Skip to content
Subscriber Only

Rural Banks Know Something Big Banks Don't

Community lenders thrive on “soft information” and a good-neighbor policy
Rural Banks Know Something Big Banks Don't

Ken Hale is chief executive officer and 40 percent-owner of the Bank of Montgomery, chartered in 1903 in Grant Parish, La., by a group of men that included his great-grandfather. The bank was knocked over by Clyde Barrow and Bonnie Parker. It survived the Great Depression. During the bank consolidations of the 1990s it expanded across the Red River into Natchitoches Parish. “There’s no price worth me selling the bank,” Hale says. “I would live with the guilt for the rest of my life.” Not that there’s much reason to sell: Like most community banks, Bank of Montgomery, with $190 million in assets, came through the financial crisis unscathed. Hale’s problem is that other owners nearby feel the same way. He can’t find any banks to buy.

Until the early 1980s, most Americans made deposits and took out mortgages at a local bank, chartered and owned within their county. Almost all consumer banks, limited by statute, came in just one size: small. Deregulation in the ’80s and ’90s allowed mergers within and then across state lines, prompting bankers and economists to wonder about the ideal size of a bank. Acquire branches in other counties, and a bank can spread out its fixed costs. Get too many new branches, and a bank’s portfolio becomes too complex to manage. In the last year, several studies have broadened this question to include both size and location. It turns out small, rural banks make smarter loans.