The savings and loan industry is positioned for growth as falling interest rates and easing lending standards create favorable conditions for specialized U.S. banks, according to research from Zacks Equity Research. On February 25, 2026, the firm highlighted three savings and loan stocks worth watching: ServisFirst Bancshares Inc., WSFS Financial Corp., and Heritage Financial Corp., as the sector benefits from stabilizing funding costs and improved net interest margins.
The Zacks Savings and Loan industry consists of specialized U.S. banks that traditionally focus on residential mortgage finance, though they also provide commercial mortgages, home equity loans, vehicle loans, and other business services. These institutions fund their lending operations with savings insured by the Federal Deposit Insurance Corporation and have historically offered competitive interest rates to attract deposits.
Lower Interest Rates Driving Savings and Loan Industry Performance
The Federal Reserve has implemented significant monetary easing since 2024, cutting interest rates by 175 basis points with signals of additional reductions ahead. According to Zacks, these lower rates are expected to boost loan demand while funding costs stabilize, improving net interest income and margins for savings and loan companies. Mortgage rates have fallen to their lowest level since September 2022, driving strong growth in both purchase and refinancing activity.
Industry players are experiencing improved profitability as deposit costs decline alongside falling interest rates. The research indicates that relatively lower rates help stabilize funding costs, which directly benefits net interest income and net interest margin expansion across the sector.
Digital Transformation Supporting Operational Efficiency
Meanwhile, savings and loan institutions are accelerating digital transformation initiatives to overcome legacy technology constraints and reduce operating costs. While these technology upgrades are raising near-term expenses, according to Zacks, they are expected to significantly enhance long-term operational efficiency and improve customer service capabilities.
Additionally, the digitization of operations will support industry players in competing more effectively with larger commercial banks and fintech companies. The investments in technology infrastructure are viewed as essential for maintaining market share in an increasingly digital banking environment.
Asset Quality and Credit Concerns
In contrast to the positive rate environment, the industry faces ongoing asset quality challenges. Zacks reports that while falling interest rates will help borrowers remain current on loan and interest repayments, industry players are still expected to witness a marginal rise in non-performing loans. However, the improved rate environment means institutions are less likely to set aside large amounts for potential delinquent loans compared to previous periods.
The research notes that despite several credit quality metrics creeping above pre-pandemic levels, lower rates will likely aid borrower repayment capacity. This creates a more balanced risk environment for savings and loan companies moving forward.
Three Stocks Worth Watching
ServisFirst Bancshares operates across Alabama, Florida, Georgia, North and South Carolina, Tennessee, and Virginia, with $17.7 billion in total assets as of December 31, 2025, according to the company. The Zacks Consensus Estimate for its 2026 earnings indicates a year-over-year rise of 21.9%, with revenue estimates reflecting growth of 20.2%.
WSFS Financial manages $21.3 billion in assets and $94.5 billion in assets under management and administration as of December 31, 2025. The company expects loan and deposit growth in the mid-single-digit range for 2026, with net interest margin projected at 3.80% through strategic repricing and funding cost management.
Heritage Financial recently completed its acquisition of Olympic Bancorp Inc. in February 2026, expanding its market presence across Washington, Oregon, and Idaho. The Zacks Consensus Estimate for its 2026 earnings indicates a year-over-year rise of 12.9%, while revenue estimates suggest a jump of 40.8%.
Industry Outlook and Valuation
The Zacks Savings and Loan industry currently carries a Zacks Industry Rank of 29, placing it in the top 12% of more than 243 Zacks industries. The industry’s current-year earnings estimate has moved up 10% over the past year, indicating growing analyst confidence in earnings growth potential.
However, the industry has underperformed broader market indices over the past year. According to Zacks, stocks in the savings and loan industry have collectively gained 9.9%, while the S&P 500 Index has risen 18.8% and the Finance sector has appreciated 13.7% during the same period.
The ongoing monetary policy decisions by the Federal Reserve will continue to shape the industry’s performance throughout 2026, with further rate adjustments expected to influence loan demand and profitability metrics. Analysts will be watching deposit growth trends and credit quality indicators as key performance measures in coming quarters.
