|
A Primer on Bank Stocks
In May, Second Bancorp Incorporated elected to become a financial holding company, under provisions of the Financial Services Modernization Act enacted by Congress late last year. In a nutshell, the act allows banks to enter the insurance business and brokerage businesses, which until now, they were prevented from doing so by law. Financial holding company status is limited to bank holding companies with banking subsidiaries that are well managed, well capitalized and in compliance with provisions of the Community Reinvestment Act.
"Second Bancorp's conversion from a bank holding company to a financial holding company positions us to take advantage of expanded operating authorities under the act," says R.L. (Rick) Blossom, president and CEO.
About SECD and Bank Stocks
Second National Bank is a wholly owned subsidiary of Second Bancorp, which was established in 1987. Second Bancorp stock is publicly traded on the Nasdaq under the stock symbol SECD.
Many Second National Bank employees are Second Bancorp shareholders. If you're a shareholder that has followed SECD on the Nasdaq over the last year, you know that Second Bancorp and most bank stocks are in the doldrums.
It's a confounding situation because banks overall made more money than analysts expected in 1999--but you'd never know that by their stock prices. Internet companies, with no profits and few assets, became the darlings of Wall Street while moneymaking banks found few fans among investors. The fact that performance is up and stock price is down puzzles many analysts, who say various factors are at work in the current scenario.
Following peak prices in mid-1998, bank stocks began to fall with fears of an Asian, then Russian economic crisis. In early 1999, fears of inflation began to rise. Once the global economy improved, the supply of basic commodities, such as oil tightened, which led to rising interest rates. The perception that bank stocks are sensitive to interest rates has historically driven people away from bank stocks.
In an environment where technology stocks continue to command most of the attention today, it is hard for community banks to grab the investment spotlight. But many stock analysts believe the basic fundamentals of good performance will win investors over in the long run--and that once interest rate hikes subside, investor interest in financial stocks will return.
|
