President's Message

Edward L. Hennessey, Jr.

Over the past 40 years, the Banking Industry has seen tremendous change.  From changes in the law to allow savings banks to offer Certificates of Deposit in the early 1970’s, to giving these same banks the ability to open checking accounts in the early 1980’s.  Throughout the past 40 years, the Bank’s primary focus was to loan its deposits to borrowers to allow them to purchase their dream home, where many of them would spend the rest of their lives.

All of this changed in the last few years.  Many mortgage brokers, not banks, began to get very creative in providing financing.  They provided no down payment or low down payment loans to borrowers who merely had to show up at the closing without providing any proof that they could repay the loans.  Many of these loans were deep discount adjustable rate loans that allowed the interest rate and the monthly payment to increase on an annual basis.

Many of these loans were securitized and sold all over the world.  All of the brokers and investment banks were making millions.  Nobody bothered to think about what would happen when the loan interest rates increased or when home values that had been increasing in value by 10 to 20 percent per year suddenly remained flat or decreased in value.

It was a lot like the game of dominoes that most children play.  When the first one fell, all of the rest of the dominoes also fell.  When the home values began to decrease, the mortgage securities that had been rated AAA by all the rating agencies immediately went to Junk Bond status.  Without the help of the Federal Reserve and the Federal government, there would have been a complete collapse of the world banking system.  Shame on all of us for not seeing it coming.

This year has been another year where Machias Savings has continued to liquidate its equity portfolio and increase its Loan Loss Reserve.  After booking another $7,000,000 in equity losses, our investment portfolio now shows net unrealized gains.  Many of our borrowers have been hurt by this economic downturn and for that reason, we have continued to increase our Loan Loss Reserve.

The economic outlook for 2010 indicates that interest rates will continue to stay at current levels at least throughout the first half of the year.  This will help our borrowers but at a huge sacrifice for our depositors, including many who depend on their interest income to subsidize their income.

All of our expansion projects will remain on hold until we see some indication of an improvement in the economy.  We are fortunate that our capital base is strong, which will allow us to continue to weather this storm which, someday, many will say, was the storm of the century!

Machias Savings Bank has a great brand, fantastic employees, a rich heritage and a great future.  We pledge that we will always be known as the local bank that knows, understands, and cares for its customers.  Thank you, our valued customers for your continued support.

 

Edward L. Hennessey, Jr.

President & CEO

December 31, 2009