Market conditions showed a rare stability in the most recent American Banker Index of Banking Activity.
The overall index for July was 57.5, representing a nominal change from the 57.7 reading a month earlier. It was the smallest monthly swing in the index since December, and it followed a chaotic June when the spike upward in interest rates shocked borrowers and spooked bank executives.
Some respondents lamented the July lull. "Flat to dull would be the best way to describe our market," one banker said.
For others, the relative calm provided a rare opportunity to reposition loan books and securities portfolios for the ongoing rise in long-term interest rates. "The economic climate in our markets is improving notably," a respondent said. "We are aiming to keep our loans and terms ahead of the [yield] curve."
Any lending momentum largely involved consumer credit. The index reading for consumer loan approvals was 56.2, compared with 52.6 a month earlier. But that momentum was partially offset by slower growth in commercial loan approvals, which registered 56.6 compared with 58.2 in June.
Loan pricing continued to strengthen. Consumer loan pricing had a reading of 54.6, up from 53.7 in June, and commercial pricing was 52.7, compared with 51.4 a month earlier.
"Pricing has been firm," James Smith, the chairman and chief executive of Webster Financial (WBS), said during the Waterbury, Conn., company's quarterly conference call with analysts on July 12. "Pricing was higher, obviously, on the origination of mortgage loans. … It feels as if the increase in long rates has had an overall impact on the ability to hold pricing pretty much across the board."
Concerns are mounting that the war for loan growth is shifting away from pricing, with more banks allowing concessions on terms to win new business.
The IBA is a product of American Banker's monthly surveys of bank executives. The diffusion index is published in partnership with VantageScore Solutions. The latest installment was based on 281 responses.
Readings above 50 indicate a monthly expansion of activity, and readings below 50 point to contraction. For contrary indicators, such as the components that track loan delinquencies and loan-rejection rates, a reading above 50 is considered evidence of deterioration in business activity. The further from 50 a reading is, the stronger the indicated change.
Credit quality deteriorated at a much slower rate in July compared with a month earlier. Consumer loan delinquencies had a 55.6 reading last month, while commercial delinquencies registered at 59.2. Those readings were 65.5 and 66.3, respectively, in June.
"We are encouraged with credit quality trends in the bank, especially with respect to the highest-risk loans in our portfolio," Daryl Moore, the chief credit officer at Old National Bancorp (ONB), said during the Evansville, Ind., company's July 29 conference call with analysts.
The IBA's composite index is a simple average of readings on a range of indicators. They are based on responses to survey questions about volume and pricing trends in commercial and consumer lending, loan balances outstanding, deposit account activity and other topics.
Respondents are also asked to weigh in on staffing levels at their institutions, as well as business and real estate conditions in markets where they do business. Every effort is made to ensure that the breakdown of companies included in the executive panel is representative of the industry.
The values for individual components of the index are equal to the percentage of responses indicating increased activity plus one half of those indicating "no change."
Component scores are then averaged to arrive at a composite. When calculating the composite, contrary indicators such as delinquencies are scored inversely — the component figure is subtracted from 100.