Granite Strong

Banks are most comfortable in the background of consumer consciousness—when people know they’re there and how to find them, but they’re not a topic of conversation.

That changed, for many, in March of this year, when three banks failed in rapid succession: Silvergate Bank on March 8, Silicon Valley Bank on March 10 and, two days later, Signature Bank. Then, on May 1, the federal government announced the sale of First Republic Bank to JPMorgan Chase, a move made to inspire confidence in the overall banking system.

All of this has brought banks into the spotlight. The big question is, are any of NH’s banks is danger of being added to that list?

“It’s natural, with what we’re hearing with the banks that have failed, to say, what’s going on with my bank,” says Kristy Merrill, president of the NH Bankers Association. Fear not, she says, “Banks in New Hampshire are strong.”

‘So Different’

All the banks that experienced catastrophes this year had something in common: systemic liabilities. Some of them, according to reports published after the failures, were too heavily invested in the volatile cryptocurrency markets, had their assets tied up in government securities, or had a lopsided percentage of depositors with more than $250,000 in the bank. The FDIC guarantees deposits of less than that amount, precisely to prevent a runof withdrawals.

“What happened with those banks was so different than what is happening here, so different,” Merrill says.

Numbers can help tell the story. An analysis by Brian Gottlob, an economist and director of the state’s Economic and Labor Market Information Bureau, showed that nearly 75% of Silicon Valley Bank (SVB)’s deposits were more than $250,000, and that half of all its assets were invested in government securities. In retrospect, this was a recipe for disaster. When some of SVB’s larger depositors withdrew their accounts, the bank had to liquidate some of its securities—sold at a loss due to securities market conditions at the time—to pay out those depositors. News that the bank was liquidating assets made other depositors skittish, and soon the bank was on its knees.

Gottlob’s figures for NH’s local banks are reassuring. For the 19 community banks chartered in NH, 78% of all deposits are insured, and the lion’s share of assets are invested as loans made to other members of the community. Local banks only have about 10% of their assets in government securities.

Odds are good that your local community bank has two feet on solid ground, Merrill says, but she’s ok if you don’t want to take her word for it.

“So much of banking and the economy has to do with confidence,” Merrill says. She encourages people to pick up the phone and call their local bank, and, if they have any specific concerns, see if there’s a solution that could make them feel at ease. “When you look at the whole list of banks in New Hampshire, there are a lot of banks that have been in this community for a really long time, and have weathered this kind of thing before,” Merrill says.

Dream Maker

Asked about the role that banks play in daily life, Ron Magoon, CEO of Franklin Savings Bank, says it’s like wishing upon a star. “Banks are second to Disney in making dreams come true. We help people buy their first car, buy their first home, we help them go to college, we help people retire successfully,” Magoon says. “They are a lifeblood, in a way, of the economy in
New Hampshire.”

Instead of chasing the crypto market, or wooing tech moguls, Franklin Savings Bank (FSB), founded in 1869, has been investing locally for a number of years, giving back 10% of its earnings each year to local causes, such as sponsoring little leaguers, helping to pay for fireworks displays, or donating to a fund to help local residents cover their bills through the winter. FSB also supports a local project to turn the Winnipesaukee River, as it flows into downtown Franklin, into the only whitewater park east of the Rockies.

“The reason Franklin Savings Bank has been around for 154 years is we do what we do well, but we don’t get involved in what we don’t understand, and we don’t get involved in the flavor of the day,” Magoon says.

In March, after Silicon Valley Bank collapsed, Magoon drafted a letter to his bank’s customers, and to the community at large. The message was that the banks that were in trouble were those pushing the envelope, which wasn’t something that Franklin wanted any part of.

“The response we got from our customers was, yeah, we figured you were fine, but it’s nice to hear,” Magoon says, adding his peers at other community banks had a similar experience. “What I’ve heard across the board was the same thing. Customers were happy to get the notice, but they’re not worried.”

The Bank Watchers

Any bank or credit union that is chartered in NH is examined and monitored by the state’s Banking Department. Emelia Galdieri, commissioner of the department, and chief bank examiner Todd Wells stress banks and credit unions are closely watched.

“The banking industry is a very highly regulated industry,” says Wells.

The bread and butter of bank oversight is so-called “safety and soundness examinations,” Wells says, in which regulators “evaluate management, board of directors or trustees, and we’re looking at their track record.”

Those examinations look at several components of bank management: capital, asset quality, management, earnings, liquidity, and sensitivity to market risk. Each of those components gets a score, and then there’s an overall score for
the institution. 

If an institution is found to be lacking in an examination, or is trending in the wrong direction, the Banking Department has a range of enforcement actions to consider. There could be a “board resolution,” which amounts to a formal acknowledgement by the bank’s board of the shortcomings revealed in an examination. A more pointed action would be a memorandum of understanding, in which the Banking Department and the bank’s board would come to an agreement about which corrective steps are necessary by a specific timeline.

“There are several levels of potential enforcement actions we could take,” says Galdieri. However, she couldn’t say how often those actions are deemed appropriate, or what results they brought due to confidentiality concerns. “The only one that would be public would be when we order a bank to cease and desist,” or an order to remove directors. “That hasn’t happened since I’ve been at the Banking Department,” says Galdieri, who joined the department in 2012.

Galdieri points out that if a consumer came to her with concerns, she would encourage them to “increase their financial literacy,” noting that banking.nh.gov has a trove of data that could help consumers do their own evaluations.

Wells says that data, such as bank and credit union call reports, and uniform bank performance reports, can illuminate a banking institution’s standing. Those reports can be compared to the extensive post-mortems published after a bank fails to see how a current bank’s liabilities line up to one that has crumbled. “That would be time well-spent,” Galdieri says.