October 15, 2018

Competitive gap among CT’s small, big banks narrowing

Photo | Contributed
Photo | Contributed
Wells Fargo Bank was among a handful of large, U.S. money-center lenders whose Connecticut deposits and market share fell in the last year.
Photo | Contributed
New York’s Citibank suffered the biggest one-year loss in deposits and market share in Connecticut, as of June 30.
Donald Klepper-Smith, Economist, DataCore Partners
William H.W. “Bill” Crawford IV, CEO, United Bank

Connecticut's smaller community and regional banks are gaining ground on their much larger, out-of-state competitors.

According to the latest market-share report recently published by the Federal Deposit Insurance Corp., five major money-center lenders with significant branch outposts in the state shed a combined $1.7 billion in deposits in Connecticut, and ceded market share from June 30, 2017 to June 30, 2018.

While these deposit snapshots only reflect a specific point in time, this represents the first time in at least five years that so many big U.S. and international banks in the state shed deposits, which are a vital source of funds that lenders reinvest as consumer and commercial loans.

Banks profit on the interest difference on what they pay for deposits and earn from loans.

New York's JPMorgan Chase Bank, America's No. 1 bank by assets, California's Wells Fargo Bank (No. 3), New York's Citibank (No. 4), Canada's TD Bank (No. 8), and Santander Bank, all shed Connecticut deposits and market share in the latest 12-month period, according to FDIC data. Citibank shed the most — $694 million in deposits, an 11 percent decline.

On top of that, Wells Fargo and Citibank have seen their Connecticut deposits slide in each of the last two years, FDIC data show.

Meantime, TD Bank and JPMorgan Chase steadily grew in-state deposits from 2014 to 2017, before experiencing declines in 2018. Santander Bank, the U.S. unit of Spain's Banco Santander, suffered deposit losses the past three years, data show.

Santander Bank, through a spokeswoman, blamed its Connecticut deposit drop on the state withdrawing unspecified sums from it in 2017, based on the bank's "needs to improve" Community Reinvestment Act (CRA) rating for the 2011-13 assessment period. In 2018, Santander's CRA rating was upgraded to "satisfactory" for the 2014-2016 CRA exam period.

Other deposit-losing banks did not respond to requests for comment.

Simultaneously, North Carolina financial giant Bank of America led Connecticut's Webster Bank and People's United Bank, and a raft of in-state community lenders, in gaining deposits and market share in the June-to-June period.

Some bankers say the numbers represent an aberration, while other industry experts say Connecticut's banking landscape is being turned on its ear as smaller regional and community banks leverage their customer relationships and technology to gain market share mostly at the expense of their much larger, out-of-state rivals. At the same time, the overall number of community banks in the state has significantly shrunk over the past decade, leaving only the strongest remaining banks to compete with bigger players.

The deposit-share shakeup occurred amid what's been a very competitive banking landscape as lenders compete in a state with a shrinking population and slow economic growth, which makes finding new commercial and individual depositors and borrowers more challenging.

The total pool of deposits in the state only rose 1.76 percent over the last year to $135.6 billion, the slowest growth rate seen since 2012, FDIC figures show.

"The gap between the large banks and smaller banks is closing,'' said Donald Klepper-Smith, partner in DataCore Partners in New Haven who until recently was Farmington Bank's chief economist. "If you were to pick one sector of the economy that's ultra-competitive, it would be banking. You need to bring your 'A' game to the table, with the best possible people and array of services.''

Coveting relationships

Chasing depositors is a key focus for banks and it's been driving merger and acquisition activity in the state, as some lenders buy deposits rather than try to grow them organically.

Jeff Tengel, president of People's United Bank, acknowledged recently to HBJ that a prime reason his Bridgeport regional lender pursued its $544 million purchase of former Farmington Bank was to gain access to the community lender's deposit base, particularly in wealthy West Hartford.

Deposit desires also drove Hartford's United Bank to acquire a handful of branches in eastern Connecticut, Rhode Island and western Massachusetts from Waterbury super-regional lender Webster Bank. United also plans new satellite bank offices in the Springfield region, former home to its predecessor, United Bank of West Springfield. It merged in 2014 with former Rockville Bank in Vernon, to form the present United Bank.

Of the top 10 banks based or operating in Connecticut, United has had consistently strong deposit growth in recent years, FDIC data show.

CEO William H.W. "Bill" Crawford IV says United's commercial deposits benefited from its headquarters move from suburban Glastonbury to downtown Hartford, placing it closer to existing and potential commercial customers.

United has no trouble redistributing all the deposits it collects into loans because demand is strong, Crawford said.

"We're pleased with how our deposit-generation is going," he said.

Crawford, a former Wells Fargo banker, acknowledged the edge smaller banks like his have over larger institutions engaging customers and making rapid loan decisions.

Crawford declined comment on whether United could be a target of acquiring banks eager for market share. However, he is closely watching interest rates and prefers that the Federal Reserve not increase them too rapidly, dampening consumer and commercial credit demand.

Thomas J. Pastorello, chief financial officer of Liberty Bank, which has grown its Connecticut deposit base by $1.2 billion over the last decade, said the Middletown lender's deposit strategy includes a focus on customer service, extensive electronic banking offerings and competitive interest rates.

The bank, for example, just finished a CD promotion that boasted a 3 percent yield for 18 months, and then upon renewal, pays no less than 3.5 percent for the next 18 months, he said.

Local focus

Michael Goman, president of Accubranch, an adviser to banks, thrifts and credit unions in setting up and managing their branch-office networks, says Connecticut's community banks, like their peers nationally, have always been more grounded in their communities and more flexible and less bureaucratic than larger banks in their lending and operating decisions. Tightening of federal banking rules designed to curb past lending abuses have not helped big lenders, he said.

In short, community banks have a competitive edge, Goman said, because small-business borrowers are more likely to do business with a banker they know from their neighborhood.

"Smaller banks tend to have their branch managers, loan-production staffs and customer-service staffs active in the community,'' Goman said.

Another damper on big-bank customer relationships has been the bevy of negative news reports about banks, like Wells Fargo, behaving badly with its customers. The San Francisco lender, which has 71 branches in Connecticut, was hit with a record $1 billion U.S. fine for mishandling auto and mortgage loans on top of a recent $2.09 billion settlement with the Justice Department over the sale of toxic mortgage-backed securities.

Meantime, financial-services technology — managing everything from banks' money wire-transfers, digital ledgers, loan portfolios, ATMs and compliance with state and federal bank regulations — would prove beneficial, the initial thinking went, to operating more efficiently and for enabling banks to identify customers' needs and cross-sell them financial products and services.

However, as more banks, including small ones, adopt the same technology, there's little left to differentiate one institution from another, Goman said.

"There really isn't a competitive advantage to be found in your online banking platform anymore,'' Goman said, "because everybody has access to the same platform.''

So, personal banking relationships are emerging as the next battleground on which banks of all sizes must compete, he said.

"Today, a bank isn't about teller-window transactions," Goman said. "It's about financial services and advice. And that's a personal conversation.''

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