Community banker optimism drops in quarterly CSBS study

Community bankers are more pessimistic over future business conditions than earlier this year, according to the most recent Community Bank Sentiment Index. 

The Conference of State Bank Supervisors released the 3Q 2021 CBSI Tuesday. The index revealed a reading of 100, indicating neutral community banker economic expectations and a 15 point drop from the previous quarter. Those drops in confidence, though seen in all seven index components, were especially pronounced through a 41-point drop in profitability expectations, a 32-point fall in business conditions and a 20-point decline in franchise value.  The drop in profitability expectations is the largest quarterly fall since a 43-point fall from Q4 2019 to Q1 2020 at the start of the Covid-19 pandemic and related economic lockdowns.

The regulatory burden component (21 points) remained the strongest concern among community bankers and is down 35 points compared to year-ago levels. President Joe Biden has proposed requiring financial institutions to report to the IRS deposits and withdrawals of all business and personal accounts with a balance of more than $600. Since then, prominent Democrats have discussed increasing that number to $10,000. 

North Dakota Bankers Association President/CEO Rick Clayburgh said the increased concern comes as the influx of pandemic-era Paycheck Protection Program loan dollars wilt, M&A activity [picks up, and wage pressures continue as employers face competition for employers. However, Clayburgh noted commodity prices have rebounded and inflationary concerns might not be as significant as anticipated. Also, he expects more people will accept that Covid-19 is a manageable virus and that supply chain shortages will eventually end.  

“There is an optimistic feel here in North Dakota,” he added. 

Illinois Bankers Association President Randy Hultgren said community bankers have expressed concern over potential inflation, the “unintended consequences” of regulations for small business and a continued surplus of deposits. Still, Hultgren noted that community bankers have proved valuable during the pandemic as they handled the influx of PPP loans. 

“I hope not,” he said of whether these challenges will be permanent. “I think that things are cyclical.”