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The region’s banks flock to a new market: The District

Two ladies cross the street in front of the iconic PNC Bank. (iStock)

After 147 years in Olney, Sandy Spring Bank made a landmark announcement this month: It would open a branch in the District.

For more than a century, the community bank, which handles $2.5 billion in local deposits, has been based 25 miles away in suburban Maryland. It has 37 branches in Maryland and seven Northern Virginia, but had long shied away from expanding into the Nation’s Capital.

“Maryland, Virginia and D.C. were, in the past, viewed as very different and separate markets,” said Daniel Schrider, president and chief executive of Sandy Spring Bank. “The Potomac River was a barrier folks didn’t want to cross.”

But that is changing as younger — and more moneyed — residents move into the District. Community banks from nearby suburbs are expanding into downtown Washington eager to secure deposits and dole out mortgages and small business loans. Last week, United Bankshares announced it is buying Bank of Georgetown for $269 million, effectively doubling its presence in the District.

A total of 35 banks now hold deposits in the District, up from 24 in 2000, according to data from the Federal Deposit Insurance Corp.

“What we’ve had is 10 years of young professionals with above-average incomes moving into the District,” said Stephen Fuller, an economist at George Mason University’s Center for Regional Analysis. “That has changed the nature of banking.”

Deposits at District banks have more than doubled to $45.12 billion in the last 10 years and nearly quadrupled since 2000, according to FDIC data. The District is increasingly drawing a larger chunk of the region’s money, as well. Deposits in D.C. now make up 21 percent of deposits in the greater metropolitan area, up from 16 percent in 2010.

“The demographics of Washington have changed quite a bit as urban living has become more attractive and, frankly, as it’s become more expensive to live in the District,” said Bert Ely, a financial consultant based in Alexandria. “That means you draw more higher-income customers that make for good bank customers.”

The District’s population grew nearly 10 percent to about 660,000 between 2010 and 2014, according to figures from the U.S. Census Bureau. (The national population, by comparison, grew about 3 percent in that same period.)

Washington has never been much of a banking town, Ely said. For one, it never had the kind of industrial and commercial activity that allowed banks to flourish in cities such as New York, Pittsburgh or Baltimore.

Until the mid-1980s, interstate banking laws also made it difficult for banks to spread from one jurisdiction into another, Ely said. Instead of limiting themselves to the District, many banks opted to set up either in Maryland or Virginia, where they would be able to expand throughout the state, unfettered.

The one big exception was Riggs Bank, which was founded in the District in 1836 and for decades served as Washington’s largest bank, catering to its many embassies. But it had its share of scandals and, in 2005, was purchased by PNC Financial Services.

“Washington was always missing that element of homegrown private industry, which is why you never had a really significant center city banking industry,” he said. “There was a vacuum that is just now being filled.”

By the time Bank of Georgetown was founded in 2005, young professionals had begun moving into the city in large numbers. The bank positioned itself to cater to that demographic by designing modern branches with flat-screen televisions and coffee stations.

“We know the world is changing, and young adults are the future so we better pay attention to them,” Mike Fitzgerald, the bank’s chief executive, told The Washington Post in 2013. “When we wake up tomorrow, they’re going to be the captains of industry.”

Now Sandy Spring Bank is also hoping to woo young District residents with an upcoming branch at 1299 Pennsylvania Ave. NW scheduled to open in early 2016.

“It just makes sense to finally put offices in the District,” Schrider said. “It’s probably overdue for us to be in Washington.”