Industry Momentum Returns in Latest Index of Banking Activity

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The banking industry showed signs of accelerated growth for the first time since the spring in the latest American Banker Index of Banking Activity.

The November index was 54.9, up slightly from 54.6 in October. It was the first monthly increase in the index — representative of accelerated expansion — since May. Still, the reading was down compared to the 55.8 mark posted a year earlier.

Commercial lending perked up a month after the government shutdown ended. Applications for commercial loans rose at a faster pace in November, with a 56 reading, while approvals also gained momentum, at 57. The readings in October were 53.4 and 52.8, respectively.

Consumer lending held steady after two consecutive months of declines. The readings for applications and approvals both stood at 50, indicating no change from a month earlier.

Still, bankers reported that loan portfolios grew at a slower rate in November, and they were challenged with commercial loan pricing, with that reading staying below 50 for a second straight month. Consumer loan pricing remained favorable for bankers for the sixth straight month.

"This interest rate environment is terrible and probably will be for a long time," Bill Crawford, chief executive of Rockville Financial (RCKB) in Rockville, Conn., said in a recent interview. "It is very tough to fight against that."

Bankers, by and large, expect a sluggish economy and elevated competition in 2014.

"We think it is going to continue to be fiercely competitive," Bryan Jordan, chief executive of First Horizon (FHN) said during a Nov. 21 meeting with analysts and investors. "You've got low interest rates for financial institutions, fairly limited economic growth and not a lot of incremental loan demand. Every opportunity that comes up is a very competitive situation."

Index 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.

Banks were hiring heading into the end of the year, with a staffing reading of 51.8, though most bankers were hiring lenders and compliance staff. Overall views of market conditions improved to 53.2 in November from 52.9 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 247 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 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.

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