First NH Tackling a Pivotal Issue: Acquire Branches or Struggle On

Elm Street, the tree-lined main drag in Manchester, N.H., is filled with the branches of about a dozen banks and thrifts.

The problem, according to F. William Marshall Jr., chairman and chief executive of First NH Banks, is that the Granite State is big enough for only two players, and he wants his bank to be one of them.

Deciding the Bank's Fate

In the coming weeks, a flurry of meetings on both sides of the Atlantic between the bank's management team and executives at First NH's parent, Dublin-based Bank of Ireland will determine whether Mr. Marshall gets what he wants.

"We are evaluating all our market opportunities, and we clearly view this as an important turning point for us," says Mr. Marshall, who became CEO of First NH last year after 25 years at Shawmut Bank.

First NH, whose $3 billion in assets make it the biggest bank in the state, is a strong contender to acquire at least some the assets and deposits of five failing New Hampshire institutions that will be sold by the Federal Deposit Insurance Corp. in September.

For Mr. Marshall and his bank, the acquisitions could realize a longed-for expansion in the state and future profits.

But if his bid fails, the bank will have to continue its struggle in an uncertain economy with the prospect of competing with a superregional powerhouse in its own backyard.

Other banks interested in expanding into New Hampshire include KeyCorp, Albany, and Fleet/Norstar Financial Group, which already owns a bank in Nashua, as well as several investor groups.

Mr. Marshall's job is to convince his bosses in Dublin that, despite two years of losses and a sagging economy, First NH must invest now to secure a dominant position in New Hampshire and a more prominent position in New England.

Opportunity Seen

First NH "views the ability to buy some of these banks as an opportunity to recoup their losses in the long run," says Don Kauth, a bank analyst at First Albany Corp.

Bank of Ireland might not need much convincing. Analysts say First NH's foreign parent is in New Hampshire too deep to pull out now and is likely to put up more money in the hope of reaping the benefits once the economy recovers.

"If they are committed to the area, and I think they are, they will be part of the bidding," says Gerard Cassidy, an analyst in Portland, Me., for Tucker, Anthony & Co.

The FDIC said in June that it planned to close five failing institutions, merge them into two banks, strip out problem loans and offer them for sale. One package includes Amoskeag Bank and Bank East, both in Manchester, with combined assets of $2 billion.

The other is a combination of Dartmouth Bank and Numerica Savings Bank, also of Manchester, and Concord-based New Hampshire Savings Bank, with combined assets of $2.6 billion. Analysts say each package will be sold for about $75 million.

The packages, particularly the Amoskeag-Bank East combination, will give the winner a large chunk of New Hampshire deposits - something First NH could use. The bank is already under pressure to compete with Fleet/Norstar, which acquired Indian Head Banks Inc, Nashua, in 1988. The acquisition brought Fleet a statewide franchise with the largest deposit base in the state.

More Capital Contributed

First NH's troubles began shortly after the $25 billion Bank of Ireland acquired the institution that same year for $370 million, 2.4 times book value. Then New Hampshire's real estate market and the New England economy began to crumble. In 1989, the bank posted a loss of $28 million, and last year it was $96 million in the red, mostly because of real estate loan losses.

To shore up the bank's finances, the deep-pocketed Bank of Ireland has continued to pump in capital - $120 million last year and another $25 million so far this year.

The bank already has 40% of the consumer market in the state and almost one-third of all New Hampshire households and businesses are customers.

An acquisition would give First NH, which operates 50 branches around the state, a bigger stake in the so-called Golden Triangle, the region that lies between the towns of Manchester and Nashua inland and Portsmouth on the coast. Over 50% of the population resides there and more than 60% of New Hampshire's businesses are there. Twenty-eight First NH branches are in the Golden Triangle.

Fleet would also like to add to its base in the area. Sources say that both Fleet and KeyCorp., which had previously said it would not bid but last week jumped back in the running, are interested in the package that includes Manchester-based Bank. East and Amoskeag Bank because they are both commercial banks.

"We're underrepresented there," says Mr. Marshall. "If we want to get there, we could do it by acquisition. If that doesn't work, we'll enter it another way."

First NH has discussed teaming up with investor groups, including Harvard Management Corp., an investment company that oversees the $5 billion Harvard University endowment, to bid on the failed banks. But bank insiders say that First NH is more likely to bid on its own. The deadline for bids is Sept. 3.

Muscle Is Available

Clearly, an acquisition would be the easiest way to expand, and Mr. Marshall believes First NH has the managerial and technical wherewithal to support a banking operation two to three times the bank's current size.

To that end, the bank has been preparing for expansion despite its troubles, with the help of Bank of Ireland. With $334 million in capital, 9% of assets, the bank is well above regulatory guidelines.

The bank has trimmed expenses by closing its leasing and corporate finance units, shutting branches and reducing staff. First NH has invested $25 million to upgrade its technology, part of which includes entering into an agreement with Systematics Financial Systems Inc., which will replace its outmoded data processing systems and run its data center.

Working against First NH is that it has no experience with a large-scale acquisition and consolidation, unlike Fleet and Keycorp., which have proved adept at combining banks.

Table : First NH Banks At a Glance

Headquarters: Manchester, N.H.Parent: Bank of IrelandAssets: $3 billionRank in No. 1

state:Branches: 50Capital to 9%

assets ratio:

Employees: 1,600

Source: First NH Banks

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