DUNCAN, Ariz. — If you squint into the desert sunlight, you can still read the faded letters on the white sign atop the former bank branch overlooking the Gila River.
National Bank of Arizona, the last in a series of out-of-town banks to operate a branch in this small, geographically isolated community, closed its doors in July 2016. Today the beige-colored building is vacant, except for an ATM operated by another company, which charges $2.75 for a cash withdrawal.
Posted on the glass front door is a notice that invites visitors to patronize the bank's branch in Safford, Ariz. The trouble is, that location is 40 miles away. "We apologize for any inconvenience," the notice reads.
The local branch's closing has been a major blow to residents of Duncan, which is near the New Mexico border and was once a popular stop along the road connecting Phoenix and El Paso, Texas. Local business owners no longer have a place to deposit cash each night, nor anywhere nearby to apply for a loan. Many senior citizens, especially those uncomfortable with digital banking, have felt an outsize impact.
The absence of a bank branch in Duncan also makes it harder to attract new residents, said Richard Lunt, chairman of the Greenlee County Board of Supervisors, whose family has lived in the area for more than 100 years.
"Of course this is happening all over rural America — you see it all whittling away," Lunt said. "I guess they call it progress."
The total number of U.S. bank branches declined only twice between 1934 and 2009, but it has now fallen for six consecutive years, according to data from the Federal Deposit Insurance Corp. The 78,014 branches that were open in 2018 represented a 6.6% decrease from 2012.
The trend — driven by the rapid adoption of online and mobile banking — creates more of a challenge for residents of rural communities than it does for city dwellers. In 2017, only one in five people in metropolitan areas relied on bank tellers as their primary method of accessing their bank accounts, while the same was true for one in three people outside of metro areas, according to FDIC survey data.
The town of Duncan's experience illustrates how much the closing of the sole local bank branch can mean in a rural community, even to residents who were not particularly pleased with their branch before it was shut down. It also shows the creative ways that people adapt in banking deserts. And it foretells a worrisome future for many other small rural communities.
The economic implications are enough of a concern that the Federal Reserve has been studying what happens in areas where residents no longer have access to a local branch. The dynamics also are likely to influence efforts to revise the Community Reinvestment Act, which is meant to spur bank lending in low- and moderate-income areas.
"The loss of a bank branch has a ripple effect on a community as a whole," Randal Quarles, the Federal Reserve's vice chair for supervision, said in an October 2018 speech.
First settled in the 1870s, the high desert town of Duncan once had a bustling economy built on agriculture, interstate automobile travel and mining.
The area was long dotted with small farms, even though the land was never particularly well suited for growing crops. The retired Supreme Court Justice Sandra Day O'Connor wrote in her memoir about growing up on a nearby cattle ranch that the Gila River was "small and timid most of the year."
Today only a handful of farms survive, with some locals lamenting that water from the area is being sent to metro Phoenix.
Other residents trace the town's current economic troubles back to the construction of Interstate 10 in the late 1950s. Many drivers who previously would have passed through Duncan — and perhaps stopped for a meal, or filled their gas tank — now opt for the speedier route to the south.
Only mining has endured as a major source of local economic activity. The Morenci mine, which is a 40-minute drive from Duncan, is said to be the largest producer of copper in North America. With housing in short supply, many employees of Freeport McMoRan Inc., which operates the mine, make the daily commute from Duncan.
The town is also a magnet for bird watchers and mountain bikers, hundreds of whom ride in the Javelina Chase each spring, a race through the rocky terrain along the Arizona-New Mexico border.
Still, Duncan had an estimated population of just 789 people last year, which was down from 941 in 1950, according to the U.S. Census Bureau. Several hundred additional folks live nearby in tiny communities such as York, Ariz., Franklin, Ariz., and Virden, N.M.
On Duncan's Main Street, a semicircular sign atop a modest building memorializes the former Bank of Duncan. That locally based institution shut down in 1926 after an examination found irregularities in its books. At the time, the bank held $65,000 in deposits, which is equal to around $940,000 in today's dollars.
In recent decades, a succession of banks with headquarters elsewhere operated the town's sole branch. Phoenix-based Valley National Bank of Arizona was acquired in 1992 by the former Bank One Corp. of Chicago, which is now part of JPMorgan Chase. Later came Community First National Bank of Fargo, N.D., and Stockmen's Bank in Kingman, Ariz.
In 2006, Stockmen's merged with National Bank of Arizona, a subsidiary of Salt Lake City-based Zions Bancorp. Each time the branch changed hands, new checks with new account numbers arrived in the mail, and local residents chafed at the inconvenience. "It was frustrating to say the least," said Steven Lunt, chief executive of the Duncan Valley Electric Cooperative (and a distant cousin of the county supervisor).
Still, local residents took advantage of the ability to withdraw cash without paying a fee, while small-business owners would stop by to deposit cash at night.
During the years that National Bank of Arizona operated the branch, some residents complained that it was difficult to get approved for a loan. After the branch closed, there were even some who suspected that the bank had intentionally denied loan applications in an effort to make the branch less viable financially and provide a justification for shutting it down.
Valerie Smith, who was the operations manager for the Duncan branch of National Bank of Arizona before it closed and is now the town's vice mayor, dismissed that theory.
"Unfortunately that bank wasn't making much money," said Smith, who became a middle-school teacher after the branch shutdown cut short her career in banking.
A Zions spokesman indicated as much, saying that the Duncan branch averaged $8 million in deposits between 1999 and 2015, and held approximately $9 million in deposits a year before it closed. That compared with an industrywide average of roughly $160 million in deposits per branch, the spokesman said.
After National Bank of Arizona closed its doors in Duncan, local public officials worked hard to attract another bank. They suggested that the branch could be operated one or two days a week. They also floated the possibility of a banking kiosk. But their efforts failed.
In late 2018, the Federal Reserve held a series of listening sessions in Duncan and other rural communities hit hard by branch closings.
In Nicholas County, Ky., Fed officials heard about residents who lack access to high-speed internet service and need to travel 25 miles each way to make change. In an Amish community in central Pennsylvania, they learned about the challenges of traveling by horse and buggy to the nearest bank. And in Brushton, N.Y., they were told that when residents travel to the nearest bank, they are more likely to shop and eat in other towns, which has compounded the economic impact of the local branch's closing.
"Banks do not just cash checks and make loans — they also place ads in small-town newspapers, donate to local nonprofits and sponsor local Little League teams," the Fed's Quarles said. "As towns lose banks and bankers, they also lose important local leaders."
This past fall, the Fed published a report on bank branch access in rural communities. In aggregate, the impact of branch closings between 2012 and 2017 fell evenly across urban and rural counties, according to the report. Both urban and rural counties lost 7% of their branches.
But the Fed's researchers also determined that 89% of the U.S. counties that had no more than 10 branches in 2012 and lost at least half of them over the next five years were in rural areas.
"Rural counties deeply affected by branch closures had higher poverty rates, lower median incomes, a higher share of their population with less than a high school degree, and a higher share of their population who were African-American relative to all rural counties," the report stated.
Many people who live in rural places are slower to shift to digital banking channels, the Fed also noted in the report.
"People in rural areas generally prefer to go into a bank branch to conduct their business," said Craig Nolte, regional manager for community development at the San Francisco Fed and the organizer of some of the listening sessions.
Still, the Fed has been careful not to criticize banks that have closed rural branches. "The Federal Reserve has limited authority when it comes to influencing where and when banks close branches," Nolte said.
Critics contend that bank regulators should be doing more to keep rural branches open. "It's really common to hear, even from regulators, that people don't need a bank branch anymore," said Jason Richardson, director of research at the National Community Reinvestment Coalition.
He argued that maintaining rural branches should be a bigger priority for regulators, pointing to 2017 research from the University of Delaware that found each branch closing causes a 20% decrease in small-business loan volume. The study attributed its findings to the substantial role that relationships still play in small-business lending.
The question of how policymakers can address the loss of rural branches has recently drawn attention in Washington, though there is little agreement on what to do.
In December, Trump appointees at the Office of the Comptroller of the Currency and the FDIC proposed changes to Community Reinvestment Act regulations. The two agencies said that their plan is designed to encourage investment in rural communities by providing banks credit for activities that occur beyond the immediate vicinity of branches.
But Bill Bynum, the CEO of Hope Credit Union in Jackson, Miss., argued that the proposal would potentially lead to underinvestment in the most distressed rural communities, since the plan would allow banks to achieve a high performance rating by scoring strong marks in only half of the communities reviewed for compliance.
Another idea for increasing rural access, banking at the post office, has drawn strong support from liberal Democrats but opposition from both Republicans and the banking industry.
Mehrsa Baradaran, a law professor at the University of California, Irvine, and one of the nation's leading advocates for postal banking, noted that government regulations once forced banks to operate within a single state.
But in the age of interstate banking, banks can no longer justify operating in many rural areas. "It just doesn't work money-wise," Baradaran said.
Smith, the banker turned schoolteacher, says part of the problem for the Duncan branch was a gap between the bank's culture and the town's culture.
The bank wanted to make larger loans to people with relatively strong credit, she said. Meanwhile, townspeople generally wanted smaller loans, and they held onto the old-fashioned belief that a handshake should mean as much as a FICO score.
By the time the branch closed, National Bank of Arizona was just a brand name used by Zions, which had combined its bank units under a single, nationally chartered bank with $60 billion of assets.
"It's just that their big picture didn't fit with Duncan," Smith said of the Utah-based parent company.
But demographic realities and the banking industry's financial imperatives suggest that it was only a matter of time before Duncan lost its branch — its low level of deposits being a key indicator.
The National Bank of Arizona emphasized that it still serves the area, despite shuttering the branch.
"We pride ourselves on our commitment to serving all of Arizona, whether that is through the branches, online or over the phone," Mark Young, president and CEO of Zions' National Bank of Arizona division, said in a written statement. "We have always deeply valued the opportunity to serve as many communities of Arizona as possible and value the geographic diversity of our clients."
In response to townspeople's complaints about loan decisions being made elsewhere, Zions, which now has roughly $70 billion of assets, said that it wants to ensure that its branches are staffed with real bankers with longer-than-average tenure who can solve problems and build relationships with customers.
"Zions and most banks automate certain lending decisions, particularly for consumer loans and very small business loans, which is useful to keep costs low, allows Zions to remain competitive with the nation's largest banks, and customers often appreciate the speed of these decisions," a Zions spokesman said in a statement.
"However, we also believe — and the data supports this — that small- and midsize-business customers value greatly the relationship with their banks, more so than they value digital delivery such as online and mobile banking. Therefore, we continue to invest in branches, we have delegated additional credit authority to the local level, and take great pride in being a collection of great community banks."
Zions cited data showing that 20% of its branches are in locations with no more than 50,000 people living within a 10-mile radius. Only 1% of Bank of America's branches are in such places, according to a Zions analysis of publicly available data.
When a community loses its only bank branch, the impact can be hard to quantify. But local residents do not necessarily lose access to the banking system.
The FDIC found in a 2017 survey that 8.4 million U.S. households were unbanked — in other words, no one in the home had a checking or savings account. That was down from nearly 10 million six years earlier.
And New York Fed research from 2018 found that the share of a state's population that is located in a banking desert is unrelated to the share that is unbanked. "Most banking deserts are literally in deserts, where few people live," the researchers wrote in a blog post.
Nonetheless, the absence of a place to bank tends to force people to get creative, as the Fed found in its research. Duncan is a case in point.
The tan-colored post office on Main Street cannot take deposits or make loans. But the circumscribed menu of financial services offered by the U.S. Postal Service has outsize value in a rural town without a bank.
If Deborah Mendelsohn, the proprietor of the Simpson Hotel and a Duncan town councilor, has an immediate need for cash, she will walk over to the post office, buy a single stamp and request cash back. It's cheaper than patronizing either of the town's two ATMs.
"It has made me think, why shouldn't post offices start to fill the role of banks in small towns?" Mendelsohn said.
The Duncan Valley Electric Cooperative has found another crafty way to use the post office.
The cooperative is among the largest enterprises in the area, providing electricity and gas to 1,700 members in Arizona and New Mexico. It collects approximately $350,000 in revenue each month, roughly $20,000 of which is cash.
Rather than keeping a lot of currency on hand, or embarking on long drives to the nearest bank, an employee goes to the post office several days each week and buys a money order. "Thankfully the post office is the unofficial bank," the cooperative's CEO, Steven Lunt, said.
Owners of smaller businesses in Duncan have encountered their own challenges over the last three and a half years. Some of them hold more cash than seems advisable, which has spurred fear of robberies. The Local First Arizona Foundation has begun offering microloans to businesses in the area, but credit remains hard to come by.
Because cash is scarce, shoppers are more apt to pay with cards, which increases costs for local merchants. At Hilda's Market, a restaurant and meat shop, owner Hilda Goeking charges 30 cents on card purchases of $5 or less.
She said that Hilda's has suffered financially since the local branch closed, because people no longer cash their checks and then come to her shop to buy cuts of meat. "I don't sell as much as I was selling before," Goeking lamented.
Up the road at Rock-A-Buy, a shop that sells gems, owner Doug Barlow indicated that small bills are hard enough to find that he hoards them. "I never deposit a $10, $5, $1," said Barlow, who has an account at a credit union that operates a branch in Safford, Ariz.
Barlow is a retiree who grew up in Duncan, lived elsewhere for more than three decades and returned home in 1996. One morning in December, he sat inside his store for the first time in months, following his recovery from heart surgery. He wore a cowboy hat and described himself as a political conservative.
When the conversation turned to banking, Barlow had blunt words about the decision to close Duncan's only branch.
"They said, 'We're not making money.' But I think what they meant was, 'We're not making enough money,' " he said. "What I got from them was, 'We're not interested in this little town — we're sorry.' "
