Show t TilE THE SAVINGS AND LOAN SITUATION Thus far in 1976 developments in the nations nation's economy have provided the savings and loan industry with an unusual blend of profit producing circumstances cir cir cir- First and foremost demand among consumers is strong for mortgage mortgage mor loans loam the industry's most significant revenue-generating revenue product In addition lower short term short term interest rates have brought about an important reduction in the overall costs associated with the creation of I these loans ROUSING HOUSING MARKET TIlE THE KEY Because mortgage loans on single family homes account for the largest portion of total Industry assets 82 percent in 1975 the ongoing improvement in the nations nation's housing market marketis is of the utmost importance The private units started during the first six months of oC 1976 far the year- year earlier level of only units Over the same period mortgage demand understandably understandably un intensified From Froma a total of billion at the end of oC the second quarter of oC 1975 outstanding wide industry-wide mor mortgage age debt increased ed more than 14 percent to nearly billion for the same time this year In terms of gross income leading SL firms have benefited substantially from greater lending volume as well as a proportionate expansion in new loans enjoying a distinctly higher yield SAVINGS INCENTIVES The supply side of the lending equation has also fared quite well within the existing economic clim climate te Because loans stem primarily fr from m savings deposits the industry's source of funds is directly influenced influenced influenced in in- by the attractiveness- attractiveness or lack of it- it of alternative investment vehicles chiefly government securities Asp As a result of lower term short-term ih- ih tn- tn J re net savings 92 t 3 t billion flowe flowed in In the e savings aid loan field over the first pf 1976 a 5 percent jump over over Uie tte previous record of 26 billi billion n during the same span of last year In the light of the improved improved improved im im- im- im proved supply situation most major firms have been able to reduce Federal Home Loan Bank advances an alternative but more costly source of funds PROFIT PROSPECTS ENCOURAGING Over the first nine months of f the current year SL profit margins have improved considerably considerably considerably con con- con con- as the interest costs associated with savings accounts accounts accounts ac ac- ac- ac counts and Federal Home Loan Bank advances have eased off and the returns on overall loan portfolios have increased or at least remained relatively stable Most companies are likely to report record earnings for 1976 and barring a substantial hike in term short-term rates this heartening trend is likely to persist well into 1977 The in increasing increasing increasing in- in creasing use of variable rate mortgages in which the company's return is affected by related costs casts is an additional plus RECOMMENDATIONS Savings and loan stock issues reflecting renewed strength in terms of profitability healthier balance sheet positions and earnings multiples close to record lows should outperform the general market over the near intermediate term Investors who are seeking growth and appreciation are advised to continue holding the securities of First Charter Financial Gibraltar Financial and Imperial Corporation of America For investors in a position to add to portfolios the search Research Department of Babson's Dabson's Reports is currently recommending recommending recommending mending purchase of the common stocks of Financial Corporation of Santa Barbara Darbara and Great Western Financial Both Roth companies have been helped by a favorable economic and monetary climate Great Western has been racking up time all-time high earnings in 1976 1916 and Financial of Santa Barbara Darbara is ending a whirlwind of branch office expansion For a free copy of a detailed report on either or both of these companies write to Babson's Dabson's Reports Inc Wellesley I Hills iii is Massachusetts |