Zacks Industry Outlook Banner, Berkshire Hills Bancorp and Heritage Financial

Core Viewpoint - The Zacks Savings and Loan industry is facing challenges due to weak asset quality and subdued economic growth, impacting net interest income (NII) improvement. However, digitization efforts by companies like Banner Corp., Berkshire Hills Bancorp, and Heritage Financial Corp. are expected to provide some growth opportunities [1][2]. Industry Overview - The Zacks Savings and Loan industry consists of specialized U.S. banks focused on residential mortgage finance, offering various loans including residential, commercial, and vehicle loans [3]. - These institutions fund mortgages with savings insured by the FDIC and have historically been required to invest a significant portion of their assets in mortgages, a restriction lifted in 2019 [4]. Current Trends - Worsening Asset Quality: Economic uncertainty and inflation are affecting consumers' loan repayment abilities, leading to increased reserves and deteriorating asset quality metrics [5]. - Fed Rate Cuts & Loan Demand: The Federal Reserve's interest rate cuts in 2024 have not significantly improved loan demand, with expectations of modest lending growth in 2025 [6][7]. - Digital Transformation: Companies are transitioning to technology-driven operations to enhance competitiveness and profitability, despite initial cost increases [8][9]. Industry Performance - The Zacks Savings and Loan industry has outperformed the Zacks Finance Sector and the S&P 500, with a collective gain of 20% over the past year compared to 10.1% for the S&P 500 [14]. - The industry's current trailing 12-month price-to-tangible book ratio (P/TBV) is 1.78X, below the five-year median of 1.95X, indicating a discount compared to the broader market [16][17]. Company Highlights - Banner Corp: A $16.2 billion bank holding company with a diversified loan portfolio and a conservative$3.43 billion investment portfolio. Non-performing assets were $39.6 million (0.24$1.2 billion, showing organic growth with a revenue CAGR of 2.7% and loan CAGR of 3.8% from 2020 to 2024. Non-performing assets were $26.7 million in 2024, with earnings estimates indicating increases of 13.5$804.6 million, showing a NII CAGR of 45.2% from 2019 to 2024. Non-performing assets were $5.2 million in 2024, with earnings estimates indicating growth of 9.7% and 12.5% for 2025 and 2026, respectively [25][26][27].