A graphic from the Conference of State Bank Supervisors’ quarterly Community Bank Sentiment Index survey shows continuing pessimism due to dampened business conditions, monetary policy, regulatory burden and profitability concerns. Image courtesy of the Conference of State Bank Supervisors.

Community bankers in the Northeast say that economic conditions will slightly improve moving forward, but still maintain an overall negative outlook according to a new survey.

According to the second-quarter Community Bank Sentiment Index released by the Conference of State Bank Supervisors (CSBS), Northeast-based community bankers’ overall sentiment is at 75 points, which is less than the 100-point neutral sentiment but higher from last quarter’s 57 points.

Bankers were concerned that future business conditions, monetary policy, regulatory burden, and profitability will be around the same or worse than they are today. Survey respondents said business conditions were likely to worsen notably, regulatory burden was likely to worsen slightly and monetary policy and franchise value were likely to remain stable.

While the Federal Reserve declined to increase its benchmark interest rate last month for the first time in over a year, there are still uncertainties on whether or not the Fed will make another one or two hikes later in 2023.

To counter these economic pressures, the Northeast’s community bankers told the CSBS they are focusing on things that they can control, like increasing capital expenditures and operations expansion.

The CSBS sentiment index for the whole country was at 73, which is 10 points lower from the previous quarter’s reading of 83 and the “lowest recorded level since the survey began in 2019,” according to the CSBS.

“Community banker sentiment has been pessimistic for six straight quarters. They are navigating the effects of higher interest rates that have stressed liquidity, lending growth and fixed-rate securities portfolios. Moreover, following the high-profile bank failures earlier this year, community bankers are more concerned about regulatory overreach,” CSBS Chief Economist Tom Siems said in a statement.

U.S. community bankers also rated their top concerns for 2023, which are government regulation, cyber attacks, inflation, federal debt or deficit, and the cost or availability of labor.