The dramatic rise in interest rates in 1994 meant a corresponding sharp decline in earnings for a thrift in Rocky Mount, N.C.
United Federal Savings Bank suffered a 55% decrease in net income last year, earning $1.2 million. For the fourth quarter, net income sank by 62%, to $211,000.
Bank officials attributed the slump in performance to reduced fee income from mortgage loan originations and fewer sales of loans. Rates, which the Federal Reserve jacked up six times last year, were the culprit, the thrift said.
"It was just a down year," said John B. Aldredge, vice president and treasurer of United Federal. "With the Fed's tightening, there just wasn't a whole lot anybody could do."
The thrift made substantial profits in past years from the purchase and sale of loans and servicing rights. But higher interest rates last year led to a precipitous decline in loan sales, from $3.3 million in 1993 to $300,000 last year, Mr. Aldredge said.
The $245 million-asset thrift also reported losses on investments in short-term mutual funds in its available-for-sale portfolio.
In response to the poor year, United is seeking new markets and developing its consumer and commercial loan operations.
"The bank is expanding its current operations to reflect its future business direction - commercial banking," said John A. Barker, president and chief executive, in a release.
United Federal is buying branches in two neighboring towns, he said, and intends to expand services in its current market area, which consists of nine towns in eastern North Carolina. It hopes to about double in size in three to five years, the bank said.
In addition to its headquarters in Rocky Mount, the thrift has eight branches and two loan production offices.
United Federal has the capital for this sort of expansion; its risk- based capital ratio stood at 18.4% as of Dec. 31, Mr. Aldredge said. Core capital was 7.5%.
"We want to get away from being a traditional thrift," said Mr. Aldredge. "We're looking to take on small business loans up to $500,000. Basically, we're looking for strategic ways that will allow us to compete with the bigger boys."