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Closure of rural bank branches a concern, but Mississippi has factors that ameliorate that trend

By BECKY GILLETTE

The Federal Reserve Board recently produced a report showing that half of the U.S. counties studied lost bank branches between 2012 and 2017, “with some predominantly rural counties experiencing considerable declines. The deeply affected rural counties tended to be less economically well off and have residents with lower levels of education. They also had a greater proportion of minority residents relative to other rural counties.”

Andy Anderson

Gordon Fellows

Industry consolidation, especially in smaller or rural communities, is an ongoing challenge, and is being continuously influenced by factors including interest rates and the increasing cost of regulation required by the Dodd-Frank Act, said Gordon Fellows, president and CEO, Mississippi Bankers Association (MBA).

“Community banks across the state are working hard to keep branches and headquarters in rural communities because we know that physical presence is integral to the success of those communities,” Fellows said.

A positive for Mississippi is that it is home to the largest number of Community Development Financial Institutions in the United States.

“These banks strive to meet the needs of the underserved as part of their mission,” said Andy Anderson, president and CEO of the Bank of Anguilla and vice chairman of the MBA Board of Directors. “This necessitates maintaining branch offices in rural locations that may not necessarily earn money. Bank of Anguilla has three branches in addition to the main office, all in two of the poorest, least populated counties in the state. Two of these branches actually lose money on an accounting basis, but our board has never considered closing them. They are vital to the communities in which they operate.”

Mississippi’s economy is in a strong position, and rural banks should usually do better in a prospering economy. However, the impact of overall economic growth is not always experienced in rural communities due to the fact that many rural areas do not have the business lending or deposit base of the more urban parts of the country, Anderson said.

“Also, even in a prospering economy, the agricultural sector may actually be performing poorly which also tends to hurt rural banks,” Anderson said. “For Bank of Anguilla, the state of the farm economy is a definite concern. Agricultural loans make up almost 50 percent of our loan portfolio, and agriculture touches the rest of the portfolio. We are the only bank in the two counties we serve. We are also two of the counties that were most affected by the 2019 flood. In the end, about 45 percent of the land the bank finances for crops did not get planted.”

Many farm customers had hundreds or even thousands of acres they were unable to plant. Some customers never put a seed in the ground, while others were only able to plant several hundred acres instead of the normal two or three thousand acres.

“In addition, much of the crops that were planted had to be replanted several times and suffered poor yields due to the excessive rains or the starving wildlife devouring the crop,” Anderson said. “As the summer and fall months passed in 2019, it became apparent that this flood disaster would have a tremendous impact on the economy of the entire South Delta. Not only were the farmers affected but the local businesses, churches, individuals, and non-profit organizations were also hit hard. This trickle-down effect made 2019 a challenging and economically depressed year for the bank and the community.

“With tariffs negatively affecting commodity prices and the cash position of almost every farmer and business taking a hit in 2019, the upcoming year could be an extremely challenging year for farmers and for the agricultural economy. Even with these local economic challenges, and broader national industry trends, the Bank of Anguilla and many rural Mississippi banks are committed to serving their communities in good and bad times.”

The data collected by the Mississippi Department of Banking and Consumer Finance doesn’t separate banks into urban and rural. The data collected by the Fed showed a 7 percent decrease in branches between 2012-2017 while in Mississippi the combined state and federal bank branch reduction was 5.85 percent, said Mississippi Banking Commissioner Charlotte Corley. When you look just at state-chartered bank branches, this ratio improves to 5.26 percent.

“I’m pleased to report that in Mississippi we have four large (more than $10 billion in assets) banks domiciled in the state, three of these state-chartered,” Corley said. “All banks domiciled in the state are important. However, the larger banks have extensive branch networks in the state, as well as executive management that is focused on Mississippi. Banks headquartered in Mississippi support economic development in our state. Their executives serve on state-wide economic development councils and devote time and resources to their local communities.”

In addition to these large banks, Mississippi has 57 other state-chartered banks who serve their local communities financial needs, support local initiatives and serve on boards in their communities. Corley said while these banks may be smaller, many have widespread branching networks.

Corley recently attended an event where Philadelphia Fed President Patrick Harker was speaking, and he cited a couple of interesting statistics for his district over the past 10 years. One, he said since 2009, community banks have declined by roughly one third nationally and two, the average size of banks increased on average by 57 percent.

“I came back and looked to see how we compare,” Corley said. “In Mississippi we’ve only seen a reduction of 22 percent in community banks over the past 10 years and the size of our banks has increased 82 percent since 2009. In comparison, I’m proud of these statistics.”

According to the Annual Survey of Community Banks conducted by CSBS, concern over greater regulation following the Great Recession has shifted from regulatory burden to funding sources, liquidity, and technology/cybersecurity. Corley said bankers were pleased with S2155’s attempt to reduce burden on community banks, but believe there is still work to be done.

“Admittedly, community banks that operate in more rural areas may struggle to attract subject matter experts needed to fulfill critical compliance related roles, but there’s been work done in this area,” Corley said. “In October of 2018 an Interagency Statement on Sharing Bank Secrecy Act Resources was released. It encourages community banks to share resources to manage Bank Secrecy Act (BSA) and anti-money laundering more efficiently and effectively. Even beyond BSA, shared resource arrangements with like banks can improve operating efficiency, maintain regulatory compliance, and expand customer access to products and services. Sharing resources may achieve or exceed the same regulatory cost savings or economies of scale as consolidation.”

Corley said she is pleased that the financial industry in Mississippi is strong and well-positioned to support citizens and economic development in the state.

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About Becky Gillette