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As Large Banks Falter, Smaller Ones Move In

Governor Burke, with daughter Marjorie, 4, visits an Alexandria branch of his family's bank, which is expanding.
Governor Burke, with daughter Marjorie, 4, visits an Alexandria branch of his family's bank, which is expanding. (By Marvin Joseph -- The Washington Post)
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By Jonathan Starkey
Washington Post Staff Writer
Tuesday, July 14, 2009

As large banks continue to nurse their wounds -- many self-inflicted -- some of the Washington area's less exposed community bankers are using the financial chaos to draw in new business, even by pursuing new branch locations in the midst of the recession.

Alexandria-based family bank Burke & Herbert Bank & Trust, which has $1.9 billion in assets, saw $45 million in new deposits during one two-week period last fall. It hopes to lure more by opening new outposts.

The bank is negotiating a lease on a site along Old Keene Mill Road in Burke, Va., where it plans to open its 21st branch. Burke & Herbert also aims to build a branch on land it owns in Prince William County, though it would not open for at least six months. As the downturn accelerated late last year, the bank opened new branches in Manassas and Vienna -- its 19th and 20th locations.

E. Hunt Burke, who became chief executive of Burke & Herbert yesterday, said that "times of panic," including downturns in the early 1980s and 1990s, have traditionally been times of growth for the bank.

"Show me any bank that's in trouble, and I can show you some place they took a risk and got caught, whether it be in subprime loans, or by getting too heavy in housing developments that dried up," Burke said. "Burke & Herbert didn't follow any of those paths. As we see opportunities and branches come open in areas we'd like to be in, we're perfectly comfortable moving ahead."

The bank said that as of July 1, it had increased its reserves for potential loan losses to $11.3 million, from $9.9 million at that date last year. Loans delinquent for 90 days or more, otherwise declared as uncollectible, accounted for 0.5 percent of the bank's total loans, up from 0.09 percent at the end of 2006.

Lower prices for commercial real estate, plus the availability of locations abandoned as other banks shelf expansion plans, have presented opportunities for banks with clean balance sheets, said David Danielson, a local bank consultant.

"I haven't seen branch sites as cheap as they are today," Danielson said. "We're seeing commercial strip owners advertising pad sites out front. You could never get those before because they'd be gobbled up."

Even so, not all banks are willing, or able, to take advantage. As of last week, no banks have filed applications to open a new branch with the state of Maryland since January. Applications filed with Virginia's Bureau of Financial Institutions have slowed as many smaller banks have put off expanding their branch networks until the economy recovers, said Patricia G. Satterfield, head of the Virginia Association of Community Banks.

"Then there have been other banks that had an opportunity to purchase a branch, or purchase a great location for a new branch, that have gone ahead," Satterfield said.

Fairfax-based Virginia Heritage Bank has leased 1,500 square feet of office space in Tysons Corner and plans to open its fourth branch there in September. Virginia Heritage, which opened for business in 2006, reached profitability for the first time in the first quarter of this year.

For the three months ending March 31, Virginia Heritage reported earnings of $217,000 and set aside $483,000 for future loan losses. It had $277 million in assets with $201 million in deposits. As of March 31, it had $2.6 million in a reserve for loan losses, up from $1.1 million for the corresponding period last year.

Virginia Heritage hopes to add another branch, in eastern Loudoun County, in six months or so. The bank is looking for more opportunities but is "taking it easy," said chief executive David Summers.

"We're fairly healthy, we have a nice growth trajectory and we have plenty of capital," he said.

It is worth noting that branch expansion in the Washington area is not limited to the community banks, where there has been a mixed bag of financial performance. TD Bank, which bought Commerce Bancorp, plans to open six branches over the next several months, including locations on Lee Highway in Arlington and in the District at 15th and L streets NW.

Some 75 others are in the pipeline.

"From an economic perspective, it's one of the most vibrant areas in the country," Kevin Gillen, a regional president at TD, said of the Washington area.

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