe we’ve indicated for some time, we continue to believe the sensitivity of our net interest margin to rising interest rates, while very modest, is significantly tied to competitive forces affecting deposit pricing coming out of the exceptionally low interest rate environment of the past 2 years. Only time will tell for sure, but for now, the relative inelasticity in deposit pricing appears to be benefiting most banks, including Banner Bank.

Of course, another factor contributing to our improved margin performance for the quarter in the year ended was further reduction in the cost -- excuse me. Not to our margin performance, but to our earnings performance was further reduction in credit costs, as we were able to record a slightly smaller provision for loan loss for the quarter, reflecting continued improvement in asset quality. At $1.3 million, the provision for loan loss for the quarter was down only a modest $100,000 for the quarter, compared to a year earlier, but for the full year, our loan loss provision decreased by more than $1.6 million, declining to 5.6 million, compared to 7.3 a year earlier.

As you can see on page 6 of the press release, non-performing loans declined by more than $12 million. And the ratio of non-performing assets to total assets was cut in half from 1.20 down to 0.6 percent. In addition to the obvious effect on the loan loss provision, this reduction in non-accrual loans also contributed to the improvement in net interest margin.

Additional important statistics on asset quality presented on page 6 reflect the significant reduction in net charge-offs that occurred during the year. For all of 2004, net charge-offs declined by nearly $5.7 million to just under 2.1 million. And the ratio of net charge-offs to average loans fell from 47 basis points to 11 basis points in 2004, better than 75 percent improvement in that ratio.

A sidelight to this asset quality discussion, which is not quite as obvious in the presentation, relates to the reduction in real estate owned and other repossessed assets, which, as you can see, declined by nearly $1.5 million.

The part that’s not obvious from our financial statement presentation, how it relates to the gain on sale of those assets, which is reflected in a reduction in miscellaneous operating expenses. In particular, in the quarter ended December 31, 2004, the bank realized approximately $550,000 of net gains on the sale of real estate owned, which largely explains the decline in that expense line compared to the previous quarter.

This, of course, is good news. And just as the reduction in non-accrual loans helps the net interest margin, returning these assets to earning asset status is a margin enhancer.

Aside from that, other operating income was fairly consistent for the quarter. We did have a decline in prepayment penalties, which was relatively high in the third quarter and is reflected in the loan servicing line, but aside from that, other operating income for the quarter was consistent with recent quarters, although mostly -- modestly below, excuse me -- the third quarter.

The full 12-month period, other operating income declined by $2.6 million, despite a significant increase in deposit fees and an important increase in deposit fees, but it declined on a year-over-year basis as a result of lower gain on sale of loans. However, mortgage banking activity has been very consistent for the past 5 quarters now and, at $1.4 million, is actually up from what we recorded in both the previous quarter and the final quarter of 2003.

I think that this earnings release probably marks the last time that we will be, by comparison, noting a decline in mortgage banking activity of significance as the high refinance activity of 2003 will be behind us in terms of financial statement presentation.

On the expense side, compensation expense was down slightly, compared to the previous quarter. However, compared to a year ago, compensation was up about 15 percent. For the full year ended, December 31, 2004, compensation was up a little over 11 percent.

As well as reflecting general growth in the bank, compensation expense, occupancy and other expense for the fourth quarter were also affected by some of the new branch initiatives highlighted in the press release. I think it’s important to note that we expect branching initiatives to have even more effect on operating expenses in the first quarter of 2005.

That said -- and I’m sure Mike will have much more to say on this issue -- we’re really excited about the opportunities that these new branches will bring to Banner Bank.

So as I said, the December 31 marked the end of another encouraging quarter, a fairly encouraging year for 2004, and, as we’ve pointed out in the press release, a number of encouraging activities going forward in terms of expansion at the branch network and the franchise.

I think that will complete my prepared remarks. After Mike has had a chance to comment, as always, I look forward to answering any questions you might have.

Thanks, Lloyd. I would just reiterate a little bit of what Lloyd said. And I actually would take you, if you would, to page 7 of the press release, which highlights a number that I think is relatively important and will explain some of the things we’re doing. And if you look at the interest expenses on interest-bearing liability line there, it’s a 2.48 percent, up 10 basis points over the third quarter.

The important one is the interest cost on deposits and the amount of borrowed funds that are in that. The purpose for this branch expansion is to grow what I call franchise value by frankly growing much more rapidly than was a practice of this Company over the several years before I got here, to grow core deposits and thereby, reduce our cost of funding down closer to where our peer competitors in the marketplaces are.

Frankly speaking, we don’t know where this is at the end of the fourth quarter because we haven’t seen all of our peer competitor results, but we give up about 90 basis points to our competitors in the cost of funding side of things. Clearly, over a long period of time, we need to build our core deposit franchise so that we can have competitive cost of funds relative to our peers. Therein is the reason for the rapid expansion of branches within this bank. I think I’ve talked about it in prior quarters and we will continue to talk about it as we go forward.

We’ve had a good success record with the branches in bringing them fairly quickly to profitability. Of the 4 that were opened in 2004, 2 are already profitable. The other 2 are getting close. Of the 2 that were opened in 2003, both of them are very profitable to us today.

We have high expectations relative to the branches that we are bringing on board, as our ability to bring them to profitability over a relatively short period of time and frankly, we’re enthused about the response that some of them have already gotten in the particular marketplace they are. They really help us fill out our franchise in the Puget Sound region. I think most of you are aware that about 60 percent of our loan volume is in the Puget Sound area at the present time and we think that these additional branches will help us even grow that additionally as we go forward.

That said, an addition that we’re also adding to our franchise in the first quarter of this year is a international banking operation, which is a fairly important component. The individuals joining us have worked for me in a prior life at another institution, have done exactly what they’re going to do for us at Banner Bank for me before. They’re very good at what they do. They will help us greatly to bank the Puget Sound Basin and be a leader in that particular area in the Pacific Northwest. And frankly, for those of you that are not familiar with the Puget Sound area, you need to be good in the international arena because this region is very dependent on Asian trade as we go forward.

So I think at that point, I think I’ll open it up to questions and see what you all have on your minds.

(OPERATOR INSTRUCTIONS.) Jim Bradshaw, D.A. Davidson.

Good morning.

Jim.

Couple questions, Lloyd, probably for you first. Salary and employee benefit costs were down in the fourth quarter versus the third and I would have guessed that would be a little bit higher, given the new opening. So maybe those folks are on board at the end of the third quarter. And if that’s true, is that sort of the mission for the new branches as they roll out in ’04 -- ’05, rather?

Actually, not too many of them were on board in the third quarter, Jim. Most of that started affecting the fourth quarter. We -- the third quarter was a little bit high. I think we talked about this at our last press conference, as it appeared that the results for the year were coming in a little stronger. We were able to increase some of our incentive compensation accruals. And the fourth quarter had a few adjustments and slightly lower commission expense, notwithstanding the better-than-previous-quarter mortgage banking activity.

So I wouldn’t read too much into it, other than the third quarter was slightly high.

Okay, good. And then another question I have is the balance sheet grew slower this year than loans and deposits and I suspect that’s the case again for this year. Just wanted to sort of clarify whether that’s indeed going to be true or not.

No, I think it’s fairly -- we have big plans for loan growth in the year 2005. And we clearly have decided and have determined that we have people in the field that are very good at bringing quality loans onto our books. Because of that, there will not be the level, proportionately speaking, in the investment portfolio that there were in previous years.

And you wouldn’t expect that you’d need to or you would prepay any of the Federal Home Loan Bank debt on the other side. And if your liquidity permits you, you’ll just let that run off as it matures rather than be more aggressive on it? Is that right?

Yes. We’ve gone through the pain for 3 years. I think the pain is going to be a little bit diminished in 2005 and I think we’ll ride this one out because of the loan growth potential we have on the other side.

Okay, good. Credit losses in the fourth quarter were a little above the run rate for the rest of the year. Is that just normal cleanup, Mike, or is anything sort of unusual in there?

I think we’ve got a little aggressive in charging off a few things. No, let’s be fair about that. I don’t think we changed our charge-off policy, but we are becoming more anticipatory as it relates to some of our credit issues and so we’ll -- time will tell whether we were aggressive or not.

Okay. And then lastly, a lot of branch initiatives coming up real quickly here. Can you talk about your expectations on how many folks you’ll need to hire or are in the process of hiring or maybe even already hired for ’05?

With the exception of a couple of tellers, all those people were on board at the end of the fourth quarter and many of them there were for a large portion of the fourth quarter.

Okay, good.

So there will be some increase. The increase that you’ll be seeing is more in the occupancy area, as we occupy those facilities, although some of that occupancy for several of those facilities have been there for at least half of the fourth quarter. But the people coming on board that are running those operations, we’re excited to have them. I’m going to digress off here for a second. Most of them have banked the market they’re in before. They’ve been successful in that market. They have a ready list of customers, which is kind of one of the things that we do.

And so I think we’re pretty excited about how quickly we can bring volume to those new locations, primarily deposit volume, which is the key thing we need. ’Cause at the end of the day, Jim, that’s what we’re trying to grow here, is what I call kind of franchise value. There is the earnings and that’s the most important thing and we recognize that. And we recognize that we’re going to denigrate that slightly during the first quarter of next year, but at the end of the day, core deposits are worth something to a bank. CDs over 100,000 and the Federal Home Loan Bank borrowings aren’t work worth anything.

As I recall, Mike, the folks that -- the ex-WestOne people used to have a number, something like 40 percent of the loans they brought in were self-funded by deposits from those customers. Is that kind of the same number you think you’ll get to over time with this group?

I wish I could say that. When we were doing that, in those days, WestOne was not a big real estate lender.

I see.

More of a small business and C&I lender. And in those days, I think those companies kept more money in the bank than we do now. We now have all introduced them to cash management products and some other things that tend to sweep that away, but a well-run bank that’s doing good C&I, small business lending ought to be trying to get in the 40 percent range. And we have competitors that are doing that. We are not doing that at the present time. A good number for us is more in the 20, 25 percent range.

Got it. Thanks a lot, guys. Appreciate it.

Ramsey Gregg, Sandler O’Neill.

Good morning, guys.

Hi, Ramsey.

Well, one thing first, as far as on the loan side here, looks like you had some pretty nice construction and commercial business loan growth in the quarter. Is that -- particularly with commercial business lending, is that new relationships or is that additional line utilization from the commercial businesses in your markets?

Think it’s a little bit of both, particularly as it relates to the C&I lending. We’ve had -- and I think we’ve talked in the past about commitments from borrowers that were not drawing on those lines. We’ve had people beginning to draw on some of those lines. In addition to that, we’ve brought a number of new customers into the bank that are new to us, but do -- and are borrowing against the relationship.

As it relates to the real estate lending section, that is the strength of this organization. Actually, in a way, it’s its roots. It’s good at what it does in that particular area. The market up here is robust. We were a little slower coming out of the recession than other parts of the country, but the Puget Sound area and the Greater Portland area are pretty strong right now and we’re seeing some very nice opportunities.

Okay. And I know you -- when you responded to Jim, you mentioned big plans for loan growth in 2005. Do you have an expectation here as far as percentage basis for growth in ’05?

Do we -- we will be very disappointed if we don’t grow more than we did in 2004, by a reasonable amount.

Okay. And then as far as loan loss provisioning this quarter --

Excuse me. Ramsey, let me correct that. I just got whopped up beside the head here. We’re talking about in terms of absolute dollars of growth. I’m not sure the percentage is going to go up that much.

Okay. And then you’re talking about the loan loss provision. Obviously, provisioning was down a little bit this quarter. Obviously, also, you had improvement in asset quality continued. But going forward, is there, I guess, reserves to the percentage of loans at about 1.45 percent or something like that. Is there a comfort level there or -- I’m just looking for provisioning going forward. Any expectations?

The issue for us -- and you guys are all aware of this ’cause you talk to all the banks -- is we go through this analysis and we do the 2-year and the 5-year trailing averages of losses by categories and we can then come up with a reserve against what we call past credits and we have a reserve specific against all problem credits. And then you come to a number called the unallocated reserve. And that unallocated reserve in this organization is growing. And it’s a difficult thing in today’s world with our CPA firms to make that number very large.

I believe our asset quality will continue to improve in the year 2005. My guess is that unallocated reserve will also increase. And if that happens, the 1 -- I think it’s 1.41 at the end of the year, Ramsey -- may decline slightly. It’s not going to decline a bunch because I kind of like to have that level of reserve in our balance sheet. But you’ve got to defend it to the CPA firms and frankly, at the end of the day, as a couple of banks have learned, to the SEC.

Right. I understand that. Thank you.

Yeah.

John Ash, Wellington Management.

Thanks for a great year last year. I was just wondering about your efforts in Idaho and the people that you’ve hired there. Thank you.

You bet. That market to us -- we currently have a group of lenders at a desk in their offices for a deposit taking category. They got started about, let’s say the end of March last year. And we currently have outstanding in that marketplace about $90 million in loans and we’ve got about $15 million in deposits with frankly no teller.

Now, the loan number -- because some of those are very much agriculturally oriented -- will ebb and flow. And currently, the number is ebbing off and as the spring comes, the number will grow. The operation in Twin Falls was profitable within 5 months. The operation in Boise is not yet profitable because we’ve got a bigger effort going there in terms of people and frontloading of some expenses, but we expect to be a very big force in the Boise market going forward. We’re very pleased with the people we’ve got.

Thanks.

Louis Feldman, Hoefer & Arnett.

Good morning.

Hi, Lou.

Always side with the regulators versus the SEC. They’re the ones that can shut you down though.

You’re right.

Can you -- Lloyd, can you comment on -- you commented to me a couple of months ago that the FHLB holding was your single largest holding in terms of a single item, not in terms of overall impacts. Can you comment on what the overall impact on the FHLB has been and the dividend?

Keeps going down. As you well know, the Seattle FHLB entered into an agreement with their regulator in -- about a month ago. And from our standpoint, the net effect to that was a reduction in the dividend. We ended up recording about $100,000 -- I think the number is less -- dividend in the fourth quarter than we did in the third quarter and the third quarter was down from prior quarters. So it has, in fact, been a declining yield on that asset. My comment to you, which is still true, that is the single largest asset on the books of the bank, the stock in the FHLB.

Their stated policy at this point in time, pending additional work on their capital plan, is to pay a dividend that approximates fed fund rate, assuming that that does not exceed half of their earnings. So that, in fact, is the level of dividend that we accrued in the fourth quarter.

Question that Jim asked on another call, are you considering to register that as an earning asset or are you just placing it elsewhere?

We still carry it in our earning asset totals, yeah.

Okay. Mike, can you comment on what your plans and expectations are for the international banking group? Is this a group or is it a single individual?

Well, it’s 3 individuals. I don’t want to overstate this.

Okay.

We’re not going to get into international finance, but we are going to do some LCs and some foreign currency transactions and things that these people are very good at.

Are they going to -- where are they going to be based in the Sound?

In downtown Seattle.

In Seattle?

We have a lending team in the downtown -- actually, we’re on the fringe of downtown. And they will be with them at that particular location.

When they did this for me at WestOne in 1993, they became profitable in 6 months. I’m going to be surprised if we don’t do something very similar to that here.

Any comments on the fact that Seattle is moving away from import/export, more towards cruise ships and most of the freight is heading down towards Tacoma?

Actually, that may well be true, but there is so much opportunity for international trade and finance in the Greater Puget Sound area and we’re not going to just be focused on Seattle, that we think we will do well. We will have, in terms of an international group of people to do the things I just talked about, as good a department here as anybody and better than most who have none, which is important to companies in this area. We think this will bring business to us and very good business.

Okay. Thank you.

Ross Haberman, Haberman Funds.

How are you, gentlemen? Nice quarter.

Thanks, Ross.

I might have missed it. Did you specify how big the Idaho operation is now in terms of deposits and/or loans?

I did. It was -- the loan totals ebb and flow because it’s an agricultural-based lending operation, for the most part. And so at the present time, I think I said it was 90 million. It might be something less than that, but -- because it pays down during this period of time during the year.

That’s in loans?

Pardon me?

Okay. That’s about your loans then. And deposits?

We don’t have any branches yet, in terms of the way you think of -- or we think of a branch, but we have 2 deposit desks and we have about $15 million in deposits.

And, again, will they strictly focus on the ag side there or will you go into commercial?

Well, the 2 markets are a bit different. Twin Falls, which is a little bit south of the Boise market will be more ag based. It will have a C&I component, but it will be more ag based. The Boise operation at the end of the day will be far more in C&I lending than it will be in agriculture.

And will -- in the Boise, will you do residential as well?

Yes. There is a wonderful opportunity for us in the Boise marketplace. There’s a vacuum there now and there’s a wonderful opportunity for us to take that.

Okay. And are you staffed there or are you in the process of continuing to hire more people for that market?

We’re pretty well staffed in that market, as it relates to the loan side of the operations. As it relates to the deposit side, when we do open a couple of branch facilities in the marketplace, we will be, of course, adding a couple of tellers and an operations person, that kind of thing.

Thank you.

James Abbott, Friedman, Billings, Ramsey.

Good morning, gentlemen. Congratulations on the improvement in asset quality. Wanted to touch on a couple -- 2 different items. One is the interest rate sensitivity. I wonder if you can give us a little color on how much of your loan portfolio is prime based at this point, roughly speaking, obviously, and then there are loans that are on floors that need to move up before they start to re-price and that type of thing.

And as a part B to that question, over the next 6 months, what are the borrowings with the re-pricing? Obviously, you’re expecting to roll those into deposits. Wondering if you can give us a sense as to what those borrowings that are due in the next 6 months, maybe for the next year, what they’re coming off at and then at what rate of deposits you might anticipate replacing those.

Okay. Jim, well, the loan portfolio, as it sits today, is about 50 percent either tied to prime or LIBOR. So about half of that portfolio is sensitive.

I should back up for a second. We have advised for some time that we don’t see a great deal of sensitivity in our earnings and interest rates. We’re still comfortable with that.

You’ve touched on borrowing costs and, of course, that continues to be the wild card that we are just a little bit unsure as to how we, our competitors, our customers, all are going to react to deposit pricing issues going forward. We have more and more what I refer to as non-maturity deposits, as we’re moving away from CD pricing, which is a good thing. Those deposits tend to be lower cost, tend to be less sensitive to interest rate movement. But there’s certainly concern at the moment as to just how that deposit pricing will move.

In the area of Federal Home Loan Bank borrowings, we have a significant amount of those borrowings that are fairly short. We have also a block of those borrowings and it’s in the neighborhood of 100 to $150 million that don’t roll off for some period of time and so we don’t see improvement in the cost of those that were taken out as term borrowing a while back.

So the match right now to us looks pretty good in terms of sensitivity. As I pointed, so far, during this period of rising short-term interest rates, the impact on asset yields has been slightly more positive than the effect on the liability costs, but there’s a lag in there always in deposit pricing and in elasticity and the jury will be out on this for a while.

I’m optimistic, as I’ve said for some time, that we have a limited amount of sensitivity. And the other thing that I’m optimistic about is that we continue to improve the asset and liability mix. And it’s that change in the mix and the conversion of non-accrual loans to earning assets and the change from securities to loans that is leading the way right now in terms of improving the margin, which, as we noted, was up for the year. But the challenge ahead is what will happen on deposit prices over the next 6 months.

Okay. I appreciate the color on that. On the borrowings that are short, are they basically at fed funds rate or they’re -- I think they’re FHLB advances, if I’m not mistaken, which I think that’s around 3.25 or somewhere in that range, as far as the price goes.

Well, the very short ones are costing, -- have been costing less than that. You weren’t far off with your fed funds estimate.

Okay.

So they do tend to move up.

Okay. So -- and then I guess this is actually my second question and I guess it’s on a related note, is, what’s the marketing effort as you roll into these new branches and track deposits, what’s the incremental cost of funding there? Is it 2¼ percent money market account rates or -- I just don’t have a good sense, as far as exactly what marketing you’re using to attract the deposits.

We’re looking for core deposits across the board in all categories, from non-interest-bearing checking accounts, from businesses and individuals in the neighborhood of that particular branch, to savings accounts, which frankly has been a very successful product for us over the last several months, into the smaller CD portfolio for those people. But in general, the cost of those funds will be significantly less than our overall cost of funds today.

Now, there is a component called operating expenses to gather those deposits and it has to be factored in at the end of the day also.

That’s true. But do you see it on a weighted average -- is it predominantly non-interest-bearing that’s coming in as a result --

No.

Of the service or is it --

Interest-bearing transactional accounts, including savings accounts in that total.

Okay. I appreciate it. And then I guess last real quick question, any major legal expense savings due to the improved asset quality?

I’d certainly hope so. Our -- one of the expenses that was -- and we’ve talked about this in the past -- was exceedingly high for us last year is the remnants of the collection process on the problem loan portfolio that we had, along with a bond claim we have for an action that took place about 4 years ago. And those expenses have been relatively high and were relatively high in 2004. Relatively high. They were high. And we would expect that they’ll be better in 2005 and frankly, on a go-forward basis.

Okay. Thank you very much. Congratulations again.

Thank you.

(OPERATOR INSTRUCTIONS.) Gentlemen, at this time, we have no further questions. Please continue with any further remarks you would like to make.

Thank you. Again, I want to thank all of you for your participation and listening to the Banner Bank story. As I indicated earlier, we’re better. We’re a long ways from being good. We’re going to be good, but it’s going to take us a period of time to get there. And we’re going to be a fundamentally good franchise, commercial banking franchise in the Pacific Northwest that we, as a group of employees, will be very proud of and we hope our shareholders will be too.

We look at this as not a short-term sprint, but we look at this as more of a marathon of building this franchise. We’re going about that process now and, while the pain in fourth quarter a little bit and the pain in the first quarter will be there with these new branches, in the long run, we will be a far better bank for having done this.

Again, we appreciate the opportunity to chat with you and we look forward to talking to you in the future. Thank you.

Ladies and gentlemen, this concludes the Banner Corporation fourth quarter 2004 and year-end conference call. If you would like to listen to a replay of today’s conference, please dial in to (303) 590-3000 and use the access code of 11020058. (OPERATOR INSTRUCTIONS.) ??

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