5th District Footprint

Since the 1980s, the number of banking institutions in the United States has been consistently decreasing.¹ This national trend is attributable to factors such as voluntary consolidation or bank failure, combined with a decline in new bank entry.^{2, 3} Although there are fewer banking institutions operating in the country, banking landscapes at the county- and state-level are dynamic. This issue of 5th District Footprint examines the percentage change in banking institutions operating in Fifth District counties since the Great Recession.⁴

In this analysis, “banking institutions” includes traditional banks and thrifts but excludes credit unions, electronic or limited service institutions, loan production offices and ATMs.⁵ We focus on institutions rather than branches (banking locations) because consolidation does not necessarily equate to altering bank access or a change in the number of branches in communities, but may impact consumer choice. Counties that lost banking institutions did not necessarily lose branches (banking locations), and counties that had an increase in banking institutions were not guaranteed more branches.

The downward trend in the number of banking institutions operating nationwide is due in part to merger and acquisition (M&A) activity, which broadly describes any type of bank consolidation. A merger is the combination of two insured depository institutions into one and an acquisition is the purchase of one institution by another.⁶ Acquisition may include the purchase of a healthy or failed institution, so bank failure can spur M&A activity.⁷ Through consolidation, healthy banking institutions have the opportunity to scale their operations, cut costs and reach larger geographic areas.

Enacted in 1977, the Community Reinvestment Act (CRA) encourages financial institutions to help meet the credit needs of the communities in which they operate, necessitating the observation of changes to the locations and operation of banking institutions.⁸ As M&A activity shrinks the number of banking institutions operating across the nation, acquiring institutions are introduced to new geographic markets and can engage in CRA-eligible activities in those communities.

M&A activity was frequent in 1990, when economic turmoil spurred widespread bank failure across the nation.⁹ In that year, 647 M&A bank and thrift deals were completed.¹⁰ By 2003, the number of deals fell to 270 but steadily increased until the start of the Great Recession.¹¹ In 2007, there were 324 bank and thrift M&A deals; however, M&A activity dipped slightly before exceeding pre-Recession levels in 2010, with 327 M&A deals. Two hundred fifty-one deals were completed in 2012, which grew to 310 transactions by 2015. Since that year, there has been another decline, ending with 230 deals in 2017.

Unlike the United States as a whole, the Fifth District experienced increased M&A activity during the Great Recession.¹²  In 2006, there were 34 M&A deals. Forty-three and 45 deals were made in 2007 and 2008, respectively, before M&A activity in the Fifth District declined in subsequent years. The number of deals fluctuated between 21 and 30 per year between 2011 and 2017.¹³ M&A activity captures the market consolidation that leads to an overall decrease in the number of banking institutions. Considering the sustained level of M&A transactions, Fifth District counties and states experienced diverse changes in banking institution operations between 2007 and 2017.

In 2007, 536 banking institutions operated within the Fifth District.¹⁴ Ten years later, there were 382, a decrease of 28.7 percent. Nationally, there was a larger decline of 34.3 percent, from 9,898 in 2007 to 6,506 at the end of 2017. Banking institutions operating within Fifth District states did not decrease evenly — for example, North Carolina lost 30 percent of its institutions while Maryland experienced a decrease of 4.5 percent.¹⁵

Thirteen counties throughout the Fifth District experienced negative change at or greater than the national rate (those counties are shaded dark orange on the map). Nine largely rural counties in Virginia, North Carolina and South Carolina saw considerable declines, from -75 to -50 percent, in the number of banking institutions operating between 2007 and 2017.¹⁶ At the end of 2007, the number of institutions operating in these counties ranged from three to six. By the end of 2017, all of these counties had between one and two banking institutions operating within their boundaries.