Ron Tate, the mayor of Runnells, Iowa, has been trying to get a new bank to open shop in his town, population 506, ever since Great Western left in September. The rural community east of Des Moines hasn't been without a bank for more than a month or two in his time there, he said, and it's hard for the town to function without a local place for businesses and older residents to do their banking.
"Without a bank branch, we're missing a big part of our community," said Tate. "I can't find anyone that wants to open a new branch here."
Banking industry experts say a similar trend is beginning to play out nationwide as banks respond to new regulations cutting into the revenue they previously derived from overdraft fees, credit card transactions and mortgage lending. U.S. bank earnings are up, but cost-cutting is responsible for most of that growth.
The number of Iowa bank offices and branches fell nearly 3 percent from 2009 to 2013, and was down a little over 3 percent nationally, according to the Federal Deposit Insurance Corp.
FDIC statistics don't tell the whole story though, according to Jim Chessen, chief economist for the American Bankers Association. That's because they reflect not only the closings of small-town branches, but also new branches opening in high-traffic areas.
The data also are impacted by the transition to online banking.
Chessen said he's confident the situation in Runnells is not an outlier but is typical of what's going on across the nation. The disproportionately large regulatory burden on community banks is partly to blame, he added.
"Cost pressures have led to greater consolidation of the industry and much more focus on cost containment," Chessen said. "The American Bankers Association has continually pressed the regulatory agencies to ! have regulations commensurate with business structure and true risk. If the regulators continue to put requirements on small banks that are designed for large complex institutions, we will see fewer and fewer community banks."
Doug Bass, Great Western's regional president for Iowa, Missouri and Kansas, said its branch count has increased to 180 from 125 since 2009. That includes 50 branches acquired in 2012 as part of its $41.5 million purchase of First Federal Savings Bank of Iowa.
Great Western, based in Watertown, S.D., had $9.3 billion in assets and 1,466 employees as of Dec. 31. Its annual earnings grew 31 percent to $106.6 million in 2013.
"The trend in banking is toward fewer 'in-branch' transactions and narrower profit margins," Bass said. "Great Western Bank is investing significant money into enhanced online and mobile banking products, which are being demanded by consumers. To offset this cost, a reduction in physical locations has and will continue to occur across the industry."
Patrick Jury, head of the Iowa Credit Union League, said its 116 members are facing similar pressures. "There's a big debate within credit unions right now because there's so much more demand for electronic banking," Jury said.
The pressures aren't just causing banks to abandon small rural communities. They're leaving some poor urban communities, too.
John Rigler, president and chief executive officer of State Bank, says branch closings are happening in many locations. He blamed his decision to close a branch in New Hartford on new federal regulations that halved the $76,000 that State Bank was taking in each year from debit fees.
The New Hartford branch was located quite literally on Main Street USA, and the building has been empty since it was shuttered on Nov. 15, 2012. It was a "money loser," according to Rigler, but the community banker said he appreciated how important it was to New Hartford and tried to keep it open anyway.
"The New Hartford bank was closed as a ! result of! the geniuses in the U.S. Congress who think these onerous regulations make sense," Rigler said. "We conducted a review of our operations and had to pick where we could cut costs to handle the additional costs and lost revenue from the federal government's actions. Unfortunately the folks living in New Hartford suffered as we decided to close their bank."
State Bank is based in New Hampton and has about $360 million in assets. It had 70 employees as of Dec. 31 and earnings of $4.6 million in 2013.
Like Runnells, New Hartford has about 500 people and is located less about 19 miles from downtown Des Moines. But that's still too far for many older residents, according to Tate, the Runnells mayor. Many of them also built their weekly schedules around regular visits to the bank.
"Now I can't find anyone that wants to open a new branch here," Tate said. "They're all looking at the bottom line. They're not thinking of the people in town, particularly the older people who don't know how to bank online."
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