Local banks staying healthy

"What's in a name? That which we call a rose, By any other name would smell as sweet."

With all due respect to William Shakespeare, Ed O'Boyle of Five Points Bank in Grand Island and Barry Sandstrom would like to disagree when it comes to those lines from "Romeo and Juliet."

When it comes to banks, there is a big difference between community banks and a few of the banks and brokerage houses that have been making all the recent headlines.

O'Boyle and Sandstrom said those headlines have prompted their customers to ask about the financial health of Five Points Bank and Home Federal Bank here in Grand Island.

Both men told The Independent that the health of both institutions is just fine.

In fact, they said people have nothing to worry about when it comes to any local financial institution that accepts deposits and makes loans.

Although no one from Equitable Bank in Grand Island talked to The Independent, that institution coincidentally issued an Independent Community Bankers of America press release that praised the safety of customer deposits in community banks.

During his interview, O'Boyle stressed that Five Points Bank is a community bank.

He said the financial institutions that are making the headlines made interest-only loans -- "statement-only" loans in which borrowers did not have to verify their annual incomes and negative amortization loans.

Sandstrom said some people have developed a derisive term to describe what happened to some of the loans where lenders did not require verification of a borrower's income.

He said they turned out to be "ninja loans," with ninja standing for "no income, no job, no assets."

While there is humor in that statement, some customers have become worried about local banks because of the recent spate of bad news about financial institutions.

Sandstrom said some "talking heads" on cable television may be contributing to that phenomenon. They may talk about financial troubles encountered by a bank, brokerage houses and other kinds of financial institutions.

Sandstrom said to people who, those terms might all blur into a single, familiar word -- bank.

However, O'Boyle, Sandstrom and officials with Equitable Bank said there are distinctions between different kinds of financial institutions.

In the ICBA release, Rick Harbaugh, president and CEO of Equitable Financial Corp., said, "We understand during these difficult economic times, some people are concerned about the safety of the money they have in their bank savings or retirement accounts, but they shouldn't be."

That written statement also quoted Cynthia Blankenship, chairman of the Independent Community Bankers of America, as saying, "Community banks are stable and well-capitalized."

Sandstrom and O'Boyle each said much the same thing, with slightly different words.

Sandstrom said people should look at banks from a "balance sheet point of view," while O'Boyle said what "community banks are known for are credit quality."

O'Boyle said that means community banks carefully examine a borrower's ability to repay a loan. He also noted that Five Points Bank does far more than make home loans.

The majority of Five Points Bank's loans are commercial loans, O'Boyle said.

Sandstrom said Home Federal has diversity in its loan portfolio as well, with business, consumer and home loans or mortgages.

O'Boyle said people should also look at what the overall Nebraska economy, which has a very positive impact on banks doing business in Grand Island, whether they be locally owned, a regional bank or a national bank.

O'Boyle said people living in Central Nebraska are feeling the pinch of higher gasoline and food prices. But he said the agricultural economy is strong, which makes it a good business environment for banks.

Sandstrom said housing prices never skyrocketed in Central Nebraska and Grand Island. But that means housing prices have not plummeted like they have in some parts of the country.

Equitable Bank's written statement noted the ultimate security of FDIC of up to $100,000 per depositor per insured bank and $250,000 for certain retirement accounts.

The Equitable Bank statement said people should simply make sure they are doing business at an FDIC-insured institution.

O'Boyle said people can go to the FDIC Web site to find out information about the financial health of their banks.

Although the FDIC never releases its own ratings on banks to the public, its Web site lists various bank rating services.

O'Boyle said finding a positive rating on their bank can give people confidence that while FDIC insurance is available for their deposits, they will never need to actually use the FDIC insurance system.

Sandstrom said people also can look at the big picture, not just the headlines or scores from bank rating agencies, to know the likelihood of needing to use the FDIC insurance system is exceedingly slim.

"There are thousands of banks in the United States," he said.

However, Sandstrom said, the FDIC has only 90 banks in the entire country on its watch list.