Less than half of the 50 largest US banks grew their deposit balances in the 12 months ended June 30, and M&A drove the most significant expansions.
Banks recorded $871.60 billion in deposit outflows in the period, resulting in a 4.8% year-over-year decline in balances to $17.269 trillion, according to annual Summary of Deposits data from the Federal Deposit Insurance Corp. That marked the first contraction of deposits on an annual basis since the data set was created in 1994.
Several banks that boosted their deposits during the period did so through M&A, including acquisitions of failed banks. New York Community Bancorp Inc., which assumed about $34 billion of deposits from the former Signature Bank in March, saw its deposits soar 114.2% year over year. First Citizens BancShares Inc., which absorbed Silicon Valley Bank the same month, grew deposits by 58.0%. Columbia Banking System Inc., which merged with Umpqua Holdings Corporation in February, boosted total deposits by 55.5%, while Bank of Montreal grew total deposits by 51.7% following its acquisition of Bank of the West.
Although total M&A deal value year to date is still tracking behind 2022 levels, M&A interest among US banks increased over the summer, with two of the largest bank deals of the year announced on one day in July.
"It is very hard to grow deposits on your own right now," Frank Sorrentino, managing director of financial institutions group at Stephens, said in an interview. "The need for deposits, and to even just keep deposit market share for certain companies, is probably going to come through M&A."
Big 4 share ticks up
The "Big Four" US banks — JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. — all posted deposit declines, while the fifth-largest bank, U.S. Bancorp, grew deposits by 15.7% year over year after it closed its acquisition of MUFG Union Bank NA in December 2022. JPMorgan's 2.8% decline in total deposits came despite its assumption of $92 billion of deposits from failed First Republic Bank in May.
Despite seeing its deposit balances shrink, JP Morgan strengthened its deposit market share by 24 basis points. Overall, the Big Four increased their combined market share to 35.3% from 35.0% in 2022.
Outflows could continue
Amid rising interest rates, the overall deposit decline is part of a mix shift in which depositors have sought financial products with higher yields, Sorrentino said. As the odds of the benchmark federal funds rate staying above 5% through 2024 rise, some observers believe the mix shift is far from over. Sorrentino predicted it could linger for another six to nine months.
"From talking to clients, I think the general feel is that there is still deposit declines coming," Sorrentino said. "Albeit at this point, probably not as drastic as we had seen in previous quarters."
With deposits declining, banks have increasingly turned to brokered deposits, which jumped by 85.6% year over year in the second quarter.
Branch counts fall
The count of active bank branches nationwide fell by 1,585 year over year, led by a 302-branch reduction in California, a 127-branch decline in Pennsylvania and a 105-branch decrease in New Jersey.
The three largest state markets for total deposits — New York, California and Texas — all posted year-over-year deposit declines, with other major declines taking place in Virginia and Nevada. The largest proportional gains were in Utah, South Dakota and North Carolina.
