Community banks in Maine are in the midst of a commercial lending bonanza that stems from pent-up demand for business expansion loans and a surge in real estate investment activity, according to a Maine Sunday Telegram analysis of publicly available banking data.

While Maine’s economy remains relatively flat, the commercial loan portfolios of its community banks have skyrocketed in the past two years as business clients who had been reluctant to borrow money because of economic uncertainty have decided they can no longer hold out.

At the same time, a real estate investment boom in and around Portland has created a frenzy for commercial mortgage lenders, with community banks poaching loan offers from larger banks – and from each other – to expand their operations in southern Maine.

Statewide, the total value of loans issued by community banks for nonresidential properties increased 13 percent to $4.54 billion during the two-year period ending Dec. 31. Meanwhile, commercial loans for other uses such as equipment purchases increased 19 percent to $1.48 billion.

The total value of nonresidential real estate loans on the books at Maine’s 28 community banks is up more than 70 percent since the beginning of the Great Recession – nearly twice the growth rate of such loans at all banks nationwide. The total value of commercial loans for purposes other than real estate at Maine community banks is up more than 50 percent.

Nationally, the total value of real estate loans for nonresidential property increased 37 percent to $1.13 trillion from 2007 to 2014, according to Washington, D.C.-based commercial real estate data provider CoStar Group Inc.


While Maine-specific loan data are not available for large interstate banks such as Bank of America, some have theorized that community banks may be siphoning business customers away from big banks as a result of problems they experienced during the recession.

“There was this whole flight to community banks,” said Bob Montgomery-Rice, president of Bangor Savings Bank.

Community banks in Maine have been successful at recruiting experienced commercial lenders away from the large interstate banks, often bringing their clients with them, Montgomery-Rice said.

One Maine business owner who has borrowed recently from a community bank is Bryon Tait, president of South Portland-based Casco Bay Steel Structures Inc., which is in the midst of a multimillion-dollar upgrade to its production facility. His business switched from one of the big national banks to Bangor Savings in 2007.

“We went with a community bank because they made life a lot easier,” he said.

For example, Tait said he now gets to work with the same loan officer for all of his borrowing needs. It wasn’t like that at the big bank, he said.

Casco Bay Steel, which fabricates massive steel beams and other structures used to build bridges, has lines of credit for operating costs and equipment purchases, as well as mortgages on its commercial properties.

“Last year, we bought almost $3 million worth of equipment,” Tait said, adding that the line of credit allowed his company to expand its product line and increase productivity.


Commercial loans not backed by real estate, also known as commercial and industrial – or C&I – loans, also have become a major focus for Maine community banks in recent years as lack of demand and low interest rates have made home mortgage lending relatively unprofitable.

At Camden National Bank, one of the state’s largest community lenders, the total value of C&I loans increased 68 percent to $196.6 million during the two years ending Dec. 31. Tim Nightingale, the bank’s executive vice president and senior loan officer, said Maine community banks “are all loading up with really good commercial lenders” in order to do more business.

Interest rates on commercial loans are also near historic lows, he said, but unlike home mortgages, the payoff period tends to be five years instead of 30 years, which makes it less risky for banks to keep commercial loans on the books.

Bankers said they are still issuing home mortgage loans but are selling them to buyers on the secondary market such as Fannie Mae, because the risk of holding on to them for 30 years outweighs the potential reward.

If interest rates rise above 5 percent, as they are expected to do in the coming years, it will make sense for community banks to keep more home mortgages on their books again, Nightingale said.


Meanwhile, the competition for commercial loan business has really heated up, especially in southern Maine, Montgomery-Rice said.

All of the major banks are seeing a spike in interest from investors who want to borrow money to buy or build hotels, condominiums and senior housing, said Michael O’Reilly, senior vice president and southern Maine commercial banking team leader at Bangor Savings. The bank’s commercial real estate loan portfolio increased in value by 23 percent to $599.1 million during the two years that ended Dec. 31.

“There’s a ton of investors interested in southern Maine,” said O’Reilly, who is also president of the Maine Real Estate & Development Association. One driver of the boost in investment is the proliferation of available tax credits for historic preservation, economic stimulus and job creation in low-income areas, he said.

The surge in investment activity has lured some out-of-state banks to the area, eager to get in on the action. In the fall, Norwich, New York-based NBT Bank opened an office at Merrill’s Wharf on Commercial Street in Portland to focus on commercial and real estate lending. Other banks already in Maine have beefed up their commercial lending operations in and around Portland.

“We think Portland may be on the verge of being overbanked,” O’Reilly said.

Still, the bankers said heavy competition is good for borrowers because it requires banks to offer the best deals possible to win their business.

Unlike some of the big national banks, Maine community banks were poised to capitalize on the pent-up demand for commercial loans because they did not suffer the kind of major losses experienced by the banking industry as a whole when the U.S. economy fell over the fiscal cliff, said Chris Fitzpatrick, senior vice president at Machias Savings Bank.

“Maine bankers have always been reasonably conservative,” he said. “We had less overbuilding, and therefore we paid less of a price.”


Between 2008 and 2013, more than 480 banks nationwide failed after issuing too many loans that went bad, according to the Federal Deposit Insurance Corp. None failed in Maine, and only one bank failed in all of New England.

While commercial lending has picked up significantly in York and Cumberland counties, banks across the rest of the state have not shared in that success, said Christopher Pinkham, president of the Maine Bankers Association, which represents all banks, large and small, throughout Maine.

“Hesitancy of businesses to expand, it’s been an issue,” Pinkham said. “The question is how do you change that?”

Fluctuating gas prices, lack of diversity in Maine’s out-of-state tourism base and the seasonality of economic activity remain problems for much of the state, he said.

“I think it’s better than it was,” Pinkham said. “I’m just not hearing anybody say, ‘Wow, it’s really turned around.’ ”

Large out-of-state banks operating in Maine still comprise a large portion of all commercial lending activity, but the way they report that activity makes it impossible to know how large their market share is in any given state, he said.

The bankers association is able to track delinquency rates for all commercial loans, which have been on the decline recently, Pinkham said – a positive sign for Maine’s economy.

Still, he said there is concern that developers and lenders will become overzealous in areas such as Portland, which is doing well but still does not have unlimited growth potential.

“I’ll bet you a cup of coffee that we will overbuild,” Pinkham said.