Slower growth in consumer borrowing took a toll on the recent American Banker Index of Banking Activity.
The overall index for August was 56.9, down from the 57.5 reading a month earlier. Both figures followed a chaotic June, when a spike in long-term interest rates jolted the mortgage market and helped drive down the index.
The August data indicated that the slowdown in mortgage activity continued into late summer. The reading for consumer applications was 52.2, compared with 56.6 in July. Growth in consumer loan approvals also cooled, registering a 52.1 reading in August after coming in at 56.2 a month earlier.
Bankers have frequently voiced concerns about the ongoing mortgage slowdown during recent conferences. Many have projected lackluster results for the third quarter, while warning of an even more pronounced drop-off to end the year.
Mortgage warehouse lending balances at First Horizon (FHN) fell 27% in early September compared with late June, decreasing to less than $800 million, Bryan Jordan, the Memphis, Tenn., company's chairman and chief executive, said during a conference hosted by Barclays in September.
"The big wild card is mortgage," Daryl Bible, the chief financial officer at BB&T (BBT) in Winston-Salem, N.C., said Sept. 18 during a conference hosted by RBC Capital Markets. "Mortgage is going to be a headwind for the next couple quarters."
Bank staffing declined in August, perhaps reflecting the banking industry's efforts to prune mortgage-related positions. The month's 47.8 reading was a reversal from 52.5 in July.
Commercial lending activity accelerated during August, though it was insufficient to counter consumer trends. Applications for commercial loans posted a 59.2 reading, up from 57.7 in July. The 57.5 reading for approvals represented a slight improvement from 56.6 a month earlier.
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.
Bankers continue to express concerns that aggressive competitors are compromising on loan terms to gain an edge. A number of bankers have discussed how their lenders are getting exasperated losing deals under those circumstances.
"Does it frustrate our people? Yes," Ralph Babb, the chairman and CEO of Comerica (CMA) in Dallas said during the Barclays conference. "But they also understand, longer term, that the right things need to be done. We will hit another recession at some point in time - the true test of a portfolio will be in that recession."
In fact, credit quality showed some signs of deterioration in August. Consumer delinquencies registered a reading of 61, compared with 55.7 in July. Delinquencies among commercial borrowers posted a 63.5 reading in August, compared with 59.2 a month earlier.
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 make sure 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.