New England Macroeconomic Data – Leveraging Local Insights to Refine Your Business Strategy

Today, we’re doing the first-ever New England economic update. It’s just me and Tyler, and we’re excited to walk through what’s going on in the national economy, and then also what’s happening in the local economy.

This is the first time we’re doing this one, so we would love to get feedback from you guys on how it’s useful for your work or not at all.

And so in general, what we’re going to do, we’ve got sort of four sections for you.

We’re going to start by walking through national policy and financial considerations.

So, an update on what’s happening in markets.

We’re going to turn to economies in the Northeast and focus specifically on housing, which is a really big and important contributor to the overall economic situation here in New England.

We’re going to give you some detail on specific states and regions so that you can look at not just what’s happening in New England, but what’s happening in your very specific locality, because as we’ll get into, there’s a lot of variation within New England states and regions in terms of what’s happening right now.

And then finally, we’re going to give a little bit of time to thinking about how you can translate the differences between national economics and local economics into business strategies that will work for your firm.

As some of you know, we like to start it off with a little bit on the lighter side.

And so what we’re looking at here is inflation in some of the New England key staple goods.

So potatoes up in Maine, lobsters throughout New England, ice cream actually Connecticut and Massachusetts punch above their weight in manufacturing that very important staple good.

And then obviously the blueberries up in Maine and the cranberries down in the south coast of Massachusetts.

Well, most of those staple goods have moved mostly sideways.

We do see that lobsters have really moved quite a bit in price over the last years, 10 years, about 132% over that period, which works out to about 8.79% crustacean inflation.

But as much as this is tongue-in-cheek, it does speak to how local dynamics are important because local inputs change throughout the U.S. economy.

Yeah, I wanted to call the whole presentation crustacean inflation that Tyler overruled.

All right, so let’s get right into it.

So in terms of national and financial conditions, so we’re going to start with just a quick update on markets.

So despite the messaging that we got from the most recent FOMC meeting, which was that FOMC was prepared to sort of look through the move in TIPS and buy breakevens and bright crude futures with the war in Iran.

You still saw Treasury yields move up across the curve, particularly at the front end.

So we saw flattening.

This graph is just showing you the two-year, 10-year and five-year.

And really, although there’s been a little bit of volatility since that time, treasury yields have not materially come down.

So we remain at pretty elevated levels in terms of Treasury yields.

We’ll get another FOMC update next week after that meeting.

So we’ll provide you some updated pricing then.

But for the time being, we’ve taken out all the cuts that were priced into the curve earlier this year.

So an interesting thing is that despite the move up in interest rates, we haven’t really seen much move in risk assets.

So things like the equity markets or credit spreads, which is the income that you get for holding corporate credit or other non-treasury credit over duration equivalent treasuries hasn’t really moved that much.

This is looking at the Chicago Fed National Financial Conditions Index, which is a weighted aggregate of a bunch of different inputs, but factors spread pretty heavily.

And basically what it’s showing you is that we’re still in a condition where financial conditions are looser than average.

But if we think about inflation, so CPI and core PCE remain above the Fed target.

So the most recent update that we got was with the CPI that printed very recently at 3.3%. And that was because of basically an 11% increase in energy month over month.

That’s not surprising because we expected that with the war in Iran, given the move in bright crude futures.

What is sort of interesting though, is that, you know, we haven’t yet understood how that’s going to pass through to the overall economy.

So energy is an important input to basically every component of inflation, and we’ll see what that looks like over time.

And even in the March print, there isn’t a clear indicator that other components of inflation are rapidly falling off.

So things like services came down a little bit, food came down a little bit.

Those are welcome changes, but shelter, for example, continued to trend upwards.

But amid all this kind of dismal stuff, there’s some signs of bright spots in the economy.

So this is showing you the unemployment and underemployment rates, U3 and U6.

So unemployment is literally just the top line unemployment figure you’re used to.

U6 also includes people who are, for example, working part time because they can’t find full-time work.

And both of these metrics have started to trend down in recent months.

Other indicators that we look at to think about leading indicators of the labor market, like hiring for temporary help, have also trended in a direction that suggests maybe the labor market is stabilizing a bit here.

Okay, so that’s what’s going on nationally, right?

You got a broad picture of higher treasury yields, credit spreads are still tight, inflation is too hot, and labor maybe looks okay.

So what’s going on in New England?

Let’s start with like a step back on what New England means for the overall economy, because obviously New England is an input to the national figures.

So typically the New England economy makes up about 5% of national GDP.

This is just a graph showing New England as a percent of overall national GDP over time.

Over time, it’s trended down a little bit, but it’s pretty stable, right? We’re about 5% of the national story.

But if you look in a little bit more detail about what’s happening in terms of the year-over-year or quarter-over-quarter percent change, there’s often very material variation between what’s happening in the national level and what’s happening in New England.

So if you look at this table, this is showing you the percent change in real GDP for all of the quarters of last year for the U.S. and then for each of the states.

And of course, quarterly GDP is pretty volatile.

So you’ll see things like a 0.6% contraction in the U.S. overall in 2025.

That’s obviously not meaning that the whole year was contractionary.

It was just the quarter.

But despite that volatility, what you’re seeing is there’s also lots of volatility within the states.

So for example, the state of New Hampshire is one that’s worth calling out.

Because New Hampshire’s had tremendously strong economic performance throughout this whole period.

It’s notably outperformed the U.S. and New England overall for the entire time.

But something like, you know, Maine, you see more volatility, for example, quarterly, and you’re going to see challenges in certain states that are particularly exposed to sectors like finance or services.

And we’ll get into that in a bit more detail, but you can take a look here and see where your own state is performing relative to New England and relative to the overall economy.

Okay, I wanted to go one step further too and talk about not just what’s happening at present, but also like where are the sources of growth within these different states?

So what I’m showing here is the percent of U.S. overall GDP that each state contributes, but then also within certain sectors that are notable where they punch sort of above their weight in terms of contribution.

So, you know, looking at, for example, the state of Connecticut. Connecticut contributes 1.2% to the overall national GDP, but it does a lot of durable goods manufacturing.

And it also punches above its weight in terms of finance, insurance, real estate, and also education, health care, and social assistance.

What you’ll find throughout New England is that in general, we do a lot of education, health care, and social assistance, which is unsurprising.

We also do a decent amount of finance, insurance, and real estate.

So we have a lot of concentration and exposure to very service sector, very consumer-oriented things.

We do a little bit less manufacturing in general on average than the national average.

And I do think it’s worth pointing out just for fun that we have better accommodation and food and arts in GDP terms than the national average.

Okay, so what else should we know about New England?

This is a chart that’s showing you the average age for somebody who completed the Northeast census relative to the overall census.

So the important thing to know here is that it’s a census respondent, so it’s not necessarily representative of like the average age of a person there, right, but it is the relative difference is notable.

So what you’re looking at is something that’s going to tell you that on average, the respondent in a Northeast census is a little bit older than the respondent to the overall census.

Also worth noting that the real median family income in New England is a bit higher than is typical on the national level.

So we’re going to get into this a bit more but it’s unsurprising particularly given what housing looks like in New England that you do see higher income in real terms in New England than overall.

And that’s been true for a very long time.

And in recent years it’s worth noting the gap between these two has just expanded more.

So it’s really taken off since say 2010.

Okay, so getting back to where we are right now.

So unemployment in New England, there’s a lot of variation within New England states about what the labor market currently looks like.

But in general, our labor market tends to be in line with or maybe even slightly weaker than the national average.

And I wanted to call out a few things here.

So the national unemployment rate using January figures, 4.3%, right? Connecticut has experienced much higher unemployment rate for a while.

Some of that we think is due to the sectoral composition of the economy.

Something like Maine has tremendously low unemployment. Same thing with Vermont.

Vermont has consistently had much lower unemployment than is the national average. Also true of New Hampshire.

So you have a bit of a bifurcation here.

If you’re in Connecticut or you’re in Massachusetts, you actually have a bit of a weaker labor market than the national average.

If you’re in Vermont or you’re in New Hampshire or you’re in Maine, you’re actually looking at a labor market where, at least measured by this figure, it looks a lot better.

And this is just showing you the change over the past year.

So in Connecticut, the unemployment rate has moved up almost a full percent over the past year.

That’s a pretty tough time.

Massachusetts, it’s half a percent, but in some other places, it’s stayed pretty stable.

And this is just going one step further into the labor market.

So when you think about the unemployment rate, right, the unemployment rate is a product of people looking for jobs, or people who are unable to find jobs relative to people that are looking for jobs, so the overall labor force.

And so there’s kind of two reasons it can change.

It can change because there are fewer people looking for jobs, right? The labor force changes, or it can change because people are able to find jobs.

And what I wanted to call your attention to is that these things are also changing at different rates, which has to do with potentially the immigration profiles of different states or the demographics in terms of the age composition of different states.

But in some places, we have the civilian labor force changing a lot more than in other states.

So obviously, these states have different populations at baseline.

So you would expect, for example, given the population of Massachusetts relative to Rhode Island, that you’d see relatively larger changes in the labor force in Massachusetts than Rhode Island, but nonetheless, it’s worth flagging that the labor force has contracted a lot more in Connecticut, Massachusetts than in some of the other smaller states.

And commensurate with that, you see sort of this change in unemployed, right, relative to the change in labor force that looks different in different places.

And it’s consistent with the idea of the labor market being really weak in Connecticut, really weak in Massachusetts.

Okay.

What about wages and salaries?

So this is showing you using ECI, which is the Employment Cost Index, kind of the gold standard for thinking about wages, what wages and salaries have done in New England relative to the national average.

And what you can see is that in recent years, wages and salaries have increased less than wages and salaries in the country overall, but that dynamic reversed a little bit late last year.

So we didn’t actually see the kind of wage pressure here in New England that much of the country did during the peak of inflation. And speaking of which, let’s turn to inflation.

So this is showing you inflation in the Northeast relative to inflation overall.

As you can see, they track pretty closely, right? Because the inputs are largely the same.

Inflation in the Northeast is the light green line. Inflation overall is the dark green line.

And I’m using CPI here.

And what you can see is that inflation in the Northeast was relatively more controlled at the peak of inflation in 2022.

But in recent years, those lines have switched and you’ve actually seen more inflation in the Northeast than you have on the national level.

So why is that?

This is a breakdown of the major categories of CPI that we like to look at and consider.

They’re weighted differently.

So housing, for example, is about a third of overall CPI.

And the big thing I want to call your attention to here is that housing inflation in New England is 3.6%, whereas nationally it’s 3.3%.

And that’s a major driver of the difference between the overall top line level of inflation in the Northeast versus the United States at 2.7 and 2.4%, respectively.

Many of the other figures are reasonably close.

They’re never going to be exactly the same, but that’s really the key huge line item that’s I think a driver of a lot of differentiated things about the economy in New England.

So let’s talk a little bit more about housing inflation.

So this graph is showing you house price appreciation in New England relative to the United States overall.

So this is not a direct input to CPI, which uses owner’s equivalent rent or rent.

It’s actually just showing you house price appreciation measured as the median sales price of houses.

And in general, right?

You’ve seen this, this is a long chart.

That goes back a tremendously long period, but you’ve seen the divergence in house price appreciation that’s been consistent in New England over time and has really taken off since 2000.

What effectively all of this means is that because the median sales price of a house in the Northeast has continued to accelerate for decades now at a faster pace than the rest of the country, you have sort of two effects from that.

You’ve seen wealth accumulation in New England that supports the consumer who’s a homeowner at a much higher rate than the national average, but you also create affordability challenges.

And New England has really material constraints in terms of its ability to build more housing in some areas.

Okay, this is similarly showing you the home ownership rate in New England versus on the national level.

It’s much lower in New England than it is on the United States level overall.

And a lot of that we think is a product of the affordability just the fact that home prices are so much higher here in New England than they are elsewhere.

I don’t think this is like a really novel insight.

There’s been a lot of really interesting analysis about migration patterns outside of New England that are worth looking into, and a lot of the reason that people leaving New England’s site for leaving is affordability challenges, particularly related to homeownership. Similarly, this is our rental vacancy rate.

So Our rental vacancy rate is lower here than it is in the national average for the same reason.

We basically have a shortage of housing here in New England that drives a lot of these figures.

Okay, so I’m going to pause there and turn it over, but I want you to sort of keep in mind the big themes, right, which are overall New England has higher income.

We’ve accrued a lot more wealth, especially through housing. We have higher inflation.

And right now the story’s a of the labor market and economic growth depending on the state.

So if you’re in Vermont, Maine, if you’re in New Hampshire, you have really strong growth and you have a labor market that looks pretty resilient.

If you’re in Connecticut and Massachusetts, the story is a little bit more mixed. Thank you, Caroline.

Just a quick reminder, if you do have any questions, please feel free to pop those into the question box.

But I’d like now to take a look a little bit deeper level within the states on a city level and see what’s going on the really more localized economies.

So first we’d like to take a look at on the left side here we’re looking at the state by state and then versus United States within New England state by state the change in the FHFA house price index over the last five years and then over the last year.

And so what we see is compared to the United States every New England state except for Massachusetts has had above or had more house price growth than the United States or both the last year and over the last five years.

And even Massachusetts is hanging right there with the rest of the United States.

And actually over the last year has grown slightly faster.

Another interesting takeaway is that not only have home prices really accelerated over the last five years, but they’re continuing to accelerate.

So over the last year, you see across the New England States growth well above, if not in some cases almost double the growth across the rest of the United States, which is quite notable.

And then when we look onto the right side of the chart, we’re looking at commuter patterns.

So on the top bar, we’re looking at median resident workers who are commuting out to work elsewhere from the community that they live in.

That’s 93% as a median across New England.

And then for a local workforce who are commuting in from elsewhere into your community or into a community, the median for that in New England is 86%.

So the takeaway there is that your depositors your workers and your borrowers are often not the same people and that’s something to be really cognizant of as you think about strategy and pricing So now we’re going to take a look on a state-by-state basis and kind of really dig into what’s going on with both the labor market and then also the housing market. So starting with Connecticut, we were looking on left side of the unemployment rate.

So statewide it’s 4.5%, but we’ve looked at Waterbury Shelton, slightly higher there, some more of the legacy industrial economy in that area.

But for the rest of the metros that we looked at, so Norwich, New London, New Haven, Hartford, and the Bridgeford-Stanford-Danbury area, the unemployment rate has been lower than the rest of the state, kind of speaking to strength in the urban economy in Connecticut versus the rest of the state.

And then as we look at home price growth, so again, we’re looking at the FHFA one-year home price change and then the five-year home price change, so the green being the one year, the gray being the five year.

And we look at Connecticut statewide, 3.7% in the last year and 55% or almost 56% in the last five years.

But every single one of these metros of these cities has had more growth than the state in general, kind of in line with that stronger labor market than the state in general, and a stronger house price appreciation.

And then looking at Bridgeport, Stanford, and the Danbury area, 7.3% in the last year.

So things are really accelerating there compared to the rest of the state.

But in general, a lot of these Southern Connecticut cities are really having a lot of growth.

And as we think about Connecticut more generally, if you look towards the southwest corner of the state, things are really influenced by the New York commuters and the wealth coming in from New York.

As you start to look towards Hartford, a little bit more of the insurance, less insurance than there used to be, but still a really big part of the economy there and more institutional employers.

As you get further east, a lot of industrial in defense.

So actually a lot of aerospace, things like Sikorsky Helicopters, they’re one of our members, Sikorsky Credit Union, but a lot of older industrial like that, but still supporting a lot of really good jobs in the area.

So the state median household income is about 96 ,000, but if you break down within the state, there’s some really big disparities.

So if you compare Fairfield to Bridgeport, you’re talking about in Fairfield, an income of $184,000 on average compared to $57,000 in Bridgeport and home values of $815,000 in Fairfield versus $312,000 in Bridgeport.

And these are cities with just about the same average age.

It’s really interesting how different things can be in very close areas.

But the big takeaway is for Connecticut, much higher emphasis on finance, insurance, and durable manufacturing at the standout versus the rest of New England.

So now we’ll jump to Maine.

And looking on the top left again, it’s the unemployment rate across the state, 3.3%, so lower than the rest of the country.

Bangor, slightly above that, but just a little bit.

Lewis and Auburn, LA, as the locals call it, right on par with the rest of the state.

And then Portland and South Portland, that area, stronger, which I think anyone who is doing business in that area would not be surprised by, one of the strongest economies, the strongest growing local economies, maybe in the country, in Portland.

And we see that playing out on the home price side, or growth side.

So statewide, 4.1% in the last year, and 62% in the last five years.

Bangor, slightly below that, kind of in line with what we’re seeing of slightly higher unemployment, but still over the last five years, very strong growth in Bangor.

Lewis and Auburn, LA, again, 8.8% in the last year, seems like maybe a great time to buy multifamily in Lewis and Auburn, and 75% in the last five years, and Portland as well, really, really strong, 5% in the last year, again, in line with the really strong economy there.

As we think about Maine, one way I like to think about Maine is really, there’s “two Mains,” there’s the main east and south of 95, and then north and west.

And so if we link, we’re thinking about that coastal side of 95, a little bit richer, a lot of people driving in, so in commuting, from even say the other side of 95 and then driving down for the stronger labor economy, both in Portland where there’s a lot of younger people moving in there and a really strong both tech you know economy and then and you have a newer economy, as well as the tourism economy throughout the rest of coastal Maine.

And then as we get to the other side of 95, a lot more rural, often older, and really driven by the local employer, where there still is the local employer. In a lot of cases, in some of the older middle towns, those legacy employers are gone.

In some cases, like Lewiston, Waterville, a lot of new employers coming in.

In other cases, some stagnation going on, but in general, a lot older, especially where you get outside of the resorts.

And again, some pretty big disparities talking about 82% sorry, $82,000 a year income in Portland versus $55,000 in Lewiston right down the street.

But in general, Maine, we’re seeing a lot more multi-family workforce housing being very important and a lot of seasonality around tourism and that cash flow, kind of different from, say, some of the other states.

And then Massachusetts, our home state, we’re in the Prudential Building in Boston currently broadcasting.

And as we take a look at the unemployment rate, 4.7% in the statewide, a little bit in Barnstable, maybe some of that local seasonality around tourism playing out there, and then higher than the rest of the state in Pittsfield, Springfield, Worcester, some of those older mill towns, it’s kind of older industrial employment base, and then Amherst, a little bit stronger, got the strong college education economy, and then Boston, Cambridge, Newton, obviously very strong, the tech, biotech that we’re familiar with, and home price growth, a little bit, you know, weaker than some of the other states, you know, looking statewide.

But when we look at some of the metros, very strong growth.

You know, Amherst, Northampton, quite strong, a little bit weaker in some of those older mill towns.

But when we think about Massachusetts, it’s really that dynamic of, you know, Boston and the 95 belt, the 495 belt, compared to some of the older legacy mill towns.

And then, you know, the Cape and South Coast, especially having that really strong tourism economy standing out.

Now we’ll jump north of the border to New Hampshire, and we’re going to take a look.

So statewide unemployment rate, very low, 3.2%, and Manchester, Nashua, kind of on par, very similar there.

And then home price growth, 3.5% in the last year, 57% in the last five years, a little bit stronger in that Manchester, Nashua area, really strong commuter economy, people commuting down to the Boston job market from there, maybe influencing that stronger job growth.

And then think about New Hampshire kind of more holistically, you know, there’s, I know that this might be, you know, been some, but there’s Massachusetts North, there’s Southern New Hampshire, and then there’s, you know, the Seacoast, really strong pockets of wealth there around Portsmouth.

And then as we go up north, I think there’s kind of Route 16 in New Hampshire, and then there’s the 93 in New Hampshire, 93 kind of feeling more like Vermont, a lot more rural.

And then some more buildup around Route 16, really heavy tourism.

And then once you get up to the north country, very, very rural.

As a southern New Hampshire resident, I strongly object to Tyler’s characterization of the region, but we’ll move on.

And some really huge disparity as far as incomes and housing stock in the state as well between say Portsmouth and Berlin.

I used to think it was Berlin, but I learned recently it’s Berlin, New Hampshire.

Portsmouth, where the income is $106,000 as a median, versus $45,000 in Berlin.

And the home value is $688,000 in Portsmouth versus $131,000 in Berlin.

But there’s a really, really strong legacy stock of multifamily up there that is very affordable.

And then finally, getting over to Vermont, crossing the border over to the West, we’re looking at statewide unemployment rate very, very low of 2.7%, as Caroline mentioned, very, very strong labor economy there, frankly driven by this lack of housing, lack of workers, and quite a bit of demand, whether it be in the very strong tourism economy and some of those resort towns, but also the very, very strong labor economy, especially young workers, college grads in Burlington, South Burlington.

It was a 2.3% unemployment rate and home price growth statewide 3.4% and almost 60% over the last five years.

And then 2.3% in the year in Burlington, 56% over the last five years.

It’s not quite as strong, but still solid, especially over the last five years there.

And thinking about Vermont more holistically, definitely on the older side, one of the older, if not the oldest New England state and very capacity constrained, there just is not a lot of housing.

I think Vermont is 30,000 short of their statewide stated goal for where they need to be housing, housing wise, which is quite a few units if you think about the size of Vermont in general.

But there’s kind of two stories here as well, that college, health care hub around Burlington and kind of the older, much more labor and housing constrained local markets where it’s either really very farming heavy or then you have these resort towns and there can be some very, very big differences between the dynamics in each of those.

And, you know, across the state, growth is capped by housing depth and labor.

So as much as rates are high, you know, there’s a lot of other dynamics, you know, underlying dynamics in Vermont that are limiting things.

And then finally, to round things out in New England, we’re going to look at Rhode Island statewide, with an unemployment rate of 4.5%.

And then a little bit higher in the Providence-Warwick area.

But home price growth, still very strong.

So 4% in the last year statewide, and 55% over the last five years, and then even stronger in the Providence-Warwick area, 5% in the last year and 61% in the last five years.

Maybe some of that can be attributed to quite a few folks, especially young folks, commuting into Boston to the Boston labor market from Providence specifically in that legacy multifamily housing stock there.

And well, Rhode Island is a very small, I don’t want to say very small, but you know, smallest not only in New England but in the country geography wise there are some very different dynamics at play within the state you know Providence strong really the anchor of the economy but within the suburbs of Providence and then if you get out to Newport some of the more affluent coastal areas things can vary very quite a bit just think about within Newport whether you have you know from the mansions there are young folks who are working in that area a very different borrower and a depositor profiles at play.

And so statewide, you’re thinking about a lot of first-time home buyers, a lot of multifamily, especially in that Providence area, but also in Newport, quite a bit of multifamily.

And so things like consumer credit and small business are going to vary quite a bit within the state, despite it being on the smaller side.

And so kind of general takeaways from this.

So, you know, different market types are going to have very different local dynamics.

So the metro hubs much deeper labor pools and also pulling from areas further out because of the constraint on Housing being so expensive driven by that strong labor economy means that people are being pulled in from much further away In the coastal markets a lot of high housing pressure Also drive people to commute in maybe not from quite as far but from outside of that, you know The classic resort town driving in then also seasonality being a really big factor say winter versus summer which can depend, whether it be you’re in the Cape or you’re up at some of the ski mountains up in Vermont, New Hampshire, and Maine.

And as we get to the rural markets, very thin labor pool, often an aging labor market in general.

Many people exiting the labor market haven’t retired, and so growth patterns can be very different from the rest of New England, often driven by the local employer, say if there is one.

And then in the legacy industrial markets, very distinct as far as affordability and employment mix, oftentimes a lot of immigration into those communities, say like Lewiston, Maine, or say, you know, Norwalk, Connecticut, a lot of immigrants coming in, we could see, you know, that could be impacted by what’s going on in the larger geopolitical climate, so something to keep in mind there.

But you know, in general, market type is really going to change borrower and depositor behavior between all these four different types.

And it’s really not about comparing better or worse, it’s just the very different operating conditions.

And it’s going to impact your loan mix, deposit mix, small business credits, consumer credits, especially where you have people commuting in into your community where you do business, who might be different from the people who are, say, living there and borrowing there.

And how is this playing out on the actual balance sheet?

So what we’re looking at here is median balance sheet numbers from the call report for New England banks and credit unions as well as the rest of the United States excluding New England’s looking at The universe of banks and unit banks and credit unions outside of New England and so we see that this really high value housing market for the collateral is really expensive and that very competitive loan market driving demand on the deposit side, we see that playing out in the balance sheet. So loan deposits are much higher for New England banks versus the U.S. in general. So 96% median loan deposit ratio in New England versus 82% in the U.S. in aggregate or excluding New England.

And then a little bit less dramatic but still the same dynamic playing out on the credit union side, 82.5% versus 80% in the U.S. And then liquidity ratio.

So New England banks and credit unions are less liquid than their non-New England peers.

So almost 20% for the U.S. at large versus 14% liquidity ratio for New England banks.

And then 13% versus 12% on the credit union side.

We see leverage ratio is actually very similar.

So the big story is that it’s on the margin side, but New England banks really aren’t that different from the rest of the U.S. as far as how levered they are.

And then we only have this measure on the bank side, but the one-year gap in assets, so that’s a kind of proxy for liability sensitivities, we’re looking at the difference in the amount of liabilities repricing in the next year compared to the amount of assets repricing in the next year.

So the lower that is, the more liability sensitive a bank would be.

And we see that New England banks are dramatically more liability sensitive, being much more dependent on CDs and term deposits, especially shorter ones, to fund longer term assets.

And then getting into the yield and cost and margin side. So we see that all that really strong competition for loans in this market, as well as the stronger credit, in some cases stronger credit borrowers, more steady collateral, all these things playing out in a much lower yield than banks get in the rest of the country.

So New England banks get about 5.64% on their yield on their loan book right now, compared to over 6% in banks in the U.S. across the board.

Cost of interest-bearing liabilities, almost 1.75%.

New England banks compared to just about 1.7% for banks in the rest of the country.

And so that plays out in NIM, being much lower, just around 3%, compared to 3.75% for U.S. banks, and return on average assets, almost half of what it is in the rest of the country in New England.

So pretty dramatic.

And then on the credit union side, similar, just not quite as dramatic, but much lower on yield to loans, you know, over 6% compared to almost 5.5%, and, you know, again, very, very much lower return on average assets, lower NIM, and this speaks to a very competitive market.

It’s a challenging market. We’re all competing for a limited and constrained housing supply.

It’s very expensive.

And so, all this is to say, we need to consider these things as we think about pricing, strategy, and balance sheet management more holistically.

Tyler’s going to hop into this one, but just to add, if there’s one thing that I think we can take away from the presentation, it’s that whatever you’re doing in terms of your liabilities, right, your cost of funds, they are tied to interest rates, right?

So whether you’re doing an FHLBank advance as a source of funding or you’re, you know, paying a CD or you’re doing a broker deposit, whatever you’re doing, it’s tied to interest rates, which are reflective of national economic conditions, right? So interest rates move when we get a CPI print or an unemployment rate.

And the key thing to be thinking about is that you can’t change what happens in the national economy, but you have really great insight into what’s happening to your local economy.

And so whatever you’re doing from an asset liability management perspective, you should be thinking about how your own economy looks different from what the national rate would be, right?

So if the treasury yield were defined by what’s happening in Boston, Massachusetts, your asset liability management structure would look very different, and that’s an opportunity for you.

I’ll let Tyler kick it off.

Thank you, Caroline.

One slide too far there, my bad.

Yeah, that’s really, really good insight.

And so as we think about how local economies can reach the balance sheet, there’s sort of four risks that are at play.

So credit, rate, liquidity, and then optionality risk.

Anytime you’re offering the borrower or a depositor an option, and local economies are going to play out on all four.

Borrower quality, collateral, deposit behavior, and prepay behavior, they’re all going to be influenced by what’s going on locally.

So on the credit risk side, you know, borrower quality is local, local credit is going to be very different depending on city to city, town to town, and the value of that collateral is very different as well as the cash flow on those borrowers or, say, on multi-count, that cash flow can look very different.

Rate risk, the asset mix that you have, whether it be a stronger concentration of personal loans or out of loans versus, or say like resi, one to four family resi versus multi-family, if you’re in sort of a more of a rental-based economy, you don’t really have the ability as much to control.

The asset mix is going to be defined by the local economy, but you can react to that.

On liquidity risk, funding pressure is going to be very much defined locally, you know, depending on where people are commuting in from, what the job market looks like.

So depositability is really going to be very cross footprints and that on both sides of balance sheet This you know deposit betas and loan betas yield betas are really influenced by what’s going on in that local economy Both on the labor and you know housing market side And then option risk, you know prepay, you know whether people are locked in if you have a you know a lot of young people trying to move into an area that’s going to influence things versus a lot of older folks who are maybe trying to move out, they’re locked in, that’s going to, despite being locked in, if they have a really strong incentive to say move out of an area, for whatever reason, that might influence prepay rates in a way that is outside of larger macro trends.

So, and this I think really plays itself out in pricing.

And everyone really wants to get, obviously, acceptable spreads, very stable deposits, inelastic demand, on very solid credit.

But local economies are going to really determine housing costs, labor availability, things like affordability and mobility.

Are people able to afford to move into these communities?

Are they able to move out?

Are they locked in?

The employer and industry mix are really going to determine what you’re able to do as far as loan growth, as well as deposit growth, and then growth capacity is going to be very so determined by, you know, is it a more legacy industrial economy?

Is it a rural economy that’s growing very slowly?

Is it a dynamic, you know, say like a south coast New Hampshire economy that’s grown very quickly?

So all these things tie in to balance sheet strategy and really thinking about, you know, where is growth available, where there is actual true demand and where you’re going to be more constrained by housing, labor, and demographics that are going on, where you’re actually able to, you know, gain appropriate spread, you know, relative to the credit, relative to growth, relative to everything that’s going on in that local economy. Or, you know, is local competition really driving things more?

Is there a bank who has a different strategy who’s playing in the same economy?

Or maybe they’re say they have the same depositor pool, but they’re playing in a very different pool on the asset side and thinking about how is that playing out and just being kind of cognizant of you know what your two economies are because it could be different on both sides of the balance sheet and then you know thinking about where risk is being compensated you know whether local credits on both business side small business side on the local real estate side making sure that you’re being appropriately compensated for the risk that you’re taking for the extension of credit to the borrowers that you’re underwriting and then where there might be opportunities where maybe aren’t as many you know depositories or lenders fishing in that pond and relative to local economic strength there’s some real you know there’s an opportunity there and what really the big takeaway is thinking about all these things holistically when we think about pricing when we think about our asset liability mix, when we think about the betas on both the asset side and liability side.

And things to keep in mind is that the Federal Home Loan Bank can supplement if you have an imbalance on either side of the balance sheet.

So thinking about if your liability mix is not exactly how you’d like it to be compared to your asset mix, you can use advances to really customize the liability mix to match the asset mix.

Say if you have a really strong book of auto loans, and that’s growing really aggressively, but you don’t have the duration that you’d like on the liability side to match that, well, you can come in, get some advances from the Federal Home Loan Bank with a perfect duration match right around three years to match those five-year auto loans.

Or say you’re doing more growth on the residential loan side, then you have capacity on the liability side.

That would be a great avenue for the Mortgage Partnership Finance Program, where you can offload some of those mortgages to the Federal Home Loan Bank of Boston, so you’re still able to underwrite credit, serve your local borrowers, despite the fact that maybe there isn’t as much of a deposit demand to allow for you to do that.

This allows you to continue to do that, serve your local economies, irregardless of that imbalance.

And just more broadly, outside of the products that we can offer, both Caroline and I and Andrew Paolillo, the Head of Strategies, can do analysis like this, whether it be local economics and even more granular, we can get onto a city level, looking at the counties that you’re doing business in, whether it be a pricing analysis for ALCO or your asset liability committee, I’m sorry, asset ALCO or your ALM folks, or for your lenders, anything like that, helping the board understand what’s going on in your local economy, how it’s playing out into the balance sheets, both your balance sheet, your competitor’s balance sheet, and then some strategies for how the federal home loan bank might be able to plug some gaps and really optimize your balance sheet for your local economy in which you’re doing business.

Yeah.

That’s all we got for you guys today.

So thank you so much for tuning in.

Again, we’d love feedback on what parts of this are helpful and useful for your business.

And we’re here for you as you think about your strategy.

And if you want to have any follow-up questions answered.

And one question, can we please send the slides to those in attendance?

Yes, the slides and the recording will be sent out following the webinar and then also they’ll be available on the website and on YouTube shortly.

So thank you all for attending.

Thanks, guys.

Take care.