The New York Times ran a nice article today by Alan Feaur entitled The Bank Around the Corner. The article does an It's A Wonderful Life-like profile on the Bank of Cattaraugus. Mr. Feaur writes:

“They do things that big banks won’t do,” said Paul Macakanja, the owner of the Jenny Lee diner, which sits on Main Street facing Mr. Cullen’s bank. The diner has no photocopier, and tellers at the bank, he said, will run off copies of his menu, free of charge. “They support you personally,” he added, “because your success is their success.”

The article also discusses how the President of the bank, Patrick Cullen approved an $85,000 loan to an Amish man who only earned $2,400 per year.

“If you know Amish culture, you know his sons work and that everything they earn goes to him until they’re 21 or married,” Mr. Cullen said, observing that the man had eight sons, each earning at least $10 an hour. “So he was fine, but none of that shows up on a credit score.”

There are over 7,000 community banks (assets below $10 billion) in the country and over 7,000 credit unions, yet over 400 community banks have closed in the past three years. BestCashCow data shows that smaller, community based banks tend to offer some of the best rates on deposit and loan products. Community banks also offer more personalized service and as the article illustrates, some of them go to extraordinary lengths to help their community. The Bank of Cattargus is not interested in earning a profit or expanding. As long as President Cullen is able to pay his employees, and his rent, he is happy.

Is this sustainable? From a financial perspective, the bank looks sound. Its Texas Ratio, while rising, is still below the industry norm. The bank has a low return on equity, but it isn't interested in making money. Deposits have grown over the past five years while loans have dipped. So financially, the business model looks stable as long as there is someone to run the bank.

In the wake of the financial crisis and problems at some of the mega-banks, movements have sprung up to convince consumers to go local with their banking. BankTransferDay.org is trying to convince individuals to switch their money from big banks to credit unions. Arianna Huffington's BankTransferDay.org project encourages people to move their money from the big banks to local community institutions. Whether these are long-lasting trends or just a short-term reaction to the financial crisis remains to be seen. The reality is, it's hard to get people to switch banks. The larger banks have grown by gobbling up smaller ones and "assimilating" their customers. While community banks are closing or being acquired every year, new banks are also starting. In fact, the fastest growing banks in the United States are all community banks.

There are drawbacks to community banks. Many don't operate extensive websites or have large ATM networks. Their operations can be slow. I doubt Cattaraugus will be offering mobile banking anytime soon. But for the consumers in their local area, that's probably okay.

Do you bank at a community bank? If so, why? If not, why not? Do community banks have a chance to survive or are mega-banks and Internet banks the wave of the future? Is there room for both? Let us know what you think.

See a map of all banks (large, medium, and community) in your neighborhood.

In January 2009, we wrote about a settlement reached with Bank of America called Closson et.al., v. Bank of America. The settlement resolved a class action lawsuit filed over overdraft fees. According to the lawsuit, Bank of America engaged in practices which caused customers to overdraw their accounts more frequently. The bank settled the lawsuit for $35 million with an estimated payout of $78 per account.

As we explained in the original article, to claim the settlement, eligible customers needed to file online or mail in a claim form.

Nearly three years later I received my check and it was a nice surprise- $98.16. If you filed for the settlement award then look for a check in your mailbox over the next week.

For those of you who have questions about the settlement or haven't received your check, you can visit the settlement site for more information.

BestCashCow released updated bank and credit union financial information with the latest data available from the FDIC and the NCUA. Using this information, the site has calculated key financial ratios for every bank and credit union in the United States. For banks, this data includes:

• Texas Ratio - a measure of a bank's ability to weather loan losses.
• Return on Equity
• Capitalization
• Ratio, Asset, Deposit, and Loan trends for the past give years.

For credit unions, the data includes:

• Texas Ratio
• Net Worth - Ratio that measures how much total assets exceed total liabilities.

We provide this information to so that you can understand the financial condition of the institutions you bank with, or are thinking of banking with. While every bank on BestCashCow is FDIC insured and almost every credit union is NCUA insured, there are downsides to banking with a distressed bank or credit union. These include:

• A deterioration of customer service as cost cutting becomes more of a priority.
• The potential to lose interest on CDs. When a bank is taken over, it does not have to honor rates on CDs.
• Lower rates. BestCashCow research has shown that banks in stronger financial condition tend to offer better rates. Banks in worse financial condition do the opposite.
• Bailouts. Ultimately, the general public bears the cost of supporting and propping up distressed financial institutions

As an example, this link shows a financial snapshot of JP Morgan Chase Bank, the largest bank by assets according to BestCashCow.

View the financial condition of any bank.

View the financial condition of any credit union.

Trends in Bank Data

Not only has every bank and credit union been updated, but we spent some time crunching through the numbers at a high level to see what is going on in the banking world. In general, the data shows a banking industry that is awash in cash, not lending, and slowly mending.

The first chart shows that the Texas Ratio for all U.S. banks has continued to decline after peaking in 2009.

The Texas Ratio measures bank stress and stability with a number over 100% indicating that a bank cannot cover all of its potential losses. The lower the number the better. The chart shows that the ratio spiked in 2008, went higher in 2009 and has been gradually coming down since then. The banking sector is healing. (Read more about how the Texas Ratio predicts bank failure.)

I then examined two main components of the Texas Ratio, non-performing loans and bank capitalization. Non-performing loans peaked in 2009 and have been coming down over the past two years. This indicates that not as many loans are going bad, a good sign for bank health.

Capitalization dropped in 2008 and then has gradually been increasing. Banks have raised money both from the government (via TARP) and from private investors to bolster their capital. Both an improvement in loan losses and in bank capitalization have contributed to an improving national Texas Ratio.

Over the last four years, bank deposits have grown from $8 trillion in 2008 to $9 trillion today. Individuals and corporations are parking their money in cash. Demand for cash is not high which is one reason banks have been able to drop savings and CD rates to record lows. Many banks simply don't need your money and have more cash than they know what to do with. We have heard anecdotally of some banks locking in cash at low rates now in anticipation of a rising rate environment over the next couple of years. Notice though that loan growth has not kept pace. Bank loans have dropped from $6.6 trillion in 2008 to $6.3 trillion today.

What are banks doing with that extra money? Investing it, most likely in US Treasuries and other safe investments. The next chart shows what has happened to bank net interest margin. Net interest margin is the difference between the rate banks pay depositors for their cash, and interest rate they lend the money. That difference is income for the bank.

Notice the increase starting in 2007 as the Fed lowered short term rates and banks lowered deposit rates. NIM increased until 2010 and has begun to come down. That's not because deposit rates have gone up, but because rates on bonds and Treasuries have dropped, squeezing the banks profit. Eventually if this squeeze continues, banks will be forced to deploy their deposits in a more profitable way. That's good news for those looking for loans to finance a business, house purchase, or a car.

In addition to tracking the financial condition of every bank and credit union, BestCashCow also tracks CD and Savings rates for thousands of banks and credit unions. To see the rates and financial conditions of a bank in your area, view our local bank finder.

Have any questions or comments? Post them below.