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Back-to-Basics Banking in Maine

Challenging times put the soul of community banking to the test.

If Jimmy Buffet ever wore a tie, he'd be Jim Delamater. The King of Margaritaville shares more than a case of male-pattern baldness and a fiftysomething need for spectacles with the president and CEO of the Lewiston-based Northeast Bank.

Where Buffet's easygoing style is appropriate at a Caribbean beach party, it seems almost like heresy when Delamater uses it in the boardroom. And where Buffet's melodious voice has sold millions of albums, the commonsense tune that Delamater has been bringing to the stodgy world of banking has translated into millions of dollars — $563 million of them at last count — for what was once an $18 million, one-branch bank.

As the Goliaths of the banking world have been gobbling up smaller community banks in Maine and elsewhere with what seems to be an insatiable appetite — the FDIC reports that the country's ten largest banks now hold nearly half of the industry's assets — Delamater has been preaching, and profiting from, his belief that the best financial decisions for Mainers are those made over a handshake rather than a fax line. His down-to-earth approach to the world of economics, whether it's through writing a book that teaches people how to live within a budget or empowering his employees to find the best deals for their customers even if it means sending them to a competitor, has made Northeast a model of both financial success and Maine integrity.

Most importantly, it's sustaining communities that might otherwise be overlooked by the financial giants.

"When I started at Bethel Savings Bank in 1981, a lot of the banks were branches of bigger banks where they used the little communities to grow deposits, but then would lend the money somewhere else," Delamater says. "We came in with a new attitude and said, 'Hey, folks, we're going to take all the deposits you give us and we're going to put a sign out saying they're here, come get them.' All of a sudden we were financing the new grocery store, new houses. And then Les Otten showed up."

Otten, who had just purchased what was at the time a somewhat dilapidated ski area in Newry called Sunday River, had been having no luck convincing out-of-town bankers that the mountain had promise. He found a warm reception with Delamater, and neither the mountain nor the bank that began as tiny Bethel Savings have slowed down since.

"If it weren't for Jim Delamater and the bank's willingness to take a risk on my vision, I wouldn't be where I am today," Otten said last year at the grand opening of Northeast's $2.8-million headquarters in Lewiston's Southern Gateway. "You've all seen what was accomplished at Sunday River all because Jim had faith in me."

The ski area's success helped the bank establish a footing upon which it could grow its financial network to nineteen locations from Bethel to the midcoast and south to Kennebunk. But Delamater says the bank's faith in and respect for humble, low-growth areas has been equally important to its success.

"Buckfield is a good example — it doesn't grow much, but it's a wonderful community with good people, good work ethics, just a great little community. And it's a great place to have a bank," Delamater declares matter-of-factly. Such captive markets help banks grow their deposits — the lifeblood of every bank — and to assist communities when times get tough, whether it's because of a mill closure or a downturn in a local economy. Delamater says such challenging times put the soul of community banking to the test.

"I hate to say it, but sometimes you make a loan to somebody that can't afford to pay it back, but you know they're good people and they deserve a chance," Delamater says. "The essence of community banking is having the courage to make those exceptions. If I'm going to put myself in my customer's shoes, my policies and procedures have to be comfortable with exceptions."

Such flexibility allows a bank to adjust its operations based on the local economic climate, in good times and bad.

"In the last three or four years when the markets were doing very well and real estate was booming, we were very aggressive," Delamater says. "But once you see that winding down, you can ease it back a bit."

It also means that the bank can govern itself by its own conscience; while overdraft privilege policies are one of the fastest-growing products in the banking industry, Northeast recently decided not to offer such a plan. Anything that encourages people to write checks they can't afford runs counter to the bank's goal of increasing financial literacy, Delamater says.

"We have a lot of customers that want [overdraft privilege policies], but we said that if we did it we'd have to have a sign on it like on a cigarette package that says 'Warning: Harmful to your financial health. Don't do this.' "

As Delamater's bank grew during the 1980s — Bethel Savings became publicly traded in 1987, acquired Brunswick Federal Savings Bank three years later, and changed its name to Northeast in 1996 — Delamater was careful not to lose his small-town outlook or the ability to empower his 203 employees (including his two sons) with the confidence to make exceptions.

"It would be very hard for a TD Banknorth, for example, to tell all of its people what we tell our people because I don't know how you can control educating that many employees. I think it would be suicidal to empower them with that kind of authority," he says. "In a bigger bank you can't possibly sustain the management of that many exceptions, so you start managing by policy. And once you get to managing by policy, you are no longer a community bank, you are a big bank."

Big banks have certainly found a home in Maine; a 2004 report found that Banknorth, Fleet National Bank, and KeyBank held 41 percent of Maine banking deposits (both Banknorth and Fleet have since merged with larger banks). But even Delamater admits that size does have its benefits, and he makes no apologies for Northeast's spot at No. 12 in Mainebiz's most recent ranking of Maine-based banks, based on assets. An increasing number of the bank's new customers expect the latest technology, from online bill paying to fee-free ATM cards, and Maine banks need to invest in this technology in order to compete. And the industry is certainly not faltering; FDIC-insured institutions nationwide turned in a fifth consecutive year of record earnings last year, with a net income of $134.2 billion.

At Northeast, net income was $4 million, compared to $1.3 million just ten years ago. Delamater has also profited personally; his $225,000 salary certainly puts him among the Lewiston elite. Northeast's move to Auburn in 1996 was proof of the bank's confidence in Maine's second-largest metro area. "Lewiston-Auburn intrigued us for years because geographically it made sense," says Delamater, who spent his early childhood in Lewiston while his father worked at the Bates Mill before the family moved to nearby Oxford.

"For whatever reason it wasn't going anywhere, but geographically and demographically it made all the sense in the world."

The result of Northeast and other banks focusing so heavily on Lewiston is that capital is now within easy reach of prospective businesses and homeowners. "I would argue that the good news is that Maine is probably getting better services than anybody in the country," Delamater says.

Northeast has managed its growth by diversifying into insurance and investment-management services, revenue sources that increased 29 percent last year but which are still in their adolescence. In the end, though, Delamater says all banks need to remember that the mighty dollar rules.

"Price is always the ultimate driver. You can kid yourself and say service sells, but price sells and that's the bottom line," he remarks. Remembering that credo gives Northeast employees the confidence to find customers the best CD or interest rate, even if it's at a competing bank, because they realize that the long-term benefits of sustaining an honest relationship will outweigh whatever short-term gain the bank might get from a CD or loan.

"We couldn't do that in a million years when we were little," Delamater remarks. "We would've gone broke."

Such integrity will position banks like Northeast well with the eighty-million-strong wave of baby boomers, some of whom are beginning to flood into Maine. "We have a lot of senior citizens who are moving into the state and a lot of them really do like the personal service they get here," explains Joe Pietroski, Jr., president of the Maine Bankers Association. "The one characteristic that has continued, even with the larger banks, is that bank customers feel like they're dealing locally. You can be a mega bank, but people feel like they're dealing with someone local."

Many aging boomers will inherit wealth and will look to their local banker for investment and retirement plans. Banks like Northeast that have invested in technology and diversified their services will be better positioned to accommodate these customers, Pietroski says.

"The one thing Jim noticed is that he could not afford to be a sleepy little bank," he remarks. Staying sleepy or quiet is not something that seems to be in Delamater's blood; the employee handbook he wrote became so popular that he turned it into a book, The Great American Mismatch. Today Northeast uses the book as a marketing tool, another way of increasing financial literacy in its customers. Today, the threats facing Maine banks are not coming from just the likes of Bank of America and KeyBank. Credit unions pay no state or federal taxes and therefore can often undercut other banks, a competitive advantage that has helped them become a $4 billion industry in Maine. Increasing federal regulations bite into the 3 percent margin that most banks count as profit — Northeast spent a million dollars last year on reporting alone — and new laws aimed at tracking terrorist funds will only make the problem worse. Banks' response — to increase efficiency — is instead harming the industry, Delamater says. "Everybody is so intent on becoming efficient that they're forgetting about the customer or they're forgetting about the employees," he says. "So efficiency to me isn't the answer, it's suicidal. It just means eventually you're going to drive your customers out the door, yet that's what the industry is focused on because of the collapse of the net interest margin."

The downturn in the real estate market and rising interest rates will continue to impact banks' bottom line; statewide, housing permits declined 15 percent from third-quarter 2005 to 2006, and Northeast's loans paid out declined $25 million in the same period. Other than a few pockets, Maine's stable population makes it largely a no-growth market for banks. Even more alarming, perhaps, is the loss of deposits as Mainers flee the state's restrictive tax structure.

"We're worried about Maine," says Delamater. "We're losing what I call the rainmakers, the people who have lived here for sixty or seventy years and accumulated wealth and run businesses, and now they're getting older and they're taking their capital and they're leaving Maine because they can't afford to die here. "You can't go to any meeting of CEOs where we don't sit around a table and say 'My God, what are we going to do?' because we're losing our depositors daily. They're saying we can't die in Maine so let's move our residence to Florida or New Hampshire or wherever, and when they do that they take their CDs with them, they take those relationships with them."

Such gloomy prospects might force some bankers to retreat to their wood-paneled offices to protect their own six-figure paychecks, but Delamater still sees his bank's financial cup as half-full. Profit, he says, can come in many forms. "You turn a community around, that's fun. You go to church and see your neighbors and other people and have them say 'Hey, thanks,' that's fun. There's more to life than money."

Jimmy Buffet couldn't have said it any better.

<I>This article was originally published in the December 2007 issue of Down East Magazine.</I>