BANNER CORP [BANR] Filings

10-Q 1 banr-20230930.htm 10-Q banr-20230930

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, 2023

☐ 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

☒

☐

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

☒

☐

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

☒

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

☐

☒

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, 2023

Common Stock, $.01 par value per share

34,348,094 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, 2023 and December 31, 2022			4

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022			5

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022			6

Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2023 and the Year Ended December 31, 2022			7

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022			8

Selected Notes to the Consolidated Financial Statements			10

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

Executive Overview			47

Comparison of Financial Condition at September 30, 2023 and December 31, 2022			49

Comparison of Results of Operations for the Three Months Ended September 30, 2023 and June 30, 2023 and the Nine Months Ended September 30, 2023 and 2022			54

Asset Quality			62

Liquidity and Capital Resources			63

Capital Requirements			64

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Market Risk and Asset/Liability Management			65

Sensitivity Analysis			66

Item 4 – Controls and Procedures			68

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings			69

Item 1A – Risk Factors			69

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			70

Item 3 – Defaults upon Senior Securities			70

Item 4 – Mine Safety Disclosures			70

Item 5 – Other Information			70

Item 6 – Exhibits			71

SIGNATURES			73

All references to “Banner” refer to Banner Corporation and those to the “Bank” refer to its wholly-owned subsidiary, Banner Bank. 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.

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. 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, including statements about our financial condition, liquidity and results of operations. 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.” 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 supply chain disruptions; changes in the interest rate environment, including the recent increases in the Board of Governors of the Federal Reserve System (the Federal Reserve) benchmark rate and duration at which such increased interest rate levels are maintained, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; the impact of continuing high inflation and the current and future monetary policies of the Federal Reserve in response thereto; the effects of any federal government shutdown; 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; the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment; the transition away from the London Interbank Offered Rate (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; 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 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 the Company of other depository institutions or lines of business; and future goodwill impairment due to changes in the Company’s business, changes in market conditions; and other risks detailed in our Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”) and in our reports filed with or furnished to 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. 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.

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

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

September 30, 2023 and December 31, 2022


ASSETS	September 30, 2023		December 31, 2022
Cash and due from banks	$	207,171	$	198,154
Interest bearing deposits	44,535		44,908
Total cash and cash equivalents	251,706		243,062
Securities—trading	25,268		28,694
Securities—available-for-sale, net of allowance for credit losses of $750 and none, respectively; amortized cost $2,774,972 and $3,218,777, respectively	2,287,993		2,789,031
Securities—held-to-maturity, net of allowance for credit losses of $349 and $379, respectively	1,082,156		1,117,588
Total securities	3,395,417		3,935,313

Federal Home Loan Bank (FHLB) stock	15,600		12,000
Securities purchased under agreements to resell	—		300,000
Loans held for sale (includes $51,697 and $51,779, at fair value, respectively)	54,158		56,857
Loans receivable	10,611,417		10,146,724
Allowance for credit losses – loans	(146,960)		(141,465)
Net loans receivable	10,464,457		10,005,259
Accrued interest receivable	61,040		57,284
Property and equipment, net	136,504		138,754
Goodwill	373,121		373,121
Other intangibles, net	6,542		9,440
Bank-owned life insurance (BOLI)	303,347		297,565
Deferred tax assets, net	186,775		178,131
Operating lease right-of-use assets	43,447		49,283
Other assets	215,766		177,362
Total assets	$	15,507,880	$	15,833,431
LIABILITIES
Deposits:
Non-interest-bearing	$	5,197,854	$	6,176,998
Interest-bearing transaction and savings accounts	6,518,385		6,719,531
Interest-bearing certificates	1,458,313		723,530
Total deposits	13,174,552		13,620,059
Advances from FHLB	140,000		50,000
Other borrowings	188,440		232,799
Subordinated notes, net	92,748		98,947
Junior subordinated debentures at fair value (issued in connection with Trust Preferred Securities)	66,284		74,857
Operating lease liabilities	48,642		55,205
Accrued expenses and other liabilities	231,478		200,839
Deferred compensation	45,129		44,293
Total liabilities	13,987,273		14,376,999
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS’ EQUITY
Preferred stock - $0.01 par value per share, 500,000 shares authorized; no shares outstanding at September 30, 2023 and December 31, 2022	—		—
Common stock and paid in capital - $0.01 par value per share, 50,000,000 shares authorized; 34,345,949 shares issued and outstanding at September 30, 2023; 34,194,018 shares issued and outstanding at December 31, 2022	1,297,307		1,293,959
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, 2023; no shares issued and outstanding at December 31, 2022	—		—
Retained earnings	616,215		525,242
Carrying value of shares held in trust for stock-based compensation plans	(6,546)		(6,905)
Liability for common stock issued to stock related compensation plans	6,546		6,905
Accumulated other comprehensive loss	(392,915)		(362,769)

Total shareholders’ equity	1,520,607		1,456,432
Total liabilities and shareholders’ equity	$	15,507,880	$	15,833,431

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, 2023 and 2022


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
INTEREST INCOME:
Loans receivable	$	149,254	$	116,610	$	423,359	$	321,466
Mortgage-backed securities	17,691		17,558		54,954		48,486
Securities and cash equivalents	12,119		16,951		39,521		37,059
Total interest income	179,064		151,119		517,834		407,011
INTEREST EXPENSE:
Deposits	31,001		2,407		60,784		6,501
FHLB advances	2,233		—		8,654		291
Other borrowings	1,099		81		2,251		245
Subordinated debt	2,965		2,188		8,549		5,866
Total interest expense	37,298		4,676		80,238		12,903
Net interest income	141,766		146,443		437,596		394,108
PROVISION FOR CREDIT LOSSES	2,027		6,087		8,267		3,660
Net interest income after provision for credit losses	139,739		140,356		429,329		390,448
NON-INTEREST INCOME:
Deposit fees and other service charges	10,916		11,449		32,078		33,638
Mortgage banking operations	2,049		105		6,426		8,523
BOLI	2,062		1,804		6,636		5,674
Miscellaneous	942		1,689		4,010		5,423
	15,969		15,047		49,150		53,258
Net (loss) gain on sale of securities	(2,657)		6		(14,436)		473

Net change in valuation of financial instruments carried at fair value	(654)		532		(4,357)		650

Gain on sale of branches, including related deposits	—		—		—		7,804
Total non-interest income	12,658		15,585		30,357		62,185
NON-INTEREST EXPENSE:
Salary and employee benefits	61,091		61,639		184,452		181,957
Less capitalized loan origination costs	(4,498)		(5,984)		(12,386)		(19,436)
Occupancy and equipment	11,722		12,008		35,686		38,512
Information and computer data services	7,118		6,803		21,347		19,451
Payment and card processing services	5,172		5,508		14,459		16,086
Professional and legal expenses	3,042		2,619		7,563		7,677
Advertising and marketing	1,362		1,326		3,108		2,609
Deposit insurance	2,874		1,946		7,603		4,910
State and municipal business and use taxes	1,359		1,223		3,888		3,389
Real estate operations, net	(383)		68		(585)		(132)
Amortization of core deposit intangibles	857		1,215		2,898		4,064
Loss on extinguishment of debt	—		—		—		793
Miscellaneous	6,175		6,663		17,884		18,402



Total non-interest expense	95,891		95,034		285,917		278,282
Income before provision for income taxes	56,506		60,907		173,769		174,351
PROVISION FOR INCOME TAXES	10,652		11,837		32,769		33,353
NET INCOME	$	45,854	$	49,070	$	141,000	$	140,998





Earnings per common share:
Basic	$	1.33	$	1.43	$	4.11	$	4.11
Diluted	$	1.33	$	1.43	$	4.09	$	4.09
Cumulative dividends declared per common share	$	0.48	$	0.44	$	1.44	$	1.32
Weighted average number of common shares outstanding:
Basic	34,379,865		34,224,640		34,331,458		34,277,182
Diluted	34,429,726		34,416,017		34,439,214		34,499,246

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, 2023 and 2022


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
NET INCOME	$	45,854	$	49,070	$	141,000	$	140,998
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF INCOME TAXES:
Unrealized holding loss on securities—available-for-sale arising during the period	(76,417)		(140,312)		(71,669)		(422,728)
Income tax benefit related to securities—available-for-sale unrealized holding losses	18,341		33,675		17,201		101,455
Reclassification for net loss (gain) on securities—available-for-sale realized in earnings	2,657		(6)		14,436		(473)
Income tax (benefit) expense related to securities—available-for-sale realized in earnings	(638)		2		(3,465)		114
Reclassification of (recapture) provision for credit losses on securities—available-for-sale realized in earnings	(1,250)		—		750		—
Income tax benefit (expense) related to the reclassification of (recapture) provision for credit losses on securities—available-for-sale realized in earnings	300		—		(180)		—
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	617		754		1,773		1,982
Income tax expense related to amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity	(150)		(181)		(426)		(476)
Net unrealized gain (loss) on interest rate swaps used in cash flow hedges	3,090		(7,871)		6,472		(26,425)
Income tax (expense) benefit related to interest rate swaps used in cash flow hedges	(741)		1,889		(1,553)		6,342
Changes in fair value of junior subordinated debentures related to instrument specific credit risk	953		(1,612)		8,573		(4,544)
Income tax (expense) benefit related to junior subordinated debentures	(229)		387		(2,058)		1,091
Reclassification of fair value of junior subordinated debentures redeemed	—		—		—		765
Income tax expense related to junior subordinated debentures redeemed	—		—		—		(184)
Other comprehensive loss	(53,467)		(113,275)		(30,146)		(369,374)
COMPREHENSIVE (LOSS) INCOME	$	(7,613)	$	(64,205)	$	110,854	$	(228,376)

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

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

For the Nine Months Ended September 30, 2023 and the Year Ended December 31, 2022


	Common Stock and Paid in Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
	Shares	Amount
Balance, January 1, 2022	34,252,632	$	1,299,381	$	390,762	$	184	$	1,690,327

Net income				43,963				43,963
Other comprehensive loss, net of income tax						(154,275)		(154,275)
Accrual of dividends on common stock ($0.44/share)				(15,066)				(15,066)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	120,152	(1,169)						(1,169)

Balance, March 31, 2022	34,372,784	$	1,298,212	$	419,659	$	(154,091)	$	1,563,780
Net income				47,965				47,965
Other comprehensive loss, net of income tax						(101,824)		(101,824)
Accrual of dividends on common stock ($0.44/share)				(15,378)				(15,378)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	18,546	2,247						2,247
Repurchase of common stock	(200,000)	(10,960)						(10,960)
Balance, June 30, 2022	34,191,330	$	1,289,499	$	452,246	$	(255,915)	$	1,485,830
Net income				49,070				49,070
Other comprehensive loss, net of income tax						(113,275)		(113,275)
Accrual of dividends on common stock ($0.44/share)				(15,208)				(15,208)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	429	2,242						2,242

Balance, September 30, 2022	34,191,759	$	1,291,741	$	486,108	$	(369,190)	$	1,408,659
Net income				54,380				54,380
Other comprehensive income, net of income tax						6,421		6,421
Accrual of dividends on common stock ($0.44/share)				(15,246)				(15,246)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	2,259	2,218						2,218


Balance, December 31, 2022	34,194,018	$	1,293,959	$	525,242	$	(362,769)	$	1,456,432




Balance, January 1, 2023	34,194,018	$	1,293,959	$	525,242	$	(362,769)	$	1,456,432


Net income				55,555				55,555
Other comprehensive income, net of income tax						37,133		37,133
Accrual of dividends on common stock ($0.48/share)				(16,691)				(16,691)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	114,522	(734)						(734)


Balance, March 31, 2023	34,308,540	1,293,225		564,106		(325,636)		1,531,695
Net income				39,591				39,591
Other comprehensive loss, net of income tax						(13,812)		(13,812)
Accrual of dividends on common stock ($0.48/share)				(16,670)				(16,670)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	36,087	1,709						1,709

Balance, June 30, 2023	34,344,627	$	1,294,934	$	587,027	$	(339,448)	$	1,542,513
Net income				45,854				45,854
Other comprehensive loss, net of income tax						(53,467)		(53,467)
Accrual of dividends on common stock ($0.48/share)				(16,666)				(16,666)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	1,322	2,373						2,373

Balance, September 30, 2023	34,345,949	$	1,297,307	$	616,215	$	(392,915)	$	1,520,607

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)

For the Nine Months Ended September 30, 2023 and 2022


	Nine Months Ended September 30,
	2023		2022
OPERATING ACTIVITIES:
Net income	$	141,000	$	140,998
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation	13,314		12,594
Deferred income and expense, net of amortization	(2,490)		(3,743)
Capitalized loan servicing rights, net of amortization	1,520		479
Amortization of core deposit intangibles	2,898		4,064
Loss (gain) on sale of securities, net	14,436		(473)

Net change in valuation of financial instruments carried at fair value	4,357		(650)




Gain on sale of branches, including related deposits	—		(7,804)
Decrease in deferred taxes	877		9,233
(Decrease) increase in current taxes receivable, net	(3,370)		9,706
Stock-based compensation	6,785		6,592
Net change in cash surrender value of BOLI	(6,357)		(4,980)
Gain on sale of loans, excluding capitalized servicing rights	(2,277)		(3,246)
Gain on disposal of real estate held for sale and property and equipment, net	(442)		239
Provision for credit losses	8,267		3,660

Loss on extinguishment of debt	—		765
Origination of loans held for sale	(187,077)		(376,654)
Proceeds from sales of loans held for sale	200,525		375,656
Net change in:
Other assets	(21,602)		(55,631)
Other liabilities	19,188		46,562
Net cash provided from operating activities	189,552		157,367
INVESTING ACTIVITIES:
Purchases of securities—available-for-sale	(54,192)		(606,622)
Principal repayments and maturities of securities—available-for-sale	138,402		296,272
Proceeds from sales of securities—available-for-sale	334,937		25,030
Purchases of securities—held-to-maturity	—		(190,645)
Principal repayments and maturities of securities—held-to-maturity	35,329		40,810


Loan originations, net of repayments	(479,482)		(621,444)
Purchases of loans and participating interest in loans	—		(103,268)
Proceeds from sales of other loans	11,519		13,269

Net cash paid related to branch divestiture	—		(168,137)
Purchases of property and equipment	(11,626)		(12,244)
Proceeds from sale of real estate held for sale and sale of other property	1,019		5,940
Proceeds from FHLB stock repurchase program	119,840		2,000
Purchase of FHLB stock	(123,440)		—

Proceeds from maturity of securities purchased under agreements to resell	300,000		—
Investment in bank-owned life insurance	(66)		(50,052)
Other	419		3,544
Net cash provided from (used by) investing activities	272,659		(1,365,547)

Continued on next page

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited) (In thousands)

For the Nine Months Ended September 30, 2023 and 2022


	Nine Months Ended September 30,
	2023		2022
FINANCING ACTIVITIES:
(Decrease) increase in deposits, net	$	(445,507)	$	85,535

Repayment of long term FHLB advances	—		(50,000)
Advances of overnight and short term FHLB advances, net	90,000		—
Decrease in other borrowings, net	(44,360)		(30,483)

Repayment of junior subordinated debentures	—		(50,518)
Proceeds from redemption of trust preferred securities related to junior subordinated debentures	—		1,518
Cash dividends paid	(50,263)		(46,019)
Cash paid for repurchase of common stock	—		(10,960)
Taxes paid related to net share settlement of equity awards	(3,437)		(3,272)
Net cash used by financing activities	(453,567)		(104,199)
NET CHANGE IN CASH AND CASH EQUIVALENTS	8,644		(1,312,379)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	243,062		2,134,300
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	251,706	$	821,921


	Nine Months Ended September 30,
	2023		2022
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid in cash	$	66,461	$	11,332
Tax paid	29,931		10,670
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Transfer of loans to real estate owned and other repossessed assets	205		—
Dividends accrued but not paid until after period end	921		972
Loans, held-for-sale, transferred (from) to portfolio	(8,472)		13,420
Securities, available-for-sale, transferred to held-to-maturity	—		462,159
DISPOSITIONS:
Assets divested	—		(1,539)
Liabilities divested	—		(178,209)

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed consolidated financial statements include the accounts of Banner Corporation (the Company or Banner), a bank holding company incorporated in the State of Washington and its wholly-owned subsidiary, Banner Bank (the Bank).

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the SEC. In preparing these financial statements, the Company has evaluated events and transactions subsequent to September 30, 2023, for potential recognition or disclosure. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Certain information and note disclosures have been condensed or omitted pursuant to the rules and regulations of the SEC and the accounting standards for interim financial statements. Certain reclassifications have been made to the 2022 Consolidated Financial Statements and/or schedules to conform to the 2023 presentation. These reclassifications may have affected certain ratios for the prior periods. The effect of these reclassifications is considered immaterial. All significant intercompany transactions and balances have been eliminated.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements. Various elements of the Company’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments.

The information included in this Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Interim results are not necessarily indicative of results for a full year or any other interim period.

Note 2: ACCOUNTING STANDARDS RECENTLY ISSUED OR ADOPTED

Financial Instruments – Credit Losses (Topic 326)

On January 1, 2023, the Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The ASU eliminated the troubled debt restructuring (TDR) recognition and measurement guidance and, instead, requires that a creditor evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The ASU also introduced new disclosure requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. In addition, the ASU requires vintage disclosures including current-period gross write-offs by year of origination for financing receivables. The Company applied the ASU prospectively and new disclosures have been added when applicable.

Reference Rate Reform (Topic 848)

In March 2020, the FASB issued guidance within ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, in response to the scheduled discontinuation of LIBOR on December 31, 2021. The amendments in this ASU provide optional guidance designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, borrowings) necessitated by reference rate reform. Since the issuance of this guidance, the publication cessation of U.S. dollar LIBOR was extended to June 30, 2023.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of Sunset Date of Topic 848. This ASU defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. This deferral of the sunset date is in response to the extension of the publication cessation date. The amendments in this ASU are effective upon the issuance date of December 2022.

The following optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification are permitted for contracts that are modified because of reference rate reform and that meet certain scope guidance: 1) modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt, should be accounted for by prospectively adjusting the effective interest rate; 2) modifications of contracts within the scope of Topic 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts; 3) modifications of contracts do not require an entity to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract; and 4) the amendments in this ASU also include a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments in this ASUs are effective upon the issuance date of March 12, 2020, and applies to contract modifications made and new hedging relationships entered into through December 31, 2022.

The Company used the expedients in the Reference Rate Reform guidance to manage through the transition from LIBOR, specifically as they relate to loans, leases and hedging relationships. The adoption of this accounting guidance did not have a material impact on the Company’s Consolidated Financial Statements.

Fair Value Measurement (Topic 820)

In June 2022, the FASB issued guidance within ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The ASU affects all entities that have investments in equity securities measured at fair value that are subject to a contractual sale restriction. These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

The ASU is effective for fiscal years, beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The adoption of this ASU is not expected to have a material impact on the Company’s Consolidated Financial Statements.

Note 3: SECURITIES

The amortized cost, gross unrealized gains and losses and estimated fair value of securities at September 30, 2023 and December 31, 2022 are summarized as follows (in thousands):


	September 30, 2023
	Amortized Cost		Fair Value
Trading:


Corporate bonds	$	27,203	$	25,268


	$	27,203	$	25,268


	September 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
Available-for-Sale:
U.S. Government and agency obligations	$	35,342	$	—	$	(1,015)	$	—	$	34,327
Municipal bonds	166,902		—		(43,304)		—		123,598
Corporate bonds	106,015		—		(14,247)		(750)		91,018
Mortgage-backed or related securities	2,244,179		—		(424,727)		—

BANNER CORP [BANR] Filings
10-Q	[2023-11-02]
10-Q	[2023-08-03]
10-Q	[2023-05-05]
10-K	[2023-02-21]
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]