A flurry of mergers and stakeouts of upper New England community banks by the region's largest institutions has sparked a speculative frenzy in the stock of independent institutions in New York.

"The regionals and investors, I think, are looking around and asking: Who's left if you want to be a buyer?" said First Albany Corp. bank analyst Kevin T. Timmons. "If you want to expand in New York, you have to buy them sooner because you might not be able to buy them later."

The trend began earlier this spring when Fleet Financial Group bought stakes in three Vermont community banks.

It accelerated when Hartford, Conn.-based Shawmut National Corp. on Monday agreed to buy Northeast Federal Corp., which is based in Connecticut but has 17 offices near Albany, N.Y.

In announcing the deal, Shawmut's management stated its desire to expand in upstate New York.

Mr. Timmons said there is a core group of independent banks and savings banks in New York, that will likely be acquistion targets. The largest in the group is $3.2 billion-asset Rochester Community Savings Bank.

Others are Progressive Bank Inc., Pawling; Middletown Savings Bank; Poughkeepsie Savings Bank; and Arrow Financial Corp., Glens Falls.

Arrow, for one, has already been approached by Schenectady-based Trustco Bank Corp. In May, rumors of the deal fueled a rally in Arrow shares, to a 52-week high of $15.25.

Offer Rejected

Arrow's board said that the $753 million-asset bank holding company had declined an offer from Trustco.

"We believe it is in the best interests of our shareholders, employees, and community to remain independent," said Arrow chairman Michael F. Massiano. He added that Arrow has "no interest" in affiliating with any other bank company.

Arrow spokesman Timothy C. Badger would not expand on that statement, not even to discuss Arrow's long-term merger and acquisition strategy. It hasn't stopped the stock from climbing, however, reaching a new high this month of $16.75. It closed on Tuesday at $16.50 a share.

Joseph B. Tockarshewsky, chief executive of Poughkeepsie Savings, a $721 million-asset savings bank, is also dealing with takeover talk.

"Everybody sees us as a target," said Mr. Tockarshewsky. "I just tell my people to keep their eye on the ball and the rest will take care of itself."

something New

He wouldn't discuss his thoughts on Poughkeepsie's merger possibilites.

"Every one is looking at these $1 billion banks," he said, adding that the threshold at which a bank is considered "efficient" has gone up a notch. He said the stock market, which he termed "inactive and lackadaisical," is desperately looking for winners.

"So, investors are now looking for something new and they've found these banks up here," he said.

Crowded Field

But First Albany's Mr. Timmons said that big banks still might not be able to get their hands on the remaining large community banks.

They will likely face competition from players already in the state such as Trustco and First Empire State Corp. in Buffalo, which has expansion plans of its own.

"Some of the banks you first think of as likely acquisition targets on second glance don't appear to be imminent sellers," he said. "There are a lot of small and fairly large institutions in the western part of the state, none of which are for sale. But, that's where Shawmut is interested in growing, and those are the names that pop into your head."

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