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The economic crisis at home—YS lenders weather financial storm

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The financial moorings in the U.S. might have wavered recently, but according to the leaders of several lending institutions with offices in Yellow Springs, there are still some stable ships out there who want to float you a deal. According to market representatives from US Bank, Wesbanco and the Yellow Springs Federal Credit Union, all three are riding the financial storm with strong vital signs intact. And though they are affected by the economic downturn, they have been and expect to continue doing business pretty much as usual.

“The national media would have you believe the sky is falling, but at the local level, loans and requirements are the same as they have been. Deposits are insured by the FDIC, and investors have found that their dividends are stable,” said Lisa Clark, media relations director for US Bank’s Dayton region. “Your money is safe.”

One of the most important aspects that separates the three local banks from many of those that have failed or been bought up, is their claim that none of them got involved in the high-risk mortgage market.

Of US Bank’s national lending portfolio, just 0.03 percent was considered subprime, which means that the bank did not take a big loss when those mortgages fell through, Clark said. Though according to its 2007 annual report, US Bank increased its allowance for credit lost on residential mortgages from $43 million in 2006 to $63 million last year, its overall credit loss allowance has stayed at a stable $2 billion since 2003 for the sixth largest bank in the U.S., which reported over $237 billion in total assets in 2007.

In addition to so-called prudent lending practices, US Bank did not invest in mortgage-backed securities, which buoyed its own stock and held it within a reasonably profitable range, according to Ron Amos, the bank’s Dayton area market director. According to Yahoo Finance, US Bank stock has vacillated from a low of $20 a share to a high of $42 a share in 2008 and traded at $31.25 a share on Monday. US Bank’s Tier 1 capital ratio, used to measure a bank’s liquidity or cash reserves and recommended by federal regulators to be above at least 6 percent, is currently at a healthy 8.5 percent, Clark said.

And because in terms of profitability and risk management US Bank is consistently ranked at the top of its list of peer banks, such as Wells Fargo, Fifth Third and Key Bank, an article in the July 22 issue of the Wall Street Journal said that “US Bancorp remains one of the most profitable banks and has a better capacity to absorb losses and remain profitable than some of its peers.”

What does that mean for the local branch of US Bank? All branch assets are managed as part of the corporate pool, and at the local level, the bank is making a new push called “powerbanking” to encourage its branches to sell more loans and offer more banking services, Amos said.

“Instead of retrenching like other banks, we’re on the offense, because we’ve been recognized as one of the strongest banks in the country,” he said. “It’s just business as usual for us.”

Just down the road at the south end of town, the local branch of the slightly smaller WesBanco Bank is also trying to advertise its profile as a “super community bank” that remains strong enough to weather the troubling financial times.

According to David Donaldson, president of WesBanco’s Dayton market, with $5 billion in total bank assets, including $30 million at the local branch, WesBanco has practiced “conservative” lending, largely avoiding risky real estate markets (WesBanco recorded 1.3 percent loan delinquency rate for the second quarter of 2008) and intentionally selling many of its mortgages on the secondary market (rather than holding them) to hand off the risk from falling home prices, he said. The bank has also diversified both its business portfolio and its own investment portfolio and was able to maintain a Tier 1 capital level of 12.09 percent as of June, Donaldson said.

“We didn’t chase deals we thought were marginal, and we didn’t get into the subprime mortgages at all,” he said.

Through these practices, WesBanco has seen a 25 percent increase in total loan volume over the past year, including lending activity in Yellow Springs, according to Donaldson, who believes that more people are coming to Wesbanco partly because those who have lost money on their 401K, CDs and other investments are looking for safer alternatives.

“Our conservativism has created a bank that’s stable and safe, and we stand out now because of that,” Donaldson said. “Compared to Bear Stearns and institutions that got into exotic, hybrid investments whose risks they didn’t understand, we’re plain vanilla. We take deposits, make loans and service our customers — we’re boring!”

WesBanco’s stock has fluctuated between a low of $14 and a high of $35 a share in 2008 and traded at a steady $26 a share on Monday, according to Yahoo Finance. Though WesBanco’s stock dipped lower than US Bank’s, it managed to bounce back quickly, especially compared to other area banks such as Key Bank, whose stock fluctuated from $5 to $32 a share and traded at $7.76 on Monday; or National City, whose shares went between $1.25 and $25 and traded at $2.30 on Monday, again according to Yahoo Finance.

Credit unions aren’t publicly traded because their profits go to credit union members, but the stability of the Yellow Springs Credit Union can be illustrated in similar ways, according to credit union officials. Like the two local banks, the YSCU, which is a member of the Ohio Credit Union League and is regulated by the National Credit Union Administration (NCUA), holds all of its loans and has never sold any of its investments on the secondary market, according to YSCU Chief Operations Officer Sandy Hollenberg. The Ohio Credit Union did not take part in much subprime lending and was able to remain well-capitalized as a result, Ohio Credit Union League spokesman Patrick Harris said last week.

In the last year, the Ohio Credit Union has seen a 53 percent increase in first-time mortgages, according to Harris, and has increased its total assets from $16.9 billion in 2006 to $18.1 billion in June 2008, including a total capital level that went from $2.1 billion in 2006 to $2.3 billion in 2008. The credit union’s total loans have also increased by a commensurate amount with a delinquency level of 0.6 percent over the past five years.

“We’re doing just as good a business as we were doing a year or two or three ago, and we aren’t losing money at the same rate as other banks,” Harris said.

The credit union’s story is positive at the local level too, where statistics show that YSCU, with $12 million in total assets, has grown its overall loans by 4 percent since July, Hollenberg said.

All that amounts to a capital level of 13.3 percent, which according to YSCU Chief Executive Officer Karen Wolf, is a good indicator of the institution’s financial strength.

“Due to the fiscal conservancy at YSCU, our credit union remains safe, secure and continually able to loan money to members,” Wolf said. “With a strong capital level of 13.3 percent of assets, YSCU has more than twice the capital level that regulators require to be rated as ‘well funded.’ ”

Of course no lender could get away scot-free. Both WesBanco and the credit union have tightened their consumer credit standards. As a reaction to the country’s financial chaos, loan approval rates at WesBanco have dropped slightly, according to Donaldson. The Ohio Credit Union is feeling what Harris calls the “fringe effects” of a pinched market, which increases the cost of doing business, period. And in the past year the nonperforming assets of US Bank’s parent company have more than doubled to over $1 billion, according to the Journal article from July.

Perhaps now things are no longer as bleak as they once seemed, but there still lingers for consumers a general feeling of being let down. According to local resident Perry Stewart, who managed the local branch of Miami Deposit Bank and is currently a stockholder in US Bank, he is extremely disappointed in lenders everywhere for not being more scrupulous.

“I am sad…the philosophy in the old days was that people really didn’t like banks because we were holding all the cards and wanted to be sure you could pay it back, but they trusted us,” Stewart said last week. “But the situation has changed over time and banks said just make more loans, we’ll worry about whether you can pay it back later.”

The part of the lending process that’s been left out in recent years is the “disclosure” step where the lender tells the borrower what he’s about to do, Stewart explained with disbelief.

“What’s good about putting someone into bankruptcy or foreclosure? There’s no social good in that,” he said. “It comes down to greed.”

Stewart feels there is reason to hope that some banks, such as US Bank, tried to stay away from irresponsible lending and came out stronger because of it.

With the help of last week’s Congressional bailout package, banks should begin to fare better. The Federal Deposit Insurance Corporation was mandated to insure all bank deposits up to $250,000 through the end of the year, with a similar insurance package for Ohio Credit Union deposits backed by the National Credit Union Administration and the U.S. government.

And at least in the Yellow Springs market, all three institutions clearly stated that there have been very few risky mortgages or other investments because most local residents are able to pay back their loans.

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