🔒Two Maine banks ride the merger wave

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“We're fearless and we're not superstitious,” Curtis C. Simard says of the deal he closed for Bar Harbor Bank & Trust on Friday the 13th.

Simard, Bar Harbor's president and CEO, was referring to the acquisition of Newport, N.H.-based Lake Sunapee Bank Group in an all-stock deal valued at around $143 million. The purchase, completed in January, takes the Mount Desert Island-based buyer across state lines into Vermont and New Hampshire and more than doubled its assets to around $3.3 billion.

While the double-whammy move was a first for a Maine-based bank, it was exactly the type of opportunity Simard had been shooting for since Day One.

“We're a Downeast-headquartered bank, sort of locked in the upper right hand corner of the state,” he says. “We love it there but how much growth can we continue to get? … We knew we were going to have to grow, and one of the reasons they [Bar Harbor] ultimately hired me for the position was the likelihood that I could probably make that happen.”

Its holding company, Bar Harbor Bankshares (NYSE: BHB), is the third-largest Maine-based banking company.

Simard says he also received a “ton” of unsolicited approaches as soon as he started and still does today. While the priority is now on digesting the acquisition, he admits to looking over his shoulder for unwanted predators: “Yeah, I worry about it,” he says. “The best way to remain independent is to be more profitable than anyone ever expected you to be and that's really what we're focused on.”

That won't be easy given growing pressure on to gain scale through mergers and acquisitions. Already this year, there have been 58 tie-ups between U.S. banks, excluding investment banks, compared to 180 for all of 2016, according to data compiled for Mainebiz by Dealogic.

Banking's largest recent deal, seen last year, was KeyCorp's $4.1 billion buy of First Niagara Financial Group Inc., which expanded the Cleveland-based bank's footprint into upstate New York and across Pennsylvania, Massachusetts and Connecticut.

Experts see the deal momentum continuing

“I don't think we've seen the end of bank consolidation,” says Erin Hurley, chief consulting officer with Hurley Solutions Inc. in Portland. “The banking industry is very expensive, from the technology to anti-fraud monitoring to security and compliance costs. Banks have to have economies of scale if they're going to be able to compete. That's why we're seeing so many acquisitions.”

In recent years, one of the biggest compliance costs — and headaches — for banks is Dodd-Frank, the post-financial crisis law that imposed new rules on Wall Street. The American Bankers Association notes that consolidation has accelerated after Dodd-Frank, with small banks disappearing at a faster rate since 2010. The current moderate-growth, low-interest rate environment in a historically fragmented sector adds pressure on banks to seek growth and efficiencies through mergers and acquisitions.

“I think you'll see the mergers across the country continue and at a faster pace than new banks opening,” says Samuel Ladd III, a fixture in Maine's banking industry for more than 45 years who is now retired. “If you talk to the smaller banks, the cost of Dodd-Frank has just killed them.”

At the other end of the spectrum, many who have put the financial crisis behind them are finally in a position to pursue long-sought strategic goals, noted Fitch Ratings Inc.'s Christopher D. Wolfe in a March 2016 article.

In Maine, there have been at least half a dozen deals in the past 18 months or so, starting with Camden National Bank's purchase of the Bank of Maine in October 2015 for $135 million in cash and stock to extend its reach into southern Maine. More recently, in December 2016, Camden merged its Acadia Trust N.A. wealth management subsidiary (acquired in 2001) into Camden National Bank to form Camden National Wealth Management.

“There is some repositioning going on in banks where you see different institutions going in different directions where they see a business opportunity,” says Maine Bankers Association President Christopher W. Pinkham. “They all have different secret sauces about what their target audience is.”

For Camden National Bank (NASDAQ: CAC), a desire to expand into the higher-growth southern Maine region was the motivation behind its Bank of Maine purchase.

Gregory A. Dufour, Camden National Bank's president and CEO, says the move followed an in-depth strategic planning process the year before. “When the Bank of Maine opportunity came up literally in January 2015, it fit into our strategy,” he notes. “The tendency for a lot of organizations, when they see an acquisition, is to adjust their strategy to fit the acquisition. The uniqueness we have here was the acquisition fit the strategy … That led us really right up front to have a different collaborative view of things.”

The deal created the largest publicly traded bank holding company in northern New England, with $3.9 billion in assets and 650 employees.

The strategy delivered strong results for 2016, with net income up by 91% and the efficiency ratio —a measure of how well a company uses its assets and liabilities internally — improving to 57.53%, from 61.13% in 2015. It's now looking to expand in New Hampshire, where it has already an office in Manchester, with a location in Portsmouth in the next three to six months, Dufour says

Asked whether he has aspirations to turn Camden National Bank into a regional player, Dufour says the goal is to “go into markets where we feel that we can provide a unique experience for customers for those communities … Once you start putting on 'region' that means you kind of have that pressure to grow. We are very methodical in what we want to do … We don't just want to grow for growth's sake.”

He also says that Camden National still sees potential in other parts of Maine, including Bangor, Lewiston-Auburn and the central Maine-Augusta-Waterville-Gardiner area. “Even though we have a lot of branches there, a lot of business there, we can grow there too, even in our traditional midcoast market.”

Like Camden National, Bar Harbor was keen on southern Maine, and Portland in particular, before eyeing Lake Sunapee. “We would love to come to Portland, but there was nothing for sale,” says Simard. “There wasn't really a lot of M&A left to be done in Maine, so when we started talking about strategy, we said, 'What looks and feels like Maine?' Certainly as a result, Lake Sunapee was on our radar … It was a bunch of banks that came together over a 125-year-period and had a fantastic culture, a great reputation, a strong retail base, a strong residential lending base, but really needed to expand their commercial capacity, so that was how we got on each other's radar.”

It remains to be seen what Bar Harbor does next. “That was a really bold move,” says consultant Erin Hurley, “to really leap over Portland and go straight into New Hampshire and Vermont, without filling in the rest of the I-95 corridor. Perhaps their strategy will include backfilling in Portland and southern Maine further down the road.”

There have also been mergers among smaller institutions. Auburn-based Mechanic Savings Bank and Biddeford Savings Bank joined forces to form Maine Community Bancorp Inc., and EMMC Federal Credit Union of Brewer and Acadia Federal Credit Union of Fort Kent will form Acadia FCU.

Bucking the consolidation trend, Bangor Savings Bank made an unusual move outside the traditional banking world with last year's purchase of Portland gift card firm Buoy Local. It's also investing in new real estate, including a multi-building campus in Bangor to accommodate 400 to 500 employees.

“We're talking about multimillions of dollars of investments,” says Bob Montgomery-Rice, Bangor Savings' president and CEO.

He adds that, although the bank is not beholden to shareholders like some of its peers, it also doesn't have the advantage of raising capital through the stock market.

“We have to feed ourselves through our profit,” he says. “We can think about what investment we can make that will pay dividends over the next five to 10 years.”