Why This S&L is Worth a Second Look

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As many investors move their attention to smaller, less scandal-prone banks, savings and loan institutions are beginning to emerge as a viable alternative to the megabank stocks. Earnings season is always a good time to take the pulse of any given sector, so let's take a look at some S&Ls that have just offered up some numbers to dig into.

The standout here is New York Community Bancorp (NYS: NYB) , which boasted a nearly 16% increase in earnings since last year, boosted by the increased number of mortgages being written by the bank. Net interest margins continue to grow, and past-due loans have fallen by an amazing 65% from two quarters ago.

The company increased the number of multi-family mortgages it originated, as well as handling many more refinances - which had the additional benefit of increasing pre-payment penalty fees, to the tune of $32 million this past quarter. Indeed, NYB is especially flush, holding $2.4 billion in cash on its books.


Other S&Ls performed admirably this past quarter, as well. Flushing Financial (NAS: FFIC) also saw loan activity increase from a year ago, by a whopping 109%. Its net interest margin grew by seven basis points, and net interest income was the highest in the company's history. One area in which the S&L hasn't made much progress is that of its provision for loan losses, which stands unchanged from a year ago.

Other S&Ls reported mixed results, as they work through various issues weighing down profits. Hudson City Bancorp (NAS: HCBK) came through with an EPS beat of one penny, but earnings dropped by 25% from this time last year. The company reported lower net interest income, noting that the low-interest rate climate is hurting its bottom line, and plans to cut back on home mortgage origination as it enters the more profitable commercial sector. Not all the news is dour, though, as Hudson saw a decrease in net charge-offs for bad loans and reduced its loan-loss provision.

People's United Financial (NAS: PBCT) shook itself up a couple of years ago, when its board booted its CEO for sitting on the sidelines as juicy acquisition opportunities passed by. Since then, People's has stepped up the pace, recently closing on 57 branches it purchased from RBS Citizens.

Fellow S&L Brookline Bancorp (NAS: BRKL) , once in People's acquisition sights, beat EPS by $0.02, but net income for the first half-year fell from this time last year. Earnings were bruised not only by a shrinking NIM, but also by a $6.7 million loss provision -- $4.2 million of which covered two bad loans made to Boston Red Sox alumnus Curt Shilling by Brookline's Rhode Island subsidiary.

Fool's take
New York Community seems to be the best of breed here, but all of these institutions are making an effort to work through their issues, and -- with the possible exception of Brookline -- look to be moving forward.

They also have piles of cash on hand. In addition to New York Community, Hudson City and People's have been recognized as having plump cash stores of $830 million and $500 million, respectively. In addition, these institutions are much less apt to have exposure to Europe's economic woes, something that has been dogging the big banks this year. Along with regional banks, S&Ls are looking better all the time.

The financial sector is varied and vast, and if S&Ls aren't your cup of tea, there are many other options out there. Let our banking analysts show you "The Stocks Only the Smartest Investors Are Buying," which will clue you in to how the biggest banking investors are making their picks. This special report is right here, and it's free.

The article Why This S&L is Worth a Second Look originally appeared on Fool.com.

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