Tuesday, May 23, 2000
Industry notes: Banking
Mortgage demand declines
By Jeff McKinney
The Cincinnati Enquirer
The Federal Reserve's recent campaign to boost interest rates is starting to be felt in the mortgage-lending business.
The demand for residential mortgages has cooled from three months ago, according to a Fed survey of senior bank executives at 57 U.S. banks and 21 foreign banks released late last week.
Forty-three of the respondents reported weaker demand since January, but those bankers also said they do not expect to change how they make consumer installment loans.
But the apparent slowdown in mortgage lending appears to be fueled by the Fed's action to slow the strong economy by raising interest rates. The Fed has raised rates six times since June, with a half-point increase last Tuesday being the most recent.
Those higher rates also have affected mortgage lending rates both locally and nationally.
The average rate for a 30-year, fixed-rate mortgage was at 8.69 percent last week, according to a weekly survey of 26 of the area's largest lenders by the Cincinnati Area Board of Realtors.
That's the highest the rate has been in more than four years. A year ago, the rate was 7.29 percent.
Analyst bullish on Provident stock
Revenue growth and a rising stock price that Provident Financial Group Inc. should reap from its business strategy has caused a Wall Street analyst to boost his rating on the bank's stock.
Analyst Timothy Willi of A.G. Edwards & Sons Inc. has initiated a “buy” rating on Provident, fueled by expectations that the Cincinnati bank will be able to generate strong earnings growth and higher returns during the next few years.
He prediced that the stock will hit $37 a share in the next 12 months, up from its close of $24.433/4 Monday. Among the reasons he's bullish on Provident:
• The parent of Provident Bank has a business model that sets it apart from other banks. Provident has expanded many of its consumer and commercial lending operations regionally and nationally, giving it new markets and business lines that offer potential growth.
• The market will soon become more comfortable with the nonconforming mortgage business, a business that Provident is involved in nationally. Nonconforming loans are higher-rate loans made to higher-risk borrowers.
• Provident stock is undervalued, trading at 6.9 times Mr. Willi's 2000 share earnings for the company as of Friday, vs. 11 times for 40 other regional banks that A.G. Edwards monitors. He said the low stock price leaves much room for Provident's stock to climb based on its future earnings outlook.
Electronic transfer accounts welcomed
At least four banks with Tristate operations have agreed to open electronic transfer accounts (ETAs) for area residents.
Fifth Third, Firstar, First National Bank of Southwestern Ohio and Westwood Homestead Savings Bank will offer ETAs. The accounts allow recipients of Social Security, Supplemental Income, veterans benefits, railroad retirement and other government-related checks to have their checks directly deposited instead of doing it manually.
Bank executives said ETAs provide more security and convenience for recipients of government checks as they reduce the fear of losing checks and reduce trips to banks to cash checks.
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Tristate Business Summary
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Industry notes: Banking
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