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December 11, 2006

Statewide strategy | A bid for a new corporate structure and three new southern Maine branches signal Bangor Savings Bank's expansion goals

By Chris Churchill
Some in eastern Maine like to say, with a smirk, that York and Cumberland counties are especially nice parts of Massachusetts. One of eastern Maine's established institutions, Bangor Savings Bank, has decided the southern counties are an especially nice place to do business.

Bangor Savings Bank is on the cusp of a major push into Portland and the rest of southern Maine. The 154-year-old bank already has a branch and offices in downtown Portland and a branch in the York County town of Cornish. But in January, the bank will open three branches in the region, in Portland, South Portland and Scarborough. And the bank's president and CEO promises that more Bangor Savings Bank branches will soon open. "We are going to have a statewide financial presence," James Conlon says.

Bangor Savings Bank has 43 branches scattered across Maine and is in every county save Lincoln and Sagadahoc. Its branches, however, are found mostly around Bangor or in rural sections of northern, western and eastern Maine. A look at the state's demographics explains why a southward push makes sense: roughly 70% of the state's population lives south of Waterville. "We love the core markets we're in," Conlon says, sitting for a recent interview in the bank's Portland building, "but there's simply more opportunity down here."

Officials at Bangor Savings Bank, already the largest Maine-owned bank, see their company as the next Peoples Heritage Bank, the Portland-based bank that morphed from a statewide institution to a regional player through the acquisition of Vermont-based Banknorth Group. After adopting the Banknorth name for its holding company and going on a acquisition spree across the Northeast, the bank struck a deal with Toronto-Dominion Bank in 2004 that led to the replacement of the Peoples Heritage brand in Maine. (And TD Banknorth may soon become a wholly owned subsidiary of its Canadian partner. See "Building a 'better bank,'" cover.) Yellow Light Breen, Bangor Savings' senior vice president, says People's was a bank with local ownership that also had a truly statewide presence, and that's what Bangor Savings Bank intends to be. "We think we're the only bank right now to make that claim with credibility," he says. (As of June 30, 2006, Bangor Savings had a 6.94% share of the Maine deposit market, according to the Federal Deposit Insurance Corp., placing it fourth behind TD Banknorth, KeyBank and Bank of America.)

The three branches opening next month are being built from scratch, though the Scarborough location will occupy an existing building, in a location that most recently held a bakery. That, however, is not the way Bangor Savings Bank prefers to grow, Conlon says, because it's expensive and the branches open without an established base of customers.
The preferred way to grow, then? Acquisition of existing banks.

Becoming a holding company
Bangor Savings Bank in the past has been more than willing to grow by acquisition. The bank, for example, bought 28 branches from Fleet Bank in 1998. And in 2002, it acquired Advanced Payroll Plus, making it the only bank in Maine with a fully owned payroll company. "Will we continue to be acquisitive?" Conlon asks. "The answer is 'definitely yes.'"
Bangor Savings Bank is restructuring itself to make future acquisitions much easier. The bank this summer announced it hopes to become a mutual holding company named Bangor Bancorp ˆ— a move that requires the approval of bank customers. (The process was still ongoing as this issue of Mainebiz went to press.) The restructuring, Breen says, "expands our acquisitions capability by a factor of several multiples. It gives us a whole lot more gunpowder to pursue those opportunities."

If Bangor Savings Bank becomes a mutual holding company, says Chris Pinkham, executive director of the Maine Association of Community Banks, it will follow in the footsteps of several other Maine banks, including Machias Savings Bank and Gorham Savings Bank. Because of complex regulations, Pinkham says, mutual savings banks such as Bangor Savings ˆ— banks that technically do not have owners ˆ— struggle to raise capital. That would change under the new structure, he says. "The mechanics of it," Pinkham says, "are that you convert it from a mutual bank to a stock bank, but instead of issuing shares to lots of people, you issue one share to the mutual [holding] company."

Pinkham says the industry for years has been watching Bangor Savings Bank grow toward Portland and southern Maine. "They've been inching their way toward Portland," he says. "They've been filling in the gaps."

But even if Bangor Savings Bank has an expanded ability to acquire banks and branches, that doesn't mean there will be branches ready for the picking. In fact, Breen says it's unlikely that there will be. Acquisition, he says, "is a lot more cost effective and provides a much faster platform from which to build market share. We are definitely on the lookout for opportunities for acquisitions. But the reality is there's not a lot of opportunities to do that."
Previous consolidation among Maine's community banks means there are fewer opportunities to pick up smaller banks or branches from those entities. Breen says if officials at another national bank such as Cleveland-based Key Bank or North Carolina-based Bank of America decided to divest themselves of branches in southern Maine or elsewhere in the state ˆ— as Fleet Bank did in 1998 ˆ— it's likely that Bangor Savings Bank would be interested. But he says the bank is willing to find other ways to grow. "We are so committed to growing in southern Maine," he says, "that we're doing it the hard way and the expensive way, which is by opening new branches."

Most in the industry agree that this is a difficult time for the banking industry. Earnings are generally down industry-wide, Pinkham says. But that hasn't stopped banks such as Bangor Savings Bank from seeking new branches. "Maine is a capital poor state," Pinkham says. "Everybody's scrambling for deposits."

And it makes sense, Pinkham adds, for a bank like Bangor Savings to want branches where the population is most concentrated. "The trick with branches is location, location, location," he says. "Consumers are driven by convenience. You or I are not going to drive eight miles out of our way because we like a bank's people."

Will consumers in southern Maine, however, respond to a bank with the word "Bangor" in its name? Couldn't a moniker that includes the name of a city two hours distant be a hindrance? Conlon says bank officials considered a name change to something less tied to one city, but focus groups told them not to bother. The word Bangor, it turns out, plays well in southern parts of the state, because it's suggestive of the real Maine, even to people in the part of the state labeled "northern Massachusetts."

To coincide with the opening of its three branches, Bangor Savings Bank is planning a statewide marketing campaign designed to reinforce the bank's standing in eastern, western and northern Maine ˆ— and introduce it to consumers in southern Maine. "I think people [in southern Maine] have a sense that we're emerging as a player," says Conlon, "but I don't think they have a real sense of who we are."

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