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FAIR VALUE OF FINANCIAL INSTRUMENTS
 12 Months Ended
Dec. 31, 2024
Fair Value Disclosures [Abstract]  
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents estimated fair values of the Company’s financial instruments as of December 31, 2024 and 2023, whether or not recognized or recorded in the Consolidated Statements of Financial Condition (in thousands):
 December 31, 2024December 31, 2023
 LevelCarrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
Assets:    
Cash and cash equivalents1$501,858 $501,858 $254,464 $254,464 
Securities—available-for-sale22,078,826 2,078,826 2,348,479 2,348,479 
Securities—available-for-sale325,685 25,685 25,304 25,304 
Securities—held-to-maturity2995,237 819,230 1,052,028 900,522 
Securities—held-to-maturity36,327 6,298 7,027 6,992 
Loans held for sale232,021 32,215 11,170 11,219 
Loans receivable, net311,199,135 10,894,024 10,660,812 10,250,271 
Equity securities1481 481 449 449 
FHLB stock322,451 22,451 24,028 24,028 
Bank-owned life insurance1312,549 312,549 304,366 304,366 
Mortgage servicing rights312,618 37,926 13,909 35,794 
SBA servicing rights3869 869 740 740 
Investments in limited partnerships313,955 13,955 13,475 13,475 
Derivatives:
Interest rate swaps214,507 14,507 15,129 15,129 
Interest rate lock and forward sales commitments2,3331 331 275 275 
Liabilities:    
Demand, interest checking and money market accounts28,536,303 8,536,303 8,571,500 8,571,500 
Regular savings23,478,423 3,478,423 2,980,530 2,980,530 
Certificates of deposit21,499,672 1,492,829 1,477,467 1,465,612 
FHLB advances2290,000 290,000 323,000 323,000 
Other borrowings2125,257 125,257 182,877 182,877 
Subordinated notes, net280,278 78,832 92,851 85,536 
Junior subordinated debentures367,477 67,477 66,413 66,413 
Derivatives:
Interest rate swaps230,184 30,184 29,809 29,809 
Interest rate lock and forward sales commitments2,32 2 185 185 
Risk participation agreement26 6 42 42 

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 December 31, 2024 and 2023 (in thousands):
 December 31, 2024
 Level 1Level 2Level 3Total
Assets:    
Securities—available-for-sale    
U.S. Government and agency obligations$— $7,933 $— $7,933 
Municipal bonds— 123,982 — 123,982 
Corporate bonds— 99,305 25,685 124,990 
Mortgage-backed or related securities— 1,676,848 — 1,676,848 
Asset-backed securities— 170,758 — 170,758 
 — 2,078,826 25,685 2,104,511 
Loans held for sale (1)
— 26,185 — 26,185 
Equity securities481 — — 481 
SBA servicing rights— — 869 869 
Investment in limited partnerships— — 13,955 13,955 
Derivatives
Interest rate swaps— 14,507 — 14,507 
Interest rate lock and forward sales commitments— 221 110 331 
 $481 $2,119,739 $40,619 $2,160,839 
Liabilities:    
Junior subordinated debentures$— $— $67,477 $67,477 
Derivatives    
Interest rate swaps— 30,184 — 30,184 
Interest rate lock and forward sales commitments— — 2 2 
Risk participation agreement— 6 — 6 
 $— $30,190 $67,479 $97,669 
 December 31, 2023
 Level 1Level 2Level 3Total
Assets:    
Securities—available-for-sale    
U.S. Government and agency obligations— 34,189 — 34,189 
Municipal bonds— 132,905 — 132,905 
Corporate bonds— 93,819 25,304 119,123 
Mortgage-backed or related securities— 1,866,714 — 1,866,714 
Asset-backed securities— 220,852 — 220,852 
 — 2,348,479 25,304 2,373,783 
Loans held for sale(1)
— 9,105 — 9,105 
Equity securities449 — — 449 
SBA servicing rights— — 740 740 
Investment in limited partnerships— — 13,475 13,475 
Derivatives    
Interest rate swaps— 15,129 — 15,129 
Interest rate lock and forward sales commitments— — 275 275 
 $449 $2,372,713 $39,794 $2,412,956 
Liabilities    
Junior subordinated debentures$— $— $66,413 $66,413 
Derivatives    
Interest rate swaps— 29,809 — 29,809 
Interest rate lock and forward sales commitments— 161 24 185 
Risk participation agreement— 42 — 42 
 $— $30,012 $66,437 $96,449 

(1)    The unpaid principal balance of one- to four family residential loans held for sale carried at fair value on a recurring basis was $25.7 million and $8.8 million at December 31, 2024 and 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 TPS securities, 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. 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 December 31, 2024 and 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 December 31, 2024 and 2023:
Weighted Average Rate or Range
December 31
Financial InstrumentsValuation TechniqueUnobservable Inputs20242023
Corporate bonds (TPS)Discounted cash flowsDiscount rate9.57 %10.84 %
Junior subordinated debenturesDiscounted cash flowsDiscount rate9.57 %10.84 %
Loans individually evaluatedCollateral valuationsDiscount to appraised value0% to 75%8.75% to 25%
Interest rate lock commitmentsPricing modelPull-through rate92.34 %88.24 %
SBA servicing rightsDiscounted cash flowsConstant prepayment rate18.85 %16.92 %

TPS: 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 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 December 31, 2024, or the passage of time, will result in negative fair value adjustments. At December 31, 2024, the discount rate utilized was based on a credit spread of 526 basis points and three month SOFR of 431 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 table provides a reconciliation of the assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the years ended December 31, 2024 and 2023 (in thousands):
Level 3 Fair Value Inputs
 TPS SecuritiesBorrowings— Junior Subordinated DebenturesInterest Rate Lock and Forward Sales CommitmentsInvestments in Limited PartnershipsSBA Servicing Asset
Balance, January 1, 2023$28,694 $74,857 $39 $12,427 $835 
Net change recognized in earnings(3,375)— 212 (719)(95)
Net change recognized in AOCI(15)(8,444)— — — 
Purchases, issuances and settlements— — — 1,767 — 
Balance, December 31, 202325,304 66,413 251 13,475 740 
Net change recognized in earnings115 — (143)(1,013)129 
Net change recognized in AOCI266 1,064 — — — 
Purchases, issuances and settlements— — — 1,493 — 
Balance, December 31, 2024$25,685 $67,477 $108 $13,955 $869 

Interest income, dividends and amortization related to 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. The change in fair value of the TPS was recorded as a component of non-interest income when it was held for trading. After the transfer of the TPS to available-for-sale in late 2023, the change in fair value is recorded in other comprehensive income. The change in fair value of the investment 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 at December 31, 2024 and 2023 (in thousands):
 December 31, 2024
 Level 1Level 2Level 3Total
Loans individually evaluated$— $— $6,590 $6,590 
REO— — 2,367 2,367 
 December 31, 2023
 Level 1Level 2Level 3Total
Loans individually evaluated$— $— $8,308 $8,308 
REO— — 526 526 

The following table presents the gains and losses resulting from non-recurring fair value adjustments for the years ended December 31, 2024, 2023 and 2022 (in thousands):
For the years ended December 31,
202420232022
Loans individually evaluated$(1,483)$(933)$(626)
Loans held for sale (1)
— 2,538 (2,538)
Total loss from non-recurring measurements$(1,483)$1,605 $(3,164)

(1) Gains and losses related to loans held for sale were due to the multifamily real estate loans held for sale until the loans were transferred to loans held in portfolio in the fourth quarter of 2023.
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.