Banner Corporation (NASDAQ: BANR) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with 2022. This is an annual filing, not a standalone fourth-quarter results report. Banner is a Washington bank holding company operating Banner Bank, with 135 branches and 13 loan production offices across its regional footprint.
Financial performance and condition
- Revenue and earnings: Total revenue was $620.4 million, down 1% from $628.4 million. Net income fell to $183.6 million from $195.4 million; diluted EPS was $5.33 versus $5.67.
- Net interest income and margin: Net interest income rose 4% to $576.0 million. Tax-equivalent net interest margin improved to 4.01% from 3.68%, as asset yields rose faster than funding costs. Interest expense nevertheless increased sharply, to $125.6 million from $19.4 million.
- Other income and expenses: Non-interest income fell to $44.4 million from $75.3 million, mainly reflecting a $19.2 million securities-sale loss, a $4.2 million fair-value loss, and the absence of a $7.8 million branch-sale gain recorded in 2022. Non-interest expense increased 1% to $382.5 million. The GAAP efficiency ratio worsened to 61.66% from 60.04%.
- Cash flow: Operating activities provided $257.2 million, compared with $238.1 million in 2022. Investing activities provided $191.9 million versus using $1.44 billion, reflecting lower securities purchases and proceeds from securities sales and maturities. Financing activities used $437.7 million, including deposit outflows and $66.8 million of dividends paid. Cash and cash equivalents ended the year at $254.5 million. Management separately reported on-balance-sheet liquidity of $2.93 billion.
- Balance sheet and lending: Total assets were $15.67 billion, down from $15.83 billion. Gross loans increased 7% to $10.81 billion; net loans were $10.66 billion. Deposits declined 4% to $13.03 billion. The loan-to-deposit ratio rose to 83.05% from 74.92%.
- Credit quality: Non-performing assets increased to $30.1 million, or 0.19% of assets, from $23.4 million, or 0.15%. The loan allowance was $149.6 million, or 1.38% of loans, compared with $141.5 million, or 1.39%. The 2023 loan-loss provision was $11.1 million, up from $8.2 million; management attributed the increase to loan growth, a weaker economic forecast and higher charge-offs.
- Debt, liquidity and capital: Borrowings totaled $665.1 million, including $323.0 million of FHLB advances, $182.9 million of other borrowings, $92.9 million of subordinated notes and $66.4 million of junior subordinated debentures. Available borrowing capacity was reported at $4.65 billion. Banner and the Bank met the regulatory definition of well capitalized; Banner’s total capital, Tier 1 and CET1 ratios were 14.58%, 12.64% and 11.97%, respectively.
- Equity and shareholder returns: Shareholders’ equity increased to $1.65 billion from $1.46 billion. Book value per share was $48.12 and tangible book value per share was $37.09. Dividends were $1.92 per share for the year; the current quarterly rate is $0.48, subject to Board discretion.
Material changes versus 2022
- Higher asset yields lifted net interest income and margin, but deposit and borrowing costs rose materially. Non-interest-bearing deposits fell 22% to $4.79 billion, while certificates of deposit more than doubled to $1.48 billion.
- Core deposits declined to 89% of deposits from 95%; estimated uninsured deposits were 31% of deposits, or 28% excluding collateralized public deposits and holding-company cash.
- Loan balances grew, especially in one- to four-family residential and multifamily lending. Multifamily loans held for sale were discontinued as a business line in the fourth quarter; $43.5 million was transferred to the held-for-investment portfolio.
- The securities portfolio declined to $3.43 billion. Available-for-sale securities’ gross unrealized losses were $358.3 million at year-end, improving from $431.2 million a year earlier. Accumulated other comprehensive loss narrowed to $289.1 million from $362.8 million.
- Net income and diluted EPS declined, despite stronger net interest income, primarily because non-interest income was lower and expenses and credit-loss provisions were higher.
Outlook, risks and unusual items
- Outlook: The filing provides no specific company earnings or balance-sheet guidance. Management describes a strategy focused on high-quality asset growth, client acquisition, efficiency, talent retention and technology. It expects to continue quarterly dividends at $0.48 per share for the foreseeable future, subject to Board review and regulatory constraints.
- Interest-rate exposure: Management identifies funding costs, deposit competition, yield-curve changes and the repricing of loans and deposits as key risks. Its year-end modeling estimated that an immediate +300 basis-point rate shock would reduce next-12-month net interest income by 6.2%; a −300 basis-point shock would reduce it by 11.5%. These are model estimates, not forecasts, and depend on assumptions about deposit behavior and repricing.
- Credit and concentration risks: The portfolio is concentrated in the company’s regional markets and is substantially real-estate-related. Construction and land loans were $1.54 billion; commercial and multifamily real estate loans were $4.45 billion. Management cites risks from weaker economic conditions, real-estate values, borrower cash flows and collateral values.
- Legal contingency: The company accrued $14.8 million for legal proceedings. A mortgage-loan-officer class settlement provides for a fund of up to $15.0 million. The court granted final approval in February 2024, after year-end; the amount ultimately paid may be lower, and the court had not yet ruled on class counsel fees. Management anticipated no additional accrual at filing, while noting appeal and settlement-payment uncertainties.
- Other notable items: A $19.2 million loss was recorded on securities sales, which management described as strategic sales to reduce the impact of rising rates. The auditor issued unqualified opinions on the financial statements and internal controls, and identified allowance-for-credit-loss qualitative factors as a critical audit matter. Management reported effective internal control over financial reporting.
- Other risks: The filing highlights deposit outflows and industry confidence, cyber incidents and third-party service disruptions, regulatory changes, FDIC assessment costs, litigation, and the sensitivity of allowance and fair-value estimates to economic assumptions.
Important facts for investors to verify
- Whether deposit trends stabilize, and how much of the deposit mix shifts to higher-cost certificates or other funding.
- Subsequent net interest margin and funding-cost trends, including how actual results compare with the filing’s interest-rate sensitivity scenarios.
- Whether non-performing assets, delinquencies, charge-offs and allowance coverage continue to rise, particularly in construction, commercial business and real-estate lending.
- The final cost and any appeal of the mortgage-loan-officer settlement, including the court’s determination of class counsel fees.
- The liquidity and capital implications of deposit outflows, securities values and upcoming 2024 maturities of FHLB advances and other borrowings.
- Reconcile reported loan figures when comparing disclosures: the filing reports $10.81 billion of gross loans and $10.66 billion of net loans at year-end.