BANNER CORP
For the period ended Sep 30, 2024. Filed Nov 5, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 5, 2024
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Comparison of Financial Condition
Comparison of Financial Condition at September 30, 2024 and December 31, 2023
General: Total assets increased $518.3 million to $16.19 billion at September 30, 2024, from $15.67 billion at December 31, 2023. The increase was primarily due to loan growth and an increase in cash in interest-bearing deposits, partially offset by a decrease in the securities portfolio.
Loans and lending: Loans are our most significant and generally highest yielding earning assets. We attempt to maintain a total loans to total deposits ratio at a level designed to enhance our revenues, while adhering to sound underwriting practices and appropriate diversification guidelines in order to maintain a moderate risk profile. Our loan to deposit ratio at September 30, 2024 was 83%. We offer a wide range of loan products to meet the demands of our clients. Our lending activities are primarily directed toward the origination of real estate and commercial loans. Total loans receivable (gross loans less deferred fees and discounts and excluding loans held for sale) increased $414.2 million at September 30, 2024, compared to December 31, 2023, reflecting increased commercial real estate loans, multifamily loans, one-to-four family residential loans, land and land development loans and commercial business loans, partially offset by decreased commercial construction and one-to-four family construction loans. At September 30, 2024, loans receivable totaled $11.22 billion compared to $10.81 billion at December 31, 2023.
The following table sets forth the composition of the Company’s loans receivable by type of loan as of the dates indicated (dollars in thousands):
| Percentage Change | |||||
|---|---|---|---|---|---|
| Sep 30, 2024 | Dec 31, 2023 | Sep 30, 2023 | Year End | Prior Year Qtr. End | |
| Commercial real estate: | |||||
| Owner-occupied | $990,516 | $915,897 | $911,540 | 8% | 9% |
| Investment properties | 1,583,863 | 1,541,344 | 1,530,087 | 3 | 4 |
| Small balance CRE | 1,218,822 | 1,178,500 | 1,169,828 | 3 | 4 |
| Total Commercial real estate | 3,793,201 | 3,635,741 | 3,611,455 | 4 | 5 |
| Multifamily real estate | 889,866 | 811,232 | 766,571 | 10 | 16 |
| Construction, land and land development: | |||||
| Commercial construction | 124,051 | 170,011 | 168,061 | (27) | (26) |
| Multifamily construction | 524,108 | 503,993 | 453,129 | 4 | 16 |
| One- to four-family construction | 507,350 | 526,432 | 536,349 | (4) | (5) |
| Land and land development | 370,690 | 336,639 | 346,362 | 10 | 7 |
| Total Construction, land and land development | 1,526,199 | 1,537,075 | 1,503,901 | (1) | 1 |
| Commercial business: | |||||
| Commercial business | 1,281,615 | 1,255,734 | 1,263,747 | 2 | 1 |
| Small business scored | 1,087,714 | 1,022,154 | 1,000,714 | 6 | 9 |
| Total Commercial business | 2,369,329 | 2,277,888 | 2,264,461 | 4 | 5 |
| Agricultural business, including secured by farmland | 346,686 | 331,089 | 334,626 | 5 | 4 |
| One- to four-family residential | 1,575,164 | 1,518,046 | 1,438,694 | 4 | 9 |
| Consumer: | |||||
| Consumer—home equity revolving lines of credit | 622,615 | 588,703 | 579,836 | 6 | 7 |
| Consumer—other | 101,546 | 110,681 | 111,873 | (8) | (9) |
| Total Consumer | 724,161 | 699,384 | 691,709 | 4 | 5 |
| Total loans receivable | $11,224,606 | $10,810,455 | $10,611,417 | 4% | 6% |
Commercial real estate loans totaled $3.79 billion, or 34% of our loan portfolio, and multifamily real estate loans totaled $889.9 million, or 8% of our loan portfolio, at September 30, 2024. Commercial real estate loans increased by $157.5 million during the first nine months of 2024, while multifamily real estate loans increased by $78.6 million, primarily due to the conversion of construction loans to the permanent loans upon the completion of the construction phase.
Our construction, land and land development loans totaled $1.53 billion, or 14% of our loan portfolio, at September 30, 2024, compared to $1.54 billion at December 31, 2023. Multifamily construction loans increased $20.1 million, or 4%, to $524.1 million at September 30, 2024, compared to December 31, 2023. Multifamily construction and one- to four-family construction loans each represented approximately 5% of our total loan portfolio at September 30, 2024. Multifamily construction loans were comprised primarily of affordable housing projects and, to a lesser extent, market rate multifamily projects across our footprint. Commercial construction loans decreased $46.0 million, or 27%, to $124.1 million at September 30, 2024, compared to $170.0 million at December 31, 2023, due to the completion of the construction phase. Land and land development loans increased $34.1 million, or 10%, to $370.7 million at September 30, 2024, compared to December 31, 2023.
Our commercial business lending is directed toward meeting the credit and related deposit needs of various small- to medium-sized business and agribusiness borrowers operating in our primary market areas. Our commercial and agricultural business loans were $2.72 billion at September 30, 2024 and $2.60 billion at December 31, 2023. Commercial and agricultural business loans represented approximately 24% of our loan portfolio at September 30, 2024. Our commercial business lending also includes participation in certain syndicated loans, including shared national credits, which totaled $226.2 million, or 2% of our loan portfolio, at September 30, 2024, compared to $239.0 million, or 2% of our loan portfolio, at December 31, 2023.
We are active originators of one- to four-family residential loans in most communities where we have established offices in Washington, Oregon, California, Idaho and Utah. Most of the one- to four-family residential loans we originate in normal market conditions are sold in secondary markets with net gains on sales and loan servicing fees reflected in our revenues from mortgage banking operations. At September 30, 2024, one- to four-family residential loans retained in our portfolio increased $57.1 million, to $1.58 billion, compared to $1.52 billion at December 31, 2023. The increase in one- to four-family residential loans was primarily the result of a higher percentage of one- to four-family construction loans converting to one- to four-family residential loans, offset by the transfer of certain pools of one- to four-family residential loans to held for sale. One- to four-family residential loans represented 14% of our loan portfolio at September 30, 2024.
Our consumer loan activity is primarily directed at meeting demand from our existing deposit clients. At September 30, 2024, consumer loans, including home equity revolving lines of credit, increased $24.8 million to $724.2 million, compared to $699.4 million at December 31, 2023.
The following table shows the commitment amount for loan origination activity (excluding loans held for sale) for the periods indicated (in thousands):
| Three Months Ended · Nine Months Ended | |||||
|---|---|---|---|---|---|
| Sep 30, 2024 | Jun 30, 2024 | Sep 30, 2023 | Sep 30, 2024 | Sep 30, 2023 | |
| Commercial real estate | $114,372 | $102,258 | $62,337 | $283,992 | $232,745 |
| Multifamily real estate | 314 | 2,774 | 12,725 | 3,473 | 51,686 |
| Construction and land | 472,506 | 546,675 | 421,656 | 1,456,454 | 1,158,478 |
| Commercial business | 179,871 | 167,168 | 157,833 | 501,754 | 418,063 |
| Agricultural business | 5,877 | 22,255 | 17,466 | 62,538 | 69,014 |
| One-to four- family residential | 24,488 | 34,498 | 43,622 | 76,554 | 130,505 |
| Consumer | 96,137 | 120,470 | 70,043 | 282,752 | 243,486 |
| Total commitment amount for loan originations (excluding loans held for sale) | $893,565 | $996,098 | $785,682 | $2,667,517 | $2,303,977 |
Loans held for sale increased to $78.8 million at September 30, 2024, compared to $11.2 million at December 31, 2023. The increase in loans held for sale was primarily the result of the transfer of $47.5 million of one- to four-family residential loans from portfolio to held for sale during the third quarter of 2024. Originations of loans held for sale increased to $197.7 million for the nine months ended September 30, 2024, compared to $187.1 million for the same period last year. The volume of one- to four-family residential mortgage loans sold was $255.7 million during the nine months ended September 30, 2024, compared to $190.4 million in the same period a year ago.
The following table presents loans by geographic concentration at the dates indicated (dollars in thousands):
| Sep 30, 2024 · Dec 31, 2023 · Sep 30, 2023 · Percentage Change | ||||||
|---|---|---|---|---|---|---|
| Amount | Percentage | Amount | Amount | Year End | Prior Year Qtr. End | |
| Washington | $5,203,637 | 46% | $5,095,602 | $5,046,028 | 2% | 3% |
| California | 2,796,965 | 25 | 2,670,923 | 2,570,175 | 5 | 9 |
| Oregon | 2,108,229 | 19 | 1,974,001 | 1,929,531 | 7 | 9 |
| Idaho | 652,148 | 6 | 610,064 | 600,648 | 7 | 9 |
| Utah | 85,316 | 1 | 68,931 | 57,711 | 24 | 48 |
| Other | 378,311 | 3 | 390,934 | 407,324 | (3) | (7) |
| Total loans receivable | $11,224,606 | 100% | $10,810,455 | $10,611,417 | 4% | 6% |
Investment Securities: Total securities decreased $181.0 million to $3.25 billion at September 30, 2024, from $3.43 billion at December 31, 2023, primarily due to securities sales, paydowns and maturities exceeding purchases during the nine-month period ended September 30, 2024. Purchases during the nine months ended September 30, 2024, consisted primarily of state and local government obligations. The average effective duration of the Company’s securities portfolio was 6.3 years at September 30, 2024, compared to 6.5 years at December 31, 2023. Fair value adjustments for securities designated as available-for-sale increased $64.7 million for the nine months ended September 30, 2024, which was included, net of the associated tax expense of $15.5 million, as a component of other comprehensive income, and occurred as a result of decreases in market interest rates during the nine months ended September 30, 2024.
Deposits: Deposits, client retail repurchase agreements and loan repayments are the major sources of our funds for lending and other investment purposes. We compete with other financial institutions and financial intermediaries in attracting deposits and we generally attract deposits within our primary market areas. Much of the focus of our branch strategy and marketing efforts over the last several years have been directed toward attracting additional deposit client relationships and balances. This effort has been particularly directed towards emphasizing core deposit activity in non-interest-bearing and other transaction and savings accounts. Despite rate sensitive deposits shifting out of non-interest-bearing deposits due to clients seeking higher yields on their deposits, our strategy of focusing on relationship banking remains intact.
The following table sets forth the Company’s deposits by type of deposit account as of the dates indicated (dollars in thousands):
| Percentage Change | |||||
|---|---|---|---|---|---|
| Sep 30, 2024 | Dec 31, 2023 | Sep 30, 2023 | Year End | Prior Year Qtr. End | |
| Non-interest-bearing | $4,688,244 | $4,792,369 | $5,197,854 | (2)% | (10)% |
| Interest-bearing checking | 2,344,561 | 2,098,526 | 2,006,866 | 12 | 17 |
| Regular savings accounts | 3,339,859 | 2,980,530 | 2,751,453 | 12 | 21 |
| Money market accounts | 1,643,631 | 1,680,605 | 1,760,066 | (2) | (7) |
| Interest-bearing transaction & savings accounts | 7,328,051 | 6,759,661 | 6,518,385 | 8 | 12 |
| Total core deposits | 12,016,295 | 11,552,030 | 11,716,239 | 4 | 3 |
| Interest-bearing certificates | 1,521,853 | 1,477,467 | 1,458,313 | 3 | 4 |
| Total deposits | $13,538,148 | $13,029,497 | $13,174,552 | 4% | 3% |
Total deposits increased $508.7 million at September 30, 2024, compared to December 31, 2023, with core deposits increasing $464.3 million and certificates of deposit increasing $44.4 million. The increase in core deposits primarily reflects an increase in third-party insured sweep accounts and normal seasonal increases primarily from agricultural clients. The increase in certificates of deposit is a result of higher rates attracting clients to these deposit types. We had $50.3 million of brokered deposits at September 30, 2024, compared to $108.1 million at December 31, 2023. Core deposits represented 89% of total deposits at both September 30, 2024 and December 31, 2023. Competition for deposits in our market areas remains strong.
The following table sets forth the number and average account balance of the Company’s deposit accounts as of the dates indicated (dollars in thousands):
| Sep 30, 2024 | Dec 31, 2023 | Sep 30, 2023 | |
|---|---|---|---|
| Number of deposit accounts | 459,127 | 463,750 | 466,159 |
| Average account balance per account | $30 | $29 | $28 |
The following table presents deposits by geographic concentration at the dates indicated (dollars in thousands):
| Sep 30, 2024 · Dec 31, 2023 · Sep 30, 2023 · Percentage Change | ||||||
|---|---|---|---|---|---|---|
| Amount | Percentage | Amount | Amount | Year End | Prior Year Qtr. End | |
| Washington | $7,413,414 | 55% | $7,247,392 | $7,241,341 | 2% | 2% |
| Oregon | 2,997,843 | 22 | 2,852,677 | 2,918,446 | 5 | 3 |
| California | 2,423,295 | 18 | 2,269,557 | 2,342,345 | 7 | 3 |
| Idaho | 703,596 | 5 | 659,871 | 672,420 | 7 | 5 |
| Total deposits | $13,538,148 | 100% | $13,029,497 | $13,174,552 | 4% | 3% |
Borrowings: We had $230.0 million of FHLB advances at September 30, 2024, compared to $323.0 million at December 31, 2023. Other borrowings, consisting of retail repurchase agreements primarily related to client cash management accounts, decreased $28.3 million to $154.5 million at September 30, 2024, compared to $182.9 million at December 31, 2023. The decrease in borrowings reflects the increased use of deposits to fund loan growth. At September 30, 2024, the Company’s off-balance sheet liquidity included additional borrowing capacity of $3.23 billion at the FHLB and $1.53 billion at the Federal Reserve as well as federal funds line of credit agreements with other financial institutions of $125.0 million. Junior subordinated debentures totaled $66.3 million at September 30, 2024, compared to $66.4 million at December 31, 2023. Subordinated notes, net of issuance costs were $80.2 million at September 30, 2024, compared to $92.9 million at December 31, 2023. The decrease was due to Banner Bank’s purchase of $13.0 million of Banner’s subordinated debt during the nine months ended September 30, 2024.
Shareholders’ Equity: Total shareholders’ equity increased $141.0 million to $1.79 billion, or 11.08% of total assets, at September 30, 2024, compared to $1.65 billion, or 10.55% of total assets, at December 31, 2023. The increase in shareholders’ equity was primarily due to a $72.3 million increase in retained earnings as a result of $122.5 million in net income, partially offset by the accrual of cash dividends during the nine months ended September 30, 2024. In addition, accumulated other comprehensive loss decreased by $63.6 million, primarily due to a decrease in the unrealized losses on the security portfolio. There were no shares of common stock repurchased during the nine months ended September 30, 2024. Tangible common shareholders’ equity, which excludes goodwill and other intangible assets and is a non-GAAP financial measure, increased $143.1 million to $1.42 billion, or 8.96% of tangible assets, at September 30, 2024, compared to $1.27 billion, or 8.33% of tangible assets at December 31, 2023. A reconciliation of this non-GAAP financial measure to its comparable GAAP financial measure is presented above following “Third Quarter 2024 Financial Highlights.”
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