Mainebiz

W W W. M A I N E B I Z . B I Z 19 N OV E M B E R 2 8 , 2 0 2 2 F O C U S B A N K I N G / F I N A N C E / I N S U R A N C E homebuyers to find properties and then to qualify for a loan, so that puts a strain on them. And when someone is looking at a property, they're wondering what it's going to cost to maintain the house. So that's starting to factor in. More people are starting to question, 'Do I even want to buy a house?' MB: What's the impact of all these puzzle pieces on the bank? KN: Every bank needs to look at their financial model. Mortgages are volume-driven. If your volume is cut in half, your fee income is cut in half. Mortgages add to a bank's balance sheet through the interest income. Banks have to decide whether to keep the loans on their balance sheet or sell them. If you're keeping loans on your books, you'll see that income flow over time. If you're selling loans to Fannie Mae, Freddie Mac or a third- party broker that adds to the bank's non-interest income and adds to your bottom line right away. MB: What's been your model? KN: We like having a mix of residen- tial and commercial loans on our bal- ance sheet. MB: What did your numbers look like in 2021 versus today? KN: In 2021, we had $149 million in resi- dential loans and a total of $176 million with home equity loans. at equates to 1,177 residential and home equity loans. ose were record numbers for us. So far in 2022, we're at about 600 loans totaling $93 million for residential and home equity loans. ose numbers go back to more normal levels seen pre- 2019. at said, we're looking to build on and expand our mortgage presence. MB: What does the decline mean in terms of your home-loan-related income? KN: When we have more mortgage origination, we have more fee income. From holding loans, we earn interest income based on the customer's interest rate on the loan. With loan volumes decreasing, we anticipate earning less on our residential real estate activities until volume increases. As a simplistic example, if we have loans on the books at 2% and we borrow it at 4%, we're losing money on those loans. If loans are being booked for 7% today and we pay 4% for the funding cost, the bank is making money. e spread becomes relevant to the time period. If the bank's entire balance sheet is properly managed, the margin pressure is reduced and asset liability risk is minimized. MB: Where do banks borrow those funds? KN: e No. 1 source of funding for most banks is its deposit base — that's the most common source of low-cost funds. Beyond the deposit base, you can also borrow from the Federal Home Loan Bank as well as a variety of other wholesale funding sources. MB: What are your expectations of mortgage activity going forward? KN: Right now, we're getting a heavy amount of home equity requests because people don't want to lose their low- rate mortgages. It's probably going to be a slow winter. Mortgages still at a 'healthy' level Gregory Dufour is president and CEO of Camden National Bank. Mainebiz: What are you seeing for mortgage activity now versus a year ago? Gregory Dufour: e mortgage industry has taken a turn as the Federal Reserve's efforts to fight inflation have sent mort- gage rates soaring. e U.S. refinanc- ing market has declined significantly. Refinancing no longer makes sense for many homeowners, as many consumers took advantage of the unprecedented low rate environment. In the new home purchase market, we are also seeing a significant decline, exceeding 50% to 70% off our peak activ- ity, similar to national trends. Part of the decline is due to the comparison from the large volume purchase activity we YOU HAVE GREAT IDEAS. TOGETHER WE CAN BUILD IT We have the advice and financing tools to make them a reality. Together, we can grow good jobs, livelihoods and diverse small business ownership in Maine. 207.504.5900 www.ceimaine.org Federally Insured by the NCUA • Equal Housing Opportunity • NMLS #411696 Earn up to 4.00% APY with our Best in Market CD Rates www.infinitycu.com 207-854-6000 C O N T I N U E D O N F O L L OW I N G PA G E » We like having a mix of residential and commercial loans on our balance sheet. — Kim Nason Machias Savings Bank

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