Shares of Banner Corp. jumped Thursday, a day after the Walla Walla, Wash., company posted a surprise second-quarter profit.

Banner gained $1.9 million from fair value adjustments on certain financial instruments, which played a key role in its quarterly profit of $224,000. The $4.2 billion-asset company lost $7.8 million in the first quarter and $4.9 million a year earlier.

Excluding dividend payments tied to the Troubled Asset Relief Program, the company earned $2.2 million.

Credit quality also improved. The loan-loss provision fell 53% from the first quarter and 73% from a year earlier, to $8 million. Nonperforming assets fell 13% from the first quarter and 23% from a year earlier, to $114 million.

The improved credit led Sandler O'Neill & Partners LP analyst Joseph Fenech to raise his rating for the company to "buy" from "hold." Investors were also optimistic; Banner's shares rose 5.5% at midday Thursday, to $18.79 a share.

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