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Finding the Most-Attractive U.S. Banking Markets

Which states are the best for bankers?

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The U.S. is awash in banks. At the end of 2005, the FDIC insured 8,832 banking institutions. With so many banks to choose from, we searched for a method to narrow the field to a subset with attractive home markets. While we would never recommend buying a stock simply because of its location, comparing banks by state makes a lot of sense, primarily because interstate banking is actually relatively new.

Where are the attractive opportunities and what states should banks avoid? To find out, we compiled some statistics using information available from the FDIC. We would like to point out up front that there are some weaknesses in the exercise. Brokerage and credit card companies hold deposits, but without branches they are classified as being held at the bank's headquarters. We attempted to remove these companies from Delaware, where most are headquartered, but we're sure that a few slipped through our net in other states. Also, the source of our data is a bit dated. We are using 2005 numbers because 2006 data are not yet available, but we have not witnessed any major trend shifts in the past year, so we believe this exercise gets us to the right conclusions.

Jaime Peters does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.