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Zacks Industry Outlook Highlights: Citizens Financial Group, New York Community Bancorp, ServisFirst Bancshares and WSFS Financial

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For Immediate Release

Chicago, IL – April 5, 2021 – Today, Zacks Equity Research discusses Savings & Loan including Citizens Financial Group, Inc. CFG, New York Community Bancorp, Inc. NYCB, ServisFirst Bancshares, Inc. SFBS and WSFS Financial Corporation WSFS.

Link: https://www.zacks.com/commentary/1328502/4-stocks-to-outshine-in-the-booming-savings-loan-industry

The Zacks Savings and Loan industry is being aided by the spurt in mortgage originations and refinancing on the back of low mortgage rates. Also, gradual economic recovery, easing lending standards and stimulus packages are likely to aid loan growth and thus, provide much needed support.

Further, digitization and reopening of the economy and business are anticipated to support the industry in the near term. Thus, some of the industry players like Citizens Financial GroupNew York Community BancorpServisFirst Bancshares and WSFS Financial are poised to benefit from these developments.

Industry Description

The Zacks Savings and Loan industry consists of specialized U.S. banks that provide residential mortgages, commercial and industrial mortgages, home equity loans, vehicle loans and other business loans.

These institutions fund mortgages insured by the Federal Deposit Insurance Corporation. Though the firms operate similarly to commercial banks by providing various banking services, such as checking and savings accounts, these are bound to invest 65% of their asset holdings in residential mortgages. Moreover, these firms are locally owned and provide the best rates on mortgages.

3 Savings and Loan Industry Trends to Watch for

Low Rates & Demand For Homes to Drive Originations: The low interest rate environment is expected to continue as the Federal Reserve has indicated to keep rates at near zero level for now. Moreover, flexibility to work remotely along with apprehensions of rise in home prices due to slow supply growth might boost home sales as borrowers would want to offset this downside by taking advantage of the record low interest rates. Furthermore, lesser regulatory supervisions and an improved housing market, will likely drive the industry's growth in the upcoming quarters.

Gradual Rise in Loan Demand to Aid Margins: Optimism over vaccine breakthroughs and subsequent availability to people aged 30 and beyond, easing economic restrictions, stimulus packages and rising U.S. 10-year Treasury yields (i.e., steepening of the yield curve), depict signs of economic recovery and are expected to instill confidence among the borrowers and support demand for commercial as well as consumer loans. Therefore, loan growth despite low rates, is likely to support the companies' net interest income and margin to some extent.

Digitization to Provide Some Respite: In the days to come, a number of challenges will crop up for the savings and loan companies, including legacy technologies and an unbalanced customer base. Thus, these companies will need to ramp-up transition into diligently-focused, technology-driven and flexibly-operating institutions, in order to remain competitive and reap profits in the rapidly-evolving market.

Though technology upgrades are expected to result in a rise in non-interest expenses in the near-term, the same will support the companies' financials 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 #35, which places it at the top 14% of more than 250 Zacks industries. 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.

The industry's positioning in the top 50% of the Zacks-ranked industries is a result of 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 15.3% upward since March 2020.

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 valuation picture.

Industry Outperforms Sector and the S&P 500

The Zacks Savings and Loan Industry, a 34-stock group within the broader Zacks Finance Sector, has outperformed the S&P 500 and its own sector over the past year.

While the stocks in this industry have collectively rallied 86.7%, the S&P 500 Composite has gained 58.8%. During the same time period, the Zacks Finance Sector has gained 59.6%.

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 1.57X, below the median level of 1.47X, over the past five years. This compares with the highest level of 9.98X and lowest level of 0.84X over this period.

However, the industry is trading at a discount when compared with the market at large, as the trailing 12-month P/TBV ratio for the S&P 500 is 16.91X and the median level is 11.25X.

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 ratio of 3.55X is at its median level for the same period and is above the Zacks Savings and Loan industry's respective ratios.

4 Savings and Loan Stocks Worth Betting On

Citizens Financial Group: This Zacks Rank #2 (Buy) stock offers consumer and commercial banking products and services to individuals, institutions and companies. Headquartered in Providence, RI, the company operates about 1,000 branches and around 2,700 ATMs in 11 states and through its online, telephone as well as mobile banking platforms.

The company's focus on executing a series of revenue and efficiency initiatives led to the introduction of "Tapping Our Potential" (TOP) program in late 2014. The latest program is expected to deliver $400-$425 million in pre-tax run-rate benefit by 2021.

Citizens Financial's capital deployment policy seems impressive. In January 2020, the company had hiked its quarterly dividend by 8%. Also, it has a share repurchase program worth $750 million in place, beginning first-quarter 2021. Given its earnings strength, the company is expected to be able to sustain the current capital deployment plan.

Shares of the company have rallied 68.4% over the past six months. The Zacks Consensus Estimate for earnings has moved 5.2% north to $3.83 and 3.1% to $3.95 for 2021 and 2022, respectively, over the past 60 days.

New York Community Bancorp: The company provides traditional and non-traditional products and services, and access to multiple service channels, including online banking and mobile banking. It is also a leading producer of multi-family loans in New York City.

This Westbury, NY-based company's declining expense base (due to branch closures and divestiture of unprofitable businesses) and expansion efforts through acquisitions are expected to aid financials. Also, the prevailing low interest-rate environment is likely to support margins as its balance sheet is liability sensitive.

The Zacks Consensus Estimate for 2021 earnings has moved 1.8% north to $1.12 over the past two months. The consensus estimate of $1.23 for 2022 earnings has been revised 2.5% upward over the same time frame.

The stock presently carries a Zacks Rank of 2. Shares of the company have climbed 48.8% over the past six months.

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

ServisFirst Bancshares: This Zacks Rank #2 stock provides banking services to individual and corporate customers in the United States. Based in Birmingham, the company operates through 21 full-service banking offices.

Despite the low-rate environment, the company has been witnessing growth in net interest margin and income, which is expected to prevail in the upcoming period on the back of lower deposit costs and gradual loan growth. Notably, the company had raised its common stock dividend by 14.3% in December 2020.

Its shares have rallied 72.1% over the past six months. The Zacks Consensus Estimate for earnings has increased 8.5% to $3.44 for 2021, over the past 60 days.

WSFS Financial: Headquartered in Wilmington, DE, the company operates as a federal savings bank that was formerly chartered as a state mutual savings bank. Thus, it enjoys a broader scope of permissible activities than most other financial institutions.

Amid the low interest-rate environment, the bank is witnessing a rise in net interest margin, which is adding the profitability. Also, the company is actively seeking strategic acquisitions over the next few years, as it expects growth to be a mix of organic and acquisition-related, consistent with its long-term strategy. Earlier in March, it inked an all-stock deal to acquire Bryn Mawr Bank Corporation (BMTC) for $976.4 million.

This Zacks Rank #2 stock has appreciated 76.2% in six months' time. The Zacks Consensus Estimate for current-year earnings has moved up 4.3% to $3.42 in the past 60 days. Likewise, the same for 2022 has been revised nearly 1% upward to $3.83 during the same time period.

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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.

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New York Community Bancorp, Inc. (NYCB) : Free Stock Analysis Report
ServisFirst Bancshares, Inc. (SFBS) : Free Stock Analysis Report
Citizens Financial Group, Inc. (CFG) : Free Stock Analysis Report
WSFS Financial Corporation (WSFS) : Free Stock Analysis Report
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