Banks are categorized by the total assets on their balance sheets, with community banks typically having less than $10 billion in assets. In contrast, regional banks manage between $10 billion and $100 billion, and large banks exceed $100 billion.
Community banks are often recognized for their “relationship banking” approach, serving businesses and consumers in both rural and urban areas. They are key providers of credit to small businesses, fostering strong ties within their communities. Their primary model involves funding local loans with local deposits. Unlike regional and large banks, which boast a wider geographic reach and offer a broader, more complex array of products and services due to their scale, community banks maintain more traditional balance sheet structures, relying more on net interest income than noninterest revenue.
Why Are Community Banks Important?
Community banks play a vital role in both local communities and the broader economy. Their focus on relationship banking allows for personalized service and a deep connection with customers. Community bankers, who often live in the areas they serve, develop strong relationships, understand local needs, and possess extensive market knowledge. This local ownership and management contribute significantly to the local economy through employment and a deep understanding of community needs. With a vested interest in their communities’ success, community banks facilitate the growth and prosperity of local businesses by meeting their credit needs.
These banks have proven crucial for credit availability, particularly for agricultural and commercial borrowers. They demonstrated stability in small business lending during the global financial crisis and played a significant role in distributing emergency relief funds during the COVID-19 pandemic. As the preferred lender for many small businesses, community banks ensure the vitality of local economies by addressing essential financial needs and consistently understanding the unique challenges faced by local households and businesses.
The Evolving Landscape of Banking
The number of commercial banks nationwide has drastically declined, from over 14,000 in the 1980s to around 4,000 today, largely due to a decrease in community banks with less than $100 million in assets and fewer new bank formations.
As the financial system evolves and consolidation continues, the market share of the largest banks has grown substantially. Today, the five largest commercial banks hold nearly half of all banking assets, a significant increase from less than 15 percent in 1990. Conversely, community banks’ market share has fallen to under 15 percent of total assets as of year-end 2023. This creates a bifurcated industry: a small number of very large banks engaged in significant nonbanking activities, and thousands of community banks adhering to more traditional banking practices.
Sherburne State Bank – Proudly Local For 95 Years
Despite economic, demographic, and technological challenges, community bankers remain committed to their relevance. Their business model, which emphasizes relationship development and strong community connections, has proven resilient even amidst changing consumer and business behaviors. However, many industry leaders recognize that community bankers must continue to adapt through strategies like adopting new technologies and planning for succession to remain competitive.
Sherburne State Bank remains committed to the continued support and prosperity of the communities we serve and the people who live in them. It is our honor and privilege to contribute to the ongoing preservation of our neighborhoods and values. Call or visit us at any of our three central Minnesota locations, Monticello, Becker, or Princeton today!
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