Local banks see multi-million dollar growth

With large national banks facing financial troubles and some of them changing hands, banks based in the Lynchburg area are seeing multi-million dollar growth in their deposit base.

Five local financial institutions said that people are moving their deposits from big banks to local ones, positioning these local banks to make more loans.

Local bankers would not say which banks the cash is being pulled from. Several said the shift could stem from questions about changes in bank ownership.

Deposits in a local bank aren’t necessarily safer — the Federal Deposit Insurance Corp. insures big bank deposits, too — but it could be that local names and reputations are attracting deposits.

“I think people have a sense of comfort that they know the folks,” said Mike Thomas, president of Select Bank, a two-branch bank based in Forest. “We all have the same FDIC coverage. But will the president of ‘MegaBank’ drive over to your office?”

Bob Chapman, president of Bank of the James, said, “It’s kind of like leaving their money at home. In a local bank, it’s familiar, it’s close.”

Select Bank gained $9 million in deposits in September, half of which was moved from big banks, Thomas said.

The bank sees about a $5 million increase in a typical month, he said.

Bank of the James has received nearly $10 million in deposits since Oct. 1, said Todd Scruggs, chief financial officer. That’s twice as much as the deposits the bank collected from July through September.

Scruggs said the deposit growth has come from money withdrawn from other banks and from the stock market.

Other banking institutions have a similar story to tell.

Lynchburg-based Beacon Credit Union’s deposits are up 15 to 20 percent over last year, said Scott Hudson, spokesman.

Officials at Your Community Credit Union and First National Bank of Altavista declined to provide numbers on deposit increases, but said they are seeing new customers and new dollars.

The recently passed Economic Stabilization Act of 2008 increased the FDIC insurance limit on deposits from $100,000 to $250,000 until the end of 2009. The FDIC also has a program in which banks can insure unlimited amounts in accounts that don’t earn interest.

The National Credit Union Administration insurance limit was also increased to $250,000.

That insurance covers all insured banks. But people are still moving deposits out of large banks.

According to the Associated Press, Wachovia lost $5 billion in deposits after Washington Mutual failed in late September. Wachovia on Wednesday reported a loss of $23.9 billion in revenue for the third quarter.

The giant bank has 14 branches and about 170 employees in the Lynchburg area. In late September, Citigroup announced a deal to buy Wachovia. Wells Fargo made a counteroffer and won.

Though they do not mention Wachovia, local bankers said concerns about bank stability and ownership could be fueling their deposit growth.

“You may not know who the future owner … may be,” said Bryan Lemley, CFO of First National Bank of Altavista. “Typically when banks change names, you see a runoff in deposits.”

Depositors “probably are just unsure about who is going to be owning a specific bank,” said Hudson.

The growth in deposits at local banks doesn’t immediately pay off for them. Banks view deposits as liabilities because they have to be paid back. Banks also pay insurance premiums based on their deposits. (The premium is less than 1 percent of deposits.)

But “deposits are the lifeblood of banks,” Chapman said. They open the door for banks to make more loans.

Getting borrowers to walk through that door has been a different story lately.

Thomas said that the current low interest rates attract borrowers. But some people don’t qualify for loans in the tight credit market.

Chapman said loan demand remained strong at Bank of the James, but the bad news on big banks might keep some borrowers away.

“Unfortunately, I think the media has convinced people out of the market,” leaving the impression “that banks don’t have money,” he said.