Bank’s Customer Loyalty on Deposit as It Rejects Conglomeration

Around the courthouse square here a half-dozen businesses are boarded up. Small farms, vacant and weed-choked, lie forsaken in the countryside.

Such sights abound in rural America. But this spot, Holmes County, has so far escaped at least one grim national trend. It still has its own bank.

All across the land small-town banks, community banks, as bankers call the small fry with less than $100 million in assets, are being gobbled up and sold and sold again at a startling rate.

Since 1980, the number of independent community banks has plunged from 9,667 to 2,733 and one banking consultant predicts the number will decline by half by the year 2000.

It has come to the point where only 63 huge banks, with assets of more than $10 billion, now control half of all the banking assets in America.

The small independents, it seems, are fast becoming an endangered species.

“Community banking is a cottage industry,” said Marshall Milligan, who had just sold his bank in Ventura, Calif. It is an industry, he said, “designed to go the way of blacksmiths and butcher shops.” Milligan is the great-grandson of Achille Levy who founded the Bank of A. Levy 1882. It had been in the family all those years.

Here in Mississippi, the Holmes County Bank & Trust Co. has also remained in the family of its founder, doing business on the same corner of the square in Lexington for nearly as long.

“We’ve had some moves on us, some polite inquiries,” said its current board chairman, W.R. Ellis III. All of Ellis’ customers, all of them, know him as Billy.

“But we have a lot of people who’ve helped us through the years,” he said. “A lot of workers I feel obligated to. I would never sell out from under them like a lot have done.”

The Holmes bank’s assets are a little more than $60 million, with loans of about $26 million. This county, once terraced with small family farms and large cotton plantations in the rich Mississippi Delta, now is sorely depressed. Its biggest payroll is a mobile home factory. Its second biggest is welfare.

So why would a big hungry outside bank come sniffing around here?

“The only reason the big banks want us,” Billy Ellis said, “is because we’re only loaned up 48%. That’s the loan-to-deposit ratio. A big regional or national bank would like to take our deposit money off to Memphis or someplace and loan it out.”

What’s driving many community banks out of business, analysts say, is the ability of regional banks to process some loans in bulk, such as small-business loans, which allows them to charge less than small banks. Often, too, the small banks can’t keep pace with advances in electronic-banking technology. Expensive government regulations take their toll as well.

But there’s a trade-off. The new banks’ officers rarely if ever have the local business knowledge of the natives they replace. Bankers consider this essential to making responsible loans. Not a few eager out-of-town loan officers have underestimated the risk and gotten burned.

Large-bank bureaucracy also unnerves customers. It can take weeks for a loan application at a branch bank to work its way up level-by-level to a final decision.

“We had a loan application, a big one, come in one Monday afternoon,” said Ellis. “I called all my directors and they were in my office Tuesday morning. The customer came in Wednesday to pick up his money.”

Large banks find they can rarely match the personal service community bank customers are accustomed to and often demand.

When Jeff Alexander, a California feed-store owner, saw his small bank in Thousand Oaks get swallowed up, he stalked off and took his business to a community bank in another town.

“I won’t bank with the big guys,” he told a reporter. “I don’t like being a number. I’ve got to have that personal relationship.”

Paul Nadler of Rutgers University’s management school deplores the steady demise of small banks. He recalled fondly, for an article in American Banker, a phone call he once got from his local bank:

“Mr. Nadler, you forgot to sign your check to pay your phone bill. Do you want us to honor it?”

Later that bank was swallowed up. The new bank, without notification, assessed a $12 charge for use of his ATM card. He complained and was promised a refund. It never came. Next, the bank reduced its interest on deposits to 1.35%. He asked about that.

“Well, that’s what they pay,” he was told.

“It’s a sign of a good bank,” Nadler wrote, “when the employees talk about it as ‘we.’ When they call it ‘they,’ watch out.”

The Holmes County B&T;, to all its 28 employees, is decidedly a “we” bank, and more. It is also sort of a museum--and library. It is a most unlikely bank.

No severe marble counters and polished brass fixtures in this bank. What catches the eye instead are six hugely antlered caribou heads arranged in a row across the lobby wall. A musk ox stands nearby, available for stroking. And a javelina, a timberwolf, elk, bighorn sheep--in all, 14 creatures hover about. A black bear stands at the bank president’s office door.

Ellis is an outdoorsman, a world-class bow hunter. He is also a collector. And researcher. Shelves on one wall contain every National Geographic magazine from Vol. 1 No. 1 to the current issue.

“Sure,” he said, “folks can come in and read them any time they want. Can you imagine all the information there?”

But to the county’s 21,300 people, the Holmes bank, like many community banks, serves a more fundamental local role. Lexington, a town of 2,000, is well off the beaten track out here 62 miles north of Jackson, the closest city of any size.

These are hard-pressed country folk. Over the past dozen years they have watched small family farms disappear, one after another, and large prosperous plantations fall, one after another, into the hands of absentee corporate investors.

For these shaken people the bank not only handles what business remains to them but stands as a symbol of stability, the rock that parts the stream even though the stream is all but dry.

Their needs are often small, but critical. “May I borrow $60 for some butane until my check comes?” Yes, this bank will make loans that small and smaller.

“I’ve been banking with Billy Ellis all my life,” said Rodalton Hart. “My daddy banked with his daddy and my granddaddy with his granddaddy. That’s on both sides of my family and my wife’s family too.”

Hart and his two brothers farm 2,000 acres of cotton and corn and run about 100 steers. It’s one of the county’s remaining larger farms.

“Our people go back a long way, all the way back to the Depression before I was born,” Hart says. “We’ve been through some pretty rough times. The bank never has let us down, always taken care of what we need. Still does.

“They take care of my furnish,” he said, a rural Southern term for a loan to buy seed and fertilizer, to be paid off when the crop comes in.

“Nowadays I get my crop loan through the government but the bank buys my cows, all my equipment. If I need $500 to make my payroll, pay my bills, the bank will take care of it. Whatever I need. They all know me at the bank.”

An experience of Earline Hart, the wife of Rodalton’s brother James, demonstrates the sort of family familiarity that only a community bank can provide.

“I was fresh out of college back in 1980,” she recalled. “I needed to establish credit, so I went to the bank. It was the first time I’d been in the bank in my life and I really didn’t know what to expect.

“I told Mr. Ellis what I wanted. He asked me to sit down, asked my name and how old I was. I told him I was Earline Wright--I wasn’t married then--and had just graduated from Mississippi State, and could I make a $200 loan. He said he knew my father, had done business with him.

“He said: ‘We can’t let a Bulldog down. What do you want me to do with the check?’ He trusted me. He gave me a chance to prove myself. Since then I’ve learned that Holmes Bank is known for giving people a chance.”

The bank is also known for building churches, notably small churches with black congregations which abound in Holmes County.

Just now the bank is financing a new building in town for a congregation that began 78 worshiping years ago in a blacksmith shop in the Beulah Grove community down a dirt road north of town. In 1972 the pastor, the Rev. James Rodgers, borrowed $10,000 from the bank through Billy Ellis Jr., and now is working with Billy Ellis III for the new church.

“I showed our plans to Mr. Ellis,” Rodgers said, “told him we had raised $50,000 toward a new church and needed to borrow $150,000 to build it. He shook my hand and said, ‘We’re proud to be a part of it.’

“I couldn’t have gotten that kind of money from a bank that didn’t know us, our history. It was an act of faith on their part.”

Mississippi’s deputy banking commissioner, John Allison, says that among the community banks left in the state the Holmes bank is fairly typical. “They’re generally family operations and know everybody in town,” he said. “They can make a loan decision over breakfast, have an answer the same day.

“Even more, they’re an integral part of the community. They know what’s going on. If the school board, or the town supervisors, for example, need a small bond issue, the bank could buy the whole set of bonds. It has faith and credit in the local area even without a published bond ratings. A large bank wouldn’t consider that.”

When he took office 24 years ago, Allison said, the state had 125 banks. Now only 87 remain. About 60 of them are community banks, disappearing at a rate of two or three a year.

And the customers aren’t always the only ones offended by the trend.

Allison tells of a small bank on Mississippi’s Gulf Coast that was swallowed up by a large Alabama bank. The large bank left the small bank’s president in place to run its new acquisition--according to the large bank’s methods.

“Pretty soon the president said she was fed up with bureaucratic banking, and quit,” Allison said. “Now she and the other directors have used the money from the sale and have opened their own community bank. It’s doing fine.”

The same sort of reverse trend has been happening in North Carolina, Allison said.

“They didn’t like these deposit-gathering factories coming in to make loans somewhere else, so they’re chartering new small banks in their own areas. I foresee this happening in Mississippi. People just seem to want a local bank.”