To grasp the whirlwind changes that have redefined New Hampshire's banking landscape in the last five years, consider the fate of a branch on Manchester's South Willow Street. Its name--and owner--has changed nearly ever year since the beginning of the decade.
It's in the Bank of New Hampshire stable now, but its previous incarnations include First National Bank of Portsmouth, Fleet Bank, Shawmut Bank, Dartmouth Savings, and originally, Numerica Savings Bank.
Similar changes have occurred across the state, with rapid-fire consolidations becoming commonplace. As the pace quickened in the past two years, it became quickly apparent what the future holds: decidedly fewer--and dramatically larger--financial institutions with more and more driven by out-of-state or out-of-region ownership.
In the decade ending March 31, 1996, the number of commercial and savings banks in the state plummeted from 82 to 40, according to the Federal Reserve Bank of Boston. Conversely, assets climbed from $10.9 billion to $17.2 billion over the decade, a 58 percent increase. More important, average financial institution assets rose from $130 million to $430 million over the decade, a 230 percent increase. Simply put, fewer institutions now have a larger share of the ultimate prize--assets--won through mergers and acquisitions.
In 1986, the top five banks controlled 31 percent of total bank assets, but by 1996, the top five held 63 percent of those assets.
The shrinking number of New Hampshire banks has its roots in the failures of 1991 but is also part of an over-riding national trend that has banks absorbing others at an increasing pace.
For those on the acquisition trail, they often seek smaller banks with a niche that fits them, securing the institution with an offer the board of directors can't refuse. For others, mergers are a defensive strategy as small- and medium-sized banks align with peers in friendly deals. Much like owners of beachfront property banding together to sandbag their homes against an offshore typhoon, smaller institutions are joining forces to strengthen themselves against emerging financial powerhouses.
Veribanc Inc., a Wakefield, Mass. bank-rating service, notes that since June 30, 1995, there were 10,774 banks in the United States, down from 11,327 a year earlier. Warren Heller, Veribanc's research director, estimates there were 70 or 80 start-ups and a few failures in the period, resulting in the net absorption of 600 banks. That's an acquisition appetite of more than two banks every business day.
"It's all part of a major consolidation (in banking) that began about 1985," says Gerard Cassidy, a regional banking industry analyst for Tucker Anthony Inc., in Portland, Maine. He predicts a few national banks will emerge in the next five years and they will be built in great part on the mergers and acquisitions with other banks.
"The reason is that the banks' basic product, loans, is a slow-growth to no-growth type of product, which has resulted in over capacity," said Cassidy.
Other factors also are forcing change.
Non-bank companies, such as mutual funds and insurers, are offering products and services that traditionally had been offered by banks. That has increased the players in the already competitive but growing field of financial services.
Also, technological innovations have cut the need for branch banks, as customers interact with automatic teller machines or make transactions over voice-automated telephone service centers.
The net result: too many banks and not enough business. But for those who survive, life is good.
The Bank Analysis Center, Inc., a Hartford, Conn. based investment banking advisory firm, reports that New Hampshire's 49 banks (it includes state mutual banks that the Federal Reserve does not track) earned record profits for 1995 of $304 million, a 24 percent increase over 1994, and 94 percent of the state's banks were profitable. "Almost every major financial performance measure is indicating financial health and progress," the company reports. Substantial loan growth, increases in non-interest income, a robust net interest margin and tight expense controls all contribute to the profitability.
But even with bank profits at record levels, changes continue.
Banks played the merger game with the speed of a Las Vegas dealer at year-end 1995. Fleet Financial Group merged with Shawmut National Corp., creating the nation's 10th-largest bank and the largest in New England. Bank of Boston merged with BayBanks Inc. and Citizens Financial Group Inc. announced its plans to acquire First NH Bank, the state's largest bank.
Smaller mergers also have continued well into 1996. Most recently, Landmark Bank in Lebanon became part of the Lake Sunapee Savings Bank, FSB, while First Essex Bankcorp. of Andover, Mass., acquired Pelham Bank and Trust Co.
The First NH deal is the largest and perhaps exemplifies what has happened to New Hampshire banks over the last decade.
Bank of Ireland acquired the bank at the peak of the real estate boom in 1988 for $370 million, then had to pump $290 million into it to keep it afloat in the subsequent bust. It acquired the remains of Amoskeag Bank, Nashua Trust Co. and BankEast in 1991 after those institutions failed and expanded geographically through their branches.
Financially, it made a slow comeback on the recovery from the recession and was turning a profit when Providence-based Citizens Financial bought it. Now the parent company ownership is totally foreign, with Royal Bank of Scotland holding 76.5 percent and Bank of Ireland, the balance.
The acquisition of First NH bumped Citizens' assets from $10.4 billion about a year ago to $14.7 billion today, making it the third-largest bank in New England, with 220 branches from Rhode Island, Connecticut, Massachusetts and New Hampshire. As of September , the $4 billion First NH bank was renamed Citizens Bank-NH.
Robert Gromley, president and chief executive officer of First NH since April, says the 74-branch bank is the leader in the state in market share and will continue to be run autonomously. Embracing a "super-community concept of banking," Gromley says Citizens will "present ourselves to customers in the way that community banks do, but offer all the services of large banks."
"On the commercial side, we will have the ability for larger loans, up to $20 million in New Hampshire." Previously, First NH loan officers had to get approval from Ireland on any loan over $5 million, according to Gromley.
"The perception of First NH is that it's very conservative," Gromley said, something it had to be to survive the difficulties of the recession. "We're trying to change that a little bit and we've given our lenders a little more flexibility on a local basis."
Another recent mega-merger was the July 30 acquisition of BayBanks by the Bank of Boston Corp. The New Hampshire unit will be known as BayBank NH, which will continue to operates as a separate entity until its operations are combined. Once completed, the surviving entity will emerge as BankBoston in 1997.
BankBoston, with $62.4 billion in assets, is known for its international banking expertise. John Terravecchia, BankBoston regional president, sees promise in New Hampshire's commitment to international trade in terms of building its international loan portfolio.
He said BayBank NH, with about $750 million in assets, already has and will maintain a wide retail presence in the state, in part due to its 1995 acquisitions of NFS Savings Bank of Nashua and Cornerstone Financial Corp. of Derry. "It makes a strong combination," Terravecchia says.
Fleet Bank, now the second-largest institution in the state with $3.1 billion in assets, got a foothold in New Hampshire with the 1988 acquisition of Nashua's Indian Head Bank. It added branches, grew its franchise through commercial lending and took a giant leap forward when it merged with Shawmut National Corp. in a $3.45 billion deal last November.
Michael Whitney, Fleet Bank's president, says that Shawmut "had a very strong consumer franchise" due to its 1994 acquisition of the New Dartmouth Bank, which was made up of Numerica Bank, New Hampshire Savings Bank and parts of Dartmouth Bank after they all failed in 1991.
Fleet, already one of the largest commercial lenders, had branch banks in limited areas of the state. The acquisition of Shawmut provided Fleet a broader presence and distribution network throughout the state, Whitney says. "There was very little overlap so it was a good blend of services."
Whitney says Fleet's commercial banking business is broadly based, from "microbusiness" lending of under $30.000 to customers with credit needs of up to $75 million. "In traditional banking services, we have as broad an offering as anybody in the country," Whitney says.
Fleet also plans to offer more non-traditional banking services as insurance, both property and life insurance, 401-K pension services and annuities.
Whitney says New Hampshire has benefited from the wave of acquisitions. "In general, I would say the businesses in the state have far greater choice than they ever had before. They have access to community banks as well as state-wide and national banks. It's far more diverse than it was five years ago and resulted in a very competitive situation. The loan business is as aggressive as I've ever seen it in three decades in the bank business in New Hampshire," says Whitney.
Bank of New Hampshire Corp. just completed its merger with Peoples Heritage Financial Group of Portland, Maine, creating a two-state $5 billion organization. As a result, new financial backing and more branches has nearly doubled the Bank of New Hampshire's asset size, from $1 billion to $1.8 billion.
In 1995, Peoples acquired First National Bank of Portsmouth and North Conway Bank, and they now join the Bank of New Hampshire side of the deal, which has resulted in it going from 24 to 44 branches.
"Out front, our customers won't see any changes," says Paul Shea, BNH's president and chief executive officer. The biggest benefit of the deal will be to give the company more strength in commercial lending. "This gives us the opportunity to hang on to our larger customers as they grow, but nothing's changed philosophically at Bank of New Hampshire."
Shea said Bank of New Hampshire decided on the merger because of competitive pressures. "We had a choice. If we wanted to remain the preeminent commercial bank in the state, then we had to grow. We had to get into the acquisition mode. We wanted to get capital and increase our market share."
Peter Baxter, president and chief executive officer of CFX Corp., based in Keene, said his $1.5 billion institution is "committed to a community banking strategy" to differentiate itself from other much larger institutions in its markets.
CFX recently acquired The Safety Fund Corp., based in Fitchburg, Mass., and the Milford Co/operative Bank and is still in the process of consolidating their backroom operations into the parent company.
Baxter says CFX (originally Cheshire Financial Corp.) is considering a possible future expansion into the north-central Massachusetts market as the acquisitions gave it four branch banks in the Worcester, Mass. area.
He says an institution the size of CFX has to remain nimble to compete and so invests heavily in technology to remain efficient. CFX, for instance, is about to introduce home personal computer banking services for consumers.
As a commercial lender, its target market ranges from about $50,000 to about $8 million which means it caters to small- to medium-sized businesses, Baxter says.
Centerpoint Bank of Bedford, which opened in 1990, with a focus on small- to medium-sized commercial loans also jumped into the merger game in a $10.5 million deal with Community Bankshares that was completed in March.
The merger gives Centerpoint more capital for its small business lending while providing Community Bankshares subsidiary, Concord Savings Bank, a foothold in the southern New Hampshire consumer market.
Philip Stone, chairman and president of Centerpoint, says the merger will help the institution he founded continue its plans for growth. It opened its third branch in Portsmouth last June, and it also has loan offices in Bedford, Nashua and Manchester.
The capital backing of Community Bankshares, a combined $540 million in assets, will help Centerpoint make larger commercial loans, Stone says. "Our competition is tough, some of them are a lot bigger banks. But the thing that works for us is that we're a community bank, so the decisions are made here locally, so the response time in many cases is a lot faster."
"We think a lot of people in New Hampshire still want personal attention and that the loan officer they deal with is a part of the decision process," says Stone.
While many of the changes on the banking landscape have held high profiles, others, though less visible, are no less significant. Take, for example, the 1995 consolidation by Eastern Bancorp. of sister banks First Savings of New Hampshire and Vermont Federal Bank. The two banks were combined, with operations and other duplications eliminated to take advantage of economies of scale, and today, the one institution operates in New Hampshire under the First Savings of New Hampshire flag and Vermont Federal Bank retaining its identity as well.
According to Brenda Dolan, commercial division manager-senior vice president at First Savings of New Hampshire, the consolidation was not only driven by savings that could be achieved through the economies of scale but also a strategic commitment to meet changing customer needs and enhance services.
"It's one thing for us to develop services ourselves. It's entirely different for people to tell us what their needs are," Dolan says of bank's current research project involving small businesses. The research to define services that will be offered by the bank's Small Business Unit is scheduled for introduction in October or early November.
What's still in question is whether the merger wave will continue.
Gerald Little, president of the New Hampshire Bankers Association says, "I think a lot of institutions are at the point that they're trying to assimilate what they've acquired in the last two years, and the market may have changed as well."
As for the trend in acquisitions, CFX's Baxter predicts the pace will slow since recent activity has reduced the inventory of attractive opportunities. "The next scenario could be much larger or national players interested in acquiring banks in New Hampshire," Baxter predicts.
Little says that some out-of-state banks may test the banking waters of New Hampshire when a new interstate banking law goes into effect next June because it will be a less costly means of entering a market.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 will allow out-of-state banks to set up shop in so-called "foreign" states without having to meet capital or deposit standards.
Most bankers think that interstate banking will have a minimal impact in New Hampshire, because there are so many other, more important issues facing the industry.
"There still seems to be a situation of over capacity out there, both nationally and in this state, so I think that for some time, consolidations will continue in New Hampshire," says Little. But, that is a boon for borrowers and consumers, Little says. "I hear there's plenty of commercial capital available at attractive rates," he adds.
Harry Shibanoff, president of HAS Associates Inc., a bank management consulting firm based in Nashua, says consolidations will continue but not at the pace as in the past because banks are still digesting the ones they've recently taken on. "They're still consolidating their operations to increase their efficiency and profitability," Shibanoff adds.
In the long run, does where a bank is owned and a familiar face behind the teller's window mean all that much? "I think the average person really doesn't care who owns the bank, it's where they can get the best rates (on loans and CDs) and convenience," Shibanoff says. "So if you look at banking as a business, it's got to serve its customers.
