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.
Observers say the conversion, Leader's balance sheet, and its 20% market share in Memphis and the surrounding county, have made the company a top candidate for acquisition by a larger entity.
"They would complement any bank that operates in Tennessee, both those that are domiciled here and those from out of state," said Peter Tuz, first vice president at Morgan Keegan Inc. in Memphis.
"They could look to acquire smaller banks, but they are of a size and in a market with such a strong performance that it's inevitable they'll be attractive to someone else, too."
NationsBank Corp. of Charlotte, N.C., which has had a small presence in Memphis for several years, tops the list of possible suitors, according to some.
Mr. Stimpson said the thrift is starting to feel content with its size, which grew last year by 26% to $2.5 billion. That size represents about 30% of all assets owned by thrifts in the state.
The company looks to slow down growth this year to between 10% and 15%, he said.
Last year's expansion was achieved without an increase in operating expenses, he said, and an impressive 44% efficiency ratio underscores that effort.
Noninterest expenses did increase by 8% to $12 million in the fourth quarter as a result of a one-time charge needed to establish an employee beneficiary trust.
The provision for loan losses also more than doubled in the fourth quarter, to $1.7 million.