III - Commercial Banks

BANKING

COMMERCIAL BANKS

Commercial banks vary greatly in size from the “money center” banks located in the nation’s financial centers that offer a broad array of traditional and nontraditional banking services, including international lending, to the smaller regional and local community banks engaged in more typical banking activities, such as consumer and business lending. Commercial banks receive revenue from many sources including check writing, trust account management fees, investments, loans and mortgages. A growing number of banks also receives revenue from consumer use of Internet banking services.

The number of small commercial banks continues to drop while the number of larger banks grows. There were 214 fewer commercial banks with assets of less than $100 million in 2006 than the previous year, 69 more in the $100 million to $1 billion asset size and 19 more in the $1 billion or more category.

ASSETS OF FDIC-INSURED COMMERCIAL BANKS, 2007

Source: Federal Deposit Insurance Corporation.

ASSETS AND LIABILITIES

A bank’s assets and liabilities are managed in order to maximize revenues and maintain liquidity. The lending sector's susceptibility to changes in interest rates, domestic and international economies, and credit quality can make revenue streams unpredictable. Banks hold substantial amounts of U.S. Treasury and government agency obligations, which are highly liquid, although the asset mix includes equity as well as other asset classes.

ASSETS AND LIABILITIES OF FDIC-INSURED COMMERCIAL BANKS
GROUPED BY ASSET SIZE, 2007

($ millions, end of year)

		By asset size
	Total commercial banks	Less than $100 million	$100 million to $1 billion	$1 billion or more	Foreign offices
Number of institutions	7283	3065	3705	513	NA
Total assets	$11,176,135	$162,871	$1,060,902	$9,952,362	$1,558,936
Cash and funds due from depository institutions	482,175	8,340	36,890	436,945	184,283
Noninterest-bearing	289,548	5,562	29,031	254,955	NA
Interest-bearing	192,627	2,778	7,859	181,990	NA
Securities	1,590,800	35,714	194,363	1,360,723	NA
Federal funds sold and re-repos (1)	646,114	9,829	28,795	607,489	NA
Loans and leases, net	6,537,544	100,762	739,780	5,697,003	551,290
Plus: allowance for losses and allocated transfer risk reserve	88,853	1,374	9,459	78,021	NA
Loans and leases, total	6,626,398	102,135	749,238	5,775,024	551,531
Assets held in trading accounts (2)	867,558	30	827	866,701	335,734
Bank premises and fixed assets	105,014	3,318	21,361	80,334	NA
Other real estate owned	9,789	333	2,293	7,164	NA
Intangible assets	423,100	661	8,430	414,008	NA
All other assets	514,014	3,884	28,135	481,994	NA
Total liabilities, limited-life preferred stock and equity capital	11,176,135	162,871	1,060,902	9,952,362	NA
Total liabilities	10,033,099	141,087	951,417	8,940,594	$2,070,761
Deposits, total	7,309,818	133,764	854,080	6,321,975	1,502,061
Noninterest-bearing	1,193,607	22,682	123,791	1,047,133	65,288
Interest-bearing	6,116,211	111,081	730,289	5,274,841	1,436,774
Federal funds purchased and repos (1)	765,564	1,370	27,382	736,812	NA
Trading liabilities	342,667	0	61	342,606	NA
Other borrowed money	1,114,953	4,620	59,518	1,050,815	NA
Subordinated notes and debentures	174,905	6	629	174,270	NA
All other liabilities	325,191	1,327	9,748	314,117	NA
Total equity capital	1,143,036	21,783	109,484	1,011,768	NA
Perpetual preferred stock	5,015	35	150	4,830	NA
Common stock	35,974	3,940	10,542	21,491	NA
Surplus	738,757	9,701	47,066	681,990	NA
Undivided profits	363,290	8,107	51,726	303,457	NA
(1) Short-term agreements to sell and repurchase government securities by a specified date at a set price. (2) The foreign office component of “assets held in trading accounts” is only available for institutions with $1 billion or more in total assets or $2 billion or more in off-balance sheet contracts. NA=Data not available. Source: Federal Deposit Insurance Corporation.

DEPOSITS

In the depository process, banks pay interest to depositors and gain income by lending and investing deposits at higher rates. Banks must balance the generation of revenue from these deposits with the maintenance of liquidity, according to FDIC guidelines. The impact of these guidelines on the banking industry is similar to that of statutory accounting practices on the insurance industry—both serve to promote solvency. (See Appendix, page __.)

DEPOSITS, INCOME AND EXPENSES OF FDIC-INSURED COMMERCIAL BANKS, 2003-2007

($ millions, end of year)

	2003	2004	2005	2006	2007
Number of institutions	7,753	7,615	7,510	7,384	7,265
Total deposits (domestic and foreign) individuals, partnerships, corps.	$4,487,116	$5,010,638	$5,485,258	$5,991,024	$6,477,856
U.S. government	5,104	4,631	3,272	3,727	4,898
States and political subdivisions	227,377	235,205	257,743	286,564	322,396
All other	272,870	295,930	270,791	392,912	441,275
Total domestic and foreign deposits	4,992,467	5,546,404	6,017,064	6,674,226	7,246,425
Interest-bearing	4,007,744	4,449,621	4,820,211	5,465,325	6,060,503
Noninterest-bearing	984,722	1,096,783	1,196,852	1,208,901	1,185,922
Domestic office deposits
Demand deposits	522,686	540,401	535,698	507,714	504,458
Savings deposits	2,497,749	2,772,680	2,946,703	3,094,231	3,185,083
Time deposits	1,231,384	1,367,985	1,614,597	1,879,273	2,055,336
Total domestic deposits	4,251,819	4,681,066	5,096,998	5,481,219	5,744,877
Transaction	721,532	744,728	735,908	703,605	695,839
Nontransaction	3,530,287	3,936,338	4,361,090	4,777,613	5,049,038
Income and expenses
Total interest income	331,564	341,742	427,748	541,496	604,702
Total interest expense	93,912	95,330	162,432	259,277	304,171
Net interest income	237,651	246,411	265,316	282,219	300,531
Total noninterest income (fees, etc.)	186,162	184,028	202,081	216,758	210,606
Total noninterest expense	244,487	255,928	274,500	288,349	310,751
Provision for loan and lease losses	34,478	25,815	26,325	25,152	55,846
Pretax net operating income	144,848	148,696	166,572	185,476	144,540
Securities gains (losses)	5,583	3,177	-216	-1,346	-509
Income taxes	49,143	49,131	53,663	59,232	43,109
Net extraordinary items	427	66	239	2,648	-1,746
Net income	101,715	102,807	112,932	127,546	99,175
Source: Federal Deposit Insurance Corporation.

INVESTMENTS

SECURITIES OF FDIC-INSURED COMMERCIAL BANKS, GROUPED BY ASSET SIZE, 2007

($ millions, end of year)

		By asset size (1)
	Total commercial banks	Less than $100 million	$100 million to $1 billion	$1 billion or more
Securities (debt and equity)	$1,590,800	$35,714	$194,363	$1,360,723
Securities held-to-maturity (amortized cost)	96,596	5,367	23,531	67,699
Securities available-for-sale (fair value)	1,494,204	30,348	170,833	1,293,024
By security type: (2)
U.S. Government securities	949,680	27,699	137,989	783,991
U.S. Treasury securities	30,490	1,087	3,741	25,662
U.S. Government obligations	919,189	26,612	134,248	758,329
Securities issued by states and political subdivisions	141,294	6,929	42,864	91,502
Asset-backed securities	83,951	12	719	83,220
Other domestic debt securities (3)	293,359	819	10,315	282,225
Foreign debt securities (3)	101,482	3	57	101,422
Equity securities	20,988	253	2,372	18,363
Other items (2)
Pledged securities	885,222	14,459	98,743	772,020
Mortgage-backed securities	971,416	8,182	67,823	895,411
Certificates of participation in pools of residential mortgages	588,511	6,353	44,147	538,011
Issued or guaranteed by the U.S.	568,708	6,335	43,947	518,426
Privately issued	19,802	18	200	19,585
Collateralized mortgage obligations and REMICs (4)	382,905	1,829	23,676	357,400
Issued by FNMA and FHLMC (5)	142,570	1,592	18,927	122,050
Privately issued by GNMA	240,336	237	4,749	235,350
(1) Grouped by asset size and insurance fund membership. (2) Includes held-to-maturity securities at amortized cost and available-for-sale securities at fair value. (3) Institutions with less than $100 million in total assets include “foreign debt securities” in “other domestic debt securities.” (4) Real estate mortgage investment conduits. (5) Fannie Mae and Freddie Mac. Includes REMICs. Source: Federal Deposit Insurance Corporation.

CONCENTRATION

As a result of consolidation over the past two decades, small banks are dropping in number and in percentage of assets and deposits held. A large share of the nation’s banking business is held by a relatively small number of big banks.

COMMERCIAL BANK CONCENTRATION, NUMBERS AND ASSETS, 2003 AND 2007

($ billions, end of year)

	By asset size
	Less than $100 million	Percent of total	$100 million to $1 billion	Percent of total	$1 billion to $10 billion	Percent of total	Greater than $10 billion	Percent of total	Total banks
2003
Number of banks	3,911	50.3%	3,434	44.2%	341	4.4%	83	1.1%	7,769
Total assets	$200.7	2.6%	$910.0	12.0%	$947.3	12.5%	$5,544.5	72.9%	$7,602.5
Total deposits	169.0	3.4%	736.8	14.7%	645.8	12.8%	3,477.3	69.1%	5,028.9
Return on assets	0.94	NA	1.27	NA	1.46	NA	1.42	NA	1.40
Return on equity	8.19	NA	12.80	NA	14.00	NA	16.37	NA	15.31
2007
Number of banks	3,065	42.1%	3,706	50.9%	425	5.8%	86	1.2%	7,282
Total assets	$162.9	1.5	$1,062.1	9.5	$1,112.7	10.0	$8,838.4	79.1	$11,176.1
Total deposits	133.8	1.8	854.8	11.7	792.0	10.8	5,528.4	75.6	7,308.9
Return on assets	0.82	NA	1.06	NA	1.08	NA	0.92	NA	0.95
Return on equity	6.00	NA	10.34	NA	9.47	NA	9.22	NA	9.29
NA=Not applicable. Source: Federal Deposit Insurance Corporation.

TOP 25 U.S. COMMERCIAL BANKS BY REVENUES, 2007

($ millions)

Rank	Company	Revenues
1	Citigroup	$159,229
2	Bank of America Corp.	119,190
3	J.P. Morgan Chase & Co.	116,353
4	Wachovia Corp.	55,528
5	Wells Fargo	53,593
6	U.S. Bancorp	20,308
7	Capital One Financial	18,966
8	Bank of New York Mellon Corp.	14,798
9	SunTrust Banks	13,465
10	State Street Corp.	11,818
11	National City Corp.	11,791
12	Regions Financial	10,754
13	BB&T Corp.	10,668
14	PNC Financial Services Group	9,956
15	Fifth Third Bancorp	8,494
16	KeyCorp	7,873
17	Marshall & Ilsley Corp.	5,745
18	Northern Trust Corp.	5,395
19	Comerica	4,618
20	M&T Bank Corp.	4,478
21	Synovus Financial Corp.	4,463
22	Popular	3,823
23	Zions Bancorp.	3,618
24	Huntington Bancshares	3,420
25	Commerce Bancorp	3,180
Source: Fortune.

TOP 25 U.S. COMMERCIAL BANKS BY ASSETS, 2007

($ millions)

Rank	Company	City, State	Assets
1	JPMorgan Chase Bank, National Association	Columbus, OH	$1,318,888
2	Bank of America, National Association	Charlotte, NC	1,312,794
3	Citibank, National Association	Las Vegas, NV	1,251,715
4	Wachovia Bank, National Association	Charlotte, NC	653,269
5	Wells Fargo Bank, National Association	Sioux Falls, SD	467,861
6	U.S. Bank, National Association	Cincinnati, OH	232,760
7	HSBC Bank USA, National Association	Wilmington, DE	184,492
8	Suntrust Bank	Atlanta, GA	175,108
9	FIA Card Services, National Association	Wilmington, DE	161,692
10	National City Bank	Cleveland, OH	138,755
11	Regions Bank	Birmingham, AL	137,050
12	State Street Bank & Trust Company	Boston, MA	134,002
13	RBS Citizens, National Association	Providence, RI	128,863
14	Branch Banking and Trust Company (BB&T)	Winston-Salem, NC	127,698
15	PNC Bank, National Association	Pittsburgh, PA	124,782
16	Bank of New York	New York, NY	115,672
17	Capital One, National Association	Mclean, VA	97,518
18	Keybank, National Association	Cleveland, OH	95,862
19	Citibank South Dakota, National Association	Sioux Falls, SD	78,941
20	Chase Bank USA, National Association	Newark, DE	77,748
21	LaSalle Bank, National Association	Chicago, IL	74,424
22	Manufacturers and Traders Trust Company	Buffalo, NY	64,073
23	Comerica Bank	Dallas, TX	62,539
24	Bank of the West	San Francisco, CA	61,830
25	Fifth Third Bank	Cincinnati, OH	61,463
Source: Board of Governors of the Federal Reserve System.