Conservative Savings Bank, Omaha, is regrouping after a 67% decline in first-quarter earnings brought on by rising interest rates and losses from bond sales.
The $396 million-asset thrift had net income of $335,231, and earnings per share fell 74%, to 9 cents a share.
"It certainly was a disappointing quarter," said Ben Crabtree, an analyst with Dain Bosworth Inc. in Minneapolis, who downgraded the stock to "hold" from "buy."
Despite the drop in income, Conservative officials are optimistic the thrift can regroup after the interest rate drubbing, though they acknowledge that some factors, namely interest rates, are beyond their control.
"The best scenario for us would be stable to increasing rates," said Craig S. Allen, senior vice president and chief financial officer.
But Conservative is taking some matters into its own hands, including reducing noninterest expense and diversifying the loan portfolio, he said.
Noninterest expense decreased 12% in the first quarter to $2.3 million. That decrease resulted mainly from a 10-person reduction in the loan department, said executive vice president Gene F. Uher. Three people were laid off, and others joined different departments as positions became available, he said.
To further decrease expenses, Conservative is selling an unprofitable Omaha branch to Security National Bank. It also is selling a vacant piece of land near its corporate headquarters that will bring an estimated gain of $300,000.
Conservative, where about 85% of loans are residential, also has been seeking more consumer loans to diversify the portfolio, Mr. Allen said. And the thrift plans to hire a credit analyst for commercial real estate loans up to $400,000.
This was a tough quarter for Conservative, which has been a steady performer over the years. In addition to the earnings decline, interest expense increased 32%, to $4.6 million, compared with a year earlier. Gains on the sale of loans were down 87%, to $33,231, and the company's net interest margin was 2.62%, down 30 basis points from the fourth quarter.
What troubles some analysts is Conservative's overhead. The ratio of operating expenses to revenues increased to 85% in the first quarter from 66% during the same period in 1994, according to Mr. Crabtree's report.
"They need to get expenses more in line with revenues," said Randy Greer, president of KPM Investment Management, Omaha. "They need to grow their asset base."
While Conservative says it is well capitalized, Mr. Greer said that a 1993 stock offering that brought in about $15 million has left the company overcapitalized.
"They need to put their capital to more productive use," he said.
First-quarter earnings were also affected by a nonrecurring loss of $120,947 on the sale of municipal bonds, which contributed to a 66% decline in noninterest income for the quarter, to $181,349.
After a November 1994 exam, the Office of Thrift Supervision required Conservative to liquidate the bonds, though they had no apparent problems, the thrift said. Thrifts are prohibited from holding non-rated municipal bonds in cities where they have no presence, an OTS spokesman said.