Rural Banking is not for Small Banks

There is an illusion out there that small town banking is done by small town bankers.

It is a nice image. As the sun sets, a local businessman leaves through the front doors of the headquarters of a small bank in a rural county.  The local banker shakes his hand as he exits.  They are friends, the banker and this businessman.  They have known each other for years.  Their kids went to high school together.  They see each at little league, maybe even at church.

Well, if only that was reality.  The truth could hardly be much different.  Yes, small town banks continue to exist.  However, rural banking is largely done by large multinational corporate banks with billions of dollars in assets.

Look at North Carolina.  This is a state where 85 of its 100 counties are rural.  Approximately half of the population lives in a rural county.  There ought to be a lot of rural lending going on.

The truth is that the small banks appear to be struggling.  The big banks offer the branches, the loans, and the attention.

Here’s a few statistics to illustrate that point:

• Banks with more than $10 billion in assets have more than half of all branches (50.3 percent) in rural counties in North Carolina.
• Those $10 billion plus (large) banks have almost 60 percent (59.2) of all deposits in rural counties, as well.

The small banks are losing the way. But why?

Some of it is that rural banking is tough.  In 1996, rural counties had about 28 percent of North Carolina’s deposits.  By 2008, that number had slipped to just 15.3 percent of the state’s deposits.  Urban areas grew deposits dramatically, but rural deposits barely kept even with the pace of inflation.  So, for many small banks, it may be hard to compete without exposure to urban deposits. If a bank’s footprint is entirely in rural areas, then that bank may develop slowly.  It might also be more cautious with its capital.

There’s some anecdotal evidence of this.  Gateway Bank, a new and growing bank located on eastern shore North Carolina, has opted to leapfrog over hundreds of miles of inland (rural) North Carolina in seeking out new branches.  Their new branches are in Wake County.  Other banks seem to have the same concept – be the latest in the Triangle, not the biggest in the hinterlands.

I know that I am hesitant to establish an account at a bank where it is going to be hard and possibly expensive to get my money.  I want a network of ATMs.  The big banks can offer that.  Yet, there are still plenty of small banks out there.  Maybe they should cooperate and form some kind of alliance, sharing ATM fees among small bank members.  This would be something akin to BookSense, (IndieBound) the American Bookseller’s Association trade group that supports individual booksellers.