After two quarters with a positive outlook on their profits, more community bankers, particularly in the Northeast, expect bank profitability to decline, according to the Conference of State Bank Supervisors’ latest survey.

The fourth quarter overall Community Bank Sentiment Index fell to 85, down from 91 in the third quarter, according to the CSBS, the national organization of bank regulators for U.S. states and territories. The fourth quarter index was near the second quarter index of 84, the lowest overall rating since the survey began in 2019. The CBSI in the fourth quarter of 2021 had been at 101.

The CBSI captures what community bankers nationwide think about the future of seven areas: business conditions, monetary policy, regulatory burden, capital expenditures, operations expansion, profitability and franchise value.

The CSBS analyzes answers and compiles them into a single number: an index reading of 100 indicates a neutral sentiment, above 100 indicates a positive sentiment, and below 100 indicates a negative sentiment. The index was negative during all four quarters of 2022.

The index was added last year to the Federal Reserve Economic Data – or FRED – online database maintained by the Federal Reserve Bank of St. Louis.

Banks in the CSBS’s Northeast region had an overall index rating of 71, a significant drop from the third quarter, when the region’s rating of 111 exceeded the national result of 91.

Nationwide, community bankers’ outlook for profitability declined the most and entered the negative range, going from 121 in the third quarter to 99 in the fourth quarter. The profitability rating had fallen to 51 in the fourth quarter of 2021 – a record low for the survey – and 68 in the first quarter of 2022, before moving into the positive range in the second and third quarters.

For banks in the Northeast region, the profitability index fell by more than 70 points, from 156 in the third quarter to 83 in the fourth quarter. A higher share of Northeast bankers – 50 percent – said profitability would be worse in the future compared to bankers nationwide, with 37 percent saying it would be worse. Only 8 percent of Northeast bankers thought profitability would remain the same compared to 24 percent nationwide.

Three other CBSI components – future business conditions, regulatory burden and monetary policy – remained deeply negative during the fourth quarter.

Future business conditions fell from 42 in the third quarter to 37 in the fourth quarter, while monetary policy went from 35 in the third quarter to 33 in the fourth quarter. Regulatory burden improved slightly – from 21 in the third quarter to 26 in the fourth quarter – but had the lowest rating of all the assessment areas.

“The nation’s community bankers have a gloomy economic outlook and expect a tough year ahead,” CSBS Chief Economist Tom Siems said in a statement last week. “And because they have a good sense of consumer and business confidence at the local level, community bankers might be the best leading indicator for assessing future economic conditions.”

The survey also found that 96 percent of respondents believed the U.S. economy is in a recession. Their top concerns for the year ahead included inflation, government regulation, labor challenges and cyberattacks.

The CBSI did have some areas in the positive range. Capital expenditure had the highest rating at 137, down seven points from the third quarter. Bankers also had positive sentiments around operations expansion and franchise value, rating 132 and 128, respectively, though both ratings fell slightly from the third quarter.