PART I – FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents Banner Corporation's unaudited condensed consolidated financial statements and selected explanatory notes for periods ending June 30, 2024 Consolidated Statements of Financial Condition Total assets increased to $15.82 billion by June 30, 2024, driven by loan growth, with deposits and shareholders' equity also showing modest increases Consolidated Balance Sheet Highlights (in thousands) | Financial Metric | June 30, 2024 | December 31, 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Assets | $15,816,194 | $15,670,391 | $145,803 | 0.9% | | Net Loans Receivable | $10,991,000 | $10,660,812 | $330,188 | 3.1% | | Total Securities | $3,220,721 | $3,432,838 | ($212,117) | -6.2% | | Total Deposits | $13,079,263 | $13,029,497 | $49,766 | 0.4% | | Total Liabilities | $14,125,428 | $14,017,700 | $107,728 | 0.8% | | Total Shareholders' Equity | $1,690,766 | $1,652,691 | $38,075 | 2.3% | Consolidated Statements of Operations Net income for Q2 2024 was $39.8 million, nearly flat year-over-year, while year-to-date net income decreased to $77.4 million due to higher interest expense Key Operating Results (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $132,546 | $142,518 | $265,505 | $295,830 | | Provision for Credit Losses | $2,369 | $6,764 | $2,889 | $6,240 | | Net Income | $39,795 | $39,591 | $77,354 | $95,146 | | Diluted EPS | $1.15 | $1.15 | $2.24 | $2.76 | Consolidated Statements of Comprehensive Income Comprehensive income for Q2 2024 increased to $41.7 million, primarily due to a smaller other comprehensive loss from less severe unrealized securities losses Comprehensive Income Summary (in thousands) | Metric | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $39,795 | $39,591 | $77,354 | $95,146 | | Other Comprehensive Income (Loss) | $1,933 | ($13,812) | ($8,414) | $23,321 | | Comprehensive Income | $41,728 | $25,779 | $68,940 | $118,467 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity grew to $1.69 billion by June 30, 2024, driven by $77.4 million in net income, partially offset by dividends and other comprehensive loss Shareholders' Equity Movement - YTD 2024 (in thousands) | Description | Amount | | :--- | :--- | | Balance, January 1, 2024 | $1,652,691 | | Net Income | $77,354 | | Other Comprehensive Loss, net of tax | ($8,414) | | Dividends Accrued | ($33,450) | | Stock-based Compensation & Other | $2,585 | | Balance, June 30, 2024 | $1,690,766 | Consolidated Statements of Cash Flows Net cash from operating activities was $130.2 million for H1 2024, while investing activities used $209.3 million, leading to a $7.0 million net decrease in cash and equivalents Net Cash Flow Summary - Six Months Ended June 30 (in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $130,154 | $117,955 | | Net Cash (Used by) Provided from Investing Activities | ($209,319) | $298,277 | | Net Cash Provided from (Used by) Financing Activities | $72,159 | ($377,969) | | Net Change in Cash and Cash Equivalents | ($7,006) | $38,263 | Selected Notes to the Consolidated Financial Statements This section provides detailed disclosures on significant accounting policies and key financial statement line items, including securities, loans, deposits, and fair value measurements Management's Discussion and Analysis (MD&A) Management discusses the company's financial condition and operating results, covering loan and deposit trends, net interest margin, strong asset quality, and robust liquidity and capital positions Executive Overview Banner Corporation reported solid Q2 2024 results, with $149.7 million in revenue, a 3.70% net interest margin, 3% loan growth, and increased tangible book value per share Q2 2024 Financial Highlights (vs. Q1 2024) | Metric | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | | Revenue | $149.7 million | $144.6 million | | Net Interest Margin (tax equiv.) | 3.70% | 3.74% | | Net Loans Receivable | $10.99 billion | $10.72 billion | | Non-performing Assets / Total Assets | 0.21% | 0.19% | | Tangible Common Equity per Share* | $38.12 | $37.40 | - The company's strategic initiatives continue to focus on originating high-quality assets and client acquisition to generate strong revenue while maintaining a moderate risk profile191 Comparison of Financial Condition Total assets grew by $145.8 million to $15.82 billion by June 30, 2024, driven by $333.4 million in loan growth, while deposits and shareholders' equity also increased - Total loans receivable increased by $333.4 million (3%) to $11.14 billion at June 30, 2024, from December 31, 2023, with notable growth in multifamily construction loans (up 32%) and one- to four-family residential loans (up 6%)203205206 - Total deposits increased by $49.8 million to $13.08 billion, with core deposits remaining stable at $11.55 billion and representing 88% of total deposits215 - Shareholders' equity increased by $38.1 million to $1.69 billion, mainly due to $77.4 million in net income, partially offset by dividends and a $8.4 million increase in accumulated other comprehensive loss218 Comparison of Results of Operations Q2 2024 net income was $39.8 million, improving from Q1 due to higher non-interest income, though net interest margin compressed slightly due to rising funding costs Net Interest Margin Analysis | Period | Net Interest Margin (tax equiv.) | Key Driver | | :--- | :--- | :--- | | Q2 2024 | 3.70% | Increased funding costs partially offset by higher loan yields | | Q1 2024 | 3.74% | N/A | | YTD 2024 | 3.72% | Significant increase in funding costs outpacing asset yield growth | | YTD 2023 | 4.15% | N/A | - Non-interest income for Q2 2024 increased to $17.2 million from $11.6 million in Q1 2024, primarily due to a $4.3 million reduction in net loss on the sale of securities244 - Non-interest expense increased slightly to $98.1 million in Q2 2024 from $97.6 million in Q1 2024, driven by higher salary and benefits costs249 Asset Quality Asset quality remains strong with non-performing assets at 0.21% of total assets, and the allowance for credit losses provides 498% coverage of non-performing loans Non-Performing Assets (in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Non-performing Loans | $30,722 | $29,602 | | REO, net | $2,564 | $526 | | Total Non-performing Assets (NPAs) | $33,286 | $30,128 | | NPAs to Total Assets | 0.21% | 0.19% | - The allowance for credit losses on loans was $152.8 million, or 1.37% of total loans, covering non-performing loans by 498%253 - Special mention loans increased to $50.0 million from $13.7 million at year-end 2023, primarily due to loan downgrades, while substandard loans decreased to $122.0 million from $125.4 million256 Liquidity and Capital Resources The company maintains a strong liquidity position with substantial borrowing capacity, including $3.02 billion from FHLB, and continues its $0.48 quarterly dividend - Primary sources of funds are deposits, borrowings, and cash flows from assets, with the company primarily using funds for loan growth in the first half of 2024257262 - At June 30, 2024, the company had significant off-balance sheet liquidity, including $3.02 billion in available FHLB credit and a $1.59 billion facility with the Federal Reserve217263 - The quarterly cash dividend is maintained at $0.48 per share, which management believes balances investment in the bank with shareholder returns265 Capital Requirements Both Banner Corporation and Banner Bank exceed all regulatory capital requirements, with the corporation's CET1 ratio at 12.02%, categorizing them as 'well-capitalized' Regulatory Capital Ratios as of June 30, 2024 | Ratio | Banner Corporation (Consolidated) | Banner Bank | Minimum to be "Well-Capitalized" (Bank) | | :--- | :--- | :--- | :--- | | Common Equity Tier 1 (CET1) | 12.02% | 12.49% | 6.50% | | Tier 1 Capital | 12.66% | 12.49% | 8.00% | | Total Capital | 14.62% | 13.70% | 10.00% | | Tier 1 Leverage | 10.80% | 10.66% | 5.00% | Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk through simulation modeling, showing short-term asset sensitivity with a $1.72 billion positive gap, benefiting from rising rates but vulnerable to falling rates Market Risk and Asset/Liability Management The company actively manages interest rate risk from asset-liability repricing mismatches, with $5.05 billion in loans having interest rate floors to protect yields - The greatest source of interest rate risk is the mismatch of maturities and repricing intervals for assets and liabilities, with liabilities generally having shorter maturities than assets273 - As of June 30, 2024, loans with interest rate floors totaled $5.05 billion with a weighted average floor of 4.59%, of which $1.29 billion in loans were at their floors273 Sensitivity Analysis Sensitivity analysis shows a 100 bps rate increase would boost NII by 0.7% but decrease EVE by 3.0%, while a 100 bps rate cut would decrease NII by 3.0% and increase EVE by 1.7% Interest Rate Shock Sensitivity Analysis (as of June 30, 2024) | Change in Rates (bps) | Estimated Change in NII (Next 12 Months) | Estimated Change in EVE | | :--- | :--- | :--- | | +200 | -0.3% | -6.9% | | +100 | +0.7% | -3.0% | | Base Case | 0.0% | 0.0% | | -100 | -3.0% | +1.7% | | -200 | -6.0% | +1.5% | - The company has a positive one-year cumulative interest sensitivity gap of $1.72 billion, representing 10.85% of total assets, indicating an asset-sensitive position in the short term284 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of June 30, 2024, the company's disclosure controls and procedures were effective288 - No changes in internal control over financial reporting occurred in Q2 2024 that materially affected, or are reasonably likely to materially affect, these controls289 PART II – OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, with a class action lawsuit settled in February 2024, and $702,000 accrued for outstanding matters as of June 30, 2024 - The class action lawsuit Bolding et al. v. Banner Bank received final settlement approval on February 22, 2024292 - As of June 30, 2024, the company had accrued $702,000 for all outstanding legal proceedings291 Risk Factors No material changes to the risk factors previously disclosed in the company's 2023 Annual Report on Form 10-K were reported - No material changes in risk factors were reported from the 2023 Form 10-K293 Unregistered Sales of Equity Securities and Use of Proceeds The Board authorized a new repurchase program for up to 1,722,787 shares on July 25, 2024, while 13,563 shares were acquired for tax withholding in Q2 2024 - On July 25, 2024, the Board of Directors authorized a new stock repurchase program for up to 1,722,787 shares (approx. 5% of outstanding shares)295 - In Q2 2024, 13,563 shares were surrendered by employees to satisfy tax withholding obligations related to vested restricted stock, which is treated as a repurchase but not under a formal buyback plan297 Other Information No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during Q2 2024 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by any director or officer during Q2 2024298 Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, compensatory plans, and required CEO and CFO certifications - The report includes required certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002301302
Banner(BANR) - 2024 Q2 - Quarterly Report