- The Zacks Savings and Loan industry is facing challenges due to the deteriorating commercial real estate market and high interest rates.
- Companies like WSFS Financial Corporation, Provident Financial Services, and Riverview Bancorp are expected to weather the storm due to their attractive business models and strong relationship banking.
- The industry is also witnessing trends like slowing loan demand, weakening asset quality, and digital ramp-ups.
This article provides an in-depth analysis of the current state of the Zacks Savings and Loan industry, highlighting key trends and companies to watch.
Industry Overview and Key Trends
The Zacks Savings and Loan industry comprises specialized U.S. banks that focus on extending residential mortgage finance. These 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. However, the industry is currently grappling with a few key trends.
Slowing Loan Demand
The central bank’s aggressive monetary policy of last year has lowered the demand for loans due to fears of an economic downturn. High interest rates are keeping borrowers on the sidelines, resulting in a subdued lending backdrop.
Weakening Asset Quality
Rising interest rates and declining commercial real estate values have affected the credit quality of loans, making loan refinancing challenging. This has increased the financial risks for many industry players and also affected their credit quality.
Digital Ramp-Ups
Companies in the industry are transitioning to digitally focused, technology-driven institutions to remain competitive in the rapidly evolving market. Technology upgrades are expected to raise non-interest expenses in the near term, but will support customer experience and operational efficiency over time.
Industry Performance and Valuation
The Zacks Savings and Loan Industry has underperformed the Zacks Finance Sector and the S&P 500 composite over the past year. The industry’s current valuation, as measured by the price-to-tangible book ratio (P/TBV), is below the median level of the past five years, indicating a potential opportunity for investors.
Top Picks in the Industry
Provident Financial, Riverview Bancorp, and WSFS Financial Corporation are three companies that stand out in the industry. Provident Financial offers a comprehensive suite of financial products and services and is expected to benefit from an improving mortgage origination market. Riverview Bancorp has restructured part of its balance sheet to improve margins and profitability. WSFS Financial Corporation, with its relationship-based banking, generates resilient deposits, high margins, and fee opportunities.
Conclusion
Despite the challenges faced by the Zacks Savings and Loan industry, there are companies that are poised to thrive. Investors should keep an eye on the industry’s key trends and top-performing companies to make informed investment decisions.
