THE VINDICATOR, YOUNGSTOWN
Stocks of locally based banks are soaring this year.
By DON SHILLING
VINDICATOR BUSINESS EDITOR
YOUNGSTOWN -- Many investors who got burned chasing pricey high-tech stocks a year ago would have done much better investing closer to home.
As the Nasdaq Stock Market continues to sag, stocks of locally based banks are soaring.
Five of the banks have stock prices that have risen between 20 percent and 50 percent in the past year.
Another, Farmers National Banc Corp., is up only about 5 percent since last July but is up nearly 50 percent from its sagging price in December.
Changing attitudes: Rick Blossom, president of Second Bancorp in Warren, said bank stocks were low in recent years because fewer people wanted them. Many investors wanted high-tech stocks and were willing to pay high prices to get them.
The attitude of investors certainly has changed. The Nasdaq, home to many high-tech stocks, is down about 50 percent in the past year.
"People want something a little more solid, something they can count on," Blossom said.
Now, bank stocks suit what many investors want -- stable companies that pay dividends, said Bill Stephens, president of the holding company for Home Federal Savings and Loan Association of Niles.
"People aren't afraid of it," he said.
The stock of his company, First Niles Financial, has risen steadily over the past year, gaining about 35 percent.
Reasons: The stability of the local companies, not any new business developments, is behind the increase, he said.
Other officials were more eager to give some credit to their organizations.
Blossom, who arrived at the parent company of Second National Bank 18 months ago, said the bank has been aggressive in cutting expenses. Besides watching everyday costs, the bank has been reorganizing departments and cross-training workers to take over for other employees who leave.
"We've asked our folks to do a little more than they did before," he said.
The company has reduced its work force by about 15 percent. It now has the full-time equivalent of 500 workers.
At the same time, residential and business loans are up.
Blossom said he has been promoting the stock to analysts, trying to persuade them to follow the company. He spoke at an analysts' conference in Chicago in February and intends to speak at another in Washington, D.C., in September.
Second Bancorp's stock has risen about 50 percent since last July but is up about 70 percent over its 52-week low last December.
Added to index: Blossom and Steven Lewis, chief executive of First Place Financial Corp., said their stocks also may have been helped by being added to the Russell 2000 index, which tracks companies that are between the 1,000th and 3,000th largest companies in the country.
Being on the index makes more money managers aware of the stock, Lewis said. There also is some automatic buying of the stocks because some mutual funds are tied directly to the index, he said.
Lewis said institutional investors are watching First Place after its merger with FFY Financial Corp. to create First Place Bank.
First Place stock is up nearly 40 percent in the past year.
Doug McKay, chief executive of the United Community Financial Corp., said stock prices had been lower than they should have been, so the recent increase is just bringing the stocks to appropriate levels.
United Community, which is the Youngstown-based holding company of Home Savings and Loan Co. and Butler Wick Corp., has watched its stock climb slowly over the past year and then spike up this month. It is up about 40 percent over the past year.
McKay said United Community closed an acquisition of Industrial Bancorp of Bellevue, Ohio, July 1, which may have caused the jump in prices.
While investors and analysts knew the merger was in the works, completing the deal showed United Community was able to complete what it had announced, he said.
Interest rate reductions also may be helping stock prices, he said. Bank stocks tend to increase when there are rate cuts because earnings usually increase, he said.
Acquisition: Frank Paden, president of Farmers National in Canfield, said company earnings have been increasing.
Its stock fell in the second half of last year and then took a larger drop at the end of the year. Perhaps the drop was tied to its acquisition of Security Dollar Bank of Niles, Paden said.
The acquisition, which was announced in May, was approved by shareholders in November. The acquisition could have pushed the stock price down some because more shares were issued to complete the deal, Paden said.
The stock has bounced back, however, leading Paden to think that shareholders have seen the benefits of the deal.
The stock of Cortland Bancorp has risen about 20 percent since last December. It spiked even higher recently but settled back. A bank official declined to comment for this story.