Area's community banks fight a 'false' perception: bankers say they're healthy, well capitalized and have money to lend.

Community bankers say they have been unfairly lumped with the national banks, mortgage companies and financial giants that caused the economic crisis by issuing and selling risky loans.

The banking industry as a whole has been blamed for the crisis, despite the fact that most small community banks are still healthy and were never involved in subprime lending, according to the bankers.

"The worst thing for us right now is to have 'bank' in the name, but we're required by law to do so," said Jim Dunphy, chief executive Manchester-based Hampshire First Bank.

Although credit standards have tightened due to the recession, the bankers said they still have money to lend and are still making loans. Foreclosure in their circle is almost a non-issue, they said.

Gerald Little, president of the New Hampshire Bankers Association, said 95 percent of the 8,000 U.S. banks have been classified by the government as "well capitalized," meaning they have a healthy amount of cash of hand.

The problem with public perception, he said, is that news outlets and the government are broadly blaming the financial crisis on banks, without distinguishing among them or mentioning the non-bank lenders that played a significant role in the crisis.

"I can't tell you the number of times I've yelled at the TV," Little said. "MG is not a bank."

American International Group, which has been widely criticized in recent weeks for handing out employee bonuses after accepting federal bailout money, is an insurance giant that fell into trouble because of its financial products division.

Frank Teas, president of The Nashua Bank, expressed similar frustrations about the way banks are portrayed in the media.

"People hear about banks not having liquidity or credit--I think that's just a blanket statement that is false," he said.

Of course, that's not to say everything is perfect in the world of New Hampshire community banking: Local banks have seen an increase in the number of past due loans.

"From where we sit, we see stress," Loyd Dollins, executive vice president of First Colebrook Bank, said. "We see an uptick in loans that are 30 days past due, but we're not seeing an increase in foreclosures."

First Colebrook had no more than two or three residential foreclosures last year, Dollins said.

Hampshire First, a two-year-old bank, doesn't have any residential properties in foreclosure right now, but is working with one commercial customer to avoid foreclosure, Dunphy said.

The Nashua Bank, founded 18 months ago, has never had a foreclosure, according to Teas.

New business

Youth is part of the reason local banks like The Nashua Bank and Hampshire First have been insulated from foreclosure. But it doesn't explain everything, given that First Colebrook has been around for 120 years.

Little said community banks have always been more cautious in their lending practices than their bigger counterparts or consumer finance companies, particularly because they have to be able to sell their loans on the secondary market if needed to free money for lending.

The bankers said some of their new business right now is coming from customers who have left larger institutions out of frustration. They're also seeing new refinancing customers right now.

Among their biggest worries is that Congress, in its response to the country's largest financial issues, will approve sweeping industry regulations that have a negative impact on local banks, too.

The Federal Deposit Insurance Corp. is increasing its deposit insurance rates for all banks in order to compensate for the money spent on failed banks. However, the bankers said there's no current legislation in Congress that has them worried.

"The things we're most worried about haven't even come to the table," Teas said.

First Colebrook is among the six New Hampshire banks that have accepted federal money through the federal Troubled Asset Relief Program's Capital Purchase Program.

Unlike the federal bank "bailouts" under the TARP program, CPP funds are only available to healthy banks. They are designed to bolster local lending.

Little said federal regulators nearly begged the local banks to take the money in exchange for preferred stock, calling it their "patriotic duty." But many New Hampshire banks won't do it because of the negative stigma associated with TARP funds.

"That name is unfortunate," Little said.

Dollins said First Colebrook plans to use the extra capital to grow the bank and increase the volume of lending.--THE TELEGRAPH