Banner(BANR) - 2025 Q2 - Quarterly Results

Financial Performance Summary Q2 2025 Financial Highlights Banner Corporation reported strong financial results for the second quarter of 2025, with net income of $45.5 million, or $1.31 per diluted share. This represents a slight increase from the previous quarter and a significant increase from the same quarter last year. The performance was driven by a 9% year-over-year increase in net interest income, fueled by loan growth and higher asset yields. The company also saw a 5% year-over-year growth in net loans and maintained a strong core deposit base, which constituted 89% of total deposits Q2 2025 Key Financial Metrics | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Net Income | $45.5 million | $45.1 million | $39.8 million | | Diluted EPS | $1.31 | $1.30 | $1.15 | | Net Interest Income | $144.4 million | $141.1 million | $132.5 million | | Revenue | $162.2 million | $160.2 million | $149.7 million | | Provision for Credit Losses | $4.8 million | $3.1 million | $2.4 million | - Net loans receivable grew to $11.53 billion, a 2% increase from the prior quarter and a 5% increase year-over-year[11] - Core deposits represented 89% of total deposits at quarter-end, highlighting a strong funding base[4][11] - Non-performing assets (NPAs) increased to 0.30% of total assets, up from 0.26% in the prior quarter and 0.21% in the prior year quarter[11] Dividend Declaration The Board of Directors declared a regular quarterly cash dividend, maintaining its commitment to shareholder returns - A quarterly cash dividend of $0.48 per share was declared, payable on August 15, 2025, to shareholders of record on August 5, 2025[3] Management Commentary CEO Mark Grescovich attributed the strong quarterly performance to the company's 'super community bank strategy,' which emphasizes client relationships, a solid funding base, and a moderate risk profile. He highlighted that earnings benefited from loan growth and higher asset yields, which offset increased funding costs. The company's credit metrics, reserve levels, and capital base are described as robust - The company's performance is credited to its 'super community bank strategy,' focusing on client relationships, a strong funding base, and exceptional service with a moderate risk profile[4] - Management noted that credit metrics remain strong, the reserve for loan losses is solid, and the capital base is robust[4] Detailed Financial Analysis Income Statement Review The income statement review highlights a 9% year-over-year increase in net interest income to $144.4 million, with a stable net interest margin of 3.92%. The provision for credit losses increased to $4.8 million due to loan growth and risk rating migration. Non-interest income decreased quarter-over-quarter due to one-time building exit costs, while non-interest expenses remained flat, leading to an improved efficiency ratio of 62.50% Net Interest Income and Margin - Net interest income was $144.4 million, up from $141.1 million in Q1 2025 and $132.5 million in Q2 2024[7] - Net interest margin (tax equivalent) was stable at 3.92% for the current and preceding quarters, an increase of 22 basis points from 3.70% in Q2 2024[7] - The increase in net interest income was driven by higher yields on interest-earning assets, with average loan yields rising to 6.12% from 6.07% in the prior quarter[8] - Total cost of funding liabilities increased by 5 basis points to 1.60% compared to the preceding quarter, mainly due to higher FHLB advances to fund loan growth[9] Provision for Credit Losses - A $4.8 million provision for credit losses was recorded in Q2 2025, compared to $3.1 million in Q1 2025 and $2.4 million in Q2 2024[10] - The provision primarily reflected loan growth and risk rating migration, which impacted estimated reserve requirements[10] Non-Interest Income - Total non-interest income was $17.8 million, a decrease from $19.1 million in the prior quarter, primarily due to a $1.1 million decrease in miscellaneous income related to losses on building and lease exits[12] - Mortgage banking operations revenue was stable at $3.2 million, compared to $3.1 million in the preceding quarter[13] Non-Interest Expense - Total non-interest expense was flat at $101.3 million compared to the preceding quarter. Increases in salary and IT costs were offset by a $1.6 million increase in capitalized loan origination costs[14] - The efficiency ratio improved to 62.50% from 63.21% in the preceding quarter. The adjusted efficiency ratio also improved to 60.28% from 62.18%[14] Balance Sheet Review As of June 30, 2025, total assets grew to $16.44 billion, driven by a 2% quarterly increase in total loans to $11.69 billion. Deposits saw a slight decrease to $13.53 billion, but core deposits remained strong. The company increased FHLB advances significantly to fund loan growth and paid off its outstanding subordinated debt. Shareholders' equity increased, and all capital ratios remained well above 'well-capitalized' regulatory requirements Assets, Loans, and Deposits Balance Sheet Highlights (as of June 30, 2025) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Total Assets | $16.44 billion | $16.17 billion | $15.82 billion | | Total Loans Receivable | $11.69 billion | $11.44 billion | $11.14 billion | | Total Deposits | $13.53 billion | $13.59 billion | $13.08 billion | - Commercial real estate loans increased by 4% quarter-over-quarter to $3.97 billion, driven by new loan production and construction loan conversions[16] - Core deposits decreased slightly but remained strong at $12.05 billion, representing 89% of total deposits[18] Liquidity and Borrowings - FHLB advances increased significantly to $565.0 million from $168.0 million in the prior quarter, primarily to fund loan growth[19] - The company paid off its outstanding subordinated debt during the second quarter of 2025[20] - At quarter-end, the company had additional off-balance sheet liquidity of $2.74 billion at the FHLB and $1.62 billion at the Federal Reserve[19] Shareholders' Equity and Capital Ratios - Total common shareholders' equity increased to $1.87 billion, or 11.35% of total assets, up from $1.83 billion at the end of the prior quarter[21] - Tangible common shareholders' equity per share (a non-GAAP measure) increased to $43.09 from $42.27 in the prior quarter[11][21] - The company and Banner Bank continue to maintain capital levels in excess of 'well-capitalized' requirements, with an estimated common equity Tier 1 capital ratio of 12.63%[22] Credit Quality Credit quality metrics showed some weakening, with non-performing assets rising to 0.30% of total assets. However, the allowance for credit losses on loans remained stable at 1.37% of total loans receivable, providing strong coverage of non-performing loans at 373%. Net loan charge-offs decreased to $1.0 million from $2.7 million in the prior quarter Credit Quality Metrics | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Non-performing Assets (NPAs) | $49.8 million | $42.7 million | $33.3 million | | NPAs to Total Assets | 0.30% | 0.26% | 0.21% | | Allowance for Credit Losses (ACL) - Loans | $160.5 million | $157.3 million | $152.8 million | | ACL to Total Loans | 1.37% | 1.38% | 1.37% | | Net Loan Charge-offs | $1.0 million | $2.7 million | $0.2 million | - The allowance for credit losses on loans was 373% of non-performing loans at June 30, 2025, down from 404% at March 31, 2025[23] - Substandard loans decreased to $189.5 million from $197.8 million in the prior quarter but were up significantly from $122.0 million a year ago[23] Additional Information Conference Call Information Banner Corporation will host a conference call to discuss its second quarter 2025 results - The conference call is scheduled for Thursday, July 17, 2025, at 8:00 a.m. PDT[24] Forward-Looking Statements The report contains forward-looking statements regarding future financial performance and strategic plans. These statements are subject to numerous risks and uncertainties, including economic conditions, interest rate changes, inflation, geopolitical developments, and regulatory changes, which could cause actual results to differ materially - The document includes a standard safe harbor statement, cautioning readers not to place undue reliance on forward-looking statements[26] - Key risk factors cited include adverse economic conditions, changes in interest rates, inflation, credit risks, competitive pressures, and regulatory changes[27] Financial Tables Results of Operations The detailed income statement shows a year-over-year increase in net income to $45.5 million for Q2 2025, driven by higher net interest income which rose to $144.4 million. For the six months ended June 30, 2025, net income was $90.6 million, up from $77.4 million in the same period of 2024 Income Statement Summary (in thousands) | Description | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Interest Income | $200,259 | $189,138 | $394,127 | $373,826 | | Total Interest Expense | $55,860 | $56,592 | $108,645 | $108,321 | | Net Interest Income | $144,399 | $132,546 | $285,482 | $265,505 | | Provision for Credit Losses | $4,795 | $2,369 | $7,934 | $2,889 | | Total Non-interest Income | $17,751 | $17,199 | $36,859 | $28,790 | | Total Non-interest Expense | $101,348 | $98,128 | $202,607 | $195,769 | | Net Income | $45,496 | $39,795 | $90,631 | $77,354 | Financial Condition The balance sheet expanded, with total assets reaching $16.44 billion at June 30, 2025, a 4% increase from the prior year. This growth was supported by a 5% year-over-year increase in net loans. Total shareholders' equity grew 10% year-over-year to $1.87 billion Balance Sheet Summary (in thousands) | Description | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | | :--- | :--- | :--- | :--- | | Total Assets | $16,437,169 | $16,170,812 | $15,816,194 | | Net Loans Receivable | $11,529,872 | $11,281,473 | $10,991,000 | | Total Deposits | $13,527,291 | $13,593,265 | $13,079,263 | | Total Liabilities | $14,571,505 | $14,337,359 | $14,125,428 | | Total Shareholders' Equity | $1,865,664 | $1,833,453 | $1,690,766 | Loan Portfolio Analysis The loan portfolio grew to $11.69 billion, with notable year-over-year increases in owner-occupied commercial real estate (+18%), multifamily real estate (+20%), and land development (+19%). Loan originations in Q2 2025 totaled $966.6 million. Geographically, Washington and California remain the largest markets, accounting for 47% and 26% of the loan portfolio, respectively Loan Composition and Growth Loan Composition (in thousands) as of June 30, 2025 | Loan Type | Amount | % Change YoY | | :--- | :--- | :--- | | Commercial Real Estate (CRE) | $3,973,727 | +7% | | Multifamily Real Estate | $860,700 | +20% | | Construction and Land | $1,696,560 | +5% | | Commercial Business | $2,471,014 | +4% | | One- to four-family residential | $1,610,133 | 0% | | Total Loans Receivable | $11,690,373 | +5% | Loan Originations - Total loan originations (excluding loans held for sale) were $966.6 million in Q2 2025, a significant increase from $535.8 million in Q1 2025 and slightly below $996.1 million in Q2 2024[33] - Construction and land loans represented the largest category of originations in Q2 2025 at $411.2 million[33] Geographic Distribution Loans by Geographic Location as of June 30, 2025 | State | Amount (in thousands) | Percentage | | :--- | :--- | :--- | | Washington | $5,438,285 | 47% | | California | $3,010,678 | 26% | | Oregon | $2,141,185 | 17% | | Idaho | $671,217 | 6% | | Other | $429,008 | 4% | Credit Quality Metrics The allowance for credit losses (ACL) on loans increased to $160.5 million, maintaining a stable ratio of 1.37% to total loans. Net charge-offs for the quarter were $1.0 million. Non-performing assets (NPAs) rose to $49.8 million, driven by increases in non-accrual one-to-four family and agricultural loans, and an increase in REO Allowance for Credit Losses (ACL) Analysis - The ACL for loans increased to $160.5 million at the end of Q2 2025 from a beginning balance of $157.3 million, with a provision of $4.2 million and net charge-offs of $1.0 million during the quarter[34] - The ACL for unfunded loan commitments increased to $12.8 million from $12.2 million in the prior quarter[34] Non-Performing Assets (NPA) Analysis Non-Performing Assets (in thousands) | Category | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | | :--- | :--- | :--- | :--- | | Total non-performing loans | $42,974 | $38,959 | $30,722 | | REO and other repossessed assets | $6,801 | $3,768 | $2,564 | | Total non-performing assets | $49,775 | $42,727 | $33,286 | Deposit Analysis Total deposits stood at $13.53 billion, a slight decrease from the prior quarter but up 3% year-over-year. Core deposits, comprising non-interest-bearing and interest-bearing transaction and savings accounts, made up 89% of the total. Geographically, Washington accounts for 55% of all deposits Deposit Composition (in thousands) as of June 30, 2025 | Deposit Type | Amount | % of Total | | :--- | :--- | :--- | | Non-interest-bearing | $4,504,491 | 33% | | Interest-bearing transaction and savings | $7,545,028 | 56% | | Total Core Deposits | $12,049,519 | 89% | | Interest-bearing certificates | $1,477,772 | 11% | | Total Deposits | $13,527,291 | 100% | - Total deposits are geographically concentrated in Washington (55%), Oregon (22%), and California (18%)[37] Capital Adequacy As of June 30, 2025, both Banner Corporation and Banner Bank maintained capital ratios significantly exceeding the minimums required to be categorized as 'well-capitalized' by regulators Estimated Regulatory Capital Ratios (Banner Corporation) | Ratio | Actual | 'Well Capitalized' Minimum | | :--- | :--- | :--- | | Common equity tier 1 capital to risk-weighted assets | 12.63% | n/a | | Tier 1 capital to risk-weighted assets | 13.26% | 6.00% | | Total capital to risk-weighted assets | 14.51% | 10.00% | | Tier 1 leverage capital to average assets | 11.29% | n/a | Non-GAAP Financial Measures The company provides several non-GAAP financial measures, such as tangible common equity and adjusted efficiency ratio, to offer what it believes are useful and comparative insights into its core operations. These measures exclude items like goodwill, intangible assets, and certain one-time gains or losses - Management uses non-GAAP measures like adjusted revenue, adjusted earnings, and tangible book value per share to assess core operational trends and facilitate peer comparison[41] Tangible Common Shareholders' Equity Reconciliation | Metric | Jun 30, 2025 | Mar 31, 2025 | Jun 30, 2024 | | :--- | :--- | :--- | :--- | | Common shareholders' equity (book value) per share (GAAP) | $53.95 | $53.16 | $49.07 | | Tangible common shareholders' equity (tangible book value) per share (non-GAAP) | $43.09 | $42.27 | $38.12 | Adjusted Efficiency Ratio Reconciliation | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Efficiency ratio (GAAP) | 62.50% | 63.21% | 65.53% | | Adjusted efficiency ratio (non-GAAP) | 60.28% | 62.18% | 63.60% |