A large majority of U.S. community banks reported year-over-year declines in loan balances in the second quarter. Loan growth has been largely suppressed across the industry as excess savings has translated to less need for credit by both consumers and businesses. While the rise in deposits typically translates to higher-yielding loan opportunities, a growing number of banks are coming to terms with the likelihood that at least a portion of the excess liquidity could become a long-term fixture on their balance sheets as margins are further compressed.

by Laura Fox