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The Zacks Savings and Loan industry is expected to benefit from a spur in mortgage originations and refinancing on the back of declining mortgage rates. Also, the Federal Reserve's easing monetary policy is likely to aid a rise in loan demand.
The digitization of operations and a stable deposit base are anticipated to support industry players in the near term.
Thus, some of the industry players like ServisFirst Bancshares, Berkshire Hills Bancorp, Inc. and Heritage Financial Corp., Inc. are poised to gain from these developments.
Industry Description
The Zacks Savings and Loan industry consists of specialized U.S. banks, which are generally locally owned, focusing on extending residential mortgage finance. Companies in the industry provide residential mortgages, commercial and industrial mortgages, home equity loans, vehicle loans and other business loans. The institutions fund mortgages with savings insured by Federal Deposit Insurance Corporation ("FDIC").
They offer high interest rates on savings to attract deposits, enhancing their ability to lend mortgages. Although the firms operate similarly to commercial banks by providing various banking services, such as checking and savings accounts, they were previously legally bound to invest at least 65% of their asset holdings in mortgages. Effective July 1, 2019, a ruling lifted the restriction for institutions insured by the FDIC.
3 Savings and Loan Industry Trends to Watch
Relatively Low Rates to Support Performance: The optimism surrounding the much-awaited interest rate cut in the Fed’s policy meeting dragged the yields on long-term bonds lower, leading to a drop in mortgage rates. During the Sept. 17-18 FOMC meeting, the central bank lowered the interest rate by 50 basis points after more than four years. Currently, the Fed fund rates stand in the 4.75-5% range.
Per the Mortgage Bankers Association (MBA) report, the 30-year fixed mortgage rate slightly increased to 6.14% the week ended Sept. 27, 2024, from 6.13% in the previous week. Though the rate increased marginally, it is still low as the 30-year mortgage rate hovered around 7% for most of the year but has begun to cool off and has fallen since late July.
Refinance application volume declined during the week ended Sept. 27 but remained almost three times as high as last year’s pace.
Thus, as the demand for loans rises, driven by relatively lower rates, industry players are expected to witness an increase in their profitability.
Gradual Rise in Loan Demand to Aid Margins: As the Fed lowers the interest rates, the lending scenario, which has been subdued of late, is expected to improve.
Housing affordability challenges are declining with falling mortgage rates. With rates trending lower and balanced supply/affordability playing out in the mortgage market, demand is set to increase in the coming days. With this turnaround, mortgage originations will likely witness a positive trend.
Therefore, loan growth is likely to support the industry players’ net interest income (NII) and margin to some extent.
Digital Ramp-Ups to Offer Some Respite: Numerous challenges, including legacy technologies and an unbalanced customer base, have cropped up for savings and loan associations. These companies have been trying to ramp up the transition to digitally focused, technology-driven, and flexible operating institutions to remain competitive and reap profits in the rapidly evolving market.
Though technology upgrades are expected to raise non-interest expenses in the near term, the same will support the industry participants' customer experience and operational efficiency over time.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Savings and Loan industry currently carries a Zacks Industry Rank #89, which places it in the top 38% of more than 251 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates upbeat near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to keep an eye on, let us take a look at the industry's recent stock market performance and the valuation picture.
Industry Underperforms Sector and the S&P 500
The Zacks Savings and Loan Industry has widely underperformed the Zacks Finance Sector and the S&P 500 composite over the past year.
The stocks in the industry have collectively gained 16.2%, whereas the S&P 500 Index has risen 35.5%. In the same period, the Zacks Finance Sector has appreciated 33.7%.
Industry's Current Valuation
One might get a good sense of the industry's relative valuation by looking at its price-to-tangible book ratio (P/TBV), which is commonly used for valuing finance companies because of large variations in their earnings from one quarter to the next.
The industry currently has a trailing 12-month P/TBV of 1.04X, below the median level of 1.16X over the past five years.
The industry is trading at a discount compared with the S&P Index, as the trailing 12-month P/TBV ratio for the S&P 500 is 14.79X and the median level is 13.89X.
As finance stocks typically have a low P/TB ratio, comparing Savings and Loan providers with the S&P 500 might not make sense to many investors. A comparison of the group's P/TB ratio with that of its broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector's current trailing 12-month P/TBV of 5.63X is above the Zacks Savings and Loan industry's ratios.
3 Savings and Loan Stocks Worth Betting On
ServisFirst Bancshares: This Zacks Rank #1 (Strong Buy) stock is based in Birmingham, AL. SFBS serves as the bank holding entity for ServisFirst Bank, offering a range of banking services to individual and corporate clients.
The company’s loans have witnessed a CAGR of 12.6% from 2019 to 2023, with the trend continuing in the first half of 2024. Moreover, net interest income (NII) and non-interest income recorded a CAGR of 9.3% and 6.1%, respectively, during the same period. Both metrics witnessed a rising trend in the first half of 2024.
The company has a market capitalization of $4.24 billion. The Zacks Consensus Estimate for earnings has increased 1.8% to $3.89 for 2024 in the past 30 days. SFBS shares have rallied 46.8% over the past year.
Berkshire Hills: This Zacks Rank #2 (Buy) stock is a bank holding company. Through its subsidiaries, the company is engaged as a community bank that accepts retail deposits from the general public in the areas surrounding its full-service banking offices and uses those funds, together with funds generated from operations and borrowings, to originate residential mortgage loans, commercial business and real estate loans and consumer loans, primarily indirect automobile loans.
The company’s revenues have witnessed a CAGR of 37.7% from 2019 to 2023, with the trend reversing in the first half of 2024. Total deposits witnessed a CAGR of nearly 1% from 2019-2023 with the trend continuing in the first half of 2024. Though BHLB’s loans have witnessed a negative CAGR of 1.8% from 2019 to 2023, the trend was reversed in the first half of 2024 with an improving lending scenario.
The company has a market capitalization of $1.11 billion. The Zacks Consensus Estimate for earnings has increased 0.9% to $1.12 for 2024 in the past 30 days. BHLB shares have rallied 31.3% in the past year.
Heritage Financial: Headquartered in Olympia, Washington, and is the holding company of Heritage Bank — a full-service commercial bank. Heritage Bank has a branch network of 50 banking offices in Washington, Oregon and Idaho.
The company’s NII recorded a CAGR of 4.8% during 2019-2023. Non-interest income witnessed a negative CAGR of 16.9% during the same period. Both metrics witnessed a decline in the first half of 2024.
Its loans have witnessed a CAGR of 3.5% from 2019 to 2023, with the rising trend continuing in the first half of 2024. Total deposits registered a CAGR of 5.1% from 2019 to 2023, with the trend reversing in the first half of 2024.
With the improving lending scenario and the Fed rate cuts, HFWA financials are likely to witness a positive trend in the upcoming period.
The company has a market capitalization of $716.8 million. The Zacks Consensus Estimate for earnings has remained unchanged at $1.66 for 2024 in the past 30 days. HFWA shares have rallied 31.7% over the past year. It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Why Haven't You Looked at Zacks' Top Stocks?
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Today you can access their live picks without cost or obligation.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook ServisFirst, Berkshire Hills Bancorp and Heritage Financial
For Immediate Release
Chicago, IL – October 7, 2024 – Today, Zacks Equity Research ServisFirst Bancshares (SFBS - Free Report) , Berkshire Hills Bancorp, Inc. (BHLB - Free Report) and Heritage Financial Corp., Inc. (HFWA - Free Report) .
Industry: Savings and Loan
Link:https://www.zacks.com/commentary/2346029/3-stocks-to-outshine-in-the-thriving-savings-loan-industry?art_rec=quote-stock_overview-zacks_news-ID01-txt-2346029
The Zacks Savings and Loan industry is expected to benefit from a spur in mortgage originations and refinancing on the back of declining mortgage rates. Also, the Federal Reserve's easing monetary policy is likely to aid a rise in loan demand.
The digitization of operations and a stable deposit base are anticipated to support industry players in the near term.
Thus, some of the industry players like ServisFirst Bancshares, Berkshire Hills Bancorp, Inc. and Heritage Financial Corp., Inc. are poised to gain from these developments.
Industry Description
The Zacks Savings and Loan industry consists of specialized U.S. banks, which are generally locally owned, focusing on extending residential mortgage finance. Companies in the industry provide residential mortgages, commercial and industrial mortgages, home equity loans, vehicle loans and other business loans. The institutions fund mortgages with savings insured by Federal Deposit Insurance Corporation ("FDIC").
They offer high interest rates on savings to attract deposits, enhancing their ability to lend mortgages. Although the firms operate similarly to commercial banks by providing various banking services, such as checking and savings accounts, they were previously legally bound to invest at least 65% of their asset holdings in mortgages. Effective July 1, 2019, a ruling lifted the restriction for institutions insured by the FDIC.
3 Savings and Loan Industry Trends to Watch
Relatively Low Rates to Support Performance: The optimism surrounding the much-awaited interest rate cut in the Fed’s policy meeting dragged the yields on long-term bonds lower, leading to a drop in mortgage rates. During the Sept. 17-18 FOMC meeting, the central bank lowered the interest rate by 50 basis points after more than four years. Currently, the Fed fund rates stand in the 4.75-5% range.
Per the Mortgage Bankers Association (MBA) report, the 30-year fixed mortgage rate slightly increased to 6.14% the week ended Sept. 27, 2024, from 6.13% in the previous week. Though the rate increased marginally, it is still low as the 30-year mortgage rate hovered around 7% for most of the year but has begun to cool off and has fallen since late July.
Refinance application volume declined during the week ended Sept. 27 but remained almost three times as high as last year’s pace.
Thus, as the demand for loans rises, driven by relatively lower rates, industry players are expected to witness an increase in their profitability.
Gradual Rise in Loan Demand to Aid Margins: As the Fed lowers the interest rates, the lending scenario, which has been subdued of late, is expected to improve.
Housing affordability challenges are declining with falling mortgage rates. With rates trending lower and balanced supply/affordability playing out in the mortgage market, demand is set to increase in the coming days. With this turnaround, mortgage originations will likely witness a positive trend.
Therefore, loan growth is likely to support the industry players’ net interest income (NII) and margin to some extent.
Digital Ramp-Ups to Offer Some Respite: Numerous challenges, including legacy technologies and an unbalanced customer base, have cropped up for savings and loan associations. These companies have been trying to ramp up the transition to digitally focused, technology-driven, and flexible operating institutions to remain competitive and reap profits in the rapidly evolving market.
Though technology upgrades are expected to raise non-interest expenses in the near term, the same will support the industry participants' customer experience and operational efficiency over time.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Savings and Loan industry currently carries a Zacks Industry Rank #89, which places it in the top 38% of more than 251 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates upbeat near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to keep an eye on, let us take a look at the industry's recent stock market performance and the valuation picture.
Industry Underperforms Sector and the S&P 500
The Zacks Savings and Loan Industry has widely underperformed the Zacks Finance Sector and the S&P 500 composite over the past year.
The stocks in the industry have collectively gained 16.2%, whereas the S&P 500 Index has risen 35.5%. In the same period, the Zacks Finance Sector has appreciated 33.7%.
Industry's Current Valuation
One might get a good sense of the industry's relative valuation by looking at its price-to-tangible book ratio (P/TBV), which is commonly used for valuing finance companies because of large variations in their earnings from one quarter to the next.
The industry currently has a trailing 12-month P/TBV of 1.04X, below the median level of 1.16X over the past five years.
The industry is trading at a discount compared with the S&P Index, as the trailing 12-month P/TBV ratio for the S&P 500 is 14.79X and the median level is 13.89X.
As finance stocks typically have a low P/TB ratio, comparing Savings and Loan providers with the S&P 500 might not make sense to many investors. A comparison of the group's P/TB ratio with that of its broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector's current trailing 12-month P/TBV of 5.63X is above the Zacks Savings and Loan industry's ratios.
3 Savings and Loan Stocks Worth Betting On
ServisFirst Bancshares: This Zacks Rank #1 (Strong Buy) stock is based in Birmingham, AL. SFBS serves as the bank holding entity for ServisFirst Bank, offering a range of banking services to individual and corporate clients.
The company’s loans have witnessed a CAGR of 12.6% from 2019 to 2023, with the trend continuing in the first half of 2024. Moreover, net interest income (NII) and non-interest income recorded a CAGR of 9.3% and 6.1%, respectively, during the same period. Both metrics witnessed a rising trend in the first half of 2024.
The company has a market capitalization of $4.24 billion. The Zacks Consensus Estimate for earnings has increased 1.8% to $3.89 for 2024 in the past 30 days. SFBS shares have rallied 46.8% over the past year.
Berkshire Hills: This Zacks Rank #2 (Buy) stock is a bank holding company. Through its subsidiaries, the company is engaged as a community bank that accepts retail deposits from the general public in the areas surrounding its full-service banking offices and uses those funds, together with funds generated from operations and borrowings, to originate residential mortgage loans, commercial business and real estate loans and consumer loans, primarily indirect automobile loans.
The company’s revenues have witnessed a CAGR of 37.7% from 2019 to 2023, with the trend reversing in the first half of 2024. Total deposits witnessed a CAGR of nearly 1% from 2019-2023 with the trend continuing in the first half of 2024. Though BHLB’s loans have witnessed a negative CAGR of 1.8% from 2019 to 2023, the trend was reversed in the first half of 2024 with an improving lending scenario.
The company has a market capitalization of $1.11 billion. The Zacks Consensus Estimate for earnings has increased 0.9% to $1.12 for 2024 in the past 30 days. BHLB shares have rallied 31.3% in the past year.
Heritage Financial: Headquartered in Olympia, Washington, and is the holding company of Heritage Bank — a full-service commercial bank. Heritage Bank has a branch network of 50 banking offices in Washington, Oregon and Idaho.
The company’s NII recorded a CAGR of 4.8% during 2019-2023. Non-interest income witnessed a negative CAGR of 16.9% during the same period. Both metrics witnessed a decline in the first half of 2024.
Its loans have witnessed a CAGR of 3.5% from 2019 to 2023, with the rising trend continuing in the first half of 2024. Total deposits registered a CAGR of 5.1% from 2019 to 2023, with the trend reversing in the first half of 2024.
With the improving lending scenario and the Fed rate cuts, HFWA financials are likely to witness a positive trend in the upcoming period.
The company has a market capitalization of $716.8 million. The Zacks Consensus Estimate for earnings has remained unchanged at $1.66 for 2024 in the past 30 days. HFWA shares have rallied 31.7% over the past year. It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.