John Everets' great-great-grandfather arrived in Gardiner, Maine, in 1824, but it took an ailing thrift to lure the Boston banker back to his ancestral home.
Everets led a group of investors that rescued Savings Bank of Maine, which serves a tiny community an hour north of Portland, from the brink last month by spearheading a $60 million investment. The $929 million-asset bank was significantly undercapitalized, and was under a prompt corrective action order requiring it to boost capital by June 30.
With more New England banks — notably in recession-plagued Maine — showing signs of stress, it's noteworthy that Savings Bank of Maine caught a lifeline, and in the nick of time.
"This bank was just a shipwreck," said Gerard Cassidy, an analyst with RBC Capital Markets in Portland. "It had crashed, and these guys now are resurrecting it."
Everets, who became the company's chief executive after the recapitalization, paints an upbeat picture but says much work lies ahead. "In the last two weeks we've gone from being one of the most troubled institutions, to being one of the most well capitalized in the Northeast," he said.
Everets — the former chief executive of HPSC, a specialty finance company that he sold to General Electric in 2004 — brings with him a management team that includes several experienced bankers with ties to Maine.
He said the team plans to shift from the commercial real estate lending that got the thrift in trouble, and refocus on residential mortgages. Investors saw a chance to pick up market share in a state where the housing market is stable, even though unemployment remains high.
"We have the distribution in place through these 32 branches that we can really take advantage of, which has not been done to date," he said. "The company was seriously underperforming in that area, and we think we can get it to be a significant performer."
But first, the thrift must clean house. As of March 31, 10.68% of Savings Bank of Maine's loans were not current, compared with 11.9% in September 2008. Nonperforming assets tripled in the first half of 2009, and in August 2009 it was issued a cease-and-desist order by the Office of Thrift Supervision.
By the end of the year, the thrift had a loss of $33.2 million, while its total risk-based capital ratio had improved marginally to 7.48% from 6.39% as of Sept. 30. Cassidy said Savings Bank of Maine "ran amok" with construction and commercial real estate lending, and did not have the controls and processes in place to handle the assets when they started to go bad.
In September 2008, nearly 60% of the loan portfolio was composed of commercial real estate and construction loans, according to the Federal Deposit Insurance Corp. Despite significant chargeoffs in 2009, 82% of the loans in nonaccrual status at March 31 were in commercial real estate and construction.
"I think that they had been, how should I put it, a little more adventurous with their loans than might have been prudent," said Theodore Kovaleff, an analyst with Horwitz & Associates. "They found themselves below various capital levels that safety and soundness would suggest."
Those lending practices led to a supervisory conversion, a seldom-used procedure under which the OTS allows a mutual to convert to a stock holding company — bypassing the typically lengthy review process — to raise capital quickly.
The thrift raised the capital through a private placement from SBM Financial — an investor group led by Everets and Willard B. Soper, the new president — and a handful of others. Everets said the conversion boosted capital levels to more than adequately capitalized — an 8% total risk-based capital ratio — which the order specified must be reached by June 30.
SBM Financial then absorbed Savings Bank of Maine, and Everets and Soper took over, along with a handful of banking veterans looking to address the problems. "My background is fixing companies, and we will apply a lot of the techniques that have worked for us in the past," Everets said. The first order of business will be working out the problem loan portfolios — not selling them off — which Everets said could take up to 18 months.
After that, the bank will focus on improving its balance sheet by focusing on mortgage lending, an area of expertise for the new management team. In the executive suite are Soper, a former senior vice president of Shawmut Bank and chief executive of Kislak National Bank and J.I. Kislak & Co. in Florida; David Ott, a former chief bank officer of Banknorth; James Ozanne, a former executive vice president of GE Capital; and Ronald Roark, a founder and former chief executive of Crown Northcorp in Ohio.
Cassidy said the capital infusion along with the talent of the management team should be enough to turn around the company, despite the credit problems.