After Chappell Hill Bank was robbed early last year, Smith replaced the large "no firearms" warning at the bank's lone branch with a sign encouraging customers to carry licensed concealed weapons inside. The bank also pays employees to take a concealed firearms course.
"If you're going to need help, you better help yourself because the government is not going to help when you need them," says Smith, the 104-year-old bank's chief executive and a member of the National Rifle Association.
"I've got seven women in teller cages who are licensed to carry a firearm," Smith says. "I wouldn't try to rob them."
Word of the sign went global, with Russian media calling them "the crazy Texans," Smith says. Deposits poured in to the $24 million-asset bank from sympathizers in 12 states and three countries. No robber has dared threaten the bank since its policy change.
Yet guns and ammo can only ward off so many threats to the bank as it tries to return to profitability. Smith, like many other small-bank CEOs, knows his institution's future also will depend on overcoming anemic loan growth and mounting regulatory costs.
"The hard times are not even here yet," says Smith, who left a career as a Houston real estate agent in 1984 to run the then distressed bank right before the savings and loan crisis. He quickly replaced management, restructured the bank and doubled its size by buying $3 million of assets from the Resolution Trust Corp.
Today, Chappell Hill Bank epitomizes small-town banking. Instead of making loans for high-end speculative properties, such banks expanded for more than a century by lending to farmers, local businesses and residents in towns with as few as 300 people.
"Are these community banks important? Yes. Are they going to survive? I sure hope so," says Robert Bacon, a deputy commissioner at the Texas Department of Banking. The state is home to some of the nation's smallest banks, including Chappell Hill and the 77-year-old Oakwood State Bank, which has $4 million of assets. Such small banks "are definitely under a lot of pressure," Bacon says.
"Everything we hear about is of the regulatory burden," Bacon says. "Regulation is mostly well intended but you have got to look at the unintended consequences. … One size does not fit all, and the one thing state regulators are trying to bring to the table is common-sense regulation."
Texas, along with Illinois, Massachusetts and Michigan, has some of the oldest banks in the country, with some nearing 200 years in business. Many of these are small, rural banks with especially weak growth prospects.
Banks with less than $100 million of assets had shrunk 5.5% at Sept. 30 compared with a year earlier, according to the Federal Deposit Insurance Corp. Meanwhile, all insured banks increased assets by 3.2% during the same period.
"Just by their nature, those little rural banks don't have a lot of loan demand," says Dan Bass, a managing partner at FBR Capital Markets.
"They've been able to historically make a spread off securities. But with securities at all-time lows and the net interest margin getting squeezed, it's hard to make any money."
That leaves the leaders of rural banks with big challenges. Many have looked beyond their communities in search of loans. Houston is just 65 miles away from Chappell Hill, but lending in larger markets would mean competing with bigger banks and cutthroat pricing.
