Why next round of PPP is another opportunity for community banks to show their value

Congress approved another stimulus program that will infuse the local economies across the country with substantial capital. In this pandemic environment, where do you think businesses would get the best service for such a program? If the first stimulus package is any indication, local community banks may be the best outlet for businesses to secure funding. They are more accessible. They know the local businesses better. And they will provide the support network to make the process seamless for smaller businesses.

In the first round of the Paycheck Protection Program funding, many smaller businesses used community banks to assist them with the applications and to secure the funding. Spencer Savings Bank had many non-customer applicants tell us that they were impressed with the agility of the smaller banks, and moved their relationships to us. And some of them are not that small.

A 2020 FDIC community bank study found that community banks, although relatively small in size, “far exceed” their relative size within the overall banking industry. While community banks account for just 15% of the banking industry’s total loans, the study found they hold 30% of all commercial real estate loans, 36% of small business loans and 70% of agricultural loans. The report said community banks have proven to be “more resilient in their performance over the last seven years and during the COVID-19 pandemic.”

Part of this resilience is due to technology, which is changing the way we live and work. Community banks have adopted the technology utilized by larger banks, but what makes them unique is that they still maintain more of that close personal relationship with customers than the larger banks.

As we know, commercial banks are driven by technology and have branches across the country. It can be considered prestigious or personally exciting to be a part of something that is national and perceived as significant in the industry. Community banks are smaller than commercial banks, usually having only a few branches across a single region. However, the money deposited in the local banks tends to stay in the community, and that makes their success closely tied to the success of the local communities.

Remember when banks would embed their names in the concrete on the buildings where their offices were located? Banks were a stable part of the community in which they were located. Local businesses knew their banker and often went in to talk with them about cash flow issues and what was happening in their business.

Today, the banking world is changing drastically. Studies show 92% of U.S. banks — those under $1 billion in asset size — compete for just a fraction of the nation’s assets. The six largest banks in the United States control 72%, or $9.4 trillion, of the country’s $13.3 trillion in assets. If small banks are going to stand a chance, then they need to define who they are and how important they are to the communities they serve.

Here’s how they will do that. Community banks generate revenue from the interest they charge on the loans that they originate. Community banks are required by regulations to reinvest their money in the communities where they are located. But they do so not out of obligation, but because it is simply good business. They are actually tied to the communities and want to stay involved in the communities that they service.

Community banks are dependable because their loyal customers’ money doesn’t leave with each competing bank’s promotion or merger. These dependable deposits are considered “core deposits” — and they are essential to a community bank’s success and are the goal of any relationship banking strategy. Community bankers aren’t using artificial intelligence to determine a business customer’s next move; they look directly into the eye of the business owners and ask: “What do you need and how can I help?“

Jane Allerman Rey is the president and chief operating officer of Spencer Savings Bank.