KEENE, N.H. - To Keene native Ronald Lindahl, a 63-year-old retired field engineer, the only thing new at CFX Financial Corp. is its name.

"This is the bank that has stayed consistent," the part-time driver education teacher said as he came in from chopping firewood. "As long as it doesn't change, I'll be happy."

CFX is based in this picturesque town where, locals say, you need just a "two-second tour" to take in the sights. It is still New Hampshire's down-home bank.

And it will stay that way, retaining all the ambience of a folksy New England institution. But the former Cheshire Financial Corp. has been slowly transforming itself into a thoroughly modern community bank with a strong bent for mortgages.

A New Focus

If the bank succeeds with its plans, both locals like Mr. Lindahl and the bank's executives will be happy.

CFX signaled its new focus on mortgage banking Sept. 1, when it acquired 10-year-old Colonial Mortgage Inc., Amherst, N.H.

While smaller mortgage companies often prefer to sell servicing rights, Colonial went in business with the goal of building a servicing portfolio.

It began reaching into unharvested areas of the state in the mid-1980s, when the economy was riding high. As a result, Colonial was New Hampshire's largest mortgage lender when Cheshire acquired it, servicing $675 million in loans.

Cheshire Financial, the savings bank's holding company, changed its name to CFX Financial on Nov. 15.

Its Cheshire County Savings Bank had never been much of a lender. It held only $305 million of adjustable-rate mortgages in portfolio, and fixed-rate mortgages were rarely made.

Potent Team

But together, Colonial and Cheshire County, renamed CFX Mortgage Corp. and CFX Bank, make a potent team for capturing still more of New Hampshire's banking business.

"It's a win-win situation," said William H. Dennison, executive vice president at CFX Financial.

Cheshire's takeover of Colonial represents the cutting-edge of community banking. Edward H. Furash, president of Furash & Co., a Washington consulting firm, said that few community banks are interested in acquiring mortgage banking companies.

But he said that would change in the future as more community banks realize that the home mortgage is part of their core business, and mortgage banking provides their best entry point.

Banking Odd Couple

The architects of CFX Financial. Peter J. Baxter, president and chief executive officer, and Paul D. Spiess, executive vice president, are a banking-industry odd couple.

The tall, lean Mr. Baxter is the picture of a New Hampshire native as he works the tables during lunch at the Keene Country Club.

Mr. Spiess, who was Colonial's chairman, is more the canny merchant whose tough, bottom-line style of talk belies his Wall Street background.

During lunch, they nod agreement at, and sometimes finish, each other's points. The impact of New Hampshire's economic downturn a few years ago is one topic of conversation.

Cheshire survived the "borderline depression" with a little luck, Mr. Baxter said. Situated in the state's southwest corner, the savings bank was buffered from the harsher economic upheaval in the greater Boston area to the east.

Bank officials also "kept their nose out of the tent" and did not compromise lending standards for more profits, Mr. Spiess said.

The results speak volumes. In the last 10 years, Cheshire County has had to buy back only two loans, Mr. Spiess said.

During New Hampshire's economic nightmare, Mr. Spiess and Mr. Baxter saw other banks go down hard and fast.

Mr. Baxter was, he says, a "whippersnapper" at Amoskeag Bank - a 144-year-old pillar of New Hampshire's financial industry - when it succumbed to dismal economic conditions and shortsighted decision-making.

|Death Written All Over It'

"We talked about the Amoskeag tradition," said Mr. Baxter, staring at his plate of tortellini. "But in hindsight, [the bank] had |death written all over it."

They attribute Amoskeag's demise to the aloof attitude of its executives. The bank could not change with the times.

That's one lesson Mr. Baxter and Mr. Spiess do not ignore. They have instituted significant changes to make CFX into a state-of-the-art community banking operation. Taking over Colonial, for example, provides more than just an entry point into mortgage lending.

The Colonial deal allows the bank to originate loans in new markets of the state. The firm has four production offices with broad turf and can now open branches quickly without concern about regulations.

Divergent Corporate Cultures

CFX Financial is still trying to meld two divergent corporate cultures: slash-and-burn mortgage banking and community banking on a first-name basis. It actually provides them with a unique business opportunity: cross-selling.

From mortgage bankers, CFX is adopting the out-on-the-street approach to getting business. Mr. Spiess wants his loan officers to work hard for loans, mingle with real estate people and developers, market aggressively, and try to retain customers.

But the former Colonial's loan officers have to learn community banking. That includes knowing customers' first names.

Deborah L. Austin-Brown still occasionally answers her phone, "Colonial Mortgage." The CFX senior loan officer says she and her colleagues at Colonial never actually had to sit down and think about community banking issues. She now must explain more delicately to long-time Cheshire customers that they need more documentation or that they are not qualified for a loan.

CFX officials are also urging loan officers to refer customers to other products offered by the bank.

"In the future, the critical customer information will be routed to different service" by computer, Mr. Baxter said.

By feeding the background information necessary to enter a loan application into a computer program, CFX officials determine whether the new customer might need investment advice or an auto loan or an individual retirement account.

Mr. Baxter called the cross-selling technology the most important aspect to the changes CFX has undergone.

Aspects of this lending approach have been adopted on the same scale by only one other bank - in Pennsylvania - he said.

CFX has also "communified" its corporate structure. No longer are there eight levels of executives at CFX Financial. The bank will soon have only "banking partners," the senior executives; "banking associates," mid-level executives; and "banking specialists," such as tellers and product salespeople.

"We are trying to keep the senior management and the customer as close as possible," Mr. Spiess said.

Physically too. Both Mr. Baxter and Mr. Spiess have their offices on the ground floor of CFX's main branch, a few steps from the tellers.

"I have worked in the glass towers," Mr. Spiess said. "It's not a lot of fun."

More Servicing Eyed

So keen on community banking are CFX executives that the company purchases only locally based servicing. "It gets back to a core belief: stick with markets you know," Mr. Spiess said.

He also expects the new mortgage banking division to provide CFX more servicing business. The merger itself tripled Cheshire's servicing portfolio.

CFX officials are convinced that these changes will lead to continued success. Some competitors are not so certain.

While not wanting to "speak bad" about CFX, Charles Smith, president of Keene's Granite Bank, expressed some skepticism, saying most banks in the area have their own magic potions for survival.

And now that - according to most locals - New Hampshire's economy has begun to rebound, several small banks have started up. But local competitors can be defeated through the use of mortgage banking, Mr. Spiess contends.

"We absolutely have to be good mortgage lenders," he said. "We just see it as one of those critical elements to success."

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