Stagnant population and wages made growing bank deposits a challenge in 2005, but Northeastern Pennsylvania’s big banks gained and community banks held steady for the year ending in June, according to new information from the Federal Deposit Insurance Corp.
Regional giants PNC Bank and M&T grew deposits, Wachovia Bank lost roughly one-eighth of its deposits during the year, or $160 million, from the market.
While most community banks saw minimal changes in deposits, Dunmore-based First National Community Bank watched deposits grow roughly one-eighth.
The FDIC surveys bank deposits on June 30 each year. Deposits show how banks are faring in the competitive market. The dollars are typically a bank’s lowest-cost source of money that they use to make loans that build homes or expand businesses.
Deposit growth was not easy to come by locally, an area the FDIC defines as Lackawanna, Luzerne and Wyoming counties. Deposits grew an average of 8.6 percent in the U.S. and slower in Pennsylvania.
While higher interest rates and a sluggish stock market often signal a shift of money from stocks to deposits, it hasn’t reached this area. And even in a down stock market, most investors look elsewhere to put their money.
"There are better places to invest your money than deposits," said bank analyst Andrew Stapp of Cohen Bros. & Co. "Everyday investors today know more and have more options."
With population and deposits at a standstill, local banks have taken a variety of strategies to chase dollars and pull customers from one another. PNC is trying to grow from existing customers. FNCB looks toward businesses and municipalities for deposit growth. Others have offered tantalizingly-high specials on certificates of deposit to attract so-called "hot money" and meet loan demand.
PNC has remained the region’s top banker since acquiring Northeastern Bank in the mid-1980s. It holds $1 of every $5 dollars in deposit, according to FDIC tallies. Yet, the Pittsburgh-based bank lost the top spot in Luzerne County, where M&T bank has come on strong.
After several years of deposit erosion, PNC Bank reversed the trend, growing deposits by more than 9 percent for the year. PNC Northeast Region President Peter Danchak said the bank is benefiting from a campaign launched in 2004 to gain a greater share of customers’ business, having found that many of its customers use several financial institutions.
Five years ago, the bank had stopped offering residential mortgages, citing low margins and greater risk. That may have cost PNC accounts, as clients took out mortgages elsewhere and took deposits with them.
To that end, the bank launched no-fee checking and has become more aggressive in sales, cold-calling clients to offer them new products, such as CDs. While not offering mortgages, PNC has tried to specialize in home equity loans.
"The region’s population is not growing," Mr. Danchak said. "We learned that it is easier to grow from existing customers than to attract new customers."
Mr. Danchak attributed PNC’s deposit loss to accounts moving into higher yield annuities offered at the bank. With interest rates climbing, he said some of the money is moving back into deposits and annuity sales are down.
A somewhat distant second but gaining is Buffalo, N.Y.-based M&T Bank, claiming the spot held by Wachovia and predecessor First Union since 2000. In Luzerne County, where most of its offices operate, M&T knocked PNC from the top spot. M&T regional president for Northern Pennsylvania operation, Scott Dagenais, said the certificate of deposit is back in vogue with consumers. As banks offered rates above 3 and 4 percent, money came back from mutual funds, annuities and other places. Some M&T growth came from company and municipal accounts.
Banking giant Wachovia, which swept into the area with the First Union acquisition, sustained a decrease of market share and real deposits, reporting a $161 million drop, enough to knock it to the third place from second, ceding the second spot to M&T.
Wachovia spokesman Jim Baum attributed the decline to a few sizable accounts that the company moved from Luzerne County branches outside the market.
Bank analyst Arnold Danielson of Danielson Associates Inc., said local banks are bucking some industry trends. As PNC surges in the Northeast, it has been in a free fall in other Pennsylvania markets. Wachovia, he said, is doing well in most other markets.
FNCB leads the region’s community banks. Although it remained at sixth place in 2005, it grew deposits by more than 12 percent over the year.
Commercial lending and municipal accounts largely fueled the growth, said Chief Financial Officer William Lance. As the bank makes new business loans, it lands the business deposits, which accounted for half the deposit growth. The bank has also made a concerted effort to market to municipalities – an untapped source of deposit accounts, Mr. Lance said.
"Municipalities have sizable deposits out there and we are selling our services and trying to get a foot in the door," he said. Those municipal accounts made up about a third of FNCB’s growth and retail accounts the last 15 percent.
Citizens Savings Bank, Old Forge Bank, Penn Security Bank & Trust, and North Penn Bank all saw their deposits shrink by between 3 and 5 percent over the year. Dunmore-based Fidelity Deposit & Discount Bank was down 2 percent. Clarks Summit-based Community Bank & Trust, and Luzerne National Bank were largely unchanged.
While North Penn Bank converted earlier this year from a mutual thrift to a mutual bank holding company, enabling it to make commercial loans, its local offices saw deposits dip 3 percent over the year.
Since June however, Mr. Hickman said the bank has sold millions of dollars of CDs at 4.1 percent. But the bank is on a thin line in a rising rate environment.
As it makes three-to five-year commercial loans at 6.75 to 7 percent, it’s backing those loans with one-year CDs and paying 4.1 percent or more. In a year or two, if North Penn is forced to reprice CDs at 5 percent or more, the bank’s margin spread could narrow and it could lose money.
"We reprice the CD to reflect rising rates, but we can’t reprice the fixed mortgage or commercial loan," he said. "I’d love to have more deposits but we have to pay for them and we end up rolling the dice year after year."
For some banks, declining deposits can be a good thing. In a rush to meet loan demand and attract deposits, some banks gamble by offering high interest rates to depositors while backing longer term, higher interest loans.
That may be part of the picture at the local branches of Keystone Nazareth Bank & Trust -- seven offices that were First Federal in the Hazleton area purchased from Northeast Pennsylvania Financial Corp. KNBT offices reported a startling one-third decline in deposits, or $120 million.
Racked by lackluster results and accounting irregularities that lead to multiple earnings restatements, NEPA Financial was sold to KNBT, the deal closing in May.
While some of the loss was undoubtedly because of the bank’s poor performance and earnings shuffle, some of the deposits were high-cost for the bank, said Mr. Danielson.
"When you take over a struggling bank, you get run off," Mr. Danielson said. "That bank was originally a thrift with a lot of CDs that were high cost money. KNBT is probably happy it’s gone."
Scott Fainor, president and chief executive officer of KNBT, declined comment on the NEPA Financial accounting missteps, but conceded the bank’s prior management got into high cost deposits and turned their back on municipal accounts.
With new systems installed and training completed over the summer, Mr. Fainor predicts a turnaround and restated the KNBT’s faith in the merger. But KNBT faces a tough market.
Robert Hunt, an economist at the Federal Reserve Bank in Philadelphia, said while deposit growth was slow in the Scranton/Wilkes-Barre area, over time the region performed comparably with the state’s other urban areas.
Over the last five years Mr. Hunt noted that Scranton/Wilkes-Barre’s average growth of 4.4 percent exceeded median deposit growth in Pennsylvania’s cities, at 4 percent.
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