Community Banks Played Outsized Role in PPP

As Jelena McWilliams, FDIC Chairperson, stated in a recent FDIC Podcast, “Supporting small businesses is one of the key roles that community banks play in our financial system. The overwhelming majority of community banks focus their commercial and industrial lending on small businesses…These attributes, as well as strong ties to their communities and borrowers, likely explain why community banks have played an outsized role in the Paycheck Protection Program.”

Diving further into the outsized role community banks have played in the Paycheck Protection Program, Angela Hinton, a senior FDIC financial analyst, added, “We looked at the activity of small banks versus big banks, and we found that while community banks hold 15 percent of all loans and 13 percent of all business loans, they held 31 percent of all of the PPP loan balances as of the second quarter. So that’s the evidence that smaller community banks are playing a big, even outsized role in the PPP lending space.”

The Independent Community Banks of Minnesota (ICBM) recently analyzed the ratio of deposits per dollar of PPP lending, which measures how responsive lenders were to local business needs in a time of crisis, given their size and resources. The approach was similar to what The Minneapolis/St Paul Business Journal took in a recent article. ICBM gathered data (see below) from ICBM member banks, which hold about $32 billion of deposits and generated approximately $2.7 billion in PPP loans, which is about $11.85 of deposits per dollar of PPP lending.

Based on the combined data analysis, 36 community banks within the state produced a higher response rate than the 20 largest banks. “Across the country and in Minnesota, community banks, have ‘punched above their weight’ and the numbers show that,” stated Jim Amundson, President and CEO at ICBM, “We simply believe limiting the focus to only the largest banks excludes a segment of the market that has widely been credited for making the program a success – and that is community banks.”

All financial service workers should be recognized for their dedication in “maintaining their normal work schedule” as an Essential Critical Infrastructure Workforce for the financial service sector and in “ensuring citizens access to [financial] services that are necessary to conduct their daily lives,” as Treasury Secretary Steven T. Mnuchin stated on March 22, 2020.

“We applaud the efforts of all financial institutions that have gone above and beyond throughout the pandemic in maintaining a critical source of liquidity and support our community,” said Greg Larson, President and CEO at Drake Bank, “It takes tremendous commitment to push over 20% additional volume in eight weeks, it’s herculean, and all lenders that were able to provide for the community at that length should be recognized.”