Analysis: Ranks of tight-fisted community banks surge

Mon Jul 9, 2012 1:05am EDT
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By Tim McLaughlin

(Reuters) - Union County Savings Bank in Elizabeth, New Jersey, is profitable with few problem loans and a capital ratio that would make a too-big-to-fail bank drool.

The community bank is also one of the most tight-fisted lenders in the country. The bank invests just 9 percent of its $1.3 billion in deposits in loans. It pours most of the rest into an investment portfolio. That loan-to-deposit ratio puts it near the bottom of 6,000 U.S. community banks, according to a Reuters analysis.

Community banks are often seen as kinder, gentler versions of their big-bank brethren. The Occupy Wall Street movement accused big banks of being greedy and encouraged depositors to move funds to their local community banks.

These banks trumpet the small business loans they make because they spur job creation, a big deal in an economy with an unemployment rate of 8.2 percent.

But not every community bank is the quintessential hometown lender portrayed in the Frank Capra movie "It's a Wonderful Life."

There are more than 800 community banks that are like Union County Savings: They lend less than half their deposits, a rate far below their peers.

About 14 percent of the community banks analyzed had a loan-to-deposit ratio of less than 51 percent in the first quarter, nearly double the percentage in 2006, according to an analysis of FDIC data. Meanwhile, these tight-fisted banks' investment portfolios swelled to $84 billion in the first quarter of this year. Six years earlier, similar banks held $52 billion in their investment portfolios.

A TALE OF TWO BANKS   Continued...