Robust Core Deposits And Pipelines Will Maintain Financial Stability

Key Takeaways

• Strong core deposit base and organic growth position Banner well for future revenue enhancement and stable funding costs.
  
• Robust capital profile and low reliance on wholesale borrowing support earnings potential and safety during volatility.
  
• Economic uncertainties and rising costs are negatively impacting Banner's financial performance, with increased loan delinquencies, declining originations, and pressure on net interest margins.

Catalysts

Operates as the bank holding company for Banner Bank that engages in the provision of commercial banking and financial products and services to individuals, businesses, and public sector entities in the United States.

• Banner Corporation's strong core deposit base, loyal customers, and good net interest margin are expected to support continued revenue growth and stable funding costs.
  
• The company is benefiting from solid organic growth, with loans increasing by 5% and core deposits by 3% year-over-year, which positions them well for future revenue enhancement.
  
• The expansion of commercial and commercial real estate pipelines suggests potential for increased loan originations and revenue growth once economic uncertainty stabilizes.
  
• Liquidity and capital profile are robust, with lower reliance on wholesale borrowing and ample off-balance sheet borrowing capacity, which supports strong earnings potential and safety during volatile times.
  
• Continued success in enhancing the SBA loan sale business line and low reliance on wholesale borrowing are expected to contribute positively to future earnings and margin improvement.

Banner Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Banner's revenue will grow by 8.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 28.7% today to 28.0% in 3 years time.
• Analysts expect earnings to reach $220.8 million (and earnings per share of $6.23) by about April 2028, up from $176.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.9x on those 2028 earnings, up from 12.0x today. This future PE is greater than the current PE for the US Banks industry at 11.0x.
• Analysts expect the number of shares outstanding to grow by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Banner Future Earnings Per Share Growth

Risks

• Rising interest rates have led to an increase in delinquent loans, adversely classified loans, and nonperforming assets, which could negatively impact net margins and earnings.
  
• There is economic uncertainty related to trade tariffs and immigration enforcement that is expected to negatively affect client demand, particularly in the agricultural sector and small businesses, potentially impacting revenue and loan performance.
  
• Loan originations declined by 33%, notably in the commercial and commercial real estate portfolios, due to heightened client uncertainty, which could slow revenue growth from interest income.
  
• Heightened competition for deposits and rising funding costs could put pressure on net interest margins, affecting overall earnings.
  
• The projected economic slowdown and potential impacts of tariffs on key industries may lead to credit risk, impacting loan loss provisions and overall financial stability.

Valuation

• The analysts have a consensus price target of $70.0 for Banner based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $789.6 million, earnings will come to $220.8 million, and it would be trading on a PE ratio of 12.9x, assuming you use a discount rate of 6.2%.
• Given the current share price of $61.56, the analyst price target of $70.0 is 12.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.