While community bankers in December had a slightly more optimistic outlook about future business conditions and the economic outlook compared to the end of 2020, bankers are expressing more concerns about future profitability, according to the Conference of State Bank Supervisors latest survey.
The fourth quarter Community Bank Sentiment Index remained nearly unchanged at 101 compared to 100 in the third quarter, according to the CSBS, the national organization of bank regulators for U.S. states and territories. The CBSI in the fourth quarter of 2020 was at 98.
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 fourth quarter survey included data collected across the U.S. during the month of December.
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.
Banks in the CSBS’s Northeast region had a lower overall index rating of 91 in their outlook on business conditions compared to the overall group.
Three of the CBSI components – regulatory burden, monetary policy and profitability – continued to reveal negative sentiments from U.S. respondents during the fourth quarter. Regulatory burden had the lowest index rating at 22, down 19 points from the end of 2020.
Capital expenditures and operations expansions had the highest ratings at 147 each, with expectations for capital expenditures increasing by 13 points compared to the third quarter. In the fourth quarter, 55 percent of respondents said capital expenditures would be higher, and 51 percent said operations would expand. Only 3 percent of respondents in the fourth quarter expected operations to contract.
In the Northeast, 47 percent of respondents expected operations to expand, and 53 percent expected higher capital expenditures.
The component seeing the greatest drop from the third quarter was profitability. The fourth quarter rating of 51, a record low for the three-year-old survey, was down 15 points from the previous quarter. Most respondents – 69 percent – expected profitability to be lower, and only 19 percent expected it to be higher. The rest said profitability would remain about the same. Northeast respondents had similar expectations as the U.S. results.
“There are likely several possible explanations for community bankers’ concerns about future profitability,” CSBS Senior Economist Tom Siems said in a statement. “They may be concerned that Paycheck Protection Program loans will not provide recurring income or excess liquidity means significantly curtailed loan demand. The score may also reflect concerns of higher inflation expectations or heavier regulatory burdens.”