Rising earnings estimates on the back of strong third quarter
2012 results - including a 68.1% earnings surprise - helped
) 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
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
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
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.
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
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.
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