We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
The Zacks Savings and Loan industry is expected to fire on all cylinders with the Federal Reserve's interest rate hike, robust economic growth and the recovery in consumer spending levels. These are anticipated to aid loan growth, providing much-needed support.
Further, digitization efforts and a flurry of consolidations in a bid to remain relevant will help companies like Provident Financial Services, Inc.,OceanFirst Financial Corp., andHomeStreet, Inc. emerged strong.
Industry Description
The Zacks Savings and Loan industry consists of specialized U.S. banks, which are generally locally owned, with a focus 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 the Federal Deposit Insurance Corporation ("FDIC"). They offer high-interest rates on savings to attract deposits, enhancing their ability to lend mortgages.
Though 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 Jul 1, 2019, a ruling lifted the restriction for institutions insured by the FDIC.
3 Savings and Loan Industry Trends to Watch
Loan Growth in the Cards: In March, the Fed hiked the interest rates for the first time since 2018 and has signaled a hawkish stance to tame inflation. Also, the macro outlook for the United States continues to be favorable with the market reopenings and decent business confidence levels. Consumer spending levels are recovering and might boost commercial, education and auto loans. This is expected to instill confidence among borrowers and support the loan demand in most loan categories. Therefore, loan growth and higher interest rates are likely to support the industry participants' net interest income and margin to some extent.
Increasing Consolidations: Previously, industry players gained traction by marketing themselves as community-focused home-lending specialists to appeal to consumers wary of large multi-state banking conglomerates. However, in the present times, when banks face a relatively low-interest-rate environment and continued competitive challenges from non-traditional banking services and rapid innovations in financial technology, companies are trying to improve the revenue mix through acquisitions despite the stiff regulations.
Digital Ramp Ups to Come as a Breather: Numerous challenges, including legacy technologies and an unbalanced customer base, have cropped up for savings and loan associations. Thus, these companies have been making efforts to ramp up the transition into diligently focused, technology-driven and flexibly 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' operations and enhance market share over time.
Zacks Industry Rank Indicates Solid Prospects
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects.
The Zacks Savings and Loan industry currently carries a Zacks Industry Rank #78, which places it in the top 32% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the top 50% of the Zacks-ranked industries is a result of a bright earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group's earnings growth potential. Remarkably, the industry's earnings estimates for the current year have been revised 18.9% upward since April 2021.
Before we present a few stocks that you may want to consider for your portfolio, let's take a look at the industry's recent stock market performance and the valuation picture.
Industry Lags Sector and the S&P 500
The Zacks Savings and Loan Industry, a 30-stock group within the broader Zacks Finance Sector, has lagged the S&P 500 and its sector over the past year.
While the stocks in the industry have collectively declined 1.8%, the S&P 500 Index has gained 9.1%. During the same period, the Zacks Finance Sector has gained 5.6%.
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 results from one quarter to the next.
The industry currently has a trailing 12-month P/TBV of 1.49X, below the median level of 1.51X over the past five years. This compares with the highest level of 10.15X and the lowest level of 0.84X over the same period.
However, 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 15.96X and the median level is 11.78X.
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. But 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 trailing 12-month P/TBV of 4.55X for the same period is above the Zacks Savings and Loan industry's respective ratio.
3 Savings and Loan Stocks Worth Betting on
OceanFirst Financial Corp.: OceanFirst is the regional bank headquartered in New Jersey. It provides commercial and residential financing solutions, trust and asset management and deposit services throughout New Jersey and in the major metropolitan markets of New York, Philadelphia, Baltimore, Washington DC and Boston.
The company's balance sheet is strong, with loans and deposits witnessing a six-year (ended 2021) compound annual growth rate of 27.7% and 31.1%, respectively. Moreover, with a significant part of commercial loans having floating rates, the company's asset-sensitive balance sheet is well-positioned for rising interest rates. OCFC has adopted a branch optimization strategy, having consolidated 19 branches in December 2021 and two in January 2022. This is expected to reduce non-interest expenses.
The company also focuses on inorganic growth moves to expand its asset base and market presence. Last November, the company entered into an agreement to acquire Partners Bancorp in a deal valued at around $186 million. The closing of the deal is expected in the first half of 2022. The merger is expected to result in earnings per share accretion of approximately 10% in 2023 (the first full year of fully phased-in synergies).
OceanFirst carries a Zacks Rank #2 (Buy) at present. The consensus mark for OCFC's current-year earnings has moved up 1.9% to $2.12 in the past month. This indicates growth of 14% from the year-ago reported figure. Moreover, for 2023, earnings are expected to climb 22.2% on 14.7% revenue growth. Shares of the company have lost 21.1% over the past year.
Provident Financial Services, Inc.: It is the holding company for Provident Bank that offers a variety of financial products and services through its network of branches across northern and central New Jersey, as well as in Pennsylvania and Queens County in New York.
Provident Financial has significant exposure to mortgage loans, consisting of residential mortgage, commercial mortgage and multi-family mortgage. Given the economic recovery and the favorable outlook for commercial mortgage, the company is likely to capitalize on this trend given its strong liquidity position. Also, a recovery in consumer sentiment is expected to boost its commercial and industrial loan portfolio.
Efforts to manage operating expenses and investments in new technologies offer scope for long-term growth. As of fourth-quarter end, cash and cash equivalents were $712.5 million, an increase of $180.1 million from 2020 end.
The stock presently carries a Zacks Rank of 2. The Zacks Consensus Estimate for 2022 earnings has moved 2% north over the past month. The same for 2023 has been revised 2.8% upward over the past 30 days, indicating 9.2% year-over-year growth. Revenues for 2023 are expected to improve 6.3%. Shares of the company have declined 4.2% in the past year.
HomeStreet: HMST is a diversified financial services company headquartered in Seattle, WA, with $7.2 billion in assets as of Dec 31, 2021. HMST focuses mainly on real estate lending, including mortgage banking activities, as well as commercial and consumer banking. The company has made significant strides to transform itself into a full-scale commercial bank by expanding its market presence in highly attractive metropolitan markets.
The company sold a major chunk of its mortgage business in 2019. Such an evolving business model has helped HMST reduce earnings volatility, given the choppiness in the mortgage market. As of 2021 end, the company had a highly-diversified $5.5-billion loan portfolio by product and geography. Going forward, an increase in commercial real estate and lower prepayments are expected to drive loan growth. Also, a rise in consumer balances and business customers will drive deposit growth, which was $6.1 billion as of 2021 end.
In January, HMST hiked its quarterly dividend by 40% and announced additional share repurchase authorization worth $75 million. During 2021, the company repurchased 1.87 million shares at an average price of $44.92 per share. The company repurchased 12%, 9% and 9% of its outstanding common stock in 2019, 2020 and 2021, respectively, relative to the outstanding stock at the beginning of each period.
HomeStreet boasts a decent balance sheet. As of Dec 31, 2021, it had long-term debt worth $126 million and cash and cash equivalents of $65.2 million.
The stock presently carries a Zacks Rank of 2. The Zacks Consensus Estimate for HMST's 2022 and 2023 earnings improved marginally and 1.3%, respectively, over the last 30 days. HomeStreet's 2023 earnings are expected to witness 23.1% year-over-year growth. This Zacks Rank #2 company's shares have climbed 4.6% over the past year.
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch/ 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.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Zacks Industry Outlook Highlights Provident Financial Services, OceanFirst Financial, and HomeStreet
For Immediate Release
Chicago, IL – April 12, 2022 – Today, Zacks Equity Research discusses Provident Financial Services, Inc. (PFS - Free Report) , OceanFirst Financial Corp. (OCFC - Free Report) and HomeStreet, Inc. (HMST - Free Report)
Industry: Savings & Loan
Link: https://www.zacks.com/commentary/1896820/3-buy-rated-stocks-from-the-prospering-savings-loan-industry
The Zacks Savings and Loan industry is expected to fire on all cylinders with the Federal Reserve's interest rate hike, robust economic growth and the recovery in consumer spending levels. These are anticipated to aid loan growth, providing much-needed support.
Further, digitization efforts and a flurry of consolidations in a bid to remain relevant will help companies like Provident Financial Services, Inc.,OceanFirst Financial Corp., andHomeStreet, Inc. emerged strong.
Industry Description
The Zacks Savings and Loan industry consists of specialized U.S. banks, which are generally locally owned, with a focus 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 the Federal Deposit Insurance Corporation ("FDIC"). They offer high-interest rates on savings to attract deposits, enhancing their ability to lend mortgages.
Though 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 Jul 1, 2019, a ruling lifted the restriction for institutions insured by the FDIC.
3 Savings and Loan Industry Trends to Watch
Loan Growth in the Cards: In March, the Fed hiked the interest rates for the first time since 2018 and has signaled a hawkish stance to tame inflation. Also, the macro outlook for the United States continues to be favorable with the market reopenings and decent business confidence levels. Consumer spending levels are recovering and might boost commercial, education and auto loans. This is expected to instill confidence among borrowers and support the loan demand in most loan categories. Therefore, loan growth and higher interest rates are likely to support the industry participants' net interest income and margin to some extent.
Increasing Consolidations: Previously, industry players gained traction by marketing themselves as community-focused home-lending specialists to appeal to consumers wary of large multi-state banking conglomerates. However, in the present times, when banks face a relatively low-interest-rate environment and continued competitive challenges from non-traditional banking services and rapid innovations in financial technology, companies are trying to improve the revenue mix through acquisitions despite the stiff regulations.
Digital Ramp Ups to Come as a Breather: Numerous challenges, including legacy technologies and an unbalanced customer base, have cropped up for savings and loan associations. Thus, these companies have been making efforts to ramp up the transition into diligently focused, technology-driven and flexibly 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' operations and enhance market share over time.
Zacks Industry Rank Indicates Solid Prospects
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects.
The Zacks Savings and Loan industry currently carries a Zacks Industry Rank #78, which places it in the top 32% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the top 50% of the Zacks-ranked industries is a result of a bright earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group's earnings growth potential. Remarkably, the industry's earnings estimates for the current year have been revised 18.9% upward since April 2021.
Before we present a few stocks that you may want to consider for your portfolio, let's take a look at the industry's recent stock market performance and the valuation picture.
Industry Lags Sector and the S&P 500
The Zacks Savings and Loan Industry, a 30-stock group within the broader Zacks Finance Sector, has lagged the S&P 500 and its sector over the past year.
While the stocks in the industry have collectively declined 1.8%, the S&P 500 Index has gained 9.1%. During the same period, the Zacks Finance Sector has gained 5.6%.
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 results from one quarter to the next.
The industry currently has a trailing 12-month P/TBV of 1.49X, below the median level of 1.51X over the past five years. This compares with the highest level of 10.15X and the lowest level of 0.84X over the same period.
However, 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 15.96X and the median level is 11.78X.
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. But 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 trailing 12-month P/TBV of 4.55X for the same period is above the Zacks Savings and Loan industry's respective ratio.
3 Savings and Loan Stocks Worth Betting on
OceanFirst Financial Corp.: OceanFirst is the regional bank headquartered in New Jersey. It provides commercial and residential financing solutions, trust and asset management and deposit services throughout New Jersey and in the major metropolitan markets of New York, Philadelphia, Baltimore, Washington DC and Boston.
The company's balance sheet is strong, with loans and deposits witnessing a six-year (ended 2021) compound annual growth rate of 27.7% and 31.1%, respectively. Moreover, with a significant part of commercial loans having floating rates, the company's asset-sensitive balance sheet is well-positioned for rising interest rates. OCFC has adopted a branch optimization strategy, having consolidated 19 branches in December 2021 and two in January 2022. This is expected to reduce non-interest expenses.
The company also focuses on inorganic growth moves to expand its asset base and market presence. Last November, the company entered into an agreement to acquire Partners Bancorp in a deal valued at around $186 million. The closing of the deal is expected in the first half of 2022. The merger is expected to result in earnings per share accretion of approximately 10% in 2023 (the first full year of fully phased-in synergies).
OceanFirst carries a Zacks Rank #2 (Buy) at present. The consensus mark for OCFC's current-year earnings has moved up 1.9% to $2.12 in the past month. This indicates growth of 14% from the year-ago reported figure. Moreover, for 2023, earnings are expected to climb 22.2% on 14.7% revenue growth. Shares of the company have lost 21.1% over the past year.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Provident Financial Services, Inc.: It is the holding company for Provident Bank that offers a variety of financial products and services through its network of branches across northern and central New Jersey, as well as in Pennsylvania and Queens County in New York.
Provident Financial has significant exposure to mortgage loans, consisting of residential mortgage, commercial mortgage and multi-family mortgage. Given the economic recovery and the favorable outlook for commercial mortgage, the company is likely to capitalize on this trend given its strong liquidity position. Also, a recovery in consumer sentiment is expected to boost its commercial and industrial loan portfolio.
Efforts to manage operating expenses and investments in new technologies offer scope for long-term growth. As of fourth-quarter end, cash and cash equivalents were $712.5 million, an increase of $180.1 million from 2020 end.
The stock presently carries a Zacks Rank of 2. The Zacks Consensus Estimate for 2022 earnings has moved 2% north over the past month. The same for 2023 has been revised 2.8% upward over the past 30 days, indicating 9.2% year-over-year growth. Revenues for 2023 are expected to improve 6.3%. Shares of the company have declined 4.2% in the past year.
HomeStreet: HMST is a diversified financial services company headquartered in Seattle, WA, with $7.2 billion in assets as of Dec 31, 2021. HMST focuses mainly on real estate lending, including mortgage banking activities, as well as commercial and consumer banking. The company has made significant strides to transform itself into a full-scale commercial bank by expanding its market presence in highly attractive metropolitan markets.
The company sold a major chunk of its mortgage business in 2019. Such an evolving business model has helped HMST reduce earnings volatility, given the choppiness in the mortgage market. As of 2021 end, the company had a highly-diversified $5.5-billion loan portfolio by product and geography. Going forward, an increase in commercial real estate and lower prepayments are expected to drive loan growth. Also, a rise in consumer balances and business customers will drive deposit growth, which was $6.1 billion as of 2021 end.
In January, HMST hiked its quarterly dividend by 40% and announced additional share repurchase authorization worth $75 million. During 2021, the company repurchased 1.87 million shares at an average price of $44.92 per share. The company repurchased 12%, 9% and 9% of its outstanding common stock in 2019, 2020 and 2021, respectively, relative to the outstanding stock at the beginning of each period.
HomeStreet boasts a decent balance sheet. As of Dec 31, 2021, it had long-term debt worth $126 million and cash and cash equivalents of $65.2 million.
The stock presently carries a Zacks Rank of 2. The Zacks Consensus Estimate for HMST's 2022 and 2023 earnings improved marginally and 1.3%, respectively, over the last 30 days. HomeStreet's 2023 earnings are expected to witness 23.1% year-over-year growth. This Zacks Rank #2 company's shares have climbed 4.6% over the past year.
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
See Stocks Free >>
Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch/ 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.
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
support@zacks.com
https://www.zacks.com
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.