Wall’s Street most dire crisis since the Great Depression is sending many nervous Capital Region depositors into the arms of community bankers.
At a time when banks traditionally see deposits drop, as parents pay off summer vacation credit card debt plus school tuition and tax bills, the area’s privately held community banks are seeing massive inflows of cash. The deposit drive kicked into high gear this week as the biggest and most steadfast names on Wall Street were either bought out, bailed out or bound for bankruptcy.
“When times get tough, the number of people you trust shrinks,” said 1st National Bank of Scotia President John Buhrmaster.
Less than three weeks into September, Buhrmaster’s 10-branch community bank has seen a $3 million increase in deposits. Last year, 1st National averaged $750,000 in monthly deposit growth. The Scotia banker said chunks of money are coming from large national banks, such as the Charlotte, N.C.-based Bank of America, and investment banks, such as Merrill Lynch & Co. in New York. As of Tuesday, 1st National had $281.9 million in deposits.
Bank of America’s Sunday agreement to buy Merrill Lynch at the fire-sale price of $44 billion contributed to Wall Street’s harried week, during which the Dow Jones Industrial average fell to a near three-year low. Other developments rattling investors included the Federal Reserve Board’s $85 billion bailout of insurance giant American International Group and investment bank Lehman Brothers filing for Chapter 11 bankruptcy protection.
As Wall Street’s stability unraveled last week, the Adirondack Trust Co. reached a record high for deposits — $667 million as of Thursday. The Saratoga Springs community bank, which has 10 branches, traditionally sees deposits dip in September.
“What’s unusual is we’re hitting a record high after the racing season,” said Adirondack Trust President, Chairman and Chief Executive Officer Charles Wait.
Pioneer Bank President and CEO John Scarchilli called September’s deposit surge a “flight to quality.” Pioneer’s 15-branch network based in Troy has also seen an uncommon uptick in deposits this month.
“It’s generally a down month, but right now it’s an up month,” said Scarchilli, whose bank has about $600 million in deposits.
Since the subprime mortgage industry began to unravel in summer 2007, many area community and regional banks have stressed that they never engaged in that risky business, lending to borrowers with poor credit. It was largely Lehman’s and Bear Stearns Cos.’ holdings of junk mortgage-backed securities that toppled the investment banking powerhouses.
In Saratoga Springs, only about 1.5 percent, or $6 million, of Adirondack Trust’s $400 million in loans were at least 90 days past due by June 30, but the bank has put aside $8 million to cover those nonperforming loans. By July 31, 1st National in Scotia only had $56,425 in non-performing loans, accounting for 0.02 percent of its total loans. Patriot Federal Bank President Gordon Coleman said his Canajoharie bank only has one small nonperforming loan, but deposit growth is at its normal monthly pace of about $500,000.
Scarchilli said deposit spikes are common in uncertain economic times, such as after the Sept. 11, 2001, terrorist attacks or the July 11 failure of IndyMac Bank in Pasadena, Calif. So far this year, 11 banks nationwide wide have failed, the highest failure rate since 2002.
In the four weeks after the Federal Deposit Insurance Corp. took control of IndyMac, 1st National witnessed another deposit jump of $3.5 million. The bank this year has seen deposits increase by $15.4 million, already exceeding 2007’s growth of $9 million. Buhrmaster plans to launch a marketing campaign next week promoting community banks as “safe and sound” and “common sense lenders.”
“We want people to know if they want to keep their money safe, we’re a safe place to put it,” said Buhrmaster.