The Community Bank

by | May 20, 2022



If you’re evaluating your current banking relationship, or you’re in the market for a new bank, you should strongly consider a community bank. While we have our own opinions here at First American State Bank, we have complied some research so we may provide an objective look at the world of community banking. Community banks may not be right for every situation, but chances are they’re the right choice for your personal or small business banking needs.

What Is a Community Bank?

Community banks are generally defined as those with less than $10 billion in assets. The FDIC also describes community banks as providing traditional banking services in local communities, obtaining deposits locally and providing many of their loans to local businesses.

The FDIC’s 2020 Community Banking Study said community banks play a critical role in providing access to credit in several key areas of the U.S. economy, particularly through lending to support commercial real estate, small businesses and agriculture.

Additionally, community banks tend to be more likely to be privately owned and locally controlled, unlike larger publicly traded banks owned by stockholders.

Community bank employee are generally considered “relationship bankers” who have close ties with their customers and special knowledge and expertise of their local communities. While not generally a rule, they may have less-structured underwriting guidelines for credit decisions than big banks may, making it possible for consumers and small businesses to get approved for credit that may not meet the predetermined characteristics of larger bank programs.

As of January of 2020, the U.S. had nearly 5,000 community banks with more than 29,000 branches throughout the country. Community banks represent 15% of the banking industry’s total loans but make 36% of all small business loans and 70% of all agricultural loans. If you’re a small business owner, a farmer or live in a small town, community banks may be a big part of the backbone of your local economy.

You can use the FDIC’s Community Bank Search tool to see if your bank meets the FDIC’s definition of “community bank.”

What Community Banks Offer

If you’re trying to decide where to do your banking, many community banks offer key benefits and perks that may be a deciding factor in selecting your banking institution.

  • Better Deposit Rates

Community banks may be willing to offer more favorable interest rates on financial products compared to a big national bank. Higher CD rates and savings accounts offerings can be found at what could be defined as community banks.

  • Flexibility

Community banks are focused on personal relationships in local communities and may have less-formalized processes, compared to corporate banks when considering credit requests. You may find that community banks offer a bit of extra flexibility in working with you, compared to a larger bank with stricter guidelines for lending.

  • Personal Attention

You’ll  find that a community bank is more customer-facing, offering more personal service than a big bank. The 2019 Small Business Credit Survey, a collaboration of the 12 Federal Reserve Banks, found that 79% of small business owners who applied for credit from a small bank were satisfied with the customer experience, compared to only 67% of applicants at large banksAt First American State Bank you’ll get a real person when you call, and chances are that whether on the phone or in person we will know who you are.

  • Community Investment

Community Banks are invested in their communities, employing those who live there and serving through credit needs for neighboring businesses and individuals and actively participating through charitable action and involvement.  Progress and achievement in the community represents success for the bank.

Community Banks vs. Big Banks

In recent years, the number of community banks has declined faster than larger banks. Between 2012 and 2019, the number of community banks decreased from 6,802 to 4,750, a decline of 2,052 banks (30%).  During those years, the number of larger non-community banks declined from 555 to 427, a decline of only 128 institutions.  Community banks aren’t disappearing altogether, but have been consolidated into larger entities. Good news – among the community banks that closed during this time frame, two thirds were acquired by other community banks.  We strongly believe there should always be a place for community banking.

It used to be that national banks had an advantage in the size of their distribution network, through locations or ATMs.  With recent tech advances, smaller institutions are improving offerings through fintech partnerships, resulting in greater depth of product and service offerings not previously available, those distinctions are becoming less apparent.  For all but the most complex needs and wealth management advisory services, community banks have available most services to satisfy typical business and consumer demands.

Bottom Line

Community banks are a vital part of the U.S. economy, providing loans and deposit accounts to millions of customers. Although they are known for their local presence and personal relationships, community banks are more than brick-and-mortar branches—many community banks are innovating and investing in new digital technology, but people ultimately make community banks successful.

If you’re looking to open any variety of bank accounts, loans for business or personal needs,  a new home base for your personal or small business finances, and services to grow with you moving forward, consider a community bank, First American State Bank.