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FDIC: Feature Article
Highlights from the 2011 Summary of Deposits
Each year as of June 30, the Federal Deposit Insurance Corporation (FDIC) collects deposit data for branches and offices of all FDIC-insured institutions. The resulting Summary of Deposits (SOD) is a valuable resource for analyzing deposit gathering and branching trends, as well as domestic deposit market share.1 The SOD data are available on the FDIC's Web site at http://www2.fdic.gov/sod/index.asp. This summary highlights some key findings from the 2011 SOD, focusing on national trends in domestic deposits and banking offices, and presents information by state and metropolitan area and for selected institutions.
The Number of Offices Continued to Contract While Deposit Growth Accelerated
The number of offices operated by FDIC-insured institutions fell a modest 0.3 percent to 97,678 for the year ending June 30, 2011, a decline of 274 offices. This is the second consecutive yearly decline in offices, following a 1 percent (991-office) decrease in 2010.
Contraction in the number of offices reflects the continuing decline in the number of FDIC-insured institutions. The number of FDIC-insured institutions declined by 317 during the year ending June 30, 2011, compared with declines of 365 and 256 in the previous two years, respectively.
Despite a contraction in offices, FDIC-insured institutions reported strong deposit growth in 2011.2 Total deposit volume increased 7.5 percent in 2011, well above the 1.7 percent growth rate reported in 2010 (see Chart 1) and higher than the five-year compound annual growth rate for total deposits of 5.1 percent.3
The number of offices per million people fell 0.7 percent to 314 for the year ending June 30, 2011, the lowest level for this ratio since 2005 (see Chart 2).
However, due to overall growth in deposits, total deposits per office grew 7.8 percent to $84 million in 2011, which was the highest year-over-year growth rate since 2003 and well above the five-year compound annual growth rate of 4.3 percent.
Metropolitan Areas Report Strong Deposit Growth
Deposits and offices continue to be concentrated in metropolitan areas. As of June 30, 2011, about 78 percent of deposit-taking offices and 90 percent of deposits were held by insured institutions in metropolitan areas, compared with 77 percent of deposit-taking offices and 89 percent of deposits in the prior year. All types of geographic areas reported deposit growth and office contraction from 2010 to 2011. Deposit growth was centered in metropolitan areas, while office contraction was more pronounced in micropolitan and "other" areas (see Table 1).4
Deposits held within metropolitan areas grew 8.3 percent in 2011, a rate significantly higher than in micropolitan and "other" areas. Deposit growth in metropolitan areas was also much higher than the five-year compound annual growth rate, while deposit growth in micropolitan and "other" areas was well below their five-year compound annual growth rates. The number of offices in metropolitan areas fell 0.2 percent from 2010 to 2011, compared with declines of 0.7 percent and 0.6 percent for micropolitan and "other" areas, respectively. Metropolitan areas reported the highest five-year compound annual growth rate in the number of offices, while "other" areas reported the only negative five-year compound annual growth rate in the number of offices of any geographic area.
Number of Traditional Brick-and-Mortar Commercial Bank Branches Held Steady
Traditional brick-and-mortar offices represented 90 percent of all commercial banking offices in 2011, a share unchanged from the previous year. The SOD survey covers all banking offices, including retail (e.g., offices in supermarkets or other stores), drive-through offices, and "other" office types. The "other" category, which primarily represents mobile or seasonal offices and those that provide back-office support for Internet deposit operations, was less than 1 percent of all offices, but was the fastest-growing office type for the third consecutive year. Retail offices grew 3.3 percent after declining 1.5 percent in 2010. Drive-through facilities were the only commercial office type to show a one-year decline and the only commercial bank office category to show a negative five-year compound annual growth rate (see Table 2).
Large Institutions Reported the Strongest Deposit Growth
Large institutions (those with more than $10 billion in total deposits) continued to report the largest share of banking offices and deposits among FDIC-insured institutions. In addition, large institutions reported much higher deposit growth than small (those with less than $1 billion in total deposits) or midsize (those with between $1 billion and $10 billion in total deposits) institutions in the year ending June 30, 2011. Large institutions reported deposit growth of 11.5 percent over the past year, midsize institutions reported growth of 1.6 percent, and small institutions reported a decline of 2.8 percent. The one-year growth rate of deposits at large institutions was considerably higher than the five-year compound annual growth rate, while deposit growth at midsize institutions was below the five-year compound annual growth rate (see Table 3).
Deposit growth is affected by a number of factors, including prevailing macroeconomic conditions and normal organic growth of individual institutions, as well as longer-term trends such as mergers and acquisition activity and institution failures. As in previous years, most institutions that have failed or been acquired have been small and midsize institutions, depressing growth for these categories. For example, of the 198 institutions acquired through merger transactions in the year ending June 30, 2011, 179 were small, 17 were midsize, and two were large. Of the 119 that failed in the same period, 114 were small and five were midsize.
The same factors that affect deposits can affect office growth as well, although local market conditions and competitive issues also play a role. Local factors could explain why small institutions was the only category that experienced a slight increase in offices (23 offices, or a growth rate of 0.1 percent) for the past year, despite the decline in deposits for these institutions.
The Number of Banking Organizations Operating in 15 or More States Was Unchanged
The number of banking organizations operating in at least 15 states remained unchanged from the previous year at 15 institutions (see Table 4). As of June 30, 2011, Bank of America Corporation remained the only organization reporting more than a 10 percent share of aggregate domestic deposits; its share increased to 13 percent of domestic deposits versus 11.9 percent in 2010. Of the three organizations with the greatest share of domestic deposits—Bank of America Corporation, JPMorgan Chase, and Wells Fargo—two experienced double-digit deposit growth over the past year. Domestic deposits at Bank of America and JPMorgan Chase grew 16.4 percent and 17.8 percent, respectively, from 2010 to 2011, while domestic deposits at Wells Fargo grew 5.9 percent over the same period. The total number of deposit offices at Bank of America and Wells Fargo declined 3.3 percent and 2.6 percent, respectively, while the total number of deposit offices at JPMorgan increased 3.3 percent. Toronto-Dominion Bank was added to the list and Capitol Bancorp was eliminated from the list in 2011. Toronto-Dominion Bank reported operations in 16 states in 2011, compared with 13 states in 2010. Capitol Bancorp reported operations in 14 states in 2011, compared with 16 states in 2010.
Office Growth Was Strongest in the Northeast and West, Weakest in the Midwest and South
Changes in the number of banking offices within each state were mixed between 2010 and 2011. In general, states in the Northeast and West experienced an increase in the total number of offices, while states in the Midwest and Southeast experienced office contraction (see Map 1). Delaware, Maine, California, and West Virginia experienced the highest percentage increases in the number of offices from 2010 to 2011 and were the only states to experience growth of more than 1 percent. Office growth in these states can be attributed to branch network expansion made by a few large institutions.
The number of banking offices grew in 16 states and declined in 30 states over the past year. The number of offices was unchanged in four states and the District of Columbia. Several states that experienced office contraction from 2010 to 2011 experienced office expansion over the past five years. For example, Texas, South Carolina, Colorado, Arizona, and Wyoming experienced more than a 1 percent decline in the number of offices between 2010 and 2011, but have each experienced more than a 1 percent increase in the number of offices over the past five years. No state experiencing office growth in 2011 experienced office contraction over the past five years.
South Carolina, South Dakota, and Arizona were the only states to experience a decline in total deposits from 2010 to 2011 (see Map 2). All other states and the District of Columbia experienced deposit growth over the past five years. State-specific deposits often do not correlate directly with office patterns, however, because institutions have significant flexibility in the way they associate deposits with offices when completing the SOD. For large institutions in particular, deposits may be assigned to offices according to 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 establishing direct deposit of employee compensation.
Twenty of the 25 Largest Markets Are "Highly Concentrated" or "Moderately Concentrated"
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.5 The HHI measures increases in market concentration as banking organizations increase their deposit market share in a particular trade area. As of June 30, 2011, four of the 25 largest metropolitan areas had an HHI in the "highly concentrated" range, and another 16 metropolitan areas had an HHI in the "moderately concentrated" range (see Table 5). The number of metropolitan areas with HHI scores in the "highly concentrated" range stayed the same, while those in the "moderately concentrated" range increased by one compared with last year's HHI scores.6 In addition, HHI scores for 18 of the 25 largest metropolitan areas increased during the year ending June 30, 2011, versus 15 markets experiencing increased HHIs in 2010.
Because of changes in population, the San Antonio-New Braunfels, TX, metropolitan area was added to the list of large markets in 2011, and the Cincinnati-Middletown, OH-KY-IN, metropolitan area was taken off the list. The HHI score for the San Antonio-New Braunfels, TX, metropolitan area is the highest of any of the top 25 metropolitan areas in 2011, and increased from 4,066 in the previous year to 4,483. Its high HHI score reflects the volume of deposits reported by USAA Federal Savings Bank, an institution that has a nationwide remote banking business model but assigns its deposits to its brick-and-mortar headquarters office within the area.
Although the San Antonio-New Braunfels, TX, market is reported to be the most concentrated, some large institutions within other markets continue to exert significant, and in some cases growing, local market power. In 15 of the 25 largest metropolitan areas, one institution, most often a large institution, reported a market share in 2011 of at least one-fourth of domestic deposits, versus 11 metropolitan areas in 2010 with that level of concentration.
The author would like to thank Robert E. Basinger for his contributions to this article.
1 This analysis reflects updates in SOD data through October 4, 2011. All FDIC-insured institutions that operate branch offices beyond their headquarters must submit responses to SOD surveys to the FDIC. Institutions that previously filed the Branch Office Survey administered by the Office of Thrift Supervision (OTS) are now required to file the SOD as of June 2011. Automated teller machines are not considered offices for the purposes of the survey. Call Report information on banks with a single headquarters office has been combined with branch office data to form the SOD database.
3 The compound annual growth rate is a methodology for smoothing annual growth over time. It can sometimes be a better indication of a trend than a single year's growth, which may have been atypical. The compound annual growth rate is the nth root of the percentage change, where n is the number of years in the period.
4 Metropolitan statistical areas have urban clusters of greater than 50,000 inhabitants. Micropolitan statistical areas have urban clusters of between 10,000 and 50,000 inhabitants. "Other" areas have populations of 10,000 or fewer inhabitants.
5 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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