BANNER CORP [BANR] Filings

10-Q 1 banr-20220331.htm 10-Q banr-20220331

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 March 31, 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 April 30, 2022

Common Stock, $.01 par value per share

34,375,525 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 March 31, 2022 and December 31, 2021			4

Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021			5

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2022 and 2021			6

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

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021			10

Selected Notes to the Consolidated Financial Statements			12

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

Executive Overview			50

Comparison of Financial Condition at March 31, 2022 and December 31, 2021			57

Comparison of Results of Operations for the Three Months Ended March 31, 2022, December 31, 2021 and March 31, 2021			60

Asset Quality			67

Liquidity and Capital Resources			68

Capital Requirements			69

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Market Risk and Asset/Liability Management			71

Sensitivity Analysis			71

Item 4 – Controls and Procedures			75

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings			76

Item 1A – Risk Factors			76

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			76

Item 3 – Defaults upon Senior Securities			77

Item 4 – Mine Safety Disclosures			77

Item 5 – Other Information			77

Item 6 – Exhibits			78

SIGNATURES			80

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, generally, resulting from the ongoing novel coronavirus of 2019 (COVID-19) and any governmental or societal responses thereto; 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 or reforms, including 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; 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, 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)

March 31, 2022 and December 31, 2021


ASSETS	March 31, 2022		December 31, 2021
Cash and due from banks	$	414,780	$	358,461
Interest bearing deposits	1,573,608		1,775,839
Total cash and cash equivalents	1,988,388		2,134,300
Securities—trading	27,354		26,981
Securities—available-for-sale, amortized cost $3,315,213 and $3,653,160, respectively	3,147,547		3,638,993
Securities—held-to-maturity, net of allowance for credit losses of $420 and $433, respectively, fair value $968,540 and $541,853, respectively	1,015,522		520,922
Total securities	4,190,423		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 $61,759 and $39,775, at fair value, respectively)	64,218		96,487
Loans receivable	9,146,629		9,084,763
Allowance for credit losses – loans	(125,471)		(132,099)
Net loans receivable	9,021,158		8,952,664
Accrued interest receivable	41,827		42,916
Real estate owned (REO), held for sale, net	429		852
Property and equipment, net	142,594		148,759
Goodwill	373,121		373,121
Other intangibles, net	13,431		14,855
Bank-owned life insurance (BOLI)	294,556		244,156
Deferred tax assets, net	118,997		71,138
Operating lease right-of-use assets	52,792		55,257
Other assets	164,237		171,471
Total assets	$	16,776,171	$	16,804,872
LIABILITIES
Deposits:
Non-interest-bearing	$	6,494,852	$	6,385,177
Interest-bearing transaction and savings accounts	7,228,558		7,103,125
Interest-bearing certificates	800,364		838,631
Total deposits	14,523,774		14,326,933
Advances from FHLB	—		50,000
Other borrowings	266,778		264,490
Subordinated notes, net	98,658		98,564
Junior subordinated debentures at fair value (issued in connection with Trust Preferred Securities)	70,510		119,815
Operating lease liabilities	57,343		59,756
Accrued expenses and other liabilities	148,689		148,303
Deferred compensation	46,639		46,684
Total liabilities	15,212,391		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 March 31, 2022 and December 31, 2021	—		—
Common stock and paid in capital - $0.01 par value per share, 50,000,000 shares authorized; 34,372,784 shares issued and outstanding at March 31, 2022; 34,252,632 shares issued and outstanding at December 31, 2021	1,298,212		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 March 31, 2022; no shares issued and outstanding at December 31, 2021	—		—
Retained earnings	419,659		390,762
Carrying value of shares held in trust for stock-based compensation plans	(7,338)		(7,435)
Liability for common stock issued to stock related compensation plans	7,338		7,435
Accumulated other comprehensive (loss) income	(154,091)		184

Total shareholders’ equity	1,563,780		1,690,327
Total liabilities and shareholders’ equity	$	16,776,171	$	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 Months Ended March 31, 2022 and 2021


	Three Months Ended March 31,
	2022		2021
INTEREST INCOME:
Loans receivable	$	100,350	$	108,924
Mortgage-backed securities	14,109		9,371
Securities and cash equivalents	8,432		6,226
Total interest income	122,891		124,521
INTEREST EXPENSE:
Deposits	2,086		3,609
FHLB advances	291		934
Other borrowings	84		109
Subordinated debt	1,776		2,208
Total interest expense	4,237		6,860
Net interest income	118,654		117,661
RECAPTURE OF PROVISION FOR CREDIT LOSSES	(6,961)		(9,251)
Net interest income after recapture of provision for credit losses	125,615		126,912
NON-INTEREST INCOME:
Deposit fees and other service charges	11,189		8,939
Mortgage banking operations	4,440		11,347
Bank-owned life insurance (BOLI)	1,631		1,307
Miscellaneous	1,683		2,135
	18,943		23,728
Net gain on sale of securities	435		485

Net change in valuation of financial instruments carried at fair value	49		59


Total non-interest income	19,427		24,272
NON-INTEREST EXPENSE:
Salary and employee benefits	59,486		64,819
Less capitalized loan origination costs	(6,230)		(9,696)
Occupancy and equipment	13,220		12,989
Information/computer data services	6,651		6,203
Payment and card processing expenses	4,896		4,326
Professional and legal expenses	2,180		3,328
Advertising and marketing	461		1,263
Deposit insurance	1,524		1,533
State/municipal business and use taxes	1,162		1,065
REO operations, net	(79)		(242)
Amortization of core deposit intangibles	1,424		1,711
Loss on extinguishment of debt	793		—
Miscellaneous	5,707		5,509
	91,195		92,808
COVID-19 expenses	—		148
Merger and acquisition - related expenses	—		571
Total non-interest expense	91,195		93,527
Income before provision for income taxes	53,847		57,657
PROVISION FOR INCOME TAXES	9,884		10,802
NET INCOME	$	43,963	$	46,855





Earnings per common share:
Basic	$	1.28	$	1.34
Diluted	$	1.27	$	1.33
Cumulative dividends declared per common share	$	0.44	$	0.41
Weighted average number of common shares outstanding:
Basic	34,300,742		34,973,383
Diluted	34,598,436		35,303,483

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (In thousands)

For the Three Months Ended March 31, 2022 and 2021


	Three Months Ended March 31,
	2022		2021
NET INCOME	$	43,963	$	46,855
OTHER COMPREHENSIVE LOSS, NET OF INCOME TAXES:
Unrealized holding loss on securities—available-for-sale arising during the period	(153,064)		(73,107)
Income tax benefit related to securities—available-for-sale unrealized holding losses	36,736		17,546
Reclassification for net gain on securities—available-for-sale realized in earnings	(435)		(439)
Income tax expense related to securities—available-for-sale realized gains	104		105
Unrealized loss on securities transferred from available-for-sale to held-to-maturity	(34,272)		—
Income tax benefit related to securities transferred from available-for-sale to held-to-maturity	8,226		—
Net unrealized loss on interest rate swaps used in cash flow hedges	(14,775)		—
Income tax benefit related interest rate swaps used in cash flow hedges	3,546		—
Changes in fair value of junior subordinated debentures related to instrument specific credit risk	(1,213)		(274)
Income tax benefit related to junior subordinated debentures	291		66
Reclassification of fair value of junior subordinated debentures redeemed	765		—
Income tax expense related to junior subordinated debentures redeemed	(184)		—
Other comprehensive loss	(154,275)		(56,103)
COMPREHENSIVE LOSS	$	(110,312)	$	(9,248)

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 Three Months Ended March 31, 2022 and the Year Ended December 31, 2021


	Common Stock and Paid in Capital					Retained Earnings			Accumulated Other Comprehensive Income (Loss)				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		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

Continued on next page


	Common Stock and Paid in Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Shareholders’ Equity
	Shares	Amounts
Balance, July 1, 2021	34,550,888	$	1,311,455	$	319,505	$	38,251	$	1,669,211

Net income				49,884				49,884
Other comprehensive loss, net of income tax						(23,312)		(23,312)
Accrual of dividends on common stock ($0.41/share)				(14,354)				(14,354)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	1,103	2,339						2,339
Repurchase of common stock	(300,000)	(16,649)						(16,649)

Balance, September 30, 2021	34,251,991	$	1,297,145	$	355,035	$	14,939	$	1,667,119


	Common Stock and Paid in Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Shareholders’ Equity
	Shares	Amounts
Balance, October 1, 2021	34,251,991	$	1,297,145	$	355,035	$	14,939	$	1,667,119

Net income				49,927				49,927
Other comprehensive loss, net of income tax						(14,755)		(14,755)
Accrual of dividends on common stock ($0.41/share)				(14,200)				(14,200)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	641	2,236						2,236



Balance, December 31, 2021	34,252,632	$	1,299,381	$	390,762	$	184	$	1,690,327

Continued on next page


	Common Stock and Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)				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

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)

For the Three Months Ended March 31, 2022 and 2021


	Three Months Ended March 31,
	2022		2021
OPERATING ACTIVITIES:
Net income	$	43,963	$	46,855
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation	4,169		4,411
Deferred income/expense, net of amortization	(1,838)		(7,048)
Capitalized loan servicing rights, net of amortization	(739)		(155)
Amortization of core deposit intangibles	1,424		1,711
Gain on sale of securities, net	(435)		(485)

Net change in valuation of financial instruments carried at fair value	(49)		(59)





Increase in deferred taxes	860		281
Increase in current taxes payable	7,595		9,506
Stock-based compensation	2,081		2,152
Net change in cash surrender value of BOLI	(1,519)		(1,002)
Gain on sale of loans, excluding capitalized servicing rights	(1,909)		(9,487)
Loss (gain) on disposal of real estate held for sale and property and equipment, net	109		(298)
Recapture of provision for credit losses	(6,961)		(9,251)

Loss on extinguishment of debt	765		—
Origination of loans held for sale	(208,270)		(301,393)
Proceeds from sales of loans held for sale	226,074		419,412
Net change in:
Other assets	(10,245)		2,602
Other liabilities	(4,421)		164,729
Net cash provided from operating activities	50,654		322,481
INVESTING ACTIVITIES:
Purchases of securities—available-for-sale	(281,353)		(1,225,723)
Principal repayments and maturities of securities—available-for-sale	106,937		434,651
Proceeds from sales of securities—available-for-sale	12,767		48,784
Purchases of securities—held-to-maturity	(40,351)		(31,170)
Principal repayments and maturities of securities—held-to-maturity	7,573		9,982
Purchases of equity securities	—		(4,750)
Proceeds from sales of equity securities	—		4,796
Loan repayments (originations), net	31,355		(77,834)
Purchases of loans and participating interest in loans	(75,575)		—
Proceeds from sales of other loans	5,034		8,367


Purchases of property and equipment	(3,306)		(2,334)
Proceeds from sale of real estate held for sale and sale of other property	5,616		1,999
Proceeds from FHLB stock repurchase program	2,000		2,358


Investment in bank-owned life insurance	(50,040)		(3)
Other	1,098		1,421
Net cash used by investing activities	(

BANNER CORP [BANR] Filings
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]