Despite small declines in deposits, loans and margins, many of the community banks across the state – including institutions that only recently opened their doors – remain highly confident that they’ll weather today’s economic and industry storms. 

The recent high-profile failures of Silicon Valley Bank, First Republic Bank and Signature Bank clearly exacerbated ongoing industry challenges, including higher interest rates that have cut into profit margins and widespread concerns that the U.S. economy could slip into recession soon, industry officials say. 

“It’s a challenging time for all banks,” said Ronald Magoon, CEO of Franklin Savings Bank, an eight-branch institution with $755 million in assets.  

Margin Compression Rears Head 

Magoon said the Federal Reserve Bank was initially too slow in reacting to post-pandemic inflationary pressures – and now it’s seemingly trying to catch up by having raised short-term rates by 500 basis points over the past year or so. 

The result: Older loans that were issued when rates were hovering near 0 percent are not yielding nearly as much as today’s loans with higher rates – and at a time when bank depositors are demanding higher rates for their savings, CD and other accounts, he said. 

All of this and other factors have led to old-fashioned margin compression, said Magoon.  

“There’s definitely pressure on the margins for everyone,” he said. 

Other bankers agree that higher rates have led to tightening spreads. 

They note they’ve tried to raise their deposit rates to meet customer demands without harming margins too much. But some consumers have nevertheless pulled their money out of banks and reinvested funds in higher-yielding Treasuries and other investment vehicles, industry officials say. 

Limited Deposit Flight 

Meanwhile, the recent failures of larger regional banks across the county, most infamously the March collapse of SVB, made depositors even more “jittery,” said Marcus Weeks, president of Meredith Village Savings Bank, which has $1.5 billion in assets. 

“We had some [depositors] who were certainly looking at withdrawing money,” he said. “They were calling us and asking, ‘What does this mean to us?’” 

Due to higher interest rates and the spring’s concerns over recent bank failures, Weeks estimated his bank’s deposits have declined by about 4 percent year-over-year.  

Other small banks say their deposits are flat or have declined by as much as 6.5 percent. 

But Weeks, whose bank is part of New Hampshire Mutual Bancorp, a bank holding company, said there’s been a silver lining to recent industry woes, particularly since the high-profile collapse of some regional banks. 

“It’s been a really good opportunity for us to connect with customers,” he said, noting he and his staff have met one-on-one with numerous depositors worried that their accounts might not be protected by the FDIC. 

In most cases, Meredith Village Savings officials eased depositors’ concerns about FDIC coverage – and in the process the bank strengthened relationships with many depositors, said Weeks. 

‘Nimble and Flexible’ Wins Customers 

As for loan activity, most small banks across the state say lending has declined since the Fed started raising rates early last year, making borrowing more expensive. 

Nonetheless, commercial loan activity continues to remain surprisingly strong, despite economic and industry headwinds, bankers say. 

“There are still a lot of qualified borrowers out there,” said G. Frank Teas, founder and CEO of Nashua-based Millyard Bank, which was founded in 2019 and today has about $200 million in assets. “There’s definitely been peaks and valley in loan activity over the past few years. But it’s still strong. We’ve actually seen an increase in loan inquiries over the past 60 days.” 

He said the old adage that community banks tend to gain new loan customers during tough economic times still holds true today.   

“Customers want more nimble and flexible banks” when the economy starts to stumble, he said. 

Teas noted that Millyard recently issued a loan for a new 40-unit residential development in Manchester, amid continued strong demand for new housing in New Hampshire. 

In general, the type of businesses that Millyard Bank likes to work with are those with strong balance sheets and good borrowing records, Teas said. 

William Stone, president and CEO of Bedford-based Primary Bank, which opened in 2015, said his bank has “done quite well” of late. 

“We’re still seeing strong lending,” said Stone, whose four-branch institution has $700 million in assets.  

With an unemployment rate of only 2.1 percent in April, New Hampshire continues to have a vibrant economy and a positive inflow of new residents attracted to the state’s business climate and natural beauty, Stone said. 

Franklin Savings Bank’s Magoon agreed that commercial lending has “slowed down a bit” due to higher rates and economic uncertainties.  

“But there are still good deals being done. We’re having a good year so far. Not as good as previous years. But it’s still good,” he said. 

State’s Newest Grows ‘Considerably’ 

Concord-based Walden Mutual Bank only opened for business in the first quarter of this year – and so far, it’s had “no problem growing deposits,” said Charley Cummings, CEO of New Hampshire’s first new mutual bank in more than 100 years. 

Cummings cautions that Walden Mutual is distinct from other smaller banks in the state. First, it’s an all-digital bank, serving New England and New York. Second, it makes commercial loans only to “sustainable food and agricultural” entities. Third, it has no consumer lending.  

Walden Mutual benefits from the fact that its depositors, both consumers and commercial, are socially focused customers – and strong backers of the bank’s stated sustainable lending goals, he said. 

During the short period that it’s been open, Walden Mutual already has $30 million in deposits. “We’ve grown considerably, despite [industry] problems,” Cummings said.  

While Walden Mutual may differ from other smaller banks in New Hampshire, it still faces many of the same challenges confronting other community institutions, due mainly to rising interest rates. 

“I’m concerned there might be pullback from a credit standpoint” if rates continue to rise, he said.  

Millyard’s Teas agrees there are storm clouds ahead for banks, big and small. But he said he remains optimistic. 

“We’re going to be laser-focused on concierge-like service,” he said. “We’re going to stick to our fundamentals: Low-cost deposits, quality loans, and service to the community.”