Now that Robert P. Keller is selling New Dartmouth Bank, which he built out of S&L failures in and around Manchester, N.H., a shadow has fallen over the state's small banks.

Back on Oct. 10, 1991 -- when Mr. Keller unveiled his deal to establish New Dartmouth out of three savings banks -- seven of the state's banks were shut; 23 others eventually would disappear in consolidations.

That leaves 58 banks, almost all of them small, in the state of New Hampshire.

Selling to Shawmut

Since the failures, New Hampshire banking has regained a measure of respect -- thanks, in part, to the salvage effort led by Mr. Keller.

But his agreement to sell $1.7 billion-asset New Dartmouth -- the state's fourth largest bank -- to superregional Shawmut National Corp. might mean a new round of consolidations.

"New Hampshire is rapidly heading for the oligopoly structure you see elsewhere in the country, where you have four entities in control of the market," said Ed Furash, president of Furash & Co., Washington.

The other three players in a four-bank monopoly would be the $963 million-asset Bank of New Hampshire, $1.7 billion-asset Fleet Bank New Hampshire, and $3.4 billion-asset First New Hampshire.

Community Banks Strong

According to Sheshunoff Information Services Inc. data,for the fourth quarter of 1992, First New Hampshire held 19.1% of all deposits at the state's banks, thrifts, and credit unions; New Dartmouth, 10.2%; Fleet, 9.6%, and Bank of New Hampshire, 5.9%. Community banks as a group held 46.5% of the deposits.

Spokesman Robert Guenther says that to establish its identity, Shawmut will, among other things, promote a small-business lending operation unveiled in April.

"We'll also offer trust department services and commercial lending, which New Dartmouth wasn't offering."

Wariness of Big Banks

However "banks are losing their share of the financial services market, and the first step in surviving is ensuring depth in the share you have -- and taking over banks in the tough initial period helps you deepen your share of wallets and households," Mr. Furash says.

Shawmut might also have to surmount a wariness of big banks based largely on the failures of 1991.

But Doug O'Brien, president and chief executive of First New Hampshire, views Shawmut's arrival as an opportunity. "Even though we have theBank of Ireland behind us, we'll be seen even more as the hometown guys. We're an amalgamation of 24 banks, and the branches make the lending decisions.

When Shawmut does arrive, which probably will be late in the third quarter or early in the fourth, "well have locally oriented TV, print, and radio marketing ready to run," Mr. O'Brien adds.

Litany of Failures

High profile ads notwithstanding, the rate of deposit growth lately has been strongest among the state's small banks, according to Jerry Little, president of the New Hampshire Bankers Association.

Mr. Little says it's too early to tell if this is a trend. But the litany of failures on Oct. 10, 1991, showed that most of the state's largest institutions were in a shambles.

The failed institutions, with assets as of December 1990:, $950 million-asset Dartmouth Bank; $636 million-asset Numerica Savings FSB; $1 billion New Hampshire Savings Bank; $985 million. Amoskeag Bank; $847 million BankEast; $441 billion Nashua Trust Co.; and $118 million Bank Meridian.

Dartmouth, for one, had been grossly mismanaged, says Mr. Keller, who had signed on as president -- at the bank's urgent request -- at the end of 1989.

Before taking over, he served as chief operating officer at American Federal Bank, a resolution in Texas made up of 12 failed thrifts. It didn't take him long to determine that his new bank was headed for the same fate as the Texas thrifts.

"Dartmouth had been making commercial real estate loans like they were going out of style, and the assets were turning bad," Mr. Keller said.

He eventually proposed a deal that regulators had never before allowed -- merging a group of unaffiliated, failing banks and starting a new one with public guarantees and public and private investment.

"We told the FDIC that a combination makes sense, and they said, |No, we've never done it that way.'

FDIC Was Won Over

"Later on, they said, |A combination makes sense. Two would be nice, three would be better."'

Given a green light, Mr. Keller, and investment bankers at Kidder, Peabody & Co. started pitching a deal that would allow the newly established institution to "put" to the Federal Deposit Insurance Corp. any failing assets for up to three years. That, and an airtight business plan, enabled the team to raise $41 million.

"The guarantee was very important, but we wouldn't have persuaded anyone if we didn't have a sophisticated business plan," Mr. Keller said.

"Dennis Ballieu, our CFO, developed a series of computer models for every eventuality. Whenever we presented our plan, people would ask, |What if interest rates did this, at this point in time?' We'd just pull the relevant model out of a brief-case," Keller said.

With the $41 million raised by the team, and the $37 million kicked in by the FDIC, Mr. Keller bought the assets of New Hampshire Savings, Dartmouth, and Numerica and reopened the banks as New Dartmouth on Oct. 11, 1991.

His methods have yielded "plain vanilla" bank returning 1.27% on assets. But he also has drawn a number of criticisms, with the most serious being a Community Reinvestment Act rating -- "needs to improve" -- which was issued in March.

To some, like New Hampshire Gov. Stephen Merrill, a Republican, the rating was proof positive that New Dartmouth was founded solely for a "flip."

First Things First

Mr. Keller, a soft-spoken, no-nonsense individual, bristles at the allegation.

"I think CRA is important but, when you're on your way to put out a fire, you don't stop to help an elderly person across the street. You take care of the business at hand."

The first "fire" to put out was "the deplorable state of recordkeeping at the three banks," Mr. Keller said. "So we had to clean up, rebuild, and merge the back offices before we put lending in top gear."

Mr. Keller adds, "We identified 72 community groups that we planned to work with, and we had started working with 26 of. them at the time of our CRA exam. We're now in touch with all 72 groups, and we've got two full-time CRA staffers."

He also notes that New mouth bought back from the FDIC about five hundred loans "because we knew the businessmen involved were good people, and our workout committee helped save their businesses. Isn't that community reinvestment?"

Shawmut, which has a "satisfactory" CRA rating, is being investigated by the Justice Department and Federal Trade Commission for alleged lending bias in 1990.

John Taylor, who heads the Washington-based National Community Reinvestment Coalition, says "allowing the New Dartmouth deal to go through when New Dartmouth has a poor CRA rating, and before the Justice and FTC investigations are completed, would show a lack of seriousness about the Community Reinvestment Act."

Mr. Guenther said Shawmut "is committed to improving New Dartmouth's rating, and making [its own] rating |outstanding."'

Assailed for Slashing Staff

Mr. Keller also has been assailed for slashing staff at the merged bank from 1,100 down to its present 605. But he is "not a believer in all the bureaucracy I see at banks.

"When I got here," Mr. Keller adds, "there were five tiers of management between the branch managers and the CEO. Now there's one."

In fact, Dartmouth's staffing levels are "par, or a bit over par," says Bob Warren, a Ferguson & Co. analyst. "They've got 0.35 employees for every billion in assets, and their peer group works out to 0.32."

Mr. Keller also drew fire for repricing deposits and renegotiating or breaking leases, but those activities are allowed by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, notes FDIC spokesman David Barr.

Growing Rapidly of Late

Repricing the deposits "chased out a lot of hot money," says Mr. Keller, pointing out that the merged bank started out with $2.2 billion in assets.

But the bank lately has enjoyed rapid growth. "We did $31 million in lending in April, and $35 million in May.

"We're now the No. 1 lender in the state's Capital Access Program (which offers state lending guarantees), the No. 2 Small Business Administration lender, and the No. 1 student lender," Mr. Keller said.

Ahead of Schedule

Mr. Keller said the implementation of New Dartmouth's three-year business plan ran well ahead of schedule, largely because of the drop in costs for deposits. It was planned that, at the end of the three-year period, the bank would affiliate with a larger institution, Mr. Keller said.

With the acceptance of Shawmut's offer, that point was reached in just 18 months, and the price offered by Shawmut -- $140 million, or 187% of book value -- represents a 310% proft for the investors.

"You would have made more than that if you had just bought Shawmut or Bank of Boston stock [in 1991]."

House Up for Sale

He adds, "The FDIC is earning 7.2% on the preferred New Dartmouth stock it holds."

For Mr. Keller, who spent most of his 28-year banking career at Indian Head, now Fleet Bank New Hampshire, the future is uncertain. "I've got two years left on my contract, that's all I know."

Mr. Keller's house on Sunapee Lake is up for sale because, he says, he is tiring of the commute to Manchester. Clearly, however, working deals, and making deals, and cleaning up troubled banks, are his favorite pursuits.

For Shawmut, the future also holds uncertainties. Manchester, which once had the world's largest textile industry, is showing signs of recovery -- especially with the many small businesses leasing space in the mills.

But the region still is depressed -- and Gov. Merrill says he will be watching to make sure, as his spokesman Jim Rivers put it, "that Shawmut isn't coming here just to take our deposits."

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