Small Town Banks I


Merchant’s National Bank at 833 Fourth Avenue in Grinnell, Ohio, designed in 1917  by Louis Sullivan

We continue this story of small town America today: globalization, as was explained in our three blogs on the “megacity,” has left these small towns with no role to play in the economy. In the past it was these small towns (and many medium-size cities) that sustained the major cities through their manufactured parts and the skill of their artisans in a symbiotic interrelationship. Today cities like New York, San Francisco and Chicago reach overseas for the parts and skills they need, leaving small towns devoid of purpose. As a consequence, banks that traditionally were at the center of the town’s commercial life are closing because of the lack of any sustainable business, undermining the very life of the town. What is America without its small town life?

To illustrate this article, presented here in three installments because of its length, we have chosen the small town banks designed by architect Louis Sullivan during the decade before the First World War, a period when these institutions were still an integral part of the vitality of the towns they served. Sullivan’s banks are considered architectural treasures, among the finest this country has produced.

By RUTH SIMON and COULTER JONES  Dec. 25, 2017  for The Wall Street Journal

 ROXOBEL, N.C.—Danielle Baker wanted a $324,000 loan last year to expand the peanut-processing business she ran from the family farm. She had a longstanding relationship with the Roxobel branch of Southern Bank, and she thought Southern would help fund the peanut operation she had spun off, too.

But that branch—the town’s only bank—closed in 2014.  A Southern banker based in Ahoskie, 19 miles away, said Bakers’  Southern Traditions Peanuts Inc. was too small and specialized, she says. A PNC bank branch also turned her down.

“If you are not a big company with tons of assets and a big bank account,” Ms. Baker says, “they just overlook you.”

She finally got a loan from a nonprofit in Raleigh two hours away that provides financing to small businesses but not other traditional banking services. She must drive 19 miles every afternoon to make cash deposits or get change for her cash register, and expects to make a two-hour trip when she wants to refinance. Without a local branch close to her business, she says, “it’s very aggravating on a day-to-day basis.”

The financial fabric of rural America is fraying. Even as lending revives around cities, it is drying up in small communities. In-person banking, crucial to many small businesses, is disappearing as banks consolidate and close rural branches. Bigger banks have been swallowing community banks and gravitating toward the business of making larger loans.

Distant banks with few ties to local communities—which often rely heavily on algorithms to gauge creditworthiness—are also less likely to have the personal relationships that have helped local bankers judge which borrowers were a good bet.

The phenomenon, almost automatically, is getting worse. Bankers say they don’t see enough business in small towns. Small towns say bank closings make it harder to do business.

“We’d like to make loans in all the markets we are in,” says R. Lee Burrows Jr., chairman of Union Bank in Greenville, N.C., population 91,495. “But sometimes the demand isn’t there,” he says. Banks’ “risk tolerance is substantially lower than it was pre-2008,” he says. Union was called “the little bank” until July, when it acquired another bank and moved from Kinston, population 20,923.

Southern Bancshares Inc. and PNC Financial Services Group Inc., the lenders Ms. Baker contacted, say they don’t comment on specific customers.

The interior of Merchant’s National Bank by Louis Sullivan

The value of small loans to businesses in rural U.S. communities peaked in 2004 and is less than half what it was then in the same communities, when adjusted for inflation, according to a Wall Street Journal analysis of Community Reinvestment Act data. In big cities, small loans to businesses fell only a quarter during the same period, mainly due to large declines in lending activity during the financial crisis. Adjusted for inflation, rural lending is below 1996 levels.

Of America’s 1,980 rural counties, 625 don’t have a locally owned community bank—double the number in 1994, federal data show. At least 35 counties have no bank, while about 115 are now served by just one branch.

“There’s been a slow seep, a slow letting air out of a balloon over a long period of time,” says Camden Fine, chief executive of Independent Community Bankers of America, a small-bank trade organization. “There’s less demand for credit. There’s less supply.”

Colorado State University economist Stephan Weiler found that declines in small-business lending in rural areas are linked to declines in the number of new businesses two to three years later—a phenomenon he didn’t find in urban areas. The falloff in lending is particularly important, he says, because other types of startup capital are typically scarcer in rural areas.

“To say that I am concerned is an understatement,” says Ray Grace, North Carolina’s commissioner of banks. The number of community banks is shrinking, and larger banks are taking deposits gathered in rural areas and deploying them in urban communities, he says.  “It sucks the capital out of rural communities.”

Between 2009 and June 2017, North Carolina counties currently considered rural by the Centers for Disease Control and Prevention lost 131 bank branches, banking-regulator data show. That 18% drop compared with a 2% drop in Mecklenburg and Wake counties, home to Charlotte and Raleigh.

The gap is the more striking because North Carolina is a banking center, home to Bank of America Corp. and BB&T Corp. Bank of America has eight branches in seven rural counties in the state, down from 21 in 17 rural counties three years ago. “As the U.S. population continues to move to larger population centers,” a Bank of America spokesman says, “we want to insure that our branch coverage matches where people are moving.”

To be continued

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