JUNIOR SUBORDINATED DEBENTURES AND MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES

12 Months Ended

Dec. 31, 2023

Other Liabilities Disclosure [Abstract]

JUNIOR SUBORDINATED DEBENTURES AND MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES

At December 31, 2023, the Company had five wholly-owned subsidiary grantor trusts (the Trusts), which had issued $86.5 million of Trust Preferred Securities (TPS) to third parties, as well as $2.7 million of common capital securities, carried as other assets, which were issued to the Company.  TPS and common capital securities accrue and pay distributions periodically at specified annual rates, as provided in the indentures, and based on a spread over SOFR (Secured Overnight Financing Rate).  The Trusts used the proceeds from the offerings to purchase a like amount of junior subordinated debentures (the Debentures) of the Company.  The Debentures are the sole assets of the Trusts.  The Company’s obligations under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the Trusts.  The TPS are mandatorily redeemable upon the maturity of the Debentures, or upon earlier redemption as provided in the indentures.  The Company has the right to redeem the Debentures in whole on or after specific dates, at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date.  During the year ended December 31, 2023, no debentures were redeemed. The Company redeemed $50.5 million in TPS resulting in a loss of $793,000 during the year ended December 31, 2022.  At December 31, 2023, the remaining Trusts comprised $86.5 million, or 4.5% of the Company’s total risk-based capital.

The following table is a summary of TPS at December 31, 2023 (dollars in thousands):

Name of Trust	Aggregate Liquidation Amount of Trust Preferred Securities		Aggregate Liquidation Amount of Common Capital Securities		Aggregate Principal Amount of Junior Subordinated Debentures		Stated Maturity (1)	Current Interest Rate		Reset Period	Interest Rate Spread (3)
Banner Capital Trust V	$	25,000	$	774	$	25,774	2035	7.21		Quarterly	Three-month SOFR + 1.83%
Banner Capital Trust VI	25,000		774		25,774		2037	7.26		Quarterly	Three-month SOFR + 1.88%
Banner Capital Trust VII	25,000		774		25,774		2037	7.04		Quarterly	Three-month SOFR + 1.64%
Greater Sacramento Bancorp Statutory Trust II	4,000		124		4,124		2035	7.33		Quarterly	Three-month SOFR + 1.94%
Mission Oaks Statutory Trust I	7,500		232		7,732		2036	7.30		Quarterly	Three-month SOFR + 1.91%
Total TPS liability at par	$	86,500	$	2,678	89,178			7.19	%
Fair value adjustment (2)					(22,765)
Total TPS liability at fair value (2)					$	66,413

(1) All of the Company’s TPS are eligible for redemption.

(2) The Company has elected to use fair value accounting on its TPS.

(3) The interest rate spread includes a 0.26% upward adjustment for the transition from LIBOR to SOFR.

On June 30, 2020, Banner issued and sold in an underwritten offering $100.0 million aggregate principal amount of 5.00% Fixed-to-Floating Rate Subordinated Notes due 2030 (Notes) at a public offering price equal to 100% of the aggregate principal amount of the Notes, resulting in net proceeds, after underwriting discounts and estimated offering expenses, of approximately $98.1 million. The interest rate on the Notes remains fixed equal to 5.00%for the first 5 years, after 5 years the interest rate changes to a floating interest rate tied to a benchmark rate, which is expected to be Three-Month Term SOFR, plus a spread of 489 basis points. The Notes will mature on June 30, 2030. On or after June 30, 2025, the Company may redeem the Notes, in whole or in part. During 2023, the Bank purchased a portion of these notes as an available-for-sale investment, which are eliminated upon consolidation.

The Notes are unsecured obligations and are subordinated in right of payment to all existing and future indebtedness, deposits and other liabilities of the Company’s current and future subsidiaries, including the Bank’s deposits as well as the Company’s subsidiaries’ liabilities to general creditors and liabilities arising during the ordinary course of business. The Notes are included in Tier 2 capital for the Company under current regulatory guidelines and interpretations.