Community Bank Executives’ Outlook a Cautionary One
Banks in the Northeast More Tentative than Their Regional Counterparts
ARLINGTON, VA (Nov. 16, 2017) – CEOs, presidents, and CFOs of community banks across the U.S. have a somewhat cautionary outlook on the future, according to the Q3 2017 Bank Executive Business Outlook Survey, conducted by Promontory Interfinancial Network.
When asked “How are overall economic conditions for your bank compared to 12 months ago,” fewer than half (49.1%) of banks reported experiencing an improvement for their institutions; even fewer (44.7%) expect to see improvement over the next 12 months.
Moreover, while there was a half-point improvement in the Banker Confidence IndexSM from Q2, the Index was still firmly in negative territory for the second quarter in a row (48.1 this quarter compared to 47.6 last), a first for the survey since its inception 11 quarters ago. Prior to this, the only time the Banker Confidence Index had fallen below 50 was the fourth quarter of 2015. (The Index tracks banker expectations in four key areas: access to capital, loan demand, funding costs, and deposit competition. Charted on a scale of 0-100, a score over 50 can be read as expansionary. A result below 50 can be read as contractionary.)
In addition to the core tracking questions, this quarter’s survey also included supplemental questions about banker perspectives on tax reform and interest rates.
On the prospect of tax reform, community bank executives are more optimistic than everyday Americans are on the prospects for tax reform this year. While community bank executives are evenly split on the prospects for passage (49% Yes, 51% No), the near-majority support of the notion that tax reform will happen stands in stark contrast to public polls that have shown only 14% of Americans believing it will be a reality this year.1
On interest rates, only a slight majority (53%) agreed with members of the Federal Open Market Committee’s projection that the median Fed Funds rate should be 2.75% in the “longer run.” Thirty-nine percent believe that number is too high.
In other news, 68% of community bank executives polled saw an increase in funding costs over the past year, and 87% foresee an increase in funding costs in the next 12 months.
Also, a majority of respondents (64%) indicated that deposit competition has increased compared to 12 months ago, up 6.1 percentage points from last quarter. Compared to the survey results from a year ago, the jump is even more dramatic (24.7 percentage points).
“And banks don’t expect competition to cool down any time soon—77% project competition will increase even further over the next year,” said Mark Jacobsen, President and CEO of Promontory Interfinancial Network. Jacobsen elaborated on regional differences, stating, “While growth in deposit competition is expected by all banks, more than 90% of respondents from banks in the Northeast expect growth in deposit competition going forward.”
Additionally, improved loan demand over the next 12 months is anticipated by 51% of all respondents and 66% of respondents from the South, compared to just 37% of respondents from the Northeast. In fact, 20% of respondents from the Northeast expect loan demand to moderately or significantly worsen.
For details and other insights, please download the latest Survey report.
1 Blanton, Dana. “Fox News Poll: Tax reform important to voters, but most doubt it will happen.” Fox News, August 30, 2017. http://www.foxnews.com/politics/2017/08/30/fox-news-poll-tax-reform-important-to-voters-but-most-doubt-it-will-happen.html (accessed October 26, 2017).
About the Survey
The Bank Executive Business Outlook Survey was completed online over the course of two weeks from October 3-October 13, 2017, and incorporates responses from 389 unique banks, as provided by C-level community bank executives, defined as CEOs, presidents, and CFOs, from across the country. Compared to the asset-size distribution of the banking industry, responses were slightly weighted toward banks with between $1 billion and $10 billion in assets. The survey is the eleventh published by Promontory Interfinancial Network, with data released every fiscal quarter.
About Promontory Interfinancial Network, LLC
Promontory Interfinancial Network was founded by leading figures in the banking industry—Eugene Ludwig, Alan Blinder, Mark Jacobsen, and Alfred Moses—to provide financial institutions with profit-enhancing solutions. The founders envisioned a network, composed of thousands of financial institutions, whose “synthetic size” would help each member institution to compete more efficiently. More than 3,000 financial institutions have chosen to be a part of the company’s Network, which has grown to be the largest bank network of its kind. Network members use Promontory Interfinancial Network’s balance sheet and liquidity management services to acquire and retain large-dollar customer relationships, purchase funding, reduce collateralization costs, and buy and sell bank assets.
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