Magazine article American Banker

Servicing, ARMs Help Tennessee's Top Thrift Boost Profits by 135%

Magazine article American Banker

Servicing, ARMs Help Tennessee's Top Thrift Boost Profits by 135%

Article excerpt

Leader Financial Corp., Tennessee's largest thrift company, put its new capital to good use last year, increasing earnings by 135%.

The Memphis-based parent of Leader Federal Bank of Savings churned out some other enviable numbers last year, including a 28% increase in net interest income.

"The company continued its strategy of acquiring loan servicing rights and originating adjustable rate loans to counteract further increases in interest rates by the Federal Reserve;" said Ronald W. Stimpson, president and chief executive.

Loan servicing has become a fruitful strategy for the thrift. it began to beef up its activity in this area toward the end of 1993 and expanded its portfolio through the first half of 1994, bank officials said. From the time the push began through last September, the notional value of the servicing portfolio more than doubled - to $5 billion, Mr. Stimpson said.

"When servicing got real cheap in 1993, we figured we should get into it as a way of providing some protection in the rising interest rates scenario," Mr. Stimpson said. "This is not a strategy we use all the time."

Revenue from loan servicing in the fourth quarter more than quadrupled to $3.8 million from the year-earlier period. A decline in loan prepayments has also contributed to the loan servicing figures, according to the thrift.

Capital to acquire the servicing rights has come primarily from the $104 million raised through a rights offering in the fall of 1993. In September of that year Leader Financial converted from a mutual to a stock institution. …

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