Nebraska Bank Takes Large Servicing Hit

So, what happens when a modest-sized banking company has to take an impairment charge larger than its quarterly earnings?

In the case of Commercial Federal Bancorp., not much. The company still beat a Wall Street consensus for first-quarter earnings. The company reported net income of $17.9 million during the first quarter, despite registering an impairment charge that exceeded that amount.

CFB reported first-quarter earnings per share of $0.43, compared to a Street consensus of $0.41.

But the bank did have some gray clouds hanging over its balance sheet. In addition to taking an $18.9 million charge related to impairment of the MSR asset, the company also reported MSR amortization expense of $12.4 million.

However, these hits were partially offset by $18.4 million in hedging gains.

Chairman and CEO William Fitzgerald said that the company expects earnings to rebound in the second half of this year, particularly as the mortgage business improves and registers a lower amortization expense. He said growth in core deposits and commercial operating loans continued to favorably affect performance.

"However, the further decline in interest rates during the quarter had a negative impact on mortgage operations and we are examining options to ensure improvement going forward," he said in the company's earnings release.

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