Community Banks’ Early Technology Investment Pays Off During Pandemic

Community banks that invested more in technology before COVID-19 made more loans and took in more deposits during the pandemic than did community banks that invested less in technology, according to a new FDIC report.

“For many community banks and their customers, the pandemic was a crash course in the use of technology in all facets of banking,” report authors wrote. “At the onset of the pandemic many community banks turned to technology to provide financial services in the face of temporary branch closures and stay-at-home orders. As restrictions eased, banks continued to use technology for customers and employees who wished to limit physical contact and for whom digital banking had become part of the new normal.”

The report, published in the FDIC Quarterly, found that faster loan growth for banks heavily invested in technology largely stemmed from participation in the Paycheck Protection Program. In addition, these banks, on average, originated a greater share of PPP loans regardless of loan size, origination date or borrower distance from the nearest bank branch. Larger increases in deposit growth for community banks that invested more in technology were due to increases in deposit balances of existing customers rather than from new depositors, according to the report.

Noteworthy increases in FDIC’s second-quarter roundup: FDIC-insured institutions reported aggregate net income of $70.4 billion in the second quarter of 2021, an increase of $51.9 billion (281%) from the same quarter a year ago, driven by a $73 billion decline in provision expense. Two-thirds of all banks reported year-over-year improvement in quarterly net income. Community banks—which represent 91% of insured institutions—reported second-quarter net income growth of $1.9 billion (28.7%). Nearly two-thirds of all community banks reported higher net income from the same period last year.