Banner Corporation: A Strong Buy - Analyst Blog

By Zacks | December 04, 2012 AAA

Rising earnings estimates on the back of strong third quarter 2012 results - including a 68.1% earnings surprise - helped Banner Corporation (BANR) achieve a Zacks #1 Rank (Strong Buy) on December 1. Moreover, this commercial and retail banking service provider has delivered positive earnings surprises in eight straight quarters with an average beat of 122.4%.   

With a solid year-to-date return of 73.0%, long-term expected earnings growth rate of 7.7% and a history of beating quarterly earnings estimates, this stock offers an attractive investment opportunity.

The Rank Driver

Better-than-expected third quarter earnings, and factors such as strong credit quality and capital ratios are the primary rank drivers for this stock.

Banner Corporation reported its third quarter results on October 24 with earnings per share of 79 cents, substantially beating the Zacks Consensus Estimate of 47 cents by 68.1% and year-ago earnings of 24 cents by 229.2%. Strong results for the quarter were primarily aided by higher net interest and other operating income, lower other operating expenses and reduced provision for loan losses.

Net interest income, which increased 3.7% to $39.7 million from $38.3 million in the year-ago quarter, was a positive for the quarter. Moreover, Net interest margin expanded 12 basis points (bps) on a year-over-year basis to 4.22%.

Moreover, other operating income jumped 13.6% to $11.7 million year over year from $10.3 million. Total other expense decreased 18.5% from the year-ago period to $33.4 million. Provision for loan losses plummeted 40.0% from the year-ago quarter to $3.0 million.

Banner's credit quality continued to improve in the third quarter of 2012 as well. Nonperforming assets were 1.38% of total assets, down 215 bps from 3.53% as of September 30, 2011. Net charge-offs for the quarter were $4.4 million compared with $10.9 million in the year-ago quarter.    

As of September 30, 2012, Banner Corporation's total risk-based capital ratio was 19.01%, Tier 1 risk-based capital ratio was 17.75% and Tier 1 leverage ratio was 14.29%.

Earnings Estimate Revisions

All 6 estimates for 2012 revised upward over the last 60 days, lifting the Zacks Consensus Estimate by 18.8% to $3.10 per share. This implies a year-over-year increase of 1,168.4%.

For 2013, 4 out of 6 estimates were revised higher over the same time frame, raising the Zacks Consensus Estimate by 34.5% to $1.99 per share.

Reasonable Valuation

Banner Corporation currently trades at a forward P/E of 9.8x, a 15.5% discount to the peer group average of 11.6x. Also, on a price-to-book basis, the shares are trading at 1.18x, a 16.8% premium to the peer group average of 1.01x. Given the company's strong fundamentals, the premium valuation is justified.

Banner Corporation has a trailing 12-month ROE of 9.0% compared with the peer group average of 7.6%.

About the Company

Headquartered in Walla Walla, Washington, Banner Corporation is a bank holding company, which provides various banking products and services. The company -founded in 1890 - conducts operations for individuals, businesses and public sector entities in the United States. Banner Bank, one of its operating subsidiaries operates through 86 branch offices and 7 loan production offices in Washington, Oregon and Idaho, while Islanders Bank, another banking subsidiary, conducts business from 3 locations in San Juan County, Washington. The company has a market capitalization of roughly $577.7 million.

Other Zacks #1 Rank bank stocks include BofI Holding Inc. (BOFI) and First Community Bancshares, Inc. (Bluefield) (FCBC).

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