Community bankers entered 2020 with a fairly optimistic attitude about their businesses and the financial marketplace in which they operate, according to the Conference of State Bank Supervisors’ (CSBS) fourth quarter Community Bank Sentiment Index (CBSI). The fourth quarter index is the third since the organization began tracking community bank sentiment in the second quarter of 2019.
The CBSI is designed to offer a quarterly snapshot of how community bankers across the country view the future of their organization and the industry, and benefits from work CSBS has done with the Federal Reserve and Federal Deposit Insurance Corp. (FDIC) during the annual Community Banking Research and Policy Conference.
It measures banker sentiment based on seven areas: business conditions; monetary policy; regulatory burden; capital expenditures; operations expansion; profitability; and franchise value.
The latest CBSI ticked up to 123 from 121 in the third quarter on a scale of 200, reflecting an overall positive outlook for the economy and community banks. The fourth quarter index was compiled from a survey of 208 bankers from 43 states. An index reading of 100 indicates a neutral sentiment and anything above or below 100 is, in turn, considered positive or negative.
“This local perspective is an important indicator of economic activity for policymakers, bankers and the market,” CSBS Senior Executive Vice President Michael Stevens said in a press release.
Specifically, the survey results show that:
- 85 percent of bankers believe business conditions will be the same or better (up from 71 percent in the third quarter);
- 77 percent of banks expect the same or better profits (down from 80 percent);
- 61 percent of banks believe they will see an increase in franchise value (up from 52 percent); and
- 32 percent of bankers project a heavier regulatory burden (down from 34 percent).
Stevens does not anticipate that 2020 will bring dramatic changes to the index.
“Absent a significant economic shock, we expect modest changes to the overall index from quarter to quarter,” Stevens said. “The real story lies in the change of the components and variances around the country.”
In a separate blog post evaluating the index’s findings, Stevens wrote that banks’ continued expectation that they will be able to maintain strong capital spending levels and expand operations represented neutral views on future business conditions, which did not weigh down the index overall. However, positive movement was offset by a large downward change in sentiment regarding the monetary policy component of the index. In that regard, community bankers foresee a more stable, and less uncertain, monetary policy by the Federal Reserve, Stevens explained.
“One area worth watching is the declining trend of the outlook for profitability, with the overall score approaching neutral,” Stevens wrote. “As we dive deeper into the data, we will determine if this is more pronounced in certain areas of the country. The industry has had strong financial performance for several years, so a neutral outlook is not necessarily bad. However, there is no bottom to a negative trend, so this is worth watching in the 2020 quarterly surveys.”