Concerns about future business conditions have led community bankers to hold a less optimistic outlook for the economy, according to the Conference of State Bank Supervisors’ latest survey.
The first quarter Community Bank Sentiment Index fell to 97 compared to 101 in the fourth quarter, according to the CSBS, the national organization of bank regulators for U.S. states and territories. The CBSI in the first quarter of 2021 had been 115.
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 first-quarter survey included data collected across the U.S. during the month of March.
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 held an even more negative outlook on the economy compared to the overall group, with an index rating of 91.
Nationwide, community bankers’ outlook for future business conditions declined from 110 in the fourth quarter to 83 in the first quarter. Three other CBSI components – regulatory burden, monetary policy and profitability – continued to show negative sentiments during the first quarter. Regulatory burden has the lowest index rating at 28, up slightly from 22 in the fourth quarter.
Operations expansion had the highest rating at 140, though it declined by 7 points from the fourth quarter. In the first quarter, 42 percent of bankers said operations would expand, and 54 percent said operations would remain the same. Less than 2 percent of respondents in the first quarter expected operations to contract.
After profitability in the fourth quarter reached a rating of 51, a record low for the three-year-old survey, this sentiment did improve in the first quarter. While it remained negative at 68 points, fewer bankers expected future profitability to be lower compared to the fourth quarter. In the first quarter, 55 percent of respondents expected lower profitability compared to 69 percent in the fourth quarter, and 24 percent expected profitability to be higher, up from 19 percent in the fourth quarter.
The CSBS in a statement said bankers in an open-ended question expressed concerns about rising inflation, mounting geopolitical tensions and government regulations that could slow domestic economic growth.
“Community bankers are concerned about rising inflation and negative economic consequences from escalating geopolitical risks.” CSBS Chief Economist Tom Siems said in the statement. “Higher oil and gas prices and concern about regulatory burdens are adding to the apprehension.”
