By Marilyn Kennedy Melia
Call it a banker’s Rorschach test: Consider a town, centered in a rural county that’s slowly losing population. Can you envision any scenario that would make a bank branch there viable?
As many banks see it, the only cost-effective path is to follow economic activity and population to the more urban areas, says Peter Skillern, executive director of the non-profit Reinvestment Partners in Durham, N.C.
In fact, there’s been media attention to banks closing offices in rural areas. A Wall Street Journal piece published at the end of 2017 states that of America’s 1,980 rural counties, “at least 35 counties have no bank, while about 115 are now served by just one branch.”
But even as some banks leave, others are acquiring their offices.
Because there’s no one official definition of the word “rural,” let’s consider it through the parameters set by the U.S. Office of Management and Budget, which defines rural as any county that’s not part of a metropolitan statistical area.
What is clear is that rural banking is hardly provincial. Bankers that succeed at it have a deep connection with market needs, along with creative ways to serve them. Here’s what they have to say about it.
We know this terrain.
“On a macro level, more people are moving to cities—so the success of a rural bank is contingent on…keeping those customers who are staying rural,” notes Joshua Siegel, founder and CEO of StoneCastle, which connects institutional investors with the community banking business. “That’s what’s driving competition and consolidation.”
That’s the macro picture. On the micro level, banks buying in rural locations are typically in a “sweet spot”—not too small to be able to make acquisitions, or too big to be unfamiliar with the opportunities in specific rural markets. That’s according to Stephan Weiler, director at Colorado State University’s Regional Economic Development Institute, and Luke Petach, doctoral candidate.
When BOU Bancorp acquired AmBancorp with its three locations—one in rural Wasatch County—the combined Utah-based network grew to 17 branches and some $1.4 billion in assets. This is a good example of a “sweet spot” institution with the confidence to profitably enter a rural market.
In fact, although Wasatch County is rural, it’s actually gaining population slightly, with residents attracted to the open Western landscape, says Roger Christensen, SVP at Bank of Utah. “We look at it as it is now, and consider the growth potential.”
ANB Bank—which maintains 11 rural offices out of a total of 31 in Colorado, Wyoming, and Kansas—hasn’t acquired a rural location recently. But it has invested in rebuilding some rural offices, shares CEO Koger Propst.
It’s not that ANB is adverse to acquisitions—but it looks for offices that are within a certain radius, or “loop” says Propst. ANB recently rebuilt a branch in Worland, Wyo., for instance. “But that same office wouldn’t make sense if it was in Nebraska. It would be an outpost too far. You have to have a footprint where you have leadership to help and coach [employees],” says Propst.
We find big advantages to small towns.
Forward Bank, which now maintains seven offices throughout central Wisconsin, will soon have nine. The bank has “stayed out of the urban areas where there is heavy competition,” explains President and CEO William Sennholz.
Where populations are thinner, there are marketing advantages and economies that compensate, says Sennholz. “You get fewer eyeballs, but more quality eyeballs,” he adds, referring to digital marketing.
Siegel agrees: “Rural areas aren’t typically high on target lists for large companies. And when it comes to SEO, the terms that larger companies are pursuing don’t tend to overlap with the kind of locally-targeted terms or content that community banks are pushing.”
Social media marketing efforts are also more easily amplified, adds Jennifer Sobotta, VP and marketing director at Forward. Regular posts on the bank’s Facebook page include photos of employees and others at bank-sponsored events, which are quickly picked up and re-posted. It’s an easy-to-track chain reaction that happens only in a more rural “everyone knows your name” environment, Sobotta explains.
Rural banks also frequently sponsor popular community events, like high school football games, where the bank name is noticed and appreciated, says Siegel.
We know how to make a personal impression.
In Texas, First Financial Bank has a large footprint, with some 73 locations throughout the state. The bank nevertheless has cultivated a reputation as rural-friendly, with some towns approaching the bank to establish a branch, says EVP Michele Stevens. “We want to go into markets where we can feel like a true partner in the community,” she says.
Usually, First Financial makes a low-key entrance. “We would go into an existing storefront first before we’d build a branch,” says Stevens. Then, “one of the first things we do is join the Chamber of Commerce and we make sure we invite all the city officials to a ribbon cutting.”
After that, the new-in-town First Financial bankers make appointments with the local businesses, hospital, police force, schools, farmers and ranchers.
Arkansas-based Arvest Bank also kept customers front-of-mind when it acquired Bear State Financial, whose 42 locations included some that were rural.
The personal touch was vital to customer retention, explains Arvest SVP Jason Kincy. “We spent a lot of time and energy on our conversion effort, and making the transition as smooth as possible,” he says. “Our actions spoke louder than anything else we could have done.” Branch open houses and bank-sponsored customer events were key to making customers and residents confident that Arvest would support the community.
At Bank of Utah, anyone hired as a rural branch manager must be willing to “join Rotary and Chamber, and maybe the local hospital board,” says Christensen. “We tend to hire people who have strong family ties with the community.”
Those personal ties help bankers understand what residents value. Stevens notes that when First Financial builds a new drive-through, “we always include an extra-wide drive-through lane, called a cowboy lane, to accommodate the oversize pickup trucks they drive—and the farmers and ranchers really appreciate it.”
We make good business partners.
Researchers Weiler and Petach found that for financing, small rural businesses depend more on a relationship with a local banker than do urban businesses. For one thing, alternative and online lending sources “might not have the data” to approve financing in rural areas, says Weiler.
Both agricultural and small business lending need the expertise of a loan officer who serves as partner to the borrower, says Christensen. “Say there’s an auto shop,” he explains. “And the owner loves repairing cars, but not accounting.” The loan officer can provide a kind of mini-MBA for the owner, suggesting how to maintain bookkeeping and other business functions, Christensen explains.
“We are completely committed” to cultivating skilled lending officers to work in ANB Bank’s rural markets, Propst says. The rural loan officers must be generalists, familiar with the full range of ANB loan products. If a small business owner funds his inventory needs from the money stream he takes his own income from, a loan officer may suggest a home re-fi as a way to raise funds.”
We use technology to bridge distances.
Advances in technology, “which improve branch functions such as check capture, electronic signature, and portal technologies, are lowering the costs of operations—such as courier runs—to service remote locations,” says Lane Martin, partner at consulting firm Capco. That makes such locations more attractive than in years prior.
Because rural branches are often a long driving distance from customers—and don’t offer the complete line of services available at a main headquarters, technology makes for a better customer experience.
If, for example, a rancher needs a consultation on generational transfers with a professional at the ANB Bank headquarters, “We will make the first meeting in-person,” says Propst. After that, the bank’s video conferencing system is effective.
For some First Financial customers who have large numbers of checks to deposit daily, making deposits via a mobile app can be cumbersome, adds Stevens. So the bank provides a remote deposit machine to allow stacks of checks to be conveniently be deposited at a distance.
Marilyn Kennedy Melia is a banking and personal finance writer based in Chicago. Email: [email protected].