Community banker optimism improves, still muted

Community bankers' optimism for future economic conditions slightly increased again in the second quarter of the year while remaining below the neutral score of 100, according to the second quarter 2024 CSBS Community Bank Sentiment Index. .The index increased one point to 99. It has been below 100 for 10 straight quarters, and has significantly increased from its record low of 73 during the second quarter of 2023. Seventy-five percent reported the country was in a recession during the second quarter, up from two thirds in the first quarter. .Four of seven index components improved. The profitability component increased nine points to 96 — its highest level since 2022 amid small increases in capital spending and operations expansion. The franchise value indicator dropped six points to 130. The regulatory burden component sits at 20 points, continuing its 14-quarter run of being below 30. The index for business conditions fell three points to 75, which is still 32 points higher from last year. The index has been below 100 for 10 straight quarters. .Community bankers are more optimistic on monetary policies, as the related index has increased 67 points from a year ago. ."Knowing that monetary policy operates with a lag, the rapid interest rate increases over the past two years are now likely taking more of a toll on consumers and businesses," said CSBS Chief Economist Tom Siems. "Bankers and regulators need to be keenly aware of credit risks that might start to stress banks' loan portfolios."