Banner Earnings 2019-09-30

BANR 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Comparables ($MM TTM)
Ticker	M Cap	Assets	Liab	Rev	G Profit	Net Inc	EBITDA	EV	G Margin	EV/EBITDA	ROA
GWB	1,951	12,955	11,074	41	0	159	334	1,835	0%	5.5	1%
HTH	1,901	14,266	12,214	0	0	166	374	1,407		3.8	1%
BANF	1,863	7,642	6,686	0	0	132	231	158		0.7	2%
ABCB	1,846	11,889	10,352	0	0	164	332	1,507		4.5	1%
BANR	1,832	11,847	10,326	0	0	148	260	1,586		6.1	1%
SFBS	1,830	8,740	7,961	0	0	141	275	944		3.4	2%
FRME	1,798	10,738	9,236	0	0	163	295	1,670		5.7	2%
NWBI	1,796	10,505	9,172	0	0	0	79	1,689		21.4	0%
EGBN	1,754	8,388	7,240	0	0	156	315	1,850		5.9	2%
HOPE	1,713	15,339	13,344	0	0	176	455	1,300		2.9	1%

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2019

☐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, 2019

Common Stock, $.01 par value per share

34,134,162 shares

Non-voting Common Stock, $.01 par value per share

39,192 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, 2019 and December 31, 2018	4

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018	5

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018	6

Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September, 2019 and the Year Ended December 31, 2018	7

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	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	48

Comparison of Financial Condition at September 30, 2019 and December 31, 2018	54

Comparison of Results of Operations for the Three and Nine Months Ended September 30, 2019 and 2018	57

Asset Quality	64

Liquidity and Capital Resources	66

Capital Requirements	67

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Market Risk and Asset/Liability Management	68

Sensitivity Analysis	68

Item 4 – Controls and Procedures	73

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings	74

Item 1A – Risk Factors	74

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	74

Item 3 – Defaults upon Senior Securities	74

Item 4 – Mine Safety Disclosures	74

Item 5 – Other Information	74

Item 6 – Exhibits	75

SIGNATURES	77

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 actual results to differ materially from the results anticipated or implied by our forward-looking statements, including, but not limited to: expected revenues, cost savings, synergies and other benefits from the merger of Banner and AltaPacific Bancorp (AltaPacific) might not be realized within the expected time frames or at all and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; business disruption may occur following or in connection with the merger of Banner and AltaPacific; Banner's or AltaPacific's businesses may experience disruptions due to transaction-related uncertainty or other factors making it more difficult to maintain relationships with employees, customers, other business partners or governmental entities; the possibility that the merger is more expensive to complete than anticipated, including as a result of unexpected factors or events; diversion of managements' attention from ongoing business operations and opportunities as a result of the merger or otherwise; 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 loan losses and provisions for loan losses that may be impacted by deterioration in the housing and commercial real estate markets and may lead to increased losses and non-performing assets, and may result in the allowance for loan losses not being adequate to cover actual losses and require a material increase in reserves; results of examinations by regulatory authorities, including the possibility that any such regulatory authority may, among other things, require the writing down of assets or increases in the allowance for loan 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; 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 customers’ needs and developments in the marketplace; the ability to access cost-effective funding; increases in premiums for deposit insurance; the ability to control operating costs and expenses; 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; 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 or reforms, including changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules, including changes related to Basel III; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the implementing regulations; results of safety and soundness and compliance examinations by the Board of Governors of the Federal Reserve System, 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; 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 economic impact of war or any terrorist activities; 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, or other factors; 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. 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 Banks” refer to its wholly-owned subsidiaries, Banner Bank and Islanders Bank, collectively.

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited) (In thousands, except shares)

September 30, 2019 and December 31, 2018



ASSETS	September 30, 2019			December 31, 2018
Cash and due from banks	$	250,671		$	231,029
Interest bearing deposits	73,785			41,167
Total cash and cash equivalents	324,456			272,196
Securities—trading	25,672			25,896
Securities—available-for-sale, amortized cost $1,508,810 and $1,648,421, respectively	1,539,908			1,636,223
Securities—held-to-maturity, fair value $233,721 and $232,537, respectively	230,056			234,220
Total securities	1,795,636			1,896,339
Federal Home Loan Bank (FHLB) stock	25,623			31,955
Loans held for sale (includes $225.6 million and $164.8 million, at fair value, respectively)	244,889			171,031
Loans receivable	8,835,368			8,684,595
Allowance for loan losses	(97,801		)	(96,485		)
Net loans receivable	8,737,567			8,588,110
Accrued interest receivable	40,033			38,593
Real estate owned (REO), held for sale, net	228			2,611
Property and equipment, net	171,279			171,809
Goodwill	339,154			339,154
Other intangibles, net	26,610			32,924
Bank-owned life insurance (BOLI)	179,076			177,467
Deferred tax assets, net	58,884			75,020
Other assets	154,407			74,108
Total assets	$	12,097,842		$	11,871,317
LIABILITIES
Deposits:
Non-interest-bearing	$	3,885,210		$	3,657,817
Interest-bearing transaction and savings accounts	4,624,970			4,498,966
Interest-bearing certificates	1,218,591			1,320,265
Total deposits	9,728,771			9,477,048
Advances from FHLB	382,000			540,189
Other borrowings	120,014			118,995
Junior subordinated debentures at fair value (issued in connection with Trust Preferred Securities)	113,417			114,091
Accrued expenses and other liabilities	181,351			102,061
Deferred compensation	41,354			40,338
Total liabilities	10,566,907			10,392,722
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS’ EQUITY
Preferred stock - $0.01 par value per share, 500,000 shares authorized; no shares outstanding at September 30, 2019 and December 31, 2018	—			—
Common stock and paid in capital - $0.01 par value per share, 50,000,000 shares authorized; 34,134,165 shares issued and outstanding at September 30, 2019; 35,107,839 shares issued and outstanding at December 31, 2018	1,286,022			1,336,030
Common stock (non-voting) and paid in capital - $0.01 par value per share, 5,000,000 shares authorized; 39,192 shares issued and outstanding at September 30, 2019; 74,933 shares issued and outstanding at December 31, 2018	689			1,406
Retained earnings	203,704			134,055
Carrying value of shares held in trust for stock-based compensation plans	(7,387		)	(7,289		)
Liability for common stock issued to stock related compensation plans	7,387			7,289
Accumulated other comprehensive income	40,520			7,104
Total shareholders' equity	1,530,935			1,478,595
Total liabilities and shareholders' equity	$	12,097,842		$	11,871,317

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, 2019 and 2018



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
INTEREST INCOME:
Loans receivable	$	118,096		$	104,868		$	350,558		$	298,743
Mortgage-backed securities	9,415			8,915			29,716			25,145
Securities and cash equivalents	3,925			3,865			11,996			11,003
Total interest income	131,436			117,648			392,270			334,891
INTEREST EXPENSE:
Deposits	10,014			5,517			27,680			13,139
FHLB advances	3,107			1,388			9,953			3,564
Other borrowings	82			60			209			179
Junior subordinated debentures	1,612			1,605			5,008			4,495
Total interest expense	14,815			8,570			42,850			21,377
Net interest income	116,621			109,078			349,420			313,514
PROVISION FOR LOAN LOSSES	2,000			2,000			6,000			6,000
Net interest income after provision for loan losses	114,621			107,078			343,420			307,514
NON-INTEREST INCOME:
Deposit fees and other service charges	10,331			12,255			36,995			35,535
Mortgage banking operations	6,616			5,816			15,967			15,324
Bank-owned life insurance (BOLI)	1,076			1,726			3,475			3,511
Miscellaneous	2,914			569			5,431			4,995
	20,937			20,366			61,868			59,365
Net (loss) gain on sale of securities	(2		)	—			(29		)	48
Net change in valuation of financial instruments carried at fair value	(69		)	45			(172		)	3,577
Total non-interest income	20,866			20,411			61,667			62,990
NON-INTEREST EXPENSE:
Salary and employee benefits	59,090			48,930			169,359			150,491
Less capitalized loan origination costs	(7,889		)	(4,318		)	(20,137		)	(13,062		)
Occupancy and equipment	12,566			12,385			39,013			35,725
Information/computer data services	5,657			4,766			16,256			13,711
Payment and card processing expenses	4,330			3,748			12,355			11,179
Professional and legal expenses	2,704			3,010			7,474			11,276
Advertising and marketing	2,221			1,786			5,815			5,758
Deposit insurance (benefit) expense	(1,604		)	991			1,232			3,353
State/municipal business and use taxes	1,011			902			2,963			2,430
REO operations, net	126			433			263			553
Amortization of core deposit intangibles	1,985			1,348			6,090			4,112
Miscellaneous	6,435			6,646			20,230			19,444
	86,632			80,627			260,913			244,970
Acquisition-related expenses	676			1,005			3,125			1,005
Total non-interest expense	87,308			81,632			264,038			245,975
Income before provision for income taxes	48,179			45,857			141,049			124,529
PROVISION FOR INCOME TAXES	8,602			8,084			28,426			25,542
NET INCOME	$	39,577		$	37,773		$	112,623		$	98,987
Earnings per common share:
Basic	$	1.15		$	1.17		$	3.24		$	3.06
Diluted	$	1.15		$	1.17		$	3.23		$	3.05
Cumulative dividends declared per common share	$	0.41		$	0.38		$	1.23		$	1.58
Weighted average number of common shares outstanding:
Basic	34,407,462			32,256,789			34,760,607			32,300,688
Diluted	34,497,994			32,376,623			34,850,006			32,406,414

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (In thousands)

For the Three and Nine Months Ended September 30, 2019 and 2018



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
NET INCOME	$	39,577		$	37,773		$	112,623		$	98,987
OTHER COMPREHENSIVE INCOME (LOSS), NET OF INCOME TAXES:
Unrealized holding gain (loss) on available-for-sale securities arising during the period	5,861			(10,010		)	43,268			(33,083		)
Reclassification for net loss (gain) on available-for-sale securities realized in earnings	2			—			28			(51		)
Changes in fair value of junior subordinated debentures related to instrument specific credit risk	204			(336		)	674			(14,403		)
Income tax (expense) benefit related to other comprehensive income (loss)	(1,457		)	2,483			(10,554		)	11,376
Other comprehensive income (loss)	4,610			(7,863		)	33,416			(36,161		)
COMPREHENSIVE INCOME	$	44,187		$	29,910		$	146,039		$	62,826

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, 2019 and the Year Ended December 31, 2018



	Common Stock and Paid in Capital					Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Shareholders’ Equity
	Shares		Amount			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Shareholders’ Equity
Balance, January 1, 2018	32,726,485		$	1,187,127		$	90,535		$	(5,036	)	$	1,272,626

Cumulative effect of reclassification of the instrument-specific credit risk portion of junior subordinated debentures fair value adjustments and reclassification of equity securities from available-for-sale						(28,203		)	28,203			—
Net income						28,790						28,790
Other comprehensive loss, net of income tax									(21,777		)	(21,777		)
Repurchase of common stock	(269,711	)	(15,359		)							(15,359		)
Accrual of dividends on common stock ($0.35/share)						(11,349		)				(11,349		)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	(33,101	)	1,192									1,192

Balance, March 31, 2018	32,423,673		$	1,172,960		$	79,773		$	1,390		$	1,254,123



Balance, April 1, 2018	32,423,673	$	1,172,960	$	79,773	$	1,390	$	1,254,123

Net income

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$0.00	35	$1,832

10-Q	2019-11-01	Quarter: 2019-09-30
10-Q	2019-08-02	Quarter: 2019-06-30
10-Q	2019-05-03	Quarter: 2019-03-31
10-K	2019-02-26	Annual: 2018-12-31
10-Q	2018-11-02	Quarter: 2018-09-30
10-Q	2018-08-03	Quarter: 2018-06-30
10-Q	2018-05-04	Quarter: 2018-03-31
10-K	2018-02-23	Annual: 2017-12-31
10-Q	2017-11-06	Quarter: 2017-09-30
10-Q	2017-08-04	Quarter: 2017-06-30
10-Q	2017-05-05	Quarter: 2017-03-31
10-K	2017-02-27	Annual: 2016-12-31
10-Q	2016-11-07	Quarter: 2016-09-30
10-Q	2016-08-05	Quarter: 2016-06-30
10-Q	2016-05-06	Quarter: 2016-03-31
10-K	2016-02-29	Annual: 2015-12-31
10-Q	2015-11-06	Quarter: 2015-09-30
10-Q	2015-08-07	Quarter: 2015-06-30
10-Q	2015-05-08	Quarter: 2015-03-31
10-K	2015-03-16	Annual: 2014-12-31
10-Q	2014-11-06	Quarter: 2014-09-30
10-Q	2014-08-08	Quarter: 2014-06-30
10-Q	2014-05-09	Quarter: 2014-03-31
10-K	2014-03-04	Annual: 2013-12-31
10-Q	2013-11-04	Quarter: 2013-09-30
10-Q	2013-08-07	Quarter: 2013-06-30
10-Q	2013-05-07	Quarter: 2013-03-31
10-K	2013-03-14	Annual: 2012-12-31
10-Q	2012-11-06	Quarter: 2012-09-30
10-Q	2012-08-09	Quarter: 2012-06-30
10-Q	2012-05-09	Quarter: 2012-03-31
10-K	2012-03-13	Annual: 2011-12-31
10-Q	2011-11-09	Quarter: 2011-09-30
10-Q	2011-08-05	Quarter: 2011-06-30
10-Q	2011-05-09	Quarter: 2011-03-31
10-K	2011-03-11	Annual: 2010-12-31
10-Q	2010-11-05	Quarter: 2010-09-30
10-Q	2010-08-06	Quarter: 2010-06-30
10-Q	2010-05-07	Quarter: 2010-03-31
10-K	2010-03-16	Annual: 2009-12-31

8-K	2020-01-23	Earnings, Regulation FD, Exhibits
8-K	2019-11-01	Other Events, Exhibits
8-K	2019-10-23	Regulation FD, Exhibits
8-K	2019-10-23	Earnings, Exhibits
8-K	2019-07-24	Other Events, Exhibits
8-K	2019-07-24	Earnings, Exhibits
8-K	2019-04-25	Shareholder Vote, Exhibits
8-K	2019-04-24	Earnings, Exhibits
8-K	2019-04-24	Regulation FD, Exhibits
8-K	2019-03-27	Other Events, Exhibits
8-K	2019-01-24	Regulation FD, Exhibits
8-K	2019-01-23	Earnings, Exhibits
8-K	2018-11-08	Regulation FD, Exhibits
8-K	2018-11-01	Officers, Other Events, Exhibits
8-K	2018-10-24	Earnings, Exhibits
8-K	2018-10-16	Other Events, Exhibits
8-K	2018-10-02	Other Events, Exhibits
8-K	2018-08-06	Regulation FD, Exhibits
8-K	2018-07-25	Other Events, Exhibits
8-K	2018-07-25	Enter Agreement, Exhibits, Enter Agreement
8-K	2018-07-25	Earnings, Exhibits
8-K	2018-07-19	Code of Ethics
8-K	2018-05-09	Regulation FD, Exhibits
8-K	2018-04-24	Shareholder Vote, Exhibits
8-K	2018-04-23	Earnings, Exhibits
8-K	2018-03-28	Other Events, Exhibits
8-K	2018-02-26	Officers, Exhibits
8-K	2018-02-01	Regulation FD, Exhibits
8-K	2018-01-24	Earnings, Exhibits
8-K	2018-01-04	Earnings, Regulation FD, Exhibits

EX-31.1	banr-9302019xex311.htm
EX-31.2	banr-9302019xex312.htm
EX-32	banr-9302019xex32.htm