The geographic area staked out by First Niagara Bank in upstate New York and Pennsylvania is not fast growing and hasn't been for decades, yet banks in the region hardly seem to be suffering.
Buffalo-based M&T Bank, which now has $70 billion of assets and a footprint stretching into the Virginias, reported a 40 percent jump in profits in the third quarter from the same period last year. Northwest Bancorp in Warren, Pa., Arrow Financial Corp. in Glens Fall, N.Y., Community Bank System in Syracuse all reported strong increases in quarterly net income year over year, and though earnings at NBT Bancorp were flat, 2008 was a record year for the Norwich, N.Y., company.
John Gorman, a partner at the law firm of Luse Gorman Pomerenk & Schick in Washington, says upstate New York and Pennsylvania banks have been coping with tough economic conditions for so long - even the recent housing boom mostly missed the region - that they have adapted a permanently conservative, nose-to-the-grindstone approach.
"They haven't had big runs, bubbles and hype. But since they haven't had those booms, they're much more grounded. They didn't overreach because that's not the kind of environment they exist in. It's not like Las Vegas or Florida," Gorman says.
Collyn Gilbert, an analyst with Stifel Nicolaus & Co., points out that many banks have abandoned the slow-growth area, which has given greater pricing power to those that remained.
Often when new financial institutions pop up they price products and services very aggressively to gain market share. That hasn't happened much in upstate New York and Pennsylvania.
"For five or 10 years banks were all moving to the high-growth areas, and with all those banks exiting there were no new players," she says.
The fact that the region is dominated by thrifts is also a factor, she says. Thrifts, versus banks, have "a traditional, one-dimensional business model with thin margins. You have to be conservative and you can't take on too much risk." (She excludes defunct thrifts like IndyMac, Washington Mutual and Countrywide, which operated more like mortgage companies than traditional thrifts.)
As Rick Weiss, an analyst at Janney Montgomery Scott, puts it: "If I'm a bank in upstate New York, I know I have to be prudent. The market is not going to snap back. Things might not be getting worse, but they're not really getting better either."