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Banking Conditions Survey, October 2019

Print Version

The Eleventh District financial sector has shown some signs of stronger growth over the past six weeks, according to survey respondents. The index for loan demand rose from 15.5 to 29.8, while the index for loan volume rose from 20.7 to 29.8.

Survey respondents indicated that loan volume grew at a faster clip for residential real estate loans. Volumes in the commercial and industrial (C&I) loan category edged up, while the consumer loan volume index fell from -1.8 to -6.6. The commercial real estate loan volume index remained steady at 19.2.

Nonperforming loans increased slightly over the period, with the index rising from -1.8 to 2.1, although there was variance by loan type.

Loan pricing declined further, with the index reaching its lowest level in the three-year history of the survey after falling from -31.0 to -42.6. Credit standards and terms tightened in all loan categories, according to survey respondents.

Survey respondents indicated that general business activity has expanded at a faster pace since the previous survey, with the index pushing further positive from 7.0 to 17.0.

According to respondents, core deposit volumes increased much faster over the past six weeks, with the index jumping from 5.3 to 27.7. The net interest margin index plunged to the lowest level in the three-year history of the survey, to -40.4 from -10.6. Respondents indicated that cost of funds and noninterest income continued to increase, as both indexes remained positive.

The outlook for the Eleventh District financial sector is more optimistic than it was six weeks ago. Expectations for total loan demand six months from now point toward some growth, with the index rising from 0 to 13.0. The six-months-ahead nonperforming loan index held steady at 8.7. Finally, expectations for general business activity remain neutral, with the index coming in at 0.

Next release: November 27, 2019

Read full report | See all Banking Conditions Surveys

Data for this report were collected Sept. 17–25, and 48 financial institutions—42 banks and six credit unions—responded. The Federal Reserve Bank of Dallas conducts the Banking Conditions Survey twice each quarter to obtain a timely assessment of activity at banks and credit unions headquartered in the Eleventh Federal Reserve District. CEOs or senior loan officers of financial institutions report on how conditions have changed for indicators such as various loan types, deposits and loan pricings. Respondents are also asked to report on their banking outlook and how they perceive broader economic conditions to have changed (general business activity).

Results Table

1. Total loans: Over the past six weeks, how have the following changed?
Indicator Current index Previous index Percent reporting increased Percent reporting no change Percent reporting decreased

Loan volume

29.8 20.7 48.9 31.9 19.1

Loan demand

29.8 15.5 44.7 40.4 14.9

Nonperforming loans

2.1 -1.8 21.7 58.7 19.6

Loan pricing

-42.6 -31.0 2.1 53.2 44.7
Indicator Current index Previous index Percent reporting eased Percent reporting no change Percent reporting tightened

Credit standards and terms

-19.0 -11.8 0.0 81.0 19.0
2. Commercial and industrial loans: Over the past six weeks, how have the following changed?
Indicator Current index Previous index Percent reporting increased Percent reporting no change Percent reporting decreased

Loan volume

2.5 -9.5 17.1 68.3 14.6

Nonperforming loans

-2.6 -7.8 12.8 71.8 15.4
Indicator Current index Previous index Percent reporting eased Percent reporting no change Percent reporting tightened

Credit standards and terms

-9.8 -7.7 0.0 90.2 9.8
3. Commercial real estate loans: Over the past six weeks, how have the following changed?
Indicator Current index Previous index Percent reporting increased Percent reporting no change Percent reporting decreased

Loan volume

19.2 19.2 32.7 53.8 13.5

Nonperforming loans

8.0 8.0 10.0 88.0 2.0
Indicator Current index Previous index Percent reporting eased Percent reporting no change Percent reporting tightened

Credit standards and terms

-12.5 -5.8 5.0 77.5 17.5
4. Residential real estate loans: Over the past six weeks, how have the following changed?
Indicator Current index Previous index Percent reporting increased Percent reporting no change Percent reporting decreased

Loan volume

32.5 19.6 45.0 42.5 12.5

Nonperforming loans

-7.9 0.0 2.6 86.8 10.5
Indicator Current index Previous index Percent reporting eased Percent reporting no change Percent reporting tightened

Credit standards and terms

-2.6 3.9 0.0 97.4 2.6
5. Consumer loans: Over the past six weeks, how have the following changed?
Indicator Current index Previous index Percent reporting increased Percent reporting no change Percent reporting decreased
Loan volume -6.6 -1.8 13.0 67.4 19.6
Nonperforming loans 0.0 1.9 11.4 77.3 11.4
Indicator Current index Previous index Percent reporting eased Percent reporting no change Percent reporting tightened

Credit standards and terms

-4.4 -3.6 0.0 95.6 4.4
6. Other banking developments: Over the past six weeks, how have the following changed?
Indicator Current index Previous index Percent reporting increased Percent reporting no change Percent reporting decreased
Volume of core deposits 27.7 5.3 46.8 34.0 19.1
Cost of funds 2.1 5.2 34.0 34.0 31.9
Net interest margin -40.4 -10.6 8.5 42.6 48.9
Noninterest income 8.5 7.1 21.3 66.0 12.8
7. Banking outlook: What is your expectation for the following items six months from now?
Indicator Current index Previous index Percent reporting better Percent reporting no change Percent reporting worse
Total loan demand 13.0 0.0 30.4 52.2 17.4
Indicator Current index Previous index Percent reporting more Percent reporting no change Percent reporting fewer

Nonperforming loans

8.7 8.6 26.1 56.5 17.4
8. General business activity: What is your evaluation of the level of activity?
Indicator Current index Previous index Percent reporting improved Percent reporting no change Percent reporting worsened
Over the past six weeks 17.0 7.0 29.8 57.4 12.8
Six months from now 0.0 -19.3 25.5 48.9 25.5

Comments

These comments are from respondents and have been edited for publication.

Trade Concerns

  • Several customers are expressing concern about the uncertain business climate we are currently in. Specifically, if the U.S. and China trade war will have an effect on their business and the overall economy. It seems like an uncertain Fed [Federal Reserve] in regard to interest rate cuts will make this a tricky and difficult upcoming budget season.

Political Concerns

  • The public tension and comments by the president about the Federal Reserve creates unnecessary negative attention and uncertainty.

Economic Concerns

  • Seasonal motivation by auto dealers to move the prior year's inventory has resulted in unreasonable financing impacting auto loan demand. For real estate, rate decreases have increased volume, but continued rate decreases will adversely impact us as a portfolio lender. Overall economic and geopolitical uncertainty is challenging the ability to reliably predict future trends.
  • The impacts of the Fed rate changes on net interest margin.
  • Macro and world pressures.
  • The interest rate environment is hurting community banks.
  • More caution as a result of recession concerns.

Banking Concerns

  • The largest use of a community bank’s resources (personnel's time as well as nonpersonnel expense) is devoted to complying with the laws, regulations and "best practices" that are applicable to community banks.
  • Slowing loan demand.
  • We are still not happy with CECL [current expected credit losses] and small credit unions needing to comply when we are not part of any problem.
  • We were outbid by 50 basis points for a local municipal loan by an out-of-market larger “big” bank. Regulatory expense burdens are hitting smaller community banks more than the larger “big” banks, creating a competitive imbalance.

Questions regarding the Banking Conditions Survey can be addressed to Saniha Aziz at Saniha.Aziz@dal.frb.org.

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