THE IMPORTANCE OF TECHNOLOGY INVESTMENTS FOR COMMUNITY BANK 

LENDING AND DEPOSIT TAKING DURING THE PANDEMIC

For many community banks and their customers, the pandemic was a crash course in the 

use of technology in all facets of banking. 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.1 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.

Given the important role of technology during the pandemic, this article examines whether 

community banks that invested more in technology before 2020 differed from banks that 

invested less in technology in their core functions of lending and deposit taking.

Based on data from Consolidated Reports of Condition and Income (Call Reports) and other 

available sources, community banks differed in their technology adoption and spending 

(hereafter referred to as technology investment) in the years leading up to the pandemic. 

Community banks with greater technology investment reported larger increases in loan 

growth in 2020, driven primarily by participation in the Paycheck Protection Program 

(PPP). These community banks originated a greater share of PPP loans on average to 

borrowers regardless of the loan size, when the loan was made, or the distance of the 

borrower from the nearest bank branch. Those banks also reported larger increases in 

deposit growth in 2020 than did banks with less technology investment. Generally the 

recent deposit growth at those institutions was due to increases in deposit balances of 

existing customers rather than from new depositors.

Data on Technology 

Investment Are Limited 

and Must Be Estimated

 Comprehensive data that directly measure technology investment are not available for all 

financial institutions, including many community banks. Banks do not report such data 

on the Call Report, and information available through other regulatory filings is often not 

comparable for, or is not required of, many entities.

However, available data can approximate technology investment in the absence of more 

refined measures. This article uses three sources of data—the Call Report, the Conference 

of State Bank Supervisor’s (CSBS) National Survey of Community Banks, and the Aberdeen 

Technology Data Cloud—to estimate technology adoption and spending by community 

banks before the pandemic.

FDIC-insured institutions must report components of noninterest expense, including 

data processing expenses exceeding certain thresholds, on the Call Report.2 While not all 

institutions met the required reporting thresholds for data processing expenses, many did, 

and many banks reported these expenses despite not meeting the reporting threshold. A 

total of 3,424 community banks (76 percent of established community banks) that were 

active as of December 31, 2020, reported their data processing expenses for the fourth 

quarter of each year from 2016 to 2019.3 For these banks, average annual growth in data 

processing expenses from 2017 to 2019 was calculated as a measure of technology spending 

before the pandemic.4

1 This article uses the definition of “community bank” in the Notes to Users of the FDIC’s Quarterly Banking Profile. That 

definition uses criteria outlined in the FDIC’s 2020 Community Banking Study to identify community banks. The 2020 

Community Banking Study is available at https://www.fdic.gov/resources/community-banking/report/2020/2020-cbistudy-full.pdf. 

2 Selected items that exceed $100,000 and 7 percent of other noninterest expense must be reported on Schedule RI-E of 

the Call Report. Before 2018, the reporting threshold was $100,000 and 3 percent of other noninterest expense. There 

was no noticeable change in the percentage of institutions that reported data processing expenses before and after the 

reporting change. The analysis included in this article also did not significantly vary when this measure was limited to 

expenses reported in 2018 and 2019.

3 Established community banks are community banks that have been federally insured for at least five years—those that 

have been federally insured since December 31, 2015, or earlier. 

4 On the Call Report, expenses are reported as the cumulative amount spent during the calendar year (year-to-date). 

Average annual growth is calculated using fourth quarter data because it is the period for which a bank is most likely to 

exceed the required reporting threshold.

FDIC QUARTERLY 31
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32 FDIC QUARTERLY

In their annual national survey of community banks, CSBS asked if a bank offered a specific 

product or service. A total of 717 community banks that were active as of December 31, 

2020, participated in one or both of the surveys conducted in 2019 and 2020. The number of 

technology-enabled products or services that a bank offered from among seven included in 

the survey was calculated as a measure of technology adoption.5 While this broad measure 

does not account for differences between the products and services, including the level of 

adoption among banks, quality, or use by customers, it should provide an estimation of a 

bank’s level of technology adoption.6

Finally, Aberdeen, now Spiceworks Ziff Davis, provided estimates of the number of personal 

computers (PCs), number of employees, and annual information technology (IT) spending, 

specified to the branch level.7 For community banks where sufficient information was 

identifiable and available, branch data were aggregated and extrapolated to the institution 

level, resulting in data for 3,652 community banks (81 percent of established community 

banks) that were active as of December 31, 2020.8 The average number of PCs per employee 

was calculated as a proxy measure of technology adoption. Annual IT spending as a share of 

total assets from 2017 to 2019 was calculated as a proxy measure of technology spending.

Not surprisingly, the four measures—IT spending to assets, number of PCs per employee, 

annual growth in data processing expenses, and number of adopted technologies—

were positively correlated with each other. These correlations, however, were relatively 

weak, suggesting that the four measures captured different components of technology 

investment, as intended. For example, number of PCs per employee and number of adopted 

technologies were, arguably, proxies for different components of a community bank’s 

adoption of technology. The number of PCs per employee targeted hardware, while the 

number of adopted technologies targeted the specific products and services included in the 

CSBS survey, the adoption of which was more likely driven by software. In the case of IT 

spending to assets and annual growth in data processing expenses, both were intended to 

proxy for technology spending; however, data processing expenses included only services 

performed for the bank by others, while IT spending also included in-house costs, such as 

IT staff.

Community Banks 

Differed in Their 

Technology Investment 

Before the Pandemic

 Based on the measures above, community banks differed in their technology investment 

before the pandemic. As indicated by the dotted blue bars at the top of each panel in Chart 1, 

community banks above the 25th and below the 75th percentiles for each technology 

investment measure spent between 0.45 percent and 0.83 percent of their assets on IT, had 

between 1.42 and 1.67 PCs per employee, and grew their data processing expenses between 

1.9 percent and 15.1 percent, on average, from 2017 to 2019.

While the differences in technology investment may appear small in some cases, they are 

meaningful. For example, a difference of 0.38 percent in IT spending as a share of assets 

translates to roughly $820,000 in annual IT spending for a bank with $216 million in 

assets—the median size of an established community bank at the end of 2019, just before 

the start of the pandemic. For the median community bank, that difference of $820,000 

equaled roughly 8 percent of total revenues in 2019.

5 For institutions that participated in both surveys, only the response from 2020 was used, as that response most likely 

reflects the status of the bank at the onset of the pandemic. The seven technology-enabled products or services included 

in the surveys were online loan applications, online loan closure, automated loan underwriting, remote deposit capture, 

electronic bill payment, mobile banking, and interactive teller machines. 

6 For more information on the adoption rate of each technology-enabled product and service and the distribution of 

adopted technologies, in total, among community banks, see Chart 6.1 and Table 6.1.1 of the FDIC 2020 Community 

Banking Study at https://www.fdic.gov/resources/community-banking/report/2020/2020-cbi-study-full.pdf. 

7 Aberdeen uses web mining of businesses and employee profiles to collect data and redistributes the data for marketing 

purposes.

8 The Aberdeen data did not include FDIC certificate numbers. Instead, company name, street address, zip code, and 

website URL from the Aberdeen data were matched with similar information from FDIC Summary of Deposits data. Only 

community banks with matched data for more than half of its branches in at least two years from 2017 to 2019 were 

included. 
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DEPOSIT TAKING DURING THE PANDEMIC

FDIC QUARTERLY 33

Larger Community Banks Invested More in Technology, While Dierences in Location Were Less Important

Sources: FDIC, Aberdeen Data Technology Cloud, and Johns Hopkins University.

Note: Shaded bars indicate the interquartile range (25th to 75th percentile). Unshaded areas in the middle of each bar indicate the median. Median size is based on total assets at the end of 2019. 

Banks in high-COVID case areas were those that had at least half of their branches in a county with cumulative reported cases per 100,000 residents in the upper quartile (75th percentile or greater) as of

June 30, 2020. Banks in low-COVID case areas were those that had at least half of their branches in a county with cumulative reported cases per 100,000 residents in the lower quartile (25th percentile or

lower) as of June 30, 2020.

Average Technology Investment From 2017 to 2019, Interquartile Ranges

0 5 10 15 20

Low-COVID Case Area

High-COVID Case Area

Rural Area

Metropolitan Area

At or Below Median Size

Above Median Size

Community Banks

Percent

Annual Growth in Data Processing Expenses

Low-COVID Case Area

High-COVID Case Area

Rural Area

Metropolitan Area

At or Below Median Size

Above Median Size

Community Banks

Percent

IT Spending to Assets

Low-COVID Case Area

High-COVID Case Area

Rural Area

Metropolitan Area

At or Below Median Size

Above Median Size

Community Banks

Number of Personal Computers per Employee

0.25 0.40 0.55 0.70 0.85 1.00 1.30 1.40 1.50 1.60 1.70 1.80

Chart 1

Established community banks that were larger—above the median asset size of 

$216 million at the end of 2019—invested more in technology before the pandemic. As 

shown by the dark blue bars in Chart 1, on average from 2017 to 2019, larger community 

banks reported faster annual growth in data processing expenses, spent more on IT 

relative to their assets, and had a greater number of PCs per employee than did smaller 

community banks at the 25th and 75th percentiles and at the median. Similarly, 56 percent 

of community banks above the median asset size offered at least four of the seven 

technology-enabled products and services included in the CSBS survey, compared with 

24 percent of community banks at or below the median. Greater technology investment, 

based on the four technology spending and adoption measures, by larger banks is 

consistent with the finding in the 2020 FDIC Community Bank Study that community bank 

size was the strongest indicator of technology adoption as of 2019.9

Technology investment also appeared to vary by a community bank’s location, although 

results were mixed. Before the pandemic, community banks with a main office in a 

metropolitan area (urban community banks) generally reported faster growth in data 

processing expenses and had a higher number of PCs per employee than did banks with 

a main office in a rural area (rural community banks). This is shown by the medium blue 

bars in Chart 1. However, the median for IT spending as a share of assets was lower among 

urban community banks than among rural community banks. Similar patterns were found 

for community banks that operated at least half of their branches in areas with relatively 

high or low COVID case rates (light blue bars in Chart 1), using data from Johns Hopkins 

University.10 While differences in technology investment based on location were not as large 

as those based on asset size, they are nonetheless important to consider when evaluating 

any differences in community bank lending and deposit taking during the pandemic.

Previous Technology 

Investment May Have 

Affected Lending and 

Deposit Taking During 

the Pandemic

 During the pandemic, differences in previous technology investment may have affected 

community bank core functions of lending and deposit taking. For community bank 

staff and customers already familiar with different technologies because of previous 

investments by their institution, temporary branch closures and the required shift to 

digital banking may have been less disruptive to ongoing banking activities. Compared 

with banks that invested less in technology before 2020, these banks may have been 

9 FDIC, “Technology in Community Banks,” 2020 FDIC Community Banking Study, pp. 6-1 to 6-20, https://www.fdic.gov/

resources/community-banking/report/2020/2020-cbi-study-full.pdf. 

10 High-COVID case areas are counties with cumulative cases per 100,000 residents at or above the 75th percentile. 

Low-COVID case areas are counties with cumulative cases per 100,000 residents at or below the 25th percentile. Both 

measures are as of June 30, 2020.
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34 FDIC QUARTERLY

better-positioned to grow their deposits and mitigate reductions in loan growth associated 

with the pandemic.

The following sections study the potential impact of previous technology investment by 

comparing loan growth, including PPP lending, and deposit growth before and during the 

pandemic, using the measures described above.

Community Banks With Greater Technology Investment Before the Pandemic Reported 

Stronger Loan Growth in 2020

Technology investment may have affected community bank lending during the pandemic 

in several ways. Banks with greater technology investment may have been better equipped 

to accept and process online loan applications and the required supporting documentation, 

mitigating the effect of branch closures and customers’ desire to limit in-person 

interaction. Community banks with greater technology offerings may have also been more 

likely to attract customers from nonbanks that curtailed their lending at the start of the 

pandemic, particularly nonbanks with a large online presence.11

As shown in Chart 2, community banks with greater previous investment in technology 

(indicated by the dark blue and dotted blue bars) reported stronger loan growth across all 

four technology measures in 2020 compared with banks with less investment (light blue 

and dark red bars). This correlation alone, however, is not enough to establish whether 

any link between technology investment and lending growth strengthened, as anticipated,

during the pandemic. It could be that banks with greater technology investment already 

had stronger loan growth before the pandemic, which continued in 2020. Among 

community banks in the highest quartiles for number of PCs per employee and average 

growth in data processing expenses, the medians for average quarterly loan growth from 

2017 to 2019 were noticeably higher than the medians for banks in the lowest quartiles.

However, Chart 2 also shows that, across all four technology measures, differences in 

median loan growth between community banks with greater and less investment in 

technology grew in 2020, relative to the three years before the pandemic. Compared with 

community banks in the lowest quartile, community banks in the highest quartile reported 

median average loan growth in 2020 that was

· 0.56 percentage points higher for IT spending to total assets (compared with 

0.04 percentage points lower from 2017 to 2019)

· 0.84 percentage points higher for the number of PCs per employee (compared with 

0.37 percentage points higher from 2017 to 2019)

· 0.85 percentage points higher for annual growth in data processing expenses (compared 

with 0.54 percentage points higher from 2017 to 2019)

Community banks that adopted four or more of the technologies included in the CSBS 

survey reported a median quarterly loan growth that was, on average, 0.74 percentage 

points higher in 2020 than banks that adopted three or fewer technologies (compared with 

0.08 percentage points higher from 2017 to 2019). Averaged across the four measures, the 

difference in the medians for average quarterly loan growth was three times higher in 

2020 than the difference in the medians from 2017 to 2019 (0.75 percentage points versus 

0.24 percentage points), in favor of community banks with greater previous investment in 

technology. Given that loans constitute about two-thirds of a community bank’s assets, a 

half of a percentage point difference in quarterly loan growth would have equaled nearly 

$3 million in loans for the median-size community bank in 2020.

11 Analysis by Standard & Poor’s, for example, found that origination volume among the major digital lenders for 

consumers, small and medium businesses, and students fell 36 percent in the first three quarters of 2020, relative to 

the previous year. See Nimayi Dixit, “U.S. Digital Lender Originations Expected to Rebound Strongly After Painful 2020,” 

S&P Global Market Intelligence, February 1, 2021, https://www.spglobal.com/marketintelligence/en/news-insights/

research/us-digital-lender-originations-expected-to-rebound-strongly-after-painful-2020. 
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DEPOSIT TAKING DURING THE PANDEMIC

FDIC QUARTERLY 35

Community Banks With Greater Technology Investment Reported a Larger Increase

in Loan Growth in 2020

Sources: FDIC, Aberdeen Technology Data Cloud, and Conference of State Bank Supervisors.

Note: PCs stands for personal computers.

Median Average Loan Growth by Previous Technology Investment

0.0

0.5

1.0

1.5

2.0

2.5

Percent

IT Spending

to Assets

Number of

PCs per

Employee

Average Growth in

Data Processing

Expenses

Number of

Adopted

Technologies

2017–2019 2020 2017–2019 2020 2017–2019 2020 2017–2019 2020

Lowest Quartile

Highest Quartile

0–3 Technologies

4–7 Technologies

Chart 2

It remains possible that factors other than technology investment may have caused or 

influenced differences in loan growth in 2020. For example, larger community banks 

and those in metropolitan areas that tended to invest more in technology may have been 

more resilient to the effects of the pandemic due to their larger and more geographically 

diverse customer bases. The widened gap in loan growth shown in Chart 2 may not have 

resulted from a difference in previous technology investment but instead from bank size 

and location.

Similar trends in lending growth were found among different subsets of community 

banks based on size and location. Differences in the median for average loan growth by 

technology investment widened in 2020 for community banks that were above and below 

the median asset size before the pandemic, for urban and rural community banks, and for 

community banks in areas with higher and lower COVID case rates. In each case, the gap 

in the median for average loan growth widened in favor of community banks that invested 

more in technology before the pandemic. These findings lend support to the argument that 

previous technology spending and adoption helped banks better serve their customers 

during the pandemic.

The PPP Drove Differences in Loan Growth in 2020

Community banks held just over $150 billion in PPP loans at the end of third quarter 2020 

following the conclusion of the second round of the program on August 8.12 This amount 

represented nearly one-third of PPP loan balances reported by FDIC-insured institutions, 

despite community banks holding only slightly more than 10 percent of banking industry 

assets.13

Lending associated with the PPP also appears to be the main reason that the difference 

in loan growth on the basis of technology investment grew in 2020, relative to the 

years immediately preceding the pandemic. Excluding PPP loans, the differences in the 

medians for average loan growth narrowed for all of the technology investment measures, 

with the average difference across the measures falling from 0.75 percentage points to 

0.28 percentage points, or roughly equal to the difference reported before the pandemic.

12 This article focuses on PPP loan data at the end of the third quarter, as these data include all loans made in the first and 

second rounds of the program and were not affected by loan forgiveness, which had not yet begun. 

13 For further analysis of contributions of community banks to the PPP and how factors such as location, specialty, 

and size affected participation, using data from the Call Report as of June 30, 2020, see Margaret Hanrahan and 

Angela Hinton, “The Importance of Community Banks in Paycheck Protection Program Lending,” FDIC Quarterly 14, 

no. 4. (2020): 31–36, https://www.fdic.gov/analysis/quarterly-banking-profile/fdic-quarterly/2020-vol14-4/fdicv14n4-3q2020.pdf. 
2021   •   Volume 15  • Number 3

36 FDIC QUARTERLY

Given that PPP lending widened the gap in loan growth during 2020 in favor of community 

banks with greater technology investment, it is not a surprise that these banks also held 

more PPP loans than did banks with less technology investment. As shown in Table 1, for 

each technology investment measure, a larger share of community banks among those 

with greater investment before the pandemic reported a nonzero PPP loan balance on their 

third quarter 2020 Call Report compared with banks with less investment. Averaged across 

the four measures, the share of community banks that held PPP loans at the end of third 

quarter 2020 was 10.4 percentage points higher for banks with greater previous technology 

investment than for banks with less technology investment. Among those banks with 

a nonzero PPP loan balance, banks that invested more in technology also had a median 

share of PPP loans to assets that was more than 2 percentage points higher than those 

that invested less.14 For the median-size community bank, this difference equaled roughly 

$4.5 million in PPP lending. The association between greater technology investment before 

the pandemic and a higher share of PPP loans was not solely driven by larger community 

banks. Table 1 also shows that all but one of the technology measures—annual growth in 

14 Total assets held by community banks grew 14.2 percent in 2020, compared with 1.2 percent in 2017, 2.2 percent in 

2018, and –1.2 percent in 2019. This article measured PPP lending as a share of assets using total assets reported by the 

bank at the end of 2019, rather than third quarter 2020 when PPP lending was reported. This approach prevents other 

effects that technology investment may have had on asset growth in 2020, unrelated to participation in the PPP, from 

influencing the measure.

Community Banks That Invested More in Technology Held More PPP Loans

PPP Loan Balances by Previous Technology Investment, Third Quarter 2020

Percentage of Community Banks 

With Nonzero PPP Loan Balances at 

the End of Third Quarter 2020

Median PPP Loan Balance as a 

Percentage of Assets

All Below Median 

Asset Size All Below Median Asset Size

Annual IT Spending to Assets

Lowest Quartile 72.1 63.1 2.3 1.2

Middle Quartiles 86.6 79.6 4.1 2.6

Highest Quartile 90.7 81.9 5.1 3.2

Number of PCs per Employee

Lowest Quartile 76.2 71.8 2.7 2.0

Middle Quartiles 86.3 77.1 4.3 2.4

Highest Quartile 87.7 78.2 4.7 2.7

Annual Growth in Data Processing Expenses

Lowest Quartile 84.6 78.0 3.9 2.6

Middle Quartiles 85.9 77.2 4.5 2.9

Highest Quartile 87.3 76.5 5.1 2.7

Number of Technologies Adopted

0–3 Technologies 87.5 82.9 4.0 2.9

4–7 Technologies 96.1 90.8 6.4 5.3

Average of All Technology Measures

Less Technology Investment 80.1 74.0 3.2 2.2

Greater Technology Investment 90.5 81.9 5.3 3.5

All Community Banks 84.4 76.1 4.0 2.4

Sources: FDIC, Aberdeen Technology Data Cloud, and Conference of State Bank Supervisors.

Note: PPP = Paycheck Protection Program. Given the strong association between asset size and technology investment, quartiles for each technology investment measure 

were recalculated for community banks below the median asset size.

Table 1
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DEPOSIT TAKING DURING THE PANDEMIC

FDIC QUARTERLY 37

data processing expenses—were positively related to PPP lending among community banks 

at or below the median asset size. Averaged across the four technology measures, greater 

technology investment among these smaller banks was associated with an 8 percentage 

point increase in the share of banks holding PPP loans as well as a 1.3 percentage point 

increase in PPP loans as a share of assets relative to those with less technology investment.

Beyond the reasons previously discussed, other reasons unique to the PPP and the 

environment in which it was implemented could explain why technology investment may 

have facilitated faster loan growth. Some possible explanations include limited funding, 

strong demand, and a restricted ability and limited desire for borrowers and lenders to use 

nondigital processes.

Some, but Not All, of the Difference in PPP Lending by Technology Investment Stemmed 

From Larger Loans

At the aggregate level, measuring PPP lending based on PPP loans as a share of assets 

does not fully address whether a community bank served more or different PPP borrowers 

during the pandemic. A smaller loan, for example, had less impact on lending as a share 

of assets than a larger loan, despite affecting the same number of borrowers. Applied to 

the findings above, it could be that community banks with greater previous investment in 

technology reported a greater share of PPP loans because they made larger loans, and not 

because they served more borrowers.

Based on total PPP loan volume and number of PPP loans as reported on the third quarter 

2020 Call Report, the median for average PPP loan size among community banks with greater 

technology investment was, on average across the four measures, about $13,500 greater 

than the median for banks with less technology investment. This difference at least partly 

explains the higher share of PPP lending for banks with greater technology investment.

Further analysis of loan size is not possible using Call Report data; however, the Small 

Business Administration (SBA) released individual loan-level data, which included 

approved loan amounts and identifying lender information.15 Chart 3 uses that data to 

compare PPP lending by previous technology investment, broken down by loan size. The 

largest difference in the average share of PPP loans (by volume) to assets was for PPP loans 

with an initial approved amount of more than $1 million. For loans of this size, community 

15 Several versions of PPP data have been released by the SBA since the program’s inception. This analysis uses data 

downloaded from the SBA website as of February 2021. The SBA data did not include FDIC certificate numbers. Matching 

techniques were used to link individual loans to FDIC-insured institutions, when applicable. See https://data.sba.gov/

dataset/ppp-foia. 

Community Banks That Invested More in Technology Originated a Greater Share of 

PPP Lending for All Loan Size Categories

Sources: FDIC, Small Business Administration, Aberdeen Technology Data Cloud, and Conference of State Bank Supervisors.

Note: PPP = Paycheck Protection Program. Loan approvals based on initial approved amounts. Approvals as a share of assets by week were

calculated for each measure and then averaged across the four technology investment measures.

Average PPP Loan Volume as a Share of Assets by Loan Size

Percent of Assets

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Less Than 10 10 to 25 25 to 50 50 to 100 100 to 250 250 to 500 500 to 1,000 More Than 1,000

Loan Size (in Thousands of Dollars)

Banks With Less Technology Investment

Banks With Greater Technology Investment

Chart 3
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38 FDIC QUARTERLY

banks with greater technology investment (indicated by the dark blue bars in Chart 3) 

originated a volume that was 0.35 percentage points higher, as a share of assets, than banks 

with less investment. This finding is consistent with the argument that community banks 

with greater previous investment in technology made larger loans. However, Chart 3 also 

shows that community banks with greater technology investment originated a greater 

share of PPP loans in smaller size categories than did banks with less investment. This 

suggests that banks with greater technology investment made a larger share of loans of all 

sizes through the PPP, and that the association between greater technology investment and 

a higher share of PPP lending did not stem solely from larger loans.

Community Banks With Greater Previous Investment in Technology Also Approved More 

PPP Loans Across Time and Distance

Beyond loan size, community banks with greater investment in technology before the 

pandemic may have been able to originate more PPP loans than did banks with less 

investment because their speed of approval was faster or because they had easier access 

to borrowers outside of their local geographic market and vice versa. Previous technology 

investment may have accelerated the loan approval process to the extent that it allowed 

lenders to accept applications and the required supporting documentation online and 

automated the submission process. On the other hand, the impact of technology investment 

may have been reduced by the unique nature of the PPP, last-minute changes to SBA policy, 

and reports of difficulties connecting with E-Tran, the SBA’s loan servicing portal.

Speed of approval may have been particularly important for PPP borrowers, given that 

funding for the program, while unprecedented in size, was ultimately limited by borrower 

demand. The first round of funding—$342 billion—was exhausted within two weeks. The 

second round of funding—$317 billion—remained available for almost 15 weeks (see box 

below). The PPP’s limited funding and time frame arguably gave an advantage to financial 

institutions with a faster approval process.

As indicated by the sizes of the dark blue and light blue bars in Chart 4, the gap in PPP 

loan volume as a share of assets was largest during the early weeks of the program, with 

community banks that invested more in technology before the pandemic approving a larger 

share of loans than did banks with less investment. While this does not necessarily indicate 

a difference in approval times, the largest difference in the share of PPP loans by volume 

in favor of banks with greater technology investment occurred during the first week of the 

program. During that week, PPP loans as a share of assets was 25 percent higher for those 

banks with higher technology investment than for banks with less technology investment. 

This difference was larger than in any other week during which more than 1 percent 

of loans were approved, and provides some evidence that banks with greater previous 

investment in technology were faster out of the gate in approving PPP loans.

The Paycheck Protection Program in 2020

In the first months of the pandemic, Congress provided $659 billion to the U.S. Small Business Administration (SBA) to 

guarantee loans to small businesses to pay up to 24 weeks of eligible employee salaries, payroll costs, and benefits, as 

well as other qualified expenses such as mortgage interest, rent, and utilities, and to pay banks for the forgiven loans and 

accrued interest. Lenders received an origination fee of 1 to 5 percent, depending upon the size of the loan.

Applications for the first round of funding were accepted from April 3, 2020, through April 16, 2020, and for the second 

round of funding from April 27, 2020, through August 8, 2020. During both rounds, more than 5.2 million loans were 

approved for a total of $525 billion.a

a SBA, “PPP Report: Approvals Through 08/08/2020,” (August 2020).
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DEPOSIT TAKING DURING THE PANDEMIC

FDIC QUARTERLY 39

0.0

2.0

4.0

6.0

8.0

10.0

Banks With Less Technology Investment Banks With Greater Technology Investment

The Advantage in PPP Lending for Community Banks That Invested More in

Technology Was Most Relevant During the Early Weeks of the Program

Sources: FDIC, Small Business Administration, Aberdeen Technology Data Cloud, and Conference of State Bank Supervisors.

Note: PPP = Paycheck Protection Program. Loan approvals based on initial approved amounts. Approvals as a share of assets by week were

calculated for each measure and then averaged across the four technology investment measures. Times exclude a period of 11 days following the 

conclusion of the first round and before the beginning of the second round of the program.

Average PPP Loan Volume as a Share of Assets by Week

Percent of Assets

Beyond Week 3

Week 3

Week 2

Week 1

Chart 4

The difference in PPP lending in favor of community banks with greater technology 

investment was not limited to the early weeks of the program, however. Throughout all but 

one week of the program, community banks with greater technology investment originated 

more PPP loans when measured as a share of their assets than did community banks with 

less investment. Similar to the findings for loan size, speed of approval was not likely 

the only reason why community banks with greater technology investment originated a 

greater share of PPP lending.

Another way in which technology may have aided community banks is through easier 

access to PPP borrowers outside of their geographic market. Some community banks, 

regardless of previous technology investment, may have viewed the PPP as a low-risk 

opportunity to test and develop new lending relationships outside of their market area, 

given that the loans were fully guaranteed by the SBA. Greater previous investment 

in technology, however, may have helped these banks better reach and target new 

customers—for example, through social media as well as marketing using data and 

machine learning. Technology-enabled services, such as online loan applications and 

servicing portals and chatbots, may have also allowed customers that were located far from 

a branch to more easily apply for a loan and navigate the loan process.

The same SBA data used to analyze the size and timing of PPP loans also included data 

on borrowers, which was used to approximate the distance between PPP borrowers and 

their lenders.16 As shown in Figure 1, the share of PPP loans originated by community 

banks for borrowers located more than 100 miles from a bank branch was higher for banks 

with greater technology investment than for those with less technology investment, 

as expected. However, the largest difference in PPP lending on the basis of technology 

investment was for “local” PPP loans—loans made to borrowers located within five miles 

of a bank branch. Community banks with greater technology investment approved local 

PPP loans totaling 4.5 percent of their assets, on average, compared with an average of 

3.7 percent for banks with less technology investment. For a community bank with the 

median asset size of $216 million, this difference of 0.8 percent of assets equaled about 

$1.7 million in PPP loans.

16 Data on the latitude and longitude of PPP borrowers were obtained from Geocodio and are available at 

https://www.geocod.io/geocoded-ppp-loan-data/. These data were used to calculate the distance from each borrower 

to the nearest branch of the community bank lender, using the latitude and longitude of bank branches from FDIC 

Summary of Deposits data. 
2021   •   Volume 15  • Number 3

40 FDIC QUARTERLY

Community Banks That Invested More in Technology Originated a Greater Share of

PPP Loans Regardless of a Borrower’s Proximity to a Bank Branch

Sources: FDIC, Small Business Administration, Aberdeen Technology Data Cloud, and Conference of State Bank Supervisors.

Note: PPP = Paycheck Protection Program. Loan approvals based on initial approved amounts. Approvals as a share of assets were calculated for 

each measure and then averaged across the four technology investment measures.

Average PPP Loan Volume as a Share of Assets by Distance From Borrower to Lender

Percent of Assets

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Banks With Less Technology Investment Banks With Greater Technology Investment

Distance From Borrower to Lender (Nearest Branch)

2 Miles 5 Miles 10 Miles 25 Miles 100 Miles

Figure 1

Generally, community banks made most of their PPP loans to borrowers within five miles 

of their branch network consistent with research indicating that local bank relationships 

strongly predicted PPP credit.17 Table 2 examines how technology may have differently 

affected community banks that entered the pandemic with relatively larger shares of 

commercial and industrial (C&I) loans—a likely indicator of strong existing relationships 

with local businesses. For banks with C&I loans at or above the 75th percentile (highest 

quartile) for all established community banks at the end of 2019, the difference in local 

PPP loans to assets on the basis of technology investment was 1.1 percentage points. For 

banks with C&I loans at or below the 25th percentile (lowest quartile), the difference was 

0.6 percentage points. The larger difference in local PPP lending by technology investment 

among banks with larger shares of C&I loans leading into the pandemic suggests that 

greater previous investment in technology may have contributed to additional PPP lending, 

in part, by facilitating loans to existing borrowers.

Overall, several factors likely drove the relationship between PPP lending and technology 

investment before the pandemic in favor of community banks with greater investment. 

Community banks with greater technology investment made larger PPP loans, but also 

made more PPP loans of all sizes, during all stages of the program, and both inside and 

outside of their local geographic market.

The Advantage in PPP Lending Associated With Greater Investment in Technology Was Higher for Community Banks 

With More Business Loans

C&I Loans to Assets

Previous Technology Investment

Banks With Less Investment Banks With Greater Investment

Banks in Lowest Quartile 3.3 % 3.9 %

Banks in Highest Quartile 4.4 % 5.5 %

All Community Banks 3.7 % 4.5 %

Sources: FDIC, Small Business Administration, Aberdeen Technology Data Cloud, and Conference of State Bank Supervisors.

Note: PPP = Paycheck Protection Program. C&I = Commercial and Industrial. Local PPP loans defined as PPP loans made to borrowers located within five miles of a lending 

bank branch. C&I loans to assets based on amounts reported at the end of 2019, before the onset of the pandemic. Loan approvals based on initial approved amounts. 

Approvals as a share of assets were calculated for each measure and averaged across the four technology investment measures.

Table 2

17 Lei Li and Philip Strahan, “Who Supplies PPP Loans (And Does it Matter)? Banks, Relationships, and the 

COVID Crisis,” (Working Paper, no. 28286, National Bureau of Economic Research, December 2020), 

https://www.nber.org/papers/w28286. 
T H E I M P O RTA N C E O F T E C H N O LO G Y I N V E ST M E N TS FO R CO M M U N I TY B A N K L E N D I N G A N D 

DEPOSIT TAKING DURING THE PANDEMIC

FDIC QUARTERLY 41

Community Banks With Greater Technology Investment Before the Pandemic Reported 

Larger Deposit Growth in 2020

Bank deposits increased significantly at the onset of the pandemic, growing 17.8 percent 

over the first three quarters of 2020. Among community banks, deposits grew 11.4 percent. 

This growth likely stemmed from multiple factors such as lower consumption and higher 

savings by consumers, credit line drawdowns, expansionary monetary policy, and 

increased spending by the federal government, including direct payments to individuals. 

The PPP also likely influenced deposit growth to the extent that borrowers (and others 

for whom the loan proceeds were intended, including employees) directed loan funds into 

deposit accounts.

Previous investment in technology might have affected deposit growth during the 

pandemic to the extent that it facilitated remote deposit capture, remote payments, and 

other functionality that enabled customers to conduct deposit transactions at a time when 

face-to-face interactions were more difficult or not possible. If technology investment 

attracted more PPP borrowers, as previously indicated, faster deposit growth may also 

have resulted from those borrowers depositing the proceeds of the loan into the same 

institution.

0.0

1.0

2.0

3.0

4.0

5.0

Deposit Growth Before and During the Pandemic by Technology Investment

Sources: FDIC, Aberdeen Technology Data Cloud, and Conference of State Bank Supervisors.

Note: PCs stands for personal computers.

Median Average Loan Growth by Previous Technology Investment

Percent

IT Spending

to Assets

Number of

PCs per

Employee

Average Growth in

Data Processing

Expenses

Number of

Adopted

Technologies

2017–2019 2020 2017–2019 2020 2017–2019 2020 2017–2019 2020

Lowest Quartile

Highest Quartile

0–3 Technologies

4–7 Technologies

Chart 5

As shown by the differences between the light blue and dark blue bars and the difference 

between the dark red and dotted blue bars in Chart 5, during the three years before the 

pandemic, greater technology investment was associated with higher average deposit 

growth across all four measures. The differences ranged in magnitude from 0.11 percentage 

points (for IT spending to assets) to 0.60 percentage points (for number of PCs per 

employee), with an average of 0.38 percentage points across the four measures. In 2020, 

differences in the median for average deposit growth widened for three out of the four 

technology investment measures. Averaged across the measures, community banks with 

greater previous investment in technology reported a median average deposit growth 

that was 0.66 percentage points higher than the median for banks with less previous 

investment.

The larger difference in deposit growth by previous technology investment for 2020 

likely stemmed from higher average account sizes rather than an increase in the number 

of accounts. Median growth in the number of nonretirement deposit accounts was, on 

average, 31 basis points higher for community banks with greater technology investment 

than for banks with less technology investment, from 2017 to 2019. During 2020, the 

difference declined to 23 basis points, indicating that the increased difference in deposit 

growth on the basis of technology investment reported during the pandemic was not likely 

caused by an increased inflow of depositors.
2021   •   Volume 15  • Number 3

42 FDIC QUARTERLY

Technology Will Continue 

to Be Important to 

Community Banks 

Beyond the Pandemic

 This article provides compelling evidence that community banks with more technology 

investment before the pandemic were better able to serve their customers as a lender and 

deposit-taker amid the challenges of the pandemic. Further data and research are needed to 

better understand the ways that technology may have assisted banks during the pandemic, 

and whether the advantage in loan and deposit growth enjoyed by community banks that 

invested more in technology during 2020 will become part of the new normal. Differences 

in loan growth and potentially deposit growth can be sustained if new relationships created 

through the PPP lead to non-PPP lending and deposits after the pandemic. Given the rising 

use of digital banking channels before and during the pandemic, it appears likely that an 

effective approach to technology and technology investment will continue to be important 

for community banks in the future.

Author:

Daniel Hoople

Financial Economist

Division of Insurance and Research