October 30, 2006
Branching out | Gardiner Savings expands into new regions with two bank mergers
By Kerry Elson
In mid-October, Gardiner Savings Institution announced it would merge with Calais Federal Savings & Loan Association, a small, two-branch bank with $60 million in assets. The move came three months after Gardiner paid $20.9 million for Presque Isle-based First Citizens Bank, which has five locations in Aroostook County and $120 million in assets.
The two deals bring Gardiner's assets to more than $900 million and its total branches to 28, with two more Calais Federal branches possibly opening next year, according to Dennis Brown, Calais Federal's CEO.
For a smaller bank like Calais Federal, a merger with Gardiner Savings allows it to offer customers better rates and service they otherwise couldn't afford, such as credit cards and online bill paying, says Brown. For Gardiner, the merger not only boosts the bottom line, but also helps the bank become a statewide institution.
Together, the agreements allow Gardiner, whose previous northern- and eastern-most branches were in Waterville and Wiscasset, to gain business for the first time outside its base in central and midcoast Maine. And it launches the bank into the category of Bangor Savings Bank and Camden National Bank, other once-regional banks that in recent years have sought customers statewide.
But the agreements aren't the start of an acquisition binge for Gardiner. Instead, CEO Arthur Markos says they're part of the bank's strategy to expand into what it sees as untapped markets, and ones he believes it can penetrate because of Gardiner's experience doing business outside Maine's major cities. "Maybe the South gets all the exposure," he says, "but these are good markets, too. We understand how to do business in these kinds of markets."
New technology, in part, has set the stage for the bank's expansion into regions that previously were off-limits. "Two years ago, we wouldn't have been able to [do] this," Markos says. "In Presque Isle, there's serious distance between their five locations, and to drive the paperwork down here would have been a lot of extra cost. But now all the processing can be done electronically."
The high cost of that new technology, however, also has forced Gardiner to expand. Providing security for online transactions, increasingly popular with young customers, is expensive, Markos says. The bank also has had to comply with more and tougher regulations from the state and federal government since the Sept. 11, 2001 terrorist attacks. Expansion, says Markos, will help to spread those costs over more branch locations.
Those costs and regulatory burdens also are pushing the smaller banks to seek a bigger partner. Calais Federal was spending a large portion of its revenue each year on technology updates, narrowing its profit margin. To survive, it needed financial backing from a larger institution, says company CEO Dennis Brown. "To have bill paying, online banking, security measures, the technology costs $200,000-$300,000 ˆ and that's not to be ahead of the curve, that's just to compete," he says. "For a small community bank, when you make $600,000-$700,000 a year, that's a lot."
New markets, existing customers
Gardiner has had to hire more employees in the last three years, for example, to handle the increased security measures mandated by the 2001 USA Patriot Act. Banks nationwide have to submit reports to the federal government about suspicious transactions, such as ones that are unusually large or come from outside the United States, so that, in the case of an actual crime, investigators have a paper trail to follow.
To help handle the cost associated with that additional work, Markos has looked to expand the company and increase revenue. Markos chose Aroostook and Washington Counties because those regions have potential, he says, and they're places where Gardiner can build on its history serving smaller towns like Hallowell, Manchester and Wiscasset.
Building new Gardiner Savings branches in Presque Isle and Calais wasn't an option, though, because construction and employee training would cost too much, as would marketing the bank to attract customers. Merging with existing community banks, on the other hand, lets Gardiner slide into new markets with a pre-existing customer base.
So Gardiner Savings approached both banks, which were entertaining offers from other institutions, as well, in their efforts to deal with rising regulation and technology costs. The agreements are still pending approval from the federal government and stockholders at First Citizens, but officials at the three banks anticipate the mergers will be approved by all parties. Markos hopes to finalize the First Citizens deal by January and the Calais Federal deal by April. In the meantime, officials from First Citizens have sent a letter detailing the agreement to stockholders and are waiting for approval, says Susan Grove-Markwood, vice president of administration at the bank.
After the deals are final, Calais Federal and First Citizens will keep their names, but new signage will note the change in ownership. Staff at the two smaller banks must be trained in Gardiner's online banking technology and investment services, and their computers will need to be converted to Gardiner's systems. Markos says he can't estimate how much that all will cost, but that the amount probably won't make a big dent in revenues.
Could these mergers signal a new wave of consolidation among Maine-based banks? Probably not, says Chris Pinkham, president of the Maine Association of Community Banks in Portland. He acknowledges that the regulations, costs and other market factors that sent Gardiner Savings looking for new assets could inspire other banks to expand. But he doesn't expect that Gardiner's bid to become bigger will prompt its competitors among the mid-size regional banks or statewide institutions to plot countermoves. "I don't think it necessarily makes any difference," Pinkham says. "From my perspective, it's just one of these business decisions that one financial institution makes with another."
The two deals bring Gardiner's assets to more than $900 million and its total branches to 28, with two more Calais Federal branches possibly opening next year, according to Dennis Brown, Calais Federal's CEO.
For a smaller bank like Calais Federal, a merger with Gardiner Savings allows it to offer customers better rates and service they otherwise couldn't afford, such as credit cards and online bill paying, says Brown. For Gardiner, the merger not only boosts the bottom line, but also helps the bank become a statewide institution.
Together, the agreements allow Gardiner, whose previous northern- and eastern-most branches were in Waterville and Wiscasset, to gain business for the first time outside its base in central and midcoast Maine. And it launches the bank into the category of Bangor Savings Bank and Camden National Bank, other once-regional banks that in recent years have sought customers statewide.
But the agreements aren't the start of an acquisition binge for Gardiner. Instead, CEO Arthur Markos says they're part of the bank's strategy to expand into what it sees as untapped markets, and ones he believes it can penetrate because of Gardiner's experience doing business outside Maine's major cities. "Maybe the South gets all the exposure," he says, "but these are good markets, too. We understand how to do business in these kinds of markets."
New technology, in part, has set the stage for the bank's expansion into regions that previously were off-limits. "Two years ago, we wouldn't have been able to [do] this," Markos says. "In Presque Isle, there's serious distance between their five locations, and to drive the paperwork down here would have been a lot of extra cost. But now all the processing can be done electronically."
The high cost of that new technology, however, also has forced Gardiner to expand. Providing security for online transactions, increasingly popular with young customers, is expensive, Markos says. The bank also has had to comply with more and tougher regulations from the state and federal government since the Sept. 11, 2001 terrorist attacks. Expansion, says Markos, will help to spread those costs over more branch locations.
Those costs and regulatory burdens also are pushing the smaller banks to seek a bigger partner. Calais Federal was spending a large portion of its revenue each year on technology updates, narrowing its profit margin. To survive, it needed financial backing from a larger institution, says company CEO Dennis Brown. "To have bill paying, online banking, security measures, the technology costs $200,000-$300,000 ˆ and that's not to be ahead of the curve, that's just to compete," he says. "For a small community bank, when you make $600,000-$700,000 a year, that's a lot."
New markets, existing customers
Gardiner has had to hire more employees in the last three years, for example, to handle the increased security measures mandated by the 2001 USA Patriot Act. Banks nationwide have to submit reports to the federal government about suspicious transactions, such as ones that are unusually large or come from outside the United States, so that, in the case of an actual crime, investigators have a paper trail to follow.
To help handle the cost associated with that additional work, Markos has looked to expand the company and increase revenue. Markos chose Aroostook and Washington Counties because those regions have potential, he says, and they're places where Gardiner can build on its history serving smaller towns like Hallowell, Manchester and Wiscasset.
Building new Gardiner Savings branches in Presque Isle and Calais wasn't an option, though, because construction and employee training would cost too much, as would marketing the bank to attract customers. Merging with existing community banks, on the other hand, lets Gardiner slide into new markets with a pre-existing customer base.
So Gardiner Savings approached both banks, which were entertaining offers from other institutions, as well, in their efforts to deal with rising regulation and technology costs. The agreements are still pending approval from the federal government and stockholders at First Citizens, but officials at the three banks anticipate the mergers will be approved by all parties. Markos hopes to finalize the First Citizens deal by January and the Calais Federal deal by April. In the meantime, officials from First Citizens have sent a letter detailing the agreement to stockholders and are waiting for approval, says Susan Grove-Markwood, vice president of administration at the bank.
After the deals are final, Calais Federal and First Citizens will keep their names, but new signage will note the change in ownership. Staff at the two smaller banks must be trained in Gardiner's online banking technology and investment services, and their computers will need to be converted to Gardiner's systems. Markos says he can't estimate how much that all will cost, but that the amount probably won't make a big dent in revenues.
Could these mergers signal a new wave of consolidation among Maine-based banks? Probably not, says Chris Pinkham, president of the Maine Association of Community Banks in Portland. He acknowledges that the regulations, costs and other market factors that sent Gardiner Savings looking for new assets could inspire other banks to expand. But he doesn't expect that Gardiner's bid to become bigger will prompt its competitors among the mid-size regional banks or statewide institutions to plot countermoves. "I don't think it necessarily makes any difference," Pinkham says. "From my perspective, it's just one of these business decisions that one financial institution makes with another."
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