Small New Hampshire Banks Are Making Money Even While Big Banks Announce Losses

Franklin Savings Bank is a small operation with 8 branches in the Lakes region.

And President Ron Magoon says business has been good.

We have seen our net margin improve mostly over the last six to nine months and it has been a function of the assets on the balance re-pricing as loans have been set to re-price and our re-pricing higher in some cases….

Like many banks in the state, Franklin Savings is taking advantage of low cost funds from the Federal Home Loan bank in Boston.

That’s where community banks can go to get overnight loans they can use to lend money to consumers.

UNH assistant Professor Brian Bolton teaches finance at the Whittemore School.

He says retail banks are getting a really good deal now at the Federal Home Loan Bank.

So the money is free, essentially and its just a question of whether or not they have places to invest it. And places to invest it for smaller, regional banks is going to be consumer loans whether that’s mortgages, whether its car loans, whether its small business loans.

Many New Hampshire banks have fueled their profits by refinancing mortgages.

Paul Rizzi heads Merrimack County Savings Bank, based in Concord.

We’re extremely busy right now refinancing mortgages. This is one of the biggest refinance booms we’ve ever seen including the 2002 or 2003 time frame, I think that was the time frame, when we had the last refinance boom.

While federal funds cost little to borrow, most New Hampshire banks still rely on deposits as a source of funds for business and consumer loans.

Some banks rely more on deposits than on federal funds from Boston.

Sherwood Moody heads Claremont Savings Bank.

He says his bank likes to use CDs to fund mortgages because federal loans are typically short term.

Moody says those CD’s cost the bank about 2 to 3 percent a year.

And when you’re looking at mortgage rates in the 5 or 5 and ¾ area, I don’t think our margin has really changed much from last year or two years or three years ago.

Some bankers in the state are worried that short term federal loan rates could rise in the next few months.

And they’re concerned that they’ll have to pay more for deposits, if interest rates rise overall.

They say that could cut into their profits, and squeeze margins on fixed rate mortgages.

The Whittemore School’s Brian Bolton says with the economy in recession, the federal rate is unlikely to go up.

And Bolton says he doesn’t think deposits will cost banks any more than they do right now.

…. Depositors aren’t going to take their money out of their savings account or checking account based on what the market’s doing. We really don’t go rate hunting with deposits. We go rate hunting maybe with long term cds or investments but not with deposits or checking accounts.

While the psychology of depositors may be predictable most of the time, it could change if the economy continues to worsen.

Depositors who lose their jobs may withdraw their money to pay their bills.

Unemployed homeowners may not be able to pay their mortgages.

New Hampshire’s Banking Department officials say they haven’t heard too many stories of unpaid mortgages or withdrawn deposits.

They also assure depositors and homeowners that the state’s banks are well capitalized, and can survive in a slumping economy.