Despite all the financial distress gripping the city of Harrisburg, Pa., First National Bank of Pennsylvania jumped at an opportunity to be more visible there, committing to relocate its regional headquarters and a suburban retail branch to a new building downtown.

This is a significant strategic step for First National, and a test for just how effective one carefully chosen location can be. It also illustrates how expansion-minded banks are targeting state capitals as part of their growth plans.

Seats of state government are hot banking markets these days, according to Steve Reider, president of the consulting firm Bancography in Birmingham, Ala. Of the 103 metro areas across the country with 500,000 or more residents, Harrisburg had the fourth-highest deposit growth over the past four years, Reider says. Four other state capitals-Raleigh, N.C.; Austin, Texas; Jackson, Miss. and Oklahoma City-also are in the top 10 for deposit growth, as is Washington, D.C.

"What it underscores," Reider says, "is the importance of municipal spending in propping up the economy at a time when the private sector has gone through an awful lot of heartache."

Of course, municipal spending also has had a downside in Harrisburg, which used debt to finance a trash incinerator and other expensive development projects that panned out poorly. In October, the city council sought bankruptcy protection for Harrisburg, though its petition was rejected in court.

None of Harrisburg's troubles dissuaded First National, a unit of the $9.6 billion-asset F.N.B. Corp. The bank is relocating 40 employees into a building under construction a block away from the Capitol. First National will occupy the first floor and most of the second.

As the state capital, Harrisburg will remain a magnet for business, says Lloyd Lamm, regional banking executive for First National's capital region, which spans 15 counties. The bank has been financing some of that business, including the building it will move into in July.

The new branch will cost about 50 percent more than the current, smaller branch in a suburban office park, Lamm says. Its signs should be visible in the background when television stations cover news from the Capitol, and its bankers are likely to run into business customers (and prospects) on the street-all of which is expected to raise the bank's profile and speed up growth. "That's the whole reason for coming downtown," Lamm says.

This relocation is just an initial step in First National's strategy for building market share in Harrisburg, says Vincent J. Delie Jr., the president and CEO of F.N.B. and First National. Acquisitions and additional de novo branching also are part of the plan.

Though prominent in western and north-central Pennsylvania, First National is a relative newcomer to Harrisburg. The bank, which is based in the western Pennsylvania town of Hermitage, entered the capital in 2006 by buying Legacy Bank of Harrisburg, a small, business-focused institution with two branches, both in the city's suburbs.

After the acquisition, First National engaged in what Lamm describes as "guerilla warfare," going after business customers one at a time. Retail traffic has been practically nonexistent.

As of June, the bank had less than one percent deposit market share in the capital area, which is dominated by two jumbo credit unions, PNC Financial Services Group, M&T Bank and Wells Fargo, in that order. Both M&T and Wells Fargo have regional headquarters in downtown Harrisburg. PNC has a regional hub in the suburbs. The dynamics suggest there is room for an aggressive community bank to shake up the competition, Reider says. "It isn't until you get to the sixth-place ranking that you see a community institution"-in this case, the $2.4 billion-asset Metro Bank of Camp Hill, Pa.

In slow-growth Pennsylvania, Harrisburg is particularly appealing because it is the largest city across a wide rural area. Being the hub for such a large region can help a city overperform for its size.

"James Carville famously described Pennsylvania as Philadelphia and Pittsburgh with Alabama in between. And it's true, you have these massive urban industrial areas on either side of the state, with nothing in between," Reider says. "Harrisburg is the largest market between the two. Like a lot of cities that aren't adjacent to other markets, it kind of lives bigger than it is."

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