Bank stocks have been in the dregs in 2020. Overall they are down by 35%, far worse than any of the broad averages. Low interest rates, squeezed net interest margins and Covid loan defaults lying ahead make that rationale. The bank stocks declines make investment sense, unlike the behavior in other parts of the market.

Somewhat paradoxically, recently released Q2 earnings at Goldman Sachs and Morgan Stanley were cheered, as their trading and investment banking results beat the competition. Those cheers seem somewhat misguided, as the unpredictability and unreliability of capital markets profits had caused the managements of both those fine companies to seek more sustainable growth in retail banking (Marcus) and wealth management (MS buys Etrade and Solium) respectively. Trading is too cyclical to be enormously attractive. It is a low multiple business.

Indeed, the go-forward positioning of all the largest banks appears suspect. Each of them set aside large amounts as reserves against future loan losses. In truth, those reserves are guesses—honest guesses, but wild guesses nonetheless. No one knows how large the end game defaults will be. The complexity of the Universal Banks makes them opaque and difficult for even the finest management—think JP Morgan—to direct. There are too many threads in their corporate tapestries.

By contrast, select community banks with less vast, less diversified, less macro-influenced portfolios can be appraised with more granularity. Their loan portfolios and funding sources can be examined quite specifically.

A disclaimer: my firm’s parent company owns a community bank. We do not have a publicly traded common stock, however, but do have an insighters view of small banks.

In this day and age, community banks have access to the same technology as the Citigroups, the BOAs and the like. That was not true a decade ago. Equally importantly, something profound changed in the wake of the Covid era: households want a personal contact at their bank, someone on whom they can rely. Small banks have the advantage of providing immediate access to knowledgeable people to whom borrowers and depositors can actually speak. They demonstrated that advantage in the recent PPP program, for example, when local banks made a widely discussed and disproportionately large number of those loans. Small but nimble beat size and scale. That outcome is apt to be a harbinger of the future. David beating Goliath was not a fluke. The decades-long dominance of the biggest banks may be ending.

George Ball is chief executive officer of Sanders Morris Harris.