Community banks juggling loan flow against risk as pandemic continues  

    For years, Baton Rouge’s community banks have served as a key conduit for providing small businesses and the construction industry with capital.

    In the early months of the pandemic, their profile was further elevated. Small banks were celebrated for their perceived ability to process Small Business Administration, Paycheck Protection Program and Economic Injury Disaster loans at a faster pace than their larger counterparts, which were generally handling a larger volume of applications.

    Now, as a struggling private sector squeezes the Baton Rouge economy, community banks have an opportunity to generate revenue by providing a financial lifeline to virus-impacted small businesses. However, community banks’ ability to play to their strengths is greatly complicated by the fact that, in a shaky economic climate, local bankers are also absorbing far more risk than usual, placing them in a stressful position.

    Businesses are weary of taking out more loans with so much uncertainty about the future, softening demand for most loans aside from residential real estate.

    “Customers want to know when things will get back to normal and when there will be a vaccine,” says Blake Chatelain, president and CEO of Red River Bank. “Generally, they’re saving more than normal, spending less and operating in a more conservative mode.”

    Community banks have already seen the effects of compressed net interest margins, or the difference between what banks pay for deposits and earn on loans. For instance, in the second quarter, Red River Bank’s net interest margin declined 29 basis points (0.29%), settling at 3.12% at the end of Q2, while Citizens Bank & Trust’s dropped 33 basis points (0.33%), settling at 2.88% at the end of the quarter.

    Despite the pressures they face, smaller banks are doing whatever they can to keep a shrinking pool of capital flowing to customers, and the balancing act is being manifested in several ways. 

    Read the full feature about community banks from the latest edition of Business Report.