Savings And Loan Appears On Radar Screen

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Savings and loans...traditional investment vehicles, but in recent years, fallen out of favor. This article outlines the early years of the industry, and offers some good information for investors of any time.

For years, savings and loan associations have been generally slighted as a medium of investment and were just about the last thing anyone associated with the word "growth."

Now, suddenly, the word is getting around that maybe savings and loan firms are not as dissociated from growth as they were thought to be. As a matter of fact, growth has been stirring in savings and loan companies.

For example, a strange new form of corporate entity called First Charter Financial Corporation, which owns or holds a half-dozen savings and loan associations in California came to the Big Board at 17 for a total worth of $52.5 million. The stock went up as high as 49 in 1961.

Why all this sudden interest in a hitherto rather obscure industry? The answer is the newly realized growth in savings and loans. A look at some statistics proves this point. In 1958 the industry reported $55 billion in assets, a tenfold gain over the $5.7 billion of 1940. This kind of growth is very rare, even among the most highly priced popular issues. In 1958 alone, the savings and loan industry achieved a net gain of $6.2 billion in deposits, compared to $2.3 billion for mutual savings banks. In 1959 it scored its greatest rate of gain in history against only a slight year-to-year gain for most other savings and banking institutions. In 1960 its assets rose to $60 billion, and they are expected to climb to $165 billion by 1970—a big stride for any industry in a single decade.

What has made savings and loan firms so attractive to depositors is their ability to pay an average dividend of 3.5 percent and, in the case of Western firms, 4, 4 or even 5 percent on depositors' funds.

Where does this dividend-paying ability come from? For one thing, loan firms have been rapidly moving in on the high-yield home mortgage market, which accounted for 40 percent of all home mortgage funds in 1960 and is expected to reach 50 per cent by 1970. For another, they are deep in conventional mortgages which carry a higher interest rate than loans secured or guaranteed by federal agencies. Basically, the profits of savings and loan companies depend upon the spread between the cost of money borrowed from depositors and the return they get from mortgage loans, after deducting an average of 25 percent of gross for general and administrative expenses. So their future growth will, to a large extent, be determined by the continued or accelerated growth in mortgage income.

The record of loan firms as home mortgage lenders, in comparison with other institutions, is indeed impressive. Nationally, their mortgage loans increased about two-and-a-half times during the fifties. In California, where loan firms are heavily concentrated, the increase was fourfold, from $666 million to over $2.6 billion. Most California-based loan firms are secured by first mortgage or trust deed on residential real estate. The delinquency rate on such mortgages is considerably lower in California than it is nationally.

The growth of California-based savings and loan associations in the past decade is phenomenal, due chiefly to the Golden State's population explosion. From 1950 to 1959 the California population shot up 42 percent compared to 17 percent for the United States as a whole. In California personal income rose 102 percent against a national increase of 72 percent. The result was a fast-growing demand for housing on the West Coast which generated a greatly expanded market for mortgage loans. In the past decade, the value of U.S. non-farm mortgages of $20,000 or less almost doubled; California's nearly tripled.

While not as relevant today, the smart investor always looks to the past when making decisions about new opportunities. Markets fluctuate in wildly unpredictable directions; learn from the past to build for the future.

This article is a small snippet from

"Revealed: The Surefire Way To Make Unreal Profits Using A Secret Formula For The Stock Market"

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