Savings & Loan Industry Stocks to Buy on Solid Prospects

The Zacks Savings and Loan industry is gaining from falling interest rates and easing lending standards. With relatively lower rates, funding costs is gradually stabilizing, boosting net interest income (NII) and net interest margin (NIM). 

The digitization of operations will also support industry players. Despite several credit quality metrics creeping above the pre-pandemic levels, lower rates will likely aid repayment capacity. Hence, industry players like ServisFirst Bancshares Inc. SFBS, WSFS Financial Corporation WSFS and Heritage Financial Corporation, Inc.  HFWA are worth betting on.

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 the Federal Deposit Insurance Corporation ("FDIC"). They offer high interest rates on savings to attract deposits, enhancing their ability to lend for 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 & Loan Industry Trends to Watch

Lower Interest Rates to Drive Loan Demand:The Federal Reserve has cut interest rates by 175 basis points since 2024 and signaled another reduction this year. Lower rates are expected to boost loan demand, improving NII and margins for savings and loan companies as funding costs stabilize. Mortgage rates have fallen to their lowest level since September 2022, driving strong growth in purchase and refinancing activity and supporting broader loan demand.

Digital Ramp-Ups:Savings and loan industry players are accelerating digital transformation to overcome legacy technology constraints, high operating costs and an increasingly uneven customer base.Although these technology upgrades are raising near-term expenses, they are expected to significantly enhance long-term operational efficiency. 

Asset Quality: Falling interest rates will help borrowers remain current on loan and interest repayments. Imdustry providers, who build huge reserves to counter any fallout from unexpected defaults, are now less likely to set aside a huge amount of money for potential delinquent loans.However, industry players still expected to witness a marginal rise in non-performing loans, which will keep hurting their asset quality. 

Zacks Industry Rank Indicates Solid Prospects

The Zacks Savings and Loan industry is a 16-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #29, which places it in the top 12% of more than 243 Zacks industries. The group's Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates outperformance in the near term. 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 an outcome of the positive earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group's earnings growth potential. The industry’s current-year earnings estimate has moved up 10% over the past year. Before we present a few stocks that you may want to bet on, let us take a look at the industry's recent stock market performance and the valuation picture.

Industry Underperforms Sector & 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 9.9%, whereas the S&P 500 Index has risen 18.8%. In the same period, the Finance sector has appreciated 13.7%.

Price Performance

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/TB), 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/TB of 2.32X, above the median level of 2.14X over the past five years. The industry is trading at a discount compared with the market at large, as the trailing 12-month P/TB ratio for the S&P 500 composite is 11.74X.

Price-to-Tangible Book TTM

As finance stocks typically have a low P/TB ratio, comparing savings and loan stocks with the S&P 500 may 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/TB of 6.12X is way above the Zacks Savings and Loan industry's ratio.

Price-to-Tangible Book TTM

3 Savings & Loan Stocks to Invest In: SFBS, WSFS & HFWA

ServisFirst Bancshares: SFBS offers a range of business and personal financial services across Alabama, Florida, Georgia, North and South Carolina, Tennessee, and Virginia. As of Dec 31, 2025, the company has $17.7 billion of total assets and $13.7 billion of loans. Solid loan balance, improving market share and lower rates will support ServisFirst Bancshares’ financials. Management believes that focus on NIM expansion, disciplined expense control, and franchise growth positions ServisFirst Bancshares to deliver solid financial performance in 2026.

The Zacks Consensus Estimate for its 2026 earnings is pegged at $6.40, indicating a year-over-year rise of 21.9%. ServisFirst Bancshares has a market cap of $4.74 billion. Revenue estimates for 2026 are pegged at $686.2 million, reflecting year-over-year growth of 20.2%. SFBS currently flaunts a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Price & Consensus: SFBS

WSFS Financial: This is a multi-billion-dollar financial services company with $21.3 billion in assets on its balance sheet, and $94.5 billion in assets under management and administration as of Dec 31, 2025.WSFS is managing a stable, sustainable loan growth trajectory, backed by deposit strength and a diversified lending pipeline. For 2026, the company expects loan and deposit growth in the mid-single-digit range. The NIM is expected to be 3.80% through strategic repricing and funding cost management. Further, the company expects net charge-offs to be 0.35 - 0.45% of average loans. 

The Zacks Consensus Estimate for the company’s current-year earnings is pegged at $5.73, indicating a 9.9% year-over-year rise. Revenues for 2026 are expected to be $1.10 billion, suggesting a 3.3% rise.  It has a market capitalization of $3.70 billion. WSFS Financial presently sports a Zacks Rank of 1.

Price & Consensus: WSFS

Heritage Financial: The company is headquartered in Olympia, WA and has a branch network of 50 banking offices in Washington, Oregon and Idaho. HFWA improved its return on average assets and expanded its NIM, reflecting stronger core banking operations and better balance sheet management. Deposit growth and a decline in the cost of interest-bearing deposits further led to higher NII, strengthening overall profitability. The company continues to strategically reposition its balance sheet to improve future profitability. Management is optimistic that the combination of its strong balance sheet and prudent risk management will provide sustainable long-term returns for shareholders.

Heritage Financial’s acquisition of Olympic Bancorp, Inc. (completed in February 2026), will expand its market presence, customer base and long-term earnings potential. Overall, the company’s improved earnings, operational efficiency and strategic expansion efforts indicate positive momentum and enhanced value for shareholders.

The Zacks Consensus Estimate for its 2026 earnings is pegged at $2.53, indicating a year-over-year rise of 12.9%. Revenue estimates for 2026 are pegged at $346.7 million, suggesting a year-over-year jump of 40.8%. HFWA has a market cap of $959.9 million. At present, the company carries a Zacks Rank of 2 (Buy).

Price & Consensus: HFWA

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This article originally published on Zacks Investment Research (zacks.com).

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