While community bankers’ overall outlook on the economy has improved since the start of the pandemic, profitability and regulatory burden remain concerns for more than half of bankers, according to the Conference of State Bank Supervisors’ latest survey.
The fourth quarter Community Bank Sentiment Index remained nearly unchanged at 98 compared to 97 in the third quarter, but the overall sentiment improved compared to the first half of 2020, when the index was in the low 90s, according to the CSBS, the national organization of bank regulators for U.S. states and territories.
The CBSI in the fourth quarter of 2019 was at 123.
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 from 284 community banks 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.
Three of the CBSI components – regulatory burden, monetary policy and profitability – declined in the fourth quarter and remained in the negative range.
“Community bankers see significant issues in the future with profitability and regulatory burden,” CSBS President and CEO John Ryan said in a statement. “The silver lining may be their generally positive view of the business environment as we emerge from the pandemic. The banking industry is a critical component to our economic recovery, and it appears to be well positioned to do that.”
Community bankers’ outlook on business conditions improved the most, coming in at 120 in the fourth quarter compared to 103 in the third quarter. Still, bankers had a range of opinions on their outlook for business conditions, with 38 percent responding that conditions would be better than today, another 38 percent saying they would be the same and 18 percent expecting business conditions to be worse.
Banks in the CSBS’s Northeast region showed even more improvement in their outlook on business conditions compared to the overall group. The index for Northeast banks came in at 65 in the third quarter, well into the negative range, but in the fourth quarter improved to a rating of 121.
The lowest rated components of the CBSI were regulatory burden, with an index reading of 40, and profitability at 62.
“The regulatory burden component dropped 17 points to a historic low of 40, indicating greater concern that bank regulation will be more heavy-handed in the future,” the CSBS said.
In the Northeast, the profitability component was rated 50, down from 69 in the third quarter, with 64 percent of community bankers in the survey expecting future profits to decline. Only 14 percent of bankers surveyed from the Northeast and 20 percent in the overall group expect better profits.
Operations expansion had the highest rating in the fourth quarter at 137. While just over half the respondents said operations would remain the same, 38 percent expect to expand, 2 percent said they would contract and 5 percent did not know.
But more respondents in the Northeast expected to reduce operations, with 14 percent saying they would contract, while 50 percent expected to remain the same and 36 percent said they would expand. While operations expansion remains positive overall, the rating for Northeast banks in this category declined from 146 in the third quarter to 121 in the fourth quarter.
