Most rural bankers expect continued solvency challenges as Iowa’s rural economy expanded in May, according to a survey of small-town bankers.

According to Creighton University’s Mainstreet Index, Iowa’s index score increased to 50.8 in May, up from 44.8 in April. For the 10-state region covered by the survey, the index rose to 55.8, up from 50.1 in April.

Ernie Goss, chair in regional economics at Creighton, said the rural economy continues to experience slow economic growth.

“Only 11.5% of bankers reported improving economic conditions for the month, with 88.5% indicating no change in economic conditions from April’s slow growth,” Goss said in the report, released on May 18.

The survey is an early snapshot of the economy in rural agriculturally dependent and energy-dependent areas in 10 states. It focuses on about 200 communities with an average population of 1,300. The index ranges from zero to 100, with a score of 50 representing neutral growth.

The survey’s checking deposit index fell to a second consecutive new low, this time at 22, down from 25 in April. The index for certificates of deposit and other saving tools also declined, falling from 74 in April to 70 this month.

“Two consecutive record low checking deposit indices point to higher deposit outflows, even for community banks,” said Goss.

The decline in scores is representative of continued concerns rural bankers have with issues surrounding insolvency and the failure of three banks earlier this year.

Only 15.4% of bank CEOs anticipate the end of the banking insolvency crisis, while the remaining 84.6% expect banks to continue to report insolvency challenges.

“The liquidity problem will continue for some time, and we will see more regulation because of it.” said James Brown, CEO of Hardin County Savings in Eldora. “And as a bonus for their [regulators’] being late to the table, we will all pay higher FDIC payments for as long as we can see.”

According to the report, Iowa lost more than 36% of its banks through mergers and insolvencies during the 2008-09 banking crisis. By 2022, it was left with 78 banks per million in population, the report stated.

Other key regional factors from the report:

• The new-hiring index increased to 58 in May, from 54.2 in April. Despite the strengthening score, labor shortages continue to be a significant factor constraining growth.
• The home-sales index climbed to 55.8 from April’s 44.0, the first time it has risen above neutral growth in 11 months.
• The retail sales index jumped significantly in May to 56, up from 41.7 in April.
• The confidence index rose slightly in May to 36, up just 0.5 point since the prior month. Goss said higher borrowing costs, decreased deposits and labor shortages continued to affect bankers’ confidence in the economy.