Editor's note: This article is one in a three-part series analyzing the impact of bank branch closures in the U.S. For a piece analyzing how closures are disproportionately affecting majority-black communities, click here. For a piece looking at the Community Reinvestment Act, click here.
Ben Moses calls the repair shop from his fields in Northampton County, N.C.
Source: Zach Fox, S&P Global Market Intelligence
Ben Moses' combine just broke down in the middle of a harvest. The 30,000-pound machine can pluck and process 320 bushels of corn in a matter of minutes but now sits immobile, its bright green exterior stark against the browned husks of corn. He thinks it will cost $4,000 to replace the busted tire.
He is not worried — he has cash at the ready. Lately, the North Carolina farmer has stockpiled more and more cash so he can tend his corn, soybean and cotton fields without any credit from a bank.
"Suppose I didn't have it and I had to call someone and they had to make a decision on that tire before I can finish. I've jeopardized the whole corn crop over $4,000," Moses said.
It wasn't always like this. Moses said he used to have local bankers who could provide credit at a moment's notice. But there aren't any banks in town anymore, and any banker he does work with will take up to two weeks for any type of credit decision.
Moses' farm is just outside Rich Square, N.C., where the last bank closed in 2016. The town, near the border with Virginia, is one of nine municipalities that dot the rural countryside of Northampton County. Each town has its own square with small, ever-shrinking collections of mom-and-pop shops. They used to all have banks. Now, just the county seat of Jackson has one.
Across the nation, banks have closed branches by the thousands as more customers use online and mobile services. The closures have disproportionately hit majority-black communities like Northampton County, where 58% of the population is black. Since January 2010, banks have, in aggregate, closed 14.6% of their branches in majority-black communities, compared to 9.7% for non-majority-black areas. Northampton County lost five of its six bank branches over the same period.
Moses said he feels that bankers give black borrowers a tougher time. He said bankers have demanded more collateral for the same loans they more readily offer Moses' white counterparts, and he has to pay higher rates. There is evidence that Moses is not alone. Research has shown that banks are more likely to offer lending help to white entrepreneurs than black ones. And prosecutors have charged roughly a dozen banks over the last five years for treating black borrowers differently, including charging them higher rates.
"There are two Americas in America. I'm in the second America," Moses said. Asked whether race played a role in lending decisions, Moses said: "That's a given. To keep someone from having that much leverage over me, I just get up early and [work hard]."
Northampton County's agriculture-dependent economy has stagnated, and its shrinking population has made it tougher to keep branches open. Locals suggest banks could make it work if they tried harder. And the locals say their economy is struggling to regain its footing because banks have abandoned the relationship banking model that produces stable, if unspectacular, income.
Dollar store economy
Northampton County is one of many areas across the U.S. struggling to reinvent itself. While much of the nation is enjoying an economic boom, the area keeps losing jobs — and people. The county's population peaked in 1950 at around 28,000. In 2017, the figure was under 20,000, according to the Census Bureau.
Cotton fields ready for harvest in Northampton County, N.C.
Agriculture has been the region's lifeblood, an industry that farmers and economists say has not been conducive to economic growth. Over time, profit margins have compressed, making it harder for farmers to earn a liveable wage.
Northampton County's economy has suffered other ailments common among struggling U.S. economies. The county's nine towns used to serve as places of respite for cross-country travelers until the construction of Interstate 95 bypassed Northampton, depriving the economy of a leisure industry. And Walmart opened in nearby Roanoke Rapids — a 15-mile drive that can take 30 minutes on the country roads — in 1990.
Academic research has estimated that Walmart openings drive 17% declines in sales volume at existing stores. For low-margin businesses such as grocery stores, that loss can be devastating. No grocery stores remain in Jackson, and there are just a couple in the county. Locals generally trek to Roanoke Rapids to shop, or, if residents lack the transportation or time to make the trip, visit one of the many dollar stores in the county. There are Family Dollar or Dollar General stores in nearly every Northampton municipality: Jackson, Woodland, Conway, Rich Square, Garysburg, Gaston and Seaboard.
"The main growth in the county right now is from the dollar stores," said Judy Collier, executive director of the Northampton County Chamber of Commerce.
There are a few bright spots. The area's agricultural economy continues to produce corn, cotton and soybeans. And the county's soil is famously conducive to peanuts. Severn Peanut Company, one of the county's largest employers, supplies the in-shell peanuts for most professional baseball teams and sells a lineup of peanut products under the Hampton Farms brand name. Timber harvesting is successful, and a Canada-based forestry company has a large farm in the county. A homegrown company called Resinall Corp. has stayed put and expanded its production of resins used by other companies to make printing ink, paint and other products.
But small-business growth has been scant, and locals say the dearth of banks in the area is a significant contributor.
"It's hard to demonstrate to a banker who's not here the value of the community and the value of the business in the community," said Gary Brown, director of the Northampton County Economic Development Commission. "If there's a local bank that understands the value of the community and the potential value of a business to that community, that's one thing. But if you're selling on both fronts, that's a different game."
Death of relationship banking
Years ago, when most of the towns in Northampton had banks, the nature of lending was different. Moses said he could rely on his local banker for immediate credit, and there was little concern if a crop failed to produce as expected. Surveying his crop fields on a sunny October 2018 day, Moses grimaced as he looked at the field's low-lying areas, recently flooded by the outer bands of Hurricane Florence.
"You don't get 15 inches of rain in August, that's unheard of," he said. "These were things that your local banker — he already knew that, so it wasn't a surprise when you came in and had to restructure. He was already thinking about, 'What can I do to help you?'"
When Moses got his start in the late 1970s, his local banker would visit his farm to understand his operation. That afforded the banker confidence that Moses maintained his fields. With that comfort, Moses could depend on the bank for emergency credit if his combine blew a tire. Even if he did not have the cash in his account at that moment, he could write a check and know the bank would honor it.
Those days had passed long before PNC Financial Services Group Inc. closed the last branch in Rich Square. Moses said he would deposit $20,000 checks that he received for selling his grain to Perdue Farms, a food processing company that books nearly $7 billion a year in revenue. Still, the bank would hold all but $100 from Moses' five-digit checks for 10 days until the check cleared.
"Once you key a check in, you already know Perdue is good for it," Moses said. "What if I needed that for fuel?"
Blake Flythe in his repair shop.
Blake Flythe offers check-cashing services without the wait at his auto repair shop in Conway. He said superior customer service keeps his customers from going to Walmart where he cannot compete on pricing.
Flythe's check-cashing is popular with clients who struggle with online banking or who lack the time and transportation to travel to Jackson. The clients will run up bills on charge accounts for fuel, oil changes or other services. Then a client will sign over a paycheck, Flythe deducts what his business is owed, pays out the client the remainder and deposits the check in his account.
There is no charge for the check-cashing service, and Flythe pays out the checks in full before depositing them. He said he has never had an issue since the paychecks are with the county's largest employers, so he has comfort knowing the check will clear.
"We try to treat our customers right," he said. "We try to be fair, and that's why I feel like we've been here nearly 61 years."
Jim Troutman, a retired banker, said banks used to offer immediate credit availability.
Troutman managed First Citizens BancShares Inc.'s Conway branch, which the bank shuttered in 2014. Each branch used to have loan officers with individual lending authority up to $1 million for their customers, he said. But as banks grew in size and management focused on efficiency ratios and cross-selling, credit decisions were increasingly made by back-office staff using automated underwriting models, he said.
"I went out and visited the farmers," he said. "I closed loans sitting at their kitchen tables. You knew your customer. You knew how well he kept his equipment in shape or didn't. You had a good feel for that customer, and the customer had a good feel for you."
Over the years, it became increasingly difficult to convince management that agricultural lending was worthwhile considering the up years and down years, depending on the weather. Automated underwriting complicated credit decisions since a bad year meant a poor tax return. Even in the face of Northampton County's ailing economy and the unpredictable agricultural industry, Troutman said his branch made money.
Ben Moses works his combine after repairing a busted tire.
"Even when they closed it, it was profitable," he said. "It wasn't making a bunch of money, but it was profitable."
Banks have started to focus more on volume in recent years. Consultants say a branch needs at least $25 million of deposits to be profitable, and the average U.S. branch reported $70 million of deposits in 2018. The Conway branch reported $13 million of deposits the year before it closed. In rural communities, the focus on cross-selling to maximize the economic utility of depositor accounts did not make sense, Troutman said.
Moses said the banks' exits and their focus on automated underwriting based on tax returns have contributed to the community's downward spiral. In years past, Moses would not have paid for his combine repair in cash. He would have used credit because banks knew their clients and could lend on character.
"That's the way it used to be," he said. "But, see, we were people then. We're not people anymore. We're numbers."
Street Talk is a podcast hosted by S&P Global
In the episode, Zach Fox, senior reporter and author of the three-part series analyzing the impact of bank branch closures, explains how more branches have closed in majority-black communities than other areas, which institutions have closed the most branches in those markets, what happens to communities when banks leave and whether current regulations such as the Community Reinvestment Act encourage institutions to serve those markets.