Community banker economic optimism rebounds

Community bankers’ economic outlook has largely returned to prepandemic levels, according to a survey from the Conference of State Bank Supervisors.

The CSBS Community Bank Sentiment Index showed a sentiment index of 115 points in the first quarter, up significantly from 98 in the fourth quarter of 2020 and the low 90s in the first half of 2020 (100 is neutral on the scale; readings above are positive and below are negative). Prior to the pandemic, the sentiment index hovered in the low 120s.

Regional sentiment was highest in the West, at 128, and lowest in the Great Plains at 108. The Midwest fell between them at 117.

Six of the seven components in the CBSI increased from the previous survey by an average of 22.5 points each. Bankers’ outlook on future profitability increased the most, rising to 105 from 62 in the fourth quarter.

Respondents were more pessimistic about the future likelihood of increased regulatory burden, with that component of the index dropping 19 points to a historic low of 21. Just over four fifths of respondents thought regulatory burden would increase.

 “The overall positive and rising sentiment is encouraging, but the community bankers’ great concern that bank regulation will be more heavy-handed in the future should be noted,” said CSBS Senior Economist Tom Siems. “These community banks serve their local communities and are crucial to sustaining economic growth and helping businesses and consumers recover from the 2020 pandemic-induced recession.”

Slightly more than half of respondents thought business conditions would improve, with an index reading of 144 compared to last quarter’s 120. Fifty-six percent though franchise value would increase, with an index of 150 up from 127. About half of respondents thought capital expenditure (49 percent) and operations expansion (50 percent) would improve. Fifty-four percent thought monetary policy would remain the same, improving the index by 10 basis points to just below neutral at 96.

The Q1 2021 index draws on data from 200 community banks across the nation collected during the month of March.