Banks post large losses

First Place reports a $6.2 million loss after writing down a large investment loss.

STAFF/WIRE REPORT

Two banks serving the Mahoning Valley posted financial losses as they struggle through the downturn in mortgage and credit markets.

First Place Financial Corp., based in Warren, said Tuesday that it lost $6.2 million last quarter. It attributed the losses to bad loans and investment losses.

Meanwhile in Cleveland, National City Corp. announced a loss of $5.15 billion and said it would cut 4,000 jobs over the next three years.

First Place has been hurt by loans that it made to contractors who were developing residential building lots and new homes, said Steven Lewis, president and chief executive of the company that operates First Place Bank.

“We have continued to experience depressed real estate values in the markets where we lend, resulting in an unsatisfactory level of nonperforming loans,” he said.

Nonperforming loans are those that haven’t been paid on for at least 90 days. Those loans, plus real estate that the bank has taken over, totaled $89.4 million Sept. 30, compared with $74.4 million three months earlier.

The company set aside $5.4 million last quarter to cover its loan losses, which dragged down earnings.

First Place’s earnings also were reduced by an accounting charge of $9.3 million to cover investment losses.

The company was forced to write down the value of its investment in Fannie Mae stock by $8 million. It lost 85 percent of the value of its investment in Fannie Mae preferred stock when the government declared that the mortgage giant was insolvent. Fannie Mae buys mortgages on the secondary market.

First Place also had to write down its investment in a mutual fund by $1.3 million.

Without these accounting charges from the investments, the rest of First Place’s operations generated $1.6 million in profit, even with the increase in nonperforming loans.

Going forward, First Place has cut back on its lending for construction and real estate development, Lewis said. It also is pushing for troubled homeowners to turn over their deeds to the bank rather than file for foreclosure, he said. This allows for the properties to be sold more quickly, he said.

The company’s board of directors declared a dividend of 8.5 cents a share, payable Nov. 13. It is the same-size dividend declared in July, which was half of the April dividend.

National City’s action to cut 4,000 jobs, or about 14 percent of its total work force, will create annual savings of between $500 million and $600 million by 2011. National City said it expects to realize $240 million in savings, and $80 million to $100 million in associated charges in 2009.

“Our view is the macro environment continues to be very challenging” and is likely to get worse before improving, Chief Executive Peter Raskind said in an interview. Raskind said the cost reduction initiatives are aimed at long-term success of the company and not just working through the current downturn.

National City recorded a one-time dividend of $4.42 billion on preferred shares issued in April related to its $7 billion capital raise. Excluding the preferred dividend, the quarterly loss was $729 million.

Recent reports suggested National City could be considering a sale or merger of the bank, though Raskind declined to comment on the speculation. Multiple banks, including Wachovia Corp. and Sovereign Bancorp Inc., have agreed to be acquired over the past month amid the ongoing mortgage and credit crisis.

Problems in the mortgage and real estate markets since the middle of 2007 have hit National City especially hard. National City set aside $1.18 billion during the third quarter for loan-loss provisions, compared with provisions of $368 million during the same quarter a year earlier. Loan-loss provisions declined from the prior quarter, when National City set aside $1.59 billion to cover potential losses.

The majority of the third-quarter provision, or $678 million, was set aside to cover losses in the bank’s “exit portfolio,” which consists of loans from businesses National City exited or products it stopped selling.