Overview
Banner Corporation (NASDAQ:BANR) is a regional bank holding company that has demonstrated its ability to navigate challenging market conditions while maintaining a strong financial profile. With a focus on serving the needs of its local communities, Banner has consistently delivered solid operating results, showcasing the resilience of its business model.
Financials
For the fiscal year ended December 31, 2023, Banner reported annual net income of $183.6 million and annual revenue of $751.6 million. The company's annual operating cash flow stood at $233.5 million, while its annual free cash flow reached $218.8 million. These robust financial metrics underscore Banner's ability to generate sustainable earnings and cash flow, even in the face of market volatility.
In the second quarter of 2024, Banner reported net income available to common shareholders of $39.8 million, or $1.15 per diluted share. This compares to $37.6 million, or $1.09 per diluted share, in the first quarter of 2024. The company's earnings were impacted by the rapid increase in interest rates, which resulted in higher funding costs. However, Banner's strategy of maintaining a moderate risk profile and its continued investments in operational improvements have positioned the company well to weather the current market headwinds.
Core Earnings Power
One of the key highlights of Banner's performance was its strong core earnings power. The company's pre-tax, pre-provision earnings, excluding gains and losses on the sale of securities and changes in the fair value of financial instruments, were $52.4 million in the second quarter of 2024. This reflects the resilience of Banner's core operations and its ability to generate consistent revenue from its banking activities.
Banner's revenue from core operations remained stable at approximately $150 million in the second quarter of 2024, consistent with the first quarter. The company's strong core deposit base, which represented 88% of total deposits as of June 30, 2024, has proven to be resilient and loyal, contributing to Banner's solid net interest margin.
Business Overview
Geographic Diversification
Geographically, Banner's loan portfolio is well-diversified, with a presence in Washington, Oregon, California, Idaho, and Utah. As of June 30, 2024, the company's loans were distributed as follows: Washington (46%), California (25%), Oregon (18%), Idaho (6%), and Utah (1%), with the remaining 4% in other regions.
Loan Composition
In terms of loan composition, Banner's portfolio is balanced, with commercial real estate (33%), one-to-four-family residential (14%), construction and land development (14%), commercial and agricultural business (24%), and consumer loans (6%) as the key segments. The company has experienced solid loan growth, with the loan portfolio increasing by 6% year-over-year as of the second quarter of 2024.
Credit Quality
Banner's credit quality metrics remain strong, with non-performing assets at 0.21% of total assets as of June 30, 2024. The company's allowance for credit losses provided 1.37% coverage of the loan portfolio and 498% coverage of non-performing loans. Jill Rice, Banner's Chief Credit Officer, noted that the company's credit underwriting criteria have not changed materially over the past decade, and the vast majority of the loan book has solid sponsorship, personal guarantees, and properly margined collateral support.
Liquidity
The company's liquidity and capital positions also remain robust. Banner's core deposits, which include non-interest-bearing and interest-bearing transaction and savings accounts, represented 88% of total deposits as of June 30, 2024. The company's total borrowings increased during the quarter, primarily due to the use of FHLB advances to fund loan growth and seasonal deposit outflows. However, Banner's overall liquidity profile remains strong, with significant off-balance sheet borrowing capacity and all capital ratios exceeding regulatory well-capitalized levels.
Outlook
Looking ahead, Banner's management team remains cautiously optimistic about the company's prospects. While the operating environment for commercial banks remains challenging due to the rapid increase in interest rates, Banner's focus on maintaining a moderate risk profile and its continued investments in operational improvements have positioned the company well to navigate the current market conditions.
In terms of guidance, Banner's management team expects loan growth to be in the low to mid-single digits for the full year 2024. The company's net interest margin is nearing a trough, and management believes that once the Federal Reserve begins to cut interest rates, the margin will start to stabilize. However, the trajectory of the net interest margin will largely depend on the company's deposit flows in the third quarter of 2024.
Conclusion
Overall, Banner Corporation has demonstrated its ability to deliver consistent financial performance and maintain a strong balance sheet, even in the face of a challenging operating environment. The company's focus on serving its local communities, its disciplined approach to credit risk management, and its ongoing investments in operational efficiency have positioned Banner as a resilient community bank that is well-equipped to navigate the current market headwinds and capitalize on future growth opportunities.