Banner(BANR) - 2024 Q3 - Quarterly Results

markdown Executive Summary [Third Quarter 2024 Performance Overview](index=1&type=section&id=Third%20Quarter%202024%20Performance%20Overview) Banner Corporation reported **net income** of **$45.2 million**, or **$1.30** per **diluted share**, for Q3 2024, an increase from the preceding quarter but slightly down from Q3 2023; **net interest income** increased QoQ due to higher **interest-earning assets** and **net interest margin**, despite increased **funding costs** YoY, and the company declared a quarterly cash dividend of **$0.48 per share** Net Income and EPS Trends | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :------------------- | :------ | :------ | :------ | | Net Income (millions) | **$45.2** | **$39.8** | **$45.9** | | Diluted EPS | **$1.30** | **$1.15** | **$1.33** | Net Interest Income Trends | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :-------------------- | :------ | :------ | :------ | | Net Interest Income (millions) | **$135.7** | **$132.5** | **$141.8** | - The increase in **net interest income** compared to the preceding quarter reflects an increase in **interest-earning assets** and **net interest margin**. The decrease compared to the prior year quarter reflects an increase in **funding costs**, partially offset by an increase in **yields on earning assets**[1](index=1&type=chunk) - Banner's Board of Directors declared a regular quarterly cash dividend of **$0.48 per share**[1](index=1&type=chunk) [Strategic Highlights](index=1&type=section&id=Strategic%20Highlights) Banner's CEO highlighted the successful execution of its super community bank strategy, focusing on client relationships, **core funding**, responsive service, and a **moderate risk profile**, benefiting from solid year-over-year **loan growth** and an expanded **net interest margin**, while maintaining strong **credit metrics** and a robust **capital base** - Banner's strategy emphasizes growing new client relationships, maintaining **core funding**, promoting client loyalty, and sustaining a **moderate risk profile**[1](index=1&type=chunk) - Earnings benefited from solid year-over-year **loan growth** and an expanded **net interest margin**[1](index=1&type=chunk) - **Credit metrics** remain strong, reserve for loan losses solid, and **capital base** robust[1](index=1&type=chunk) - **Core deposits** represented **89% of total deposits** at quarter end, demonstrating resilience in a competitive environment[1](index=1&type=chunk) [Key Financial Highlights (Q3 2024 vs. Prior Periods)](index=2&type=section&id=Key%20Financial%20Highlights%20(Q3%202024%20vs.%20Prior%20Periods)) Key financial highlights for Q3 2024 include increased revenue and **net interest income** QoQ, a slight improvement in **net interest margin**, and significant growth in **net loans receivable** and **total deposits** YoY; **non-performing assets** increased QoQ and YoY, while **common** and **tangible common shareholders' equity per share** saw strong increases Q3 2024 Key Financial Highlights | Metric | Q3 2024 | Q2 2024 | Q3 2023 | Change QoQ | Change YoY | | :----------------------------------- | :------ | :------ | :------ | :--------- | :--------- | | Revenue (millions) | **$153.7** | **$149.7** | **$154.4** | **+2.7%** | **-0.5%** | | Net Interest Income (millions) | **$135.7** | **$132.5** | **$141.8** | **+2.4%** | **-4.3%** | | Net Interest Margin (tax equivalent) | **3.72%** | **3.70%** | **3.93%** | **+2 bps** | **-21 bps** | | Mortgage Banking Revenue (millions) | **$3.2** | **$3.0** | **$2.0** | **+6.7%** | **+60.0%** | | Return on Average Assets | **1.13%** | **1.02%** | **1.17%** | **+11 bps** | **-4 bps** | | Net Loans Receivable (billions) | **$11.07** | **$10.99** | **$10.46** | **+0.7%** | **+5.8%** | | Non-Performing Assets (millions) | **$45.2** | **$33.3** | **$26.8** | **+35.7%** | **+68.7%** | | Total Deposits (billions) | **$13.54** | **$13.08** | **$13.17** | **+3.5%** | **+2.8%** | | Core Deposits % of Total Deposits | **89%** | **88%** | **89%** | **+1 pp** | **0 pp** | | Common Shareholders' Equity per Share | **$52.06** | **$49.07** | **$44.27** | **+6.1%** | **+17.6%** | | Tangible Common Shareholders' Equity per Share | **$41.12** | **$38.12** | **$33.22** | **+7.9%** | **+23.8%** | Financial Performance Review [Income Statement Analysis](index=2&type=section&id=Income%20Statement%20Analysis) The income statement review for Q3 2024 shows an increase in **net interest income** and **net interest margin** QoQ, driven by higher **loan yields**, despite rising **funding costs**; **non-interest income** improved significantly YoY, primarily due to reduced losses on **securities sales** and increased **mortgage banking revenue**, while **non-interest expenses** decreased QoQ due to lower **salary and employee benefits**, leading to an improved **efficiency ratio** [Net Interest Income and Margin](index=2&type=section&id=Net%20Interest%20Income%20and%20Margin) **Net interest income** increased to **$135.7 million** in Q3 2024, with **net interest margin** rising to **3.72%**, primarily due to increased **yields on loans** from new originations and repricing, partially offset by higher **funding costs**, particularly from higher-costing deposits Net Interest Income and Margin | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :----------------------------------- | :------ | :------ | :------ | | Net Interest Income (millions) | **$135.7** | **$132.5** | **$141.8** | | Net Interest Margin (tax equivalent) | **3.72%** | **3.70%** | **3.93%** | | Average Yields on Interest-Earning Assets | **5.33%** | **5.25%** | **4.94%** | | Average Loan Yields | **6.04%** | **5.96%** | **5.65%** | | Total Deposit Costs | **1.61%** | **1.50%** | **0.94%** | | Total Cost of Funding Liabilities | **1.73%** | **1.66%** | **1.08%** | - **Net interest margin** for the current quarter benefited from increased **yields on loans** due to new loans being originated at **higher interest rates** and adjustable rate loans repricing higher, partially offset by increased **funding costs**[4](index=4&type=chunk) - The increase in **deposit costs** was due to a larger percentage of growth in **higher costing deposits** during the quarter[4](index=4&type=chunk) [Non-Interest Income](index=3&type=section&id=Non-Interest%20Income) Total **non-interest income** increased to **$18.1 million** in Q3 2024, primarily driven by a decrease in **net loss on securities sales** and a rise in **mortgage banking operations revenue**; **mortgage banking revenue** saw a **60%** increase YoY, despite overall low volumes in the current rate environment Non-Interest Income Trends | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :----------------------------------- | :------ | :------ | :------ | | Total Non-Interest Income (millions) | **$18.1** | **$17.2** | **$12.7** | | Mortgage Banking Operations Revenue (millions) | **$3.2** | **$3.0** | **$2.0** | - The increase in **non-interest income** compared to the preceding quarter was primarily due to a **$562,000 decrease in the net loss recognized on the sale of securities**[5](index=5&type=chunk) - The increase in **non-interest income** compared to the prior year quarter was primarily due to a **$1.1 million increase in mortgage banking operations revenue** and a **$2.7 million decrease in the net loss recognized on the sale of securities**[5](index=5&type=chunk) - **Home purchase activity** accounted for **88% of one- to four-family mortgage loan originations** in Q3 2024[5](index=5&type=chunk) [Non-Interest Expense and Efficiency](index=3&type=section&id=Non-Interest%20Expense%20and%20Efficiency) Total **non-interest expense** decreased to **$96.3 million** in Q3 2024 from the preceding quarter, mainly due to a **$2.0 million reduction in salary and employee benefits**; the **efficiency ratio** improved to **62.63%** QoQ, though it was slightly higher than the prior year quarter Non-Interest Expense and Efficiency Ratios | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :-------------------------- | :------ | :------ | :------ | | Total Non-Interest Expense (millions) | **$96.3** | **$98.1** | **$95.9** | | Efficiency Ratio | **62.63%** | **65.53%** | **62.10%** | | Adjusted Efficiency Ratio (non-GAAP) | **61.27%** | **63.60%** | **59.00%** | - The decrease in **non-interest expense** for the current quarter compared to the prior quarter reflects a **$2.0 million decrease in salary and employee benefits**, primarily from decreased medical premiums and unemployment/workers compensation expense[5](index=5&type=chunk) [Credit Loss Provision](index=2&type=section&id=Credit%20Loss%20Provision) The **provision for credit losses** decreased to **$1.7 million** in Q3 2024, down from **$2.4 million** in the preceding quarter and **$2.0 million** in Q3 2023, primarily reflecting an increase in the reserve for **non-performing collateral dependent loans** Provision for Credit Losses | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :-------------------------- | :------ | :------ | :------ | | Provision for Credit Losses (millions) | **$1.7** | **$2.4** | **$2.0** | - The **provision for credit losses** for the current quarter primarily reflected an increase in the reserve for **non-performing collateral dependent loans**[4](index=4&type=chunk) Balance Sheet Analysis [Assets Overview](index=3&type=section&id=Assets%20Overview) **Total assets** grew to **$16.19 billion** at September 30, 2024, an increase of **2%** QoQ and **4%** YoY, primarily driven by an increase in **interest-bearing deposit balances** and a **1%** QoQ increase in **total loans receivable** [Loan Portfolio Composition and Changes](index=3&type=section&id=Loan%20Portfolio%20Composition%20and%20Changes) **Total loans receivable** increased to **$11.22 billion**, up **1%** QoQ and **6%** YoY; **multifamily real estate loans** showed significant growth, increasing **24%** QoQ, largely due to conversions from construction loans, while **construction, land, and land development loans** decreased due to similar conversions Loan Portfolio Trends (millions) | Loan Type | Sep 30, 2024 | Jun 30, 2024 | Sep 30, 2023 | Change QoQ | Change YoY | | :----------------------------------- | :----------- | :----------- | :----------- | :--------- | :--------- | | Total Loans Receivable | **$11,224.6** | **$11,143.8** | **$10,611.4** | **+1%** | **+6%** | | One- to Four-Family Residential | **$1,575.2** | **$1,603.3** | **$1,438.7** | **-2%** | **+9%** | | Multifamily Real Estate | **$889.9** | **$717.1** | **$766.6** | **+24%** | **+16%** | | Construction, Land & Development | **$1,530.0** | **$1,680.0** | **$1,500.0** | **-9%** | **+1%** | | Agricultural Business | **$346.7** | **$334.6** | **$334.6** | **+4%** | **+4%** | - The decrease in **one- to four-family residential loans** from the prior quarter was primarily the result of the transfer of **$47.5 million of one- to four-family residential loans from portfolio to held for sale**[6](index=6&type=chunk) - The increase in **multifamily real estate loans** from June 30, 2024, and September 30, 2023, was primarily the result of the conversion of **multifamily construction loans to the multifamily portfolio** upon the completion of the construction phase[6](index=6&type=chunk) - **Loans held for sale** increased significantly to **$78.8 million** at September 30, 2024, from **$13.4 million** at June 30, 2024, primarily due to the transfer of **$47.5 million of one- to four-family residential loans from portfolio to held for sale**[6](index=6&type=chunk) [Securities and Cash Equivalents](index=3&type=section&id=Securities%20and%20Cash%20Equivalents) **Securities** and **interest-bearing deposits** held at other banks increased to **$3.50 billion** at September 30, 2024, primarily due to an increase in **interest-bearing deposit balances**; the **effective duration of the securities portfolio** shortened to approximately **6.3 years** from **6.8 years** a year ago Securities and Interest-Bearing Deposits (billions) | Metric | Sep 30, 2024 | Jun 30, 2024 | Sep 30, 2023 | | :----------------------------------- | :----------- | :----------- | :----------- | | Securities and Interest-Bearing Deposits | **$3.50** | **$3.27** | **$3.44** | - The increase compared to the prior quarter was primarily due to an increase in **interest-bearing deposit balances**[6](index=6&type=chunk) - The average **effective duration of the securities portfolio** was approximately **6.3 years** at September 30, 2024, compared to **6.8 years** at September 30, 2023[6](index=6&type=chunk) [Liabilities and Equity](index=3&type=section&id=Liabilities%20and%20Equity) **Total deposits** increased to **$13.54 billion**, with **core deposits** representing **89%** of the total; **FHLB advances** decreased significantly QoQ, and **total common shareholders' equity** grew to **$1.79 billion**, or **11.08% of total assets**, driven by **retained earnings** and a decrease in **accumulated other comprehensive loss** [Deposit Trends and Composition](index=3&type=section&id=Deposit%20Trends%20and%20Composition) **Total deposits** increased to **$13.54 billion**, with **core deposits** growing **4%** QoQ and representing **89% of total deposits**; the increase in **core deposits** was attributed to seasonal **agricultural client activity** and growth in third-party insured sweep accounts, while **certificates of deposit** slightly decreased QoQ due to a reduction in **brokered deposits** Deposit Trends (billions) | Metric | Sep 30, 2024 | Jun 30, 2024 | Sep 30, 2023 | | :-------------------- | :----------- | :----------- | :----------- | | Total Deposits | **$13.54** | **$13.08** | **$13.17** | | Core Deposits | **$12.02** | **$11.55** | **$11.72** | | Core Deposits % of Total | **89%** | **88%** | **89%** | | Certificates of Deposit | **$1.52** | **$1.53** | **$1.46** | - The increase in **core deposits** compared to the prior quarter primarily reflects normal seasonal increases primarily from **agricultural clients**[6](index=6&type=chunk) - The decrease in **certificates of deposit** during the current quarter compared to the preceding quarter was principally due to a **$55.0 million decrease in brokered deposits**[6](index=6&type=chunk) [Borrowings](index=4&type=section&id=Borrowings) **FHLB advances** significantly decreased to **$230.0 million** at September 30, 2024, down **42%** QoQ; the company maintained substantial **off-balance sheet liquidity**, including additional borrowing capacity at the **FHLB** and **Federal Reserve** FHLB Advances (millions) | Metric | Sep 30, 2024 | Jun 30, 2024 | Sep 30, 2023 | | :------------- | :----------- | :----------- | :----------- | | FHLB Advances | **$230.0** | **$398.0** | **$140.0** | - **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** of **$125.0 million**[7](index=7&type=chunk) [Shareholders' Equity and Capital Ratios](index=4&type=section&id=Shareholders'%20Equity%20and%20Capital%20Ratios) **Total common shareholders' equity** increased to **$1.79 billion**, representing **11.08% of total assets**, driven by **net income** and a decrease in **accumulated other comprehensive loss**; **tangible common shareholders' equity** also saw an **8%** QoQ increase, and **Banner** and **Banner Bank** continue to exceed 'well-capitalized' regulatory requirements Shareholders' Equity and Ratios | Metric | Sep 30, 2024 | Jun 30, 2024 | Sep 30, 2023 | | :----------------------------------- | :----------- | :----------- | :----------- | | Total Common Shareholders' Equity (billions) | **$1.79** | **$1.69** | **$1.52** | | Total Common Shareholders' Equity % of Total Assets | **11.08%** | **10.69%** | **9.81%** | | Tangible Common Shareholders' Equity (billions) | **$1.42** | **$1.31** | **$1.14** | | Tangible Common Shareholders' Equity % of Tangible Assets | **8.96%** | **8.51%** | **7.54%** | - The increase in **total common shareholders' equity** was due to a **$28.4 million increase in retained earnings** from **net income**, partially offset by cash dividends, and a **$72.0 million decrease in accumulated other comprehensive loss** due to an increase in the fair value of the security portfolio[7](index=7&type=chunk) Estimated Regulatory Capital Ratios (Banner Corporation) | Ratio | Sep 30, 2024 | | :----------------------------------- | :----------- | | Common Equity Tier 1 Capital Ratio | **12.30%** | | Tier 1 Leverage Capital to Average Assets Ratio | **10.91%** | | Total Capital to Risk-Weighted Assets Ratio | **14.92%** | - **Banner** and **Banner Bank** continue to maintain capital levels in excess of the requirements to be categorized as **'well-capitalized'**[7](index=7&type=chunk) Credit Quality [Allowance for Credit Losses](index=4&type=section&id=Allowance%20for%20Credit%20Losses) The **allowance for credit losses - loans** increased to **$154.6 million**, representing **1.38% of total loans receivable**; however, its coverage of **non-performing loans** decreased to **359%** from **498%** in the prior quarter, reflecting an increase in **non-performing loans**, and **net loan charge-offs** remained low at **$230,000** Allowance for Credit Losses - Loans | Metric | Sep 30, 2024 | Jun 30, 2024 | Sep 30, 2023 | | :----------------------------------- | :----------- | :----------- | :----------- | | Allowance for Credit Losses - Loans (millions) | **$154.6** | **$152.8** | **$147.0** | | % of Total Loans Receivable | **1.38%** | **1.37%** | **1.38%** | | % of Non-Performing Loans | **359%** | **498%** | **560%** | | Net Loan Charge-offs (thousands) | **$230** | **$245** | **$663** | - In addition to the **allowance for credit losses - loans**, **Banner** maintains an **allowance for credit losses - unfunded loan commitments**, which was **$13.8 million** at September 30, 2024[8](index=8&type=chunk) [Non-Performing Assets and Delinquencies](index=4&type=section&id=Non-Performing%20Assets%20and%20Delinquencies) **Non-performing loans** increased to **$43.0 million**, and **total non-performing assets** rose to **$45.2 million**, or **0.28% of total assets**; this increase was primarily due to a rise in **adversely classified loans**, leading to **total substandard loans** of **$150.1 million** Non-Performing Assets and Loans | Metric | Sep 30, 2024 | Jun 30, 2024 | Sep 30, 2023 | | :----------------------------------- | :----------- | :----------- | :----------- | | Non-Performing Loans (millions) | **$43.0** | **$30.7** | **$26.3** | | Total Non-Performing Assets (millions) | **$45.2** | **$33.3** | **$26.8** | | Total Non-Performing Assets % of Total Assets | **0.28%** | **0.21%** | **0.17%** | | Total Substandard Loans (millions) | **$150.1** | **$122.0** | **$124.5** | - An increase in **adversely classified loans**, offset in part by payoffs and paydowns, resulted in **total substandard loans** of **$150.1 million** as of September 30, 2024[8](index=8&type=chunk) Company Information [About Banner Corporation](index=4&type=section&id=About%20Banner%20Corporation) **Banner Corporation** is a **$16.19 billion bank holding company** operating a **commercial bank**, **Banner Bank**, across four Western states, offering a comprehensive range of **deposit services** and various **loan products** through its network of **135 full-service branch offices** - **Banner Corporation** is a **$16.19 billion bank holding company**[10](index=10&type=chunk) - Operates a **commercial bank** in four Western states through **135 full-service branch offices**[10](index=10&type=chunk) - Offers a full range of **deposit services** and business, **commercial real estate**, **construction**, residential, **agricultural**, and **consumer loans**[10](index=10&type=chunk) [Conference Call Details](index=4&type=section&id=Conference%20Call%20Details) **Banner** will host a **conference call** on October 17, 2024, at 8:00 a.m. PDT to discuss its third-quarter results, with investors able to listen live or access a replay online - **Conference call scheduled** for **Thursday, October 17, 2024, at 8:00 a.m. PDT**[9](index=9&type=chunk) - **Live webcast and replay available** at www.bannerbank.com[9](index=9&type=chunk) [Forward-Looking Statements](index=5&type=section&id=Forward-Looking%20Statements) The press release includes **forward-looking statements**, which are subject to **numerous uncertainties and risks** that could cause **actual results to differ materially**; these factors include **economic conditions**, **interest rate changes**, **inflation**, **regulatory actions**, **competitive pressures**, and **technological changes** - **Forward-looking statements** are identified by words like 'may,' 'believe,' 'will,' 'expect,' 'anticipate,' 'estimate,' 'project,' or similar expressions[11](index=11&type=chunk) - Statements are subject to **numerous uncertainties** that could cause **actual results to differ materially** from those anticipated[11](index=11&type=chunk) - **Key risk factors** include **adverse economic conditions**, changes in **interest rates**, **inflation**, **bank failures**, **regulatory examinations**, **competitive pressures**, and **technological changes**[11](index=11&type=chunk) Detailed Financial Statements [Results of Operations (Income Statement)](index=6&type=section&id=Results%20of%20Operations%20(Income%20Statement)) The detailed income statement shows **interest income** from loans, mortgage-backed securities, and cash equivalents, alongside **interest expenses** from deposits and various borrowings; **net interest income**, **provision for credit losses**, **non-interest income**, and **non-interest expenses** are presented, culminating in **net income** and **earnings per share** for the quarter and nine-month periods Results of Operations (in thousands) | Metric | Sep 30, 2024 (Q3) | Jun 30, 2024 (Q2) | Sep 30, 2023 (Q3) | Nine Months Sep 30, 2024 | Nine Months Sep 30, 2023 | | :----------------------------------- | :---------------- | :---------------- | :---------------- | :----------------------- | :----------------------- | | Total Interest Income | **$195,841** | **$189,138** | **$179,064** | **$569,667** | **$517,834** | | Total Interest Expense | **$60,166** | **$56,592** | **$37,298** | **$168,487** | **$80,238** | | Net Interest Income | **$135,675** | **$132,546** | **$141,766** | **$401,180** | **$437,596** | | Provision for Credit Losses | **$1,692** | **$2,369** | **$2,027** | **$4,581** | **$8,267** | | Total Non-Interest Income | **$18,063** | **$17,199** | **$12,658** | **$46,853** | **$30,357** | | Total Non-Interest Expense | **$96,291** | **$98,128** | **$95,891** | **$292,060** | **$285,917** | | Net Income | **$45,153** | **$39,795** | **$45,854** | **$122,507** | **$141,000** | | Diluted Earnings per Common Share | **$1.30** | **$1.15** | **$1.33** | **$3.54** | **$4.09** | [Financial Condition (Balance Sheet)](index=7&type=section&id=Financial%20Condition%20(Balance%20Sheet)) The balance sheet details **assets** including cash, securities, and loans, and **liabilities** such as deposits and borrowings, along with **shareholders' equity**; **total assets** increased to **$16.19 billion**, driven by growth in **interest-bearing deposits** and **net loans receivable**, and **shareholders' equity** also saw a notable increase Financial Condition (in thousands) | Metric | Sep 30, 2024 | Jun 30, 2024 | Dec 31, 2023 | Sep 30, 2023 | | :----------------------------------- | :----------- | :----------- | :----------- | :----------- | | Total Assets | **$16,188,676** | **$15,816,194** | **$15,670,391** | **$15,507,880** | | Total Cash and Cash Equivalents | **$478,795** | **$247,458** | **$254,464** | **$251,706** | | Total Securities | **$3,251,842** | **$3,220,721** | **$3,432,838** | **$3,395,417** | | Net Loans Receivable | **$11,070,021** | **$10,991,000** | **$10,660,812** | **$10,464,457** | | Total Deposits | **$13,538,148** | **$13,079,263** | **$13,029,497** | **$13,174,552** | | Advances from FHLB | **$230,000** | **$398,000** | **$323,000** | **$140,000** | | Total Liabilities | **$14,394,955** | **$14,125,428** | **$14,017,700** | **$13,987,273** | | Total Shareholders' Equity | **$1,793,721** | **$1,690,766** | **$1,652,691** | **$1,520,607** | | Common Shareholders' Equity per Share | **$52.06** | **$49.07** | **$48.12** | **$44.27** | [Loan Portfolio Details](index=8&type=section&id=Loan%20Portfolio%20Details) Detailed loan information reveals the composition of the portfolio by type and geographic concentration; **loan originations** saw a QoQ decrease but a YoY increase, and the **allowance for credit losses on loans** increased, while **non-performing loans** and **assets** also rose, leading to a decrease in coverage ratios [Loan Originations](index=9&type=section&id=Loan%20Originations) Total **loan originations** (excluding **loans held for sale**) were **$893.6 million** in Q3 2024, a decrease from the preceding quarter but an increase compared to the prior year quarter; **construction and land loans** represented the largest category of originations Loan Originations (in thousands) | Loan Type | Sep 30, 2024 (Q3) | Jun 30, 2024 (Q2) | Sep 30, 2023 (Q3) | | :----------------------------------- | :---------------- | :---------------- | :---------------- | | Commercial Real Estate | **$114,372** | **$102,258** | **$62,337** | | Multifamily Real Estate | **$314** | **$2,774** | **$12,725** | | Construction and Land | **$472,506** | **$546,675** | **$421,656** | | Commercial Business | **$179,871** | **$167,168** | **$157,833** | | Agricultural Business | **$5,877** | **$22,255** | **$17,466** | | One-to Four-Family Residential | **$24,488** | **$34,498** | **$43,622** | | Consumer | **$96,137** | **$120,470** | **$70,043** | | Total Loan Originations | **$893,565** | **$996,098** | **$785,682** | [Allowance for Credit Losses - Loans](index=10&type=section&id=Allowance%20for%20Credit%20Losses%20-%20Loans) The **allowance for credit losses - loans** increased to **$154.6 million** at period end; the **provision for credit losses - loans** was **$2.0 million**, while **net charge-offs** were **$230,000**, and the allowance as a percentage of **total loans receivable** remained stable at **1.38%**, but its coverage of **non-performing loans** decreased to **359%** Change in Allowance for Credit Losses – Loans (in thousands) | Metric | Sep 30, 2024 (Q3) | Jun 30, 2024 (Q2) | Sep 30, 2023 (Q3) | | :----------------------------------- | :---------------- | :---------------- | :---------------- | | Balance, Beginning of Period | **$152,848** | **$151,140** | **$144,680** | | Provision for Credit Losses – Loans | **$1,967** | **$1,953** | **$2,943** | | Total Recoveries | **$734** | **$746** | **$806** | | Total Loans Charged Off | (**$964**) | (**$991**) | (**$1,469**) | | Net Charge-offs | (**$230**) | (**$245**) | (**$663**) | | Balance, End of Period | **$154,585** | **$152,848** | **$146,960** | | Net Charge-offs / Average Loans Receivable | (**0.002%**) | (**0.002%**) | (**0.006%**) | Allocation of Allowance for Credit Losses – Loans (in thousands) | Loan Type | Sep 30, 2024 | Jun 30, 2024 | Sep 30, 2023 | | :----------------------------------- | :----------- | :----------- | :----------- | | Commercial Real Estate | **$40,040** | **$39,064** | **$44,016** | | Multifamily Real Estate | **$10,233** | **$8,253** | **$8,804** | | Construction and Land | **$28,322** | **$31,597** | **$29,389** | | One- to Four-Family Real Estate | **$20,463** | **$20,906** | **$17,925** | | Commercial Business | **$39,779** | **$38,835** | **$34,065** | | Agricultural Business | **$5,340** | **$4,045** | **$3,718** | | Consumer | **$10,408** | **$10,148** | **$9,043** | | Total Allowance for Credit Losses – Loans | **$154,585** | **$152,848** | **$146,960** | | Allowance for Credit Losses - Loans / Total Loans Receivable | **1.38%** | **1.37%** | **1.38%** | | Allowance for Credit Losses - Loans / Non-Performing Loans | **359%** | **498%** | **560%** | [Allowance for Credit Losses - Unfunded Loan Commitments](index=10&type=section&id=Allowance%20for%20Credit%20Losses%20-%20Unfunded%20Loan%20Commitments) The **allowance for credit losses - unfunded loan commitments** decreased slightly to **$13.8 million** at September 30, 2024, following a recapture of **provision for credit losses** Change in Allowance for Credit Losses - Unfunded Loan Commitments (in thousands) | Metric | Sep 30, 2024 | Jun 30, 2024 | Sep 30, 2023 | | :----------------------------------- | :----------- | :----------- | :----------- | | Balance, Beginning of Period | **$14,027** | **$13,597** | **$14,664** | | (Recapture) Provision for Credit Losses | (**$262**) | **$430** | **$346** | | Balance, End of Period | **$13,765** | **$14,027** | **$15,010** | [Non-Accrual and Delinquent Loans](index=11&type=section&id=Non-Accrual%20and%20Delinquent%20Loans) Total **non-performing loans** increased to **$43.0 million**, with significant increases in **agricultural business** and **commercial loans** on **non-accrual status**; loans more than **90 days delinquent** also rose, contributing to an increase in **total non-performing assets** to **$45.2 million** Loans on Non-Accrual Status (in thousands) | Loan Type | Sep 30, 2024 | Jun 30, 2024 | Dec 31, 2023 | Sep 30, 2023 | | :----------------------------------- | :----------- | :----------- | :----------- | :----------- | | Commercial | **$2,127** | **$2,326** | **$2,677** | **$1,365** | | Construction and Land | **$4,286** | **$3,999** | **$3,105** | **$5,538** | | One- to Four-Family | **$9,592** | **$8,184** | **$5,702** | **$5,480** | | Commercial Business | **$10,705** | **$8,694** | **$9,002** | **$5,289** | | Agricultural Business | **$7,703** | **$1,586** | **$3,167** | **$3,170** | | Consumer | **$4,636** | **$3,380** | **$3,204** | **$3,378** | | Total Loans on Non-Accrual Status | **$39,049** | **$28,169** | **$26,857** | **$24,220** | Total Non-Performing Loans and Assets (in thousands) | Metric | Sep 30, 2024 | Jun 30, 2024 | Dec 31, 2023 | Sep 30, 2023 | | :----------------------------------- | :----------- | :----------- | :----------- | :----------- | | Total Non-Performing Loans | **$43,007** | **$30,722** | **$29,602** | **$26,264** | | REO | **$2,221** | **$2,564** | **$526** | **$546** | | Total Non-Performing Assets | **$45,228** | **$33,286** | **$30,128** | **$26,810** | | Total Non-Performing Assets to Total Assets | **0.28%** | **0.21%** | **0.19%** | **0.17%** | [Loans by Credit Risk Rating](index=11&type=section&id=Loans%20by%20Credit%20Risk%20Rating) The total amount of **substandard loans** increased to **$150.1 million** at September 30, 2024, up from **$122.0 million** in the prior quarter, indicating a shift in **credit risk profile** Loans by Credit Risk Rating (in thousands) | Rating | Sep 30, 2024 | Jun 30, 2024 | Dec 31, 2023 | Sep 30, 2023 | | :----------------------------------- | :----------- | :----------- | :----------- | :----------- | | Pass | **$11,022,014** | **$10,971,850** | **$10,671,281** | **$10,467,498** | | Special Mention | **$52,497** | **$50,027** | **$13,732** | **$19,394** | | Substandard | **$150,095** | **$121,971** | **$125,442** | **$124,525** | | Total | **$11,224,606** | **$11,143,848** | **$10,810,455** | **$10,611,417** | [Deposit Details](index=12&type=section&id=Deposit%20Details) **Deposit composition** shows continued strength in **core deposits**, which increased **4%** QoQ and represent **89% of total deposits**; geographic concentration highlights **Washington** as the largest deposit market, and all major operating states showed QoQ and YoY growth in deposits, while **brokered deposits** decreased significantly QoQ [Deposit Composition](index=12&type=section&id=Deposit%20Composition) **Core deposits**, comprising **non-interest-bearing**, **interest-bearing checking**, **regular savings accounts**, and **money market accounts**, increased to **$12.02 billion**, representing **89% of total deposits**; **interest-bearing certificates** remained relatively stable Deposit Composition (in thousands) | Deposit Type | Sep 30, 2024 | Jun 30, 2024 | Dec 31, 2023 | Sep 30, 2023 | | :----------------------------------- | :----------- | :----------- | :----------- | :----------- | | Non-Interest-Bearing | **$4,688,244** | **$4,537,803** | **$4,792,369** | **$5,197,854** | | Interest-Bearing Checking | **$2,344,561** | **$2,208,742** | **$2,098,526** | **$2,006,866** | | Regular Savings Accounts | **$3,339,859** | **$3,192,036** | **$2,980,530** | **$2,751,453** | | Money Market Accounts | **$1,643,631** | **$1,615,549** | **$1,680,605** | **$1,760,066** | | Total Core Deposits | **$12,016,295** | **$11,554,130** | **$11,552,030** | **$11,716,239** | | Interest-Bearing Certificates | **$1,521,853** | **$1,525,133** | **$1,477,467** | **$1,458,313** | | Total Deposits | **$13,538,148** | **$13,079,263** | **$13,029,497** | **$13,174,552** | [Geographic Concentration of Deposits](index=12&type=section&id=Geographic%20Concentration%20of%20Deposits) **Washington** continues to hold the largest share of deposits at **$7.41 billion**, followed by **Oregon** and **California**; all major operating states showed QoQ and YoY growth in deposits Geographic Concentration of Deposits (in thousands) | State | Sep 30, 2024 | Jun 30, 2024 | Dec 31, 2023 | Sep 30, 2023 | | :----------------------------------- | :----------- | :----------- | :----------- | :----------- | | Washington | **$7,413,414** | **$7,171,699** | **$7,247,392** | **$7,241,341** | | Oregon | **$2,997,843** | **$2,909,838** | **$2,852,677** | **$2,918,446** | | California | **$2,423,295** | **$2,331,793** | **$2,269,557** | **$2,342,345** | | Idaho | **$703,596** | **$665,933** | **$659,871** | **$672,420** | | Total Deposits | **$13,538,148** | **$13,079,263** | **$13,029,497** | **$13,174,552** | [Public and Brokered Deposits](index=12&type=section&id=Public%20and%20Brokered%20Deposits) Total **public deposits** were **$416.0 million**, with **collateralized public deposits** at **$318.0 million**; **brokered deposits** significantly decreased to **$50.3 million** from **$105.3 million** in the preceding quarter Public and Brokered Deposits (in thousands) | Metric | Sep 30, 2024 | Jun 30, 2024 | Sep 30, 2023 | | :----------------------------------- | :----------- | :----------- | :----------- | | Total Public Deposits | **$416,017** | **$428,249** | **$404,238** | | Collateralized Public Deposits | **$317,960** | **$326,524** | **$300,189** | | Total Brokered Deposits | **$50,333** | **$105,309** | **$162,856** | [Estimated Regulatory Capital Ratios](index=13&type=section&id=Estimated%20Regulatory%20Capital%20Ratios) **Banner Corporation** and **Banner Bank** maintained strong estimated regulatory capital ratios, well above the 'well-capitalized' thresholds; for **Banner Corporation**, the **Common Equity Tier 1 Capital Ratio** was **12.30%**, and the **Total Capital to Risk-Weighted Assets Ratio** was **14.92%** Estimated Regulatory Capital Ratios (Banner Corporation) | Ratio | Actual Amount (thousands) | Actual Ratio | Minimum 'Adequately Capitalized' Ratio | Minimum 'Well Capitalized' Ratio | | :----------------------------------- | :------------------------ | :----------- | :----------------------------------- | :------------------------------- | | Total Capital to Risk-Weighted Assets | **$1,988,948** | **14.92%** | **8.00%** | **10.00%** | | Tier 1 Capital to Risk-Weighted Assets | **$1,725,690** | **12.94%** | **6.00%** | **6.00%** | | Tier 1 Leverage Capital to Average Assets | **$1,725,690** | **10.91%** | **4.00%** | n/a | | Common Equity Tier 1 Capital to Risk-Weighted Assets | **$1,639,190** | **12.30%** | **4.50%** | n/a | Estimated Regulatory Capital Ratios (Banner Bank) | Ratio | Actual Amount (thousands) | Actual Ratio | Minimum 'Adequately Capitalized' Ratio | Minimum 'Well Capitalized' Ratio | | :----------------------------------- | :------------------------ | :----------- | :----------------------------------- | :------------------------------- | | Total Capital to Risk-Weighted Assets | **$1,862,242** | **13.95%** | **8.00%** | **10.00%** | | Tier 1 Capital to Risk-Weighted Assets | **$1,698,984** | **12.73%** | **6.00%** | **8.00%** | | Tier 1 Leverage Capital to Average Assets | **$1,698,984** | **10.74%** | **4.00%** | **5.00%** | | Common Equity Tier 1 Capital to Risk-Weighted Assets | **$1,698,984** | **12.73%** | **4.50%** | **6.50%** | [Analysis of Net Interest Spread and Key Financial Ratios](index=14&type=section&id=Analysis%20of%20Net%20Interest%20Spread%20and%20Key%20Financial%20Ratios) The analysis of **net interest spread** shows an increase in **average yields on interest-earning assets** and **average loan yields** QoQ, while **total deposit costs** and **total funding liabilities** also increased; **key financial ratios** like **Return on Average Assets** and **Efficiency Ratio** improved QoQ Analysis of Net Interest Spread (Quarterly, in thousands) | Metric | Sep 30, 2024 (Q3) | Jun 30, 2024 (Q2) | Sep 30, 2023 (Q3) | | :----------------------------------- | :---------------- | :---------------- | :---------------- | | Average Total Interest-Earning Assets | **$14,877,162** | **$14,735,320** | **$14,613,803** | | Total Interest and Dividends | **$199,174** | **$192,327** | **$182,046** | | Yield on Interest-Earning Assets | **5.33%** | **5.25%** | **4.94%** | | Average Total Funding Liabilities | **$13,818,232** | **$13,715,643** | **$13,692,011** | | Total Interest Expense | **$60,166** | **$56,592** | **$37,298** | | Cost of Funding Liabilities | **1.73%** | **1.66%** | **1.08%** | | Net Interest Margin (tax equivalent) | **3.72%** | **3.70%** | **3.93%** | Additional Key Financial Ratios (Quarterly) | Ratio | Sep 30, 2024 (Q3) | Jun 30, 2024 (Q2) | Sep 30, 2023 (Q3) | | :----------------------------------- | :---------------- | :---------------- | :---------------- | | Return on Average Assets | **1.13%** | **1.02%** | **1.17%** | | Return on Average Equity | **10.39%** | **9.69%** | **11.68%** | | Efficiency Ratio | **62.63%** | **65.53%** | **62.10%** | Analysis of Net Interest Spread (Nine Months, in thousands) | Metric | Nine Months Sep 30, 2024 | Nine Months Sep 30, 2023 | | :----------------------------------- | :----------------------- | :----------------------- | | Average Total Interest-Earning Assets | **$14,752,638** | **$14,646,422** | | Total Interest and Dividends | **$579,240** | **$526,604** | | Yield on Interest-Earning Assets | **5.24%** | **4.81%** | | Average Total Funding Liabilities | **$13,722,463** | **$13,751,248** | | Total Interest Expense | **$168,487** | **$80,238** | | Cost of Funding Liabilities | **1.64%** | **0.78%** | | Net Interest Margin (tax equivalent) | **3.72%** | **4.07%** | Additional Key Financial Ratios (Nine Months) | Ratio | Nine Months Sep 30, 2024 | Nine Months Sep 30, 2023 | | :----------------------------------- | :----------------------- | :----------------------- | | Return on Average Assets | **1.04%** | **1.21%** | | Return on Average Equity | **9.76%** | **12.27%** | | Efficiency Ratio | **65.19%** | **61.10%** | Non-GAAP Financial Measures Reconciliation [Adjusted Revenue Reconciliation](index=16&type=section&id=Adjusted%20Revenue%20Reconciliation) **Adjusted revenue**, a **non-GAAP financial measure**, is reconciled from GAAP **total revenue** by excluding **net loss on sale of securities** and **net change in valuation of financial instruments**; for Q3 2024, **adjusted revenue** was **$153.7 million**, nearly identical to GAAP **revenue** due to no **securities sales** - **Adjusted revenue** is a **non-GAAP financial measure** used to assess trends in **core operations**[31](index=31&type=chunk) Adjusted Revenue Reconciliation (in thousands) | Metric | Sep 30, 2024 (Q3) | Jun 30, 2024 (Q2) | Sep 30, 2023 (Q3) | Nine Months Sep 30, 2024 | Nine Months Sep 30, 2023 | | :----------------------------------- | :---------------- | :---------------- | :---------------- | :----------------------- | :----------------------- | | Total Revenue (GAAP) | **$153,738** | **$149,745** | **$154,424** | **$448,033** | **$467,953** | | Exclude: Net Loss on Sale of Securities | — | **$562** | **$2,657** | **$5,465** | **$14,436** | | Net Change in Valuation of Financial Instruments | (**$39**) | **$190** | **$654** | **$1,143** | **$4,357** | | Adjusted Revenue (non-GAAP) | **$153,699** | **$150,497** | **$157,735** | **$454,641** | **$486,746** | [Adjusted Earnings and Return Ratios Reconciliation](index=16&type=section&id=Adjusted%20Earnings%20and%20Return%20Ratios%20Reconciliation) **Adjusted earnings** and related **return ratios** (on **average assets** and **equity**) are presented as **non-GAAP measures**, excluding specific items like **net loss on securities sales** and **fair value adjustments**; for Q3 2024, **adjusted diluted EPS** was **$1.30**, and **adjusted return on average assets** was **1.13%** Adjusted Earnings and Return Ratios Reconciliation (in thousands) | Metric | Sep 30, 2024 (Q3) | Jun 30, 2024 (Q2) | Sep 30, 2023 (Q3) | Nine Months Sep 30, 2024 | Nine Months Sep 30, 2023 | | :----------------------------------- | :---------------- | :---------------- | :---------------- | :----------------------- | :----------------------- | | Net Income (GAAP) | **$45,153** | **$39,795** | **$45,854** | **$122,507** | **$141,000** | | Exclude: Net Loss on Sale of Securities | — | **$562** | **$2,657** | **$5,465** | **$14,436** | | Net Change in Valuation of Financial Instruments | (**$39**) | **$190** | **$654** | **$1,143** | **$4,357** | | Related Net Tax Expense (Benefit) | **$9** | (**$180**) | (**$1,033**) | (**$1,586**) | (**$4,830**) | | Total Adjusted Earnings (non-GAAP) | **$45,123** | **$40,367** | **$49,128** | **$127,529** | **$156,297** | | Diluted Earnings per Share (GAAP) | **$1.30** | **$1.15** | **$1.33** | **$3.54** | **$4.09** | | Diluted Adjusted Earnings per Share (non-GAAP) | **$1.30** | **$1.17** | **$1.43** | **$3.69** | **$4.54** | | Return on Average Assets (GAAP) | **1.13%** | **1.02%** | **1.17%** | **1.04%** | **1.21%** | | Adjusted Return on Average Assets (non-GAAP) | **1.13%** | **1.04%** | **1.25%** | **1.08%** | **1.34%** | | Return on Average Equity (GAAP) | **10.39%** | **9.69%** | **11.68%** | **9.76%** | **12.27%** | | Adjusted Return on Average Equity (non-GAAP) | **10.39%** | **9.83%** | **12.51%** | **10.16%** | **13.60%** | [Adjusted Efficiency Ratio Reconciliation](index=17&type=section&id=Adjusted%20Efficiency%20Ratio%20Reconciliation) The **adjusted efficiency ratio**, a **non-GAAP measure**, is calculated by adjusting **non-interest expense** and **total revenue** for specific items; for Q3 2024, the **adjusted efficiency ratio** was **61.27%**, an improvement from the prior quarter's **63.60%** Adjusted Efficiency Ratio Reconciliation (in thousands) | Metric | Sep 30, 2024 (Q3) | Jun 30, 2024 (Q2) | Sep 30, 2023 (Q3) | Nine Months Sep 30, 2024 | Nine Months Sep 30, 2023 | | :----------------------------------- | :---------------- | :---------------- | :---------------- | :----------------------- | :----------------------- | | Non-Interest Expense (GAAP) | **$96,291** | **$98,128** | **$95,891** | **$292,060** | **$285,917** | | Exclude: CDI Amortization | (**$590**) | (**$724**) | (**$857**) | (**$2,037**) | (**$2,898**) | | State/Municipal Tax Expense | (**$1,432**) | (**$1,394**) | (**$1,359**) | (**$4,130**) | (**$3,888**) | | REO Operations | (**$103**) | (**$297**) | **$383** | (**$180**) | **$585** | | Adjusted Non-Interest Expense (non-GAAP) | **$94,166** | **$95,713** | **$93,062** | **$285,713** | **$278,382** | | Adjusted Revenue (non-GAAP) | **$153,699** | **$150,497** | **$157,735** | **$454,641** | **$486,746** | | Efficiency Ratio (GAAP) | **62.63%** | **65.53%** | **62.10%** | **65.19%** | **61.10%** | | Adjusted Efficiency Ratio (non-GAAP) | **61.27%** | **63.60%** | **59.00%** | **62.84%** | **57.19%** | [Tangible Common Equity Reconciliation](index=17&type=section&id=Tangible%20Common%20Equity%20Reconciliation) **Tangible common shareholders' equity** and **tangible assets** are **non-GAAP measures** that exclude **goodwill and other intangible assets**; at September 30, 2024, **tangible common shareholders' equity** was **$1.42 billion**, representing **8.96% of tangible assets**, and **tangible common shareholders' equity per share** was **$41.12** Tangible Common Shareholders' Equity to Tangible Assets Reconciliation (in thousands) | Metric | Sep 30, 2024 | Jun 30, 2024 | Dec 31, 2023 | Sep 30, 2023 | | :----------------------------------- | :----------- | :----------- | :----------- | :----------- | | Shareholders' Equity (GAAP) | **$1,793,721** | **$1,690,766** | **$1,652,691** | **$1,520,607** | | Exclude Goodwill and Other Intangible Assets, Net | **$376,768** | **$377,358** | **$378,805** | **$379,663** | | Tangible Common Shareholders' Equity (non-GAAP) | **$1,416,953** | **$1,313,408** | **$1,273,886** | **$1,140,944** | | Total Assets (GAAP) | **$16,188,676** | **$15,816,194** | **$15,670,391** | **$15,507,880** | | Exclude Goodwill and Other Intangible Assets, Net | **$376,768** | **$377,358** | **$378,805** | **$379,663** | | Total Tangible Assets (non-GAAP) | **$15,811,908** | **$15,438,836** | **$15,291,586** | **$15,128,217** | | Tangible Common Shareholders' Equity to Tangible Assets (non-GAAP) | **8.96%** | **8.51%** | **8.33%** | **7.54%** | Tangible Common Shareholders' Equity Per Share Reconciliation | Metric | Sep 30, 2024 | Jun 30, 2024 | Dec 31, 2023 | Sep 30, 2023 | | :----------------------------------- | :----------- | :----------- | :----------- | :----------- | | Common Shareholders' Equity (Book Value) per Share (GAAP) | **$52.06** | **$49.07** | **$48.12** | **$44.27** | | Tangible Common Shareholders' Equity (Tangible Book Value) per Share (non-GAAP) | **$41.12** | **$38.12** | **$37.09** | **$33.22** |