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Zacks Industry Outlook Highlights Citizens Financial, New York Community Bancorp and Banner

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For Immediate Release

Chicago, IL – May 25, 2023 – Today, Zacks Equity Research discusses Citizens Financial Group, Inc. (CFG - Free Report) , New York Community Bancorp, Inc. (NYCB - Free Report) and Banner Corp. (BANR - Free Report) .

Industry: Savings & Loan


The Zacks Savings and Loan industry continues to be caught up in regional bank collapses. Moreover, high interest rates have not only increased funding costs but also raised concerns regarding economic growth and a potential recession. This, along with tightening lending standards across the board, is likely to affect lending activity.

Nonetheless, inorganic efforts and attractive business models, emphasizing moderate risk and strong relationship banking, will help Citizens Financial Group, Inc., New York Community Bancorp, Inc. and Banner Corp. to improve deposits and tide through the gloom in the banking space.

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. 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 Jul 1, 2019, a ruling lifted the restriction for institutions insured by the FDIC.

3 Savings and Loan Industry Trends to Watch

Near-Term Recession Risk to Weaken Lending Activity: A high interest rate environment, along with inflationary pressures and supply-chain issues, will likely dampen loan demand. Particularly, the Fed’s aggressive monetary policy has intensified recession fears, with the Summary of Economic Projections announced in March 2023, indicating that the U.S. economy will slow down considerably this year, with just 0.4% growth.

Amid this, banks have tightened their lending standards for households and businesses, which can weigh on loan origination activities. Constrained funding for banks may also limit loan growth in the upcoming period.  

High Interest Rates to Increase Funding Costs, Erode Profitability: The Fed’s ultra-aggressive monetary policy over the past year has led the rates to reach a 15-year-high level. While rising rates are generally boons for banks, lifting NIM and NII, the pace of rate hikes has increased concerns regarding the resilience of the economy. Also, industry participants are facing higher funding costs due to high interest rates, increased competition and runoff of low-cost deposits amid the regional banking crisis. This may compress margins in the upcoming period and erode profitability and capital levels. Hence, future dividend payouts may be affected.

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, the 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 Bleak Prospects

The Zacks Savings and Loan industry currently carries a Zacks Industry Rank #249, which places it in the bottom 1% of more than 250 Zacks industries.

The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. 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 bottom 50% of the Zacks-ranked industries is a result of discouraging earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group's earnings growth potential. The industry's earnings estimates for the current year have been revised 19.7% downward since May 2022.

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 Underperforms Sector and the S&P 500

The Zacks Savings and Loan Industry, a 26-stock group within the broader Zacks Finance Sector, has underperformed the S&P 500 and its sector over the past year.

The stocks in the industry have collectively lost 29.2%, whereas the S&P 500 Index has risen 6.2%. In the same period, the Zacks Finance Sector has declined 3.9%.

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 1.12X, below the median level of 1.39X over the past five years.

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 9.99X and the median level is 9.92X.

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 current trailing 12-month P/TBV of 4.10X is above the Zacks Savings and Loan industry's ratios.

3 Savings and Loan Stocks to Watch

Citizens Financial: Headquartered in Providence, RI, CFG offers retail and commercial banking products and services to individuals, institutions and companies. It has $222.25 billion in assets.

The company’s loans and deposits saw a compound annual growth rate (CAGR) of 7.6% and 10.9%, respectively, over the last four years (2018-2022). However, the trend reversed in first-quarter 2023 due to the regional banking crisis. Nonetheless, going forward, efforts to enhance the deposit base by advancing its deposit-gathering capabilities and digital-first model, and expand commercial lending in high-growth sectors will support balance sheet strength.

Through multi-year investments in buyouts, CFG has expanded its product and fee-generation capabilities, as well as geographic reach.

Citizens Financial’s focus on maintaining a strong capital base will support capital deployment activities. As of Mar 31, 2023, the company’s Basel III capital ratios exceeded regulatory requirements, with a Common Equity Tier 1 (CET1) ratio and a total capital ratio of 10% and 12.9%, respectively. In first-quarter 2023, it repurchased $400 million in shares and paid out $205 million in common dividends.

However, cost escalation due to franchise expansion nationally, as well as investments in newer technologies and building fee income capabilities, is limiting the company’s bottom-line expansion. For the ongoing year, we estimate expenses to increase 2.5%.

CFG presently carries a Zacks Rank of 3 (Hold). The Zacks Consensus Estimate for its 2023 earnings is pegged at $4.51, indicating 10% year-over-year growth. Revenues for 2023 are expected to improve 5.6%. Shares of the company have lost 28.6% in the past year.

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

New York Community: Headquartered in Hicksville, NY, the company provides traditional and non-traditional products and services, and access to multiple service channels, including online banking and mobile banking.

NYCB has a strong balance sheet. Deposits saw a three-year (2020-2022) CAGR of 34.5%, while net loans witnessed a CAGR of 26.6% in the same period. The acquisition of Signature Bank improved its deposit base and loan book. It also provided the benefits of loan diversification and the initiation of its commercial middle-market lending business.

The addition of low-cost deposits from Signature Bank’s acquisition will improve its overall funding costs, while a variable-rate loan portfolio from the acquisition of Flagstar will aid in the current high-rate scenario. These are expected to further increase NIM. In second-quarter 2023, NIM is projected to expand sequentially to 2.7-2.8%.

NYCB presently carries a Zacks Rank of 3. The Zacks Consensus Estimate for 2024 earnings is pegged at $1.25, indicating 1.63% year-over-year growth. Revenues for 2023 are expected to improve 130.8%. Shares of the company have gained 10.4% in the past year.

Banner: It is a $15.5-billion bank holding company that operates one commercial bank in four Western states through a network of branches offering deposit services and business, commercial real estate, residential, construction, agricultural and consumer loans. 

The company has a well-diversified loan portfolio, with a rising average yield on loan originations as of the first-quarter 2023 end. The company has been making efforts to reduce deposit costs and grow core deposits in a bid to protect net interest margins.

A conservative $3.79-billion investment portfolio is another positive for BANR. This portfolio is a diversified mix of asset types, with 81% of investments consisting of Agency MBS or CMO or AAA-rated securities. Also, the company undertook a bank-wide initiative, Banner Forward, to enhance revenue growth and reduce operating costs. By focusing on accelerating growth in commercial banking and advancing technology strategies, the company’s revenues are expected to benefit in 2023.

Banner presently carries a Zacks Rank of 3. The Zacks Consensus Estimate for BANR’s 2023 earnings is pegged at $6.12, indicating 7.6% year-over-year growth. Revenues for 2023 are expected to improve 5.2%. Shares of the company have lost 15.5% in the past year.

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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 for information about the performance numbers displayed in this press release.

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Banner Corporation (BANR) - free report >>

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Citizens Financial Group, Inc. (CFG) - free report >>

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