Community banks are thriving. Bankers worry it won’t last.

Justin Ho Dec 11, 2020
Heard on: Marketplace
La Salle State Bank in Illinois outsourced management of its ATMs to save costs. John Moore/Getty Images

Community banks are thriving. Bankers worry it won’t last.

Justin Ho Dec 11, 2020
La Salle State Bank in Illinois outsourced management of its ATMs to save costs. John Moore/Getty Images

Community banks tend to be local, and, frankly, small-time. They take deposits and make loans. They tend to have personal relationships with their business and individual clients. 

Those connections helped boost their net income by 10% in the most recent quarter, compared to a year ago, according to a recent report from the Federal Deposit Insurance Corp.

Community banks were in a good position to do well over the past few months. In addition to their usual deposits and lending, they collected fees for processing Paycheck Protection Program loans for their business clients and for refinancing mortgages for their individual customers.

“That income that we’ve earned this year far surpasses what we’ve experienced in the past by many multiples of 10,” said Chris Duncan, senior loan officer at La Salle State Bank in Illinois.

Banks have also been making a lot of new loans, with interest rates near record lows.

“Commercial mortgages, residential mortgages, commercial lines of credit, commercial term loans — you know, core, meat-and-potatoes bank lending,” said Peter Alden, president and CEO of Bay State Savings Bank in Massachusetts.

Alden said low interest rates also mean banks can pay less to savers. Bay State Savings Bank has reduced rates on its savings accounts, market accounts and certificates of deposit.

“Because rates have come down with the [Federal Reserve], we’ve been able to move our deposit costs down on a product-by-product basis to improve our margin,” Alden said.

But on the other hand, low interest rates also mean those new loans the banks are making aren’t earning much in interest.

“We’re earning much lower rates on mortgage loans, on commercial loans,” Duncan said. “All the rates are so much lower.”

Meanwhile, Duncan said it’s likely that this year’s windfall of fee income won’t last. As a result, La Salle State Bank is trying to cut costs where it can. It outsourced the management of its ATMs to help the bank save money on maintenance and labor. It’s also installing new technology to make its tellers more productive.

“I think banks really are going to be looking at every possible opportunity to try to find a way to cut costs and increase efficiencies,” Duncan said.

Banks are also concerned about the financial health of their borrowers. Nathan Rogge, president and CEO of Bank of Southern California, said he’s planning accordingly.

“Not that we’re seeing any deterioration today,” Rogge said. “But just looking forward, and needing to be conservative, and thinking about what does this look like for our commercial real estate clients, or hospitality, or restaurants?”

Bank of Southern California is setting aside some fee income to cover any loans that might go bad. Rogge said he’s worried that commercial real estate clients might start to see more vacancies.

“What are the vacancy rates going to be going forward?” he said. “Are businesses going to need the same amount of real estate? Would they be able to make their mortgage payment on that building?”

Rogge said banks will downsize their real estate footprints, too. His bank closed three branches this year, in part because more banking services are moving online.

COVID-19 Economy FAQs

With a slow vaccine rollout so far, how has the government changed its approach?

On Tuesday, Jan. 12, Health and Human Services Secretary Alex Azar announced changes to how the federal government is distributing vaccine doses. The CDC has expanded coronavirus vaccine eligibility to everyone 65 and older, along with people with conditions that might raise their risks of complications from COVID-19. The new approach also looks to reward those states that are the most efficient by giving them more doses, but critics say that won’t address underlying problems some states are having with vaccine rollout.

What kind of help can small businesses get right now?

A new round of Paycheck Protection Program loans recently became available for pandemic-ravaged businesses. These loans don’t have to be paid back if rules are met. Right now, loans are open for first-time applicants. And the application has to go through community banking organizations — no big banks, for now, at least. This rollout is designed to help business owners who couldn’t get a PPP loan before.

What does the hiring situation in the U.S. look like as we enter the new year?

New data on job openings and postings provide a glimpse of what to expect in the job market in the coming weeks and months. This time of year typically sees a spike in hiring and job-search activity, says Jill Chapman with Insperity, a recruiting services firm. But that kind of optimistic planning for the future isn’t really the vibe these days. Job postings have been lagging on the job search site Indeed. Listings were down about 11% in December compared to a year earlier.

Read More


As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.

Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.

Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.