Community bank sentiment more subdued in Q3

The Q3 Community Bank Sentiment Index, compiled quarterly by the Conference of State Bank Supervisors, sank nine points to 120. While still well above the neutral level of 100, the third-quarter reading indicates that optimism is cooling on a range of indicators..Bankers reported lower sentiment on six of the seven components covered by the survey, driving the index to its lowest point since 2024.Expectations for profitability, the regulatory burden, operations expansion and franchise value, while still above 100, dropped between three and 16 points since Q2. Indicators for future business conditions and monetary policy, which were already below the neutral mark, fell further by 16 and 26 points, respectively. Expected capital spending was the only indicator that improved in the latest index.Beneath the numbers, bankers called out inflationary pressures, geopolitical conflict and persistently high oil prices as well as “the size of the federal debt, how the midterm elections might change the political calculus in Washington, and how to deal with growing fraud” as factors affecting their sentiments, CSBS said.At a meeting of the Bank Holding Company Association, Michael Stevens, president of the Graduate School of Banking at Colorado and a former CSBS executive, referred to the index shortly after it was released on Monday. He said a spike in sentiment followed the 2024 presidential election, when hopes were high for regulatory reform. Indeed, “it has been a busy regulatory season,” Stevens said, but the index is climbing down from those highs. For its part, CSBS said: “Community bankers’ optimism for a lighter regulatory environment in the coming year is fading somewhat, though still in positive territory.”On a special question about the state of the economy, more than half of respondents said the economy was growing solidly or at the start of an expansion. But more respondents in Q3 said the economy is at the start of or already in recession, driving that number up to 49 percent from the Q2 reading of 41 percent.CSBS said 248 community bankers from 38 states and the District of Columbia responded to the third quarter survey.