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FDIC: Feature Article
Highlights from the 2009 Summary of Deposits Data
The Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS) survey all FDIC-insured institutions to collect information on bank and thrift deposits and operating branches and offices each year as of June 30. The resulting Summary of Deposits (SOD) is a valuable resource for analyzing deposit trends and measuring market concentrations at the national and local levels. This article highlights findings from the 2009 SOD data, focusing on national trends in domestic deposits and banking offices but also presenting some information by state, metropolitan area, and institution.1
Deposits Grew Faster, While Office Growth Slowed
Commercial banks and thrifts reported strong deposit growth during the year ending June 30, 2009, despite a slowdown in office growth. The volume of deposits at FDIC-insured institutions increased by 7.7 percent, compared with 4.8 percent a year ago and 3.9 percent in 2007 (see Chart 1).2 Meanwhile, the number of FDIC-insured institution offices rose only 0.4 percent during the year, a net increase of 411 offices. This increase—the smallest since 1996—is well below the 2.0 percent and 2.7 percent increases in 2008 and 2007, respectively.
Branch network expansion may have slowed as a result of the industry's efforts to reduce expenses during a time of economic recession. For the first two quarters of 2009, salaries and employee benefits expense decreased 2.5 percent from the same period a year ago, while premises and fixed-asset expense decreased 2.4 percent. Many FDIC-insured institutions also have reduced -staffing levels. Some 40 percent of banks and thrifts reported fewer employees as of June 30, 2009, than one year ago.
Office Growth Slows Relative to U.S. Population
To better understand the level of expansion in the U.S. banking industry, it is useful to consider various measures of deposit and office growth in relation to demographic trends, such as population. Two of these measures—the number of offices per million people and the national average deposits per office—are illustrated in Chart 2. After growing at a compounded annual rate of 1.1 percent during the past five years, the ratio of offices per million people decreased 0.6 percent from 2008 to 2009. Notwithstanding the current-year decrease, the number of offices per million people remains relatively high at 322, second highest since 1994.3 In contrast, growth in domestic deposits per office accelerated during the year. Deposits per office increased 7.3 percent in 2009, more than double the 2.8 percent growth rate of 2008 and well above the five-year compound annual growth rate (CAGR) of 4.5 percent.4
Metropolitan Areas Attracted Greater Deposit Growth Than Smaller Cities and Rural Areas
Deposit and office growth continue to be concentrated in metropolitan areas. As of June 30, 2009, about 78 percent of offices and 89 percent of domestic deposits were located in metropolitan areas (see Table 1).5 The one-year percentage increase in deposits among offices located in metropolitan areas was more than double the increase for offices located in micropolitan areas—smaller cities and towns—or "other" areas.6 In addition, deposits among offices located in metropolitan areas grew faster in 2009 than their longer-term five-year CAGR, while current-year deposit growth for offices located in micropolitan and "other" areas lagged their respective five-year CAGRs.
Office growth also was centered in metropolitan areas, although the pace of office expansion in these areas slowed considerably compared to a year ago. Indeed, office growth in metropolitan areas was approximately one-third the 2008 increase. The number of offices in both micropolitan areas and other areas actually decreased during the year ending June 30, 2009.
"Other" Office Types Grew Fastest During the Past Year
Although traditional brick-and-mortar offices make up 90 percent of all commercial banking offices, the SOD surveys all banking offices, including retail (e.g., offices in supermarkets or other stores), drive-through offices, and "other" office types. The "other" category, which comprises primarily mobile or seasonal offices and those that provide back-office support for Internet deposit operations, posted the highest growth rate during the past year, followed by retail offices (see Table 2).7 This is the first year since 2006 that the "other" office category has posted the highest growth rate.
Midsized Organizations Reported the Strongest Office and Deposit Growth
Midsized organizations (those with between $1 billion and $10 billion in total assets as of June 30, 2009) significantly outpaced larger and smaller organizations in both deposit growth and branch expansion during the year ending June 30, 2009 (see Table 3). The 2009 deposit growth rate for midsized organizations was almost four times that of small organizations and 1.4 times that of large organizations. In addition, the volume of deposits among midsized banks and thrifts grew at approximately double the pace of its five-year compound annual growth rate.
Office growth exhibited a similar pattern. The pace of office expansion among midsized organizations was considerably stronger than in larger organizations, while branches of smaller organizations declined. Midsized organizations expanded their branch network by 3.6 percent during the year ending June 30, 2009, compared with only 1 percent for large organizations. However, large organizations continue to report the largest share of banking offices and domestic deposits among insured banks and thrifts.
Deposit and office growth occurs not only from expansion of existing branch networks and collection of additional deposits through those networks, but also from mergers and other business combinations. Although it is difficult to disaggregate the independent contributions of each of these factors, recent growth patterns suggest that most of the movement between categories, on an institution basis, consisted of smaller organizations growing into or being acquired by midsized organizations. The number of large organizations—113—was coincidentally the same in 2004, 2008, and 2009; however, the composition of the group changed between these periods.
The Number of Banking Organizations with Operations in Multiple States Increased
Banks and thrifts continue to slowly push toward a 50-state franchise. Although no banking organization, even the largest or most geographically diverse, operates in all 50 states and the District of Columbia, the number that operate in at least 15 states increased from 12 to 14 during the year (see Table 4). As banking organizations grow larger, they may encounter nationwide deposit concentration limits.8
Overall, the number of FDIC-insured commercial banks and savings institutions declined from 8,451 to 8,195 during the year. This decrease of 256 institutions was significantly greater than the decrease of 163 institutions during the prior year. The decline in the number of institutions reflects the long-term trend of industry consolidation and the increase in bank failures during the current economic downturn. The decline in merger and acquisition activity among insured institutions is also likely a reflection of the current economic environment. The 89 mergers and acquisitions during the past two quarters was only 64 percent of the rate reported during the first half of 2008.
Office Growth Followed State Demographic Trends
Studies have shown that office growth is related to demographic factors such as population, employment, and per capita income growth.9 In general, states with a faster growing population have experienced greater office growth over the past five years.10 For example, six of the ten states with the fastest population growth also ranked among the top ten states for office growth during the past five years. Likewise, of the ten states with the lowest population growth, six ranked among the bottom ten for office growth.
Deposit volumes, however, are driven by other factors, such as state law. Institutions also may follow different procedures when assigning deposits to branches, such as the proximity to the account holder's address, the office where the deposit account is most active, the office where the account originated, or the office assignment used when determining employee compensation. The factors affecting office and deposit growth have contributed to divergent office and deposit growth rates across the nation (see Maps 1 and 2).
One-Fifth of the Nation's 25 Largest Metropolitan Areas Are Now "Highly Concentrated"
Continued industry consolidation has led to increased market concentration in many of the nation's largest metropolitan areas. By law, bank regulatory agencies and the Department of Justice must consider market concentration in their analysis of proposed mergers and acquisitions. The Herfindahl-Hirschman Index (HHI) is a commonly used measure of market concentration.11 As of June 30, 2009, 5 of the 25 largest metropolitan areas had an HHI in the "highly concentrated" range with a score of more than 1,800. Another 15 metropolitan areas had an HHI in the "moderately concentrated" range with a score between 1,000 and 1,800 (see Table 5). Ten of the 25 largest metropolitan areas saw an increase in their HHI during the past year.
Market concentration increases as banking organizations dominate deposit market share in a metropolitan area. For instance, PNC Bank N.A. and National City Bank (both owned by PNC Financial Services Group) reported a combined deposit market share of 51 percent for the Pittsburgh metropolitan area as of June 30, 2009. In the Cincinnati metropolitan area, two institutions (Fifth Third Bank and U.S. Bank) controlled 58 percent of total deposits. Three institutions (Bank of America N.A., Wells Fargo N.A., and Citibank N.A.) controlled 63 percent of total deposits in the San Francisco metropolitan area.
This article summarizes recent trends in the deposits and offices of FDIC-insured institutions. While both offices and deposits tend to grow over time in relation to demographic factors, such as population, other factors such as economic conditions and competition are at work as well. Growth in the number of offices slowed in the year ending June 30, 2009, but deposits grew faster than during the previous year. Both trends may be related to the economic and financial turmoil that affected the operating environment for banks and thrifts. These divergent trends speak to the fact that growth in deposits is not determined solely by growth in the number of offices.
Midsized institutions reported the fastest deposit growth of any size group during the year. This trend is largely explained by the acquisition of smaller institutions by midsized institutions and the organic growth of smaller institutions into midsized institutions. Meanwhile, certain large institutions continue to exert significant local market power. The three banking organizations with the largest branch networks report 18 percent of the nation's deposit offices but hold 31 percent of domestic deposits. In 5 of the nation's 25 largest metropolitan areas, three or fewer institutions report a market share of more than 50 percent.
Expectations for future growth in bank offices may be modest as long as the industry continues to cope with weak earnings and high credit losses (see accompanying Quarterly Banking Profile). However, after this process is complete, we should expect to see a new round of office growth as institutions compete for deposits to fund new lending activity. Other things being equal, we would expect office expansion to be most pronounced in the more competitive deposit markets, and less so in highly concentrated markets. As in other retail industries, competitive markets provide the greatest incentive for banks and thrifts to expand their physical presence in order to reach more customers and provide them a higher level of service.
SOD data were publicly released on October 8, 2009, and are available to the public through the FDIC's Web site at http://www2.fdic.gov/sod/index.asp. Available SOD data include information on the deposits and branching activities of individual FDIC-insured institutions, market share information, and various summary charts and tables.
The author would like to thank Michael Bachman, Economic Assistant, Division of Insurance and Research, for his contributions to this article.
1 This analysis reflects updates in SOD data as of October 8, 2009.
2 Offices include those in the 50 states and the District of Columbia but not those in U.S. territories. The SOD data include domestic deposits only, and they are referred to in this report as "deposits."
8 Concentration limits are set forth in the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, as codified by the FDIC in Section 44 of the Federal Deposit Insurance Act. The Act states in part that bank regulatory agencies cannot approve an interstate merger transaction if the resulting bank (including all insured depository institutions that are affiliates of the resulting bank), upon consummation of the transaction, would control more than 10 percent of the total amount of deposits of insured depository institutions in the United States, with certain exceptions.
9 See Ron Spieker, "Bank Branch Growth Has Been Steady—Will It Continue?" FDIC Future of Banking Study, August 2004, http://www.fdic.gov/bank/analytical/future/fob_08.pdf.
10 The five-year compound growth rate in the number of offices by state has a correlation coefficient of 0.63 to the five-year compound growth rate in population by state. The correlation coefficient is a statistic that measures the degree to which two or more data series move together.
11 Under the Department of Justice (DOJ) guidelines, markets with an HHI of less than 1,000 are considered "unconcentrated," those with an HHI between 1,000 and 1,800 are considered "moderately concentrated," and those with an HHI greater than 1,800 are considered "highly concentrated." For more details, see the joint Federal Trade Commission and DOJ Web site on "Horizontal Merger Guidelines" at http://www.usdoj.gov/atr/public/guidelines/horiz_book/hmg1.html.
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