Banner Extends Margin Gains as Loan Growth Accelerates
Tax-equivalent net interest margin expanded 2 bps to 4.13% as loan production accelerated.
Banner (BANR), the Pacific Northwest regional bank, extended its margin recovery in the second quarter as lower deposit pricing and renewed loan growth lifted net interest income. Net interest income rose 2.3% QoQ and 6.4% YoY to $153.7 million, while tax-equivalent net interest margin expanded 2 bps QoQ and 21 bps YoY to 4.13%.
The margin gain followed an 8-bp increase in the first quarter and continued the climb from 4.03% in 4Q24. Earning-asset yield increased 2 bps QoQ to 5.41%, helped by a 2-bp rise in loan yield to 6.09% and lower borrowing costs.
Loan activity supplied the quarter’s central operating shift. Period-end net loans rose 2% QoQ and 3% YoY to $11.83 billion after holding essentially flat in the first quarter, as originations increased to $1.26 billion from $863.2 million QoQ and $966.6 million YoY. Commercial business loans led the expansion, rising 6% QoQ and 5% YoY to $2.58 billion, while commercial real-estate loans grew 1% QoQ and 4% YoY to $4.14 billion.
Consumer loans increased 7% QoQ and 13% YoY to $827.0 million, driven by new production and home-equity line advances. Multifamily balances also rose 7% QoQ to $855.9 million, though they remained 1% below the year-earlier level.
Funding tightened as seasonal tax outflows pushed deposits down 0.4% QoQ to $13.79 billion, still 1.9% above a year earlier. Deposit costs declined another 2 bps QoQ and 14 bps YoY to 1.33%, but total funding cost increased 1 bp QoQ to 1.39% after Banner added $320.0 million of Federal Home Loan Bank advances to fund loan growth and deposit outflows.
The revenue benefit met a higher cost base. Noninterest income fell 5.2% QoQ to $18.2 million, largely because of an unfavorable fair-value swing, while noninterest expense rose 5.3% to $108.0 million on higher compensation, loan commissions, software, legal and advertising costs. The adjusted efficiency ratio deteriorated 185 bps QoQ to 61.30%.
Credit costs normalized with balance-sheet growth. Banner recorded a $3.8 million provision after a $796,000 recapture in the first quarter, principally reflecting loan growth, while net charge-offs declined to $101,000 from $1.2 million QoQ. Nonperforming assets increased to $60.5 million, or 0.36% of assets, and loan-loss coverage slipped 2 bps QoQ to 1.35% as loans expanded.
Estimated CET1 stood at 12.82%, and tangible common equity improved to 10.02% of tangible assets from 9.97% QoQ and 9.28% YoY. Banner maintained its quarterly dividend at $0.52 a share following a 4% increase in the first quarter. The rise in originations left loan production as the main forward indicator, with its funding demands sharpening the focus on whether deposits recover after the seasonal decline.