Despite optimism, bankers concerned about profits, regulation

Community bankers are a little more optimistic about future business conditions than at the end of 2020 but remain concerned over profit and regulatory outlooks, according to the Conference of State Bank Supervisors’ latest Community Bank Sentiment Index.

The positive sentiment index was measured at 101, a 1-point increase from the previous score and a jump of three points from the last quarter of 2020. A score of 100 indicates neutral sentiments. Community banker sentiment remains much higher for capital expenditures at 147. 

 More bankers are concerned about future profitability than at any time since the pandemic began in early 2020: The 4Q 2021 profitability component was listed at 51, lower than the previous record low of 55 taken during the second quarter of 2020.The regulatory burden component, at 22 points, is the greatest concern for community bankers. That reading has remained in the low 20s throughout the year, and is down 19 points when compared to the fourth quarter of 2020. 

 CSBS Senior Economist Tom Siems said “several possible explanations” for those concerns exist. “They may be concerned that Paycheck Protection Program loans will not provide recurring income or excess liquidity means significantly curtailed loan demand,” he noted. “The score may also reflect concerns of higher inflation expectations or heavier regulatory burdens.”