Community bankers’ overall outlook on the economy remained negative in the second quarter, with bankers holding a range of opinions on business conditions, according to a quarterly survey by the Conference of State Bank Supervisors.
The second quarter Community Bank Sentiment Index remained nearly unchanged in the second quarter at 90 compared to 91 in the first quarter, according to the CSBS, the national organization of bank regulators for U.S. states and territories. The CBSI in the second quarter of 2019 was at 122.
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 CSBS introduced the index last year.
Last quarter’s survey had seen a shift in sentiment with results received both in early March and later in the month after economic shutdowns began. The CBSI had declined throughout March as more survey responses were received, according to the CSBS, from an average 98 points at the beginning of March to an average 71 by the end of the month.
Five of the CBSI components – regulatory burden, capital expenditures, operations expansion, profitability and franchise value – saw further declines in the second quarter, though capital expenditures and operations expansion were in the positive range.
While the outlook on business conditions and monetary policy both increased, they remained negative at 93 and 92, respectively.
Community bankers had a range of opinions on their outlook for business conditions, with 32 percent responding that conditions would be better, 39 percent saying they would be worse and 22 percent expecting business conditions to remain the same. Half of the respondents said monetary policy would remain the same.
The lowest rated components of the index were regulatory burden, with an index reading of 57, and profitability at 55. Bankers were just about split on their outlook for regulatory burdens, with 47 percent responding that burdens would be the same and another 47 percent saying that burdens would be heavier.
More community bankers expect future profits to decline, with 63 percent of second quarter respondents saying profitability would get worse compared to 53 percent last quarter. Only 19 percent of respondents in the second quarter said profitability would increase.
“Community banks acted quickly to help their communities survive the economic fallout of the pandemic but have serious concerns about the challenges ahead,” CSBS President and CEO John Ryan said in a statement. “Policymakers should take note of these concerns, as community banks have a close-up view of our economic health.”
