Banking competition is on the rise in the Washington, D.C. metro area with the nation's largest bank opening branches, multiple regional banks entering the market and a handful of de novo applications being filed over the last year.
De novo competition has made it harder for startups to raise capital than it was a year ago. A significant presence from all four national banks with more than $1 trillion in assets has underscored the technology investment imperative for community banks in the area. Further, the increased competition comes at a time when bankers are reporting an intense battle for commercial credits.
There is a lot for banks to like in the Washington-Arlington-Alexandria, DC-VA-MD-WV Metropolitan Statistical Area. The area's median household income of $99,400 is nearly 70% higher than the national median. The Washington metro area was also one of the few areas to successfully weather the Great Recession, as evidenced by an unemployment rate that never breached 7%.
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"You've got this one place in the country that is somewhat of a sure bet," said Jim Dinegar, director of American University's Business in the Capital center, which produces research on the Washington economy. "Banks are a little bit more willing to be aggressive here than in other parts of the country. It's a highly educated population, and it's a high-income area."
But every market has risks. For the economy in Washington, D.C., some risk lies in the very source of its postcrisis resilience: the federal government's outsized role in the economy. Stephen Fuller, director of George Mason University's Stephen S. Fuller Institute, thinks the region's economy remains on unstable footing. Fuller has developed a regional economic index that has shown "weak but positive" performance this year.
While the regional economy has become less reliant on the government in recent years due to private sector growth — Amazon.com Inc. plans to build a second headquarters in Arlington, Va., for example — Fuller said the region's economy remains vulnerable to a government shutdown.
"I think there's a false sense of security that the region isn't as dependent on the government as it used to be. I still think the economy can be jerked around by a shutdown," Fuller said. "You have this cushion, but it isn't recession-proof, as some local business people like to say."
Banks rush into the Beltway
JPMorgan Chase & Co. has charged into the market, opening 10 branches since October 2018. Several small regional banks have closed acquisitions to enter the market. United Bankshares Inc. has bought three community banks based in the Washington metro area since 2013. Atlantic Union Bankshares Corp. bought Access National Corp. in 2018 to enter the market. More recently, WesBanco Inc. announced a deal on July 23 to buy Old Line Bancshares Inc., a transaction that will give the West Virginia-based bank a Washington foothold.
Olney, Md.-based Sandy Spring Bancorp Inc. has always been in the Washington, D.C., metro area, but it deepened its Northern Virginia-Washington presence when it bought WashingtonFirst Bank in 2017.
"Much like investors, banks look for regions that are hot and where there is strength and projected future strength, and D.C. fits that bill," said Dan Schrider, president and CEO of Sandy Spring Bancorp.

There are several startup banks, too. Since July 2018, three de novo banks headquartered in the metro area have filed applications: Trustar Bank, VisionBank and MOXY Bank. Media reports tabbed a fourth startup, Founders Bank, as nearing an application.
While de novo applications are on the rise, withdrawals have also increased. VisionBank recently withdrew its application, opting instead to merge with Old Dominion National Bank on undisclosed terms. The move was driven, in part, by the significant number of de novos in the Washington metro area, said Mindi McClure, founder and CEO of VisionBank.
The increase in Washington-area startup banks over the last six months made it harder to secure the $25 million to $30 million in capital needed to launch a bank, McClure said in an interview.
"The competitive market has changed a lot," McClure said. "We felt like this alignment created the best outcome for our stakeholders. [Old Dominion is] well on their way to passing sustained profitability. … They accelerate our business plan by about three years."
Old Dominion itself is a new community bank in the Washington market. The bank launched in 2007 in North Garden, Va., a rural community in central Virginia. Old Dominion has yet to record a profit, leading to a repositioning in 2016. CEO Mark Merrill said the bank had originally planned to remain focused on Charlottesville, Va., and maintain a small loan production office in the Washington metro area. But the bank pivoted to focus on Washington, opening an executive headquarters in Tysons, Va., after finding it tough to raise capital and turn a profit in a smaller market, Merrill said.
"It was three-fold: access to capital, access to talent and [ability to] scale in order to grow the business to reach profitability in a reasonable time," he said. The bank shrank its net loss to $279,000 in the second quarter compared to a loss of $842,000 a year ago, and Merrill said he expects Old Dominion to report a profitable quarter by year-end.
McClure and Merrill said they see opportunity amid the competition. As regional banks such as WesBanco and United Bankshares entered the Washington market by purchasing community banks, they see a void for smaller banks that can cater to businesses with $100 million of annual revenue or less. Merrill said the deal activity also presented opportunities to acquire talent from the sold banks.

At the other end of the spectrum, CEO Schrider said JPMorgan's entry into Washington, D.C., is less concerning since Sandy Spring has developed a high-touch, community bank brand. Sandy Spring Bancorp, a much larger community bank, also sees more opportunity than risk in the increasingly competitive Washington landscape. Schrider said the influx of de novos will only create more competition among the startups rather than challenge the larger, established community banks.
"We think competition is good," he said. "It helps us hone our strategy to make sure we continue to be laser-focused on our clients."
JPMorgan will join Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. as national banks with a significant Washington presence. But Truist will be the No. 1 bank by deposit share with $30.25 billion of deposits once the BB&T Corp.-SunTrust Banks Inc. merger closes.
While the merged company faces few forced deposit divestitures, branch closures appear likely to be concentrated in the Washington metro area. That could provide opportunity for smaller banks such as Sandy Spring to hire away talent or take market share. But another giant in the market also underscores the imperative to invest in technology so the $8.4 billion bank's digital offerings remain competitive, Schrider said.
While bankers see opportunities in the competitive landscape, George Mason economist Fuller sees a potentially saturated market.
"There's a danger the region is overserved by banking services," Fuller said. "Many of the businesses in Washington aren't necessarily local businesses. … They look like they generate a lot of banking demand, but that demand may be fulfilled in New York City, San Francisco or somewhere else."

