Banks answer clients’ worries

By Don Shilling

Stock prices for local banks have dropped dramatically.

Some local residents are worried about their bank deposits.

“Once one or two sizeble institutions fail, people get scared,” said Steve Lewis, president and chief executive of First Place Financial Corp. in Warren.

IndyMac Bank in California was shut down by federal regulators Friday, and customers were still in line Tuesday trying to get their money.

Trading on the stock of National City Corp. was briefly halted Monday after it started to drop on rumors of financial trouble at the Cleveland-based bank.

Enough people have called First Place Bank about the security of their deposits that executives approved the printing of a brochure that explains the federal insurance program, Lewis said. The brochure should be finished soon and will be rushed to branches.

First Place customers have been asking questions about how money is retrieved in a bank failure, what happens when deposits exceed insurance limits and how long it takes to receive money from the insurance program.

Though the calls have increased this week, they started several months ago because of news about the nationwide credit crisis, Lewis said.

Farmers National Bank prepared its staff early Tuesday morning by alerting them of the potential for increased customer concerns, said Frank Paden, president of the bank’s holding company, Farmers National Banc Corp. in Canfield.

Doug McKay, president of United Community Financial Corp., said Home Savings and Loan branches have seen more calls this week from customers with questions about deposits.

Bob New, president of F.N.B. Corp. in Hermitage, Pa., said he has seen evidence that customers are growing nervous with other banks. There has been an increase in customers who are moving money from these banks and depositing it into First National Bank of Pennsylvania, which is an F.N.B. subsidiary.

All of the local bankers said their institutions are in good shape financially, but they also expressed frustration with the stock prices of their companies.

“To say I’m disappointed would be stopping way short of how I feel,” New said. F.N.B’s stock value is down 39 percent in the past year, with nearly all of the decline coming in the last three months.

United Community and First Place have suffered the largest drops, at 63 percent and 52 percent respectively in the past year. The other declines are Farmers, 38 percent; and Cortland Bancorp, 25 percent.

Lewis said that investors establish stock prices based on expectations for future earnings. Right now, investors aren’t sure about the earnings potential of financial institutions in general because of uncertainty in credit markets, he said.

Paden said problems with some lenders are hurting all institutions.

“We have a lot of good, solid banks in our community, but we’re being dragged down stock price-wise by what’s happening in the economy,” he said.

United Community has seen the largest price drop as its stock closed at $3.55 Tuesday. The company’s earnings fell last year because it set aside $28 million to cover bad loans, compared to about $4 million in a normal year.

The stock price dropped and then rebounded to more than $8 a share about May 1, only to fall even steeper.

McKay said the market is responding to a housing market that is still sluggish. Locally, new construction activity remains slow, but applications for mortgages have started to increase over last year’s rate and delinquencies have returned to a normal level, he said.

“I can’t say that the housing slump is over, but there are some good signs out there,” he said.

shilling@vindy.com