BANNER CORP [BANR] Filings

10-Q 1 banr-20220930.htm 10-Q banr-20220930

‘

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2022

☐ 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 000-26584

BANNER CORPORATION

(Exact name of registrant as specified in its charter)


Washington			91-1691604
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

10 South First Avenue, Walla Walla, Washington 99362

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (509) 527-3636

Securities registered pursuant to Section 12(b) of the Act


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	BANR	The NASDAQ Stock Market LLC

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]

[ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes

[x]

[ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

[x]

Accelerated filer [ ]

Non-accelerated filer [ ]

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

[x]

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Title of class:

As of October 31, 2022

Common Stock, $.01 par value per share

34,190,429 shares

BANNER CORPORATION AND SUBSIDIARIES

Table of Contents


PART I – FINANCIAL INFORMATION

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:

Consolidated Statements of Financial Condition as of September 30, 2022 and December 31, 2021			4

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021			5

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021			6

Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2022 and the Year Ended December 31, 2021			7

Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2022 and 2021			11

Selected Notes to the Consolidated Financial Statements			13

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview			53

Comparison of Financial Condition at September 30, 2022 and December 31, 2021			59

Comparison of Results of Operations for the Three Months Ended September 30, 2022 and June 30, 2022 and the Nine Months Ended September 30, 2022 and 2021			63

Asset Quality			71

Liquidity and Capital Resources			73

Capital Requirements			74

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Market Risk and Asset/Liability Management			75

Sensitivity Analysis			75

Item 4 – Controls and Procedures			79

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings			80

Item 1A – Risk Factors			80

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			80

Item 3 – Defaults upon Senior Securities			81

Item 4 – Mine Safety Disclosures			81

Item 5 – Other Information			81

Item 6 – Exhibits			82

SIGNATURES			84

Special Note Regarding Forward-Looking Statements

Certain matters in this Form 10-Q constitute 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 our actual results to differ materially from the results anticipated or implied by our forward looking statements, including, but not limited to: potential adverse impacts to economic conditions in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth caused by increasing political instability from acts of war including Russia’s invasion of Ukraine, as well as increasing oil prices and supply chain disruptions, and any governmental or societal responses to the COVID-19 pandemic, including the possibility of new COVID-19 variants: the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses and provisions for credit losses; the ability to manage loan delinquency rates; competitive pressures among financial services companies; changes in consumer spending or borrowing and spending habits; interest rate movements generally and the relative differences between short and long-term interest rates, loan and deposit interest rates, net interest margin and funding sources; uncertainty regarding the future of the London Interbank Offered Rate (LIBOR), and the transition away from LIBOR toward new interest rate benchmarks; the impact of repricing and competitors’ pricing initiatives on loan and deposit products; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values; the ability to adapt successfully to technological changes to meet clients’ needs and developments in the marketplace; the ability to access cost-effective funding; the ability to control operating costs and expenses, including the costs associated with our “Banner Forward” initiative; the use of estimates in determining fair value of certain assets and liabilities, which estimates may prove to be incorrect and result in significant changes in valuation; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect employees, and potential associated charges; disruptions, security breaches or other adverse events, failures or interruptions in, or attacks on, information technology systems or on the third-party vendors who perform critical processing functions; changes in financial markets; changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular, including the risk of inflation; secondary market conditions for loans and the ability to sell loans in the secondary market; the costs, effects and outcomes of litigation; legislation or regulatory changes, including but not limited to changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules, results of safety and soundness and compliance examinations by the Board of Governors of the Federal Reserve System (the Federal Reserve), 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, require restitution or institute an informal or formal enforcement action which could require an increase in reserves for loan losses, write-downs of assets or changes in regulatory capital position, or affect the ability to borrow funds, or maintain or increase deposits, or impose additional requirements and restrictions, any of which could adversely affect liquidity and earnings; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; the quality and composition of our securities portfolio and the impact of adverse changes in the securities markets; the inability of key third-party providers to perform their obligations; changes in accounting principles, policies or guidelines, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business; other economic, competitive, governmental, regulatory and technological factors affecting operations, pricing, products and services; future acquisitions by Banner of other depository institutions or lines of business; and future goodwill impairment due to changes in Banner’s business, changes in market conditions; and other risks detailed from time to time in our filings with the U.S. Securities and Exchange Commission (SEC), including this report on Form 10-Q. 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. Further, many of these risks and uncertainties are currently amplified by and may continue to be amplified by or may, in the future, be amplified by, the COVID-19 pandemic. 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. All references to “Banner” refer to Banner Corporation and those to “the Bank” refer to its wholly-owned subsidiary, Banner Bank.

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited) (In thousands, except shares)

September 30, 2022 and December 31, 2021


ASSETS	September 30, 2022		December 31, 2021
Cash and due from banks	$	273,052	$	358,461
Interest bearing deposits	548,869		1,775,839
Total cash and cash equivalents	821,921		2,134,300
Securities—trading	28,383		26,981
Securities—available-for-sale, amortized cost $3,433,541 and $3,653,160, respectively	2,996,173		3,638,993
Securities—held-to-maturity, net of allowance for credit losses of $394 and $433, respectively, fair value $947,416 and $541,853, respectively	1,132,852		520,922
Total securities	4,157,408		4,186,896

Federal Home Loan Bank (FHLB) stock	10,000		12,000
Securities purchased under agreements to resell	300,000		300,000
Loans held for sale (includes $80,590 and $39,775, at fair value, respectively)	84,358		96,487
Loans receivable	9,827,096		9,084,763
Allowance for credit losses – loans	(135,918)		(132,099)
Net loans receivable	9,691,178		8,952,664
Accrued interest receivable	50,689		42,916
Real estate owned (REO), held for sale, net	340		852
Property and equipment, net	141,280		148,759
Goodwill	373,121		373,121
Other intangibles, net	10,655		14,855
Bank-owned life insurance (BOLI)	295,443		244,156
Deferred tax assets, net	178,550		71,138
Operating lease right-of-use assets	51,908		55,257
Other assets	193,958		171,471
Total assets	$	16,360,809	$	16,804,872
LIABILITIES
Deposits:
Non-interest-bearing	$	6,507,523	$	6,385,177
Interest-bearing transaction and savings accounts	7,004,799		7,103,125
Interest-bearing certificates	721,944		838,631
Total deposits	14,234,266		14,326,933
Advances from FHLB	—		50,000
Other borrowings	234,006		264,490
Subordinated notes, net	98,849		98,564
Junior subordinated debentures at fair value (issued in connection with Trust Preferred Securities)	73,841		119,815
Operating lease liabilities	58,031		59,756
Accrued expenses and other liabilities	209,226		148,303
Deferred compensation	43,931		46,684
Total liabilities	14,952,150		15,114,545
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS’ EQUITY
Preferred stock - $0.01 par value per share, 500,000 shares authorized; no shares outstanding at September 30, 2022 and December 31, 2021	—		—
Common stock and paid in capital - $0.01 par value per share, 50,000,000 shares authorized; 34,191,759 shares issued and outstanding at September 30, 2022; 34,252,632 shares issued and outstanding at December 31, 2021	1,291,741		1,299,381
Common stock (non-voting) and paid in capital - $0.01 par value per share, 5,000,000 shares authorized; no shares issued and outstanding at September 30, 2022; no shares issued and outstanding at December 31, 2021	—		—
Retained earnings	486,108		390,762
Carrying value of shares held in trust for stock-based compensation plans	(6,973)		(7,435)
Liability for common stock issued to stock related compensation plans	6,973		7,435
Accumulated other comprehensive (loss) income	(369,190)		184

Total shareholders’ equity	1,408,659		1,690,327
Total liabilities and shareholders’ equity	$	16,360,809	$	16,804,872

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited) (In thousands, except shares and per share amounts)

For the Three and Nine Months Ended September 30, 2022 and 2021


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
INTEREST INCOME:
Loans receivable	$	116,610	$	116,487	$	321,466	$	340,802
Mortgage-backed securities	17,558		11,695		48,486		32,503
Securities and cash equivalents	16,951		7,686		37,059		20,649
Total interest income	151,119		135,868		407,011		393,954
INTEREST EXPENSE:
Deposits	2,407		2,749		6,501		9,386
FHLB advances	—		655		291		2,244
Other borrowings	81		125		245		358
Subordinated debt	2,188		2,193		5,866		6,605
Total interest expense	4,676		5,722		12,903		18,593
Net interest income	146,443		130,146		394,108		375,361
PROVISION (RECAPTURE) FOR CREDIT LOSSES	6,087		(8,638)		3,660		(28,145)
Net interest income after provision (recapture) for credit losses	140,356		138,784		390,448		403,506
NON-INTEREST INCOME:
Deposit fees and other service charges	11,449		10,457		33,638		29,154
Mortgage banking operations	105		9,613		8,523		28,305
BOLI	1,804		1,245		5,674		3,797
Miscellaneous	1,689		2,185		5,423		8,173
	15,047		23,500		53,258		69,429
Net gain on sale of securities	6		56		473		618

Net change in valuation of financial instruments carried at fair value	532		1,778		650		1,895

Gain on sale of branches, including related deposits	—		—		7,804		—
Total non-interest income	15,585		25,334		62,185		71,942
NON-INTEREST EXPENSE:
Salary and employee benefits	61,639		59,799		181,957		186,553
Less capitalized loan origination costs	(5,984)		(8,290)		(19,436)		(26,754)
Occupancy and equipment	12,008		13,153		38,512		38,965
Information and computer data services	6,803		6,110		19,451		17,915
Payment and card processing services	5,508		6,181		16,086		15,482
Professional and legal expenses	2,619		12,324		7,677		20,023
Advertising and marketing	1,326		1,521		2,609		3,965
Deposit insurance	1,946		1,469		4,910		4,243
State and municipal business and use taxes	1,223		1,219		3,389		3,367
Real estate operations, net	68		53		(132)		(71)
Amortization of core deposit intangibles	1,215		1,575		4,064		4,997
Loss on extinguishment of debt	—		—		793		—
Miscellaneous	6,663		6,977		18,402		18,642
	95,034		102,091		278,282		287,327
COVID-19 expenses	—		44		—		309
Merger and acquisition-related expenses	—		10		—		660
Total non-interest expense	95,034		102,145		278,282		288,296
Income before provision for income taxes	60,907		61,973		174,351		187,152
PROVISION FOR INCOME TAXES	11,837		12,089		33,353		36,031
NET INCOME	$	49,070	$	49,884	$	140,998	$	151,121





Earnings per common share:
Basic	$	1.43	$	1.45	$	4.11	$	4.35
Diluted	$	1.43	$	1.44	$	4.09	$	4.32
Cumulative dividends declared per common share	$	0.44	$	0.41	$	1.32	$	1.23
Weighted average number of common shares outstanding:
Basic	34,224,640		34,446,510		34,277,182		34,716,914
Diluted	34,416,017		34,669,492		34,499,246		35,012,228

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited) (In thousands)

For the Three and Nine Months Ended September 30, 2022 and 2021


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
NET INCOME	$	49,070	$	49,884	$	140,998	$	151,121
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF INCOME TAXES:
Unrealized holding loss on securities—available-for-sale arising during the period	(140,312)		(23,223)		(422,728)		(62,711)
Income tax benefit related to securities—available-for-sale unrealized holding losses	33,675		5,574		101,455		15,051
Reclassification for net gain on securities—available-for-sale realized in earnings	(6)		(118)		(473)		(634)
Income tax expense related to securities—available-for-sale realized gains	2		28		114		152
Unrealized loss on securities transferred from available-for-sale to held-to-maturity	—		—		(34,596)		—
Income tax benefit related to securities transferred from available-for-sale to held-to-maturity	—		—		8,303		—
Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity	754		—		1,982		—
Income tax expense related to amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity	(181)		—		(476)		—
Net unrealized loss on interest rate swaps used in cash flow hedges	(7,871)		—		(26,425)		—
Income tax benefit related to interest rate swaps used in cash flow hedges	1,889		—		6,342		—
Changes in fair value of junior subordinated debentures related to instrument specific credit risk	(1,612)		(7,333)		(4,544)		(7,879)
Income tax benefit related to junior subordinated debentures	387		1,760		1,091		1,891
Reclassification of fair value of junior subordinated debentures redeemed	—		—		765		—
Income tax expense related to junior subordinated debentures redeemed	—		—		(184)		—
Other comprehensive loss	(113,275)		(23,312)		(369,374)		(54,130)
COMPREHENSIVE (LOSS) INCOME	$	(64,205)	$	26,572	$	(228,376)	$	96,991

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited) (In thousands, except shares)

For the Nine Months Ended September 30, 2022 and the Year Ended December 31, 2021


	Common Stock and Paid in Capital					Retained Earnings			Accumulated Other Comprehensive Income				Total Shareholders’ Equity
			Shares				Amount
Balance, January 1, 2021		35,159,200		$	1,349,879		$	247,316		$	69,069			$	1,666,264


Net income									46,855							46,855
Other comprehensive loss, net of income tax												(56,103)				(56,103)
Accrual of dividends on common stock ($0.41/share)									(14,589)							(14,589)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered			76,143			1,714										1,714
Repurchase of common stock			(500,000)			(25,324)										(25,324)

Balance, March 31, 2021		34,735,343		$	1,326,269		$	279,582		$	12,966			$	1,618,817


	Common Stock and Paid in Capital			Retained Earnings		Accumulated Other Comprehensive Income		Total Shareholders’ Equity
	Shares	Amount
Balance, April 1, 2021	34,735,343	$	1,326,269	$	279,582	$	12,966	$	1,618,817

Net income				54,382				54,382
Other comprehensive income, net of income tax						25,285		25,285
Accrual of dividends on common stock ($0.41/share)				(14,459)				(14,459)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	65,545	(259)						(259)
Repurchase of common stock	(250,000)	(14,555)						(14,555)

Balance, June 30, 2021	34,550,888	$	1,311,455	$	319,505	$	38,251	$	1,669,211

BANNER CORP [BANR] Filings
10-Q	[2022-11-03]
10-Q	[2022-08-04]
10-Q	[2022-05-09]
10-K	[2022-02-24]
10-Q	[2021-11-04]
10-Q	[2021-08-05]
10-Q	[2021-05-05]
10-K	[2021-02-23]
10-Q	[2020-11-05]
10-Q	[2020-08-05]
10-Q	[2020-05-07]
10-K	[2020-02-21]
10-Q	[2019-11-01]
10-Q	[2019-08-02]
10-Q	[2019-05-03]
10-K	[2019-02-26]
10-Q	[2018-11-02]
10-Q	[2018-08-03]
10-Q	[2018-05-04]
10-K	[2018-02-23]
10-Q	[2017-11-06]
10-Q	[2017-08-04]
10-Q	[2017-05-05]
10-K	[2017-02-27]
10-Q	[2016-11-07]
10-Q	[2016-08-05]
10-Q	[2016-05-06]
10-K	[2016-02-29]
S-1	[2015-12-11]
10-Q	[2015-11-06]
10-Q	[2015-08-07]
10-Q	[2015-05-08]
10-K	[2015-03-16]
10-Q	[2014-11-06]
10-Q	[2014-08-08]
10-Q	[2014-05-09]
10-K	[2014-03-04]
10-Q	[2013-11-04]
10-Q	[2013-08-07]
10-Q	[2013-05-07]
10-K	[2013-03-14]
10-Q	[2012-11-06]
10-Q	[2012-08-09]
10-Q	[2012-05-09]
10-K	[2012-03-13]