After years of financial deterioration and severe undercapitalization, regulators closed Kentland Federal Savings & Loan, the nation’s smallest bank.
That failure was followed by the closure of $73 million asset Small Business Bank, highlighting the ongoing decline of our nation's small community banks.
This article asserts that the disappearance of small banks may disproportionately harm rural communities, where local institutions provide essential access to credit and financial services. The share of U.S. banks with less than $100 million in assets has fallen from 43.5% in 2006 to just 13% today.
The Vanishing Community Banks
JRN 43:28
Two banks have failed in the past two weeks, bringing the year-to-date total to four bank failures. Don’t be surprised if this is the first you are hearing about them. Both banks were quite small. If you were not one of the few with an account or a loan from one of them, you likely had never heard of them. The first, Zero-Star Kentland Federal Saving & Loan Assoc., Kentland, IN (28722), was the smallest bank in the nation, with just $3.808 million in assets. The other, Zero-Star Small Business Bank, Lenexa, KS (25744) was closed the following Friday. Its asset size was $73 million.
Kentland Federal had been rated zero-stars since its third quarter 2025 financial data was evaluated and had been on Bauer’s Troubled and Problematic Bank Report for three years prior to that. When first quarter 2026 data was released showing the diminutive bank was now “Significantly Undercapitalized”, we knew its days were numbered. Small Business Bank was “Adequately Capitalized with the March data, but had ben plagued by bad loans. It had been relegated to Bauer’s Troubled and Problematic Bank Report since the fourth quarter of 2024 data.
We have reported on Kentland Federal twice this year already (JRN 43:03 and JRN 43:19), not because of its capital levels, although we knew they were sinking. We were reporting on its dismal loan performance. In fact, in the second blog we wrote: “To date, Kentland Federal has not been able to right the ship. On the contrary, its loans deteriorated further. We can’t blame this one on the local economy; the other two community banks that operate in this small town are doing great (5-Star Kentland Bank, IN (13843) and 5-Star Fowler State Bank, Fowler, IN (1821)).”
Fortunately, that is still the case as Kentland Bank has assumed all deposits and most assets from the failed institution. The sole branch of Kentland FS&LA will remain closed, but customers had immediate access to their accounts at the nearby Kentland Bank branch at 111 North 4th Street, as well as four other locations in nearby towns. (And locals need not worry, the nearby Mainstreet Lounge & Pizzeria is still hopping.)
With less than $4 million in assets and just two employees, Kentland FS&LA was the smallest bank in the nation. That got us thinking about other small banks. While there aren’t any other banks quite as small, there are three remaining banks with assets under $10 million.
The smallest U.S. bank now, by assets is 2-Star Transact Bank, N.A., Denver, CO (13986), which has problems of its own. Originally established in 1905 as Palisades National Bank, Palisade, CO, Transact Bank more recently operated under the name Colorado National Bank.
Colorado NB was first added to Bauer’s Troubled and Problematic Bank Report in 2016. The bank’s holding company filed for Chapter 11 (reorganization) bankruptcy in November 2017. In 2018, two Latvian men, the owners of a payment processing firm, SIA Transact Pro, purchased the struggling bank and injected $2 million of capital. That was when the name was changed to Transact Bank.
The two men intended to leverage the technology and expertise from both sides of the pond to create an “unparalleled platform for conducting commerce”. They sold Colorado NB’s second branch in Palisade and focused their attention on Denver. It worked for a short time and Transact Bank came off the Troubled & Problematic Report. That was short-lived, however. Six quarters later, Transact Bank, the bank built for cross-border payments, found itself right back on that report.
There does seem to be interest by another Latvian to purchase what is now just a $6.881 million bank. Transact Bank, still affiliated with Transact Pro in Latvia, is well-capitalized and has no issues with loan quality, but it has been years since it has posted an annual profit. Only time will tell how this plays out.
The other two banks with assets less than $10 million are true community banks. They are 4-Star Equitable Savings & Loan, Cadiz, OH (29966) and 3-Star State Bank of Burrton, Burrton, KS (16583). Each operates through a single office, has only three employees (full-time equivalent), and is shrinking.
Cadiz, Ohio has three other banks operating in town but there are no other banks operating in Burrton, Kansas. That makes Burrton a potential banking desert. A banking desert is a census tract with no bank branches within a certain radius. That radius is determined by population. In urban communities, the radius is just two miles, for suburban communities the radius is five miles, and for rural communities, like Burrton, the radius is ten miles.
Without a local bank, residents lose important opportunities to build wealth and improve their financial position. While Burrton is well equipped with internet access, not all can afford it. An estimated 15% of the population lives below the poverty line and fewer than 12% of Burrton residents have a bachelor’s degree or higher. State Bank of Burrton is a much-needed lifeline for its community.
The term “community bank” is often referencing all banks with less than $10 billion in assets. (In other words, all except the really big banks, regardless of their modus operandi.) We believe small-town USA would agree with Bauer that there is something wrong with that. We would go so far as to say that most citizens of rural America would think of a community bank as one with $100 million (or less) in assets and, more importantly, one that cares about the community.
Here is a disturbing trend:
- In 2006, 43.5% of all U.S. banks had less than $100 million in assets. These small community banks held about 1.8% of all industry assets.
- By 2016, only 27% all U.S. banks had less than $100 million in assets and held 0.6% of industry assets.
- Today, only 550 banks (13%) reported less than $100 million in assets. They hold just 0.13% of total industry assets.
The biggest losers in this situation are the people who live in these rural communities.