Home Savings drops schools

By Don Shilling

Home Savings says it’s too expensive to continue to take government accounts.

YOUNGSTOWN — Home Savings and Loan, which has been struggling with disappointing earnings and sagging stock values, said business conditions are forcing it to drop the accounts of local schools and governments.

The move raised some eyebrows among school treasurers and had one acting swiftly to protect taxpayer dollars.

Jim Phillips, South Range schools treasurer, said he quickly moved the district’s $3 million to Farmers National Bank on July 10, the day after Home Savings notified him of the change. Phillips said he feels responsible for the taxpayers’ funds.

“I don’t want to say that I was afraid of losing money tomorrow, but by taking it out, I guaranteed that would not happen,” he said.

Home Savings gave Boardman and South Range schools until Aug. 11 to find a new place for their money.

Rich Santilli, Boardman schools treasurer, said he was working Tuesday to have $10 million transferred out of Home Savings that day. He has talked with three other institutions in the past week.

He said he was disappointed to be forced to make a change because of the good relationship the district has had with Home Savings for the past 10 years.

“They are going through difficult times, and I wish the best for them,” he said.

The district was earning slightly more than 4 percent with Home Savings but will receive less than 3 percent when the money is moved, he said.

Doug McKay, Home Savings’ top official, declined to be interviewed, a company spokeswoman said. However, he said in a news release that Home Savings would rather focus on its retail deposits and loans because the accounts with the schools and governments are more expensive to maintain.

“Along with this and other initiatives, we are doing all we can to manage the impact of this economic slowdown and hope to resume our growth strategies shortly,” said McKay, chairman and chief executive of United Community Financial Corp. in Youngstown, Home Savings’ parent company.

The company’s problems include “current economic conditions, a slowing of activity in the housing sector and other factors,” he said.

United Community reported lower earnings in 2007 and the first half of this year, and its stock price has fallen 43 percent since May.

Previously, the company has attributed its lower financial results to loans made to commercial developers and home builders that haven’t been repaid.

Area bankers said two factors have to be considered when deciding how much public money to accept on deposits.

First, school districts have large amounts of money to deposit, so they like to push for higher interest rates. This can make the business expensive to receive, bankers said.

Second, bankers said they have to watch deposits on government accounts because the bank must have collateral on them to protect the taxpayers.

All of the money either has to be insured or the bank has to pledge an investment in a federally backed security.

By accepting too many government deposits, a lender could tie up too much of its money in these investments and not have the liquidity to make loans or other investments, bankers said.

Even with those considerations, two other locally based banks said they remain committed to government deposits.

“We’re a community bank,” said Frank Paden, president of Farmers National Bank in Canfield. “That’s the type of thing you like to do.”

Besides South Range, Farmers also just picked up a multimillion-dollar account with Austintown schools. Barb Kliner, district treasurer, said she was just about to move the money to Home Savings from another institution when Home Savings called to decline the deal. She switched to Farmers instead.

Steve Lewis, president of First Place Bank in Warren, said his company plans to increase government business with a new way of insuring the deposits.

The government accounts, as well as personal accounts, are insured with the Federal Deposit Insurance Corp. up to $100,000. First Place has joined with other institutions throughout the country to go beyond those limits.

The lenders spread the money around to one another, so they each take on $100,000 of the amount.

Lewis said the program can be easier to manage than the investments in federally backed securities.

He said First Place recently used the program to insure a customer who had $9 million on deposit.

shilling@vindy.com