Support for Citizens: The View of Community Banking from the Outside

How community financial institutions are creating new connections and new opportunities

For all the sector’s pandemic challenges over the last 19+ months, community banking has found success through its persistent support of local communities, creating new connections and new opportunities as the economy begins to bounce back. “A year after the first two rounds of [PPP] closed last August, there is evidence that [community banking] lenders such as Tioga State Bank in Spencer, New York and Community Spirit Bank in Red Bay, Alabama brought more small businesses into the banking system, and were able to expand their non-crisis business lending,” according to “How US Community Banks Became ‘Irreplaceable’ in the Pandemic” in London’s The Financial Times.

“Community banks were also better at bringing in new customers,” according to The Financial Times’ article. “[S]atisfaction with community banks after receiving a pandemic loan was sharply higher than for big banks or online lenders.” And that overwhelmingly positive sentiment was right on time, just as consumers were open to making a switch in their primary financial relationships and 25% of small businesses were already making their moves. Better at relationship-building than their big bank counterparts, community FIs initiated new relationships during the pandemic. “I have seen that across the board in community banks,” says Anton Schutz, a portfolio manager at Mendon Capital, who focuses on investments in community banks. “They have taken a huge amount of relationships from the big banks.”

The big task for community banking is maintaining momentum even as “community banks are closing branches faster than larger counterparts, particularly in cities, ⁠and their rural customer base is aging.” One way they’re doing that is partnering with fintechs to deliver on digital banking that consumers demand. Now, the Fed is stepping up to help. “Federal regulators on Friday issued new guidance to help community banks assess risk as they consider partnering with financial technology companies to meet customers’ evolving digital preferences,” according to American Banker. The guide is part of their efforts “to promote and support the adoption of new technologies by financial institutions, particularly community banks.”

Stay tuned as Believe in Banking continues to provide news and insights on the industry’s latest developments, like new opportunities for financial institutions and deploying connected digital and physical channels.