Lincoln Savings Loan

Lincoln Savings and Loan (LSL) operates in a competitive industry with loan institutions, banks, and investment companies. While the industry’s profitability is typically driven by interest and fees on loans – as illustrated by the comparative financial statements of Home Savings and Loan (HSL) showing 81% and 71% of revenue driven by interest and fees on loans in 1987 and 1986 respectfully. LSL had over 30% of its revenues in 1987 and 1986 driven by real-estate sales as its primary revenue source and interest and fees drove only about 20% of total revenues on loans. This revenue mix was developed by LSL as they recognized the challenges in the competitive market and their financial statements satisfy our expectation of this particular revenue mix. American Continental Corporation (ACC), a real-estate developer, acquired LSL in 1984.

LSL created their revenue mix in order to maintain profitability. LSL realized the difficulties of the market and generated a profit margin of 3.6% compared to the profit margin of HSL at 15.4% in 1986. The slower market in 1987 caused LSL to realize a decrease in profit margin by 47% to 1.9% while HSL saw a decrease by 56% with a 6.8% profit margin. While LSL outperformed the industry comparative in HSL, further examination of profit margins without real estate revenues and costs shows the profitability of regular business operations. The profit margin is the same for HSL but the 1986 profit margin for LSL dropped to -5.8% and in 1987 decreased even further to -9.5%. LSL was able to benefit themselves and their profit margin by selling land acquired in 1985 two years later for a profit at over 450% of the original price. Despite increasing their interest rates (as identified on the Comparative Summary of Deposits), LSL was unable to attract business through savings and checking accounts to allow them to fund loans and increase revenue through that medium and relied on real estate to maintain profitability.

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