Some Fools may recognize savings and loan heavyweight Golden West Financial (NYSE:GDW) from its mention in Peter Lynch's Beating the Street. In the book, Lynch highlights Golden West, and its co-chairmen/CEOs Herbert and Marion Sandler, as a great example of a good old-fashioned, well-run bank. No fancy buildings, no chasing the hottest fad in loans, just a bank that takes deposits, makes mortgage loans, and focuses on keeping costs to a minimum. Sounds like your typical low-cost industry leader to me.
Beating the Street was originally penned in 1993, so it would be fair to expect that things may have changed in the past 12 years, but the Sandlers are still at Golden West, and the bank is still going strong following pretty much the same formula. In the meantime, Golden West has gone from being approximately a $4 billion entity to an $18.8 billion entity. Not too shabby -- and the company's first-quarter numbers are equally impressive, with diluted earnings per share up 15.5% vs. the year-ago quarter to $1.12 per share.
As you may expect after reading the paragraphs above, Golden West boasts an unheard-of efficiency ratio of 28.5%, which is a measure of how well a bank controls its operating costs. That figure is all the more impressive because it appears that Golden West is still finding ways to lower its costs, since this was a decrease from 29.4% for the same quarter last year. On the return-on-equity and return-on-assets side, Golden West turned in slightly lower numbers than it did a year ago, at 18.8% and 1.3%, respectively. However, both numbers are healthy.
What I like most about Golden West is the positioning of its loan portfolio over the next few years. Golden West is still focused primarily on mortgage loans, but with rates just coming off historic lows, Golden West has narrowed its focus to adjustable rate mortgages -- more commonly referred to as ARMs. As rates inch upward, Golden West will see a better return on these loans.
As a final note on the uniqueness of Golden West, I ran a screen earlier today looking for banks with market capitalizations of more than $15 billion with a return on equity of more than 10% and a return on assets of more than 1.3%. Only 10 other names came back besides Golden West. Some of them are very familiar names, such as Fifth Third Bancorp (NASDAQ:FITB), Wells Fargo (NYSE:WFC), and MBNA (NYSE:KRB), but Golden West was the only savings and loan in the group and the third smallest by market cap. It seems after all these years and despite being becoming a large bank, Golden West is still a unique investment opportunity after all.
To read more about financial companies, check out:
- Financial Services Glossary
- Commerce Bancorp: Growth at What Price?
- Vineyard Still Harvests Growth
- Bank vs. Bank
Fool contributor Nathan Parmelee has no financial interest in any of the companies mentioned.
