This is a story with a happy ending.
The Savings Bank of Maine, a 175-year-old financial institution
headquartered in Gardiner, Maine, with branches throughout the
state, had a very difficult year in 2009. Like so many other banks
large and small, the bank had ventured into commercial lending -
particularly real estate lending - just as the recession hit,
putting it in serious jeopardy of failure.
The bank's regulator, the Office of Thrift Supervision, entered
Cease and Desist and Prompt Corrective Action Orders requiring the
bank to sell itself or immediately raise new capital. There was no
ready buyer for the bank, which was a mutual federal savings
association, so finding new capital was the only available avenue.
But, in this difficult economic environment, who would be willing
to do the hard work of converting the bank from a mutual to a stock
corporation and investing sufficient capital to meet the regulatory
requirements?
It turned out there was someone. Our client, a financial industry
veteran who had previously sold a medical professional financing
company to GE, heard about the opportunity. He enlisted the help of
a friend, who had many years of experience in mortgage banking, to
assess the opportunity. They spent weeks getting to know the bank,
visiting its branches and reviewing its loan portfolio. They then
teamed with Keefe, Bruyette & Woods, a premier investment
banking firm for the banking community, to begin work on a capital
plan for the bank.
During this evaluation period, it became clear that the bank had
skilled and loyal employees, an important role in its communities,
and solid support from its depositors and borrowers. If the bank
had new management and adopted a strategic plan with a more
conservative lending philosophy and a vision for careful future
growth, our client felt that it would be an attractive investment
opportunity. Time, however, was short.
Our client approached the regulators to determine whether there was
sufficient time for his team and KBW to complete the new business
plan, which required the conversion of the bank under regulatory
supervision from mutual to stock form, and to raise the necessary
capital. The regulators advised on the immediate steps that the
bank needed to take and set an accelerated timeline for the
recapitalization plan. The regulators were also very supportive of
the plan, provided that it met all their requirements. It was clear
that recapitalization of the bank would be better for all
stakeholders, including the FDIC and the bank's employees, than
a forced closing.
Over a period of approximately three months, our client, working
with employees of the bank, completed the business plan and helped
KBW bring together a group of investors. These investors formed a
holding company, based in Gardiner, Maine, to finance the
transaction. On Wednesday, May 26, the recapitalization was
completed with $60 million of new capital invested in the bank. The
new board includes a number of individuals with long careers in
banking at some of the country's premier institutions,
including several with strong ties to Maine. The transaction has
drawn strong endorsement from the bank's employees as well as
from the Maine business community.
As you can imagine, a transaction like this was not easy, as a
variety of stakeholders had to support this solution. But our
client's perseverance, the support of the regulators and the
experience of KBW made it possible. We now expect a bright future
for the bank and its dedicated employees.
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