Banks quickly began recovering from the harsh winter that frosted their results and the broader economy, according to newly available data.
The American Banker Index of Banking Activity rose to 59.5 in March, from 56.6 in February. The reading, based on 300 responses, was the second highest in the nearly two-year history of the index. The highest reading was 60.1 in March 2013.
Consumer lending led the improvement, just like it did a year earlier. The reading for loan applications jumped to 65.1 from 53.4 a month earlier. Approvals also accelerated, to 64.4from 51.3 in February.
The data corresponded with anecdotal comments by many bankers who bemoaned how much the bad winter weather hurt business but said they sensed improvement late in the first quarter.
"The mortgage team, after dealing with the effect of a long winter is beginning to build a strong, solid pipeline," Claude Davis, chief executive of First Financial (FFBC) in Cincinnati, said during an April 30 call with analysts. Originations are "on track with our expectations heading into the second quarter."
The banking industry also reported increased momentum in commercial lending, where the reading for applications rose to 66.2, compared with an already solid 61.1 in February. Approvals kept pace with a reading of 64.1.
Pricing for consumer and commercial loans remained relatively stable. At 48.8, the reading for consumer pricing indicated that banks were willing to lower rates to gain business. Bankers are slightly more eager to trim pricing for commercial loans, given a March reading of 47.8.
Hancock Holding (HBHC) in Gulfport, Miss., is nearing its goal of a core loan yield of 4%, Chief Financial Officer Mike Achary said during a May 13 appearance at the Gulf South Conference. "The rate or yield that we are putting new loans on the books is around 3.9%, so we are slowly but surely narrowing that gap," he said.
Index readings above 50 indicate a monthly expansion of activity; 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.
Banks showed a renewed willingness to hire in March. The reading for bank staffing was 50.9, ending back-to-back months of declining employment levels. That could be partially due to industry optimism; the 59.8 reading for in-market business conditions was the highest in the history of the index.
Some of the industry's improved outlook was tied to signs that people are again buying homes and that values are continue to increase. "The housing recovery remained on track and should benefit from the spring buying season," John Stumpf, chairman and chief executive of Wells Fargo (WFC), said during an April 11 conference call.
"We are optimistic," Stumpf added. "Housing continues to improve. I don't think we'll see the percentage increases in values this year that we saw last year, but we believe it will be positive."
The IBA is a product of American Banker's monthly surveys of bank executives. The latest installment of the diffusion index was based on 320 responses.
The IBA's composite index is a simple average of readings on a range of indicators based on responses to survey questions on topics that include volume and pricing trends in commercial and consumer lending, loan balances outstanding and deposit-account activity.
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 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.