UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2023March 31, 2024
OR
☐ 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)
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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
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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 |
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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 | ☒ | | No | ☐ | |
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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 | ☒ | | No | ☐ | |
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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. | |
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Large accelerated filer | | ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company | ☐ | |
Emerging growth company | ☐ | | | | | | | | | | | | | | | | | | | |
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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. ☐ | |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | Yes | ☐ | | No | ☒ | |
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APPLICABLE ONLY TO CORPORATE ISSUERS | |
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. | |
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Title of class: | | As of October 31, 2023April 30, 2024 | |
Common Stock, $.01 par value per share | | | | | | | | | 34,348,09434,449,548 shares | |
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BANNER CORPORATION AND SUBSIDIARIES
Table of Contents
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Comparison of Financial Condition at September 30, 2023 and December 31, 2022 | |
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Comparison of Results of Operations for the Three Months Ended September 30, 2023 and June 30, 2023 and the Nine Months Ended September 30, 2023 and 2022 | |
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Sensitivity Analysis | |
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Item 4 – Controls and Procedures | |
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PART II – OTHER INFORMATION | |
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Item 1 – Legal Proceedings | |
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Item 1A – Risk Factors | |
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All references to “Banner” refer to Banner Corporation and those to the “Bank” refer to its wholly-owned subsidiary, Banner Bank. 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.
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. 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, including statements about our financial condition, liquidity and results of operations. 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.” 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, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth caused by increasing political instability from acts of war including Russia’s invasion of Ukraine, as well as increasing supply chain disruptions;growth; changes in the interest rate environment, including the recentpast increases in the Board of Governors of the Federal Reserve System (the Federal Reserve) benchmark rate and duration at which such increased interest rate levels are maintained, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; the impact of continuing highelevated inflation and the current and future monetary policies of the Federal Reserve in response thereto; the effects of any federal government shutdown; 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; the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment; the transition away from the London Interbank Offered Rate (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;expenses; 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; 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, including but not limited to 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 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 loancredit 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; the quality and composition of our securities portfolio and the impact of 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 effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business; other economic, competitive, governmental, regulatory and technological factors affecting operations, pricing, products and services; future acquisitions by the Company of other depository institutions or lines of business; and future goodwill impairment due to changes in the Company’s business, changes in market conditions; and other risks detailed in our Form 10-K for the year ended December 31, 20222023 (“20222023 Form 10-K”) and in our reports filed with or furnished to 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. 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.
PART I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements (unaudited)
BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited) (In thousands, except shares and per share amounts)
September 30, 2023March 31, 2024 and December 31, 20222023
| ASSETS | ASSETS | September 30, 2023 | | December 31, 2022 | ASSETS | March 31, 2024 | | December 31, 2023 |
Cash and due from banks | Cash and due from banks | $ | 207,171 | | | $ | 198,154 | |
Interest bearing deposits | Interest bearing deposits | 44,535 | | | 44,908 | |
Total cash and cash equivalents | Total cash and cash equivalents | 251,706 | | | 243,062 | |
Securities—trading | 25,268 | | | 28,694 | |
Securities—available-for-sale, net of allowance for credit losses of $750 and none, respectively; amortized cost $2,774,972 and $3,218,777, respectively | 2,287,993 | | | 2,789,031 | |
Securities—held-to-maturity, net of allowance for credit losses of $349 and $379, respectively | 1,082,156 | | | 1,117,588 | |
| Securities—available-for-sale, amortized cost $2,617,986 and $2,729,980, respectively | |
Securities—available-for-sale, amortized cost $2,617,986 and $2,729,980, respectively | |
Securities—available-for-sale, amortized cost $2,617,986 and $2,729,980, respectively | |
Securities—held-to-maturity, net of allowance for credit losses of $322 and $332, respectively | |
Total securities | Total securities | 3,395,417 | | | 3,935,313 | |
| Federal Home Loan Bank (FHLB) stock | Federal Home Loan Bank (FHLB) stock | 15,600 | | | 12,000 | |
Securities purchased under agreements to resell | — | | | 300,000 | |
Loans held for sale (includes $51,697 and $51,779, at fair value, respectively) | 54,158 | | | 56,857 | |
Federal Home Loan Bank (FHLB) stock | |
Federal Home Loan Bank (FHLB) stock | |
| Loans held for sale (includes $7,208 and $9,105, at fair value, respectively) | |
Loans held for sale (includes $7,208 and $9,105, at fair value, respectively) | |
Loans held for sale (includes $7,208 and $9,105, at fair value, respectively) | |
Loans receivable | Loans receivable | 10,611,417 | | | 10,146,724 | |
Allowance for credit losses – loans | Allowance for credit losses – loans | (146,960) | | | (141,465) | |
Net loans receivable | Net loans receivable | 10,464,457 | | | 10,005,259 | |
Accrued interest receivable | Accrued interest receivable | 61,040 | | | 57,284 | |
Property and equipment, net | Property and equipment, net | 136,504 | | | 138,754 | |
Goodwill | Goodwill | 373,121 | | | 373,121 | |
Other intangibles, net | Other intangibles, net | 6,542 | | | 9,440 | |
Bank-owned life insurance (BOLI) | Bank-owned life insurance (BOLI) | 303,347 | | | 297,565 | |
Deferred tax assets, net | Deferred tax assets, net | 186,775 | | | 178,131 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | 43,447 | | | 49,283 | |
Other assets | Other assets | 215,766 | | | 177,362 | |
Total assets | Total assets | $ | 15,507,880 | | | $ | 15,833,431 | |
LIABILITIES | LIABILITIES | | | |
Deposits: | Deposits: | |
Deposits: | |
Deposits: | |
Non-interest-bearing | |
Non-interest-bearing | |
Non-interest-bearing | Non-interest-bearing | $ | 5,197,854 | | | $ | 6,176,998 | |
Interest-bearing transaction and savings accounts | Interest-bearing transaction and savings accounts | 6,518,385 | | | 6,719,531 | |
Interest-bearing certificates | Interest-bearing certificates | 1,458,313 | | | 723,530 | |
Total deposits | Total deposits | 13,174,552 | | | 13,620,059 | |
Advances from FHLB | Advances from FHLB | 140,000 | | | 50,000 | |
Other borrowings | Other borrowings | 188,440 | | | 232,799 | |
Subordinated notes, net | Subordinated notes, net | 92,748 | | | 98,947 | |
Junior subordinated debentures at fair value (issued in connection with Trust Preferred Securities) | Junior subordinated debentures at fair value (issued in connection with Trust Preferred Securities) | 66,284 | | | 74,857 | |
Operating lease liabilities | Operating lease liabilities | 48,642 | | | 55,205 | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | 231,478 | | | 200,839 | |
Deferred compensation | Deferred compensation | 45,129 | | | 44,293 | |
Total liabilities | Total liabilities | 13,987,273 | | | 14,376,999 | |
COMMITMENTS AND CONTINGENCIES (Note 11) | COMMITMENTS AND CONTINGENCIES (Note 11) | | COMMITMENTS AND CONTINGENCIES (Note 11) | | | |
SHAREHOLDERS’ EQUITY | SHAREHOLDERS’ EQUITY | |
Preferred stock - $0.01 par value per share, 500,000 shares authorized; no shares outstanding at September 30, 2023 and December 31, 2022 | — | | | — | |
Common stock and paid in capital - $0.01 par value per share, 50,000,000 shares authorized; 34,345,949 shares issued and outstanding at September 30, 2023; 34,194,018 shares issued and outstanding at December 31, 2022 | 1,297,307 | | | 1,293,959 | |
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 September 30, 2023; no shares issued and outstanding at December 31, 2022 | — | | | — | |
Preferred stock - $0.01 par value per share, 500,000 shares authorized; no shares outstanding at March 31, 2024 and December 31, 2023 | |
Preferred stock - $0.01 par value per share, 500,000 shares authorized; no shares outstanding at March 31, 2024 and December 31, 2023 | |
Preferred stock - $0.01 par value per share, 500,000 shares authorized; no shares outstanding at March 31, 2024 and December 31, 2023 | |
Common stock and paid in capital - $0.01 par value per share, 50,000,000 shares authorized; 34,395,221 shares issued and outstanding at March 31, 2024; 34,348,369 shares issued and outstanding at December 31, 2023 | |
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, 2024; no shares issued and outstanding at December 31, 2023 | |
Retained earnings | Retained earnings | 616,215 | | | 525,242 | |
Carrying value of shares held in trust for stock-based compensation plans | Carrying value of shares held in trust for stock-based compensation plans | (6,546) | | | (6,905) | |
Liability for common stock issued to stock related compensation plans | Liability for common stock issued to stock related compensation plans | 6,546 | | | 6,905 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (392,915) | | | (362,769) | |
| Total shareholders’ equity | Total shareholders’ equity | 1,520,607 | | | 1,456,432 | |
Total shareholders’ equity | |
Total shareholders’ equity | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 15,507,880 | | | $ | 15,833,431 | |
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 and Nine Months Ended September 30,March 31, 2024 and 2023 and 2022
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| 2024 | |
| 2024 | |
| 2024 | |
INTEREST INCOME: | |
INTEREST INCOME: | |
INTEREST INCOME: | INTEREST INCOME: | | | | | | | |
Loans receivable | Loans receivable | $ | 149,254 | | | $ | 116,610 | | | $ | 423,359 | | | $ | 321,466 | |
Loans receivable | |
Loans receivable | |
Mortgage-backed securities | |
Mortgage-backed securities | |
Mortgage-backed securities | Mortgage-backed securities | 17,691 | | | 17,558 | | | 54,954 | | | 48,486 | |
Securities and cash equivalents | Securities and cash equivalents | 12,119 | | | 16,951 | | | 39,521 | | | 37,059 | |
Securities and cash equivalents | |
Securities and cash equivalents | |
Total interest income | |
Total interest income | |
Total interest income | Total interest income | 179,064 | | | 151,119 | | | 517,834 | | | 407,011 | |
INTEREST EXPENSE: | INTEREST EXPENSE: | |
INTEREST EXPENSE: | |
INTEREST EXPENSE: | |
Deposits | |
Deposits | |
Deposits | Deposits | 31,001 | | | 2,407 | | | 60,784 | | | 6,501 | |
FHLB advances | FHLB advances | 2,233 | | | — | | | 8,654 | | | 291 | |
FHLB advances | |
FHLB advances | |
Other borrowings | |
Other borrowings | |
Other borrowings | Other borrowings | 1,099 | | | 81 | | | 2,251 | | | 245 | |
Subordinated debt | Subordinated debt | 2,965 | | | 2,188 | | | 8,549 | | | 5,866 | |
Subordinated debt | |
Subordinated debt | |
Total interest expense | |
Total interest expense | |
Total interest expense | Total interest expense | 37,298 | | | 4,676 | | | 80,238 | | | 12,903 | |
Net interest income | Net interest income | 141,766 | | | 146,443 | | | 437,596 | | | 394,108 | |
PROVISION FOR CREDIT LOSSES | 2,027 | | | 6,087 | | | 8,267 | | | 3,660 | |
Net interest income after provision for credit losses | 139,739 | | | 140,356 | | | 429,329 | | | 390,448 | |
Net interest income | |
Net interest income | |
PROVISION (RECAPTURE) FOR CREDIT LOSSES | |
PROVISION (RECAPTURE) FOR CREDIT LOSSES | |
PROVISION (RECAPTURE) FOR CREDIT LOSSES | |
Net interest income after provision (recapture) for credit losses | |
Net interest income after provision (recapture) for credit losses | |
Net interest income after provision (recapture) for credit losses | |
NON-INTEREST INCOME: | |
NON-INTEREST INCOME: | |
NON-INTEREST INCOME: | NON-INTEREST INCOME: | |
Deposit fees and other service charges | Deposit fees and other service charges | 10,916 | | | 11,449 | | | 32,078 | | | 33,638 | |
Deposit fees and other service charges | |
Deposit fees and other service charges | |
Mortgage banking operations | |
Mortgage banking operations | |
Mortgage banking operations | Mortgage banking operations | 2,049 | | | 105 | | | 6,426 | | | 8,523 | |
BOLI | BOLI | 2,062 | | | 1,804 | | | 6,636 | | | 5,674 | |
BOLI | |
BOLI | |
Miscellaneous | Miscellaneous | 942 | | | 1,689 | | | 4,010 | | | 5,423 | |
| 15,969 | | | 15,047 | | | 49,150 | | | 53,258 | |
Net (loss) gain on sale of securities | (2,657) | | | 6 | | | (14,436) | | | 473 | |
Miscellaneous | |
Miscellaneous | |
| 17,486 | |
| 17,486 | |
| 17,486 | |
Net loss on sale of securities | |
Net loss on sale of securities | |
Net loss on sale of securities | |
| Net change in valuation of financial instruments carried at fair value | Net change in valuation of financial instruments carried at fair value | (654) | | | 532 | | | (4,357) | | | 650 | |
| Gain on sale of branches, including related deposits | — | | | — | | | — | | | 7,804 | |
Net change in valuation of financial instruments carried at fair value | |
| Net change in valuation of financial instruments carried at fair value | |
| Total non-interest income | |
| Total non-interest income | |
| Total non-interest income | Total non-interest income | 12,658 | | | 15,585 | | | 30,357 | | | 62,185 | |
NON-INTEREST EXPENSE: | NON-INTEREST EXPENSE: | |
NON-INTEREST EXPENSE: | |
NON-INTEREST EXPENSE: | |
Salary and employee benefits | |
Salary and employee benefits | |
Salary and employee benefits | Salary and employee benefits | 61,091 | | | 61,639 | | | 184,452 | | | 181,957 | |
Less capitalized loan origination costs | Less capitalized loan origination costs | (4,498) | | | (5,984) | | | (12,386) | | | (19,436) | |
Less capitalized loan origination costs | |
Less capitalized loan origination costs | |
Occupancy and equipment | |
Occupancy and equipment | |
Occupancy and equipment | Occupancy and equipment | 11,722 | | | 12,008 | | | 35,686 | | | 38,512 | |
Information and computer data services | Information and computer data services | 7,118 | | | 6,803 | | | 21,347 | | | 19,451 | |
Information and computer data services | |
Information and computer data services | |
Payment and card processing services | |
Payment and card processing services | |
Payment and card processing services | Payment and card processing services | 5,172 | | | 5,508 | | | 14,459 | | | 16,086 | |
Professional and legal expenses | Professional and legal expenses | 3,042 | | | 2,619 | | | 7,563 | | | 7,677 | |
Professional and legal expenses | |
Professional and legal expenses | |
Advertising and marketing | |
Advertising and marketing | |
Advertising and marketing | Advertising and marketing | 1,362 | | | 1,326 | | | 3,108 | | | 2,609 | |
Deposit insurance | Deposit insurance | 2,874 | | | 1,946 | | | 7,603 | | | 4,910 | |
Deposit insurance | |
Deposit insurance | |
State and municipal business and use taxes | |
State and municipal business and use taxes | |
State and municipal business and use taxes | State and municipal business and use taxes | 1,359 | | | 1,223 | | | 3,888 | | | 3,389 | |
Real estate operations, net | Real estate operations, net | (383) | | | 68 | | | (585) | | | (132) | |
Real estate operations, net | |
Real estate operations, net | |
Amortization of core deposit intangibles | Amortization of core deposit intangibles | 857 | | | 1,215 | | | 2,898 | | | 4,064 | |
Loss on extinguishment of debt | — | | | — | | | — | | | 793 | |
Amortization of core deposit intangibles | |
Amortization of core deposit intangibles | |
| Miscellaneous | |
| Miscellaneous | |
| Miscellaneous | Miscellaneous | 6,175 | | | 6,663 | | | 17,884 | | | 18,402 | |
| Total non-interest expense | Total non-interest expense | 95,891 | | | 95,034 | | | 285,917 | | | 278,282 | |
| Total non-interest expense | |
| Total non-interest expense | |
Income before provision for income taxes | |
Income before provision for income taxes | |
Income before provision for income taxes | Income before provision for income taxes | 56,506 | | | 60,907 | | | 173,769 | | | 174,351 | |
PROVISION FOR INCOME TAXES | PROVISION FOR INCOME TAXES | 10,652 | | | 11,837 | | | 32,769 | | | 33,353 | |
PROVISION FOR INCOME TAXES | |
PROVISION FOR INCOME TAXES | |
NET INCOME | |
NET INCOME | |
NET INCOME | NET INCOME | $ | 45,854 | | | $ | 49,070 | | | $ | 141,000 | | | $ | 140,998 | |
| Earnings per common share: | Earnings per common share: | | | | | | | |
| Earnings per common share: | |
| Earnings per common share: | |
Basic | |
Basic | |
Basic | Basic | $ | 1.33 | | | $ | 1.43 | | | $ | 4.11 | | | $ | 4.11 | |
Diluted | Diluted | $ | 1.33 | | | $ | 1.43 | | | $ | 4.09 | | | $ | 4.09 | |
Diluted | |
Diluted | |
Cumulative dividends declared per common share | |
Cumulative dividends declared per common share | |
Cumulative dividends declared per common share | Cumulative dividends declared per common share | $ | 0.48 | | | $ | 0.44 | | | $ | 1.44 | | | $ | 1.32 | |
Weighted average number of common shares outstanding: | Weighted average number of common shares outstanding: | |
Weighted average number of common shares outstanding: | |
Weighted average number of common shares outstanding: | |
Basic | |
Basic | |
Basic | Basic | 34,379,865 | | | 34,224,640 | | | 34,331,458 | | | 34,277,182 | |
Diluted | Diluted | 34,429,726 | | | 34,416,017 | | | 34,439,214 | | | 34,499,246 | |
Diluted | |
Diluted | |
See Selected Notes to the Consolidated Financial Statements
BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited) (In thousands)
For the Three and Nine Months Ended September 30,March 31, 2024 and 2023 and 2022
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
NET INCOME | $ | 45,854 | | | $ | 49,070 | | | $ | 141,000 | | | $ | 140,998 | |
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF INCOME TAXES: | | | | | | | |
Unrealized holding loss on securities—available-for-sale arising during the period | (76,417) | | | (140,312) | | | (71,669) | | | (422,728) | |
Income tax benefit related to securities—available-for-sale unrealized holding losses | 18,341 | | | 33,675 | | | 17,201 | | | 101,455 | |
Reclassification for net loss (gain) on securities—available-for-sale realized in earnings | 2,657 | | | (6) | | | 14,436 | | | (473) | |
Income tax (benefit) expense related to securities—available-for-sale realized in earnings | (638) | | | 2 | | | (3,465) | | | 114 | |
Reclassification of (recapture) provision for credit losses on securities—available-for-sale realized in earnings | (1,250) | | | — | | | 750 | | | — | |
Income tax benefit (expense) related to the reclassification of (recapture) provision for credit losses on securities—available-for-sale realized in earnings | 300 | | | — | | | (180) | | | — | |
Unrealized loss on securities transferred from available-for-sale to held-to-maturity | — | | | — | | | — | | | (34,596) | |
Income tax benefit related to securities transferred from available-for-sale to held-to-maturity | — | | | — | | | — | | | 8,303 | |
Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity | 617 | | | 754 | | | 1,773 | | | 1,982 | |
Income tax expense related to amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity | (150) | | | (181) | | | (426) | | | (476) | |
Net unrealized gain (loss) on interest rate swaps used in cash flow hedges | 3,090 | | | (7,871) | | | 6,472 | | | (26,425) | |
Income tax (expense) benefit related to interest rate swaps used in cash flow hedges | (741) | | | 1,889 | | | (1,553) | | | 6,342 | |
Changes in fair value of junior subordinated debentures related to instrument specific credit risk | 953 | | | (1,612) | | | 8,573 | | | (4,544) | |
Income tax (expense) benefit related to junior subordinated debentures | (229) | | | 387 | | | (2,058) | | | 1,091 | |
Reclassification of fair value of junior subordinated debentures redeemed | — | | | — | | | — | | | 765 | |
Income tax expense related to junior subordinated debentures redeemed | — | | | — | | | — | | | (184) | |
Other comprehensive loss | (53,467) | | | (113,275) | | | (30,146) | | | (369,374) | |
COMPREHENSIVE (LOSS) INCOME | $ | (7,613) | | | $ | (64,205) | | | $ | 110,854 | | | $ | (228,376) | |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
NET INCOME | $ | 37,559 | | | $ | 55,555 | | | | | |
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF INCOME TAXES: | | | | | | | |
Unrealized holding (loss) gain on securities—available-for-sale arising during the period | (21,753) | | | 36,143 | | | | | |
Income tax benefit (expense) related to securities—available-for-sale unrealized holding losses | 5,221 | | | (8,675) | | | | | |
Reclassification for net loss on securities—available-for-sale realized in earnings | 4,903 | | | 7,252 | | | | | |
Income tax benefit related to securities—available-for-sale realized in earnings | (1,177) | | | (1,740) | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity | 527 | | | 572 | | | | | |
Income tax expense related to amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity | (126) | | | (137) | | | | | |
Net unrealized gain on interest rate swaps used in cash flow hedges | 2,880 | | | 4,738 | | | | | |
Income tax expense related to interest rate swaps used in cash flow hedges | (691) | | | (1,137) | | | | | |
Changes in fair value of junior subordinated debentures related to instrument specific credit risk | (173) | | | 154 | | | | | |
Income tax benefit (expense) related to junior subordinated debentures | 42 | | | (37) | | | | | |
| | | | | | | |
| | | | | | | |
Other comprehensive (loss) income | (10,347) | | | 37,133 | | | | | |
COMPREHENSIVE INCOME | $ | 27,212 | | | $ | 92,688 | | | | | |
See Selected Notes to the Consolidated Financial Statements
BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited) (In thousands, except shares and per share amounts)
For the NineThree Months Ended September 30, 2023March 31, 2024 and the Year Ended December 31, 20222023
| | Common Stock and Paid in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Shareholders’ Equity |
| Shares | | Amount | |
Balance, January 1, 2022 | | 34,252,632 | | | $ | 1,299,381 | | | $ | 390,762 | | | $ | 184 | | | $ | 1,690,327 | |
| | Common Stock and Paid in Capital | | | | Common Stock and Paid in Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total Shareholders’ Equity |
| | Shares | |
Balance, January 1, 2023 | |
Balance, January 1, 2023 | |
Balance, January 1, 2023 | |
| Net income | 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) | |
Net income | |
Net income | |
Other comprehensive income, net of income tax | |
Accrual of dividends on common stock ($0.48/share) | |
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered | 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 | |
Balance, March 31, 2023 | |
Balance, March 31, 2023 | |
Balance, March 31, 2023 | |
Net income | Net income | | 47,965 | | | 47,965 | |
Other comprehensive loss, net of income tax | Other comprehensive loss, net of income tax | | (101,824) | | | (101,824) | |
Accrual of dividends on common stock ($0.44/share) | | (15,378) | | | (15,378) | |
Accrual of dividends on common stock ($0.48/share) | |
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered | Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered | | 18,546 | | | 2,247 | | | 2,247 | |
Repurchase of common stock | | (200,000) | | | (10,960) | | | (10,960) | |
Balance, June 30, 2022 | | 34,191,330 | | | $ | 1,289,499 | | | $ | 452,246 | | | $ | (255,915) | | | $ | 1,485,830 | |
| Balance, June 30, 2023 | |
Balance, June 30, 2023 | |
Balance, June 30, 2023 | |
Net income | Net income | | 49,070 | | | 49,070 | |
Other comprehensive loss, net of income tax | Other comprehensive loss, net of income tax | | (113,275) | | | (113,275) | |
Accrual of dividends on common stock ($0.44/share) | | (15,208) | | | (15,208) | |
Accrual of dividends on common stock ($0.48/share) | |
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered | Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered | | 429 | | | 2,242 | | | 2,242 | |
| Balance, September 30, 2022 | | 34,191,759 | | | $ | 1,291,741 | | | $ | 486,108 | | | $ | (369,190) | | | $ | 1,408,659 | |
Balance, September 30, 2023 | |
Balance, September 30, 2023 | |
Balance, September 30, 2023 | |
Net income | Net income | | 54,380 | | | 54,380 | |
Other comprehensive income, net of income tax | Other comprehensive income, net of income tax | | 6,421 | | | 6,421 | |
Accrual of dividends on common stock ($0.44/share) | | (15,246) | | | (15,246) | |
Accrual of dividends on common stock ($0.48/share) | |
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered | Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered | | 2,259 | | | 2,218 | | | 2,218 | |
| Balance, December 31, 2022 | | 34,194,018 | | | $ | 1,293,959 | | | $ | 525,242 | | | $ | (362,769) | | | $ | 1,456,432 | |
Balance, December 31, 2023 | |
| Balance, December 31, 2023 | |
| Balance, December 31, 2023 | |
| | | Balance, January 1, 2023 | | 34,194,018 | | | $ | 1,293,959 | | | $ | 525,242 | | | $ | (362,769) | | | $ | 1,456,432 | |
Balance, January 1, 2024 | |
| Balance, January 1, 2024 | |
| Balance, January 1, 2024 | |
| Net income | Net income | | 55,555 | | | 55,555 | |
Other comprehensive income, net of income tax | | 37,133 | | | 37,133 | |
Accrual of dividends on common stock ($0.48/share) | | (16,691) | | | (16,691) | |
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered | | 114,522 | | | (734) | | | (734) | |
| Net income | |
| Balance, March 31, 2023 | | 34,308,540 | | | 1,293,225 | | | 564,106 | | | (325,636) | | | 1,531,695 | |
Net income | Net income | | 39,591 | | | 39,591 | |
Other comprehensive loss, net of income tax | Other comprehensive loss, net of income tax | | (13,812) | | | (13,812) | |
Accrual of dividends on common stock ($0.48/share) | Accrual of dividends on common stock ($0.48/share) | | (16,670) | | | (16,670) | |
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered | Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered | | 36,087 | | | 1,709 | | | 1,709 | |
| Balance, June 30, 2023 | | 34,344,627 | | | $ | 1,294,934 | | | $ | 587,027 | | | $ | (339,448) | | | $ | 1,542,513 | |
Net income | | 45,854 | | | 45,854 | |
Other comprehensive loss, net of income tax | | (53,467) | | | (53,467) | |
Accrual of dividends on common stock ($0.48/share) | | (16,666) | | | (16,666) | |
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered | | 1,322 | | | 2,373 | | | 2,373 | |
| Balance, September 30, 2023 | | 34,345,949 | | | $ | 1,297,307 | | | $ | 616,215 | | | $ | (392,915) | | | $ | 1,520,607 | |
Balance, March 31, 2024 | |
| Balance, March 31, 2024 | |
| Balance, March 31, 2024 | |
|
See Selected Notes to the Consolidated Financial Statements
BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
For the NineThree Months Ended September 30,March 31, 2024 and 2023 and 2022
| | Nine Months Ended September 30, |
| 2023 | | 2022 |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
| 2024 | | | 2024 | | 2023 |
OPERATING ACTIVITIES: | OPERATING ACTIVITIES: | | | |
Net income | Net income | $ | 141,000 | | | $ | 140,998 | |
Net income | |
Net income | |
Adjustments to reconcile net income to net cash provided from operating activities: | Adjustments to reconcile net income to net cash provided from operating activities: | |
Depreciation | |
Depreciation | |
Depreciation | Depreciation | 13,314 | | | 12,594 | |
Deferred income and expense, net of amortization | Deferred income and expense, net of amortization | (2,490) | | | (3,743) | |
Capitalized loan servicing rights, net of amortization | Capitalized loan servicing rights, net of amortization | 1,520 | | | 479 | |
Amortization of core deposit intangibles | Amortization of core deposit intangibles | 2,898 | | | 4,064 | |
Loss (gain) on sale of securities, net | 14,436 | | | (473) | |
Loss on sale of securities, net | |
| Net change in valuation of financial instruments carried at fair value | |
Net change in valuation of financial instruments carried at fair value | |
Net change in valuation of financial instruments carried at fair value | Net change in valuation of financial instruments carried at fair value | 4,357 | | | (650) | |
| Gain on sale of branches, including related deposits | — | | | (7,804) | |
| Decrease in deferred taxes | Decrease in deferred taxes | 877 | | | 9,233 | |
(Decrease) increase in current taxes receivable, net | (3,370) | | | 9,706 | |
| Decrease in deferred taxes | |
| Decrease in deferred taxes | |
Increase in current taxes payable/receivable, net | |
Stock-based compensation | Stock-based compensation | 6,785 | | | 6,592 | |
Net change in cash surrender value of BOLI | Net change in cash surrender value of BOLI | (6,357) | | | (4,980) | |
Gain on sale of loans, excluding capitalized servicing rights | Gain on sale of loans, excluding capitalized servicing rights | (2,277) | | | (3,246) | |
Gain on disposal of real estate held for sale and property and equipment, net | Gain on disposal of real estate held for sale and property and equipment, net | (442) | | | 239 | |
Provision for credit losses | 8,267 | | | 3,660 | |
Provision (recapture) for credit losses | |
| Loss on extinguishment of debt | — | | | 765 | |
| Origination of loans held for sale | |
| Origination of loans held for sale | |
| Origination of loans held for sale | Origination of loans held for sale | (187,077) | | | (376,654) | |
Proceeds from sales of loans held for sale | Proceeds from sales of loans held for sale | 200,525 | | | 375,656 | |
Net change in: | Net change in: | |
Other assets | |
Other assets | |
Other assets | Other assets | (21,602) | | | (55,631) | |
Other liabilities | Other liabilities | 19,188 | | | 46,562 | |
Net cash provided from operating activities | Net cash provided from operating activities | 189,552 | | | 157,367 | |
INVESTING ACTIVITIES: | INVESTING ACTIVITIES: | | | |
Purchases of securities—available-for-sale | Purchases of securities—available-for-sale | (54,192) | | | (606,622) | |
Purchases of securities—available-for-sale | |
Purchases of securities—available-for-sale | |
Principal repayments and maturities of securities—available-for-sale | Principal repayments and maturities of securities—available-for-sale | 138,402 | | | 296,272 | |
Proceeds from sales of securities—available-for-sale | Proceeds from sales of securities—available-for-sale | 334,937 | | | 25,030 | |
Purchases of securities—held-to-maturity | — | | | (190,645) | |
| Principal repayments and maturities of securities—held-to-maturity | |
Principal repayments and maturities of securities—held-to-maturity | |
Principal repayments and maturities of securities—held-to-maturity | Principal repayments and maturities of securities—held-to-maturity | 35,329 | | | 40,810 | |
| | Loan originations, net of repayments | |
| Loan originations, net of repayments | |
| Loan originations, net of repayments | Loan originations, net of repayments | (479,482) | | | (621,444) | |
Purchases of loans and participating interest in loans | Purchases of loans and participating interest in loans | — | | | (103,268) | |
Proceeds from sales of other loans | Proceeds from sales of other loans | 11,519 | | | 13,269 | |
| Net cash paid related to branch divestiture | — | | | (168,137) | |
| Purchases of property and equipment | |
| Purchases of property and equipment | |
| Purchases of property and equipment | Purchases of property and equipment | (11,626) | | | (12,244) | |
Proceeds from sale of real estate held for sale and sale of other property | Proceeds from sale of real estate held for sale and sale of other property | 1,019 | | | 5,940 | |
Proceeds from FHLB stock repurchase program | Proceeds from FHLB stock repurchase program | 119,840 | | | 2,000 | |
Purchase of FHLB stock | Purchase of FHLB stock | (123,440) | | | — | |
| Proceeds from maturity of securities purchased under agreements to resell | Proceeds from maturity of securities purchased under agreements to resell | 300,000 | | | — | |
Proceeds from maturity of securities purchased under agreements to resell | |
Proceeds from maturity of securities purchased under agreements to resell | |
Investment in bank-owned life insurance | Investment in bank-owned life insurance | (66) | | | (50,052) | |
Other | Other | 419 | | | 3,544 | |
Net cash provided from (used by) investing activities | 272,659 | | | (1,365,547) | |
Net cash provided from investing activities | |
Continued on next page
BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited) (In thousands)
For the NineThree Months Ended September 30,March 31, 2024 and 2023 and 2022
| | Three Months Ended March 31, | | | Three Months Ended March 31, |
| 2024 | | | 2024 | | 2023 |
FINANCING ACTIVITIES: | |
Increase (decrease) in deposits, net | |
Increase (decrease) in deposits, net | |
Increase (decrease) in deposits, net | |
| (Repayment) advances of overnight and short term FHLB advances, net | |
| (Repayment) advances of overnight and short term FHLB advances, net | |
| (Repayment) advances of overnight and short term FHLB advances, net | |
Increase (decrease) in other borrowings, net | |
| | | Nine Months Ended September 30, |
| | 2023 | | 2022 |
FINANCING ACTIVITIES: | | | |
(Decrease) increase in deposits, net | $ | (445,507) | | | $ | 85,535 | |
Cash dividends paid | |
| Repayment of long term FHLB advances | — | | | (50,000) | |
Advances of overnight and short term FHLB advances, net | 90,000 | | | — | |
Decrease in other borrowings, net | (44,360) | | | (30,483) | |
| Repayment of junior subordinated debentures | — | | | (50,518) | |
Proceeds from redemption of trust preferred securities related to junior subordinated debentures | — | | | 1,518 | |
Cash dividends paid | Cash dividends paid | (50,263) | | | (46,019) | |
Cash paid for repurchase of common stock | — | | | (10,960) | |
| Cash dividends paid | |
| Taxes paid related to net share settlement of equity awards | |
Taxes paid related to net share settlement of equity awards | |
Taxes paid related to net share settlement of equity awards | Taxes paid related to net share settlement of equity awards | (3,437) | | | (3,272) | |
Net cash used by financing activities | Net cash used by financing activities | (453,567) | | | (104,199) | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | NET CHANGE IN CASH AND CASH EQUIVALENTS | 8,644 | | | (1,312,379) | |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 243,062 | | | 2,134,300 | |
CASH AND CASH EQUIVALENTS, END OF PERIOD | CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 251,706 | | | $ | 821,921 | |
|
| | Nine Months Ended September 30, |
| 2023 | | 2022 |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
| 2024 | | | 2024 | | 2023 |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | |
Interest paid in cash | |
Interest paid in cash | |
Interest paid in cash | Interest paid in cash | $ | 66,461 | | | $ | 11,332 | |
Tax paid | Tax paid | 29,931 | | | 10,670 | |
NON-CASH INVESTING AND FINANCING TRANSACTIONS: | NON-CASH INVESTING AND FINANCING TRANSACTIONS: | |
Transfer of loans to real estate owned and other repossessed assets | Transfer of loans to real estate owned and other repossessed assets | 205 | | | — | |
Transfer of loans to real estate owned and other repossessed assets | |
Transfer of loans to real estate owned and other repossessed assets | |
Dividends accrued but not paid until after period end | Dividends accrued but not paid until after period end | 921 | | | 972 | |
Loans, held-for-sale, transferred (from) to portfolio | (8,472) | | | 13,420 | |
Securities, available-for-sale, transferred to held-to-maturity | — | | | 462,159 | |
DISPOSITIONS: | |
Assets divested | — | | | (1,539) | |
Liabilities divested | — | | | (178,209) | |
Loans, held-for-sale, transferred from portfolio | |
|
See Selected Notes to the Consolidated Financial Statements
BANNER CORPORATION AND SUBSIDIARIES
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements include the accounts of Banner Corporation (the Company or Banner), a bank holding company incorporated in the State of Washington and its wholly-owned subsidiary, Banner Bank (the Bank).
These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the SEC.Securities and Exchange Commission (SEC). In preparing these financial statements, the Company has evaluated events and transactions subsequent to September 30, 2023,March 31, 2024, for potential recognition or disclosure. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Certain information and note disclosures have been condensed or omitted pursuant to the rules and regulations of the SEC and the accounting standards for interim financial statements. Certain reclassifications have been made to the 2022 Consolidated Financial Statements and/or schedules to conform to the 2023 presentation. These reclassifications may have affected certain ratios for the prior periods. The effect of these reclassifications is considered immaterial. All significant intercompany transactions and balances have been eliminated.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements. Various elements of the Company’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments.
The information included in this Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.2023. Interim results are not necessarily indicative of results for a full year or any other interim period.
Note 2: ACCOUNTING STANDARDS RECENTLY ISSUED OR ADOPTED
Financial Instruments – Credit LossesCompensation—Stock Compensation (Topic 326)718)
On January 1, 2023, the Company adoptedIn March 2024, the Financial Accounting Standards Board (FASB) issued guidance within Accounting Standards Update (ASU) 2022-02,2024-01, Financial Instruments – Credit LossesCompensation—Stock Compensation (Topic 326)718): Troubled Debt RestructuringsScope Application of Profits Interest and Vintage DisclosuresSimilar Awards. The amendments in the ASU eliminated the troubled debt restructuring (TDR) recognitionapply to companies that provide employees and measurement guidancenon-employees with profits interest and instead, requires that a creditor evaluate (consistentsimilar awards to align compensation with the accounting for other loan modifications) whethercompany’s operating performance and provide those holders with the modification represents a new loan opportunity to participate in future profits and/or a continuationequity appreciation of an existing loan. The ASU also introduced new disclosure requirements related to certain modificationsthe company. This purpose of receivables made to borrowers experiencing financial difficulty. In addition, the ASU requires vintage disclosures including current-period gross write-offs by year of origination for financing receivables. The Company appliedis to clarify the ASU prospectively and new disclosures have been added when applicable.
Reference Rate Reform (Topic 848)
In March 2020, the FASB issued guidance within ASU 2020-04, Reference Rate Reform (Topic 848): Facilitationapplication of the Effects of Reference Rate Reform on Financial Reporting,scope guidance in response to the scheduled discontinuation of LIBOR on December 31, 2021. The amendmentsAccounting Standards Codification (ASC) paragraph 718-10-15-3 in this ASU provide optional guidance designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, borrowings) necessitated by reference rate reform. Since the issuance of this guidance, the publication cessation of U.S. dollar LIBOR was extended to June 30, 2023.
In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of Sunset Date of Topic 848. This ASU defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. This deferral of the sunset date is in response to the extension of the publication cessation date. The amendments in this ASU are effective upon the issuance date of December 2022.
The following optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification are permitted for contracts that are modified because of reference rate reform and that meet certain scope guidance: 1) modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt,determining if a profit interest award should be accounted for by prospectively adjustingin accordance with Topic 718: Compensation—Stock Compensation. The amendment in ASC paragraph 718-10-15-3 is solely intended to improve the effective interest rate; 2) modifications of contracts within the scope of Topic 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classificationoverall clarity and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts; 3) modifications of contracts do not require an entity to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract; and 4) the amendments in this ASU also include a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement atchange the modification date or reassessment of a previous accounting determination.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments in this ASUs are effective upon the issuance date of March 12, 2020, and applies to contract modifications made and new hedging relationships entered into through December 31, 2022.
The Company used the expedients in the Reference Rate Reform guidance to manage through the transition from LIBOR, specifically as they relate to loans, leases and hedging relationships. The adoption of this accounting guidance did not have a material impact on the Company’s Consolidated Financial Statements.
Fair Value Measurement (Topic 820)
In June 2022, the FASB issued guidance within ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The ASU affects all entities that have investments in equity securities measured at fair value that are subject to a contractual sale restriction. These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.guidance.
The ASU is effective for fiscal years,annual periods beginning after December 15, 2023, including interim periods within those fiscal years.2024. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. If the Company adopts the amendments in an interim period, it should adopt them as of the beginning of the annual period that includes the interim period. The adoption ofamendments should be applied either (1) retrospectively to all prior periods presented in the financial statements or (2) on a prospective basis. The Company has evaluated this ASU isand does not expectedexpect the adoption to have a material impact on the Company’s Consolidated Financial Statements, as the Company does not typically provide these types of awards.
Income Taxes (Topic 740)
In December 2023, the FASB issued guidance within ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in the ASU are intended to provide more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The ASU requires disclosure in the rate reconciliation of specific categories as well as additional information for reconciling items that meet a quantitative threshold.
Those amendments require disclosure of the following information about income taxes paid on an annual basis:
•Income taxes paid (net of refunds received), disaggregated by federal and state taxes and by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than five percent of total income taxes paid (net of refunds received).
•Income tax expense (or benefit) from continuing operations disaggregated by federal and state jurisdictions.
The ASU is effective for annual periods beginning after December 15, 2024. The amendments should be applied on a prospective basis. The Company is evaluating the adoption of this ASU, as it will require additional disclosures in the notes to our Consolidated Financial Statements.
Segment Reporting (Topic 280)
In November 2023, the FASB issued guidance within ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU requires that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this ASU and all existing disclosures in Topic 280. The Company has determined that its current business and operations consist of a single business segment and a single reporting unit.
The amendments in this ASU are intended to improve segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The key amendments included in this ASU:
•Require disclosure on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and are included within each reported measure of segment profit and loss.
•Require disclosure on an annual and interim basis, an amount for other segment items (defined in the ASU) and a description of its composition.
•Clarify that if the CODM uses more than one measure of the segment’s profit or loss in assessing performance, one or more of those additional measures may be reported.
•Require disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing performance.
This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact on the Company’s Consolidated Financial Statements as the Company has a single reportable segment.
Note 3: SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair value of securities at September 30, 2023March 31, 2024 and December 31, 20222023 are summarized as follows (in thousands):
| | | | | | | | | | | | | | | |
| September 30, 2023 |
| Amortized Cost | | | | | | Fair Value |
Trading: | | | | | | | |
| | | | | | | |
| | | | | | | |
Corporate bonds | $ | 27,203 | | | | | | | $ | 25,268 | |
| | | | | | | |
| | | | | | | |
| $ | 27,203 | | | | | | | $ | 25,268 | |
| | |
| | | September 30, 2023 | March 31, 2024 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Allowance for Credit Losses | | Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | | | Fair Value |
Available-for-Sale: | Available-for-Sale: | | | | | | | | | |
U.S. Government and agency obligations | |
U.S. Government and agency obligations | |
U.S. Government and agency obligations | U.S. Government and agency obligations | $ | 35,342 | | | $ | — | | | $ | (1,015) | | | $ | — | | | $ | 34,327 | |
Municipal bonds | Municipal bonds | 166,902 | | | — | | | (43,304) | | | — | | | 123,598 | |
Corporate bonds | Corporate bonds | 106,015 | | | — | | | (14,247) | | | (750) | | | 91,018 | |
Mortgage-backed or related securities | Mortgage-backed or related securities | 2,244,179 | | | — | | | (424,727) | | | — | | | 1,819,452 | |
Asset-backed securities | Asset-backed securities | 222,534 | | | 207 | | | (3,143) | | | — | | | 219,598 | |
| | | $ | 2,774,972 | | | $ | 207 | | | $ | (486,436) | | | $ | (750) | | | $ | 2,287,993 | |
| |
| |
| | | September 30, 2023 | | March 31, 2024 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Allowance for Credit Losses | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Allowance for Credit Losses |
Held-to-Maturity: | Held-to-Maturity: | | | | | | | |
U.S. Government and agency obligations | U.S. Government and agency obligations | $ | 308 | | | $ | — | | | $ | (8) | | | $ | 300 | | | $ | — | |
U.S. Government and agency obligations | |
U.S. Government and agency obligations | |
Municipal bonds | Municipal bonds | 491,152 | | | 12 | | | (95,444) | | | 395,551 | | | (169) | |
Corporate bonds | Corporate bonds | 2,813 | | | — | | | (27) | | | 2,606 | | | (180) | |
Mortgage-backed or related securities | Mortgage-backed or related securities | 588,232 | | | — | | | (133,036) | | | 455,196 | | | — | |
| $ | 1,082,505 | | | $ | 12 | | | $ | (228,515) | | | $ | 853,653 | | | $ | (349) | |
| $ | |
| | | | | | | | | | | | | | | |
| December 31, 2022 |
| Amortized Cost | | | | | | Fair Value |
Trading: | | | | | | | |
| | | | | | | |
| | | | | | | |
Corporate bonds | $ | 27,203 | | | | | | | $ | 28,694 | |
| | | | | | | |
| | | | | | | |
| $ | 27,203 | | | | | | | $ | 28,694 | |
| | December 31, 2022 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | | Fair Value |
| December 31, 2023 | |
| December 31, 2023 | |
| December 31, 2023 | |
| Amortized Cost | | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | | | Fair Value |
Available-for-Sale: | Available-for-Sale: | | | | | | | | |
U.S. Government and agency obligations | |
U.S. Government and agency obligations | |
U.S. Government and agency obligations | U.S. Government and agency obligations | $ | 56,344 | | | $ | 8 | | | $ | (1,244) | | | | $ | 55,108 | |
Municipal bonds | Municipal bonds | 301,449 | | | 530 | | | (40,770) | | | | 261,209 | |
Corporate bonds | Corporate bonds | 133,334 | | | — | | | (11,481) | | | | 121,853 | |
Mortgage-backed or related securities | Mortgage-backed or related securities | 2,505,172 | | | 885 | | | (366,721) | | | | 2,139,336 | |
Asset-backed securities | Asset-backed securities | 222,478 | | | 40 | | | (10,993) | | | | 211,525 | |
| | $ | 3,218,777 | | | $ | 1,463 | | | $ | (431,209) | | | | $ | 2,789,031 | |
| $ | |
| $ | |
| $ | |
| | December 31, 2022 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Allowance for Credit Losses |
| December 31, 2023 | | | December 31, 2023 |
| Amortized Cost | | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Allowance for Credit Losses |
Held-to-Maturity: | Held-to-Maturity: | | | | | | | | | |
U.S. Government and agency obligations | |
U.S. Government and agency obligations | |
U.S. Government and agency obligations | U.S. Government and agency obligations | $ | 312 | | | $ | — | | | $ | (7) | | | $ | 305 | | | $ | — | |
Municipal bonds | Municipal bonds | 503,117 | | | 109 | | | (70,907) | | | 432,319 | | | (183) | |
Corporate bonds | Corporate bonds | 2,961 | | | — | | | (16) | | | 2,945 | | | (196) | |
Mortgage-backed or related securities | Mortgage-backed or related securities | 611,577 | | | — | | | (104,966) | | | 506,611 | | | — | |
| $ | 1,117,967 | | | $ | 109 | | | $ | (175,896) | | | $ | 942,180 | | | $ | (379) | |
| $ | |
Accrued interest receivable on held-to-maturity debt securities was $4.2$3.9 million and $4.8$4.5 million at September 30, 2023March 31, 2024 and December 31, 2022, respectively,2023, and was $11.0$10.7 million and $12.4$10.8 million on available-for-sale debt securities at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. Accrued interest receivable on securities is reported in accrued interest receivable on the Consolidated Statements of Financial Condition and is excluded from the calculation of the allowance for credit losses.
At September 30, 2023March 31, 2024 and December 31, 2022,2023, the gross unrealized losses and the fair value for securities available-for-sale aggregated by the length of time that individual securities have been in a continuous unrealized loss position were as follows (in thousands):
| | September 30, 2023 |
| Less Than 12 Months | | 12 Months or More | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| March 31, 2024 | | | March 31, 2024 |
| Less Than 12 Months | | | Less Than 12 Months | | 12 Months or More | | Total |
| Fair Value | | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Available-for-Sale: | Available-for-Sale: | | | | | | | | | | | |
U.S. Government and agency obligations | |
U.S. Government and agency obligations | |
U.S. Government and agency obligations | U.S. Government and agency obligations | $ | — | | | $ | — | | | $ | 34,327 | | | $ | (1,015) | | | $ | 34,327 | | | $ | (1,015) | |
Municipal bonds | Municipal bonds | 24,409 | | | (2,095) | | | 99,189 | | | (41,209) | | | 123,598 | | | (43,304) | |
Corporate bonds | Corporate bonds | 5,715 | | | (264) | | | 88,682 | | | (13,983) | | | 94,397 | | | (14,247) | |
Mortgage-backed or related securities | Mortgage-backed or related securities | 178,325 | | | (4,816) | | | 1,641,125 | | | (419,911) | | | 1,819,450 | | | (424,727) | |
Asset-backed securities | Asset-backed securities | 114,512 | | | (1,863) | | | 85,345 | | | (1,280) | | | 199,857 | | | (3,143) | |
| | $ | 322,961 | | | $ | (9,038) | | | $ | 1,948,668 | | | $ | (477,398) | | | $ | 2,271,629 | | | $ | (486,436) | |
| $ | |
| $ | |
| $ | |
| | December 31, 2022 |
| Less Than 12 Months | | 12 Months or More | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| December 31, 2023 | | | December 31, 2023 |
| Less Than 12 Months | | | Less Than 12 Months | | 12 Months or More | | Total |
| Fair Value | | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Available-for-Sale: | Available-for-Sale: | | | | | | | | | | | |
U.S. Government and agency obligations | |
U.S. Government and agency obligations | |
U.S. Government and agency obligations | U.S. Government and agency obligations | $ | 33,407 | | | $ | (882) | | | $ | 16,732 | | | $ | (362) | | | $ | 50,139 | | | $ | (1,244) | |
Municipal bonds | Municipal bonds | 188,920 | | | (25,592) | | | 33,907 | | | (15,178) | | | 222,827 | | | (40,770) | |
Corporate bonds | Corporate bonds | 108,187 | | | (9,547) | | | 13,066 | | | (1,934) | | | 121,253 | | | (11,481) | |
Mortgage-backed or related securities | Mortgage-backed or related securities | 930,566 | | | (90,537) | | | 1,159,110 | | | (276,184) | | | 2,089,676 | | | (366,721) | |
Asset-backed securities | Asset-backed securities | 201,437 | | | (10,993) | | | — | | | — | | | 201,437 | | | (10,993) | |
| | $ | 1,462,517 | | | $ | (137,551) | | | $ | 1,222,815 | | | $ | (293,658) | | | $ | 2,685,332 | | | $ | (431,209) | |
| $ | |
| $ | |
| $ | |
At September 30, 2023,March 31, 2024, there were 233221 securities—available-for-sale with unrealized losses, compared to 298224 at December 31, 2022. As of September 30, 2023, we had an allowance for credit losses of $750,000 related to the estimated credit loss on one security.2023. Management does not believe that any remaining individual unrealized loss as of September 30, 2023March 31, 2024 or December 31, 20222023 resulted from credit loss. The decline in fair market value of these securities was generally due to changes in interest rates and changes in market-desired spreads subsequent to their purchase.
There were no sales of securities—trading during the nine months ended September 30, 2023 or 2022. There were no securities—tradingavailable-for-sale in a nonaccrual status at September 30, 2023March 31, 2024 or December 31, 2022. Net unrealized holding losses of $3.4 million were recognized during the nine months ended September 30, 2023, compared to $1.4 million of net unrealized holding gains recognized during the nine months ended September 30, 2022.2023.
The following table presents gross gains and losses on sales and partial calls of securities available-for-sale (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Available-for-Sale: | | | | | | | |
Gross Gains | $ | — | | | $ | 6 | | | $ | 377 | | | $ | 522 | |
Gross Losses | (2,657) | | | — | | | (14,813) | | | (49) | |
Balance, end of the period | $ | (2,657) | | | $ | 6 | | | $ | (14,436) | | | $ | 473 | |
There were no securities—available-for-sale in a nonaccrual status at September 30, 2023 or December 31, 2022. | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Available-for-Sale: | | | | | | | |
Gross Gains | $ | 36 | | | $ | 232 | | | | | |
Gross Losses | (4,939) | | | (7,484) | | | | | |
Balance, end of the period | $ | (4,903) | | | $ | (7,252) | | | | | |
The following table presents the amortized cost and estimated fair value of securities at September 30, 2023,March 31, 2024, by contractual maturity and does not reflect any required periodic payments (in thousands). Expected maturities will differ from contractual maturities because some securities may be called or prepaid with or without call or prepayment penalties.
| | | September 30, 2023 |
| | Trading | | Available-for-Sale | | Held-to-Maturity |
| | | | | | March 31, 2024 |
| | | Available-for-Sale | | | | | Available-for-Sale | | Held-to-Maturity |
| | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | | | | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Maturing within one year | Maturing within one year | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 17,239 | | | $ | 16,820 | |
Maturing after one year through five years | Maturing after one year through five years | — | | | — | | | 169,465 | | | 151,453 | | | 19,702 | | | 18,871 | |
Maturing after five years through ten years | Maturing after five years through ten years | — | | | — | | | 385,977 | | | 334,298 | | | 25,857 | | | 24,234 | |
Maturing after ten years | Maturing after ten years | 27,203 | | | 25,268 | | | 2,219,530 | | | 1,802,242 | | | 1,019,707 | | | 793,728 | |
| | | $ | 27,203 | | | $ | 25,268 | | | $ | 2,774,972 | | | $ | 2,287,993 | | | $ | 1,082,505 | | | $ | 853,653 | |
| | |
| | |
The following table presents, as of September 30, 2023,March 31, 2024, investment securities which were pledged to secure borrowings, public deposits or other obligations as permitted or required by law (in thousands):
| | September 30, 2023 |
| Carrying Value | | Amortized Cost | | Fair Value |
| March 31, 2024 | | | March 31, 2024 |
| Carrying Value | | | Carrying Value | | Amortized Cost | | Fair Value |
Purpose or beneficiary: | Purpose or beneficiary: | | | | | |
State and local governments public deposits | |
State and local governments public deposits | |
State and local governments public deposits | State and local governments public deposits | $ | 251,566 | | | $ | 268,603 | | | $ | 214,868 | |
Federal Reserve | Federal Reserve | 116,703 | | | 116,704 | | | 93,257 | |
Interest rate swap counterparties | Interest rate swap counterparties | 974 | | | 974 | | | 755 | |
Repurchase transaction accounts | Repurchase transaction accounts | 269,808 | | | 269,808 | | | 206,692 | |
Other | Other | 2,347 | | | 2,347 | | | 2,077 | |
Total pledged securities | Total pledged securities | $ | 641,398 | | | $ | 658,436 | | | $ | 517,649 | |
The Company monitors the credit quality of held-to-maturity debt securities through the use of credit ratings which are reviewed and updated quarterly. The Company’s non-rated held-to-maturity debt securities are primarily United States government sponsored enterprise debentures carrying minimal to no credit risk. The non-rated corporate bonds primarily consist of Community Reinvestment Act related bonds secured by loan instruments from low to moderate income borrowers. The remaining non-rated held-to-maturity debt securities balance is comprised of local municipal debt from within the Company’s geographic footprint and is monitored through quarterly or annual financial review. This municipal debt is predominately essential service or unlimited general obligation backed debt. The following tables summarize the amortized cost of held-to-maturity debt securities by credit rating at September 30, 2023March 31, 2024 and December 31, 20222023 (in thousands):
| | September 30, 2023 |
| U.S. Government and agency obligations | | Municipal bonds | | Corporate bonds | | Mortgage-backed or related securities | | Total |
| March 31, 2024 | | | March 31, 2024 |
| U.S. Government and agency obligations | | | U.S. Government and agency obligations | | Municipal bonds | | Corporate bonds | | Mortgage-backed or related securities | | Total |
AAA/AA/A | AAA/AA/A | $ | — | | | $ | 481,496 | | | $ | 500 | | | $ | 16,518 | | | $ | 498,514 | |
| Not Rated | Not Rated | 308 | | | 9,656 | | | 2,313 | | | 571,714 | | | 583,991 | |
Not Rated | |
Not Rated | |
| | $ | |
| | $ | 308 | | | $ | 491,152 | | | $ | 2,813 | | | $ | 588,232 | | | $ | 1,082,505 | |
| $ | |
| | $ | |
| | December 31, 2022 |
| U.S. Government and agency obligations | | Municipal bonds | | Corporate bonds | | Mortgage-backed or related securities | | Total |
| December 31, 2023 | | | December 31, 2023 |
| U.S. Government and agency obligations | | | U.S. Government and agency obligations | | Municipal bonds | | Corporate bonds | | Mortgage-backed or related securities | | Total |
AAA/AA/A | AAA/AA/A | $ | — | | | $ | 492,105 | | | $ | 500 | | | $ | 16,681 | | | $ | 509,286 | |
| Not Rated | Not Rated | 312 | | | 11,012 | | | 2,461 | | | 594,896 | | | 608,681 | |
| $ | 312 | | | $ | 503,117 | | | $ | 2,961 | | | $ | 611,577 | | | $ | 1,117,967 | |
Not Rated | |
Not Rated | |
| $ | |
The following tables present the activity in the allowance for credit losses for securities available-for-sale by major type for the three and nine months ended September 30, 2023 (in thousands). We had no allowance for credit losses for securities available-for-sale during three and nine months ended September 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, 2023 |
| U.S. Government and agency obligations | | Municipal bonds | | Corporate bonds | | Mortgage-backed or related securities | | Total |
Allowance for credit losses – securities available-for-sale | | | | | | | | | |
Beginning balance | $ | — | | | $ | — | | | $ | 2,000 | | | $ | — | | | $ | 2,000 | |
| | | | | | | | | |
(Recapture) provision for credit losses | — | | | — | | | (1,250) | | | — | | | (1,250) | |
| | | | | | | | | |
| | | | | | | | | |
Ending balance | $ | — | | | $ | — | | | $ | 750 | | | $ | — | | | $ | 750 | |
| | | | | | | | | |
| For the Nine Months Ended September 30, 2023 |
| U.S. Government and agency obligations | | Municipal bonds | | Corporate bonds | | Mortgage-backed or related securities | | Total |
Allowance for credit losses – securities available-for-sale | | | | | | | | | |
Beginning balance | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | |
Provision for credit losses | — | | | — | | | 750 | | | — | | | 750 | |
| | | | | | | | | |
| | | | | | | | | |
Ending balance | $ | — | | | $ | — | | | $ | 750 | | | $ | — | | | $ | 750 | |
Note 4: LOANS RECEIVABLE AND THE ALLOWANCE FOR CREDIT LOSSES - LOANS
The following table presents the loans receivable at September 30, 2023March 31, 2024 and December 31, 20222023 by class (dollars in thousands).
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
| Amount | | Percent of Total | | Amount | | Percent of Total |
Commercial real estate: | | | | | | | |
Owner-occupied | $ | 911,540 | | | 8.6 | % | | $ | 845,320 | | | 8.3 | % |
Investment properties | 1,530,087 | | | 14.4 | | | 1,589,975 | | | 15.7 | |
Small balance CRE | 1,169,828 | | | 11.0 | | | 1,200,251 | | | 11.8 | |
Multifamily real estate | 766,571 | | | 7.2 | | | 645,071 | | | 6.4 | |
Construction, land and land development: | | | | | | | |
Commercial construction | 168,061 | | | 1.6 | | | 184,876 | | | 1.8 | |
Multifamily construction | 453,129 | | | 4.3 | | | 325,816 | | | 3.2 | |
One- to four-family construction | 536,349 | | | 5.1 | | | 647,329 | | | 6.4 | |
Land and land development | 346,362 | | | 3.3 | | | 328,475 | | | 3.2 | |
Commercial business: | | | | | | | |
Commercial business (1) | 1,263,747 | | | 11.9 | | | 1,283,407 | | | 12.7 | |
Small business scored | 1,000,714 | | | 9.4 | | | 947,092 | | | 9.3 | |
Agricultural business, including secured by farmland (2) | 334,626 | | | 3.1 | | | 295,077 | | | 2.9 | |
One- to four-family residential | 1,438,694 | | | 13.6 | | | 1,173,112 | | | 11.6 | |
Consumer: | | | | | | | |
Consumer—home equity revolving lines of credit | 579,836 | | | 5.4 | | | 566,291 | | | 5.6 | |
Consumer—other | 111,873 | | | 1.1 | | | 114,632 | | | 1.1 | |
Total loans | 10,611,417 | | | 100.0 | % | | 10,146,724 | | | 100.0 | % |
Less allowance for credit losses – loans | (146,960) | | | | | (141,465) | | | |
Net loans | $ | 10,464,457 | | | | | $ | 10,005,259 | | | |
(1) Includes $4.1 million and $7.6 million of U.S. Small Business Administration (SBA) Paycheck Protection Program (PPP) loans as of September 30, 2023 and December 31, 2022, respectively.
(2) Includes no SBA PPP loans as of September 30, 2023, and $334,000 as of December 31, 2022. | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Amount | | Percent of Total | | Amount | | Percent of Total |
Commercial real estate: | | | | | | | |
Owner-occupied | $ | 905,063 | | | 8.3 | % | | $ | 915,897 | | | 8.5 | % |
Investment properties | 1,544,885 | | | 14.2 | | | 1,541,344 | | | 14.3 | |
Small balance CRE | 1,159,355 | | | 10.7 | | | 1,178,500 | | | 10.9 | |
Multifamily real estate | 809,101 | | | 7.4 | | | 811,232 | | | 7.5 | |
Construction, land and land development: | | | | | | | |
Commercial construction | 158,011 | | | 1.4 | | | 170,011 | | | 1.6 | |
Multifamily construction | 573,014 | | | 5.3 | | | 503,993 | | | 4.7 | |
One- to four-family construction | 495,931 | | | 4.6 | | | 526,432 | | | 4.9 | |
Land and land development | 344,563 | | | 3.2 | | | 336,639 | | | 3.1 | |
Commercial business: | | | | | | | |
Commercial business | 1,262,716 | | | 11.6 | | | 1,255,734 | | | 11.6 | |
Small business scored | 1,028,067 | | | 9.5 | | | 1,022,154 | | | 9.5 | |
Agricultural business, including secured by farmland | 317,958 | | | 2.9 | | | 331,089 | | | 3.0 | |
One- to four-family residential | 1,566,834 | | | 14.4 | | | 1,518,046 | | | 14.0 | |
Consumer: | | | | | | | |
Consumer—home equity revolving lines of credit | 597,060 | | | 5.5 | | | 588,703 | | | 5.4 | |
Consumer—other | 106,538 | | | 1.0 | | | 110,681 | | | 1.0 | |
Total loans | 10,869,096 | | | 100.0 | % | | 10,810,455 | | | 100.0 | % |
Less allowance for credit losses – loans | (151,140) | | | | | (149,643) | | | |
Net loans | $ | 10,717,956 | | | | | $ | 10,660,812 | | | |
Loan amounts are net of unearned loan fees in excess of unamortized costs of $11.2$13.9 million as of September 30, 2023,March 31, 2024, and $8.1$12.1 million as of December 31, 2022.2023. Net loans include net discounts on acquired loans of $5.1$4.3 million and $6.6$4.6 million as of September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. Net loans does not include accrued interest receivable. Accrued interest receivable on loans was $45.5$51.5 million as of September 30, 2023,March 31, 2024, and $39.8$47.8 million as of December 31, 20222023 and was reported in accrued interest receivable on the Consolidated Statements of Financial Condition.
The Company had pledged $7.2$7.7 billion and $6.5$7.6 billion of loans as collateral for FHLB and other borrowings at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.
Purchased credit-deteriorated and purchased non-credit-deteriorated loans. Loans acquired in business combinations are recorded at their fair value at the acquisition date. Acquired loans are evaluated upon acquisition and classified as either purchased credit-deteriorated (PCD) or purchased non-credit-deteriorated. There were no PCD loans acquired during the ninethree months ended September 30, 2023March 31, 2024 or September 30, 2022.March 31, 2023.
Troubled Loan Modifications. Occasionally, the Company offers modifications of loans to borrowers experiencing financial difficulty by providing principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions or any combination of these. When principal forgiveness is provided, the amount of the forgiveness is charged-off against the allowance for credit losses - loans. Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses - loans is adjusted by the same amount. The allowance for credit losses on modified loans is measured using the same credit loss estimation methods used to determine the allowance for credit losses for all other loans held for investment. These methods incorporate the post-modification loan terms, as well as defaults and charge-offs associated with historical modified loans.
There were no loans modified related to borrowers experiencing financial difficulty during the three months ended March 31, 2024. The following table presents the amortized cost basis and financial effect of loans at September 30,March 31, 2023, that were both experiencing financial difficulty and modified during the nine three months ended September 30,March 31, 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2023 |
| | | Payment Delay | | Term Extension | | | | | | | Total |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
One- to four-family construction | | | — | | | $ | 6,362 | | | | | | | | $ | 6,362 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Commercial business | | | 121 | | | — | | | | | | | | 121 | |
| | | | | | | | | | | | |
Agricultural business, including secured by farmland | | | 1,580 | | | — | | | | | | | | 1,580 | |
One- to four-family residential | | | 1,060 | | | — | | | | | | | | 1,060 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total | | | $ | 2,761 | | | $ | 6,362 | | | | | | | | $ | 9,123 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | March 31, 2023 |
| | | | | Term Extension | | | | | | Total | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
One- to four-family construction | | | | | $ | 6,107 | | | | | | | $ | 6,107 | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total | | | | | $ | 6,107 | | | | | | | $ | 6,107 | | |
The Company hashad committed to lend additional amounts totaling $195,000$436,000 to the borrowers included in the previous table. table as of March 31, 2023. The Company closely monitors the performance of loans that are modified for borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.
The following table presents the performance at March 31, 2024 of such loans that havehad been modified in the lastprevious 12 months at September 30, 2023 (in thousands):. There were no loans past due at March 31, 2023 that had been modified in the previous 12 months.
| | |
| | | | | | September 30, 2023 | March 31, 2024 |
| | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or More Past Due | | Total Past Due | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or More Past Due | | Total Past Due |
| Commercial business | Commercial business | — | | | — | | | 121 | | | 121 | |
| | Commercial business | |
| Commercial business | |
| Agricultural business, including secured by farmland | |
Agricultural business, including secured by farmland | |
Agricultural business, including secured by farmland | Agricultural business, including secured by farmland | — | | | — | | | 1,580 | | | 1,580 | |
One- to four-family residential | One- to four-family residential | — | | | — | | | 1,060 | | | 1,060 | |
| Total | Total | $ | — | | | $ | — | | | $ | 2,761 | | | $ | 2,761 | |
| Total | |
| Total | |
| | | | | | | | | | |
The following table presents the financial effect of the loan modifications presented above for borrowers experiencing financial difficulty for the ninethree months ended September 30,March 31, 2023: |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | NineThree Months Ended September 30,March 31, 2023 |
| | | | | | Weighted Average Payment Delay Period (in months) | Weighted-Average Term Extension (in months) |
| Commercial real estate: | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
One- to four-family construction | | | | | | n/a | | 117 |
| | | | | | | |
| | | | | | | |
| Commercial business | | | | | 8 | n/a |
| | | | | | | |
| Agricultural business, including secured by farmland | | | | | 8 | n/a |
| One- to four-family residential | | | | | 8 | n/a |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Credit Quality Indicators: To appropriately and effectively manage the ongoing credit quality of the Company’s loan portfolio, management has implemented a risk-rating or loan grading system for its loans. The system is a tool to evaluate portfolio asset quality throughout each applicable loan’s life as an asset of the Company. Generally, loans are risk rated on an aggregate borrower/relationship basis with individual loans sharing similar ratings. There are some instances when specific situations relating to individual loans will provide the basis for different risk ratings within the aggregate relationship. Loans are graded on a scale of 1 to 9. A description of the general characteristics of these categories is shown below.
Overall Risk Rating Definitions: Risk-ratings contain both qualitative and quantitative measurements and take into account the financial strength of a borrower and the structure of the loan. Consequently, the definitions are to be applied in the context of each lending transaction and judgment must also be used to determine the appropriate risk rating, as it is not unusual for a loan to exhibit characteristics of more than one risk-rating category. Consideration for the final rating is centered in the borrower’s ability to repay, in a timely fashion, both principal and interest. The Company’s risk-rating and loan grading policies are reviewed and approved annually. There were no material changes in the risk-rating or loan grading system for the periods presented.
Risk Ratings 1-5: Pass
Credits with risk ratings of 1 to 5 meet the definition of a pass risk rating. The strength of credits vary within the pass risk ratings, ranging from a risk rated 1 being an exceptional credit to a risk rated 5 being an acceptable credit that requires a more than normal level of supervision.
Risk Rating 6: Special Mention
A credit with potential weaknesses that deserves management’s close attention is risk rated a 6. If left uncorrected, these potential weaknesses will result in deterioration in the capacity to repay debt. A key distinction between Special Mention and Substandard is that in a Special Mention credit, there are identified weaknesses that pose potential risk(s) to the repayment sources, versus well defined weaknesses that pose risk(s) to the repayment sources. Assets in this category are expected to be in this category no more than 9-12 months as the potential weaknesses in the credit are resolved.
Risk Rating 7: Substandard
A credit with well-defined weaknesses that jeopardize the ability to repay in full is risk rated a 7. These credits are inadequately protected by either the sound net worth and payment capacity of the borrower or the value of pledged collateral. These are credits with a distinct possibility of loss. Loans headed for foreclosure and/or legal action due to deterioration are rated 7 or worse.
Risk Rating 8: Doubtful
A credit with an extremely high probability of loss is risk rated 8. These credits have all the same critical weaknesses that are found in a substandard loan; however, the weaknesses are elevated to the point that based upon current information, collection or liquidation in full is improbable. While some loss on doubtful credits is expected, pending events may make the amount and timing of any loss indeterminable. In these situations, taking the loss is inappropriate until the outcome of the pending event is clear.
Risk Rating 9: Loss
A credit that is considered to be currently uncollectible or of such little value that it is no longer a viable bank asset is risk rated 9. Losses should be taken in the accounting period in which the credit is determined to be uncollectible. Taking a loss does not mean that a credit has absolutely no recovery or salvage value but, rather, it is not practical or desirable to defer writing off the credit, even though partial recovery may occur in the future.
The following tables present the Company’s portfolio of risk-rated loans by class and by grade as of September 30, 2023March 31, 2024 and December 31, 20222023 (in thousands). In addition, the tables include the gross charge-offs for the ninethree months ended September 30, 2023.March 31, 2024. Revolving loans that are converted to term loans are treated as new originations in the table below and are presented by year of origination. Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of the most recent renewal or extension.
| | September 30, 2023 |
| Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
| March 31, 2024 | | | March 31, 2024 |
| Term Loans by Year of Origination | | | Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
By class: | By class: | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans | | Total Loans |
| Commercial real estate - owner occupied | Commercial real estate - owner occupied | |
| Commercial real estate - owner occupied | |
| Commercial real estate - owner occupied | |
Risk Rating | Risk Rating | |
Risk Rating | |
Risk Rating | |
Pass | |
Pass | |
Pass | Pass | $ | 102,138 | | | $ | 169,190 | | | $ | 171,403 | | | $ | 141,986 | | | $ | 70,398 | | | $ | 170,367 | | | $ | 34,798 | | | $ | 860,280 | |
Special Mention | Special Mention | 1,771 | | | — | | | — | | | — | | | — | | | — | | | 2 | | | 1,773 | |
Substandard | Substandard | — | | | 13,135 | | | 12,250 | | | 4,768 | | | 19,140 | | | 194 | | | — | | | 49,487 | |
Doubtful | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Commercial real estate - owner occupied | Total Commercial real estate - owner occupied | $ | 103,909 | | | $ | 182,325 | | | $ | 183,653 | | | $ | 146,754 | | | $ | 89,538 | | | $ | 170,561 | | | $ | 34,800 | | | $ | 911,540 | |
| Current period gross charge-offs | Current period gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Current period gross charge-offs | |
Current period gross charge-offs | |
| Commercial real estate - investment properties | Commercial real estate - investment properties | |
Commercial real estate - investment properties | |
Commercial real estate - investment properties | |
Risk Rating | Risk Rating | |
Risk Rating | |
Risk Rating | |
Pass | |
Pass | |
Pass | Pass | $ | 115,175 | | | $ | 170,017 | | | $ | 283,410 | | | $ | 124,196 | | | $ | 159,398 | | | $ | 633,933 | | | $ | 39,715 | | | $ | 1,525,844 | |
Special Mention | Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | 1,698 | | | 1,698 | |
Substandard | Substandard | 985 | | | — | | | — | | | — | | | — | | | 1,560 | | | — | | | 2,545 | |
Doubtful | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Commercial real estate - investment properties | Total Commercial real estate - investment properties | $ | 116,160 | | | $ | 170,017 | | | $ | 283,410 | | | $ | 124,196 | | | $ | 159,398 | | | $ | 635,493 | | | $ | 41,413 | | | $ | 1,530,087 | |
| Current period gross charge-offs | Current period gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Current period gross charge-offs | |
Current period gross charge-offs | |
| Multifamily real estate | Multifamily real estate | |
Multifamily real estate | |
Multifamily real estate | |
Risk Rating | Risk Rating | |
Risk Rating | |
Risk Rating | |
Pass | |
Pass | |
Pass | Pass | $ | 100,886 | | | $ | 154,906 | | | $ | 188,340 | | | $ | 101,808 | | | $ | 47,136 | | | $ | 171,673 | | | $ | 1,822 | | | $ | 766,571 | |
Special Mention | Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Multifamily real estate | Total Multifamily real estate | $ | 100,886 | | | $ | 154,906 | | | $ | 188,340 | | | $ | 101,808 | | | $ | 47,136 | | | $ | 171,673 | | | $ | 1,822 | | | $ | 766,571 | |
| Current period gross charge-offs | Current period gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Current period gross charge-offs | |
Current period gross charge-offs | |
| | September 30, 2023 |
| Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
| March 31, 2024 | | | March 31, 2024 |
| Term Loans by Year of Origination | | | Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
By class: | By class: | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans | | Total Loans |
| Commercial construction | Commercial construction | |
| Commercial construction | |
| Commercial construction | |
Risk Rating | Risk Rating | |
Risk Rating | |
Risk Rating | |
Pass | |
Pass | |
Pass | Pass | $ | 65,309 | | | $ | 73,102 | | | $ | 11,207 | | | $ | 12,768 | | | $ | — | | | $ | 5,675 | | | $ | — | | | $ | 168,061 | |
Special Mention | Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Commercial construction | Total Commercial construction | $ | 65,309 | | | $ | 73,102 | | | $ | 11,207 | | | $ | 12,768 | | | $ | — | | | $ | 5,675 | | | $ | — | | | $ | 168,061 | |
| Current period gross charge-offs | Current period gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Current period gross charge-offs | |
Current period gross charge-offs | |
| Multifamily construction | Multifamily construction | |
Multifamily construction | |
Multifamily construction | |
Risk Rating | Risk Rating | |
Risk Rating | |
Risk Rating | |
Pass | |
Pass | |
Pass | Pass | $ | 89,261 | | | $ | 241,857 | | | $ | 121,595 | | | $ | 416 | | | $ | — | | | $ | — | | | $ | — | | | $ | 453,129 | |
Special Mention | Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Multifamily construction | Total Multifamily construction | $ | 89,261 | | | $ | 241,857 | | | $ | 121,595 | | | $ | 416 | | | $ | — | | | $ | — | | | $ | — | | | $ | 453,129 | |
| Current period gross charge-offs | Current period gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Current period gross charge-offs | |
Current period gross charge-offs | |
| One- to four- family construction | One- to four- family construction | |
One- to four- family construction | |
One- to four- family construction | |
Risk Rating | Risk Rating | |
Risk Rating | |
Risk Rating | |
Pass | |
Pass | |
Pass | Pass | $ | 390,539 | | | $ | 112,833 | | | $ | 20,962 | | | $ | — | | | $ | 331 | | | $ | — | | | $ | 282 | | | $ | 524,947 | |
Special Mention | Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | Substandard | 8,073 | | | 253 | | | 3,076 | | | — | | | — | | | — | | | — | | | 11,402 | |
Doubtful | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total One- to four- family construction | Total One- to four- family construction | $ | 398,612 | | | $ | 113,086 | | | $ | 24,038 | | | $ | — | | | $ | 331 | | | $ | — | | | $ | 282 | | | $ | 536,349 | |
| Current period gross charge-offs | Current period gross charge-offs | $ | 136 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 136 | |
Current period gross charge-offs | |
Current period gross charge-offs | |
| | September 30, 2023 |
| Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
| March 31, 2024 | | | March 31, 2024 |
| Term Loans by Year of Origination | | | Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
By class: | By class: | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans | | Total Loans |
| Land and land development | Land and land development | |
| Land and land development | |
| Land and land development | |
Risk Rating | Risk Rating | |
Risk Rating | |
Risk Rating | |
Pass | |
Pass | |
Pass | Pass | $ | 165,451 | | | $ | 96,873 | | | $ | 50,679 | | | $ | 12,912 | | | $ | 8,730 | | | $ | 11,218 | | | $ | 1 | | | $ | 345,864 | |
Special Mention | Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | Substandard | 498 | | | — | | | — | | | — | | | — | | | — | | | — | | | 498 | |
Doubtful | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Land and land development | Total Land and land development | $ | 165,949 | | | $ | 96,873 | | | $ | 50,679 | | | $ | 12,912 | | | $ | 8,730 | | | $ | 11,218 | | | $ | 1 | | | $ | 346,362 | |
| Current period gross charge-offs | Current period gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 20 | | | $ | — | | | $ | 20 | |
Current period gross charge-offs | |
Current period gross charge-offs | |
| Commercial business | Commercial business | |
Commercial business | |
Commercial business | |
Risk Rating | Risk Rating | |
Risk Rating | |
Risk Rating | |
Pass | |
Pass | |
Pass | Pass | $ | 110,637 | | | $ | 239,070 | | | $ | 128,206 | | | $ | 141,556 | | | $ | 107,820 | | | $ | 147,395 | | | $ | 356,568 | | | $ | 1,231,252 | |
Special Mention | Special Mention | — | | | — | | | 760 | | | 3,183 | | | — | | | 1,972 | | | 1,850 | | | 7,765 | |
Substandard | Substandard | 1,016 | | | 4,878 | | | 5,265 | | | 1,213 | | | 1,555 | | | 3,364 | | | 7,439 | | | 24,730 | |
Doubtful | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | Loss | — | | | — | | | — | | | — | | | �� | | | — | | | — | | | — | |
Total Commercial business | Total Commercial business | $ | 111,653 | | | $ | 243,948 | | | $ | 134,231 | | | $ | 145,952 | | | $ | 109,375 | | | $ | 152,731 | | | $ | 365,857 | | | $ | 1,263,747 | |
| Current period gross charge-offs | Current period gross charge-offs | $ | 22 | | | $ | 108 | | | $ | 681 | | | $ | 5 | | | $ | — | | | $ | 27 | | | $ | 144 | | | $ | 987 | |
Current period gross charge-offs | |
Current period gross charge-offs | |
| Agricultural business, including secured by farmland | Agricultural business, including secured by farmland | |
Agricultural business, including secured by farmland | |
Agricultural business, including secured by farmland | |
Risk Rating | Risk Rating | |
Risk Rating | |
Risk Rating | |
Pass | |
Pass | |
Pass | Pass | $ | 40,724 | | | $ | 36,644 | | | $ | 27,956 | | | $ | 17,851 | | | $ | 25,201 | | | $ | 40,386 | | | $ | 126,821 | | | $ | 315,583 | |
Special Mention | Special Mention | 550 | | | — | | | 652 | | | — | | | 1,690 | | | 386 | | | 2,572 | | | 5,850 | |
Substandard | Substandard | 3,687 | | | — | | | 650 | | | — | | | 6,566 | | | 2,290 | | | — | | | 13,193 | |
Doubtful | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Agricultural business, including secured by farmland | Total Agricultural business, including secured by farmland | $ | 44,961 | | | $ | 36,644 | | | $ | 29,258 | | | $ | 17,851 | | | $ | 33,457 | | | $ | 43,062 | | | $ | 129,393 | | | $ | 334,626 | |
| Current period gross charge-offs | Current period gross charge-offs | $ | — | | | $ | 430 | | | $ | 134 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 564 | |
Current period gross charge-offs | |
Current period gross charge-offs | |
| | December 31, 2022 |
| Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
| December 31, 2023 | | | December 31, 2023 |
| Term Loans by Year of Origination | | | Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
By class: | By class: | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving Loans | | Total Loans |
| Commercial real estate - owner occupied | Commercial real estate - owner occupied | |
| Commercial real estate - owner occupied | |
| Commercial real estate - owner occupied | |
Risk Rating | Risk Rating | |
Risk Rating | |
Risk Rating | |
Pass | |
Pass | |
Pass | Pass | $ | 167,150 | | | $ | 198,787 | | | $ | 150,272 | | | $ | 74,171 | | | $ | 57,095 | | | $ | 148,902 | | | $ | 10,833 | | | $ | 807,210 | |
Special Mention | Special Mention | — | | | — | | | — | | | 2,829 | | | — | | | 42 | | | 201 | | | 3,072 | |
Substandard | Substandard | 13,756 | | | — | | | 7,211 | | | 13,564 | | | — | | | 307 | | | 200 | | | 35,038 | |
Doubtful | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Commercial real estate - owner occupied | Total Commercial real estate - owner occupied | $ | 180,906 | | | $ | 198,787 | | | $ | 157,483 | | | $ | 90,564 | | | $ | 57,095 | | | $ | 149,251 | | | $ | 11,234 | | | $ | 845,320 | |
| | Commercial real estate - investment properties | Commercial real estate - investment properties | |
| Commercial real estate - investment properties | |
| Commercial real estate - investment properties | |
Risk Rating | Risk Rating | |
Risk Rating | |
Risk Rating | |
Pass | |
Pass | |
Pass | Pass | $ | 190,627 | | | $ | 323,160 | | | $ | 142,476 | | | $ | 182,853 | | | $ | 169,667 | | | $ | 547,899 | | | $ | 25,691 | | | $ | 1,582,373 | |
Special Mention | Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | Substandard | — | | | — | | | — | | | 3,283 | | | — | | | 3,007 | | | 1,312 | | | 7,602 | |
Doubtful | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Commercial real estate - investment properties | Total Commercial real estate - investment properties | $ | 190,627 | | | $ | 323,160 | | | $ | 142,476 | | | $ | 186,136 | | | $ | 169,667 | | | $ | 550,906 | | | $ | 27,003 | | | $ | 1,589,975 | |
| | Multifamily real estate | Multifamily real estate | |
| Multifamily real estate | |
| Multifamily real estate | |
Risk Rating | Risk Rating | |
Risk Rating | |
Risk Rating | |
Pass | |
Pass | |
Pass | Pass | $ | 139,383 | | | $ | 177,784 | | | $ | 93,961 | | | $ | 46,460 | | | $ | 29,665 | | | $ | 156,140 | | | $ | 1,678 | | | $ | 645,071 | |
Special Mention | Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Multifamily real estate | Total Multifamily real estate | $ | 139,383 | | | $ | 177,784 | | | $ | 93,961 | | | $ | 46,460 | | | $ | 29,665 | | | $ | 156,140 | | | $ | 1,678 | | | $ | 645,071 | |
|
| | December 31, 2022 |
| Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
| December 31, 2023 | | | December 31, 2023 |
| Term Loans by Year of Origination | | | Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
By class: | By class: | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving Loans | | Total Loans |
| Commercial construction | Commercial construction | |
| Commercial construction | |
| Commercial construction | |
Risk Rating | Risk Rating | |
Risk Rating | |
Risk Rating | |
Pass | |
Pass | |
Pass | Pass | $ | 112,229 | | | $ | 46,679 | | | $ | 12,952 | | | $ | 4,260 | | | $ | 1,107 | | | $ | — | | | $ | — | | | $ | 177,227 | |
Special Mention | Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | Substandard | 2,931 | | | 1 | | | — | | | — | | | 4,717 | | | — | | | — | | | 7,649 | |
Doubtful | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Commercial construction | Total Commercial construction | $ | 115,160 | | | $ | 46,680 | | | $ | 12,952 | | | $ | 4,260 | | | $ | 5,824 | | | $ | — | | | $ | — | | | $ | 184,876 | |
| | Multifamily construction | Multifamily construction | |
| Multifamily construction | |
| Multifamily construction | |
Risk Rating | Risk Rating | |
Risk Rating | |
Risk Rating | |
Pass | |
Pass | |
Pass | Pass | $ | 142,680 | | | $ | 161,066 | | | $ | 20,622 | | | $ | 1,448 | | | $ | — | | | $ | — | | | $ | — | | | $ | 325,816 | |
Special Mention | Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Multifamily construction | Total Multifamily construction | $ | 142,680 | | | $ | 161,066 | | | $ | 20,622 | | | $ | 1,448 | | | $ | — | | | $ | — | | | $ | — | | | $ | 325,816 | |
| | One- to four- family construction | One- to four- family construction | |
| One- to four- family construction | |
| One- to four- family construction | |
Risk Rating | Risk Rating | |
Risk Rating | |
Risk Rating | |
Pass | |
Pass | |
Pass | Pass | $ | 572,701 | | | $ | 56,530 | | | $ | 677 | | | $ | 331 | | | $ | — | | | $ | — | | | $ | 711 | | | $ | 630,950 | |
Special Mention | Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | Substandard | 13,473 | | | 2,906 | | | — | | | — | | | — | | | — | | | — | | | 16,379 | |
Doubtful | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total One- to four- family construction | Total One- to four- family construction | $ | 586,174 | | | $ | 59,436 | | | $ | 677 | | | $ | 331 | | | $ | — | | | $ | — | | | $ | 711 | | | $ | 647,329 | |
|
| | December 31, 2022 |
| Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
| December 31, 2023 | | | December 31, 2023 |
| Term Loans by Year of Origination | | | Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
By class: | By class: | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving Loans | | Total Loans |
| Land and land development | Land and land development | |
| Land and land development | |
| Land and land development | |
Risk Rating | Risk Rating | |
Risk Rating | |
Risk Rating | |
Pass | |
Pass | |
Pass | Pass | $ | 199,339 | | | $ | 88,066 | | | $ | 16,278 | | | $ | 11,866 | | | $ | 6,242 | | | $ | 6,164 | | | $ | 339 | | | $ | 328,294 | |
Special Mention | Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | Substandard | — | | | — | | | — | | | — | | | 97 | | | 84 | | | — | | | 181 | |
Doubtful | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Land and land development | Total Land and land development | $ | 199,339 | | | $ | 88,066 | | | $ | 16,278 | | | $ | 11,866 | | | $ | 6,339 | | | $ | 6,248 | | | $ | 339 | | | $ | 328,475 | |
| | Commercial business | Commercial business | |
| Commercial business | |
| Commercial business | |
Risk Rating | Risk Rating | |
Risk Rating | |
Risk Rating | |
Pass | |
Pass | |
Pass | Pass | $ | 249,609 | | | $ | 149,140 | | | $ | 161,494 | | | $ | 126,416 | | | $ | 86,712 | | | $ | 85,386 | | | $ | 391,852 | | | $ | 1,250,609 | |
Special Mention | Special Mention | 74 | | | 26 | | | 3,467 | | | — | | | — | | | — | | | 200 | | | 3,767 | |
Substandard | Substandard | 464 | | | 12,599 | | | 1,956 | | | 1,161 | | | 5,954 | | | 796 | | | 6,101 | | | 29,031 | |
Doubtful | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Commercial business | Total Commercial business | $ | 250,147 | | | $ | 161,765 | | | $ | 166,917 | | | $ | 127,577 | | | $ | 92,666 | | | $ | 86,182 | | | $ | 398,153 | | | $ | 1,283,407 | |
| | Agricultural business, including secured by farmland | Agricultural business, including secured by farmland | |
| Agricultural business, including secured by farmland | |
| Agricultural business, including secured by farmland | |
Risk Rating | Risk Rating | |
Risk Rating | |
Risk Rating | |
Pass | |
Pass | |
Pass | Pass | $ | 36,848 | | | $ | 35,440 | | | $ | 18,946 | | | $ | 28,354 | | | $ | 24,710 | | | $ | 27,063 | | | $ | 109,606 | | | $ | 280,967 | |
Special Mention | Special Mention | — | | | 336 | | | 271 | | | — | | | — | | | — | | | 357 | | | 964 | |
Substandard | Substandard | 2,015 | | | 970 | | | — | | | 6,565 | | | — | | | 2,599 | | | 997 | | | 13,146 | |
Doubtful | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Agricultural business, including secured by farmland | Total Agricultural business, including secured by farmland | $ | 38,863 | | | $ | 36,746 | | | $ | 19,217 | | | $ | 34,919 | | | $ | 24,710 | | | $ | 29,662 | | | $ | 110,960 | | | $ | 295,077 | |
|
The following tables present the Company’s portfolio of non-risk-rated loans by class and delinquency status as of September 30, 2023March 31, 2024 and December 31, 20222023 (in thousands). In addition, the tables include the gross charge-offs for the ninethree months ended September 30, 2023.March 31, 2024. Revolving loans that are converted to term loans are treated as new originations in the table below and are presented by year of origination. Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of the most recent renewal or extension.
| | September 30, 2023 |
| Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
| March 31, 2024 | | | March 31, 2024 |
| Term Loans by Year of Origination | | | Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
By class: | By class: | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans | | Total Loans |
| Small balance CRE | Small balance CRE | |
| Small balance CRE | |
| Small balance CRE | |
Past Due Category | Past Due Category | |
Past Due Category | |
Past Due Category | |
Current | |
Current | |
Current | Current | $ | 70,771 | | | $ | 173,658 | | | $ | 219,478 | | | $ | 168,195 | | | $ | 124,351 | | | $ | 412,984 | | | $ | 391 | | | $ | 1,169,828 | |
30-59 Days Past Due | 30-59 Days Past Due | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
60-89 Days Past Due | 60-89 Days Past Due | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
90 Days + Past Due | 90 Days + Past Due | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Small balance CRE | Total Small balance CRE | $ | 70,771 | | | $ | 173,658 | | | $ | 219,478 | | | $ | 168,195 | | | $ | 124,351 | | | $ | 412,984 | | | $ | 391 | | | $ | 1,169,828 | |
| Current period gross charge-offs | Current period gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Current period gross charge-offs | |
Current period gross charge-offs | |
| Small business scored | Small business scored | |
Small business scored | |
Small business scored | |
Past Due Category | Past Due Category | |
Past Due Category | |
Past Due Category | |
Current | |
Current | |
Current | Current | $ | 148,103 | | | $ | 282,890 | | | $ | 181,094 | | | $ | 88,641 | | | $ | 66,077 | | | $ | 103,493 | | | $ | 127,140 | | | $ | 997,438 | |
30-59 Days Past Due | 30-59 Days Past Due | — | | | 65 | | | 73 | | | 386 | | | 63 | | | 354 | | | 534 | | | 1,475 | |
60-89 Days Past Due | 60-89 Days Past Due | — | | | — | | | 188 | | | 8 | | | 15 | | | 606 | | | 47 | | | 864 | |
90 Days + Past Due | 90 Days + Past Due | 25 | | | 309 | | | — | | | 30 | | | 505 | | | 68 | | | — | | | 937 | |
Total Small business scored | Total Small business scored | $ | 148,128 | | | $ | 283,264 | | | $ | 181,355 | | | $ | 89,065 | | | $ | 66,660 | | | $ | 104,521 | | | $ | 127,721 | | | $ | 1,000,714 | |
| Current period gross charge-offs | Current period gross charge-offs | $ | 169 | | | $ | 386 | | | $ | 166 | | | $ | 179 | | | $ | 271 | | | $ | 182 | | | $ | — | | | $ | 1,353 | |
Current period gross charge-offs | |
Current period gross charge-offs | |
| One- to four- family residential | One- to four- family residential | |
One- to four- family residential | |
One- to four- family residential | |
Past Due Category | Past Due Category | |
Past Due Category | |
Past Due Category | |
Current | |
Current | |
Current | Current | $ | 258,337 | | | $ | 600,917 | | | $ | 267,544 | | | $ | 58,001 | | | $ | 32,951 | | | $ | 212,790 | | | $ | 116 | | | $ | 1,430,656 | |
30-59 Days Past Due | 30-59 Days Past Due | — | | | — | | | — | | | — | | | — | | | 211 | | | 99 | | | 310 | |
60-89 Days Past Due | 60-89 Days Past Due | 236 | | | 596 | | | 234 | | | — | | | — | | | 321 | | | — | | | 1,387 | |
90 Days + Past Due | 90 Days + Past Due | 1,060 | | | 543 | | | 1,894 | | | 577 | | | 636 | | | 1,631 | | | — | | | 6,341 | |
Total One- to four- family residential | Total One- to four- family residential | $ | 259,633 | | | $ | 602,056 | | | $ | 269,672 | | | $ | 58,578 | | | $ | 33,587 | | | $ | 214,953 | | | $ | 215 | | | $ | 1,438,694 | |
| Current period gross charge-offs | Current period gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | 4 | | | $ | — | | | $ | 30 | | | $ | — | | | $ | 34 | |
Current period gross charge-offs | |
Current period gross charge-offs | |
| | September 30, 2023 |
| Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
| March 31, 2024 | | | March 31, 2024 |
| Term Loans by Year of Origination | | | Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
By class: | By class: | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans | | Total Loans |
| Consumer—home equity revolving lines of credit | Consumer—home equity revolving lines of credit | |
| Consumer—home equity revolving lines of credit | |
| Consumer—home equity revolving lines of credit | |
Past Due Category | Past Due Category | |
Past Due Category | |
Past Due Category | |
Current | |
Current | |
Current | Current | $ | 5,227 | | | $ | 2,557 | | | $ | 1,477 | | | $ | 1,578 | | | $ | 1,240 | | | $ | 5,653 | | | $ | 557,691 | | | $ | 575,423 | |
30-59 Days Past Due | 30-59 Days Past Due | 28 | | | 120 | | | — | | | 150 | | | 72 | | | 236 | | | 595 | | | 1,201 | |
60-89 Days Past Due | 60-89 Days Past Due | — | | | 51 | | | — | | | — | | | 20 | | | 149 | | | 255 | | | 475 | |
90 Days + Past Due | 90 Days + Past Due | — | | | 217 | | | 77 | | | 1,043 | | | 281 | | | 1,119 | | | — | | | 2,737 | |
Total Consumer—home equity revolving lines of credit | Total Consumer—home equity revolving lines of credit | $ | 5,255 | | | $ | 2,945 | | | $ | 1,554 | | | $ | 2,771 | | | $ | 1,613 | | | $ | 7,157 | | | $ | 558,541 | | | $ | 579,836 | |
| Current period gross charge-offs | Current period gross charge-offs | $ | — | | | $ | — | | | $ | 14 | | | $ | 73 | | | $ | — | | | $ | 19 | | | $ | (3) | | | $ | 103 | |
Current period gross charge-offs | |
Current period gross charge-offs | |
| Consumer-other | Consumer-other | |
Consumer-other | |
Consumer-other | |
Past Due Category | Past Due Category | |
Past Due Category | |
Past Due Category | |
Current | |
Current | |
Current | Current | $ | 9,136 | | | $ | 33,926 | | | $ | 10,692 | | | $ | 7,379 | | | $ | 4,603 | | | $ | 18,967 | | | $ | 26,820 | | | $ | 111,523 | |
30-59 Days Past Due | 30-59 Days Past Due | — | | | 77 | | | 15 | | | 13 | | | 10 | | | 44 | | | 101 | | | 260 | |
60-89 Days Past Due | 60-89 Days Past Due | — | | | — | | | 3 | | | — | | | — | | | 11 | | | 76 | | | 90 | |
90 Days + Past Due | 90 Days + Past Due | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Consumer-other | Total Consumer-other | $ | 9,136 | | | $ | 34,003 | | | $ | 10,710 | | | $ | 7,392 | | | $ | 4,613 | | | $ | 19,022 | | | $ | 26,997 | | | $ | 111,873 | |
| Current period gross charge-offs | Current period gross charge-offs | $ | — | | | $ | 40 | | | $ | 56 | | | $ | 20 | | | $ | 39 | | | $ | 95 | | | $ | 591 | | | $ | 841 | |
Current period gross charge-offs | |
Current period gross charge-offs | |
| | December 31, 2022 |
| Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
| December 31, 2023 | | | December 31, 2023 |
| Term Loans by Year of Origination | | | Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
By class: | By class: | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving Loans | | Total Loans |
| Small balance CRE | Small balance CRE | |
| Small balance CRE | |
| Small balance CRE | |
Past Due Category | Past Due Category | |
Past Due Category | |
Past Due Category | |
Current | |
Current | |
Current | Current | $ | 177,605 | | | $ | 215,801 | | | $ | 172,286 | | | $ | 134,552 | | | $ | 142,592 | | | $ | 354,924 | | | $ | 630 | | | $ | 1,198,390 | |
30-59 Days Past Due | 30-59 Days Past Due | — | | | — | | | 460 | | | — | | | — | | | 1,399 | | | — | | | 1,859 | |
60-89 Days Past Due | 60-89 Days Past Due | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
90 Days + Past Due | 90 Days + Past Due | — | | | — | | | — | | | — | | | — | | | 2 | | | — | | | 2 | |
Total Small balance CRE | Total Small balance CRE | $ | 177,605 | | | $ | 215,801 | | | $ | 172,746 | | | $ | 134,552 | | | $ | 142,592 | | | $ | 356,325 | | | $ | 630 | | | $ | 1,200,251 | |
| | Small business scored | Small business scored | |
| Small business scored | |
| Small business scored | |
Past Due Category | Past Due Category | |
Past Due Category | |
Past Due Category | |
Current | |
Current | |
Current | Current | $ | 307,109 | | | $ | 201,628 | | | $ | 99,867 | | | $ | 81,603 | | | $ | 56,420 | | | $ | 78,025 | | | $ | 119,281 | | | $ | 943,933 | |
30-59 Days Past Due | 30-59 Days Past Due | 146 | | | 518 | | | 54 | | | 262 | | | 46 | | | 280 | | | 173 | | | 1,479 | |
60-89 Days Past Due | 60-89 Days Past Due | — | | | 54 | | | — | | | 275 | | | 149 | | | 7 | | | 176 | | | 661 | |
90 Days + Past Due | 90 Days + Past Due | — | | | — | | | 26 | | | 157 | | | 70 | | | 305 | | | 461 | | | 1,019 | |
Total Small business scored | Total Small business scored | $ | 307,255 | | | $ | 202,200 | | | $ | 99,947 | | | $ | 82,297 | | | $ | 56,685 | | | $ | 78,617 | | | $ | 120,091 | | | $ | 947,092 | |
| | One- to four- family residential | One- to four- family residential | |
| One- to four- family residential | |
| One- to four- family residential | |
Past Due Category | Past Due Category | |
Past Due Category | |
Past Due Category | |
Current | |
Current | |
Current | Current | $ | 555,833 | | | $ | 279,331 | | | $ | 59,672 | | | $ | 34,607 | | | $ | 37,740 | | | $ | 191,890 | | | $ | 1,335 | | | $ | 1,160,408 | |
30-59 Days Past Due | 30-59 Days Past Due | 2,030 | | | 846 | | | 755 | | | — | | | 116 | | | 1,462 | | | 78 | | | 5,287 | |
60-89 Days Past Due | 60-89 Days Past Due | 1,060 | | | — | | | — | | | — | | | 115 | | | 1,067 | | | — | | | 2,242 | |
90 Days + Past Due | 90 Days + Past Due | — | | | 1,819 | | | 973 | | | 712 | | | 94 | | | 1,577 | | | — | | | 5,175 | |
Total One- to four- family residential | Total One- to four- family residential | $ | 558,923 | | | $ | 281,996 | | | $ | 61,400 | | | $ | 35,319 | | | $ | 38,065 | | | $ | 195,996 | | | $ | 1,413 | | | $ | 1,173,112 | |
|
| | December 31, 2022 |
| Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
| December 31, 2023 | | | December 31, 2023 |
| Term Loans by Year of Origination | | | Term Loans by Year of Origination | | Revolving Loans | | Total Loans |
By class: | By class: | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving Loans | | Total Loans |
| Consumer—home equity revolving lines of credit | Consumer—home equity revolving lines of credit | |
| Consumer—home equity revolving lines of credit | |
| Consumer—home equity revolving lines of credit | |
Past Due Category | Past Due Category | |
Past Due Category | |
Past Due Category | |
Current | |
Current | |
Current | Current | $ | 7,442 | | | $ | 1,089 | | | $ | 329 | | | $ | 1,355 | | | $ | 1,611 | | | $ | 3,788 | | | $ | 547,068 | | | $ | 562,682 | |
30-59 Days Past Due | 30-59 Days Past Due | 49 | | | 40 | | | 75 | | | — | | | 74 | | | 214 | | | 1,372 | | | 1,824 | |
60-89 Days Past Due | 60-89 Days Past Due | — | | | 50 | | | — | | | — | | | 49 | | | 45 | | | 59 | | | 203 | |
90 Days + Past Due | 90 Days + Past Due | — | | | 14 | | | 73 | | | 476 | | | 64 | | | 675 | | | 280 | | | 1,582 | |
Total Consumer—home equity revolving lines of credit | Total Consumer—home equity revolving lines of credit | $ | 7,491 | | | $ | 1,193 | | | $ | 477 | | | $ | 1,831 | | | $ | 1,798 | | | $ | 4,722 | | | $ | 548,779 | | | $ | 566,291 | |
| | Consumer-other | Consumer-other | |
| Consumer-other | |
| Consumer-other | |
Past Due Category | Past Due Category | |
Past Due Category | |
Past Due Category | |
Current | |
Current | |
Current | Current | $ | 39,740 | | | $ | 12,138 | | | $ | 9,334 | | | $ | 5,695 | | | $ | 5,384 | | | $ | 16,675 | | | $ | 25,219 | | | $ | 114,185 | |
30-59 Days Past Due | 30-59 Days Past Due | 49 | | | — | | | 16 | | | 5 | | | 2 | | | 67 | | | 120 | | | 259 | |
60-89 Days Past Due | 60-89 Days Past Due | 41 | | | 9 | | | 29 | | | 24 | | | — | | | 13 | | | 62 | | | 178 | |
90 Days + Past Due | 90 Days + Past Due | — | | | 10 | | | — | | | — | | | — | | | — | | | — | | | 10 | |
Total Consumer-other | Total Consumer-other | $ | 39,830 | | | $ | 12,157 | | | $ | 9,379 | | | $ | 5,724 | | | $ | 5,386 | | | $ | 16,755 | | | $ | 25,401 | | | $ | 114,632 | |
|
The following tables provide the amortized cost basis of collateral-dependent loans as of September 30, 2023March 31, 2024 and December 31, 20222023 (in thousands). Our collateral dependent loans presented in the tables below have no significant concentrations by property type or location.
| | | | March 31, 2024 |
| Real Estate | | | Real Estate | | Accounts Receivable | | Equipment | | Inventory | | Total |
Commercial real estate: | |
Owner-occupied | |
Owner-occupied | |
Owner-occupied | |
| Small balance CRE | |
Small balance CRE | |
Small balance CRE | |
| | | September 30, 2023 |
| | Real Estate | | | Equipment | | | Total |
| One- to four-family construction | |
| Small balance CRE | $ | 808 | | | | $ | — | | | | $ | 808 | |
| Construction, land and land development: | | | | | |
One- to four-family construction | |
| | One- to four-family construction | One- to four-family construction | 11,149 | | | | — | | | | 11,149 | |
Land and land development | Land and land development | 499 | | | | — | | | | 499 | |
| Commercial business | Commercial business | | | | | |
Commercial business | Commercial business | — | | | | 3,618 | | | | 3,618 | |
Small business scored | — | | | | 288 | | | | 288 | |
Commercial business | |
| Agricultural business, including secured by farmland | |
Agricultural business, including secured by farmland | |
Agricultural business, including secured by farmland | Agricultural business, including secured by farmland | 2,576 | | | | — | | | | 2,576 | |
One- to four-family residential | One- to four-family residential | 3,354 | | | | — | | | | 3,354 | |
| Consumer—home equity revolving lines of credit | Consumer—home equity revolving lines of credit | 821 | | | | — | | | | 821 | |
Consumer—home equity revolving lines of credit | |
Consumer—home equity revolving lines of credit | |
| Total | Total | $ | 19,207 | | | | $ | 3,906 | | | | $ | 23,113 | |
Total | |
Total | |
| | | December 31, 2022 | | December 31, 2023 |
| Real Estate | | | Real Estate | | Accounts Receivable | | Equipment | | Inventory | | Total |
Commercial real estate: | |
Owner-occupied | |
Owner-occupied | |
Owner-occupied | |
| | Real Estate | | | Equipment | | | Total |
| Small balance CRE | |
Small balance CRE | |
Small balance CRE | Small balance CRE | $ | 2,953 | | | | $ | — | | | | $ | 2,953 | |
| One- to four-family construction | |
| One- to four-family construction | |
| One- to four-family construction | |
| Commercial business | Commercial business | | | | | |
| Commercial business | Commercial business | — | | | | 4,537 | | | | 4,537 | |
Small business scored | — | | | | 307 | | | | 307 | |
| Commercial business | |
| Agricultural business, including secured by farmland | |
Agricultural business, including secured by farmland | |
Agricultural business, including secured by farmland | |
One- to four-family residential | One- to four-family residential | 1,622 | | | | — | | | | 1,622 | |
| Consumer—home equity revolving lines of credit | |
Consumer—home equity revolving lines of credit | |
Consumer—home equity revolving lines of credit | |
| Total | Total | $ | 4,575 | | | | $ | 4,844 | | | | $ | 9,419 | |
Total | |
Total | |
The following tables provide additional detail on the age analysis of the Company’s past due loans as of September 30, 2023March 31, 2024 and December 31, 20222023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 |
| 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or More Past Due | | Total Past Due | | Current | | Total Loans | | Non-accrual with no Allowance | | Total Non-accrual (1) | | Loans 90 Days or More Past Due and Accruing |
Commercial real estate: | | | | | | | | | | | | | | | | | |
Owner-occupied | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 911,540 | | | $ | 911,540 | | | $ | — | | | $ | 63 | | | $ | — | |
Investment properties | — | | | — | | | — | | | — | | | 1,530,087 | | | 1,530,087 | | | — | | | — | | | — | |
Small balance CRE | — | | | — | | | — | | | — | | | 1,169,828 | | | 1,169,828 | | | 808 | | | 1,302 | | | — | |
Multifamily real estate | — | | | — | | | — | | | — | | | 766,571 | | | 766,571 | | | — | | | — | | | — | |
Construction, land and land development: | | | | | | | | | | | | | | | | | |
Commercial construction | — | | | — | | | — | | | — | | | 168,061 | | | 168,061 | | | — | | | — | | | — | |
Multifamily construction | — | | | — | | | — | | | — | | | 453,129 | | | 453,129 | | | — | | | — | | | — | |
One- to four-family construction | — | | | — | | | 5,040 | | | 5,040 | | | 531,309 | | | 536,349 | | | 4,788 | | | 5,040 | | | — | |
Land and land development | — | | | 42 | | | 499 | | | 541 | | | 345,821 | | | 346,362 | | | 498 | | | 498 | | | — | |
Commercial business: | | | | | | | | | | | | | | | | | |
Commercial business | 497 | | | — | | | 3,935 | | | 4,432 | | | 1,259,315 | | | 1,263,747 | | | 3,617 | | | 4,027 | | | — | |
Small business scored | 1,475 | | | 864 | | | 937 | | | 3,276 | | | 997,438 | | | 1,000,714 | | | 287 | | | 1,262 | | | — | |
Agricultural business, including secured by farmland | — | | | 48 | | | 2,174 | | | 2,222 | | | 332,404 | | | 334,626 | | | 3,170 | | | 3,170 | | | — | |
One- to four-family residential | 310 | | | 1,387 | | | 6,341 | | | 8,038 | | | 1,430,656 | | | 1,438,694 | | | 2,256 | | | 5,480 | | | 1,799 | |
Consumer: | | | | | | | | | | | | | | | | | |
Consumer—home equity revolving lines of credit | 1,201 | | | 475 | | | 2,737 | | | 4,413 | | | 575,423 | | | 579,836 | | | 821 | | | 3,369 | | | 245 | |
Consumer—other | 260 | | | 90 | | | — | | | 350 | | | 111,523 | | | 111,873 | | | — | | | 9 | | | — | |
Total | $ | 3,743 | | | $ | 2,906 | | | $ | 21,663 | | | $ | 28,312 | | | $ | 10,583,105 | | | $ | 10,611,417 | | | $ | 16,245 | | | $ | 24,220 | | | $ | 2,044 | |
| | | December 31, 2022 | | March 31, 2024 |
| | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or More Past Due | | Total Past Due | | Current | | Total Loans | | Non-accrual with no Allowance | | Total Non-accrual (1) | | Loans 90 Days or More Past Due and Accruing | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or More Past Due | | Total Past Due | | Current | | Total Loans | | Non-accrual with no Allowance | | Total Non-accrual (1) | | Loans 90 Days or More Past Due and Accruing |
Commercial real estate: | Commercial real estate: | | | | | | | | | | | | | | | | | |
Owner-occupied | |
Owner-occupied | |
Owner-occupied | Owner-occupied | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 845,320 | | | $ | 845,320 | | | $ | — | | | $ | 143 | | | $ | — | |
Investment properties | Investment properties | — | | | — | | | — | | | — | | | 1,589,975 | | | 1,589,975 | | | — | | | — | | | — | |
Small balance CRE | Small balance CRE | 1,859 | | | — | | | 2 | | | 1,861 | | | 1,198,390 | | | 1,200,251 | | | 2,927 | | | 3,540 | | | — | |
Multifamily real estate | Multifamily real estate | — | | | — | | | — | | | — | | | 645,071 | | | 645,071 | | | — | | | — | | | — | |
Construction, land and land development: | Construction, land and land development: | |
Commercial construction | Commercial construction | — | | | — | | | — | | | — | | | 184,876 | | | 184,876 | | | — | | | — | | | — | |
Commercial construction | |
Commercial construction | |
Multifamily construction | Multifamily construction | — | | | — | | | — | | | — | | | 325,816 | | | 325,816 | | | — | | | — | | | — | |
One- to four-family construction | One- to four-family construction | 900 | | | — | | | — | | | 900 | | | 646,429 | | | 647,329 | | | — | | | — | | | — | |
Land and land development | Land and land development | 921 | | | — | | | 97 | | | 1,018 | | | 327,457 | | | 328,475 | | | — | | | 181 | | | — | |
Commercial business: | Commercial business: | |
Commercial business | Commercial business | 2,100 | | | 4,145 | | | 649 | | | 6,894 | | | 1,276,513 | | | 1,283,407 | | | 6,998 | | | 7,356 | | | — | |
Commercial business | |
Commercial business | |
Small business scored | Small business scored | 1,479 | | | 661 | | | 1,019 | | | 3,159 | | | 943,933 | | | 947,092 | | | 303 | | | 2,530 | | | — | |
Agricultural business, including secured by farmland | Agricultural business, including secured by farmland | 1,185 | | | — | | | 594 | | | 1,779 | | | 293,298 | | | 295,077 | | | 594 | | | 594 | | | — | |
One-to four-family residential | 5,287 | | | 2,242 | | | 5,175 | | | 12,704 | | | 1,160,408 | | | 1,173,112 | | | 1,569 | | | 5,236 | | | 1,023 | |
One- to four-family residential | |
Consumer: | Consumer: | |
Consumer—home equity revolving lines of credit | |
Consumer—home equity revolving lines of credit | |
Consumer—home equity revolving lines of credit | Consumer—home equity revolving lines of credit | 1,824 | | | 203 | | | 1,582 | | | 3,609 | | | 562,682 | | | 566,291 | | | — | | | 2,124 | | | 254 | |
Consumer—other | Consumer—other | 259 | | | 178 | | | 10 | | | 447 | | | 114,185 | | | 114,632 | | | — | | | 2 | | | 10 | |
Total | Total | $ | 15,814 | | | $ | 7,429 | | | $ | 9,128 | | | $ | 32,371 | | | $ | 10,114,353 | | | $ | 10,146,724 | | | $ | 12,391 | | | $ | 21,706 | | | $ | 1,287 | |
(1) The Company did not recognize any interest income on non-accrual loans during the ninethree months ended September 30, 2023, orMarch 31, 2024.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or More Past Due | | Total Past Due | | Current | | Total Loans | | Non-accrual with no Allowance | | Total Non-accrual (1) | | Loans 90 Days or More Past Due and Accruing |
Commercial real estate: | | | | | | | | | | | | | | | | | |
Owner-occupied | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 915,897 | | | $ | 915,897 | | | $ | 1,391 | | | $ | 1,450 | | | $ | — | |
Investment properties | — | | | — | | | — | | | — | | | 1,541,344 | | | 1,541,344 | | | — | | | — | | | — | |
Small balance CRE | 559 | | | — | | | 413 | | | 972 | | | 1,177,528 | | | 1,178,500 | | | 755 | | | 1,227 | | | — | |
Multifamily real estate | — | | | — | | | — | | | — | | | 811,232 | | | 811,232 | | | — | | | — | | | — | |
Construction, land and land development: | | | | | | | | | | | | | | | | | |
Commercial construction | — | | | — | | | — | | | — | | | 170,011 | | | 170,011 | | | — | | | — | | | — | |
Multifamily construction | — | | | — | | | — | | | — | | | 503,993 | | | 503,993 | | | — | | | — | | | — | |
One- to four-family construction | 286 | | | — | | | 4,201 | | | 4,487 | | | 521,945 | | | 526,432 | | | 2,852 | | | 3,105 | | | 1,096 | |
Land and land development | 1,822 | | | 553 | | | 42 | | | 2,417 | | | 334,222 | | | 336,639 | | | — | | | — | | | 42 | |
Commercial business: | | | | | | | | | | | | | | | | | |
Commercial business | 1,166 | | | 5,735 | | | 1,181 | | | 8,082 | | | 1,247,652 | | | 1,255,734 | | | 789 | | | 7,346 | | | — | |
Small business scored | 2,050 | | | 633 | | | 959 | | | 3,642 | | | 1,018,512 | | | 1,022,154 | | | — | | | 1,656 | | | 1 | |
Agricultural business, including secured by farmland | — | | | — | | | 2,171 | | | 2,171 | | | 328,918 | | | 331,089 | | | 3,167 | | | 3,167 | | | — | |
One-to four-family residential | 6,864 | | | 2,379 | | | 5,258 | | | 14,501 | | | 1,503,545 | | | 1,518,046 | | | 1,939 | | | 5,702 | | | 1,205 | |
Consumer: | | | | | | | | | | | | | | | | | |
Consumer—home equity revolving lines of credit | 2,772 | | | 839 | | | 2,627 | | | 6,238 | | | 582,465 | | | 588,703 | | | 821 | | | 3,110 | | | 391 | |
Consumer—other | 417 | | | 141 | | | 96 | | | 654 | | | 110,027 | | | 110,681 | | | — | | | 94 | | | 10 | |
Total | $ | 15,936 | | | $ | 10,280 | | | $ | 16,948 | | | $ | 43,164 | | | $ | 10,767,291 | | | $ | 10,810,455 | | | $ | 11,714 | | | $ | 26,857 | | | $ | 2,745 | |
(1) The Company did not recognize any interest income on non-accrual loans during the year ended December 31, 2022.2023.
The following tables provide the activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 (in thousands):
| | | For the Three Months Ended September 30, 2023 |
| | Commercial Real Estate | | Multifamily Real Estate | | Construction and Land | | Commercial Business | | Agricultural Business | | One- to Four-Family Residential | | Consumer | | | Total |
Allowance for credit losses: | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, 2024 |
| | | Commercial Real Estate | | Multifamily Real Estate | | Construction and Land | | Commercial Business | | Agricultural Business | | One- to Four-Family Residential | | Consumer | | | | Total |
Allowance for credit losses - loans: | | Allowance for credit losses - loans: | | | | | | | |
Beginning balance | Beginning balance | $ | 43,636 | | | $ | 8,039 | | | $ | 29,844 | | | $ | 33,880 | | | $ | 3,573 | | | $ | 16,737 | | | $ | 8,971 | | | | $ | 144,680 | |
Provision/(recapture) for credit losses | 210 | | | 765 | | | (484) | | | 398 | | | 690 | | | 1,129 | | | 235 | | | | 2,943 | |
(Recapture)/provision for credit losses | |
Recoveries | Recoveries | 170 | | | — | | | 29 | | | 403 | | | 19 | | | 59 | | | 126 | | | | 806 | |
Charge-offs | Charge-offs | — | | | — | | | — | | | (616) | | | (564) | | | — | | | (289) | | | | (1,469) | |
Ending balance | Ending balance | $ | 44,016 | | | $ | 8,804 | | | $ | 29,389 | | | $ | 34,065 | | | $ | 3,718 | | | $ | 17,925 | | | $ | 9,043 | | | | $ | 146,960 | |
| | | For the Nine Months Ended September 30, 2023 |
| | Commercial Real Estate | | Multifamily Real Estate | | Construction and Land | | Commercial Business | | Agricultural Business | | One- to Four-Family Residential | | Consumer | | | Total |
Allowance for credit losses: | | | | | | | | | | | | | | | | |
Beginning balance | $ | 44,086 | | | $ | 7,734 | | | $ | 29,171 | | | $ | 33,299 | | | $ | 3,475 | | | $ | 14,729 | | | $ | 8,971 | | | | $ | 141,465 | |
(Recapture)/provision for credit losses | (498) | | | 1,070 | | | 345 | | | 2,060 | | | 677 | | | 3,018 | | | 604 | | | | 7,276 | |
Recoveries | 428 | | | — | | | 29 | | | 1,046 | | | 130 | | | 212 | | | 412 | | | | 2,257 | |
Charge-offs | — | | | — | | | (156) | | | (2,340) | | | (564) | | | (34) | | | (944) | | | | (4,038) | |
Ending balance | $ | 44,016 | | | $ | 8,804 | | | $ | 29,389 | | | $ | 34,065 | | | $ | 3,718 | | | $ | 17,925 | | | $ | 9,043 | | | | $ | 146,960 | |
|
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| | | | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, 2023 |
| Commercial Real Estate | | Multifamily Real Estate | | Construction and Land | | Commercial Business | | Agricultural Business | | One- to Four-Family Residential | | Consumer | | | | Total |
Allowance for credit losses - loans: | | | | | | | | | | | | | | | | | |
Beginning balance | $ | 44,086 | | | $ | 7,734 | | | $ | 29,171 | | | $ | 33,299 | | | $ | 3,475 | | | $ | 14,729 | | | $ | 8,971 | | | | | $ | 141,465 | |
(Recapture)/provision for credit losses | (1,295) | | | 741 | | | (738) | | | 1,475 | | | (490) | | | 920 | | | 161 | | | | | 774 | |
Recoveries | 184 | | | — | | | — | | | 119 | | | 109 | | | 117 | | | 169 | | | | | 698 | |
Charge-offs | — | | | — | | | — | | | (1,158) | | | — | | | (30) | | | (292) | | | | | (1,480) | |
Ending balance | $ | 42,975 | | | $ | 8,475 | | | $ | 28,433 | | | $ | 33,735 | | | $ | 3,094 | | | $ | 15,736 | | | $ | 9,009 | | | | | $ | 141,457 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, 2022 |
| Commercial Real Estate | | Multifamily Real Estate | | Construction and Land | | Commercial Business | | Agricultural Business | | One- to Four-Family Residential | | Consumer | | | | Total |
Allowance for credit losses: | | | | | | | | | | | | | | | | | |
Beginning balance | $ | 46,373 | | | $ | 6,906 | | | $ | 26,939 | | | $ | 28,673 | | | $ | 3,002 | | | $ | 9,573 | | | $ | 7,236 | | | | | $ | 128,702 | |
| | | | | | | | | | | | | | | | | |
(Recapture)/provision for credit losses | (2,096) | | | 208 | | | 1,071 | | | 2,395 | | | 243 | | | 2,796 | | | 1,730 | | | | | 6,347 | |
| | | | | | | | | | | | | | | | | |
Recoveries | 88 | | | — | | | — | | | 924 | | | 252 | | | 25 | | | 85 | | | | | 1,374 | |
Charge-offs | — | | | — | | | (25) | | | (138) | | | (42) | | | — | | | (300) | | | | | (505) | |
Ending balance | $ | 44,365 | | | $ | 7,114 | | | $ | 27,985 | | | $ | 31,854 | | | $ | 3,455 | | | $ | 12,394 | | | $ | 8,751 | | | | | $ | 135,918 | |
| | | | | | | | | | | | | | | | | |
| For the Nine Months Ended September 30, 2022 |
| Commercial Real Estate | | Multifamily Real Estate | | Construction and Land | | Commercial Business | | Agricultural Business | | One- to Four-Family Residential | | Consumer | | | | Total |
Allowance for loan losses: | | | | | | | | | | | | | | | | | |
Beginning balance | $ | 52,995 | | | $ | 7,043 | | | $ | 27,294 | | | $ | 26,421 | | | $ | 3,190 | | | $ | 8,205 | | | $ | 6,951 | | | | | $ | 132,099 | |
(Recapture)/provision for credit losses | (8,932) | | | 71 | | | 337 | | | 4,594 | | | (77) | | | 4,026 | | | 2,096 | | | | | 2,115 | |
Recoveries | 304 | | | — | | | 384 | | | 1,307 | | | 384 | | | 163 | | | 413 | | | | | 2,955 | |
Charge-offs | (2) | | | — | | | (30) | | | (468) | | | (42) | | | — | | | (709) | | | | | (1,251) | |
Ending balance | $ | 44,365 | | | $ | 7,114 | | | $ | 27,985 | | | $ | 31,854 | | | $ | 3,455 | | | $ | 12,394 | | | $ | 8,751 | | | | | $ | 135,918 | |
Note 5: GOODWILL, OTHER INTANGIBLE ASSETS AND MORTGAGE SERVICING RIGHTS
Goodwill and Other Intangible Assets: At September 30, 2023,March 31, 2024, intangible assets are comprised of goodwill and core deposit intangibles (CDI) acquired in business combinations. Goodwill represents the excess of the purchase consideration paid over the fair value of the assets acquired, net of the fair values of liabilities assumed in a business combination, and is not amortized but is reviewed at least annually for impairment. The Company has identified one reporting unit for the purpose of evaluating goodwill for impairment. The Company completed an assessment of qualitative factors as of December 31, 20222023 and concluded that no further analysis was required as it is more likely than not that the fair value of Banner Bank, the reporting unit, exceeds the carrying value.
CDI represents the value of transaction-related deposits and the value of the client relationships associated with the deposits. The Company amortizes CDI assets over their estimated useful lives and reviews them at least annually for events or circumstances that could impair their value.
The following table summarizes the changes in the Company’s goodwill and other intangibles for the ninethree months ended September 30, 2023,March 31, 2024, and the year ended December 31, 20222023 (in thousands):
| | | | | | | | | | | | | | | | | |
| Goodwill | | CDI | | Total |
Balance, December 31, 2021 | $ | 373,121 | | | $ | 14,855 | | | $ | 387,976 | |
| | | | | |
Amortization | — | | | (5,279) | | | (5,279) | |
| | | | | |
Other changes(1) | — | | | (136) | | | (136) | |
Balance, December 31, 2022 | 373,121 | | | 9,440 | | | 382,561 | |
| | | | | |
Amortization | — | | | (2,898) | | | (2,898) | |
| | | | | |
| | | | | |
Balance, September 30, 2023 | $ | 373,121 | | | $ | 6,542 | | | $ | 379,663 | |
(1) Acquired CDI was adjusted for the sale of branches in 2022. | | | | | | | | | | | | | | | | | |
| Goodwill | | CDI | | Total |
Balance, December 31, 2022 | $ | 373,121 | | | $ | 9,440 | | | $ | 382,561 | |
| | | | | |
Amortization | — | | | (3,756) | | | (3,756) | |
| | | | | |
| | | | | |
Balance, December 31, 2023 | 373,121 | | | 5,684 | | | 378,805 | |
| | | | | |
Amortization | — | | | (723) | | | (723) | |
| | | | | |
| | | | | |
Balance, March 31, 2024 | $ | 373,121 | | | $ | 4,961 | | | $ | 378,082 | |
The following table presents the estimated amortization expense with respect to CDI as of September 30, 2023,March 31, 2024, for the periods indicated (in thousands):
| | Estimated Amortization |
Remainder of 2023 | | $ | 857 | |
2024 | | 2,626 | |
| | Estimated Amortization | | | | Estimated Amortization |
Remainder of 2024 | |
2025 | 2025 | | 1,567 | |
2026 | 2026 | | 904 | |
2027 | 2027 | | 426 | |
2028 | |
Thereafter | Thereafter | | 162 | |
| | | $ | 6,542 | |
Mortgage Servicing Rights: Mortgage and SBA servicing rights are reported in other assets. SBA servicing rights are initially recorded and carried at fair value. Mortgage servicing rights are initially recognized at fair value and are amortized in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Mortgage servicing rights are subsequently evaluated for impairment based upon the fair value of the rights compared to the amortized cost (remaining unamortized initial fair value). If the fair value is less than the amortized cost, a valuation allowance is created through an impairment charge to servicing fee income. However, if the fair value is greater than the amortized cost, the amount above the amortized cost is not recognized in the carrying value. During the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, the Company did not record any impairment charges or recoveries against mortgage servicing rights. The unpaid principal balance of loans for which mortgage and SBA servicing rights have been recognized totaled $2.762.78 billion and $2.77 billion at September 30, 2023both March 31, 2024 and December 31, 2022,2023, respectively. Custodial accounts maintained in connection with this servicing totaled $29.122.1 million and $11.2$11.6 million at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.
An analysis of the mortgage and SBA servicing rights for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 is presented below (in thousands):
| | |
| |
| |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Balance, beginning of the period | Balance, beginning of the period | $ | 15,111 | | | $ | 17,633 | | | $ | 16,166 | | | $ | 17,206 | |
Balance, beginning of the period | |
Balance, beginning of the period | |
Additions—amounts capitalized | |
Additions—amounts capitalized | |
Additions—amounts capitalized | Additions—amounts capitalized | 638 | | | 296 | | | 1,123 | | | 3,053 | |
Additions—through purchase | Additions—through purchase | 98 | | | 57 | | | 222 | | | 202 | |
Additions—through purchase | |
Additions—through purchase | |
Amortization (1) | Amortization (1) | (851) | | | (985) | | | (2,525) | | | (3,331) | |
Fair value adjustments (3) | (128) | | | (72) | | | (118) | | | (201) | |
Balance, end of the period (2) | $ | 14,868 | | | $ | 16,929 | | | $ | 14,868 | | | $ | 16,929 | |
Amortization (1) | |
Amortization (1) | |
Fair value adjustments (2) | |
Fair value adjustments (2) | |
Fair value adjustments (2) | |
Balance, end of the period (3) | |
Balance, end of the period (3) | |
Balance, end of the period (3) | |
(1) Amortization of mortgage servicing rights is recorded as a reduction of loan servicing income within mortgage banking operations and any unamortized balance is fully amortized if the loan repays in full.
(2) There was no valuation allowance on mortgage servicing rights as of both September 30, 2023 and 2022.
(3)Fair value adjustments relate to SBA servicing rights. These adjustments are estimated based on an independent dealer analysis by discounting estimated net future cash flows from servicing SBA loans.
(3) There was no valuation allowance on mortgage servicing rights as of both March 31, 2024 and 2023.
Note 6: DEPOSITS
Deposits consisted of the following at September 30, 2023March 31, 2024 and December 31, 20222023 (in thousands):
| | |
| | | September 30, 2023 | | | December 31, 2022 | March 31, 2024 | | | | December 31, 2023 |
Non-interest-bearing accounts | Non-interest-bearing accounts | $ | 5,197,854 | | | | $ | 6,176,998 | | |
Interest-bearing checking | Interest-bearing checking | 2,006,866 | | | | 1,811,153 | | |
Interest-bearing checking | |
Interest-bearing checking | |
Regular savings accounts | |
Regular savings accounts | |
Regular savings accounts | Regular savings accounts | 2,751,453 | | | | 2,710,090 | | |
Money market accounts | Money market accounts | 1,760,066 | | | | 2,198,288 | | |
Money market accounts | |
Money market accounts | |
Total interest-bearing transaction and savings accounts | |
Total interest-bearing transaction and savings accounts | |
Total interest-bearing transaction and savings accounts | Total interest-bearing transaction and savings accounts | 6,518,385 | | | | 6,719,531 | | |
Certificates of deposit: | Certificates of deposit: | | | | | |
Certificates of deposit: | |
Certificates of deposit: | |
Certificates of deposit greater than or equal to $250,000 | |
Certificates of deposit greater than or equal to $250,000 | |
Certificates of deposit greater than or equal to $250,000 | Certificates of deposit greater than or equal to $250,000 | 448,843 | | | | 178,324 | | |
Certificates of deposit less than $250,000 | Certificates of deposit less than $250,000 | 1,009,470 | | | | 545,206 | | |
Certificates of deposit less than $250,000 | |
Certificates of deposit less than $250,000 | |
Total certificates of deposit | |
Total certificates of deposit | |
Total certificates of deposit | Total certificates of deposit | 1,458,313 | | | | 723,530 | | |
Total deposits | Total deposits | $ | 13,174,552 | | | | $ | 13,620,059 | | |
Total deposits | |
Total deposits | |
Included in total deposits: | |
Included in total deposits: | |
Included in total deposits: | Included in total deposits: | | | | | |
Public fund transaction and savings accounts | Public fund transaction and savings accounts | $ | 357,889 | | | | $ | 392,859 | | |
Public fund transaction and savings accounts | |
Public fund transaction and savings accounts | |
Public fund interest-bearing certificates | |
Public fund interest-bearing certificates | |
Public fund interest-bearing certificates | Public fund interest-bearing certificates | 46,349 | | | | 26,810 | | |
Total public deposits | Total public deposits | $ | 404,238 | | | | $ | 419,669 | | |
Total public deposits | |
Total public deposits | |
Total brokered certificates of deposit | Total brokered certificates of deposit | $ | 162,856 | | | | $ | — | | |
Total brokered certificates of deposit | |
Total brokered certificates of deposit | |
Scheduled maturities and weighted average interest rates of certificates of deposit at September 30, 2023March 31, 2024 are as follows (dollars in thousands):
| | September 30, 2023 |
| Amount | | Weighted Average Rate |
| March 31, 2024 | | | March 31, 2024 |
| Amount | | | Amount | | Weighted Average Rate |
Maturing in one year or less | Maturing in one year or less | $ | 1,373,905 | | | 3.45 | % | Maturing in one year or less | $ | 1,390,579 | | | 3.91 | | 3.91 | % |
Maturing after one year through two years | Maturing after one year through two years | 52,138 | | | 1.48 | |
Maturing after two years through three years | Maturing after two years through three years | 23,152 | | | 0.70 | |
Maturing after three years through four years | Maturing after three years through four years | 3,966 | | | 0.34 | |
Maturing after four years through five years | Maturing after four years through five years | 4,310 | | | 0.65 | |
Maturing after five years | Maturing after five years | 842 | | | 0.78 | |
Total certificates of deposit | Total certificates of deposit | $ | 1,458,313 | | | 3.32 | % | Total certificates of deposit | $ | 1,485,880 | | | 3.80 | | 3.80 | % |
Note 7: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents estimated fair values of the Company’s financial instruments as of September 30, 2023March 31, 2024 and December 31, 2022,2023, whether or not recognized or recorded in the Consolidated Statements of Financial Condition (dollars in thousands):
| | | | September 30, 2023 | | December 31, 2022 | | | | March 31, 2024 | | December 31, 2023 |
| | Level | | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value | | Level | | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
Assets: | Assets: | | | | | | | | | | Assets: | | | | | |
Cash and cash equivalents | Cash and cash equivalents | 1 | | $ | 251,706 | | | $ | 251,706 | | | $ | 243,062 | | | $ | 243,062 | |
Securities—trading | 3 | | 25,268 | | | 25,268 | | | 28,694 | | | 28,694 | |
| Securities—available-for-sale | |
Securities—available-for-sale | |
Securities—available-for-sale | |
Securities—available-for-sale | Securities—available-for-sale | 2 | | 2,287,993 | | | 2,287,993 | | | 2,789,031 | | | 2,789,031 | |
Securities—held-to-maturity | Securities—held-to-maturity | 2 | | 1,074,574 | | | 846,061 | | | 1,109,319 | | | 933,513 | |
Securities—held-to-maturity | Securities—held-to-maturity | 3 | | 7,582 | | | 7,592 | | | 8,648 | | | 8,667 | |
Securities purchased under agreements to resell | 2 | | — | | | — | | | 300,000 | | | 300,000 | |
| Loans held for sale | |
Loans held for sale | |
Loans held for sale | Loans held for sale | 2 | | 54,158 | | | 54,213 | | | 56,857 | | | 56,948 | |
Loans receivable, net | Loans receivable, net | 3 | | 10,464,457 | | | 9,914,151 | | | 10,005,259 | | | 9,810,965 | |
Equity securities | Equity securities | 1 | | 552 | | | 552 | | | 553 | | | 553 | |
FHLB stock | FHLB stock | 3 | | 15,600 | | | 15,600 | | | 12,000 | | | 12,000 | |
Bank-owned life insurance | Bank-owned life insurance | 1 | | 303,347 | | | 303,347 | | | 297,565 | | | 297,565 | |
Mortgage servicing rights | Mortgage servicing rights | 3 | | 14,151 | | | 36,469 | | | 15,331 | | | 35,148 | |
SBA servicing rights | SBA servicing rights | 3 | | 717 | | | 717 | | | 835 | | | 835 | |
Investments in limited partnerships | Investments in limited partnerships | 3 | | 12,841 | | | 12,841 | | | 12,427 | | | 12,427 | |
Derivatives: | Derivatives: | |
Interest rate swaps | |
Interest rate swaps | |
Interest rate swaps | Interest rate swaps | 2 | | 23,809 | | | 23,809 | | | 19,339 | | | 19,339 | |
Interest rate lock and forward sales commitments | Interest rate lock and forward sales commitments | 2,3 | | 338 | | | 338 | | | 142 | | | 142 | |
Liabilities: | Liabilities: | | | | | | | | | Liabilities: | | | | | |
Demand, interest checking and money market accounts | Demand, interest checking and money market accounts | 2 | | 8,964,786 | | | 8,964,786 | | | 10,186,439 | | | 10,186,439 | |
Regular savings | Regular savings | 2 | | 2,751,453 | | | 2,751,453 | | | 2,710,090 | | | 2,710,090 | |
Certificates of deposit | Certificates of deposit | 2 | | 1,458,313 | | | 1,440,378 | | | 723,530 | | | 702,581 | |
FHLB advances | FHLB advances | 2 | | 140,000 | | | 140,000 | | | 50,000 | | | 50,000 | |
Other borrowings | Other borrowings | 2 | | 188,440 | | | 188,440 | | | 232,799 | | | 232,799 | |
Subordinated notes, net | Subordinated notes, net | 2 | | 92,748 | | | 90,322 | | | 98,947 | | | 96,718 | |
Junior subordinated debentures | Junior subordinated debentures | 3 | | 66,284 | | | 66,284 | | | 74,857 | | | 74,857 | |
Derivatives: | Derivatives: | |
Interest rate swaps | Interest rate swaps | 2 | | 45,938 | | | 45,938 | | | 37,150 | | | 37,150 | |
Interest rate swaps | |
Interest rate swaps | |
| Interest rate lock and forward sales commitments | Interest rate lock and forward sales commitments | 2,3 | | 25 | | | 25 | | | 118 | | | 118 | |
Interest rate lock and forward sales commitments | |
Interest rate lock and forward sales commitments | |
Risk participation agreement | Risk participation agreement | 2 | | 19 | | | 19 | | | 67 | | | 67 | |
The Company measures and discloses certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (that is, not a forced liquidation or distressed sale). When measuring fair value, management will maximize the use of observable inputs and minimize the use of unobservable inputs whenever possible. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s estimates for market assumptions.
The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize at a future date. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.
Items Measured at Fair Value on a Recurring Basis:
The following tables present financial assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy of the fair value measurements for those assets and liabilities as of September 30, 2023March 31, 2024 and December 31, 20222023 (in thousands):
| | | September 30, 2023 | | March 31, 2024 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | Assets: | | | | | | | | Assets: | | | |
Securities—trading | | | | | | | |
| Corporate bonds (Trust Preferred Securities) | $ | — | | | $ | — | | | $ | 25,268 | | | $ | 25,268 | |
| Securities—available-for-sale | |
| Securities—available-for-sale | |
| | | Securities—available-for-sale | Securities—available-for-sale | | | | | | | | | | |
U.S. Government and agency obligations | U.S. Government and agency obligations | — | | | 34,327 | | | — | | | 34,327 | |
Municipal bonds | Municipal bonds | — | | | 123,598 | | | — | | | 123,598 | |
Corporate bonds | Corporate bonds | — | | | 91,018 | | | — | | | 91,018 | |
Mortgage-backed or related securities | Mortgage-backed or related securities | — | | | 1,819,452 | | | — | | | 1,819,452 | |
Asset-backed securities | Asset-backed securities | — | | | 219,598 | | | — | | | 219,598 | |
| | — | | | 2,287,993 | | | — | | | 2,287,993 | |
| Loans held for sale(1) | Loans held for sale(1) | — | | | 11,634 | | | — | | | 11,634 | |
Loans held for sale(1) | |
Loans held for sale(1) | |
Equity securities | Equity securities | 552 | | | — | | | — | | | 552 | |
SBA servicing rights | SBA servicing rights | — | | | — | | | 717 | | | 717 | |
Investment in limited partnerships | Investment in limited partnerships | — | | | — | | | 12,841 | | | 12,841 | |
| Derivatives | Derivatives | | | | | | | |
Derivatives | |
Derivatives | | | | |
Interest rate swaps | Interest rate swaps | — | | | 23,809 | | | — | | | 23,809 | |
Interest rate lock and forward sales commitments | Interest rate lock and forward sales commitments | — | | | 236 | | | 102 | | | 338 | |
| $ | 552 | | | $ | 2,323,672 | | | $ | 38,928 | | | $ | 2,363,152 | |
| $ | |
| Liabilities: | Liabilities: | | | | | | | |
Liabilities: | |
Liabilities: | | | | |
| Junior subordinated debentures | |
Junior subordinated debentures | |
Junior subordinated debentures | Junior subordinated debentures | $ | — | | | $ | — | | | $ | 66,284 | | | $ | 66,284 | |
Derivatives | Derivatives | | | | | | | | Derivatives | | | |
Interest rate swaps | Interest rate swaps | — | | | 45,938 | | | — | | | 45,938 | |
| Interest rate lock and forward sales commitments | Interest rate lock and forward sales commitments | — | | | — | | | 25 | | | 25 | |
Interest rate lock and forward sales commitments | |
Interest rate lock and forward sales commitments | |
Risk participation agreement | Risk participation agreement | — | | | 19 | | | — | | | 19 | |
| | $ | — | | | $ | 45,957 | | | $ | 66,309 | | | $ | 112,266 | |
| | | December 31, 2022 | | December 31, 2023 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | Assets: | | | | | | | | Assets: | | | |
Securities—trading | | | | | | | |
| Corporate bonds (Trust Preferred Securities) | $ | — | | | $ | — | | | $ | 28,694 | | | $ | 28,694 | |
| Securities—available-for-sale | |
| Securities—available-for-sale | |
| | | Securities—available-for-sale | Securities—available-for-sale | | | | | | | | | | |
U.S. Government and agency obligations | U.S. Government and agency obligations | — | | | 55,108 | | | — | | | 55,108 | |
Municipal bonds | Municipal bonds | — | | | 261,209 | | | — | | | 261,209 | |
Corporate bonds | Corporate bonds | — | | | 121,853 | | | — | | | 121,853 | |
Mortgage-backed or related securities | Mortgage-backed or related securities | — | | | 2,139,336 | | | — | | | 2,139,336 | |
Asset-backed securities | Asset-backed securities | — | | | 211,525 | | | — | | | 211,525 | |
| | | — | | | 2,789,031 | | | — | | | 2,789,031 | |
| | |
| Loans held for sale(1) | |
Loans held for sale(1) | |
Loans held for sale(1) | Loans held for sale(1) | — | | | 2,305 | | | — | | | 2,305 | |
Equity securities | Equity securities | 553 | | | — | | | — | | | 553 | |
SBA servicing rights | SBA servicing rights | — | | | — | | | 835 | | | 835 | |
Investment in limited partnerships | Investment in limited partnerships | — | | | — | | | 12,427 | | | 12,427 | |
| Derivatives | Derivatives | | | | | | | |
Derivatives | |
Derivatives | | | | |
Interest rate swaps | Interest rate swaps | — | | | 19,339 | | | — | | | 19,339 | |
Interest rate lock and forward sales commitments | Interest rate lock and forward sales commitments | — | | | 61 | | | 81 | | | 142 | |
| | $ | 553 | | | $ | 2,810,736 | | | $ | 42,037 | | | $ | 2,853,326 | |
| Liabilities: | Liabilities: | | | | | | | |
Liabilities: | |
Liabilities: | | | | |
| Junior subordinated debentures | |
Junior subordinated debentures | |
Junior subordinated debentures | Junior subordinated debentures | $ | — | | | $ | — | | | $ | 74,857 | | | $ | 74,857 | |
Derivatives | Derivatives | | | | | | | | Derivatives | | | |
Interest rate swaps | Interest rate swaps | — | | | 37,150 | | | — | | | 37,150 | |
| Interest rate lock and forward sales commitments | Interest rate lock and forward sales commitments | — | | | 76 | | | 42 | | | 118 | |
Interest rate lock and forward sales commitments | |
Interest rate lock and forward sales commitments | |
Risk participation agreement | Risk participation agreement | — | | | 67 | | | — | | | 67 | |
| | $ | — | | | $ | 37,293 | | | $ | 74,899 | | | $ | 112,192 | |
(1) The unpaid principal balance of residential mortgage loans held for sale carried at fair value on a recurring basis was $11.5$7.0 million and $2.2$8.8 million at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.
The following methods were used to estimate the fair value of each class of financial instruments above:
Securities: The estimated fair values of investment securities and mortgage-backed securities are priced using current active market quotes, if available, which are considered Level 1 measurements. For most of the portfolio, matrix pricing based on the securities’ relationship to other benchmark quoted prices is used to establish the fair value. These measurements are considered Level 2. Due to the continued limited activity in the trust preferred markets that have limited the observability of market spreads for some of the Company’s trust preferred securities (TPS), management has classified these securities, included in Corporate Bonds, as a Level 3 fair value measure. Management periodically reviews the pricing information received from third-party pricing services and tests those prices against other sources to validate the reported fair values.
Loans Held for Sale: Fair values for residential mortgage loans held for sale are determined by comparing actual loan rates to current secondary market prices for similar loans.
Equity Securities: Equity securities are invested in a publicly traded stock. The fair value of these securities is based on daily quoted market prices.
SBA Servicing Rights: Fair values are estimated based on an independent dealer analysis by discounting estimated net future cash flows from servicing. The evaluation utilizes assumptions market participants would use in determining fair value including prepayment speeds, delinquency and foreclosure rates, the discount rate, servicing costs, and the timing of cash flows. The SBA servicing portfolio is stratified by loan type and fair value estimates are adjusted up or down based on the serviced loan interest rates versus current rates on new loan originations since the most recent independent analysis.
Junior Subordinated Debentures: The fair value of junior subordinated debentures is estimated using an income approach technique. The significant inputs included in the estimation of fair value are the credit risk adjusted spread and three month SOFR (Secured Overnight Financing Rate). The credit risk adjusted spread represents the nonperformance risk of the liability. The Company utilizes an external valuation firm to validate the reasonableness of the credit risk adjusted spread used to determine the fair value. The junior subordinated debentures are carried at fair value which represents the estimated amount that would be paid to transfer these liabilities in an orderly transaction amongst market participants. Due to inactivity in the trust preferred markets that have limited the observability of market spreads, management has classified this as a Level 3 fair value measurement.
Derivatives: Derivatives include interest rate swap agreements, interest rate lock commitments to originate loans held for sale, forward sales contracts to sell loans and securities related to mortgage banking activities and risk participation agreements. Fair values for these instruments, which generally change as a result of changes in the level of market interest rates, are estimated based on dealer quotes and secondary market sources. As the interest rate lock commitments use a pull-through rate that is considered an unobservable input, these derivatives are classified as a level 3 fair value measurement.
Off-Balance Sheet Items: Off-balance sheet financial instruments include unfunded commitments to extend credit, including standby letters of credit, and commitments to purchase investment securities. The fair value of these instruments is not considered to be material.
Limitations: The fair value estimates presented herein are based on pertinent information available to management as of September 30, 2023March 31, 2024 and December 31, 2022.2023. The factors used in the fair value estimates are subject to change subsequent to the dates the fair value estimates are completed, therefore, current estimates of fair value may differ significantly from the amounts presented herein.
Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3):
The following table provides a description of the valuation technique, unobservable inputs, and quantitative and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring and non-recurring basis at September 30, 2023March 31, 2024 and December 31, 2022:2023:
| | Weighted Average Rate |
| | | | | | Weighted Average Rate or Range | | | | | | | | Weighted Average Rate or Range |
Financial Instruments | Financial Instruments | | Valuation Technique | | Unobservable Inputs | | September 30, 2023 | | December 31, 2022 | Financial Instruments | | Valuation Technique | | Unobservable Inputs | | March 31, 2024 | | December 31, 2023 |
Corporate bonds (TPS) | Corporate bonds (TPS) | | Discounted cash flows | | Discount rate | | 10.91 | % | | 8.27 | % | Corporate bonds (TPS) | | Discounted cash flows | | Discount rate | | 10.81 | % | | 10.84 | % |
| Junior subordinated debentures | Junior subordinated debentures | | Discounted cash flows | | Discount rate | | 10.91 | % | | 8.27 | % |
Junior subordinated debentures | |
Junior subordinated debentures | | | Discounted cash flows | | Discount rate | | 10.81 | % | | 10.84 | % |
| Loans individually evaluated | Loans individually evaluated | | Collateral valuations | | Discount to appraised value | | n/a | | n/a |
REO | | Appraisals | | Discount to appraised value | | 58.18 | % | | 68.35 | % |
Loans individually evaluated | |
Loans individually evaluated | | | Collateral valuations | | Discount to appraised value | | 0% to 80% | | 8.75% to 25% |
| Interest rate lock commitments | |
| Interest rate lock commitments | |
| Interest rate lock commitments | Interest rate lock commitments | | Pricing model | | Pull-through rate | | 92.79 | % | | 78.65 | % | | Pricing model | | Pull-through rate | | 91.41 | % | | 88.24 | % |
| SBA servicing rights | SBA servicing rights | | Discounted cash flows | | Constant prepayment rate | | 15.91 | % | | 14.10 | % |
SBA servicing rights | |
SBA servicing rights | | | Discounted cash flows | | Constant prepayment rate | | 17.92 | % | | 16.92 | % |
Trust preferred securities: Management believes that the credit risk-adjusted spread used to develop the discount rate utilized in the fair value measurement of TPS is indicative of the risk premium a willing market participant would require under current market conditions for instruments with similar contractual rates and terms and conditions and issuers with similar credit risk profiles and with similar expected probability of default. Management attributes the change in fair value of these instruments, compared to their par value, primarily to perceived general market adjustments to the risk premiums for these types of assets subsequent to their issuance.
Junior subordinated debentures: Similar to the TPS discussed above, management believes that the credit risk-adjusted spread utilized in the fair value measurement of the junior subordinated debentures is indicative of the risk premium a willing market participant would require under current market conditions for an issuer with Banner’s credit risk profile. Management attributes the change in fair value of the junior subordinated debentures, compared to their par value, primarily to perceived general market adjustments to the risk premiums for these types of liabilities subsequent to their issuance. Future contractions in the risk adjusted spread relative to the spread currently utilized to measure the Company’s junior subordinated debentures at fair value as of September 30, 2023,March 31, 2024, or the passage of time, will result in negative fair value adjustments. At September 30, 2023,March 31, 2024, the discount rate utilized was based on a credit spread of 551526 basis points and three-month SOFR of 540530 basis points.
Interest rate lock commitments: The fair value of the interest rate lock commitments is based on secondary market sources adjusted for an estimated pull-through rate. The pull-through rate is based on historical loan closing rates for similar interest rate lock commitments. An increase or decrease in the pull-through rate would have a corresponding, positive or negative fair value adjustment.
SBA servicing asset: The constant prepayment rate (CPR) is set based on industry data. An increase in the CPR would result in a negative fair value adjustment, where a decrease in CPR would result in a positive fair value adjustment.
The following tables provide a reconciliation of the assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 (in thousands):
| | Three Months Ended |
| September 30, 2023 |
| Three Months Ended | | | Three Months Ended |
| March 31, 2024 | | | March 31, 2024 |
| | Level 3 Fair Value Inputs | | Level 3 Fair Value Inputs |
| | TPS | | Borrowings—Junior Subordinated Debentures | | Interest Rate Lock and Forward Sales Commitments | | Investments in Limited Partnerships | | SBA Servicing Asset | | TPS Securities | | Borrowings—Junior Subordinated Debentures | | Interest Rate Lock and Forward Sales Commitments | | Investments in Limited Partnerships | | SBA Servicing Asset |
Beginning balance | Beginning balance | $ | 25,659 | | | $ | 67,237 | | | $ | 268 | | | $ | 12,776 | | | $ | 845 | |
Net change recognized in earnings | Net change recognized in earnings | (391) | | | — | | | (191) | | | (268) | | | (128) | |
Net change recognized in accumulated other comprehensive income (AOCI) | Net change recognized in accumulated other comprehensive income (AOCI) | — | | | (953) | | | — | | | — | | | — | |
Purchases, issuances and settlements | Purchases, issuances and settlements | — | | | — | | | — | | | 333 | | | — | |
| Ending balance at September 30, 2023 | $ | 25,268 | | | $ | 66,284 | | | $ | 77 | | | $ | 12,841 | | | $ | 717 | |
Ending balance at March 31, 2024 | |
| Ending balance at March 31, 2024 | |
| Ending balance at March 31, 2024 | |
| | | Nine Months Ended |
| | September 30, 2023 |
| | Level 3 Fair Value Inputs |
| | TPS Securities | | Borrowings—Junior Subordinated Debentures | | Interest Rate Lock and Forward Sales Commitments | | Investments in Limited Partnerships | | SBA Servicing Asset |
| | Three Months Ended | |
| | Three Months Ended | |
| | Three Months Ended | |
| March 31, 2023 | | | March 31, 2023 |
| Level 3 Fair Value Inputs | | | Level 3 Fair Value Inputs |
| TPS Securities | | | TPS Securities | | Borrowings—Junior Subordinated Debentures | | Interest Rate Lock and Forward Sales Commitments | | Investments in Limited Partnerships | | SBA Servicing Asset |
Beginning balance | Beginning balance | $ | 28,694 | | | $ | 74,857 | | | $ | 39 | | | $ | 12,427 | | | $ | 835 | |
Net change recognized in earnings | Net change recognized in earnings | (3,426) | | | — | | | 38 | | | (930) | | | (118) | |
Net change recognized in AOCI | Net change recognized in AOCI | — | | | (8,573) | | | — | | | — | | | — | |
Purchases, issuances and settlements | Purchases, issuances and settlements | — | | | — | | | — | | | 1,344 | | | — | |
| Ending balance at September 30, 2023 | $ | 25,268 | | | $ | 66,284 | | | $ | 77 | | | $ | 12,841 | | | $ | 717 | |
Ending balance at March 31, 2023 | |
| | | Three Months Ended |
Ending balance at March 31, 2023 | |
| | September 30, 2022 |
| | Level 3 Fair Value Inputs |
| TPS | | Borrowings—Junior Subordinated Debentures | | Interest Rate Lock and Forward Sales Commitments | | Investments in Limited Partnerships | | SBA Servicing Asset |
Beginning balance | $ | 27,886 | | | $ | 72,229 | | | $ | 357 | | | $ | 11,881 | | | $ | 1,015 | |
Net change recognized in earnings | 497 | | | — | | | (389) | | | (38) | | | (72) | |
Net change recognized in AOCI | — | | | 1,612 | | | — | | | — | | | — | |
Purchases, issuances and settlements | — | | | — | | | — | | | 296 | | | — | |
| Ending balance at September 30, 2022 | $ | 28,383 | | | $ | 73,841 | | | $ | (32) | | | $ | 12,139 | | | $ | 943 | |
| | Nine Months Ended |
| September 30, 2022 |
| Level 3 Fair Value Inputs |
| TPS Securities | | Borrowings—Junior Subordinated Debentures | | Interest Rate Lock and Forward Sales Commitments | | Investments in Limited Partnerships | | SBA Servicing Asset |
Beginning balance | $ | 26,981 | | | $ | 119,815 | | | $ | 1,467 | | | $ | 10,257 | | | $ | 1,161 | |
Net change recognized in earnings | 1,402 | | | 765 | | | (1,499) | | | (410) | | | (218) | |
Net change recognized in AOCI | — | | | 3,779 | | | — | | | — | | | — | |
Purchases, issuances and settlements | — | | | — | | | — | | | 2,292 | | | — | |
Redemptions | — | | | (50,518) | | | — | | | — | | | — | |
| Ending balance at September 30, 2022 | $ | 28,383 | | | $ | 73,841 | | | $ | (32) | | | $ | 12,139 | | | $ | 943 | |
Ending balance at March 31, 2023 | |
Interest income and dividends from TPS are recorded as a component of interest income. Interest expense related to the junior subordinated debentures is measured based on contractual interest rates and reported in interest expense. The change in fair value of the junior subordinated debentures, which represents changes in instrument specific credit risk, is recorded in other comprehensive income. The change in fair value of TPS securities, investments in limited partnerships and the SBA servicing asset are recorded as a component of non-interest income. The change in fair value of the interest rate lock and forward sales commitments are included in mortgage banking operations in non-interest income.
Items Measured at Fair Value on a Non-recurring Basis:
The following tables present financial assets and liabilities measured at fair value on a non-recurring basis and the level within the fair value hierarchy of the fair value measurements for those assets as of September 30, 2023March 31, 2024 and December 31, 20222023 (in thousands):
| | | | March 31, 2024 |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
Loans individually evaluated | |
Real Estate Owned (REO) | |
| | | September 30, 2023 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| REO | $ | — | | | $ | — | | | $ | 546 | | | $ | 546 | |
| Loans held for sale | — | | | 40,063 | | | — | | | 40,063 | |
| | |
| | | | December 31, 2022 | December 31, 2023 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Loans individually evaluated | Loans individually evaluated | $ | — | | | $ | — | | | $ | 1,883 | | | $ | 1,883 | |
REO | REO | — | | | — | | | 340 | | | 340 | |
Loans held for sale | — | | | 49,474 | | | — | | | 49,474 | |
| |
The following table presents the gains and losses resulting from non-recurring fair value adjustments for the three and nine months ended September 30, 2023 and September 30, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | | |
REO | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Loans held for sale | | (456) | | | (2,200) | | | (919) | | | (3,261) | |
Total loss from non-recurring measurements | | $ | (456) | | | $ | (2,200) | | | $ | (919) | | | $ | (3,261) | |
Loans individually evaluated: Expected credit losses for loans evaluated individually are measured based on the present value of expected future cash flows discounted at the loan’s original effective interest rate or when the Bank determines that foreclosure is probable, the expected credit loss is measured based on the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. As a practical expedient, the Bank measures the expected credit loss for a loan using the fair value of the collateral, if repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Bank’s assessment as of the reporting date. In both cases, if the fair value of the collateral is less than the amortized cost basis of the loan, the Bank will recognize an allowance as the difference between the fair value of the collateral, less costs to sell (if applicable) and the amortized cost basis of the loan. If the fair value of the collateral exceeds the amortized cost basis of the loan, any expected recovery added to the amortized cost basis will be limited to the amount previously charged-off. Subsequent changes in the expected credit losses for loans evaluated individually are included within the provision for credit losses in the same manner in which the expected credit loss initially was recognized or as a reduction in the provision that would otherwise be reported.
REO: The Company records REO (acquired through a lending relationship) at fair value on a non-recurring basis. Fair value adjustments on REO are based on updated real estate appraisals which are based on current market conditions. All REO properties are recorded at the lower of the estimated fair value of the real estate, less expected selling costs, or the carrying amount of the defaulted loans. From time to time, non-recurring fair value adjustments to REO are recorded to reflect partial write-downs based on an observable market price or current appraised value of property. Banner considers any valuation inputs related to REO to be Level 3 inputs. The individual carrying values of these assets are reviewed for impairment at least annually and any additional impairment charges are expensed.
Loans held for sale: The multifamily held for sale loans are carried at the lower of cost or market value. Lower of cost or market adjustments for multifamily loans held for sale are calculated based on discounted cash flows using a discount rate that is a combination of market spreads for similar loan types added to selected index rates. If the fair value of the multifamily held for sale loans is lower than the amortized cost basis of the loans, a net unrealized loss is recognized through the valuation allowance as a charge against income.
Note 8: INCOME TAXES AND DEFERRED TAXES
The Company files a consolidated income tax return including all of its wholly-owned subsidiaries on a calendar year basis. Income taxes are accounted for using the asset and liability method. Under this method, a deferred tax asset or liability is determined based on the enacted tax rates which will be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in the Company’s income tax returns. The effect on deferred taxes of a change in tax rates is recognized in income in the period of change. A valuation allowance is recognized as a reduction to deferred tax assets when management determines it is more likely than not that deferred tax assets will not be available to offset future income tax liabilities.
Accounting standards for income taxes prescribe a recognition threshold and measurement process for financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a tax return, and also provide guidance on the de-recognition of previously recorded benefits and their classification, as well as the proper recording of interest and penalties, accounting in interim periods, disclosures and transition. The Company periodically reviews its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This review takes into consideration the status of current taxing authorities’ examinations of the Company’s tax returns, recent positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment.
As of September 30, 2023,March 31, 2024, the Company has recognized $1.62.0 million of unrecognized tax benefits for uncertain tax positions. The Company does not anticipate that there are additional uncertain tax positions or that any uncertain tax position which has not been recognized would materially affect the effective tax rate if recognized. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense. The Company files consolidated income tax returns in the U.S. federal jurisdiction and in the Oregon, California, Utah, Idaho and Montana state jurisdictions.
Tax credit investments: The Company invests in low income housing tax credit funds that are designed to generate a return primarily through the realization of federal tax credits. The Company accounts for these investments by amortizing the cost of tax credit investments over the life of the investment using a proportional amortization method and tax credit investment amortization expense is a component of the provision for income taxes.
The following table presents the balances of the Company’s tax credit investments and related unfunded commitments at September 30, 2023March 31, 2024 and December 31, 20222023 (in thousands):
| | September 30, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
Tax credit investments | Tax credit investments | $ | 104,590 | | | $ | 71,430 | |
Unfunded commitments—tax credit investments | Unfunded commitments—tax credit investments | 65,035 | | | 44,563 | |
The following table presents other information related to the Company’s tax credit investments for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 (in thousands):
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| 2024 | |
| 2024 | |
| 2024 | |
Tax credits and other tax benefits recognized | |
Tax credits and other tax benefits recognized | |
Tax credits and other tax benefits recognized | Tax credits and other tax benefits recognized | $ | 2,134 | | | $ | 1,458 | | | $ | 6,403 | | | $ | 4,374 | |
Tax credit amortization expense included in provision for income taxes | Tax credit amortization expense included in provision for income taxes | 1,887 | | | 1,173 | | | 5,331 | | | 3,744 | |
Tax credit amortization expense included in provision for income taxes | |
Tax credit amortization expense included in provision for income taxes | |
Note 9: CALCULATION OF WEIGHTED AVERAGE SHARES OUTSTANDING FOR EARNINGS PER SHARE (EPS)
The following table reconciles basic to diluted weighted average shares outstanding used to calculate earnings per share data for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 (in thousands, except shares and per share data):
| | |
| |
| |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Net income | Net income | $ | 45,854 | | | $ | 49,070 | | | $ | 141,000 | | | $ | 140,998 | |
Net income | |
Net income | |
| Basic weighted average shares outstanding | |
| Basic weighted average shares outstanding | |
| Basic weighted average shares outstanding | Basic weighted average shares outstanding | 34,379,865 | | | 34,224,640 | | | 34,331,458 | | | 34,277,182 | |
Dilutive effect of unvested restricted stock | Dilutive effect of unvested restricted stock | 49,861 | | | 191,377 | | | 107,756 | | | 222,064 | |
Dilutive effect of unvested restricted stock | |
Dilutive effect of unvested restricted stock | |
Diluted weighted shares outstanding | |
Diluted weighted shares outstanding | |
Diluted weighted shares outstanding | Diluted weighted shares outstanding | 34,429,726 | | | 34,416,017 | | | 34,439,214 | | | 34,499,246 | |
Earnings per common share | Earnings per common share | | | | | | | |
Earnings per common share | |
Earnings per common share | |
Basic | |
Basic | |
Basic | Basic | $ | 1.33 | | | $ | 1.43 | | | $ | 4.11 | | | $ | 4.11 | |
Diluted | Diluted | $ | 1.33 | | | $ | 1.43 | | | $ | 4.09 | | | $ | 4.09 | |
Diluted | |
Diluted | |
Restricted stock units and stock options excluded from the diluted average outstanding share calculation (1) | |
Restricted stock units and stock options excluded from the diluted average outstanding share calculation (1) | |
Restricted stock units and stock options excluded from the diluted average outstanding share calculation (1) | |
(1)Anti-dilution occurs when the unrecognized compensation cost per share of a restricted stock unit or the exercise price of a stock option exceeds the market price of the Company’s stock.
Note 10: STOCK-BASED COMPENSATION PLANS
The Company operates the 2014 Omnibus Incentive Plan (the 2014 Plan), the 2018 Omnibus Incentive Plan (the 2018 Plan) and the 2023 Omnibus Incentive Plan (the 2023 Plan), all of which were approved by its shareholders. The 2023 Plan was approved by shareholders on May 24, 2023. The purpose of these plans is to promote the success and enhance the value of the Company by providing a means for attracting and retaining highly skilled employees, officers and directors of the Company and linking their personal interests with those of the Company’s shareholders. Under these plans, the Company currently has outstanding awards of restricted stock shares and restricted stock units.
The Company reserved 900,000 shares of its common stock for issuance under the 2014 Plan in connection with the exercise of awards. As of September 30, 2023,March 31, 2024, 277,304 restricted stock shares and 441,806443,387 restricted stock units have been granted under the 2014 Plan of which 4,809 restricted stock shares and 23,14320,150 restricted stock units were unvested.
The Company reserved 900,000 shares of common stock for issuance under the 2018 Plan in connection with the exercise of awards. As of September 30, 2023, 735,744March 31, 2024, 737,286 restricted stock units have been granted under the 2018 Plan of which 336,986272,683 restricted stock units were unvested.
The Company reserved 625,000 shares of common stock for issuance under the 2023 Plan in connection with the exercise of awards. As of September 30, 2023,March 31, 2024, no shares had been granted under the 2023 Plan.
The expense associated with all restricted stock grants (including restricted stock shares and restricted stock units) was $2.4$2.2 million and $6.8 million for the three and nine month periods ended September 30, 2023, and was $2.3 million and $6.6$2.1 million for the three months ended March 31, 2024 and nine month periods ended September 30, 2022,March 31, 2023, respectively. Unrecognized compensation expense for these awards as of September 30, 2023,March 31, 2024, was $14.2$9.5 million and will be recognized over a weighted average period of 1210 months.
Note 11: COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance-Sheet Risk — The Company has financial instruments with off-balance-sheet risk generated in the normal course of business to meet the financing needs of our clients. These financial instruments include commitments to extend credit, commitments related to standby letters of credit, commitments to originate loans, commitments to sell loans, and commitments to buy or sell securities. These instruments involve, to varying degrees, elements of credit and interest rate risk similar to the risk involved in on-balance-sheet items.
Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument from commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as for on-balance-sheet instruments.
Outstanding commitments for which no asset or liability for the notional amount has been recorded consisted of the following at the dates indicated (in thousands):
| | | Contract or Notional Amount | | Contract or Notional Amount |
| September 30, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
Commitments to extend credit | Commitments to extend credit | $ | 3,974,069 | | | $ | 4,031,954 | |
Standby letters of credit and financial guarantees | Standby letters of credit and financial guarantees | 31,218 | | | 26,119 | |
Commitments to originate loans | Commitments to originate loans | 32,185 | | | 53,266 | |
| Risk participation agreements | Risk participation agreements | 46,748 | | | 48,566 | |
| Derivatives also included in Note 13: | |
Risk participation agreements | |
| Risk participation agreements | |
| Derivatives also included in Note 12: | |
Derivatives also included in Note 12: | |
Derivatives also included in Note 12: | |
Commitments to originate loans held for sale | |
Commitments to originate loans held for sale | |
Commitments to originate loans held for sale | Commitments to originate loans held for sale | 26,278 | | | 10,525 | |
Commitments to sell loans secured by one- to four-family residential properties | Commitments to sell loans secured by one- to four-family residential properties | 9,373 | | | 12,568 | |
Commitments to sell securities related to mortgage banking activities | Commitments to sell securities related to mortgage banking activities | 26,000 | | | 7,000 | |
In addition to the commitments disclosed in the table above, the Company is committed to funding its’the unfunded portion of its tax credit investments. As of March 31, 2024 and December 31, 2023, the funded balances and remaining outstanding commitments of these unfunded tax investments were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Funded Balance | | Unfunded Balance | | Funded Balance | | Unfunded Balance |
Tax credit investments | $ | 68,778 | | | $ | 58,375 | | | $ | 68,559 | | | $ | 62,594 | |
The Company has also entered into agreements to invest in several limited partnerships. As of September 30, 2023March 31, 2024 and December 31, 2022,2023, the funded balances and remaining outstanding commitments of these limited partnership investments were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
| Funded Balance | | Unfunded Balance | | Funded Balance | | Unfunded Balance |
Limited partnerships investments | $ | 11,615 | | | $ | 10,885 | | | $ | 10,272 | | | $ | 12,228 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Funded Balance | | Unfunded Balance | | Funded Balance | | Unfunded Balance |
Limited partnerships investments | $ | 12,468 | | | $ | 15,032 | | | $ | 12,038 | | | $ | 10,462 | |
Commitments to extend credit are agreements to lend to a client, as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of the commitments may expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements. Each client’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the client. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income producing commercial properties. The Company’s allowance for credit losses - unfunded loan commitments at September 30, 2023March 31, 2024 and December 31, 20222023 was $15.0$13.6 million and $14.7$14.5 million, respectively.
Standby letters of credit are conditional commitments issued to guarantee a client’s performance or payment to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to clients. Under a risk participation agreement, the Bank guarantees the financial performance of a borrower on the participated portion of an interest rate swap on a loan.
Interest rates on residential one- to four-family mortgage loan applications are typically rate locked (committed) to clients during the application stage for periods ranging from 30 to 60 days, the most typical period being 45 days. Traditionally, these loan applications with rate lock commitments had the pricing for the sale of these loans locked with various qualified investors under a best-efforts delivery program at or near the time the interest rate is locked with the client. The Bank then attempts to deliver these loans before their rate locks expired. This arrangement generally required delivery of the loans prior to the expiration of the rate lock. Delays in funding the loans would require a lock extension. The cost of a lock extension at times was borne by the client and at times by the Bank. These lock extension costs have not had a material impact to the Company’s operations. For mandatory delivery commitments the Company enters into forward commitments at specific prices and settlement dates to deliver either: (1) residential mortgage loans for purchase by secondary market investors (i.e., Freddie Mac or Fannie Mae), or (2) mortgage-backed securities to broker/dealers. The purpose of these forward commitments is to offset the movement in interest rates between the execution of its residential mortgage rate lock commitments with borrowers and the sale of those loans to the secondary market investor. There were no counterparty default losses on forward contracts during the three and nine months ended September 30, 2023March 31, 2024 or September 30, 2022.March 31, 2023. Market risk with respect to forward contracts arises principally from changes in the value of contractual positions due to changes in interest rates. The Company limits its exposure to market risk by monitoring differences between commitments to clients and forward contracts with market investors and securities broker/dealers. In the event the Company has forward delivery contract commitments in excess of available mortgage loans, the transaction is completed by either paying or receiving a fee to or from the investor or broker/dealer equal to the increase or decrease in the market value of the forward contract.
In the normal course of business, the Company and/or its subsidiaries have various legal proceedings and other contingent matters outstanding. These proceedings and the associated legal claims are often contested and the outcome of individual matters is not always predictable. These claims and counter-claims typically arise during the course of collection efforts on problem loans or with respect to action to enforce liens on properties in which the Bank holds a security interest. Based upon the information known to management at this time, the Company has accrued $14.8 million related to outstanding legal proceedings. There are no other legal proceedings that management believes would have a material adverse effect on the results of operations or consolidated financial position at September 30, 2023.March 31, 2024.
In connection with certain asset sales, the Bank typically makes representations and warranties about the underlying assets conforming to specified guidelines. If the underlying assets do not conform to the specifications, the Bank may have an obligation to repurchase the assets or indemnify the purchaser against any loss. The Bank believes that the potential for material loss under these arrangements is remote. Accordingly, the fair value of such obligations is not material.
Note 12: DERIVATIVES AND HEDGING
Banner Bank is party to various derivative instruments that are used for asset and liability management and client financing needs. Derivative instruments are contracts between two or more parties that have a notional amount and an underlying variable, require no net investment and allow for the net settlement of positions. The notional amount serves as the basis for the payment provision of the contract and takes the form of units, such as shares or dollars. The underlying variable represents a specified interest rate, index, or other component. The interaction between the notional amount and the underlying variable determines the number of units to be exchanged between the parties and influences the market value of the derivative contract.
The Company’s predominant derivative and hedging activities involve interest rate swaps related to certain term loans and forward sales contracts associated with mortgage banking activities. Generally, these instruments help the Company manage exposure to market risk and meet client financing needs. Market risk represents the possibility that economic value or net interest income will be adversely affected by fluctuations in external factors such as market-driven interest rates and prices or other economic factors.
As of September 30, 2023March 31, 2024 and December 31, 2022,2023, the notional values or contractual amounts and fair values of the Company’s derivatives were as follows (in thousands):
| | Asset Derivatives | | Liability Derivatives |
| September 30, 2023 | | December 31, 2022 | | September 30, 2023 | | December 31, 2022 |
| Notional/ Contract Amount | | Fair Value | | Notional/ Contract Amount | | Fair Value | | Notional/ Contract Amount | | Fair Value | | Notional/ Contract Amount | | Fair Value |
| Asset Derivatives | | | Asset Derivatives | | Liability Derivatives |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 | | March 31, 2024 | | December 31, 2023 |
| Notional/ Contract Amount | | | Notional/ Contract Amount | | Fair Value | | Notional/ Contract Amount | | Fair Value | | Notional/ Contract Amount | | Fair Value | | Notional/ Contract Amount | | Fair Value |
| Hedged interest rate swaps | Hedged interest rate swaps | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 400,000 | | | $ | 21,166 | | | $ | 400,000 | | | $ | 26,485 | |
Hedged interest rate swaps | |
Hedged interest rate swaps | |
| Interest rate swaps not designated in hedge relationships | |
Interest rate swaps not designated in hedge relationships | |
Interest rate swaps not designated in hedge relationships | Interest rate swaps not designated in hedge relationships | 431,935 | | | 43,821 | | | 440,731 | | | 37,119 | | | 431,935 | | | 43,866 | | | 440,731 | | | 37,150 | |
Master netting agreements | Master netting agreements | | | (20,012) | | | | | (17,780) | | | | | (20,012) | | | | | (17,780) | |
Cash offset/(settlement) | Cash offset/(settlement) | | — | | | — | | | 918 | | | (8,705) | |
Net interest rate swaps | Net interest rate swaps | | 23,809 | | | 19,339 | | | 45,938 | | | 37,150 | |
| Risk participation agreements | Risk participation agreements | 1,108 | | | — | | | 1,283 | | | — | | | 45,639 | | | 19 | | | 47,283 | | | 67 | |
Risk participation agreements | |
Risk participation agreements | |
Mortgage loan commitments | Mortgage loan commitments | 26,278 | | | 102 | | | 15,920 | | | 81 | | | — | | | — | | | 12,367 | | | 42 | |
Forward sales contracts | Forward sales contracts | 28,544 | | | 236 | | | 16,568 | | | 61 | | | 4,368 | | | 25 | | | 3,000 | | | 76 | |
| Total | Total | $ | 487,865 | | | $ | 24,147 | | | $ | 474,502 | | | $ | 19,481 | | | $ | 481,942 | | | $ | 45,982 | | | $ | 503,381 | | | $ | 37,335 | |
Total | |
Total | |
The Company’s asset derivatives are included in other assets, while the liability derivatives are included in accrued expenses and other liabilities on the Consolidated Statements of Financial Condition.
Interest Rate Swaps used in Cash Flow Hedges: The Company’s floating rate loans result in exposure to losses in value or net interest income as interest rates change. The risk management objectives in using interest rate derivatives are to reduce volatility in net interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. During the fourth quarter of 2021, the Company entered into interest rate swaps designated as cash flow hedges to hedge the variable cash flows associated with existing floating rate loans. These hedge contracts involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making floating-rate payments over the life of the agreements without exchange of the underlying notional amount.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the unrealized gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest income in the same period during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest income as interest payments are made on the Company’s variable-rate assets. During the next 12 months, the Company estimates that an additional $17.8$11.0 million will be reclassified as a decrease to interest income.
The following table presents the effect of cash flow hedge accounting on AOCI for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 (in thousands):
| | For the Three Months Ended September 30, 2023 |
| Amount of Gain or (Loss) Recognized in AOCI on Derivative | | Amount of Gain or (Loss) Recognized in AOCI Included Component | | Amount of Gain or (Loss) Recognized in AOCI Excluded Component | | Location of Gain or (Loss) Recognized from AOCI into Income | | Amount of Gain or (Loss) Reclassified from AOCI into Income | | Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component | | Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component |
| For the Three Months Ended March 31, 2024 | | | For the Three Months Ended March 31, 2024 |
| Amount of Gain or (Loss) Recognized in AOCI on Derivative | | | Amount of Gain or (Loss) Recognized in AOCI on Derivative | | Amount of Gain or (Loss) Recognized in AOCI Included Component | | Amount of Gain or (Loss) Recognized in AOCI Excluded Component | | Location of Gain or (Loss) Recognized from AOCI into Income | | Amount of Gain or (Loss) Reclassified from AOCI into Income | | Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component | | Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component |
Interest rate swaps | Interest rate swaps | $ | (1,455) | | | $ | (1,455) | | | $ | — | | | Interest Income | | $ | (4,546) | | | $ | (4,546) | | | $ | — | |
| | | For the Nine Months Ended September 30, 2023 |
| | Amount of Gain or (Loss) Recognized in AOCI on Derivative | | Amount of Gain or (Loss) Recognized in AOCI Included Component | | Amount of Gain or (Loss) Recognized in AOCI Excluded Component | | Location of Gain or (Loss) Recognized from AOCI into Income | | Amount of Gain or (Loss) Reclassified from AOCI into Income | | Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component | | Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component |
Interest rate swaps | $ | (5,845) | | | $ | (5,845) | | | $ | — | | | Interest Income | | $ | (12,317) | | | $ | (12,317) | | | $ | — | |
|
| | For the Three Months Ended September 30, 2022 |
| Amount of Gain or (Loss) Recognized in AOCI on Derivative | | Amount of Gain or (Loss) Recognized in AOCI Included Component | | Amount of Gain or (Loss) Recognized in AOCI Excluded Component | | Location of Gain or (Loss) Recognized from AOCI into Income | | Amount of Gain or (Loss) Reclassified from AOCI into Income | | Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component | | Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component |
| For the Three Months Ended March 31, 2023 | | | For the Three Months Ended March 31, 2023 |
| Amount of Gain or (Loss) Recognized in AOCI on Derivative | | | Amount of Gain or (Loss) Recognized in AOCI on Derivative | | Amount of Gain or (Loss) Recognized in AOCI Included Component | | Amount of Gain or (Loss) Recognized in AOCI Excluded Component | | Location of Gain or (Loss) Recognized from AOCI into Income | | Amount of Gain or (Loss) Reclassified from AOCI into Income | | Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component | | Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component |
Interest rate swaps | Interest rate swaps | $ | (9,153) | | | $ | (9,153) | | | $ | — | | | Interest Income | | $ | (1,283) | | | $ | (1,283) | | | $ | — | |
| | | For the Nine Months Ended September 30, 2022 |
| | Amount of Gain or (Loss) Recognized in AOCI on Derivative | | Amount of Gain or (Loss) Recognized in AOCI Included Component | | Amount of Gain or (Loss) Recognized in AOCI Excluded Component | | Location of Gain or (Loss) Recognized from AOCI into Income | | Amount of Gain or (Loss) Reclassified from AOCI into Income | | Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component | | Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component |
Interest rate swaps | $ | (26,795) | | | $ | (26,795) | | | $ | — | | | Interest Income | | $ | (371) | | | $ | (371) | | | $ | — | |
|
At September 30, 2023March 31, 2024 and December 31, 2022,2023, we recorded total net unrealized losses on cash flow hedges in AOCI of $15.2$8.4 million and $20.1$10.6 million, respectively.
Interest Rate Swaps: The Bank uses an interest rate swap program for commercial loan clients that provides the client with a variable-rate loan and enters into an interest rate swap in which the client receives a variable-rate payment in exchange for a fixed-rate payment. The Bank offsets its risk exposure by entering into an offsetting interest rate swap with a dealer counterparty for the same notional amount and length of term as the client interest rate swap providing the dealer counterparty with a fixed-rate payment in exchange for a variable-rate payment. These swaps do not qualify as designated hedges; therefore, each swap is accounted for as a freestanding derivative.
Risk Participation Agreements: In conjunction with the purchase or sale of participating interests in loans, the Company also participates in related swaps through risk participation agreements. The existing credit derivatives resulting from these participations are not designated as hedges as they are not used to manage interest rate risk in the Company’s assets or liabilities and are not speculative.
Mortgage Loan Commitments: The Company sells originated one- to four-family mortgage loans into the secondary mortgage loan markets. During the period of loan origination and prior to the sale of the loans into the secondary market, the Company has exposure to movements in interest rates associated with written interest rate lock commitments with potential borrowers to originate one- to four-family loans that are intended to be sold and for closed one- to four-family mortgage loans held for sale for which fair value accounting has been elected, that are awaiting sale and delivery into the secondary market. The Company economically hedges the risk of changing interest rates associated with these mortgage loan commitments by entering into forward sales contracts to sell one- to four-family mortgage loans or mortgage-backed securities to broker/dealers at specific prices and dates.
Gains (losses) recognized in income within mortgage banking operations on non-designated hedging instruments for the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, were as follows (in thousands):
| | Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| 2024 | |
| 2024 | |
| 2024 | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
Mortgage loan commitments | |
| | 2023 | | 2022 | | 2023 | | 2022 |
Mortgage loan commitments | |
| Mortgage loan commitments | Mortgage loan commitments | $ | (165) | | | $ | (472) | | | $ | 65 | | | $ | (1,582) | |
Forward sales contracts | Forward sales contracts | 522 | | | 682 | | | 601 | | | 681 | |
Forward sales contracts | |
Forward sales contracts | |
| | $ | |
| | $ | 357 | | | $ | 210 | | | $ | 666 | | | $ | (901) | |
| $ | |
| | $ | |
The Company is exposed to credit-related losses in the event of nonperformance by the counterparty to these agreements. Credit risk of the financial contract is controlled through the credit approval, limits, and monitoring procedures and management does not expect the counterparties to fail their obligations.
In connection with the interest rate swaps between the Bank and the dealer counterparties, the agreements contain a provision where if the Bank fails to maintain its status as a well/adequately capitalized institution, then the counterparty could terminate the derivative positions and the Bank would be required to settle its obligations. Similarly, the Bank could be required to settle its obligations under certain of its agreements if specific regulatory events occur, such as a publicly issued prompt corrective action directive, cease and desist order, or a capital maintenance agreement that required the Bank to maintain a specific capital level. If the Bank had breached any of these provisions at September 30, 2023March 31, 2024 or December 31, 2022,2023, it could have been required to settle its obligations under the agreements at the termination value. As of September 30, 2023March 31, 2024 and December 31, 2022,2023, the Company had no obligations to dealer counterparties related to these agreements. The Company generally posts collateral against derivative liabilities in the form of cash, government agency-issued bonds, mortgage-backed securities, or commercial mortgage-backed securities. Collateral posted against derivative liabilities was $19.3$17.7 million and $22.2$15.0 million as of September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. The collateral posted included restricted cash of $18.3$16.7 million and $15.9$14.0 million as of September 30,March 31, 2024 and 2023, and 2022, respectively.
Derivative assets and liabilities are recorded at fair value on the balance sheet. Master netting agreements allow the Company to settle all derivative contracts held with a single counterparty on a net basis and to offset net derivative positions with related collateral where applicable. In addition, some interest rate swap derivatives between the Company and the dealer counterparties are cleared through central clearing houses. These clearing houses characterize the variation margin payments as settlements of the derivative’s market exposure and not as collateral. The variation margin is treated as an adjustment to our cash collateral, as well as a corresponding adjustment to our derivative liability. The variation margin adjustment was a positive adjustment of $918,000$5.0 million and a negative adjustment of $8.7 million$529,000 as of September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.
The following tables present additional information related to the Company’s derivative contracts, by type of financial instrument, as of September 30, 2023March 31, 2024 and December 31, 20222023 (in thousands):
| | September 30, 2023 |
| | Gross Amounts of Financial Instruments Not Offset in the Consolidated Statements of Financial Condition | |
| Gross Amounts Recognized | | Amounts offset in the Statement of Financial Condition | | Net Amounts in the Statement of Financial Condition | | Netting Adjustment Per Applicable Master Netting Agreements | | Fair Value of Financial Collateral in the Statement of Financial Condition | | Net Amount |
| March 31, 2024 | | | March 31, 2024 |
| | | | | | | Gross Amounts of Financial Instruments Not Offset in the Consolidated Statement of Financial Condition | |
| Gross Amounts Recognized | |
| Gross Amounts Recognized | |
| Gross Amounts Recognized | | | Amounts offset in the Statement of Financial Condition | | Net Amounts in the Statement of Financial Condition | | Netting Adjustment Per Applicable Master Netting Agreements | | Fair Value of Financial Collateral in the Statement of Financial Condition | | Net Amount |
Derivative assets | Derivative assets | | | | | | | | | | | |
Interest rate swaps | Interest rate swaps | $ | 43,821 | | | $ | (20,012) | | | $ | 23,809 | | | $ | — | | | $ | — | | | $ | 23,809 | |
| $ | 43,821 | | | $ | (20,012) | | | $ | 23,809 | | | $ | — | | | $ | — | | | $ | 23,809 | |
Interest rate swaps | |
Interest rate swaps | |
| $ | |
| Derivative liabilities | Derivative liabilities | |
Derivative liabilities | |
Derivative liabilities | |
Interest rate swaps | Interest rate swaps | $ | 65,032 | | | $ | (19,094) | | | $ | 45,938 | | | $ | — | | | $ | (17,408) | | | $ | 28,530 | |
Interest rate swaps | |
Interest rate swaps | |
| $ | |
| | $ | 65,032 | | | $ | (19,094) | | | $ | 45,938 | | | $ | — | | | $ | (17,408) | | | $ | 28,530 | |
| | December 31, 2022 |
| | Gross Amounts of Financial Instruments Not Offset in the Consolidated Statements of Financial Condition | |
| Gross Amounts Recognized | | Amounts offset in the Statement of Financial Condition | | Net Amounts in the Statement of Financial Condition | | Netting Adjustment Per Applicable Master Netting Agreements | | Fair Value of Financial Collateral in the Statement of Financial Condition | | Net Amount |
| December 31, 2023 | |
| December 31, 2023 | |
| December 31, 2023 | |
| | | | | | | Gross Amounts of Financial Instruments Not Offset in the Consolidated Statement of Financial Condition | |
| Gross Amounts Recognized | |
| Gross Amounts Recognized | |
| Gross Amounts Recognized | | | Amounts offset in the Statement of Financial Condition | | Net Amounts in the Statement of Financial Condition | | Netting Adjustment Per Applicable Master Netting Agreements | | Fair Value of Financial Collateral in the Statement of Financial Condition | | Net Amount |
Derivative assets | Derivative assets | | | | | | | | | | | |
Interest rate swaps | Interest rate swaps | $ | 37,119 | | | $ | (17,780) | | | $ | 19,339 | | | $ | — | | | $ | — | | | $ | 19,339 | |
| $ | 37,119 | | | $ | (17,780) | | | $ | 19,339 | | | $ | — | | | $ | — | | | $ | 19,339 | |
Interest rate swaps | |
Interest rate swaps | |
| $ | |
| Derivative liabilities | Derivative liabilities | |
Derivative liabilities | |
Derivative liabilities | |
Interest rate swaps | Interest rate swaps | $ | 63,634 | | | $ | (26,484) | | | $ | 37,150 | | | $ | — | | | $ | (14,972) | | | $ | 22,178 | |
| $ | 63,634 | | | $ | (26,484) | | | $ | 37,150 | | | $ | — | | | $ | (14,972) | | | $ | 22,178 | |
Interest rate swaps | |
Interest rate swaps | |
| $ | |
ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
Banner is a bank holding company incorporated in the State of Washington, which wholly owns one subsidiary bank, Banner Bank. The Bank is a Washington-chartered commercial bank that conducts business from its main office in Walla Walla, Washington and, as of September 30, 2023,March 31, 2024, it had 135 branch offices and 1813 loan production offices located in Washington, Oregon, California, Idaho and Utah. Banner is subject to regulation by the Federal Reserve. The Bank is subject to regulation by the Washington DFI and the FDIC. As of September 30, 2023,March 31, 2024, we had total consolidated assets of $15.51$15.52 billion, total loans of $10.61$10.87 billion, total deposits of $13.17$13.16 billion and total shareholders’ equity of $1.52$1.66 billion.
The Bank is a regional bank that offers a wide variety of commercial banking services and financial products to individuals, businesses and public sector entities in its primary market areas. The Bank’s primary business is that of traditional banking institutions, accepting deposits and originating loans in locations surrounding our offices in Washington, Oregon, California, Idaho and Utah. The Bank is also an active participant in secondary loan markets, engaging in mortgage banking operations largely through the origination and sale of one- to four-family residential loans. In 2023, the Bank discontinued the origination of multifamily loans for sale into the secondary market. Lending activities include commercial business and commercial real estate loans, agriculture business loans, construction and land development loans, one- to four-family and multifamily residential loans, SBA loans and consumer loans.
Banner’sThe Company’s successful execution of its super community bank model and strategic initiatives havehas delivered solid core operating results and profitability over the last several years. Banner’sThe Company’s longer term strategic initiatives continue to focus on originating high quality assets and client acquisition, which we believe will continue to generate strong revenue while maintaining the Company’s moderate risk profile.
ThirdFirst Quarter 20232024 Financial Highlights
•Revenues increased 2% to $154.4were $144.6 million for the first quarter of 2024, compared to $150.9$152.5 million in the preceding quarter.
•Adjusted revenue* (the total of net interest income and total non-interest income adjusted for the net gain or loss on the sale of securities and the net change in valuation of financial instruments) was $150.4 million in the first quarter of 2024, compared to $157.1 million in the preceding quarter.
•Net interest income decreased 1% to $141.8was $133.0 million in the thirdfirst quarter of 2023,2024, compared to $142.5$138.4 million in the preceding quarter.
•Net interest margin, on a tax equivalent basis, was 3.93%3.74%, compared to 4.00%3.83% in the preceding quarter.
•Mortgage banking operations revenue increased 22% to $2.0was $2.3 million for the first quarter of 2024, compared to $1.7$5.4 million in the preceding quarter.
•Return on average assets was 1.17%0.97%, compared to 1.02%1.09% in the preceding quarter.
•Net loans receivable increased 1% to $10.46$10.72 billion at September 30, 2023,March 31, 2024, compared to $10.33$10.66 billion at June 30,December 31, 2023.
•Non-performing assets decreased to $26.8were $29.9 million, or 0.17%0.19% of total assets, at September 30, 2023,March 31, 2024, compared to $28.7$30.1 million, or 0.18%0.19% of total assets at June 30,December 31, 2023.
•The allowance for credit losses - loans was $147.0$151.1 million, or 1.38%1.39% of total loans receivable, as of September 30, 2023,March 31, 2024, compared to $144.7$149.6 million, or 1.38% of total loans receivable, at June 30,December 31, 2023.
•Total deposits increased to $13.17$13.16 billion at September 30, 2023,March 31, 2024, compared to $13.10$13.03 billion at June 30, 2023.
•Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) decreased to $11.72 billion at September 30, 2023, compared to $11.74 billion at June 30,December 31, 2023. Core deposits represented 89% of total deposits at September 30, 2023.March 31, 2024.
•TheBanner Bank’s estimated uninsured deposits were approximately 31% of total deposits at both September 30, 2023March 31, 2024 and June 30,December 31, 2023.
•TheBanner Bank’s estimated uninsured deposits, excluding collateralized public deposits and affiliate deposits, were approximately 28% of total deposits at both September 30, 2023March 31, 2024 and June 30,December 31, 2023.
•Available borrowing capacity was $4.62$5.05 billion at September 30, 2023,March 31, 2024, compared to $4.02$4.65 billion at June 30,December 31, 2023.
•On balance sheet liquidity was $2.86$2.77 billion at September 30, 2023,March 31, 2024, compared to $3.07$2.93 billion at June 30,December 31, 2023.
•Dividends paid to shareholders were $0.48 per share in the quarter ended September 30, 2023.March 31, 2024.
•Common shareholders’ equity per share decreasedincreased 1% to $44.27$48.39 at September 30, 2023,March 31, 2024, compared to $44.91$48.12 at the preceding quarter end.
•Tangible common shareholders’ equity per share* decreased 2%increased 1% to $33.22$37.40 at September 30, 2023,March 31, 2024, compared to $33.83$37.09 at the preceding quarter end.
*Non-GAAP Financial Measures: Management has presented non-GAAP financial measures in this discussion and analysis because it believes that they provide useful and comparative information to assess trends in our core operations and to facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, we have also presented comparable earnings information using GAAP financial measures. For a reconciliation of these non-GAAP financial measures, see the tables below. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies.
Adjusted revenue, adjusted diluted adjusted earnings per share, adjusted return on average assets, adjusted return on average equity and adjusted efficiency ratio are non-GAAP financial measures. To calculate the adjusted revenue, diluted adjusted earnings per share and adjusted efficiency ratio,these non-GAAP measures, we make adjustments to our GAAP revenues and expenses as reported on our Consolidated Statements of Operations. Management believes that these non-GAAP financial measures provide information to investors that is useful in evaluating the operating performance and trends of financial services companies, including the Company (dollars in thousands except per share data).
| | Quarters Ended | | For the Nine Months Ended September 30, |
| Sep 30, 2023 | | Jun 30, 2023 | | Sep 30, 2022 | | 2023 | | 2022 |
| Quarters Ended | |
| Quarters Ended | |
| Quarters Ended | |
| Mar 31, 2024 | |
| Mar 31, 2024 | |
| Mar 31, 2024 | |
ADJUSTED REVENUE | |
ADJUSTED REVENUE | |
ADJUSTED REVENUE | ADJUSTED REVENUE | | | | | | | | | |
Net interest income (GAAP) | Net interest income (GAAP) | $ | 141,766 | | | $ | 142,518 | | | $ | 146,443 | | | $ | 437,596 | | | $ | 394,108 | |
Net interest income (GAAP) | |
Net interest income (GAAP) | |
Non-interest income (GAAP) | |
Non-interest income (GAAP) | |
Non-interest income (GAAP) | Non-interest income (GAAP) | 12,658 | | | 8,422 | | | 15,585 | | | 30,357 | | | 62,185 | |
Total revenue (GAAP) | Total revenue (GAAP) | 154,424 | | | 150,940 | | | 162,028 | | | 467,953 | | | 456,293 | |
Exclude: Net loss (gain) on sale of securities | 2,657 | | | 4,527 | | | (6) | | | 14,436 | | | (473) | |
Total revenue (GAAP) | |
Total revenue (GAAP) | |
Exclude: Net loss on sale of securities | |
Exclude: Net loss on sale of securities | |
Exclude: Net loss on sale of securities | |
| Net change in valuation of financial instruments carried at fair value | Net change in valuation of financial instruments carried at fair value | 654 | | | 3,151 | | | (532) | | | 4,357 | | | (650) | |
| Gain on sale of branches | — | | | — | | | — | | | — | | | (7,804) | |
Adjusted Revenue (non-GAAP) | $ | 157,735 | | | $ | 158,618 | | | $ | 161,490 | | | $ | 486,746 | | | $ | 447,366 | |
Net change in valuation of financial instruments carried at fair value | |
| Net change in valuation of financial instruments carried at fair value | |
| Adjusted revenue (non-GAAP) | |
| Adjusted revenue (non-GAAP) | |
| Adjusted revenue (non-GAAP) | |
| | Quarters Ended | |
| Quarters Ended | |
| Quarters Ended | |
| Mar 31, 2024 | |
| Mar 31, 2024 | |
| Mar 31, 2024 | |
ADJUSTED EARNINGS | |
ADJUSTED EARNINGS | |
ADJUSTED EARNINGS | |
Net income (GAAP) | |
Net income (GAAP) | |
Net income (GAAP) | |
Exclude: Net loss on sale of securities | |
Exclude: Net loss on sale of securities | |
Exclude: Net loss on sale of securities | |
Net change in valuation of financial instruments carried at fair value | |
Net change in valuation of financial instruments carried at fair value | |
Net change in valuation of financial instruments carried at fair value | |
| | | Quarters Ended | | For the Nine Months Ended September 30, |
| | Sep 30, 2023 | | Jun 30, 2023 | | Sep 30, 2022 | | 2023 | | 2022 |
ADJUSTED EARNINGS | | | | | | | | | |
Net income (GAAP) | $ | 45,854 | | | $ | 39,591 | | | $ | 49,070 | | | $ | 141,000 | | | $ | 140,998 | |
Exclude: Net loss (gain) on sale of securities | 2,657 | | | 4,527 | | | (6) | | | 14,436 | | | (473) | |
Net change in valuation of financial instruments carried at fair value | 654 | | | 3,151 | | | (532) | | | 4,357 | | | (650) | |
Banner Forward expenses(1) | |
| Gain on sale of branches | — | | | — | | | — | | | — | | | (7,804) | |
| Banner Forward expenses(1) | Banner Forward expenses(1) | 996 | | | 195 | | | 411 | | | 1,334 | | | 4,455 | |
Loss on extinguishment of debt | — | | | — | | | — | | | — | | | 793 | |
Related net tax (benefit) expense | (1,033) | | | (1,890) | | | 31 | | | (4,830) | | | 883 | |
| Banner Forward expenses(1) | |
| Related net tax benefit | |
| Related net tax benefit | |
| Related net tax benefit | |
Total adjusted earnings (non-GAAP) | |
Total adjusted earnings (non-GAAP) | |
Total adjusted earnings (non-GAAP) | Total adjusted earnings (non-GAAP) | $ | 49,128 | | | $ | 45,574 | | | $ | 48,974 | | | $ | 156,297 | | | $ | 138,202 | |
Diluted earnings per share (GAAP) | Diluted earnings per share (GAAP) | $ | 1.33 | | | $ | 1.15 | | | $ | 1.43 | | | $ | 4.09 | | | $ | 4.09 | |
Diluted adjusted earnings per share (non-GAAP) | $ | 1.43 | | | $ | 1.32 | | | $ | 1.42 | | | $ | 4.54 | | | $ | 4.01 | |
Diluted earnings per share (GAAP) | |
Diluted earnings per share (GAAP) | |
Adjusted diluted earnings per share (non-GAAP) | |
Adjusted diluted earnings per share (non-GAAP) | |
Adjusted diluted earnings per share (non-GAAP) | |
Return on average assets | |
Return on average assets | |
Return on average assets | |
Adjusted return on average assets (2) | |
Adjusted return on average assets (2) | |
Adjusted return on average assets (2) | |
Return on average equity | |
Return on average equity | |
Return on average equity | |
Adjusted return on average equity (3) | |
Adjusted return on average equity (3) | |
Adjusted return on average equity (3) | |
|
| | Quarters Ended | | For the Nine Months Ended September 30, |
| Sep 30, 2023 | | Jun 30, 2023 | | Sep 30, 2022 | | 2023 | | 2022 |
| Quarters Ended | |
| Quarters Ended | |
| Quarters Ended | |
| Mar 31, 2024 | |
| Mar 31, 2024 | |
| Mar 31, 2024 | |
ADJUSTED EFFICIENCY RATIO | ADJUSTED EFFICIENCY RATIO | | | | | | | | | |
ADJUSTED EFFICIENCY RATIO | |
ADJUSTED EFFICIENCY RATIO | |
Non-interest expense (GAAP) | |
Non-interest expense (GAAP) | |
Non-interest expense (GAAP) | Non-interest expense (GAAP) | $ | 95,891 | | | $ | 95,405 | | | $ | 95,034 | | | $ | 285,917 | | | $ | 278,282 | |
| Exclude: Banner Forward expenses(1) | Exclude: Banner Forward expenses(1) | (996) | | | (195) | | | (411) | | | (1,334) | | | (4,455) | |
| Exclude: Banner Forward expenses (1) | |
| Exclude: Banner Forward expenses (1) | |
CDI amortization | |
CDI amortization | |
CDI amortization | CDI amortization | (857) | | | (991) | | | (1,215) | | | (2,898) | | | (4,064) | |
State and municipal tax expense | State and municipal tax expense | (1,359) | | | (1,229) | | | (1,223) | | | (3,888) | | | (3,389) | |
State and municipal tax expense | |
State and municipal tax expense | |
REO operations | REO operations | 383 | | | (75) | | | (68) | | | 585 | | | 132 | |
Loss on extinguishment of debt | — | | | — | | | — | | | — | | | (793) | |
REO operations | |
REO operations | |
| Adjusted non-interest expense (non-GAAP) | |
| Adjusted non-interest expense (non-GAAP) | |
| Adjusted non-interest expense (non-GAAP) | Adjusted non-interest expense (non-GAAP) | $ | 93,062 | | | $ | 92,915 | | | $ | 92,117 | | | $ | 278,382 | | | $ | 265,713 | |
| Net interest income (GAAP) | Net interest income (GAAP) | $ | 141,766 | | | $ | 142,518 | | | $ | 146,443 | | | $ | 437,596 | | | $ | 394,108 | |
| Net interest income (GAAP) | |
| Net interest income (GAAP) | |
Non-interest income (GAAP) | |
Non-interest income (GAAP) | |
Non-interest income (GAAP) | Non-interest income (GAAP) | 12,658 | | | 8,422 | | | 15,585 | | | 30,357 | | | 62,185 | |
Total revenue (GAAP) | Total revenue (GAAP) | 154,424 | | | 150,940 | | | 162,028 | | | 467,953 | | | 456,293 | |
Exclude: Net loss (gain) on sale of securities | 2,657 | | | 4,527 | | | (6) | | | 14,436 | | | (473) | |
Total revenue (GAAP) | |
Total revenue (GAAP) | |
Exclude: Net loss on sale of securities | |
Exclude: Net loss on sale of securities | |
Exclude: Net loss on sale of securities | |
Net change in valuation of financial instruments carried at fair value | Net change in valuation of financial instruments carried at fair value | 654 | | | 3,151 | | | (532) | | | 4,357 | | | (650) | |
Gain on sale of branches | — | | | — | | | — | | | — | | | (7,804) | |
Net change in valuation of financial instruments carried at fair value | |
Net change in valuation of financial instruments carried at fair value | |
| Adjusted revenue (non-GAAP) | |
| Adjusted revenue (non-GAAP) | |
| Adjusted revenue (non-GAAP) | Adjusted revenue (non-GAAP) | $ | 157,735 | | | $ | 158,618 | | | $ | 161,490 | | | $ | 486,746 | | | $ | 447,366 | |
| Efficiency ratio (GAAP) | Efficiency ratio (GAAP) | 62.10 | % | | 63.21 | % | | 58.65 | % | | 61.10 | % | | 60.99 | % |
Adjusted efficiency ratio (non-GAAP) | 59.00 | % | | 58.58 | % | | 57.04 | % | | 57.19 | % | | 59.39 | % |
| Efficiency ratio (GAAP) | |
| Efficiency ratio (GAAP) | |
Adjusted efficiency ratio (non-GAAP) (4) | |
Adjusted efficiency ratio (non-GAAP) (4) | |
Adjusted efficiency ratio (non-GAAP) (4) | |
|
(1)Included in miscellaneous expenses in the Consolidated Statement of Operations.
(2)Adjusted earnings (non-GAAP) divided by average assets.
(3)Adjusted earnings (non-GAAP) divided by average equity.
(4)Adjusted non-interest expense (non-GAAP) divided by adjusted revenue.
The ratio of tangible common shareholders’ equity to tangible assets is also a non-GAAP financial measure. We calculate tangible common equity by excluding goodwill and other intangible assets from shareholders’ equity. We calculate tangible assets by excluding the balance of goodwill and other intangible assets from total assets. We believe that this is consistent with the treatment by our bank regulatory agencies, which exclude goodwill and other intangible assets from the calculation of risk-based capital ratios. Management believes that this non-GAAP financial measure provides information to investors that is useful in understanding the basis of our capital position (dollars in thousands except share and per share data).
| TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS | TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS | |
| September 30, 2023 | | December 31, 2022 | | September 30, 2022 |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | | | December 31, 2023 | | March 31, 2023 |
Shareholders’ equity (GAAP) | Shareholders’ equity (GAAP) | $ | 1,520,607 | | | $ | 1,456,432 | | | $ | 1,408,659 | |
Exclude goodwill and other intangible assets, net | Exclude goodwill and other intangible assets, net | 379,663 | | | 382,561 | | | 383,776 | |
| | Tangible common shareholders’ equity (non-GAAP) | |
| Tangible common shareholders’ equity (non-GAAP) | |
| Tangible common shareholders’ equity (non-GAAP) | Tangible common shareholders’ equity (non-GAAP) | $ | 1,140,944 | | | $ | 1,073,871 | | | $ | 1,024,883 | |
Total assets (GAAP) | Total assets (GAAP) | $ | 15,507,880 | | | $ | 15,833,431 | | | $ | 16,360,809 | |
Exclude goodwill and other intangible assets, net | Exclude goodwill and other intangible assets, net | 379,663 | | | 382,561 | | | 383,776 | |
Total tangible assets (non-GAAP) | Total tangible assets (non-GAAP) | $ | 15,128,217 | | | $ | 15,450,870 | | | $ | 15,977,033 | |
Common shareholders’ equity to total assets (GAAP) | Common shareholders’ equity to total assets (GAAP) | 9.81 | % | | 9.20 | % | | 8.61 | % | Common shareholders’ equity to total assets (GAAP) | 10.73 | % | | 10.55 | % | | 9.86 | % |
Tangible common shareholders’ equity to tangible assets (non-GAAP) | Tangible common shareholders’ equity to tangible assets (non-GAAP) | 7.54 | % | | 6.95 | % | | 6.41 | % | Tangible common shareholders’ equity to tangible assets (non-GAAP) | 8.50 | % | | 8.33 | % | | 7.59 | % |
| TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE | TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE | |
TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE | |
TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE | |
Tangible common shareholders’ equity (non-GAAP) | |
Tangible common shareholders’ equity (non-GAAP) | |
Tangible common shareholders’ equity (non-GAAP) | Tangible common shareholders’ equity (non-GAAP) | $ | 1,140,944 | | | $ | 1,073,871 | | | $ | 1,024,883 | |
Common shares outstanding at end of period | Common shares outstanding at end of period | 34,345,949 | | | 34,194,018 | | | 34,191,759 | |
Common shareholders’ equity (book value) per share (GAAP) | Common shareholders’ equity (book value) per share (GAAP) | $ | 44.27 | | | $ | 42.59 | | | $ | 41.20 | |
Tangible common shareholders’ equity (tangible book value) per share (non-GAAP) | Tangible common shareholders’ equity (tangible book value) per share (non-GAAP) | $ | 33.22 | | | $ | 31.41 | | | $ | 29.97 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding our financial condition and results of operations. The information contained in this section should be read in conjunction with the Consolidated Financial Statements and accompanying Selected Notes to the Consolidated Financial Statements contained in Item 1 of this Form 10-Q.
Summary of Critical Accounting Estimates
Our critical accounting estimates are described in detail in the Critical Accounting Estimates section of the 20222023 Form 10-K. The condensed consolidated financial statements are prepared in conformity with GAAP and follow general practices within the financial services industry in which the Company operates. This preparation requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements. As this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. Certain estimates inherently have a greater reliance on the use of assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Management believes that the allowance for credit losses and fair value goodwill, income taxes and deferred tax assets and legal contingencies are important to the portrayal of the Company’s financial condition and results of operations and requiresrequire significant judgements and assumptions which are susceptible to significant changes based on the current environment. There have been no significant changes in our application of critical accounting estimates since December 31, 2022.2023.
Comparison of Financial Condition at September 30, 2023March 31, 2024 and December 31, 20222023
General: Total assets decreased $325.6$152.1 million to $15.51$15.52 billion at September 30, 2023,March 31, 2024, from $15.83$15.67 billion at December 31, 2022.2023. The decrease compared to the prior quarter was primarily due to $300.0 million of reverse repurchase agreements maturing as well as the sale of securities during 2023,and normal cash flows from the security portfolio, partially offset by loan growth.
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, 2023March 31, 2024 was 81%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 $464.7$58.6 million at September 30, 2023,March 31, 2024, compared to December 31, 2022,2023, primarily reflecting increased one-to-four family residential loans, multifamily construction loans, and home equity revolving lines of credit, partially offset by decreased one-to-four family construction loans and total commercial real estate and multifamily construction.loans. At September 30, 2023,March 31, 2024, our loans receivable totaled $10.61$10.87 billion compared to $10.15$10.81 billion at December 31, 2022.2023.
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, 2023 | | Dec 31, 2022 | | Sep 30, 2022 | | Year End | | Prior Year Qtr. |
| | | | | | | Percentage Change | | | | | | | | | Percentage Change |
| Mar 31, 2024 | | | Mar 31, 2024 | | Dec 31, 2023 | | Mar 31, 2023 | | Year End | | Prior Year Qtr. |
Commercial real estate: | Commercial real estate: | | | | | | | | | |
Owner-occupied | |
Owner-occupied | |
Owner-occupied | Owner-occupied | $ | 911,540 | | | $ | 845,320 | | | $ | 862,792 | | | 7.8 | % | | 5.7 | % | $ | 905,063 | | | $ | | $ | 915,897 | | | $ | | $ | 865,705 | | | (1.2) | | (1.2) | % | | 4.5 | % |
Investment properties | Investment properties | 1,530,087 | | | 1,589,975 | | | 1,604,881 | | | (3.8) | | | (4.7) | |
Small balance CRE | Small balance CRE | 1,169,828 | | | 1,200,251 | | | 1,188,351 | | | (2.5) | | | (1.6) | |
Total Commercial real estate | Total Commercial real estate | 3,611,455 | | | 3,635,546 | | | 3,656,024 | | | (0.7) | | | (1.2) | |
Multifamily real estate | Multifamily real estate | 766,571 | | | 645,071 | | | 592,834 | | | 18.8 | | | 29.3 | |
Construction, land and land development: | Construction, land and land development: | |
Commercial construction | Commercial construction | 168,061 | | | 184,876 | | | 171,029 | | | (9.1) | | | (1.7) | |
Commercial construction | |
Commercial construction | |
Multifamily construction | Multifamily construction | 453,129 | | | 325,816 | | | 275,488 | | | 39.1 | | | 64.5 | |
One- to four-family construction | One- to four-family construction | 536,349 | | | 647,329 | | | 666,350 | | | (17.1) | | | (19.5) | |
Land and land development | Land and land development | 346,362 | | | 328,475 | | | 329,459 | | | 5.4 | | | 5.1 | |
Total Construction, land and land development | Total Construction, land and land development | 1,503,901 | | | 1,486,496 | | | 1,442,326 | | | 1.2 | | | 4.3 | |
Commercial business: | Commercial business: | |
Commercial business | Commercial business | 1,263,747 | | | 1,283,407 | | | 1,242,550 | | | (1.5) | | | 1.7 | |
Commercial business | |
Commercial business | |
Small business scored | Small business scored | 1,000,714 | | | 947,092 | | | 906,647 | | | 5.7 | | | 10.4 | |
Total Commercial business | Total Commercial business | 2,264,461 | | | 2,230,499 | | | 2,149,197 | | | 1.5 | | | 5.4 | |
| Agricultural business, including secured by farmland | Agricultural business, including secured by farmland | 334,626 | | | 295,077 | | | 299,400 | | | 13.4 | | | 11.8 | |
Agricultural business, including secured by farmland | |
Agricultural business, including secured by farmland | |
| One- to four-family residential | One- to four-family residential | 1,438,694 | | | 1,173,112 | | | 1,025,143 | | | 22.6 | | | 40.3 | |
One- to four-family residential | |
One- to four-family residential | |
Consumer: | Consumer: | |
Consumer—home equity revolving lines of credit | |
Consumer—home equity revolving lines of credit | |
Consumer—home equity revolving lines of credit | Consumer—home equity revolving lines of credit | 579,836 | | | 566,291 | | | 545,807 | | | 2.4 | | | 6.2 | |
Consumer—other | Consumer—other | 111,873 | | | 114,632 | | | 116,365 | | | (2.4) | | | (3.9) | |
Total Consumer | Total Consumer | 691,709 | | | 680,923 | | | 662,172 | | | 1.6 | | | 4.5 | |
Total loans receivable | Total loans receivable | $ | 10,611,417 | | | $ | 10,146,724 | | | $ | 9,827,096 | | | 4.6 | % | | 8.0 | % | Total loans receivable | $ | 10,869,096 | | | $ | | $ | 10,810,455 | | | $ | | $ | 10,160,684 | | | 0.5 | | 0.5 | % | | 7.0 | % |
Our commercial real estate loans totaled $3.61 billion, or 34%33% of our loan portfolio, at September 30, 2023.March 31, 2024. In addition, multifamily real estate loans totaled $766.6$809.1 million and comprised 7% of our loan portfolio at September 30, 2023.March 31, 2024. Commercial real estate loans decreased by $24.1$26.4 million during the ninefirst three months of 2023,2024, while multifamily real estate loans increaseddecreased by $121.5$2.1 million.
Our construction, land and land development loans totaled $1.50$1.57 billion, or 14% of our loan portfolio at September 30, 2023,March 31, 2024, compared to $1.49$1.54 billion at December 31, 2022.2023. The largest shifts in our construction, land and land development portfolio occurred in multifamily and one- to four-family construction loans. Multifamily construction loans increased $127.3$69.0 million, or 39%14%, to $453.1$573.0 million at September 30, 2023,March 31, 2024, compared to December 31, 2022.2023. Multifamily construction loans represented approximately 4%5% of our total loan portfolio at September 30, 2023March 31, 2024 and iswas comprised of affordable housing projects and, to a lesser extent, market rate multifamily projects across our footprint. One- to four-family construction loans decreased $111.0$30.5 million, or 17%6%, to $536.3$495.9 million at September 30, 2023,March 31, 2024, compared to $647.3$526.4 million at December 31, 2022.2023. One- to four-family construction loans represented approximately 5% of our total loan portfolio at September 30, 2023,March 31, 2024, and included speculative construction loans, as well as “all-in-one” construction loans made to owner occupants that convert to permanent loans upon completion of the homes that, depending on market conditions, may be subsequently sold into the secondary market.
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 increased $73.5 million, or 3%, to $2.60were $2.61 billion at September 30, 2023, compared to $2.53 billion atboth March 31, 2024 and December 31, 2022.2023. Commercial and agricultural business loans represented approximately 24% of our loan portfolio at September 30, 2023.March 31, 2024. Our commercial business lending also includes participation in certain syndicated loans, including shared national credits, which totaled $252.8$218.7 million, or 2% of our loan portfolio, at September 30, 2023,March 31, 2024, compared to $234.1$239.0 million, or 2% of our loan portfolio, at December 31, 2022.2023.
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, 2023,March 31, 2024, one- to four-family residential loans retained in our portfolio increased $265.6$48.8 million, to $1.44$1.57 billion, compared to $1.17$1.52 billion at December 31, 2022.2023. 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 and new production being held in portfolio.loans. One- to four-family residential loans represented 14% of our loan portfolio at September 30, 2023.March 31, 2024.
Our consumer loan activity is primarily directed at meeting demand from our existing deposit clients. At September 30, 2023,March 31, 2024, consumer loans, including home equity revolving lines of credit, increased $10.8$4.2 million to $691.7$703.6 million, compared to $680.9$699.4 million at December 31, 2022.2023.
The following table shows the commitment amount for loan origination (excluding loans held for sale) activity for the three months ended September 30, 2023, June 30, 2023 and September 30, 2022, as well as the nine months ended September 30, 2023 and September 30, 2022periods indicated (in thousands):
| | | Three Months Ended | | Nine Months Ended |
| | Sep 30, 2023 | | Jun 30, 2023 | | Sep 30, 2022 | | Sep 30, 2023 | | Sep 30, 2022 |
| |
| Mar 31, 2024 | |
| Mar 31, 2024 | |
| Mar 31, 2024 | |
Commercial real estate | |
Commercial real estate | |
Commercial real estate | Commercial real estate | $ | 62,337 | | | $ | 94,640 | | | $ | 92,062 | | | $ | 232,745 | | | $ | 300,848 | |
Multifamily real estate | Multifamily real estate | 12,725 | | | 3,441 | | | 4,603 | | | 51,686 | | | 28,731 | |
Multifamily real estate | |
Multifamily real estate | |
Construction and land | Construction and land | 421,656 | | | 488,980 | | | 444,365 | | | 1,158,478 | | | 1,633,672 | |
Construction and land | |
Construction and land | |
Commercial business | |
Commercial business | |
Commercial business | Commercial business | 157,833 | | | 128,404 | | | 218,044 | | | 418,063 | | | 736,554 | |
| Agricultural business | Agricultural business | 17,466 | | | 28,367 | | | 9,879 | | | 69,014 | | | 65,341 | |
| Agricultural business | |
| Agricultural business | |
One-to four- family residential | |
One-to four- family residential | |
One-to four- family residential | One-to four- family residential | 43,622 | | | 52,618 | | | 92,701 | | | 130,505 | | | 275,485 | |
Consumer | Consumer | 70,043 | | | 112,555 | | | 126,940 | | | 243,486 | | | 442,752 | |
Consumer | |
Consumer | |
Total commitment amount for loan originations (excluding loans held for sale) | Total commitment amount for loan originations (excluding loans held for sale) | $ | 785,682 | | | $ | 909,005 | | | $ | 988,594 | | | $ | 2,303,977 | | | $ | 3,483,383 | |
Total commitment amount for loan originations (excluding loans held for sale) | |
Total commitment amount for loan originations (excluding loans held for sale) | |
Loans held for sale decreased to $54.2$9.4 million at September 30, 2023,March 31, 2024, compared to $56.9$11.2 million at December 31, 2022,2023, as sales exceeded originations of held-for-sale loans during the ninethree months ended September 30, 2023.March 31, 2024. Originations of loans held for sale decreasedincreased to $187.1$48.4 million for the ninethree months ended September 30, 2023,March 31, 2024, compared to $376.7$39.6 million for the same period last year, primarily due to decreased refinance activity as well as an overall decrease in purchase activity for one- to four-family residential mortgage and multifamily loans due to the increase in interest rates during the current year. The volume of one- to four-family residential mortgage loans sold was $190.4$65.9 million during the ninethree months ended September 30, 2023,March 31, 2024, compared to $348.7$40.5 million in the same period a year ago. During the nine months ended September 30, 2023, we sold $7.6 million of multifamily loans, compared to $26.3 million for the same period a year ago. Loans held for sale included $40.1 million and $49.5 million of multifamily loans at September 30, 2023 and December 31, 2022, respectively, with the remaining balance in one- to four-family residential mortgage loans. In 2023, the Bank discontinued the origination of multifamily loans for sale into the secondary market.
The following table presents loans by geographic concentration at September 30, 2023, December 31, 2022 and September 30, 2022the dates indicated (dollars in thousands):
| | Sep 30, 2023 | | Dec 31, 2022 | | Sep 30, 2022 | | Percentage Change |
| Amount | | Percentage | | Amount | | Amount | | Year End | | Prior Year Qtr. |
| Mar 31, 2024 | | | Mar 31, 2024 | | Dec 31, 2023 | | Mar 31, 2023 | | Percentage Change |
| Amount | | | Amount | | Percentage | | Amount | | Year End | | Prior Year Qtr. |
Washington | Washington | $ | 5,046,028 | | | 47.6 | % | | $ | 4,777,546 | | | $ | 4,648,124 | | | 5.6 | % | | 8.6 | % | Washington | $ | 5,091,912 | | | 46 | | 46 | % | | $ | 5,095,602 | | | $ | | $ | 4,808,821 | | | (0.1) | | (0.1) | % | | 5.9 | % |
California | California | 2,570,175 | | | 24.2 | | | 2,484,980 | | | 2,323,740 | | | 3.4 | | | 10.6 | |
Oregon | Oregon | 1,929,531 | | | 18.2 | | | 1,826,743 | | | 1,765,254 | | | 5.6 | | | 9.3 | |
Idaho | Idaho | 600,648 | | | 5.7 | | | 565,586 | | | 588,498 | | | 6.2 | | | 2.1 | |
Utah | Utah | 57,711 | | | 0.5 | | | 75,967 | | | 95,250 | | | (24.0) | | | (39.4) | |
Other | Other | 407,324 | | | 3.8 | | | 415,902 | | | 406,230 | | | (2.1) | | | 0.3 | |
Total loans receivable | Total loans receivable | $ | 10,611,417 | | | 100.0 | % | | $ | 10,146,724 | | | $ | 9,827,096 | | | 4.6 | % | | 8.0 | % | Total loans receivable | $ | 10,869,096 | | | 100 | | 100 | % | | $ | 10,810,455 | | | $ | | $ | 10,160,684 | | | 0.5 | | 0.5 | % | | 7.0 | % |
Investment Securities: Total securities decreased $539.9$149.6 million to $3.40$3.28 billion at September 30, 2023,March 31, 2024, from $3.94$3.43 billion at December 31, 2022,2023, primarily due to $300.0 million of reverse repurchase agreements maturing as well as the sale of securities.securities sales, paydowns and maturities. Securities sales, paydowns and maturities exceeded purchases during the nine-monththree-month period ended September 30, 2023.March 31, 2024. Purchases during the ninethree months ended September 30, 2023,March 31, 2024, consisted primarily of state and local government obligations and agency commercial mortgage-backed securities. The average effective duration of the Company’s securities portfolio was 6.86.6 years at September 30, 2023,March 31, 2024, compared to 6.5 years at December 31, 2022. Net fair value adjustments to the portfolio of securities held for trading, which were included in net income, were a loss of $3.4 million for the nine months ended September 30, 2023. In addition, fairFair value adjustments for securities designated as available-for-sale decreased $71.7$21.8 million for the ninethree months ended September 30, 2023,March 31, 2024, which was included, net of the associated tax benefit of $17.2$5.2 million, as a component of other comprehensive income, and largely occurred as a result of increases in market interest rates during the ninethree months ended September 30, 2023. We also recorded a 750,000 provision for credit losses on the available for sale securities portfolio for the nine months ended September 30, 2023, related to an investment in subordinated debt. The Company held no securities purchased under resell agreements at September 30, 2023, compared to $300.0 million at DecemberMarch 31, 2022. The decrease in securities purchased under resell agreements was due to $300.0 million of reverse repurchase agreements maturing during the nine months ended September 30, 2023.2024.
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 during 2023 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, 2023 | | Dec 31, 2022 | | Sep 30, 2022 | | Year End | | Prior Year Qtr. |
| | | | | | | Percentage Change | | | | | | | | | Percentage Change |
| Mar 31, 2024 | | | Mar 31, 2024 | | Dec 31, 2023 | | Mar 31, 2023 | | Year End | | Prior Year Qtr. |
Non-interest-bearing | Non-interest-bearing | $ | 5,197,854 | | | $ | 6,176,998 | | | $ | 6,507,523 | | | (15.9) | % | | (20.1) | % | Non-interest-bearing | $ | 4,699,553 | | | $ | | $ | 4,792,369 | | | $ | | $ | 5,764,009 | | | (1.9) | | (1.9) | % | | (18.5) | % |
Interest-bearing checking | Interest-bearing checking | 2,006,866 | | | 1,811,153 | | | 1,856,244 | | | 10.8 | | | 8.1 | |
Regular savings accounts | Regular savings accounts | 2,751,453 | | | 2,710,090 | | | 2,824,711 | | | 1.5 | | | (2.6) | |
Money market accounts | Money market accounts | 1,760,066 | | | 2,198,288 | | | 2,323,844 | | | (19.9) | | | (24.3) | |
Interest-bearing transaction & savings accounts | Interest-bearing transaction & savings accounts | 6,518,385 | | | 6,719,531 | | | 7,004,799 | | | (3.0) | | | (6.9) | |
Total core deposits | Total core deposits | 11,716,239 | | | 12,896,529 | | | 13,512,322 | | | (9.2) | | | (13.3) | |
Interest-bearing certificates | Interest-bearing certificates | 1,458,313 | | | 723,530 | | | 721,944 | | | 101.6 | | | 102.0 | |
Total deposits | Total deposits | $ | 13,174,552 | | | $ | 13,620,059 | | | $ | 14,234,266 | | | (3.3) | % | | (7.4) | % | Total deposits | $ | 13,158,771 | | | $ | | $ | 13,029,497 | | | $ | | $ | 13,154,202 | | | 1.0 | | 1.0 | % | | — | % |
Total deposits decreased $445.5increased $129.3 million at March 31, 2024, compared to December 31, 2022,2023, with core deposits decreasing $1.18 billion,increasing $120.9 million and certificates of deposit increasing $8.4 million. The increase in core deposits was primarily due to increases in savings accounts. Certificates of deposit increased 1% at March 31, 2024, compared to December 31, 2023, reflecting higher rates attracting clients to these deposit types, partially offset by a $734.8 million increase in certificates of deposit. The decline in deposits during the nine months of 2023 was primarily due to interest rate sensitive clients moving a portion of their non-operating deposit balances to higher yielding investments. Certificates of deposit increased 102% at September 30, 2023, compared to December 31, 2022, reflecting increasing rates attracting customers to these deposit types and a $162.9 million increase$531,000 decrease in brokered deposits. We had $162.9$107.5 million of brokered deposits at September 30, 2023,March 31, 2024, compared to none$108.1 million at December 31, 2022.2023. Core deposits represented 89% and 95% of total deposits at September 30, 2023both March 31, 2024 and December 31, 2022,2023, respectively. Competition for deposits in our market areas remains strong.
The Bank’s estimated uninsured deposits were $4.08 billion or 31% of total deposits at September 30, 2023, compared to $4.84 billion or 35% of total deposits at December 31, 2022. The estimated uninsured deposit calculation includes $300.2 million and $304.2 million of collateralized public deposits at September 30, 2023 and December 31, 2022, respectively. Estimated uninsured deposits also include cash held by the Company of $97.8 million and $77.2 million at September 30, 2023 and December 31, 2022, respectively. The Bank’s estimated uninsured deposits, excluding collateralized public deposits and cash held at the holding company, were 28% of total deposits at September 30, 2023, compared to 33% of total deposits at December 31, 2022.
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, 2023 | | Dec 31, 2022 | | Sep 30, 2022 |
| | Mar 31, 2024 | |
| | Mar 31, 2024 | |
| | Mar 31, 2024 | | | Dec 31, 2023 | | Mar 31, 2023 |
Number of deposit accounts | Number of deposit accounts | | 466,159 | | 471,140 | | 477,082 | Number of deposit accounts | | 461,399 | | 463,750 | | 462,880 |
Average account balance per account | Average account balance per account | | $ | 28 | | | $ | 29 | | | $ | 30 | |
The following table presents deposits by geographic concentration at September 30, 2023, December 31, 2022 and September 30, 2022the dates indicated (dollars in thousands):
| | Sep 30, 2023 | | Dec 31, 2022 | | Sep 30, 2022 | | Percentage Change |
| Amount | | Percentage | | Amount | | Amount | | Year End | | Prior Year Qtr. |
| Mar 31, 2024 | | | Mar 31, 2024 | | Dec 31, 2023 | | Mar 31, 2023 | | Percentage Change |
| Amount | | | Amount | | Percentage | | Amount | | Amount | | Year End | | Prior Year Qtr. |
Washington | Washington | $ | 7,241,341 | | | 55.0 | % | | $ | 7,563,056 | | | $ | 7,845,755 | | | (4.3) | % | | (7.7) | % | Washington | $ | 7,258,785 | | | 55 | | 55 | % | | $ | 7,247,392 | | | $ | | $ | 7,237,499 | | | 0.2 | | 0.2 | % | | 0.3 | % |
Oregon | Oregon | 2,918,446 | | | 22.1 | | | 2,998,572 | | | 3,148,520 | | | (2.7) | | | (7.3) | |
California | California | 2,342,345 | | | 17.8 | | | 2,331,524 | | | 2,493,977 | | | 0.5 | | | (6.1) | |
Idaho | Idaho | 672,420 | | | 5.1 | | | 726,907 | | | 746,014 | | | (7.5) | | | (9.9) | |
| Total deposits | Total deposits | $ | 13,174,552 | | | 100.0 | % | | $ | 13,620,059 | | | $ | 14,234,266 | | | (3.3) | % | | (7.4) | % |
Total deposits | |
Total deposits | | $ | 13,158,771 | | | 100 | % | | $ | 13,029,497 | | | $ | 13,154,202 | | | 1.0 | % | | — | % |
Borrowings: We had $140.0$52.0 million of FHLB advances at September 30, 2023,March 31, 2024, compared to $50.0$323.0 million at December 31, 2022.2023, reflecting paydowns of the FHLB advances due to cash flows from the security portfolio and an increase in core deposits. At September 30, 2023, Banner’sMarch 31, 2024, the Company’s off-balance sheet liquidity included additional borrowing capacity of $2.98$3.27 billion at the FHLB and $1.52$1.66 billion at the Federal Reserve as well as federal funds line of credit agreements with other financial institutions of $125.0 million. Other borrowings, consisting of retail repurchase agreements primarily related to client cash management accounts, decreased $44.4 million, or 19%,increased $464,000 to $188.4$183.3 million at September 30, 2023,March 31, 2024, compared to $232.8$182.9 million at December 31, 2022.2023. Junior subordinated debentures totaled $66.3$66.6 million at September 30, 2023,March 31, 2024, compared to $74.9$66.4 million at December 31, 2022.2023. Subordinated notes, net of issuance costs were $92.7$89.5 million at September 30, 2023,March 31, 2024, compared to $98.9$92.9 million at December 31, 2022.2023. The decrease in subordinated notes was primarily due to Banner Bank’s purchase of $6.5$3.5 million of Banner’s subordinated debt during the secondfirst quarter of 2023.2024.
Shareholders’ Equity: Total shareholders’ equity increased $64.2$11.8 million to $1.52$1.66 billion at September 30, 2023,March 31, 2024, as compared to $1.46$1.65 billion at December 31, 2022.2023. The increase in shareholders’ equity was primarily due to a $91.0$20.8 million increase in retained earnings as a result of $141.0$37.6 million in net income, partially offset by the accrual of cash dividends during the ninethree months ended September 30, 2023.March 31, 2024. In addition, AOCI decreasedaccumulated other comprehensive loss increased by $30.1$10.3 million, primarily due to an increase in the unrealized losses on the security portfolio. There were no shares of common stock repurchased during the ninethree months ended September 30, 2023.March 31, 2024. Tangible common shareholders’ equity, which excludes goodwill and other intangible assets and is a non-GAAP financial measure, increased $67.1$12.5 million to $1.14$1.29 billion, or 7.54%8.50% of tangible assets at September 30, 2023,March 31, 2024, compared to $1.07$1.27 billion, or 6.95%8.33% of tangible assets at December 31, 2022.2023. A reconciliation of this non-GAAP financial measure to its comparable GAAP financial measure is presented above following ThirdFirst Quarter 20232024 Highlights.
Comparison of Results of Operations for the Three Months Ended September 30,March 31, 2024, December 31, 2023 and June 30,March 31, 2023 and the Nine Months Ended September 30, 2023 and 2022
For the quarter ended September 30, 2023,March 31, 2024, net income was $45.9$37.6 million, or $1.33$1.09 per diluted share, compared to $39.6$42.6 million, or $1.15$1.24 per diluted share, for the preceding quarter. For bothquarter and $55.6 million, or $1.61 per diluted share, for the ninethree months ended September 30, 2023 and 2022, our net income was $141.0 million, or $4.09 per diluted share.March 31, 2023. The increasedecrease in net income for the current quarter compared to the preceding quarter was primarily due to decreased net interest income and non-interest income and increased non-interest expense, partially offset by a reduction in thereduced provision for credit losses and an increase in non-interest income, partially offset by decreased net interest income.losses. The decrease in net interest income was a result of an increase in funding costs due to an increase inreflecting the mix of higher cost retail certificates of deposit and the effect of markethigh interest rate increases on deposit costs,environment, partially offset by increased yields on loans due to the risingnew loans being originated at higher interest rates during the quarter. Ourrates. The decrease in net income for the nine months ended September 30, 2023, included increasedsame period a year ago was primarily due to decreased net interest income, partially offset by a decrease inincreased non-interest incomeexpenses and increasesan increase in the provision for credit losses, andpartially offset by increased non-interest expense.income.
Net interest margin for the current quarter was impacted by an increase in funding costs due to an increase in the mix of higher cost retail certificates of deposithigh interest rate environment and theits effect of market rate increases on deposit costs, partially offset by increased yields on loans due to the risingnew loans being originated at higher interest rates during the quarter.rates. Total revenue for the quarter ended September 30, 2023 increasedMarch 31, 2024, decreased compared to the preceding quarter due to increased interestfunding costs, a decrease in mortgage banking operations income a reduction in the net loss recognized on the sale of securities and a reductionan increase in the net loss for fair value adjustments on financial instruments carried at fair value, partially offset by increased funding costs. Rising market interest ratesincome and deposit fees and other service charges. Total revenue decreased during the current and previous year resulted in yields on loans and investment securities increasing at a faster pace than our funding costs for the ninethree months ended September 30, 2023, compared to the same period a year ago. The increase in the yields on loans and investment securities, partially offset by increased funding costs during the period improved our net interest margin for the nine months ended September 30, 2023, compared to the same period a year earlier. Total revenue increased during the nine months ended September 30, 2023,March 31, 2024, compared to the same period a year earlier due to increased interest income,funding costs, partially offset by increased funding costsinterest income and a decrease in the net loss on the sale of securities recorded during the current period.
We recorded a $2.0 million$520,000 provision for credit losses for the quarter ended September 30, 2023,March 31, 2024, compared to a $6.8$2.5 million provision for credit losses in the preceding quarter.quarter and a $524,000 recapture of provision for credit losses for the three months ended March 31, 2023. The provision for credit losses for the current quarter is primarily reflectsrelated to the loan growth in the construction and one- to four-family loan portfolios, partially offset by a reduction in unfunded loan commitments in the construction portfolio. The provision for credit losses for the preceding quarter primarily reflected increased loan balances, and unfunded loan commitments, partially offset by an increase in the trading price on bankof our investments in other banks’ subordinated debt investments. Banner recorded an $8.3 million provision for credit losses for the nine months ended September 30, 2023, compared to a $3.7 million provision for credit losses for the same period a year ago. The provision for credit losses for the nine months ended September 30, 2023, reflects growth in loan balances, a deterioration in forecasted economic conditions and rating downgrades on bank subordinated debt investments.debt.
Total non-interest income increaseddecreased in the quarter ended September 30, 2023,March 31, 2024, compared to the preceding quarter and decreased during the nine months ended September 30, 2023,increased compared to the same period a year ago. The increasedecrease in non-interest income during the current quarter compared to the preceding quarter was primarily due to a reductiondecrease in mortgage banking operations revenue, primarily due to a $3.5 million fair value gain recorded on multifamily loans during the preceding quarter as a result of their transfer from held for sale to held for investment, with no similar transaction recorded in the net loss recognized on the sale of securities as well ascurrent quarter, and a reductiondecrease in the net loss for fair value adjustments on financial instruments carried at fair value during the current quarter.quarter, partially offset by an increase in deposit fees and other service charges. The decreaseincrease in non-interest income during the ninethree months ended September 30, 2023,March 31, 2024, compared to the same period last year was primarily due to a reduction in the net loss recognized on the sale of securities and a net loss for fair value adjustments on financial instruments, as well as a $7.8 million gain on the sale of branches, including related deposits, during the nine months ended September 30, 2022.securities.
Total non-interest expense increased in the quarter ended September 30, 2023,March 31, 2024, compared to the preceding quarter and increased during the nine months ended September 30, 2023, compared to the same period a year ago. The increase in non-interest expense for the current quarter compared to the preceding quarter primarily reflects increases in salary and employee benefits, partially offset by decreases in professional and legal expense and advertising and marketing expense. The increase in non-interest expense compared to the same period a year ago primarily reflects increases in salary and employee benefits, payment and card processing services expense professional and legal expenses and miscellaneous expense, partially offset by a decrease in salary and employee benefits expense. The nine month year-over-year increase in non-interest expense primarily reflects an increase in salary and employee benefits, a decrease in capitalized loan origination costs, and increases in information and computer data services and deposit insurance partially offset by decreases in occupancy and equipment, payment and card processing services, and amortization of core deposit intangibles.expense.
| OPERATING DATA: | OPERATING DATA: | Quarters Ended | | Nine months ended |
OPERATING DATA: | |
OPERATING DATA: | |
(In thousands) | |
(In thousands) | |
(In thousands) | (In thousands) | September 30, 2023 | | June 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
Interest income | Interest income | $ | 179,064 | | | $ | 171,809 | | | $ | 151,119 | | | $ | 517,834 | | | $ | 407,011 | |
Interest income | |
Interest income | |
Interest expense | |
Interest expense | |
Interest expense | Interest expense | 37,298 | | | 29,291 | | | 4,676 | | | 80,238 | | | 12,903 | |
Net interest income | Net interest income | 141,766 | | | 142,518 | | | 146,443 | | | 437,596 | | | 394,108 | |
Provision for credit losses | 2,027 | | | 6,764 | | | 6,087 | | | 8,267 | | | 3,660 | |
Net interest income after provision for credit losses | 139,739 | | | 135,754 | | | 140,356 | | | 429,329 | | | 390,448 | |
Net interest income | |
Net interest income | |
Provision (recapture) for credit losses | |
Provision (recapture) for credit losses | |
Provision (recapture) for credit losses | |
Net interest income after provision (recapture) for credit losses | |
Net interest income after provision (recapture) for credit losses | |
Net interest income after provision (recapture) for credit losses | |
Deposit fees and other service charges | |
Deposit fees and other service charges | |
Deposit fees and other service charges | Deposit fees and other service charges | 10,916 | | | 10,600 | | | 11,449 | | | 32,078 | | | 33,638 | |
Mortgage banking operations | Mortgage banking operations | 2,049 | | | 1,686 | | | 105 | | | 6,426 | | | 8,523 | |
Net (loss) gain on sale of securities | (2,657) | | | (4,527) | | | 6 | | | (14,436) | | | 473 | |
Mortgage banking operations | |
Mortgage banking operations | |
Net loss on sale of securities | |
Net loss on sale of securities | |
Net loss on sale of securities | |
Net change in valuation of financial instruments carried at fair value | |
Net change in valuation of financial instruments carried at fair value | |
Net change in valuation of financial instruments carried at fair value | Net change in valuation of financial instruments carried at fair value | (654) | | | (3,151) | | | 532 | | | (4,357) | | | 650 | |
All other non-interest income | All other non-interest income | 3,004 | | | 3,814 | | | 3,493 | | | 10,646 | | | 18,901 | |
All other non-interest income | |
All other non-interest income | |
Total non-interest income | |
Total non-interest income | |
Total non-interest income | Total non-interest income | 12,658 | | | 8,422 | | | 15,585 | | | 30,357 | | | 62,185 | |
| Salary and employee benefits | Salary and employee benefits | 61,091 | | | 61,972 | | | 61,639 | | | 184,452 | | | 181,957 | |
| Salary and employee benefits | |
| Salary and employee benefits | |
All other non-interest expenses | |
All other non-interest expenses | |
All other non-interest expenses | All other non-interest expenses | 34,800 | | | 33,433 | | | 33,395 | | | 101,465 | | | 96,325 | |
Total non-interest expense | Total non-interest expense | 95,891 | | | 95,405 | | | 95,034 | | | 285,917 | | | 278,282 | |
Total non-interest expense | |
Total non-interest expense | |
Income before provision for income tax expense | |
Income before provision for income tax expense | |
Income before provision for income tax expense | Income before provision for income tax expense | 56,506 | | | 48,771 | | | 60,907 | | | 173,769 | | | 174,351 | |
Provision for income tax expense | Provision for income tax expense | 10,652 | | | 9,180 | | | 11,837 | | | 32,769 | | | 33,353 | |
Provision for income tax expense | |
Provision for income tax expense | |
Net income | Net income | $ | 45,854 | | | $ | 39,591 | | | $ | 49,070 | | | $ | 141,000 | | | $ | 140,998 | |
Net income | |
Net income | |
| | PER COMMON SHARE DATA: | PER COMMON SHARE DATA: | Quarters Ended | | Nine months ended |
| | September 30, 2023 | | June 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
PER COMMON SHARE DATA: | |
| PER COMMON SHARE DATA: | |
| |
| |
| |
Net income: | |
Net income: | |
Net income: | Net income: | | | | | | | | | |
Basic | Basic | $ | 1.33 | | | $ | 1.15 | | | $ | 1.43 | | | $ | 4.11 | | | $ | 4.11 | |
Basic | |
Basic | |
Diluted | Diluted | 1.33 | | | 1.15 | | | 1.43 | | | 4.09 | | | 4.09 | |
Diluted | |
Diluted | |
Net Interest Income. Net interest income decreased by $752,000,$5.5 million, or 1%4%, for the quarter ended September 30, 2023,March 31, 2024, compared to the preceding quarter. The decrease in net interest income was primarily due to increasesan increase in the cost of funding liabilities, partially offset by increases in the average yields on loans and investment securities.
The net interest margin on a tax equivalent basis decreased seven basis points to 3.93% for the quarter ended September 30, 2023, compared to a net interest margin on a tax equivalent basis of 4.00% for the preceding quarter, reflecting a 22 basis-point increase in the cost of funding liabilities, partially offset by a 14 basis-point increase in the average yields on interest-earning assets during the current quarter. Since March 2022, in response to inflation, the Federal Open Market Committee of the Federal Reserve System has increased the target range for the federal funds rate by 525 basis points, including 25 basis points during the third quarter of 2023, to a range of 5.25% to 5.50%. The increase in average yields on interest-earning assets reflects the benefit of variable rate interest-earning assets repricing higher, as well as new loans being originated at higher interest rates. The increase in the overall cost of funding liabilities compared to the previous quarter was primarily due to the increase in the costs of deposits from an increase in the higher cost retail certificates of deposit and the effect of market rate increases on deposit costs.
Net interest income increaseddecreased by $43.5$20.4 million, or 11%13%, to $437.6$133.0 million for the ninethree months ended September 30, 2023,March 31, 2024, compared to $394.1$153.3 million for the same period onequarter a year earlier,ago, primarily due to increased funding costs, partially offset by an increase in the average yields on interest-earning assets, partially offset by increased funding costs.assets. The higher funding costs and average yieldyields on interest-earning assets compared to same period a year ago iswas primarily the result of risinghigher interest rates. The net
Net interest margin on a tax equivalent basis increaseddecreased nine basis points to 4.07%3.74% for the nine months ended September 30, 2023,first quarter of 2024, compared to 3.49% for3.83% in the preceding quarter, and decreased 56 basis points from 4.30% in the same period a year ago. Net interest margin for the current quarter was affected by increased funding costs reflecting the persistent high interest rate environment, partially offset by increased yields on loans due to new loans being originated at higher interest rates as well as adjustable-rate loans repricing higher. The increase in the prior year.overall cost of funding liabilities was primarily due to the increase in rates across all deposits and most borrowing categories due to higher market rates generally, as well as a shift in the average balance of non-interest bearing deposits to higher costing savings accounts and certificates of deposit.
Interest Income. Interest income for the quarter ended September 30, 2023March 31, 2024 was $179.1$184.7 million, compared to $171.8$183.7 million for the preceding quarter.quarter and $167.0 million for the same period in the prior year. The increase in interest income during the current quarter compared to the preceding quarter occurred primarily as a result of average yields on total interest-earning assets increasing 1410 basis points and the average balance of interest-earning assets increasing $23.2 million.points. The increased yield on interest-earning assets primarily reflects increases in the average yields on loans.
Interest The increase in interest income on loans forduring the current quarter increased by $8.4 million from the preceding quarter. The increased interest income on loans was due to the average loan yields increasing to 5.65% for the quarter ended September 30, 2023, from 5.51% in the preceding quarter, reflecting the impact of rising interest rates. Average loans receivable for the quarter ended September 30, 2023 increased 2%, compared to the preceding quarter, primarily reflecting the increase in one- to four-family loans.
The average balance of total investment securities decreased to $3.99 billion for the quarter ended September 30, 2023 (excluding the effect of fair value adjustments), compared to $4.21 billion for the preceding quarter. The interest and dividend income for the current quarter from those investments decreased by $1.2 million compared to the preceding quarter. The average yield on the combined portfolio increased slightly to 3.07% for the quarter ended September 30, 2023, from 3.05% in the preceding quarter.
Interest income for the nine months ended September 30, 2023 was $517.8 million, compared to $407.0 million for the same period in the priora year an increase of $110.8 million. The results between the periodsago primarily reflectreflects an increase in the average yield on interest-earning assets, mostly due to rising interest rates during 2023, partially offset by the lower average balance of interest-earning assets.
Interest income on loans for the current quarter increased $1.9 million from the preceding quarter and increased $23.2 million from the same period in the prior year. The increased interest income on loans for the current quarter compared to the preceding quarter was due to the average loan yields increasing to 5.87% for the quarter ended March 31, 2024, from 5.77% in the preceding quarter, reflecting adjustable-rate loans repricing higher. The average balance of loans receivable for the quarter ended March 31, 2024 increased 1%, compared to the preceding quarter, and increased 7%, compared to the same period the prior year, primarily reflecting the increase in one- to four-family loans.
Interest and dividend income on total investment securities for the current quarter decreased $1.0 million from the preceding quarter and decreased $5.5 million from the same period in the prior year. The decrease was due to a decline in the average balance of total investment securities, partially offset by a higher average yield earned on total investment securities during the current quarter compared to the preceding quarter and the comparable quarter a year ago. The average balance of total investment securities decreased to $3.78 billion for the quarter ended March 31, 2024 (excluding the effect of fair value adjustments), compared to $3.90 billion for the preceding quarter and $4.57 billion for the same period in the prior year. The average yield on the combined portfolio increased to 3.11% for the quarter ended March 31, 2024, from 3.08% in the preceding quarter and 3.10% in the same period in the prior year.
Interest Expense. Interest expense for the quarter ended September 30, 2023March 31, 2024 increased $8.0$6.4 million, or 27%14%, compared to the preceding quarter.quarter, and increased compared to the same period in the prior year. The increase in interest expensecompared to the preceding quarter occurred as a result of a 22 basis-pointbasis point increase in the average cost of all funding liabilities to 1.08%.1.53%, partially offset by a decrease in the average balance of funding liabilities, during the current quarter. The average balance of funding liabilities decreased $9.3$48.2 million for the quarter ended September 30, 2023March 31, 2024, compared to the preceding quarter, primarily due to decreasesa decrease in non-interest-bearing deposits, and FHLB advances, partially offset by higher average balances of certificates of deposit and interest-bearing transaction and savings accounts.
Interest expense for the nine months ended September 30, 2023 was $80.2 million, compared to $12.9 million for the same period in the prior year.accounts and FHLB advances. The increase in interest expense compared to the prior year occurred as a result of a 66 basis-pointan increase in the average cost of all funding liabilities to 0.78% for the nine months ended September 30, 2023, compared to 0.12% for the same period in the prior year, partially offset by a $1.08 billion, or 7%, decrease in average balances of funding liabilities. The decrease in the average balance of funding liabilities reflects decreases in non-interest-bearing deposits and interest-bearing transaction and savingsmoney market accounts, partially offset by higher average balances of interest-bearing transaction checking and savings accounts, certificates of deposit and FHLB advances.
Deposit interest expense for the quarter ended September 30, 2023March 31, 2024 increased $10.5$5.3 million, or 51%13%, compared to the preceding quarter, primarily as a result of an increase in the average rate paid on interest-bearing deposits and an increase in the average balance of higher cost certificates of deposit, including brokered deposits. The cost of interest-bearing deposits increased by 47 basis points to 1.57% for the quarter ended September 30, 2023, compared to 1.10% in the preceding quarter. The average rate paid on total deposits was 0.94% for the quarter ended September 30, 2023, compared to 0.64% in the preceding quarter. Average deposit balances increased to $13.15 billion for the quarter ended September 30, 2023, from $12.94 billion for the preceding quarter.
Deposit interest expense for the nine months ended September 30, 2023 increased $54.3 million to $60.8$35.4 million compared to $6.5$9.2 million for the same period in the prior year. Average deposit balances decreasedThe increase compared to $13.14 billion for the nine months ended September 30, 2023, from $14.37 billion forprior quarter and the same periodcomparable quarter a year earlier, whileago was primarily the result of a larger percentage of core deposits being in interest bearing accounts and an increase in the mix of higher cost certificates of deposit as well as an overall increase in the average rate paid on deposits increased to 0.62% for the nine months ended September 30, 2023 from 0.06% for the same period in the prior year.interest-bearing deposits. The average cost of interest-bearing deposits increased by 96 basis points to 1.07%2.15% for the nine monthsquarter ended September 30, 2023,March 31, 2024, compared to 0.11%1.92% in the preceding quarter and 0.51% for the same period a year earlier. The increase in the average cost of interest-bearing deposits compared to the same period a year ago was primarily the result of a 217 basis-pointan increase in the cost of certificates of deposit along with a $336.3 millionan increase in the average balance of certificates of deposit. The average rate paid on total deposits, which includes non-interest bearing deposits, was 1.37% for the quarter ended March 31, 2024, compared to 1.18% in the preceding quarter and 0.28% for the same period in the prior year. Average deposit balances decreased for the quarter ended March 31, 2024, from the preceding quarter and the same period a year earlier.
Interest expense on total borrowings for the quarter ended September 30, 2023 decreasedMarch 31, 2024 increased to $6.3$7.1 million from $8.8$6.0 million for the preceding quarter primarily due to a decrease in the average balance of total borrowings. Average total borrowings were $538.4 million for the quarter ended September 30, 2023, compared to $763.9 million for the preceding quarter. The decrease in average total borrowings was largely due to a $229.6 million decrease in the average balance of FHLB advances, partially offset by a $6.6 million increase in the average balance of other borrowings. The average rate paid on total borrowings for the quarter ended September 30, 2023and increased to 4.64% from 4.60% for the preceding quarter.
Interest expense on total borrowings for the nine months ended September 30, 2023 increased to $19.5 million from $6.4$4.4 million for the same period a year earlier due to an increase in both the average balance of and rate paid on total borrowings. Average totalThe increase in average borrowings were $610.4 million for the nine months ended September 30, 2023, compared to $457.6 million forthe prior quarter was largely due to an increase in the average balance of FHLB advances. The increase compared to the same period a year earlier. The increaseago was also primarily due to a $205.5 millionan increase in the average balance of FHLB advances, partially offset by a $49.6 million decrease in the average balance of other borrowings. The average rate paid on total borrowings for the nine monthsquarter ended September 30, 2023March 31, 2024 increased to 4.26% from 1.87% forthe preceding quarter and from the same period a year earlier.
Analysis of Net Interest Spread. The following tables presenttable presents for the periods indicated our condensed average balance sheet information, together with interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities with additional comparative data on our operating performance (dollars in thousands):
| | | ANALYSIS OF NET INTEREST SPREAD | |
| ANALYSIS OF NET INTEREST SPREAD | |
| ANALYSIS OF NET INTEREST SPREAD | ANALYSIS OF NET INTEREST SPREAD | Quarters Ended | Quarters Ended |
(rates / ratios annualized) | (rates / ratios annualized) | Sep 30, 2023 | | Jun 30, 2023 | | (rates / ratios annualized) | Mar 31, 2024 | | Dec 31, 2023 | | Mar 31, 2023 |
(dollars in thousands) | (dollars in thousands) | Average Balance | | Interest and Dividends(3) | | Yield / Cost(3) | | Average Balance | | Interest and Dividends(3) | | Yield / Cost(3) | | (dollars in thousands) | Average Balance | | Interest and Dividends | | Yield / Cost (3) | | Average Balance | | Interest and Dividends | | Yield / Cost (3) | | Average Balance | | Interest and Dividends | | Yield / Cost (3) |
Interest-earning assets: | Interest-earning assets: | | | | |
Held for sale loans | Held for sale loans | $ | 56,697 | | | $ | 765 | | | 5.35 | % | | $ | 56,073 | | | $ | 738 | | | 5.28 | % | |
Held for sale loans | |
Held for sale loans | | $ | 9,939 | | | $ | 167 | | | 6.76 | % | | $ | 31,148 | | | $ | 447 | | | 5.69 | % | | $ | 52,657 | | | $ | 671 | | | 5.17 | % |
Mortgage loans | Mortgage loans | 8,596,705 | | | 118,285 | | | 5.46 | % | | 8,413,392 | | | 112,097 | | | 5.34 | % | | Mortgage loans | 8,892,561 | | | 125,284 | | 125,284 | | | 5.67 | | 5.67 | % | | 8,770,029 | | | 123,382 | | 123,382 | | | 5.58 | | 5.58 | % | | 8,267,386 | | | 106,900 | | 106,900 | | | 5.24 | | 5.24 | % |
Commercial/agricultural loans | Commercial/agricultural loans | 1,822,609 | | | 29,866 | | | 6.50 | % | | 1,763,264 | | | 27,616 | | | 6.28 | % | | Commercial/agricultural loans | 1,830,095 | | | 30,847 | | 30,847 | | | 6.78 | | 6.78 | % | | 1,822,069 | | | 30,447 | | 30,447 | | | 6.63 | | 6.63 | % | | 1,709,345 | | | 25,226 | | 25,226 | | | 5.99 | | 5.99 | % |
SBA PPP loans | 4,298 | | | 28 | | | 2.58 | % | | 5,247 | | | 67 | | | 5.12 | % | |
Consumer and other loans | Consumer and other loans | 138,723 | | | 2,226 | | | 6.37 | % | | 138,902 | | | 2,137 | | | 6.17 | % | | Consumer and other loans | 133,854 | | | 2,196 | | 2,196 | | | 6.60 | | 6.60 | % | | 138,049 | | | 2,237 | | 2,237 | | | 6.43 | | 6.43 | % | | 137,096 | | | 2,115 | | 2,115 | | | 6.26 | | 6.26 | % |
Total loans(1) | Total loans(1) | 10,619,032 | | | 151,170 | | | 5.65 | % | | 10,376,878 | | | 142,655 | | | 5.51 | % | | Total loans (1) | 10,866,449 | | | 158,494 | | 158,494 | | | 5.87 | | 5.87 | % | | 10,761,295 | | | 156,513 | | 156,513 | | | 5.77 | | 5.77 | % | | 10,166,484 | | | 134,912 | | 134,912 | | | 5.38 | | 5.38 | % |
Mortgage-backed securities | Mortgage-backed securities | 2,863,345 | | | 17,834 | | | 2.47 | % | | 2,958,700 | | | 18,429 | | | 2.50 | % | | Mortgage-backed securities | 2,728,640 | | | 17,076 | | 17,076 | | | 2.52 | | 2.52 | % | | 2,798,647 | | | 17,541 | | 17,541 | | | 2.49 | | 2.49 | % | | 3,093,860 | | | 19,123 | | 19,123 | | | 2.51 | | 2.51 | % |
Other securities | Other securities | 1,071,389 | | | 12,128 | | | 4.49 | % | | 1,184,503 | | | 12,932 | | | 4.38 | % | | Other securities | 984,639 | | | 11,501 | | 11,501 | | | 4.70 | | 4.70 | % | | 1,035,842 | | | 11,993 | | 11,993 | | | 4.59 | | 4.59 | % | | 1,404,355 | | | 15,095 | | 15,095 | | | 4.36 | | 4.36 | % |
| Interest-bearing deposits with banks | |
Interest-bearing deposits with banks | |
Interest-bearing deposits with banks | Interest-bearing deposits with banks | 43,594 | | | 529 | | | 4.81 | % | | 44,922 | | | 557 | | | 4.97 | % | | 45,264 | | | 459 | | 459 | | | 4.08 | | 4.08 | % | | 45,286 | | | 506 | | 506 | | | 4.43 | | 4.43 | % | | 53,584 | | | 608 | | 608 | | | 4.60 | | 4.60 | % |
FHLB stock | FHLB stock | 16,443 | | | 385 | | | 9.29 | % | | 25,611 | | | 157 | | | 2.46 | % | | FHLB stock | 19,073 | | | 209 | | 209 | | | 4.41 | | 4.41 | % | | 15,326 | | | 215 | | 215 | | | 5.57 | | 5.57 | % | | 14,236 | | | 90 | | 90 | | | 2.56 | | 2.56 | % |
Total investment securities | Total investment securities | 3,994,771 | | | 30,876 | | | 3.07 | % | | 4,213,736 | | | 32,075 | | | 3.05 | % | | Total investment securities | 3,777,616 | | | 29,245 | | 29,245 | | | 3.11 | | 3.11 | % | | 3,895,101 | | | 30,255 | | 30,255 | | | 3.08 | | 3.08 | % | | 4,566,035 | | | 34,916 | | 34,916 | | | 3.10 | | 3.10 | % |
Total interest-earning assets | Total interest-earning assets | 14,613,803 | | | 182,046 | | | 4.94 | % | | 14,590,614 | | | 174,730 | | | 4.80 | % | | Total interest-earning assets | 14,644,065 | | | 187,739 | | 187,739 | | | 5.16 | | 5.16 | % | | 14,656,396 | | | 186,768 | | 186,768 | | | 5.06 | | 5.06 | % | | 14,732,519 | | | 169,828 | | 169,828 | | | 4.68 | | 4.68 | % |
Non-interest-earning assets | Non-interest-earning assets | 932,364 | | | | | | | 939,100 | | | | Non-interest-earning assets | 943,725 | | | | | | | 875,719 | | | | | | | 921,217 | | | | | | 921,217 | | | | | |
Total assets | Total assets | $ | 15,546,167 | | | | | | | $ | 15,529,714 | | | | Total assets | $ | 15,587,790 | | | | | | | $ | 15,532,115 | | | | | | | $ | | | | | | $ | 15,653,736 | | | | | |
Deposits: | Deposits: | | | | | | | | | | Deposits: | | | | | | | | | | | | | |
Interest-bearing checking accounts | Interest-bearing checking accounts | $ | 1,971,179 | | | 4,190 | | | 0.84 | % | | $ | 1,870,605 | | | 2,331 | | | 0.50 | % | | Interest-bearing checking accounts | $ | 2,104,242 | | | 6,716 | | 6,716 | | | 1.28 | | 1.28 | % | | $ | 2,060,226 | | | 5,907 | | 5,907 | | | 1.14 | | 1.14 | % | | $ | 1,779,664 | | | 906 | | 906 | | | 0.21 | | 0.21 | % |
Savings accounts | Savings accounts | 2,659,890 | | | 8,400 | | | 1.25 | % | | 2,536,713 | | | 4,895 | | | 0.77 | % | | Savings accounts | 3,066,448 | | | 15,279 | | 15,279 | | | 2.00 | | 2.00 | % | | 2,885,167 | | | 12,560 | | 12,560 | | | 1.73 | | 1.73 | % | | 2,615,173 | | | 1,884 | | 1,884 | | | 0.29 | | 0.29 | % |
Money market accounts | Money market accounts | 1,793,953 | | | 6,639 | | | 1.47 | % | | 1,957,553 | | | 6,007 | | | 1.23 | % | | Money market accounts | 1,674,159 | | | 8,388 | | 8,388 | | | 2.02 | | 2.02 | % | | 1,723,426 | | | 7,644 | | 7,644 | | | 1.76 | | 1.76 | % | | 2,167,138 | | | 3,799 | | 3,799 | | | 0.71 | | 0.71 | % |
Certificates of deposit | Certificates of deposit | 1,412,542 | | | 11,772 | | | 3.31 | % | | 1,126,647 | | | 7,306 | | | 2.60 | % | | Certificates of deposit | 1,500,429 | | | 14,230 | | 14,230 | | | 3.81 | | 3.81 | % | | 1,477,474 | | | 13,231 | | 13,231 | | | 3.55 | | 3.55 | % | | 810,821 | | | 2,655 | | 2,655 | | | 1.33 | | 1.33 | % |
Total interest-bearing deposits | Total interest-bearing deposits | 7,837,564 | | | 31,001 | | | 1.57 | % | | 7,491,518 | | | 20,539 | | | 1.10 | % | | Total interest-bearing deposits | 8,345,278 | | | 44,613 | | 44,613 | | | 2.15 | | 2.15 | % | | 8,146,293 | | | 39,342 | | 39,342 | | | 1.92 | | 1.92 | % | | 7,372,796 | | | 9,244 | | 9,244 | | | 0.51 | | 0.51 | % |
Non-interest-bearing deposits | Non-interest-bearing deposits | 5,316,023 | | | — | | | — | % | | 5,445,960 | | | — | | | — | % | | Non-interest-bearing deposits | 4,711,922 | | | — | | — | | | — | | — | % | | 5,036,523 | | | — | | — | | | — | | — | % | | 5,960,791 | | | — | | — | | | — | | — | % |
Total deposits | Total deposits | 13,153,587 | | | 31,001 | | | 0.94 | % | | 12,937,478 | | | 20,539 | | | 0.64 | % | | Total deposits | 13,057,200 | | | 44,613 | | 44,613 | | | 1.37 | | 1.37 | % | | 13,182,816 | | | 39,342 | | 39,342 | | | 1.18 | | 1.18 | % | | 13,333,587 | | | 9,244 | | 9,244 | | | 0.28 | | 0.28 | % |
Other interest-bearing liabilities: | Other interest-bearing liabilities: | | | | | | | | | Other interest-bearing liabilities: | | | | | | | | | | | |
FHLB advances | FHLB advances | 161,087 | | | 2,233 | | | 5.50 | % | | 390,705 | | | 5,157 | | | 5.29 | % | | FHLB advances | 212,989 | | | 2,972 | | 2,972 | | | 5.61 | | 5.61 | % | | 129,630 | | | 1,870 | | 1,870 | | | 5.72 | | 5.72 | % | | 105,984 | | | 1,264 | | 1,264 | | | 4.84 | | 4.84 | % |
Other borrowings | Other borrowings | 194,659 | | | 1,099 | | | 2.24 | % | | 188,060 | | | 771 | | | 1.64 | % | | Other borrowings | 180,692 | | | 1,175 | | 1,175 | | | 2.62 | | 2.62 | % | | 185,518 | | | 1,125 | | 1,125 | | | 2.41 | | 2.41 | % | | 229,459 | | | 381 | | 381 | | | 0.67 | | 0.67 | % |
Junior subordinated debentures and subordinated notes | Junior subordinated debentures and subordinated notes | 182,678 | | | 2,965 | | | 6.44 | % | | 185,096 | | | 2,824 | | | 6.12 | % | | Junior subordinated debentures and subordinated notes | 181,579 | | | 2,969 | | 2,969 | | | 6.58 | | 6.58 | % | | 182,678 | | | 2,992 | | 2,992 | | | 6.50 | | 6.50 | % | | 189,178 | | | 2,760 | | 2,760 | | | 5.92 | | 5.92 | % |
Total borrowings | Total borrowings | 538,424 | | | 6,297 | | | 4.64 | % | | 763,861 | | | 8,752 | | | 4.60 | % | | Total borrowings | 575,260 | | | 7,116 | | 7,116 | | | 4.98 | | 4.98 | % | | 497,826 | | | 5,987 | | 5,987 | | | 4.77 | | 4.77 | % | | 524,621 | | | 4,405 | | 4,405 | | | 3.41 | | 3.41 | % |
Total funding liabilities | Total funding liabilities | 13,692,011 | | | 37,298 | | | 1.08 | % | | 13,701,339 | | | 29,291 | | | 0.86 | % | | Total funding liabilities | 13,632,460 | | | 51,729 | | 51,729 | | | 1.53 | | 1.53 | % | | 13,680,642 | | | 45,329 | | 45,329 | | | 1.31 | | 1.31 | % | | 13,858,208 | | | 13,649 | | 13,649 | | | 0.40 | | 0.40 | % |
Other non-interest-bearing liabilities(2) | Other non-interest-bearing liabilities(2) | 296,578 | | | | | | | 279,232 | | | | Other non-interest-bearing liabilities (2) | 303,412 | | | | | | | 311,539 | | | | | | | 293,205 | | | | | | 293,205 | | | | | |
Total liabilities | Total liabilities | 13,988,589 | | | | | | | 13,980,571 | | | | Total liabilities | 13,935,872 | | | | | | | 13,992,181 | | | | | | | 14,151,413 | | | | | | 14,151,413 | | | | | |
Shareholders’ equity | Shareholders’ equity | 1,557,578 | | | | | | | 1,549,143 | | | | Shareholders’ equity | 1,651,918 | | | | | | | 1,539,934 | | | | | | | 1,502,323 | | | | | | 1,502,323 | | | | | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 15,546,167 | | | | | | | $ | 15,529,714 | | | | Total liabilities and shareholders’ equity | $ | 15,587,790 | | | | | | | $ | 15,532,115 | | | | | | | $ | | | | | | $ | 15,653,736 | | | | | |
Net interest income/rate spread (tax equivalent) | Net interest income/rate spread (tax equivalent) | | | $ | 144,748 | | | 3.86 | % | | | | $ | 145,439 | | | 3.94 | % | | Net interest income/rate spread (tax equivalent) | | | $ | 136,010 | | | 3.63 | | 3.63 | % | | | | $ | 141,439 | | | 3.75 | | 3.75 | % | | | | $ | 156,179 | | | 4.28 | | 4.28 | % |
Net interest margin (tax equivalent) | Net interest margin (tax equivalent) | | | | 3.93 | % | | | | 4.00 | % | | Net interest margin (tax equivalent) | | | | | 3.74 | % | | | | | | 3.83 | % | | | | | | 4.30 | % |
Reconciliation to reported net interest income: | Reconciliation to reported net interest income: | | |
Adjustments for taxable equivalent basis | Adjustments for taxable equivalent basis | | (2,982) | | | (2,921) | | | |
Adjustments for taxable equivalent basis | |
Adjustments for taxable equivalent basis | |
Net interest income and margin, as reported | |
Net interest income and margin, as reported | |
Net interest income and margin, as reported | Net interest income and margin, as reported | | $ | 141,766 | | | 3.85 | % | | $ | 142,518 | | | 3.92 | % | | | | $ | 132,959 | | | 3.65 | | 3.65 | % | | | | $ | 138,409 | | | 3.75 | | 3.75 | % | | | | $ | 153,312 | | | 4.22 | | 4.22 | % |
Additional Key Financial Ratios: | Additional Key Financial Ratios: | | | | | | |
Return on average assets | Return on average assets | | 1.17 | % | | 1.02 | % | |
Return on average assets | |
Return on average assets | | | | | | 0.97 | % | | | | | | 1.09 | % | | | | | | 1.44 | % |
Adjusted return on average assets(4) | | Adjusted return on average assets(4) | | | | | 1.08 | % | | | | | | 1.18 | % | | | | | | 1.60 | % |
Return on average equity | Return on average equity | | 11.68 | % | | 10.25 | % | | Return on average equity | | | | | 9.14 | % | | | | | | 10.98 | % | | | | | | 15.00 | % |
Adjusted return on average equity(4) | | Adjusted return on average equity(4) | | | | | 10.24 | % | | | | | | 11.89 | % | | | | | | 16.63 | % |
Average equity/average assets | Average equity/average assets | | 10.02 | % | | 9.98 | % | | Average equity/average assets | | | | | 10.60 | % | | | | | | 9.91 | % | | | | | | 9.60 | % |
Average interest-earning assets/average interest-bearing liabilities | Average interest-earning assets/average interest-bearing liabilities | | 174.47 | % | | 176.74 | % | | Average interest-earning assets/average interest-bearing liabilities | | | | | 164.16 | % | | | | | | 169.55 | % | | | | | | 186.55 | % |
Average interest-earning assets/average funding liabilities | Average interest-earning assets/average funding liabilities | | 106.73 | % | | 106.49 | % | | Average interest-earning assets/average funding liabilities | | | | | 107.42 | % | | | | | | 107.13 | % | | | | | | 106.31 | % |
Non-interest income/average assets | Non-interest income/average assets | | 0.32 | % | | 0.22 | % | | Non-interest income/average assets | | | | | 0.30 | % | | | | | | 0.36 | % | | | | | | 0.24 | % |
Non-interest expense/average assets | Non-interest expense/average assets | | 2.45 | % | | 2.46 | % | | Non-interest expense/average assets | | | | | 2.52 | % | | | | | | 2.47 | % | | | | | | 2.45 | % |
Efficiency ratio(4) | | 62.10 | % | | 63.21 | % | |
Adjusted efficiency ratio(5) | | 59.00 | % | | 58.58 | % | |
Efficiency ratio | | Efficiency ratio | | | | | 67.55 | % | | | | | | 63.37 | % | | | | | | 58.20 | % |
Adjusted efficiency ratio (4) | | Adjusted efficiency ratio (4) | | | | | 63.70 | % | | | | | | 60.04 | % | | | | | | 54.23 | % |
(1)Average balances include loans accounted for on a nonaccrual basis and accruing loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.
(2)Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures.
(3)Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $1.9$2.0 million for both the quarters ended March 31, 2024 and $1.8December 31, 2023, and was $1.7 million for the three monthsquarter ended September 30, 2023 and June 30, 2023, respectively.March 31, 2023. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.1$1.0 million, for both the three monthsquarters ended September 30,March 31, 2024 and December 31, 2023, and June 30,was $1.2 million for the quarter ended March 31, 2023.
(4)Non-interest expense divided by the total of net interest income and non-interest income.
(5)Adjusted non-interest expense divided by adjusted revenue. Represents non-GAAP financial measures. See non-GAAP financial measure reconciliations presented above following ThirdFirst Quarter 20232024 Highlights.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Nine months ended September 30, 2023 | | Nine months ended September 30, 2022 |
| Average Balance | | Interest and Dividends (3) | | Yield/ Cost (3) | | Average Balance | | Interest and Dividends (3) | | Yield/ Cost (3) |
Interest-earning assets: | | | | | | | | | | | |
Held for sale loans | $ | 55,157 | | | $ | 2,174 | | | 5.27 | % | | $ | 94,289 | | | $ | 2,446 | | | 3.47 | % |
Mortgage loans | 8,427,034 | | | 337,282 | | | 5.35 | % | | 7,581,540 | | | 261,021 | | | 4.60 | % |
Commercial/agricultural loans | 1,763,248 | | | 82,658 | | | 6.27 | % | | 1,574,957 | | | 52,582 | | | 4.46 | % |
SBA PPP loans | 5,437 | | | 145 | | | 3.57 | % | | 51,890 | | | 4,453 | | | 11.47 | % |
Consumer and other loans | 138,246 | | | 6,478 | | | 6.26 | % | | 117,892 | | | 5,207 | | | 5.91 | % |
Total loans(1) | 10,389,122 | | | 428,737 | | | 5.52 | % | | 9,420,568 | | | 325,709 | | | 4.62 | % |
Mortgage-backed securities | 2,971,124 | | | 55,386 | | | 2.49 | % | | 3,110,769 | | | 48,904 | | | 2.10 | % |
Other securities | 1,220,074 | | | 40,155 | | | 4.40 | % | | 1,624,138 | | | 32,333 | | | 2.66 | % |
| | | | | | | | | | | |
Interest-bearing deposits with banks | 47,330 | | | 1,694 | | | 4.79 | % | | 1,214,076 | | | 7,507 | | | 0.83 | % |
FHLB stock | 18,772 | | | 632 | | | 4.50 | % | | 10,579 | | | 281 | | | 3.55 | % |
Total investment securities | 4,257,300 | | | 97,867 | | | 3.07 | % | | 5,959,562 | | | 89,025 | | | 2.00 | % |
Total interest-earning assets | 14,646,422 | | | 526,604 | | | 4.81 | % | | 15,380,130 | | | 414,734 | | | 3.61 | % |
Non-interest-earning assets | 930,934 | | | | | | | 1,250,719 | | | | | |
Total assets | $ | 15,577,356 | | | | | | | $ | 16,630,849 | | | | | |
Deposits: | | | | | | | | | | | |
Interest-bearing checking accounts | $ | 1,874,518 | | | 7,427 | | | 0.53 | % | | $ | 1,915,184 | | | 991 | | | 0.07 | % |
Savings accounts | 2,604,089 | | | 15,179 | | | 0.78 | % | | 2,826,757 | | | 1,187 | | | 0.06 | % |
Money market accounts | 1,971,514 | | | 16,445 | | | 1.12 | % | | 2,400,267 | | | 1,806 | | | 0.10 | % |
Certificates of deposit | 1,118,874 | | | 21,733 | | | 2.60 | % | | 782,548 | | | 2,517 | | | 0.43 | % |
Total interest-bearing deposits | 7,568,995 | | | 60,784 | | | 1.07 | % | | 7,924,756 | | | 6,501 | | | 0.11 | % |
Non-interest-bearing deposits | 5,571,896 | | | — | | | — | % | | 6,445,579 | | | — | | | — | % |
Total deposits | 13,140,891 | | | 60,784 | | | 0.62 | % | | 14,370,335 | | | 6,501 | | | 0.06 | % |
Other interest-bearing liabilities: | | | | | | | | | | | |
FHLB advances | 219,461 | | | 8,654 | | | 5.27 | % | | 13,919 | | | 291 | | | 2.80 | % |
Other borrowings | 203,932 | | | 2,251 | | | 1.48 | % | | 253,545 | | | 245 | | | 0.13 | % |
Junior subordinated debentures and subordinated notes | 186,964 | | | 8,549 | | | 6.11 | % | | 190,103 | | | 5,866 | | | 4.13 | % |
Total borrowings | 610,357 | | | 19,454 | | | 4.26 | % | | 457,567 | | | 6,402 | | | 1.87 | % |
Total funding liabilities | 13,751,248 | | | 80,238 | | | 0.78 | % | | 14,827,902 | | | 12,903 | | | 0.12 | % |
Other non-interest-bearing liabilities (2) | 289,558 | | | | | | | 241,010 | | | | | |
Total liabilities | 14,040,806 | | | | | | | 15,068,912 | | | | | |
Shareholders’ equity | 1,536,550 | | | | | | | 1,561,937 | | | | | |
Total liabilities and shareholders’ equity | $ | 15,577,356 | | | | | | | $ | 16,630,849 | | | | | |
Net interest income/rate spread (tax equivalent) | | | $ | 446,366 | | | 4.03 | % | | | | $ | 401,831 | | | 3.49 | % |
Net interest margin (tax equivalent) | | | | | 4.07 | % | | | | | | 3.49 | % |
Reconciliation to reported net interest income: | | | | | | | | | | | |
Adjustments for taxable equivalent basis | | | (8,770) | | | | | | | (7,723) | | | |
Net interest income and margin | | | $ | 437,596 | | | 3.99 | % | | | | $ | 394,108 | | | 3.43 | % |
Additional Key Financial Ratios: | | | | | | | | | | | |
Return on average assets | | | | | 1.21 | % | | | | | | 1.13 | % |
Return on average equity | | | | | 12.27 | % | | | | | | 12.07 | % |
Average equity / average assets | | | | | 9.86 | % | | | | | | 9.39 | % |
Average interest-earning assets / average interest-bearing liabilities | | | | | 179.07 | % | | | | | | 183.48 | % |
Average interest-earning assets / average funding liabilities | | | | | 106.51 | % | | | | | | 103.72 | % |
Non-interest income / average assets | | | | | 0.26 | % | | | | | | 0.50 | % |
Non-interest expense / average assets | | | | | 2.45 | % | | | | | | 2.24 | % |
Efficiency ratio (4) | | | | | 61.10 | % | | | | | | 60.99 | % |
Adjusted efficiency ratio (5) | | | | | 57.19 | % | | | | | | 59.39 | % |
(1)Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.
(2)Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures.
(3)Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $5.4 million and $4.2 million for the nine months ended September 30, 2023 and 2022, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $3.4 million and $3.5 million for the nine months ended September 30, 2023 and 2022, respectively.
(4)Non-interest expense divided by the total of net interest income and non-interest income.
(5)Adjusted non-interest expense divided by adjusted revenue. Represents non-GAAP financial measures. See non-GAAP financial measure reconciliations presented above following Third Quarter 2023 Highlights.
Provision and Allowance for Credit Losses. Management estimates the allowance for credit losses using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The allowance for credit losses is maintained at a level sufficient to provide for expected credit losses over the life of the loan based on evaluating historical credit loss experience and making adjustments to historical loss information for differences in the specific risk characteristics in the current loan portfolio. These factors include, among others, changes in the size and composition of the loan portfolio, differences in underwriting standards, delinquency rates, actual loss experience and current economic conditions. The following table sets forth an analysis of our allowance for credit losses - loans for the periods indicated (dollars in thousands):
| | Quarters Ended | | Nine Months Ended |
| | Quarters Ended | |
| | Quarters Ended | |
| | Quarters Ended | |
CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES - LOANS | |
CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES - LOANS | |
CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES - LOANS | CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES - LOANS | | Sep 30, 2023 | | Jun 30, 2023 | | Sep 30, 2022 | | Sep 30, 2023 | | Sep 30, 2022 |
| | | | | | | | | | |
Balance, beginning of period | Balance, beginning of period | | $ | 144,680 | | | $ | 141,457 | | | $ | 128,702 | | | $ | 141,465 | | | $ | 132,099 | |
| Balance, beginning of period | |
| Balance, beginning of period | |
Provision for credit losses – loans | |
Provision for credit losses – loans | |
Provision for credit losses – loans | Provision for credit losses – loans | | 2,943 | | | 3,559 | | | 6,347 | | | 7,276 | | | 2,115 | |
Recoveries of loans previously charged off: | Recoveries of loans previously charged off: | |
Recoveries of loans previously charged off: | |
Recoveries of loans previously charged off: | |
Commercial real estate | Commercial real estate | | 170 | | | 74 | | | 88 | | | 428 | | | 304 | |
Commercial real estate | |
Commercial real estate | |
| One- to four-family residential | |
| One- to four-family residential | |
| One- to four-family residential | |
Commercial business | |
Commercial business | |
Commercial business | |
Agricultural business, including secured by farmland | |
Agricultural business, including secured by farmland | |
Agricultural business, including secured by farmland | |
Consumer | |
Consumer | |
Consumer | |
| |
| |
| |
Loans charged off: | |
Loans charged off: | |
Loans charged off: | |
| Construction and land | |
| Construction and land | |
| | Construction and land | Construction and land | | 29 | | | — | | | — | | | 29 | | | 384 | |
One- to four-family residential | One- to four-family residential | | 59 | | | 36 | | | 25 | | | 212 | | | 163 | |
One- to four-family residential | |
One- to four-family residential | |
Commercial business | Commercial business | | 403 | | | 524 | | | 924 | | | 1,046 | | | 1,307 | |
Agricultural business, including secured by farmland | | 19 | | | 2 | | | 252 | | | 130 | | | 384 | |
Commercial business | |
Commercial business | |
| Consumer | Consumer | | 126 | | | 117 | | | 85 | | | 412 | | | 413 | |
| | | 806 | | | 753 | | | 1,374 | | | 2,257 | | | 2,955 | |
Loans charged off: | |
Commercial real estate | | — | | | — | | | — | | | — | | | (2) | |
| Construction and land | | — | | | (156) | | | (25) | | | (156) | | | (30) | |
One- to four-family residential | | — | | | (4) | | | — | | | (34) | | | — | |
Commercial business | | (616) | | | (566) | | | (138) | | | (2,340) | | | (468) | |
Agricultural business, including secured by farmland | | (564) | | | — | | | (42) | | | (564) | | | (42) | |
Consumer | Consumer | | (289) | | | (363) | | | (300) | | | (944) | | | (709) | |
| | | (1,469) | | | (1,089) | | | (505) | | | (4,038) | | | (1,251) | |
Net (charge-offs) recoveries | | (663) | | | (336) | | | 869 | | | (1,781) | | | 1,704 | |
Consumer | |
| |
| |
| |
Net recoveries (charge-offs) | |
Net recoveries (charge-offs) | |
Net recoveries (charge-offs) | |
Balance, end of period | Balance, end of period | | $ | 146,960 | | | $ | 144,680 | | | $ | 135,918 | | | $ | 146,960 | | | $ | 135,918 | |
Net (charge-offs) recoveries / Average loans receivable | | (0.006) | % | | (0.003) | % | | 0.009 | % | | (0.017) | % | | 0.018 | % |
Balance, end of period | |
Balance, end of period | |
Net recoveries (charge-offs) / Average loans receivable | |
Net recoveries (charge-offs) / Average loans receivable | |
Net recoveries (charge-offs) / Average loans receivable | |
Allowance for credit losses - loans as a percentage of total loans | Allowance for credit losses - loans as a percentage of total loans | | 1.38 | % | | 1.38 | % | | 1.38 | % | | 1.38 | % | | 1.38 | % |
Allowance for credit losses - loans as a percentage of total loans | |
Allowance for credit losses - loans as a percentage of total loans | |
The provision for credit losses - loans reflects the amount required to maintain the allowance for credit losses - loans at an appropriate level based upon management’s evaluation of the adequacy of collective and individual loss reserves. During the quarter ended September 30, 2023,March 31, 2024, we recorded a provision for credit losses - loans of $2.9$1.4 million, compared to a provision for credit losses - loans of $3.6$3.8 million during the preceding quarter. The provision for credit losses - loans for the current quarter primarily reflects increased loan balances.growth in the construction and one- to four-family loan portfolios. The provision for credit losses –- loans for the preceding quarter primarily reflected increased loan balances and a deterioration in forecasted economic conditions.balances. Future assessments of the expected credit losses will not only be impacted by changes in both the composition and amount of loans, and to the reasonable and supportable forecast, but will also include an updated assessment of qualitative factors, as well as consideration of any required changes in the reasonable and supportable forecast reversion period.
Net loan charge-offs were $663,000 for the quarter ended September 30, 2023, compared to net loan charge-offs of $336,000 in the preceding quarter. The allowance for credit losses - loans as a percentage of total loans (loans receivable excluding allowance for credit losses - loans) was 1.38% at both September 30, 2023 and June 30, 2023.
The provision for credit losses - unfunded loan commitments reflects the amount required to maintain the allowance for credit losses - unfunded loan commitments at an appropriate level based upon management’s evaluation of the adequacy of collective and individual loss reserves. The following table sets forth an analysis of our allowance for credit losses - unfunded loan commitments for the periods indicated (dollars in thousands):
| | | | Quarters Ended | | Nine Months Ended |
| |
| |
CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS | |
CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS | |
CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS | CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS | | Sep 30, 2023 | | Jun 30, 2023 | | Sep 30, 2022 | | Sep 30, 2023 | | Sep 30, 2022 |
| Balance, beginning of period | Balance, beginning of period | | $ | 14,664 | | | $ | 13,443 | | | $ | 14,246 | | | $ | 14,721 | | | $ | 12,432 | |
| Provision (recapture) for credit losses - unfunded loan commitments | | 346 | | | 1,221 | | | (205) | | | 289 | | | 1,609 | |
Balance, beginning of period | |
| Balance, beginning of period | |
| Recapture of provision for credit losses - unfunded loan commitments | |
| Recapture of provision for credit losses - unfunded loan commitments | |
| Recapture of provision for credit losses - unfunded loan commitments | |
| Balance, end of period | Balance, end of period | | $ | 15,010 | | | $ | 14,664 | | | $ | 14,041 | | | $ | 15,010 | | | $ | 14,041 | |
| Balance, end of period | |
| Balance, end of period | |
The increasedecrease in the allowance for credit losses - unfunded loan commitments for the current quarter primarily reflects an increasea decrease in the balance of unfunded loan commitments as of September 30, 2023.in the construction portfolio.
Non-interest Income. The following table presents the key components of non-interest income for the periods indicated (dollars in thousands):
| | Quarters Ended | | | Nine Months Ended September 30, |
| Sep 30, 2023 | | Jun 30, 2023 | | | Change Amount | | | Change Percent | | | 2023 | | 2022 | | Change Amount | | Change Percent |
| Quarters Ended | |
| Quarters Ended | |
| Quarters Ended | |
| Mar 31, 2024 | | | Mar 31, 2024 | | Dec 31, 2023 | | Change Amount | | Change Percent | | | | Mar 31, 2023 | | Change Amount | | Change Percent |
Deposit fees and other service charges | Deposit fees and other service charges | $ | 10,916 | | | $ | 10,600 | | | | $ | 316 | | | | 3.0 | % | | | $ | 32,078 | | | $ | 33,638 | | | $ | (1,560) | | | (4.6) | % | Deposit fees and other service charges | $ | 11,022 | | | $ | | $ | 9,560 | | | $ | | $ | 1,462 | | | 15.3 | | 15.3 | % | | | | $ | 10,562 | | | $ | | $ | 460 | | | 4.4 | | 4.4 | % |
Mortgage banking operations | Mortgage banking operations | 2,049 | | | 1,686 | | | | 363 | | | | 21.5 | | | | 6,426 | | | 8,523 | | | (2,097) | | | (24.6) | |
Bank owned life insurance | Bank owned life insurance | 2,062 | | | 2,386 | | | | (324) | | | | (13.6) | | | | 6,636 | | | 5,674 | | | 962 | | | 17.0 | |
Miscellaneous | Miscellaneous | 942 | | | 1,428 | | | | (486) | | | | (34.0) | | | | 4,010 | | | 5,423 | | | (1,413) | | | (26.1) | |
| 17,486 | |
Net loss on sale of securities | |
Net change in valuation of financial instruments carried at fair value | |
| | 15,969 | | | 16,100 | | | | (131) | | | | (0.8) | | | | 49,150 | | | 53,258 | | | (4,108) | | | (7.7) | |
Net (loss) gain on sale of securities | (2,657) | | | (4,527) | | | | 1,870 | | | | (41.3) | | | | (14,436) | | | 473 | | | (14,909) | | | nm |
Net change in valuation of financial instruments carried at fair value | (654) | | | (3,151) | | | | 2,497 | | | | (79.2) | | | | (4,357) | | | 650 | | | (5,007) | | | nm |
Gain on sale of branches, including related deposits | — | | | — | | | | — | | | | nm | | | — | | | 7,804 | | | (7,804) | | | (100.0) | |
Total non-interest income | Total non-interest income | $ | 12,658 | | | $ | 8,422 | | | | $ | 4,236 | | | | 50.3 | % | | | $ | 30,357 | | | $ | 62,185 | | | $ | (31,828) | | | (51.2) | % |
Total non-interest income | |
Total non-interest income | | $ | 11,591 | | | $ | 14,052 | | | $ | (2,461) | | | (17.5) | % | | | | $ | 9,277 | | | $ | 2,314 | | | 24.9 | % |
Non-interest income was $12.7 million for the quarter ended September 30, 2023, compared to $8.4 million for the preceding quarter, and was $30.4 million for the nine months ended September 30, 2023, compared to $62.2 million for the same period a year earlier. The increasedecrease in non-interest income during the current quarter compared to the preceding quarter was primarily due to a decreasedecreases in the net loss on the sale of securitiesmortgage banking operations revenue and an improvement in the change in the valuation of financial instruments.instruments carried at fair value during the current quarter, partially offset by increases in deposit fees and other service charges and miscellaneous non-interest income. The decreaseincrease in non-interest income for the nine months ended September 30, 2023, compared to the same period a year earlier was primarily due to a decrease in the net loss recorded during the current periodrecognized on the sale of securities, the recognition of a net loss for fair value adjustments on financial instruments carried at fair value, decreases in revenue from mortgage banking operations and deposit fees and other service charges, and a gain on sale of branches recognized during the nine months ended September 30, 2022.securities.
Deposit fees and other service charges decreased by $1.6 million, or 5%,increased for the nine monthsquarter ended September 30, 2023,March 31, 2024, compared to the same period a year earlier,preceding quarter primarily as a result of decreased deposit transaction activitya decrease in debit card expense and the discontinuation of certain deposit fees related to overdrafts during the nine months ended September 30, 2022.an increase in overdraft fee income.
Revenue from mortgage banking operations, including gains on one- to four-family and multifamily loan sales and loan servicing fees, decreased $2.1 million for the nine monthsquarter ended September 30, 2023,March 31, 2024, compared to the same periodpreceding quarter. The decrease from the preceding quarter primarily reflects a year earlier.$3.5 million reversal of the lower of cost or market adjustment on multifamily loans held for sale, which had been recognized during the preceding quarter due to the transfer of all remaining multifamily loans held for sale to the held for investment loan portfolio in the fourth quarter of 2023. In 2023, the Bank discontinued the origination of multifamily loans for sale into the secondary market. Gains on sales of one- to four-family loans resulted in income of $1.6 million and $4.2$1.3 million for the quarter and nine months ended September 30, 2023, respectively,March 31, 2024, compared to $1.5 million$882,000 in the preceding quarter, and $9.2$1.2 million for the nine months ended September 30, 2022.same period a year earlier. Home purchase activity accounted for 90%89% of one- to four-family mortgage loan originations in the thirdfirst quarter of 2023,2024, compared to 93%92% in the preceding quarter. Mortgage banking operations included a $456,000 lowerquarter and 88% in the first quarter of cost or market downward adjustment on multifamily held for sale loans2023.
Miscellaneous income increased for the quarter ended September 30, 2023, dueMarch 31, 2024, compared to increases in market interest rates during the third quarter of 2023. This compares to a $757,000 lower of cost or market downward adjustment recorded during the preceding quarter. There were no multifamily loans sold duringquarter primarily as a result of an increase in the third and second quarters of 2023. Mortgage banking revenue included a $919,000 lower of cost or market downward adjustmentgain on multifamily held for sale loans for the nine months ended September 30, 2023, due to increases in market interest rates during the nine months of 2023, as well as $87,000 of gain recognized on the sale of multifamily loans. This compares to a $3.3 million lower of cost or market downward adjustment recorded during the nine months ended September 30, 2022 due to increases in market interest rates, as well as $398,000 of gain recognized on the sale of multifamilySBA loans.
The net loss on sale of securities inrecognized for the three and nine monthsquarter ended September 30, 2023March 31, 2024 reflects strategic sales of securities to minimize the impact of increasing rates on our securities portfolio. The net loss for fair value adjustments for changes in the valuation of financial instruments carried at fair value were due to declines in the current market valuation of investment securities held for trading and limited partnership investments.
Non-interest Expense. The following table represents key elements of non-interest expense for the periods indicated (dollars in thousands):
| | Quarters Ended | | | Nine Months Ended September 30, |
| Sep 30, 2023 | | Jun 30, 2023 | | | Change Amount | | | Change Percent | | | 2023 | | 2022 | | Change Amount | | Change Percent |
| Quarters Ended | |
| Quarters Ended | |
| Quarters Ended | |
| Mar 31, 2024 | | | Mar 31, 2024 | | Dec 31, 2023 | | Change Amount | | Change Percent. | | | | Mar 31, 2023 | | Change Amount | | Change Percent |
Salary and employee benefits | Salary and employee benefits | $ | 61,091 | | | $ | 61,972 | | | | $ | (881) | | | | (1.4) | % | | | $ | 184,452 | | | $ | 181,957 | | | $ | 2,495 | | | 1.4 | % | Salary and employee benefits | $ | 62,369 | | | $ | | $ | 60,111 | | | $ | | $ | 2,258 | | | 3.8 | | 3.8 | % | | | | $ | 61,389 | | | $ | | $ | 980 | | | 1.6 | | 1.6 | % |
Less capitalized loan origination costs | Less capitalized loan origination costs | (4,498) | | | (4,457) | | | | (41) | | | | 0.9 | | | | (12,386) | | | (19,436) | | | 7,050 | | | (36.3) | |
Occupancy and equipment | Occupancy and equipment | 11,722 | | | 11,994 | | | | (272) | | | | (2.3) | | | | 35,686 | | | 38,512 | | | (2,826) | | | (7.3) | |
Information and computer data services | Information and computer data services | 7,118 | | | 7,082 | | | | 36 | | | | 0.5 | | | | 21,347 | | | 19,451 | | | 1,896 | | | 9.7 | |
Payment and card processing services | Payment and card processing services | 5,172 | | | 4,669 | | | | 503 | | | | 10.8 | | | | 14,459 | | | 16,086 | | | (1,627) | | | (10.1) | |
Professional and legal expenses | Professional and legal expenses | 3,042 | | | 2,400 | | | | 642 | | | | 26.8 | | | | 7,563 | | | 7,677 | | | (114) | | | (1.5) | |
Advertising and marketing | Advertising and marketing | 1,362 | | | 940 | | | | 422 | | | | 44.9 | | | | 3,108 | | | 2,609 | | | 499 | | | 19.1 | |
Deposit insurance | Deposit insurance | 2,874 | | | 2,839 | | | | 35 | | | | 1.2 | | | | 7,603 | | | 4,910 | | | 2,693 | | | 54.8 | |
State and municipal business and use taxes | State and municipal business and use taxes | 1,359 | | | 1,229 | | | | 130 | | | | 10.6 | | | | 3,888 | | | 3,389 | | | 499 | | | 14.7 | |
Real estate operations, net | Real estate operations, net | (383) | | | 75 | | | | (458) | | | | (610.7) | | | | (585) | | | (132) | | | (453) | | | 343.2 | |
Amortization of core deposit intangibles | Amortization of core deposit intangibles | 857 | | | 991 | | | | (134) | | | | (13.5) | | | | 2,898 | | | 4,064 | | | (1,166) | | | (28.7) | |
Loss on extinguishment of debt | — | | | — | | | | — | | | | nm | | | — | | | 793 | | | (793) | | | (100.0) | |
| Miscellaneous | |
Miscellaneous | |
Miscellaneous | Miscellaneous | 6,175 | | | 5,671 | | | | 504 | | | | 8.9 | | | | 17,884 | | | 18,402 | | | (518) | | | (2.8) | |
| Total non-interest expense | Total non-interest expense | $ | 95,891 | | | $ | 95,405 | | | | $ | 486 | | | | 0.5 | % | | | $ | 285,917 | | | $ | 278,282 | | | $ | 7,635 | | | 2.7 | % |
| Total non-interest expense | |
| Total non-interest expense | | $ | 97,641 | | | $ | 96,621 | | | $ | 1,020 | | | 1.1 | % | | | | $ | 94,621 | | | $ | 3,020 | | | 3.2 | % |
Non-interest expense was $95.9 million for the quarter ended September 30, 2023, compared to $95.4 million for the preceding quarter, and $285.9 million for the nine months ended September 30, 2023, compared to $278.3 million for the same period last year. The increase in non-interest expense for the current quarter compared to the precedingprior quarter primarily reflects increases in payment and card processing services, professional and legal expenses, and miscellaneous expense, partially offset by a decreasean increase in salary and employee benefits. The current quarter included $996,000 of Banner Forward expenses related to the consolidation of two branch locations, as well as expenses related to the discontinuation of the multifamily loans originated for sale business line due to the continued lack of an active secondary market for originated loans.benefits, partially offset by decreases in professional and legal expense and advertising and marketing expense. The increase in non-interest expense for the nine months ended September 30, 2023,current quarter compared to the same periodquarter a year earlier wasago primarily due to an increasereflects increases in salary and employee benefits, a decrease in capitalized loan origination costs, and increases in information and computer data services and deposit insurance, partially offset by decreases in occupancy and equipment, payment and card processing services expense and amortization of core deposit intangibles.insurance expense.
Salary and employee benefits decreasedincreased for the quarter ended September 30, 2023,March 31, 2024, compared to the preceding quarter, primarily due to decreases in loan production related commissiontypically higher first quarter payroll taxes and 401(k) expense, and salaries and wages expense. Salary and employee benefits increased for the nine months ended September 30, 2023, compared to the same period last year, primarily due to normal annual salary and wage increases, partially offset by decreases in loan production related commissionas well as higher medical insurance expense.
Capitalized loan origination costsProfessional and legal expense decreased for the nine monthsquarter ended September 30, 2023,March 31, 2024, compared to the same period in the prior year, primarily due to decreased loan production compared to the same period last year.
Occupancy and equipment decreased for the nine months ended September 30, 2023, compared to the same period last year,preceding quarter, primarily due to a reduction in building rent expense during the current year as a result of exiting a large lease agreement in the second quarter of 2022.audit and regulatory expenses and other professional services.
InformationAdvertising and computer data services increasedmarketing expense decreased for the nine monthsquarter ended September 30, 2023,March 31, 2024, compared to the same period last year,preceding quarter, primarily due to an increasea decrease in computer software expenses.
Deposit insurance increased $2.7 million for the nine months ended September 30, 2023, compared to the same period last year due to an increase in the FDIC assessment rate in 2023.web-based advertising.
Our efficiency ratio was 62.10%67.55% for the current quarter, compared to 63.21%63.37% in the preceding quarter.quarter and 58.20% for the comparable quarter last year. Our adjusted efficiency ratio, a non-GAAP financial measure, was 59.00%63.70% for the current quarter, compared to 58.58%60.04% in the preceding quarter.quarter and 54.23% for the comparable quarter last year. The efficiency ratio for the current quarter reflects a reduction in total revenues and higher non-interest expenses during the current quarter compared to the prior quarter and the comparable quarter a year ago. See non-GAAP financial measure reconciliations presented above in the ThirdFirst Quarter 20232024 Highlights section.
Income Taxes. For the quarter ended September 30, 2023,March 31, 2024, we recognized $10.7$8.8 million in income tax expense for an effective tax rate of 18.9%19.0%, which reflects our blended statutory tax rate reduced by the effect of tax-exempt income, certain tax credits, and tax benefits related to restricted stock vesting. Our statutory income tax rate is 23.5%23.7%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates. For the quarter ended June 30,December 31, 2023, we recognized $9.2$10.7 million in income tax expense for an effective tax rate of 18.8%20.1%. For the nine monthsquarter ended September 30,March 31, 2023, we recognized $32.8$12.9 million in income tax expense for an effective tax rate of 18.9%, compared to $33.4 million in income tax expense for an effective tax rate of 19.1% for the same period in the prior year..
Asset Quality
Maintaining a moderate risk profile by employing appropriate underwriting standards, avoiding excessive asset concentrations and aggressively managing troubled assets has been and will continue to be a primary focus for us. We actively engage with our borrowers to resolve adversely classified loans and other problem assets and effectively manage REO as a result of foreclosures.assets.
Non-Performing Assets: Non-performing assets increased to $26.8were $29.9 million, or 0.17%0.19% of total assets, at September 30, 2023, from $23.4March 31, 2024, compared to $30.1 million, or 0.15%0.19% of total assets, at December 31, 2022.2023. Our allowance for credit losses - loans was $147.0$151.1 million, or 560%513% of non-performing loans, at September 30, 2023,March 31, 2024, compared to $141.5$149.6 million, or 615%506% of non-performing loans, at December 31, 2022.2023.
The following table sets forth information with respect to our non-performing assets at the dates indicated (dollars in thousands):
| | | September 30, 2023 | | December 31, 2022 | | September 30, 2022 | | March 31, 2024 | | December 31, 2023 | | March 31, 2023 |
Nonaccrual Loans: | Nonaccrual Loans: | | | | | | Nonaccrual Loans: | | | |
Secured by real estate: | Secured by real estate: | | | | | | Secured by real estate: | | | |
Commercial | Commercial | $ | 1,365 | | | $ | 3,683 | | | $ | 6,997 | |
| Construction and land | |
Construction and land | |
Construction and land | Construction and land | 5,538 | | | 181 | | | 299 | |
One- to four-family | One- to four-family | 5,480 | | | 5,236 | | | 2,381 | |
Commercial business | Commercial business | 5,289 | | | 9,886 | | | 1,462 | |
Agricultural business, including secured by farmland | Agricultural business, including secured by farmland | 3,170 | | | 594 | | | 594 | |
Consumer | Consumer | 3,378 | | | 2,126 | | | 1,779 | |
| | 24,220 | | | 21,706 | | | 13,512 | |
Loans more than 90 days delinquent, still on accrual: | Loans more than 90 days delinquent, still on accrual: | | | | | | Loans more than 90 days delinquent, still on accrual: | | | |
Secured by real estate: | Secured by real estate: | | | | | | Secured by real estate: | | | |
| Construction and land | |
| Construction and land | |
| Construction and land | |
One- to four-family | One- to four-family | 1,799 | | | 1,023 | | | 1,556 | |
Commercial business | Commercial business | — | | | — | | | 64 | |
| Consumer | Consumer | 245 | | | 264 | | | 61 | |
Consumer | |
Consumer | |
| | 2,044 | | | 1,287 | | | 1,681 | |
Total non-performing loans | Total non-performing loans | 26,264 | | | 22,993 | | | 15,193 | |
| REO, net | |
REO, net | |
REO, net | REO, net | 546 | | | 340 | | | 340 | |
Other repossessed assets held for sale | Other repossessed assets held for sale | — | | | 17 | | | 17 | |
Total non-performing assets | Total non-performing assets | $ | 26,810 | | | $ | 23,350 | | | $ | 15,550 | |
| | Total non-performing assets to total assets | Total non-performing assets to total assets | 0.17 | % | | 0.15 | % | | 0.10 | % |
Total nonaccrual loans to loans before allowance for credit losses - loans | 0.23 | % | | 0.21 | % | | 0.14 | % |
| Total non-performing assets to total assets | |
| Total non-performing assets to total assets | | 0.19 | % | | 0.19 | % | | 0.17 | % |
Total nonaccrual loans to loans before allowance for credit losses – loans | | Total nonaccrual loans to loans before allowance for credit losses – loans | 0.26 | % | | 0.25 | % | | 0.25 | % |
| | Loans 30-89 days past due and on accrual | Loans 30-89 days past due and on accrual | $ | 6,108 | | | $ | 17,186 | | | $ | 15,208 | |
| Loans 30-89 days past due and on accrual | |
| Loans 30-89 days past due and on accrual | |
For the ninethree months ended September 30, 2023,March 31, 2024, interest income was reduced by $1.2 million$560,000 as a result of nonaccrual loan activity, which includesincluded the reversal of $410,000$181,000 of accrued interest as of the date the loan was placed on nonaccrual. There was no interest income recognized on nonaccrual loans for the ninethree months ended September 30, 2023.March 31, 2024.
The following table presents the Company’s portfolio of risk-rated loans and non-risk-rated loans by risk grade at the dates indicated (in thousands):
| | | September 30, 2023 | | December 31, 2022 | | September 30, 2022 | | March 31, 2024 | | December 31, 2023 | | March 31, 2023 |
| | | | | | | | | | | | |
Pass | Pass | $ | 10,467,498 | | | $ | 10,000,493 | | | $ | 9,672,473 | |
Special Mention | Special Mention | 19,394 | | | 9,081 | | | 18,251 | |
Substandard | Substandard | 124,525 | | | 137,150 | | | 136,372 | |
| Total | Total | $ | 10,611,417 | | | $ | 10,146,724 | | | $ | 9,827,096 | |
Total | |
Total | |
The decrease in substandard loans during the nine months ended September 30, 2023, primarily reflects risk rating upgrades as well as the payoffpaydowns and salepayoffs of substandard loans. The increase in special mention loans during the nine months ended September 30, 2023, primarily reflects risk rating downgrades from pass to special mention as well as risk rating upgrades from substandard to special mention.upgrades.
Liquidity and Capital Resources
Our primary sources of funds are deposits, borrowings, proceeds from loan principal and interest payments and sales of loans, and the maturity of and interest incomepayments on mortgage-backed and investment securities. While maturities and scheduled amortization of loans and mortgage-backed securities are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, economic conditions, competition and our pricing strategies.
Our primary investing activity is the origination of loans and, in certain periods, the purchase of securities or loans. During the ninethree months ended September 30,March 31, 2024 and 2023, and 2022, our loan originations, including originations of loans held for sale, exceeded our loan repayments by $666.6$120.4 million and $998.1$53.3 million, respectively. There were no loan purchases during the nine months ended September 30, 2023, and $103.3$4.7 million of loan purchases during the ninethree months ended September 30, 2022. This activity was funded primarily through borrowings.March 31, 2024, and no loan purchases during the three months ended March 31, 2023. During the ninethree months ended September 30,March 31, 2024 and 2023, and 2022, we received proceeds of $212.0$71.5 million and $388.9$50.4 million, respectively, from the sale of loans. Securities purchased during the ninethree months ended September 30,March 31, 2024 and 2023 and 2022 totaled $54.2$10.5 million and $797.3$26.4 million, respectively, and securities repayments, maturities and sales in those periods were $508.7$134.2 million and $362.1$203.9 million, respectively.
Our primary financing activity is gathering deposits. Total deposits decreasedincreased by $445.5$129.3 million during the ninethree months ended September 30, 2023, as a $1.18 billion decrease in core deposits was partially offset by the $734.8 million increase in certificates of deposit.The decline in deposits during the nine months of 2023 wasMarch 31, 2024, primarily due to interest rate sensitive clients moving a portion of their non-operating deposit balancesan increase in core deposits. Core deposits increased 1% to higher yielding investments during the first and second quarters of$11.67 billion at March 31, 2024, compared to $11.55 billion at December 31, 2023, partially offset by increasesprimarily reflecting an increase in deposits during the third quarter of 2023.savings accounts. Certificates of deposit are generally more vulnerable to competition and more price sensitive than other retail deposits and our pricing of those deposits varies significantly based upon our liquidity management strategies at any point in time. At September 30, 2023,March 31, 2024, certificates of deposit totaled $1.46$1.49 billion, or 11% of our total deposits, including $1.37$1.39 billion which were scheduled to mature within one year. The increase in certificates of deposit during 20232024 was due to a $162.9 million increase in brokered deposits, as well as clients seeking higher yields moving excess non-interest bearing funds from core deposit accounts to higher yieldinghigher-yielding certificates of deposit. While no assurance can be given as to future periods, historically, we have been able to retain a significant amount of our certificates of deposit as they mature.
The Bank’s estimated uninsured deposits were $4.18 billion or 31% of total deposits at March 31, 2024, compared to $4.08 billion or 31% of total deposits at September 30, 2023, compared to $4.84 billion or 35% of total deposits at December 31, 2022.2023. The estimated uninsured deposit calculation includes $300.2$316.6 million and $304.2$305.3 million of collateralized public deposits at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. Estimated uninsured deposits also includes cash held by the Company of $97.8$113.9 million and $77.2$108.2 million at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. Banner Bank’s estimated uninsured deposits, excluding collateralized public deposits and cash held at the holding company, were 28% of total deposits at September 30, 2023, compared to 33% of total deposits atboth March 31, 2024 and December 31, 2022.2023.
We had $140.0$52.0 million of FHLB advances at September 30, 2023,March 31, 2024, compared to $50.0$323.0 million at December 31, 2022.2023. Other borrowings decreased $44.4 millionincreased to $188.4$183.3 million at September 30, 2023March 31, 2024 from $232.8$182.9 million at December 31, 2022.2023. Subordinated notes, net of issuance costs decreased to $92.7$89.5 million at September 30, 2023,March 31, 2024, compared to $98.9$92.9 million at December 31, 2022, primarily2023, due to Banner Bank’s purchase of $6.5$3.5 million investment inof Banner’s subordinated debt during the secondfirst quarter of 2023.2024.
We must maintain an adequate level of liquidity to ensure the availability of sufficient funds to accommodate deposit withdrawals, to support loan growth, to satisfy financial commitments and to take advantage of investment opportunities. During the ninethree months ended September 30, 2023,March 31, 2024, we used our sources of funds primarily to fund loan growth and deposit outflows.growth. At September 30, 2023,March 31, 2024, we had outstanding loan commitments totaling $4.11$4.05 billion, relating to undisbursed loans in process and unused credit lines. While representing potential growth in the loan portfolio and lending activities, this level of commitments is proportionally consistent with our historical experience and does not represent a departure from normal operations.
We generally maintain sufficient cash and readily marketable securities to meet short-term liquidity needs; however, our primary liquidity management practice to supplement deposits is to increase or decrease short-term borrowings, including FHLB advances and Federal Reserve Bank of San Francisco (FRBSF) borrowings. We maintain credit facilities with the FHLB, which provide for advances that in the aggregate would equal the lesser of 45% of the Bank’s assets or adjusted qualifying collateral (subject to a sufficient level of ownership of FHLB stock). At September 30, 2023,March 31, 2024, under these credit facilities based on pledged collateral, the Bank had $2.98$3.27 billion of available credit capacity. Advances under these credit facilities totaled $140.0$52.0 million at September 30, 2023.March 31, 2024. In addition, the Bank has been approved for participation in the FRBSF’s Borrower-In-Custody program. Under this program, based on pledged collateral, the Bank had available lines of credit of approximately $1.40$1.54 billion as of September 30, 2023,March 31, 2024, subject to certain collateral requirements, namely the collateral type and risk rating of eligible pledged loans. The Bank also had $122.2$118.8 million of additional borrowing capacity through the FRBSF’s bank term funding program. We had no funds borrowed from the FRBSF at September 30, 2023March 31, 2024 or December 31, 2022.2023. At September 30, 2023,March 31, 2024, the Bank also had uncommitted federal funds line of credit agreements with other financial institutions totaling $125.0 million. No balances were outstanding under these agreements as of September 30, 2023March 31, 2024 or December 31, 2022.2023. Availability of lines is subject to federal funds balances available for loan and continued borrower eligibility. These lines are intended to support short-term liquidity needs and the agreements may restrict consecutive day usage. Management believes it has adequate resources and funding potential to meet our foreseeable liquidity requirements.
Banner is a separate legal entity from the Bank and, on a stand-alone level, must provide for its own liquidity, and pay its own operating expenses and cash dividends. At March 31, 2024, Banner (on an unconsolidated basis) had liquid assets of $114.2 million. Banner’s primary sources of funds consist of capital raised through dividends or capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends. We currently expect to continue our current practice of paying quarterly cash dividends on our common stock subject to our Board of Directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice. Our current quarterly common stock dividend rate is $0.48 per share, as approved by our Board of Directors, which we believe is a dividend rate per share which enables us to balance our multiple objectives of managing and investing in the Bank, and returning a substantial portion of our cash to our shareholders. Assuming continued dividend payments during 20232024 at this rate of $0.48 per share, our average total dividend paid each quarter would be approximately $16.5 million based on the number of outstanding shares at September 30, 2023. At September 30, 2023, Banner (on an unconsolidated basis) had liquid assets of $98.0 million.March 31, 2024.
As noted below, Banner Corporation and its subsidiary bank continued to maintain capital levels significantly in excess of the requirements to be categorized as “Well-Capitalized” under applicable regulatory standards. During the ninethree months ended September 30, 2023,March 31, 2024, total shareholders’ equity increased $64.2$11.8 million, to $1.52$1.66 billion. At September 30, 2023,March 31, 2024, tangible common shareholders’ equity, which excludes goodwill and other intangible assets, was $1.14$1.29 billion, or 7.54%8.50% of tangible assets. Tangible common shareholders’ equity represents a non-GAAP financial measure. See, non-GAAP financial measure reconciliations presented above in the ThirdFirst Quarter 20232024 Highlights sectionsection.
Capital Requirements
Banner is a bank holding company registered with the Federal Reserve. Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve. The Bank, as a state-chartered, federally insured commercial bank, is subject to the capital requirements established by the FDIC.
The capital adequacy requirements are quantitative measures established by regulation that require Banner and the Bank to maintain minimum amounts and ratios of capital. The Federal Reserve requires Banner to maintain capital adequacy that generally parallels the FDIC requirements. The FDIC requires the Bank to maintain minimum capital ratios of Total Capital, Tiertotal capital, tier 1 Capital,capital, and Common Equity Tiercommon equity tier 1 Capitalcapital to risk-weighted assets as well as Tiertier 1 Leverage Capitalleverage capital to average assets. In addition to the minimum capital ratios, the Bank has to maintain a capital conservation buffer consisting of additional Common Equity Tiercommon equity tier 1 Capitalcapital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. At September 30, 2023,March 31, 2024, Banner and the Bank each exceeded all regulatory capital requirements to be “well capitalized”.capitalized.”
The actual regulatory capital ratios calculated for Banner Corporation and Banner Bank as of September 30, 2023,March 31, 2024, along with the minimum capital amounts and ratios, were as follows (dollars in thousands):
| | | | Actual | | Minimum to be Categorized as “Adequately Capitalized” | | Minimum to be Categorized as “Well-Capitalized” | | | Actual | | Minimum to be Categorized as “Adequately Capitalized” | | Minimum to be Categorized as “Well-Capitalized” |
| | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Amount | | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Amount |
Banner Corporation—consolidated | Banner Corporation—consolidated | | | | | | | | | | | | | Banner Corporation—consolidated | | |
Total capital to risk-weighted assets | Total capital to risk-weighted assets | | $ | 1,873,419 | | | 14.34 | % | | $ | 1,045,239 | | | 8.00 | % | | $ | 1,306,548 | | | 10.00 | % | Total capital to risk-weighted assets | | $ | 1,927,380 | | | 14.71 | | 14.71 | % | | $ | 1,048,310 | | | 8.00 | | 8.00 | % | | $ | 1,310,388 | | | 10.00 | | 10.00 | % |
Tier 1 capital to risk-weighted assets | Tier 1 capital to risk-weighted assets | | 1,621,146 | | | 12.41 | | | 783,929 | | | 6.00 | | | 783,929 | | | 6.00 | |
Tier 1 leverage capital to average assets | Tier 1 leverage capital to average assets | | 1,621,146 | | | 10.40 | | | 623,306 | | | 4.00 | | | n/a | | n/a | Tier 1 leverage capital to average assets | | 1,667,720 | | | 10.71 | | 10.71 | | | 622,892 | | 622,892 | | | 4.00 | | 4.00 | | | n/a | | n/a | | n/a |
Common equity tier 1 capital | Common equity tier 1 capital | | 1,534,646 | | | 11.75 | | | 587,947 | | | 4.50 | | | n/a | | n/a | Common equity tier 1 capital | | 1,581,220 | | | 12.07 | | 12.07 | | | 589,674 | | 589,674 | | | 4.50 | | 4.50 | | | n/a | | n/a | | n/a |
Banner Bank | Banner Bank | | | | | | | | | | | | | Banner Bank | | |
Total capital to risk-weighted assets | Total capital to risk-weighted assets | | 1,768,801 | | | 13.54 | | | 1,045,221 | | | 8.00 | | | 1,306,526 | | | 10.00 | |
Tier 1 capital to risk-weighted assets | Tier 1 capital to risk-weighted assets | | 1,616,528 | | | 12.37 | | | 783,916 | | | 6.00 | | | 1,045,221 | | | 8.00 | |
Tier 1 leverage capital to average assets | Tier 1 leverage capital to average assets | | 1,616,528 | | | 10.38 | | | 623,184 | | | 4.00 | | | 778,980 | | | 5.00 | |
Common equity tier 1 capital | Common equity tier 1 capital | | 1,616,528 | | | 12.37 | | | 587,937 | | | 4.50 | | | 849,242 | | | 6.50 | |
ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk
Market Risk and Asset/Liability Management
Our financial condition and operations are influenced significantly by general economic conditions, including the absolute level of interest rates as well as changes in interest rates and the slope of the yield curve. Our profitability is dependent, to a large extent, on our net interest income, which is the difference between the interest received from our interest-earning assets and the interest expense incurred on our interest-bearing liabilities.
Our activities, like all financial institutions, inherently involve the assumption of interest rate risk. Interest rate risk is the risk that changes in market interest rates will have an adverse impact on the institution’s earnings and underlying economic value. Interest rate risk is determined by the maturity and repricing characteristics of an institution’s assets, liabilities and off-balance-sheet contracts. Interest rate risk is measured by the variability of financial performance and economic value resulting from changes in interest rates. Interest rate risk is the primary market risk affecting our financial performance.
For Banner, the greatest source of interest rate risk to us results from the mismatch of maturities or repricing intervals for rate sensitive assets, liabilities and off-balance-sheet contracts. This mismatch or gap is generally characterized by a substantially shorter maturity structure for interest-bearing liabilities than interest-earning assets, although our floating-rate assets tend to be more immediately responsive to changes in market rates than most deposit liabilities. Additional interest rate risk results from mismatched repricing indices and formula (basis risk and yield curve risk), and product caps and floors and early repayment or withdrawal provisions (option risk), which may be contractual or market driven, that are generally more favorable to clients than to us. An exception to this generalization is the beneficial effect of interest rate floors on a portion of our performing floating-rate loans, which help us maintain higher loan yields in periods when market interest rates decline significantly. However, in a declining interest rate environment, as loans with floors are repaid they generally are replaced with new loans which have lower interest rate floors. As of September 30, 2023,March 31, 2024, our loans with interest rate floors totaled $4.64$4.81 billion and had a weighted average floor rate of 4.29%4.48% compared to a current average note rate of 6.44%6.6%. As of September 30, 2023, ourOur loans with interest rates at their floors at March 31, 2024, totaled $1.39$1.31 billion and had a weighted average note rate of 4.10%4.11%. The Company actively manages its exposure to interest rate risk through on-going adjustments to the mix of interest-earning assets and funding sources that affect the repricing speeds of loans, investments, interest-bearing deposits and borrowings.
The principal objectives of asset/liability management are:are to evaluate the interest rate risk exposure; to determine the appropriate level of risk given our operating environment, business plan strategies, performance objectives, capital and liquidity constraints, and asset and liability allocation alternatives; and to manage our interest rate risk consistent with regulatory guidelines and policies approved by the Board of Directors. Through such management, we seek to reduce the vulnerability of our earnings and capital position to changes in the level of interest rates. Our actions in this regard are taken under the guidance of the Asset/Liability Management Committee, which is comprised of members of our senior management. The Committee closely monitors our interest sensitivity exposure, asset and liability allocation decisions, liquidity and capital positions, and local and national economic conditions and attempts to structure the loan and investment portfolios and funding sources to maximize earnings within acceptable risk tolerances.
Sensitivity Analysis
Our primary monitoring tool for assessing interest rate risk is asset/liability simulation modeling, which is designed to capture the dynamics of balance sheet, interest rate and spread movements and to quantify variations in net interest income resulting from those movements under different rate environments. The sensitivity of net interest income to changes in the modeled interest rate environments provides a measurement of interest rate risk. We also utilize economic value analysis, which addresses changes in estimated net economic value of equity arising from changes in the level of interest rates. The net economic value of equity is estimated by separately valuing our assets and liabilities under varying interest rate environments. The extent to which assets gain or lose value in relation to the gains or losses of liability values under the various interest rate assumptions determines the sensitivity of net economic value to changes in interest rates and provides an additional measure of interest rate risk.
The interest rate sensitivity analysis performed by us incorporates beginning-of-the-period rate, balance and maturity data, using various levels of aggregation of that data, as well as certain assumptions concerning the maturity, repricing, amortization and prepayment characteristics of loans and other interest-earning assets and the repricing and withdrawal of deposits and other interest-bearing liabilities into an asset/liability simulation model. We update and prepare simulation modeling at least quarterly for review by senior management and oversight by the directors. We believe the data and assumptions are realistic representations of our portfolio and possible outcomes under the various interest rate scenarios. Nonetheless, the interest rate sensitivity of our net interest income and net economic value of equity could vary substantially if different assumptions were used or if actual experience differs from the assumptions used.
The following table setstables set forth, as of September 30, 2023,March 31, 2024, the estimated changes in our net interest income over one-year and two-year time horizons for our rate ramp and rate shock interest rate sensitivity scenarios, and the estimated changes in economic value of equity for our rate shock interest rate sensitivity scenario based on the indicated interest rate environments (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Estimated Increase (Decrease) in |
Change (in Basis Points) in Interest Rates (1) | | Net Interest Income Next 12 Months | | Net Interest Income Next 24 Months | | Economic Value of Equity |
| | | | | | | | | | | | |
+300 | | $ | (20,643) | | | (3.5) | % | | $ | (2,206) | | | (0.2) | % | | $ | (366,146) | | | (13.7) | % |
+200 | | (3,507) | | | (0.6) | | | 20,684 | | | 1.6 | | | (204,479) | | | (7.6) | |
+100 | | 3,618 | | | 0.6 | | | 21,819 | | | 1.7 | | | (85,045) | | | (3.2) | |
0 | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
-100 | | (22,514) | | | (3.8) | | | (62,100) | | | (4.9) | | | 50,314 | | | 1.9 | |
-200 | | (45,076) | | | (7.6) | | | (125,780) | | | (9.9) | | | 59,101 | | | 2.2 | |
-300 | | (70,180) | | | (11.8) | | | (197,924) | | | (15.6) | | | (28,752) | | | (1.1) | |
| | | | | | | | | | | | |
Interest Rate Risk Indicators - Rate Ramp
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 |
| | Estimated Increase (Decrease) in |
Change (in Basis Points) in Interest Rates (1) | | Net Interest Income Next 12 Months | | Net Interest Income Next 24 Months |
| | | | | | | | |
+300 | | $ | (288) | | | (0.1) | % | | $ | 3,751 | | | 0.3 | % |
+200 | | 2,458 | | | 0.4 | | | 15,694 | | | 1.3 | |
+100 | | 2,794 | | | 0.5 | | | 15,266 | | | 1.3 | |
0 | | — | | | — | | | — | | | — | |
| | | | | | | | |
| | | | | | | | |
-100 | | (7,228) | | | (1.3) | | | (32,094) | | | (2.7) | |
-200 | | (14,076) | | | (2.5) | | | (67,000) | | | (5.6) | |
-300 | | (21,091) | | | (3.7) | | | (103,685) | | | (8.6) | |
| | | | | | | | |
(1)Assumes a gradual change in market interest rates at all maturities during the first year; however, no rates are allowed to go below zero. The targeted Federal Funds Rate was between 5.25% and 5.50% at March 31, 2024.
Interest Rate Risk Indicators - Rate Shock
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 |
| | Estimated Increase (Decrease) in |
Change (in Basis Points) in Interest Rates (1) | | Net Interest Income Next 12 Months | | Net Interest Income Next 24 Months | | Economic Value of Equity |
| | | | | | | | | | | | |
+300 | | $ | (11,229) | | | (2.0) | % | | $ | 13,319 | | | 1.1 | % | | $ | (308,148) | | | (12.2) | % |
+200 | | 1,837 | | | 0.3 | | | 28,994 | | | 2.4 | | | (180,915) | | | (7.1) | |
+100 | | 5,836 | | | 1.0 | | | 25,542 | | | 2.1 | | | (80,822) | | | (3.2) | |
0 | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
-100 | | (18,569) | | | (3.3) | | | (51,810) | | | (4.3) | | | 47,081 | | | 1.9 | |
-200 | | (38,088) | | | (6.7) | | | (109,010) | | | (9.1) | | | 43,714 | | | 1.7 | |
-300 | | (58,946) | | | (10.3) | | | (172,965) | | | (14.4) | | | (50,943) | | | (2.0) | |
(1)Assumes an instantaneous and sustained uniform change in market interest rates at all maturities; however, no rates are allowed to go below zero. The targeted Federal Funds Rate was between 5.25% and 5.50% at September 30, 2023.March 31, 2024.
Another monitoring tool for assessing interest rate risk is gap analysis. The matching of the repricing characteristics of assets and liabilities may be analyzed by examining the extent to which assets and liabilities are interest sensitive and by monitoring an institution’s interest sensitivity gap. An asset or liability is said to be interest sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets anticipated, based upon certain assumptions, to mature or reprice within a specific time period and the amount of interest-bearing liabilities anticipated to mature or reprice, based upon certain assumptions, within that same time period. A gap is considered positive when the amount of interest-sensitive assets exceeds the amount of interest-sensitive liabilities. A gap is considered negative when the amount of interest-sensitive liabilities exceeds the amount of interest-sensitive assets. Generally, during a period of rising rates, a negative gap would tend to adversely affect net interest income while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to adversely affect net interest income.
Certain shortcomings are inherent in gap analysis. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally, the ability of some borrowers to service their debt may decrease in the event of a severe change in market rates.
The following table presents our interest sensitivity gap between interest-earning assets and interest-bearing liabilities at September 30, 2023March 31, 2024 (dollars in thousands). The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities which are anticipated by us, based upon certain assumptions, to reprice or mature in each of the future periods shown. At September 30, 2023,March 31, 2024, total interest-earning assets maturing or repricing within one year exceeded total interest-bearing liabilities maturing or repricing in the same time period by $2.23$1.97 billion, representing a one-year cumulative gap to total assets ratio of 14.35%12.68%. The interest rate risk indicators and interest sensitivity gaps as of September 30, 2023March 31, 2024 are within our internal policy guidelines and management considers that our current level of interest rate risk is reasonable.
| | | Within 6 Months | | After 6 Months Within 1 Year | | After 1 Year Within 3 Years | | After 3 Years Within 5 Years | | After 5 Years Within 10 Years | | Over 10 Years | | Total | | Within 6 Months | | After 6 Months Within 1 Year | | After 1 Year Within 3 Years | | After 3 Years Within 5 Years | | After 5 Years Within 10 Years | | Over 10 Years | | Total |
Interest-earning assets: (1) | Interest-earning assets: (1) | | | | | | | | | | | | | | Interest-earning assets: (1) | | | |
Construction loans | Construction loans | $ | 946,350 | | | $ | 74,436 | | | $ | 155,384 | | | $ | 35,493 | | | $ | 26,188 | | | $ | 152 | | | $ | 1,238,003 | |
Fixed-rate mortgage loans | Fixed-rate mortgage loans | 232,637 | | | 192,604 | | | 707,759 | | | 558,471 | | | 782,420 | | | 305,193 | | | 2,779,084 | |
Adjustable-rate mortgage loans | Adjustable-rate mortgage loans | 1,079,037 | | | 348,098 | | | 1,331,944 | | | 922,267 | | | 430,577 | | | 32,111 | | | 4,144,034 | |
Fixed-rate mortgage-backed securities | Fixed-rate mortgage-backed securities | 83,500 | | | 92,533 | | | 337,395 | | | 417,082 | | | 853,710 | | | 1,004,548 | | | 2,788,768 | |
Adjustable-rate mortgage-backed securities | Adjustable-rate mortgage-backed securities | 293,567 | | | 45 | | | 193 | | | 212 | | | 4,103 | | | — | | | 298,120 | |
Fixed-rate commercial/agricultural loans | Fixed-rate commercial/agricultural loans | 106,519 | | | 90,053 | | | 247,811 | | | 141,993 | | | 152,402 | | | 30,741 | | | 769,519 | |
Adjustable-rate commercial/agricultural loans | Adjustable-rate commercial/agricultural loans | 883,233 | | | 23,836 | | | 75,429 | | | 64,472 | | | 3,589 | | | — | | | 1,050,559 | |
Consumer and other loans | Consumer and other loans | 448,991 | | | 92,656 | | | 51,616 | | | 36,055 | | | 27,973 | | | 43,472 | | | 700,763 | |
Investment securities and interest-earning deposits | Investment securities and interest-earning deposits | 94,400 | | | 6,442 | | | 53,455 | | | 10,610 | | | 127,925 | | | 565,828 | | | 858,660 | |
Total rate sensitive assets | Total rate sensitive assets | 4,168,234 | | | 920,703 | | | 2,960,986 | | | 2,186,655 | | | 2,408,887 | | | 1,982,045 | | | 14,627,510 | |
Interest-bearing liabilities: (2) | Interest-bearing liabilities: (2) | | | | | | | | | | | | | | Interest-bearing liabilities: (2) | | | |
Regular savings | Regular savings | 250,247 | | | 164,406 | | | 552,999 | | | 418,059 | | | 656,643 | | | 709,099 | | | 2,751,453 | |
Interest checking accounts | Interest checking accounts | 246,128 | | | 111,610 | | | 367,024 | | | 270,934 | | | 425,607 | | | 585,563 | | | 2,006,866 | |
Money market deposit accounts | Money market deposit accounts | 195,529 | | | 104,296 | | | 351,245 | | | 265,660 | | | 415,506 | | | 427,831 | | | 1,760,067 | |
Certificates of deposit | Certificates of deposit | 1,079,544 | | | 294,419 | | | 75,290 | | | 8,276 | | | 784 | | | — | | | 1,458,313 | |
FHLB advances | FHLB advances | 140,000 | | | — | | | — | | | — | | | — | | | — | | | 140,000 | |
Subordinated notes | Subordinated notes | — | | | — | | | 93,500 | | | — | | | — | | | — | | | 93,500 | |
Junior subordinated debentures | Junior subordinated debentures | 89,178 | | | — | | | — | | | — | | | — | | | — | | | 89,178 | |
Retail repurchase agreements | Retail repurchase agreements | 188,440 | | | — | | | — | | | — | | | — | | | — | | | 188,440 | |
Total rate sensitive liabilities | Total rate sensitive liabilities | 2,189,066 | | | 674,731 | | | 1,440,058 | | | 962,929 | | | 1,498,540 | | | 1,722,493 | | | 8,487,817 | |
Excess of interest-sensitive assets over interest-sensitive liabilities | Excess of interest-sensitive assets over interest-sensitive liabilities | $ | 1,979,168 | | | $ | 245,972 | | | $ | 1,520,928 | | | $ | 1,223,726 | | | $ | 910,347 | | | $ | 259,552 | | | $ | 6,139,693 | |
Cumulative excess of interest-sensitive assets | Cumulative excess of interest-sensitive assets | $ | 1,979,168 | | | $ | 2,225,140 | | | $ | 3,746,068 | | | $ | 4,969,794 | | | $ | 5,880,141 | | | $ | 6,139,693 | | | $ | 6,139,693 | |
Cumulative ratio of interest-earning assets to interest-bearing liabilities | Cumulative ratio of interest-earning assets to interest-bearing liabilities | 190.41 | % | | 177.70 | % | | 187.04 | % | | 194.36 | % | | 186.92 | % | | 172.34 | % | | 172.34 | % | Cumulative ratio of interest-earning assets to interest-bearing liabilities | 176.73 | % | | 161.56 | % | | 184.48 | % | | 190.53 | % | | 184.42 | % | | 164.45 | % | | 164.45 | % |
Interest sensitivity gap to total assets | Interest sensitivity gap to total assets | 12.76 | | | 1.59 | | | 9.81 | | | 7.89 | | | 5.87 | | | 1.67 | | | 39.59 | |
Ratio of cumulative gap to total assets | Ratio of cumulative gap to total assets | 12.76 | | | 14.35 | | | 24.16 | | | 32.05 | | | 37.92 | | | 39.59 | | | 39.59 | |
(Footnotes on following page)
Footnotes for Table of Interest Sensitivity Gap
(1)Adjustable-rate assets are included in the period in which interest rates are next scheduled to adjust rather than in the period in which they are due to mature, and fixed-rate assets are included in the period in which they are scheduled to be repaid based upon scheduled amortization, in each case adjusted to take into account estimated prepayments. Mortgage loans and other loans are not reduced for allowances for credit losses and non-performing loans. Mortgage loans, mortgage-backed securities, other loans and investment securities are not adjusted for deferred fees or unamortized acquisition premiums and discounts.
(2)Adjustable-rate liabilities are included in the period in which interest rates are next scheduled to adjust rather than in the period they are due to mature. Although regular savings, demand, interest checking, and money market deposit accounts are subject to immediate withdrawal, based on historical experience management considers a substantial amount of such accounts to be core deposits having significantly longer maturities. For the purpose of the gap analysis, these accounts have been assigned decay rates to reflect their longer effective maturities. If all of these accounts had been assumed to be short-term, the one-year cumulative gap of interest-sensitive assets would have been $(3.2)a negative $3.5 billion, or (20.77)%negative 22.70% of total assets at September 30, 2023.March 31, 2024.
ITEM 4 – Controls and Procedures
The management of Banner Corporation is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934 (Exchange Act). A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that its objectives are met. Also, because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. As a result of these inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Further, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
(a)Evaluation of Disclosure Controls and Procedures: An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) was carried out under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer and several other members of our senior management as of the end of the period covered by this report. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2023,March 31, 2024, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports it files or submits under the Exchange Act is (i) accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
(b)Changes in Internal Controls Over Financial Reporting: In the quarter ended September 30, 2023,March 31, 2024, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1 – Legal Proceedings
In the normal course of our business, we have various legal proceedings and other contingent matters pending. These proceedings and the associated legal claims are often contested and the outcome of individual matters is not always predictable. Furthermore, in some matters, it is difficult to assess potential exposure because the legal proceeding is still in the pretrial stage. These claims and counter claims typically arise during the course of collection efforts on problem loans or with respect to actions to enforce liens on properties in which we hold a security interest, although we also are subject to claims related to employment matters. Claims related to employment matters may include, but are not limited to, claims by our employees of discrimination, harassment, violations of wage and hour requirements, or violations of other federal, state, or local laws and claims of misconduct or negligence on the part of our employees. Some or all of these claims may lead to litigation, including class action litigation, and these matters may cause us to incur negative publicity with respect to alleged claims. Our insurance may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. Should the ultimate judgments or settlements in any litigation exceed our insurance coverage, they could have a material adverse effect on our financial condition and results of operation for any period. At September 30, 2023,March 31, 2024, we had accrued $14.8 million related to these legal proceedings. The ultimate outcome of these legal proceedings could be more or less than what we have accrued. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, operations or cash flows, except as set forth below.
A class and collective action lawsuit, Bolding et al. v. Banner Bank, US Dist. Ct., WD WA., was filed against Banner Bank on April 17, 2017. The plaintiffs are former and/or current mortgage loan officers of AmericanWest Bank and/or Banner Bank, who allege that the employer bank failed to pay all required regular and overtime wages that were due pursuant to the Fair Labor Standards Act (FLSA) and related laws of the state respective to each individual plaintiff. The plaintiffs seek regular and overtime wages, plus certain penalty amounts and legal fees. On December 15, 2017, the Court granted the plaintiffs’ motion for conditional certification of a class with regard to the FLSA claims; following notice given to approximately 160 potential class members, 33 persons elected to “opt-in” as plaintiffs in the class. On October 10, 2018, the Court granted plaintiffs’ motion for certification of a different class of approximately 200 members, with regard to state law claims. Significant pre-trial motions were filed by both parties, including various motions by Banner Bank seeking to dismiss and/or limit the class claims. The Court granted in part and denied in part Banner Bank’s motions and has ultimately allowed the case to proceed. The Court ruled on the last of the pre-trial motions on September 13, 2021, increasing the likelihood of trial or settlement. The parties participated in a mediation in December 2022. The parties have executed a written settlement agreement and on October 4, 2023, the Court issued an order granting preliminary approval of the settlement. A fairness hearing has been scheduled forwas held on February 22, 2024, after which the Court entered a minute entry granting final approval of the settlement, awarding expenses in the amount of $303,000, and approving an award of $20,000 for each of the three class representatives. The Court reserved ruling on the amount of class counsel fees to be awarded. On February 22, 2024, the Court entered a written order granting final approval of the settlement. On February 23, 2024, the Court entered a written order awarding class counsel fees in the amount of $5.0 million and confirming the Court’s minute entry awarding expenses and awards to the class representatives. The Court-approved settlement agreement resolves the class action litigation and contains no admission of wrongdoing. The settlement structure requires Banner Bank to make available a total settlement fund of up to $15.0 million (the “Settlement Fund”) for the Courtpurpose of paying valid claims, class representative service awards, class counsel fees and expenses, and administration costs. The aggregate amount ultimately to determine whetherbe paid may be less than the settlement should be given final approval.Settlement Fund depending on the value of the valid claims submitted. No additional accruals are currently anticipated for these purposes.
ITEM 1A – Risk Factors
The following risk factor supplements, and should be readThere have been no material changes in conjunction with, the Company’s risk factors previously disclosed in Part 1, Item 1A of our Annual Report on2023 Form 10-K for the year ended December 31, 2022.
Risks related to recent events impacting the banking industry could adversely affect our stock price, results of operations and financial condition
The banking industry has been negatively impacted by the failures of Silicon Valley Bank and Signature Bank in March 2023, and First Republic Bank in May 2023. These failures have highlighted deposit-related risks to the banking industry, in particular the speed at which deposits can be moved. These events have led to decreased investor and depositor confidence in regional banks as well as increased volatility in the stock trading prices of regional banks, to varying degrees. Despite differences in business models across the banking industry, further concerns related to these events could adversely impact our deposits, liquidity, results of operations and the trading price of our stock.
10-K.
ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) The following table provides information about repurchases of common stock by the Company during the quarter ended September 30, 2023:March 31, 2024:
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Period | | Total Number of Common Shares Purchased (1) | | Average Price Paid per Common Share | | Total Number of Shares Purchased as Part of Publicly Announced Authorization | | Maximum Number of Remaining Shares that May be Purchased as Part of Publicly Announced Authorization |
July 1, 2023 - July 31, 2023 | | 363 | | | $ | 47.41 | | | — | | | — | |
August 1, 2023 - August 31, 2023 | | 30 | | | 47.02 | | | — | | | — | |
September 1, 2023 - September 30, 2023 | | — | | | — | | | — | | | — | |
Total for quarter | | 393 | | | $ | 47.38 | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Common Shares Purchased (1) | | Average Price Paid per Common Share | | Total Number of Shares Purchased as Part of Publicly Announced Authorization | | Maximum Number of Remaining Shares that May be Purchased as Part of Publicly Announced Authorization |
January 1, 2024 - January 31, 2024 | | 39 | | | $ | 48.44 | | | — | | | — | |
February 1, 2024 - February 29, 2024 | | 353 | | | 45.32 | | | — | | | — | |
March 1, 2024 - March 31, 2024 | | 19,810 | | | 44.88 | | | — | | | — | |
Total for quarter | | 20,202 | | | $ | 44.89 | | | — | | | |
(1) Includes 39320,202 shares surrendered by employees to satisfy tax withholding obligations upon the vesting of restricted stock grants during the three months ended September 30, 2023.March 31, 2024.
ITEM 3 – Defaults upon Senior Securities
Not Applicable.
ITEM 4 – Mine Safety Disclosures
Not Applicable.
ITEM 5 – Other Information
(a) None
(b) None
(c) None
During the quarter ended March 31, 2024, there were no Rule 10b5‑1 trading arrangements (as defined in Item 408(a) of Regulation S-K) or non-Rule 10b5-1 trading arrangements (as defined in Item 408(c) of Regulation S-K) adopted or terminated by any director or officer (as defined in Rule 16a‑1(f) under the Exchange Act) of the Company.
ITEM 6 – Exhibits
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Exhibit | Index of Exhibits |
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3{a} | |
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3{b} | |
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10{a}* | |
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10{b}* | |
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10{c}* | |
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10{d}* | |
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10{e}* | |
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10{f}* | |
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10{g}* | |
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10{h}* | |
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10{i} | |
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10{j}i}* | |
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10{k}j}* | |
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10{k}* | |
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10{l}* | |
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10{m}* | |
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10{n}* | |
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10{o}* | |
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31.1 | |
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Exhibit | Index of Exhibits |
31.2 | |
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32 | |
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101.INS | Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the XBRL documentdocument. |
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101.SCH | Inline XBRL Taxonomy Extension Schema DocumentDocument. |
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101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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Exhibit | Index of ExhibitsDocument. |
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101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase DocumentDocument. |
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101.LAB | Inline XBRL Taxonomy Extension Label Linkbase DocumentDocument. |
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101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase DocumentDocument. |
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104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023,March 31, 2024, formatted in Inline XBRL (included in Exhibit 101). |
* Compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| Banner Corporation | |
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November 2, 2023May 7, 2024 | /s/ Mark J. Grescovich | |
| Mark J. Grescovich | |
| President and Chief Executive Officer (Principal Executive Officer) | |
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November 2, 2023May 7, 2024 | /s/ Robert G. Butterfield | |
| Robert G. Butterfield | |
| Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) | |