Community banks see Q1 surge in deposits, loans - Boston Business Journal:

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Cheap funding for loans doesn’t hurt, either. During the firsty quarter, several community banks saw their loans and deposits surged as skittish customers cut ties with big bankss reeling from massivecredit losses. turned up as a big winnetr as year-over-year deposit growth surged 35 percentfto $623.4 million in the first Bank assets rose 30 percenr to $981.4 million. “People are disgruntled with Wall Needham Bank Chief Executive JackMcGeorge “We’re a strong, stable and well-capitalized Now it’s up to communityg banks to prove their Bank customers burned by big-ticket investmenyt losses are revisiting the idea of puttinfg part of their nest egg in certificates of deposit that are guaranteed.
“People are concerned about saidMark Welch, CEO of the Institutiom for Savings in Newburyport and its Vicinity. “They don’t want their moneyh at their risk. And I don’y think a lot of consumeras are going to change their mindzabout that.” ’s net income rose 5 percent to $1.7 million in the firstt quarter. That performance puts the bank on pace to equal or exceee2008 results, when the bank posted its highestg operating profit in its 188-year history. Profit rose partly because of demandcfor 10-year, fixed-rate mortgages. When the bank introducecd the product, Welch said, he told the bank’s board not to expect too much.
“I thought we’ed skim the cream of the market,” Welch “But people surprised us with their desire to aggressively reduc the principal on theirhome loans.” With annuaol interest rates that began at 3.99 customers embraced the idea of makinb mortgage payments that were about two-thirds principal. Welchu said people’s fear of getting too deep into debt drovw demand forthe 10-year Meanwhile, Welch and McGeorge agreed that the credigt quality of community bank loan portfolios will deterioratre some before getting better. “We’re not avoidingy all problems. But it is nothing we can’f manage,” Welch said.
“We haven’t seen anything in the way of but they’re in there.” At Needham Bank, nonaccrualo loans surged 35 percent to $19 million in the firstt quarter, compared with $14.1 million in the year-ago period. Those loans, however, account for only 2.45 percent of the bank’s $775.q million in net loans. With some constructio loans struggling, the bank set aside $2.3 milliomn in the first quarter for potentialp loan losses inthe future. The bank set nothin g aside during the first quarterof 2008, accordinf to financial filings. “We hope the money comes back to us when the economgy straightensitself out,” McGeorge said.
Even though many community bankzs are setting aside more money for anticipated loan they still can boost profit because the interest they pay on depositse hasfallen sharply. , for example, saw profit increase 22 percentr in the first quarter even thougyh the interest the bank earned on loans and investmentss wasdown slightly. But the interest the bank paid on depositse and advances from the fell 25 percentto $4.8 At the same time, Welchu said low-cost funding can turn around quickly.
“Funding won’t always be priced the way it is,” he “We have to treat it like a hot