Data Source: FDIC, Reports of Condition and Income for Insured Commerecial Banks and FDIC-Supervised Savings Banks, June 30, 1994
Small commercial banks typically invest from 60% to 80% of their total deposits in loans -- i.e., they have loan/deposit ratios in the 60% to 80% range.
However, a significant number of small banks have unusually low loan/deposit ratios. Instead of using their deposits primarily to make loans, these banks invest heavily in federal debt securities, especially U.S. Treasury and government agency securities.
As of June 1994, there were 9499 FDIC-insured commercial banks in the United States with assets under $250 million (small banks). Of this total, 1534 banks (16%) had a loan/deposit ratio below 45%. We have classified small banks with a loan/deposit ratio below 45% as "low loan/deposit ratio" banks. For this subset of small banks, securities on average represented 56% of their assets, while loans represented only 30% of their assets.
In tabulating the number of small banks with loan/deposit ratios below 45%, we have excluded 13 banks with zero deposits, 18 banks with zero loans, and 14 bankers' banks.
Under the federal Community Reinvestment Act, FDIC-insured depository institutions have an obligation to serve the credit needs of their local communities and the federal banking regulators evaluate each bank's performance in meeting this obligation. When a bank invests a relatively low share of its deposits in loans, this pattern of disinvestment from the local community raises a presumption that the bank's community lending performance is unsatisfactory. Under these circumstances, a bank should demonstrate that its lending opportunities have been restricted by adverse economic conditions in its local community.
To examine the issue of adverse economic conditions, we looked at the lending activity of peer banks that operated in the same counties as the small banks with low loan/deposit ratios. We used as peer banks small banks that had two characteristics: first, they had no more than 3 bank offices; and, second, all of their bank offices were located within their home county. This approach was based on the assumptiom that a small bank with a very limited number of bank offices and all of its offices contained within its home county would tend to focus its lending activities on that county -- and thus its loan/deposit ratio would provide insight into the demand for credit in such county. We refer to small banks that have these two characteristics as "county-contained" small banks. Of the total of 9,499 small banks in the United States, 6,773 (71%) meet this "county-contained" criteria for selection as a peer bank.
Given the large number of "county-contained" small banks, it was possible to find peer banks for the great majority of small banks with low loan/deposit ratios. At least one peer bank was operating in the home county of 1,243 (81%) of the 1,534 low loan/deposit ratio banks.
We have separated small banks with loan/deposit ratios below 45% into two categories:
The aggregate (statewide) loan/deposit ratio for a particular state represents the total loans of all banks based in the state divided by the total deposits of all such banks. In calculating these aggregate ratios, banks with assets of $10 billion or more and banks with loan/deposit ratios above 125% were excluded.
As of June 1994, there were 766 Tier I banks and 768 Tier II banks. The 766 Tier I banks were comprised of 703 banks with loan/deposit ratios below 35% and an additional 63 banks with loan/deposit ratios less than one-half the aggregate loan/deposit ratio for the bank's state.
The loan/deposit ratio of each Tier I and Tier II bank was compared to the aggregate loan/deposit ratio of all peer banks located in the bank's home county. For a Tier I bank, all the "county-contained" small banks in the bank's home county with loan/deposit ratios above the Tier I level were counted as peer banks. For a Tier II bank, all the "county-contained" small banks in the bank's home county with loan/deposit ratios above the Tier II level were counted as peer banks.
Of the 766 Tier I banks, 616 banks had at least one peer bank. For each of these 616 Tier I banks, it was possible to compute the gap or spread between the bank's loan/deposit ratio and the aggregate loan/deposit ratio of its peer banks (or bank). These 616 Tier I banks had an average loan/deposit ratio of only 22.77%. The average aggregate loan/deposit ratio for their peer banks was 59.22%. This results in an average spread between the loan/deposit ratios of Tier I banks and the loan/deposit ratios of their peer banks equal to 31.93%. The data suggest strongly that there are lending opportunities in the majority of counties in which the Tier I banks are located.
Similarly, of the 768 Tier II banks, 627 banks had at least one peer bank. These 627 Tier I banks had an average loan/deposit ratio of 40.67%, while the average aggregate loan/deposit ratio for their peer banks was 63.44%. The average loan/deposit ratio spread between Tier II banks and their peer banks was 22.77%. Again, the data suggest the presence of lending opportunities in the majority of counties in which the Tier II banks are located.
++ Tables - by State
These tables list the small banks with loan/deposit ratios below 45% that are located within a selected state. Two tables are provided for each state. The first table - "Small Banks With Very Low Loan/Deposit Ratios (Tier I Banks)" - lists the Tier I banks, as defined above, located in the state. The second table - "Small Banks With Low Loan/Deposit Ratios (Tier II Banks)" - lists the Tier II banks, as defined above, located in the state.
For each listed bank, the table provides the following items: the bank's name, the bank's home city, the bank's home county, the bank's loan/deposit ratio, the number of peer banks in the bank's home county, the aggregate loan/deposit ratio of these peer banks (or bank), and the loan/deposit ratio spread betwen the listed bank and its peer banks.
Tables have been prepared for 23 states. These 23 states contain the great majority of the small banks with loan/deposit ratios below 45%.
++ Maps - by State
These maps indicate the number of small banks with loan/deposit ratios below 45% within each county of the selected state. The maps identify metro area boundaries (MSA or PMSA), as well as county boundaries for the state. Maps have been prepared for 15 states which contain a large number of the small banks with loan/deposit ratios below 45%.
Overall, the maps show that within any given state the small banks with loan/deposit ratios below 45% tend to be widely dispersed throughout the state, rather than clustered in particular counties. This provides further evidence that low loan/deposit ratios stem more from bank management decisions than from adverse economic conditions in particular counties.
For the United States as a whole, the proportion of small banks that have loan/deposit ratios below 45% is approximately the same in urban and rural areas. Of the 3748 small banks locatd in metro areas (MSAs or PMSAs), 536 banks (14%) had loan/deposit ratios below 45%. Of the 5751 small banks located in rural (non-metro) areas, 998 (17%) had loan/deposit ratios below 45%.