Banner Corp. of Walla Walla, Wash., said it expects to raise up to $150 million to strengthen capital ratios at its struggling bank unit.
The $4.3 billion-asset company is seeking twice as much money as it did in December, when it came to the market to raise $75 million but couldn't drum up enough interest to complete the offering.
But as losses mount, there are doubts Banner can close the deal the second time around and whether it will tide the company over. "We don't think that that's enough," said Matthew T. Clark, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc. "We just think their losses are more than they estimate."
According to a prospectus filed Thursday with the Securities and Exchange Commission, Banner entered into memorandums of understanding with federal and state regulators at the end of the first quarter. The agreements required the bank to reduce its commercial real estate concentrations and classified assets, improve profitability and increase its leverage capital ratio to at least 10%.
At March 31, Banner Bank had a leverage capital ratio of 9.71%. Commercial real estate loans accounted for 36% of the company's total loans. Nonperforming assets totaled $292.4 million, or 6.4% of total assets.
In Thursday's filing, Banner said it is working hard to meet the requirements, but expects that significant improvement in asset quality and profitability will be a gradual process. "We believe that our results for the quarter ended June 30, 2010, will not be dissimilar to the two preceding quarters," it said.
Banner also received $124 million through the Troubled Asset Relief Program in November 2008; it has not repaid any of the funds.
Clark said the capital markets have chilled over the last two months, and that Banner will have a hard time raising the money. "Particularly when you're raising two times your market cap to help fill a credit hole, it's not a story that sells easily," he said. Company executives did not respond to requests for comment.