$250M in deposits is given credit for only $250M in the deposit summary calculations. ... Midwest show the nation's lowe
Dear Clients and Colleagues, With the new year underway, it will be beneficial to understand the current demographic, competitive and economic landscape as you pursue your institution’s 2012 strategic objectives. In support of those efforts, Bancography is pleased to present its annual outlook for the financial services industry. Many of the graphs and tables update data from prior years’ studies, which you can find archived on our website at www.bancography.com/bancographyoutlook.html. The exhibits herein reflect the 2011 FDIC and NCUA branch statistics, as well as 2011 demographics and forecasts, and reveal some interesting trends to consider in your strategic planning efforts. As you review the report, give a call with any questions. Thanks as always for your confidence in Bancography.
DETAILS • Most data are presented in two groups: – –
For the 30 largest metropolitan areas in the United States For the 30 top-ranking markets on the specific attribute, among all U.S. metros with at least 500,000 residents; this threshold impounds 103 metros
• The top 30 metros encompass: –
45% of U.S. residents and 49% of U.S. deposits
• The 103 metros with population > 500,000 encompass: –
66% of U.S. residents and 69% of U.S. deposits
• Need information on a market that’s not shown in the study? Just give
us a call and we’ll send the statistics you need. 3
SOURCES, NOTES, ETC. • Data include both banks and credit unions. • All data are as of June 30 in the year indicated. • Note that substantial corporate and public funds deposits at large main
offices can skew deposit statistics. To counter this, all calculations truncate individual branch deposits at $250M, i.e., any branch that owns more than $250M in deposits is given credit for only $250M in the deposit summary calculations. The resulting statistics offer a plausible estimate of retail and small business deposits. • Note also that large office balance variances tend to smooth over time, so the
four year trend graphs may be more useful than the one year graphs. • All demographics are from EASI Demographics, June, 2011.
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NATIONAL DEPOSIT GROWTH TRENDS Since the ‘flight to quality’ boon that followed the 2008 economic crisis, consumer and small business deposit growth has remained low. However, institutional balances increased substantially in 2011 as large corporations parked cash in banks, hesitant to invest in a slow economy.
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DEPOSIT CHANGE (%), TWO YEAR COMPARISON Top 30 MSAs
-8.8%
Many of the top 30 markets grew at a faster pace in 2011 than in the prior year, as several of the most troubled markets (Las Vegas, Detroit, Phoenix) began the slow path to recovery. Three of the four fastest growing markets were in Texas, and four of the top 10 along the Northeast corridor. 6
DEPOSIT CHANGE ($B), TWO YEAR COMPARISON Top 30 MSAs $15B
In absolute terms, the Northeast corridor markets continued to show the greatest deposit gains, capturing four of the top six spots; the three Texas markets all ranked in the top 10, too. 7
DEPOSIT CHANGE (%) Top 30 MSAs among all metros with population > 500,000
$6.9B
$14.7B
Many smaller metros posted deposit gains comparable to the top large markets, with the top gainers spanning all regions of the country. Note the proliferation of state capitals that comprise eight of the top 15 (Austin, Raleigh, Des Moines, Baton Rouge, etc.), underscoring the importance of stable, state-funded jobs in a troubled economy.
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DEPOSIT CHANGE (%), 2007 – 2011 Top 30 MSAs
Over the past four years, Texas and Northeast corridor markets captured seven of the top eight growth spots. In contrast, the long term performance shows the severe impact of the housing slowdown in once high-flying markets (Las Vegas, Riverside, Phoenix, Atlanta, Sacramento) and the effects of the economic slowdown on manufacturing towns (Detroit, Cleveland).
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DEPOSIT CHANGE ($B), 2007 – 2011 Top 30 MSAs $60B
Large markets in the Northeast corridor showed the highest absolute deposit gains over the past four years, but two large Texas metros and two major California metros also ranked among the top eight, with Chicago and St. Louis from the Midwest rounding out the top 10.
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DEPOSIT CHANGE (%), 2007 – 2011 Top 30 MSAs among all metros with population > 500,000
A longer term view shows that 10 of the 13 fastest growing markets were in the South or Southwest, including the five largest MSAs in Texas. As with the one year trend, state capitals fare well, holding five of the top nine spots.
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DEPOSIT GROWTH AND UNEMPLOYMENT • The maps on the next two pages show deposit growth and unemployment
rates by state. Note the high correlation between the two statistics. Driven by the shale energy boom, North Dakota and adjoining states in the upper Midwest show the nation’s lowest unemployment rates and also the highest deposit growth. Other states with strong energy economies (Texas, Alaska, Louisiana) also fared well on both dimensions, as did the economically stable states in the New England region. • Conversely, states with high unemployment such as California, Florida,
Georgia and South Carolina suffered corresponding low deposit growth.
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DEPOSIT GROWTH BY STATE
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UNEMPLOYMENT RATE BY STATE
Source Bureau of Labor Statistics, December 2011, seasonally adjusted
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UNEMPLOYMENT AND DEPOSIT GROWTH Top 30 MSAs
The correlation between unemployment and deposit growth is also evident in the best fit regression line in the graph above, where each point represents one of the 30 largest MSAs. On average, every one percentage point reduction in unemployment increases deposit growth by one-half of one percentage point.
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DEPOSIT GROWTH BY INDUSTRY TIER • As large banks wrestled with financial troubles and image issues over the past
four years, credit unions and community banks outgrew those firms. National banks rebounded somewhat in the last year, but still posted the lowest average growth rate over the past four years.
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Table classification definitions – National: Bank of America, Wells Fargo, Chase, Citibank – Super-regional banks: those operating in 10 or more states, or spanning multiple regions, such as Key, US Bank and SunTrust – Regional banks: operating in four to nine mostly contiguous states within a single region of the country, usually 200+ branches, e.g., Associated Bank, Synovus and Union Bank – Super-community banks: serving only one to three states; also includes most of institutions in the 100 – 150 branch tier, e.g., FNB Pennsylvania, Prosperity Bank and Wesbanco – Community banks: deposits less than $1B, geographically compact franchise
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BRANCH DEPOSIT GROWTH, 2010 – 2011
Indicates 11,200 branches with deposit change of $0 - $1M
The median deposit change among mature, freestanding branches last year was only $330m, Twenty-six percent of branches showed deposit changes between -$1M and $1M, and half of all branches hovered between -$2M and $2M.
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BRANCHING ACTIVITY OF US BANKS, 2010 – 2011 Almost 90% of U.S. banks left their branch networks unchanged last year. Of those banks that did adjust their network size, slightly more added branches than eliminated branches. Overall, the inventory of U.S. branches declined by about 600 units, or one-half of one percent. But most of this decline – more than 400 units – was impounded in merger/efficiency efforts at three large banks: Wells Fargo, Bank of America and Regions Bank.
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PROJECTED HOUSEHOLD GROWTH, 2011 - 2016 Top 30 MSAs
After several years of stagnant household growth, some of the most injured U.S. markets are predicted to experience sharp recoveries, including Las Vegas, Phoenix and Riverside. Across the Sunbelt, one time high growth markets are seeing real estate prices finally equilibrate, at values well below peak levels, and this is allowing growth to resume.
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PROJECTED HOUSEHOLD GROWTH, 2011 - 2016 Top 30 MSAs among all metros with population > 500,000
Sunbelt and Western markets dominate the household growth rankings, with the Carolinas and Texas leading the way. In Florida and California, smaller metros are expected to lead the resumption of household growth. Across the nation, many of the top growth metros are small to mid-sized markets.
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PROJECTED HOUSEHOLD GROWTH, 2011 - 2016
Note the contrast between high growth coastal areas and low growth interior areas. The Great Plains, Mississippi Valley and Appalachia regions will all suffer population erosion in the upcoming years.
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AGE DISTRIBUTION
California and the Northeast corridor feature younger household bases, but many of the low growth regions reach that status because older household bases are not being replenished by new arrivals.
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MEDIAN HOUSEHOLD INCOME Top 30 MSAs among all metros with population > 500,000
Three of the five most affluent metros are in California, and numerous Northeast corridor MSAs also rank among the highest income markets. The top ranking Midwestern and Southern markets fall a level below the Northeast and West coast leaders.
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DEPOSITS PER HOUSEHOLD Top 30 MSAs
The largest, long established metros such as Washington, San Francisco, New York, Boston and Los Angeles show higher deposits per household than newer markets such as Orlando, Phoenix, Las Vegas and Riverside – San Bernardino.
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DEPOSITS PER HOUSEHOLD Top 30 MSAs among all metros with population > 500,000
Income translates directly into deposits; note the high overlap between the highest-income markets on the prior pages and the top deposits per household markets in the graph above; Bridgeport, San Jose, Washington and San Francisco rank in the top five on both measures.
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INCOME DISTRIBUTION
Affluence is concentrated in major metros, especially along the Northeast corridor from Washington, DC to Boston. Chicago, Minneapolis and parts of Texas and California rank highly, too; while the South and Appalachian regions remain among the least affluent areas.
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AGGREGATE INCOME GROWTH, 2011 – 2016 Top 30 MSAs
The rate of aggregate income growth impounds the rate of household growth, the projected level of affluence and the aging of the household base. Aggregate income is projected to grow fastest in economically strong states such as Texas and North Carolina and in areas rebounding from economic troughs in Florida and the Southeast.
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BRANCH CONCENTRATION
US overall
Long-established markets in the Northeast and Midwest are more concentrated, with one branch for every 900 – 1,000 households. California and other Western metros remain less concentrated; Riverside – San Bernardino, Las Vegas, Los Angeles and Sacramento contain only one branch for every 1,500 households.
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DEPOSITS PER BRANCH Top 30 MSAs
The top markets in terms of deposits per branch reach that status through a combination of high affluence or low to moderate branch concentration. The largest average branch size is thus found in markets that rank highly on both attributes (San Francisco, Los Angeles). In Washington and New York, affluence is high enough to offset severe branch concentration.
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DEPOSITS PER BRANCH Top 30 MSAs among all metros with population > 500,000
With their greater aggregate wealth, large markets capture most of the top spots in a ranking of deposits per branch. San Jose, Raleigh Honolulu – all high income communities – lead a group of mostly coastal smaller markets that reach top rankings.
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ADVICE FOR THE YEAR AHEAD • Even as the economic recovery continues, deposit growth will remain difficult
as consumers continue to use excess cash to pay down debt. In addition, an unprecedentedly low interest rate environment dissuades investment in insured deposits, especially versus a reviving stock market. • While consumer deposit growth has remained slack, corporate deposits grew
impressively in the prior year, as many larger businesses hoarded cash, lacking confidence to invest in expansion. To the extent that a recovering economy spurs investments in plants and equipment, that cash cushion may erode, too, even as loan demand increases. This could quickly diminish the liquidity buffers many institutions currently enjoy, heightening the importance of retention of key depositor relationships.
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ADVICE FOR THE YEAR AHEAD • Economic health varies widely across the country, with some regions enjoying
unemployment rates at 6% or below, well within the range of a strong economic environment. In these markets, new business formation and loan demand should increase sharply, as will income levels. Helping consumers find viable investment opportunities for their increased income will be critical for financial institutions, as traditional savings instruments will offer insufficient returns to secure customer relationships. • In areas that remain economically injured, especially those suffering from
excess housing inventory, deposit and loan activity will remain stagnant. But bankers can take heart in the experience of other once-depressed markets. In some of the hardest hit areas of Florida, real estate prices have finally equilibrated, albeit at levels 40% - 60% below peak levels. And these markets are seeing substantial housing activity, including out of market purchasers converting owned homes to rental stock. Bankers must monitor their own markets, as when such communities turned they have turned quickly, and early recognition will allow participation in the initial wave of transactions.
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ADVICE FOR THE YEAR AHEAD • Credit unions and community banks continue to post higher growth rates
than larger institutions, but the disparity was less acute in 2011 than in the prior year. This suggests that larger institutions are recovering from the reputational damage suffered during the height of the financial crisis. In response, community-based institutions will need to replace marketing themes that rely on drawing contrasts with regional banks with messages that emphasize their own positive attributes. • Ninety-two banks were seized by the FDIC in 2011, down from 157 in 2010
and more than 230 in the prior year. With the number of failed bank expansion opportunities declining, banks seeking to expand will need to resort to open bank mergers or de novo branching. Note, though, that numerous vacant branches remain from the raft of bank closures, offering an opportunity for quick entry in selected markets.
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ADVICE FOR THE YEAR AHEAD • Finally, keep in mind that any recovery in the economy will drive at least some
rebound in commercial real estate prices from recent lows, creating a premium for those institutions that can expand before revived competition for prime sites elevates prices. Thus, immediate attention to 2012 and 2013 branching priorities is critical. • And while near term branch expansion will allow banks and credit unions
alike to capitalize on favorable real estate costs and a broad inventory of vacant branches, it also carries value in the signal it sends to customers, employees and other stakeholders. In a period of reduced branch construction, disciplined branching in markets where institutions can leverage existing branch infrastructure will assure current and prospective customers of the institution’s fiscal health and long term commitment to the community, fostering customer acquisition, retention and cross-sell and competitive differentiation. 34
Questions, Comments or More Information? Bancography (205) 252-6671
[email protected]
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