Maine banks in sound shape Institutions faring better than during last economic slowdown

PORTLAND – The mere mention of an economic downturn should be enough to cause anxiety among bankers. After all, banks lost staggering sums in the early 1990s, and some of them didn’t survive.

Maine’s banks seem to have learned their lessons as they’re turning in solid numbers even as unemployment ticks up, technology companies across the nation implode and the stock market eats investor wealth.

Portland-based Banknorth Group, the dominant banking company in northern New England, has seen its share price double over the last 16 months.

And Banknorth is on pace for an eighth straight year of record earnings and is closing in on purchases of two Massachusetts banking companies that will push Banknorth’s total assets to $21 billion.

Elsewhere, Camden-based Camden National Corp., parent company of Camden National Bank, United Kingfield Bank and Trust Co. of Maine, posted a 17 percent increase in profits during the first six months of the year.

Northeast Bancorp, based in Auburn, and First National Lincoln of Damariscotta also recently reported healthy earnings growth.

First Coastal Corp., the Portland-based parent of Coastal Bank, saw its profits dip a bit during the first six months of this year compared with last year but was acquired by the parent company of Norway Savings Bank in a deal that will create the fourth-largest bank based in the state.

“The Maine banking system is as strong as it’s ever been,” said James M. Ackor, a bank analyst with Tucker Anthony. “I’d be very surprised if we were talking six months from now about some kind of Maine-based banking disaster. I just don’t see it happening.”

A disaster is exactly what happened in the early 1990s.

Banknorth, which was then known as Peoples Heritage Financial Group, lost $90 million between 1990 and 1992, was stuck with more than $200 million in bad loans and teetered close to failure.

One Bancorp, parent of Maine Savings Bank, went belly up. Maine National Bank was acquired by the Bank of New England after its assets were depleted. The Bank of New England, in turn, was taken over by Fleet.

What are the reasons Maine banking executives are counting profits even as the economy plods?

Like most successes, the banking industry’s good fortune is due to a mix of sound decisions – mainly being more conservative, experts say.

Ironically, Maine’s failure to capitalize as much as other states on the technology boom probably helps, too, because it means Maine banks are not saddled with loans to failing dot-coms and other tech companies, Ryan said.

But the biggest difference between this slowdown and the last one for banks is the condition of the real estate market.

The Reagan-era economic expansion of the 1980s was driven by explosive growth in commercial real estate, particularly condominiums, creating more supply than demand.

Banks and their regulators helped fuel the growth by letting loan standards slip.

Real estate prices eventually plummeted, and belly-up developers and buyers were unable to pay back their loans and mortgages. That meant big losses for banks.

That kind of speculative real estate bubble never formed during the expansion of the 1990s, partly because banks and other lenders, schooled by the catastrophe of a few years earlier, were more prudent in their lending.

“The last time, banks got caught up in the euphoria of the growth and were a bit more speculative in their lending practices than they are today,” said Robert Daigle, president and chief executive officer of Camden National Corp.

The U.S. Federal Reserve’s persistent cutting of interest rates in an effort to revive the economy has helped banks.

Lower interest rates mean banks pay lower rates when they borrow money, and that helps their earnings.