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KBRA Assigns Ratings to Banner Corporation

Kroll Bond Rating Agency (KBRA) assigns a senior unsecured debt rating of BBB+, a subordinated debt rating of BBB, and a short-term debt rating of K2 for Walla Walla, Washington-based Banner Corporation (NASDAQ: BANR) (“the company”). In addition, KBRA assigns deposit and senior unsecured debt ratings of A-, a subordinated debt rating of BBB+, and short-term deposit and debt ratings of K2 for Banner Bank, the lead subsidiary. The Outlook for all long-term ratings is Stable.

The ratings are supported by BANR’s highly experienced management team that executes a ‘higher touch’ commercially oriented banking model over a reasonably broad geographic footprint. The company’s strong deposit franchise is balanced among three states with attractive economic growth characteristics (WA, OR, ID), as well as dense markets in CA. Highly favorable deposit costs (35 bps at 1Q20) are also supportive of the company’s credit profile. The company reflects a disciplined loan underwriting approach, that in KBRA’s view, emanates from a strong credit culture as well as lessons learned from challenges associated with the global financial crisis.

BANR conservatively manages core capital levels, in KBRA’s view, with TCE at just below 10% the last several quarters, and we expect the company to continue to manage capital in this manner. The ratings are constrained by the company’s above peer level concentration in commercial real estate (above 300% RBC), below peer revenue diversification (~85% spread revenue/~15% fee revenue) and elevated efficiency levels, which have been negatively impacted by periodic merger expenses and the administrative expenses for maintaining two separate bank charters.

KBRA continues to monitor the potential direct and indirect effects of the coronavirus on the banking sector, among others. Please refer to our publication U.S. Bank 1Q 2020 Ratings Compendium for our latest thoughts.

The ratings are based on KBRA’s Bank & Bank Holding Company Global Rating Methodology published on October 16, 2019.

Click here to view the report. To access ratings and relevant documents, click here.

Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

Contacts:

Analytical Contacts
Brian Ropp, Senior Director (Lead Analyst)
+1 (301) 969-3244
bropp@kbra.com

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