Deposits grow 6.6% as investors seek safety

As investors fled stocks and money-market mutual funds for CDs, bank deposits in Hampton Roads grew 6.6 percent in the 12 months through June, according to the Federal Deposit Insurance Corp.

Deposits, the raw material for many loans, tend to be the most stable, least costly funds available to banks. For many, the abundance of deposits reduced the cost of funds to lend and invest.

"For those banks that have had strong deposit growth, this is the best lending environment we've seen in years," said Derek Ferber, a senior analyst at SNL Financial, a Charlottesville-based research firm.

One inducement for those worried about the financial market turmoil last fall was the FDIC's expansion of deposit insurance coverage from $100,000 per depositor to $250,000. The temporary expansion, put in place in October 2008, will expire at the end of 2013.

The recent growth in Hampton Roads' bank deposits was in sharp contrast to the anemic increase of less than 1 percent for the previous 12 months. Combined deposits for 32 banks in the region totaled $19.85 billion at the end of June, up from $18.62 billion a year earlier. Nationwide, bank deposits grew 7.6 percent for the 12-month period ended June 30.

The pressures on money-market mutual funds have eased since late last year, and the stock market has won back some investors. Still, banks are likely to hold on to the deposits they've attracted because much of the new money is locked up in certificates of deposit, SNL's Ferber said.

In its latest breakdown of bank deposits by region, the FDIC reported that Wachovia Bank continued to hold the biggest share of Hampton Roads' deposits: 19.4 percent. However, that was down from a 21.5 percent share in June 2008, and the amount of Wachovia's deposits fell by $160 million to $3.85 billion, according to the FDIC report.

Wachovia was jolted last year by fears that it might be taken over by regulators because of liquidity problems and soaring levels of troubled assets. The Charlotte, N.C.-based institution was acquired at yearend by Wells Fargo & Co. of San Francisco.

SunTrust remained in the No. 2 spot among Hampton Roads banks with a 15.2 percent share of deposits. No. 3 was TowneBank, which jumped from fifth place and increased its share of the deposit market to 13.1 percent from 10.7 percent.

Having the additional deposits was especially valuable last fall because of widespread concerns about banks' liquidity -- having sufficient funds on hand to meet their obligations, said G. Robert Aston Jr., TowneBank's chairman and CEO. Much of the growth in TowneBank's deposits, he said, came from local businesses that moved their lending relationships from larger institutions that were scaling back. TowneBank expects to hold on to the additional deposits because it also attracted veteran loan officers from those banks, Aston said.