Banking Rural America

By Jeff Szyperski

It may sound funny for someone with a bank that’s been in operation for more than 100 years to be singing the praises of bank startups—stranger still for any banker to call for more competition. But new banks and the entrepreneurial spirit they bring to the industry are a sign that the future of banking is bright, so we should all want to see more of them.

That’s one reason I’m relieved to see the pace of de novos picking up, and to hear FDIC Chairman Jelena McWilliams pledge to simplify, improve and collaborate more on the de novo application process. We have a long way to go before de novo activity is restored to pre-recession levels, or even to counter current consolidation trends. But the FDIC’s interest in facilitating new charters, combined with an improved regulatory environment that bank investors will likely view as more hospitable, are important first steps.

Another reason new bank growth is so important to me personally is that I know how crucial community banks are to rural America. My bank, Chesapeake Bank, is headquartered in Lancaster County, Virginia—a rural county two hours southeast of Washington, D.C., that has the distinction of being the eighth oldest county in the country in terms of the average age of our residents.

We are not a booming metropolitan region that growth-oriented banks are clamoring to enter. We were never on Amazon’s long or short list for its second headquarters. The extent to which our community grows and thrives economically depends on the banks that serve it. And the banks that will serve a rural community best—and truly understand and respond to its needs—are the ones that call that community home.

While Lancaster County has more than one bank meeting its needs, other rural areas in our country are not so fortunate. They no doubt have felt a greater impact from the past decade’s consolidation than cities or suburbs. For small towns that lose their one and only bank, its residents and businesses are the poorer.

The increased urbanization of the country makes the situation even more critical. If we aren’t able to find a way to backfill areas hit hard by bank consolidation, the nation’s impressive economic recovery and growth will leave those towns behind.

Of course, new bank charters aren’t the only solution to meeting rural America’s needs. As Jonathan Hightower and Robert Klingler predict in their M&A outlook, some small rural banks stand to be transformed by bank management teams who have sold their institution—perhaps one they themselves started years ago—but want to get back to running a small, community bank. Purchasing and then superimposing a new business plan on an existing bank lets them scratch their entrepreneurial itch without suffering the hassles of starting a bank from scratch.

I consider that a very valid prediction—not only because I know others who have already done that but also because I know what a strong pull banking has. There’s nothing like driving down the street and being able to point to a development or a business that you helped make happen, a house you helped someone call home or a farm you saw through tough times.

Who doesn’t want to make that kind of difference? No wonder de novos are making a comeback.