The Federal Reserve’s interest rate decisions and concerns about future business conditions have made community bankers more pessimistic about business prospects, according to the Conference of State Bank Supervisors latest survey.

The second quarter Community Bank Sentiment Index fell to 84, the lowest overall rating since the survey began in 2019, according to the CSBS, the national organization of bank regulators for U.S. states and territories. The first quarter index was 97. The CBSI in the second quarter of 2021 was at 115.

The CBSI captures what community bankers nationwide think about the future of seven areas: business conditions, monetary policy, regulatory burden, capital expenditures, operations expansion, profitability and franchise value. The second quarter survey included data collected across the U.S. during the month of June.

The CSBS analyzes answers and compiles them into a single number: an index reading of 100 indicates a neutral sentiment, above 100 indicates a positive sentiment, and below 100 indicates a negative sentiment.

Banks in the CSBS’s Northeast region had an index rating of 83.

Nationwide, community bankers’ outlook for future business conditions declined from 83 in the first quarter to 38 in the second quarter. Two other CBSI components – regulatory burden and monetary policy – continued to show negative sentiments during the second quarter.

Regulatory burden has the lowest index rating at 19, down from 28 in the first quarter. Monetary policy saw the steepest decline, falling from 95 in the first quarter to 33 in the second quarter.

“Community bankers are mostly concerned about rising inflation, particularly energy and commodity prices, the impact of rapid interest rate increases and slower economic growth,” CSBS Chief Economist Tom Siems said in a statement earlier this month.

Despite the declining outlook, bankers’ expectations for profitability have improved. After profitability reached a rating of 51 in the fourth quarter – a record low for the three-year-old survey – and 68 in the first quarter, profitability moved into the positive range in the second quarter with a rating of 101. In the second quarter, 36 percent of respondents expected lower profitability compared to 55 percent in the first quarter, and 37 percent expected profitability to be higher, up from 24 percent in the first quarter.

For banks in the Northeast region, the profitability index rose to 118, up from 50 in the first quarter. But a higher share of Northeast bankers had less certainty about the direction of profitability, with 18.2 percent responding that they did not know what to expect regarding profitability. Nationwide only 1.6 percent of respondents expressed uncertainty.

Capital expenditure had the highest rating nationwide at 139, similar to the first quarter rating of 138. In the second quarter, half of bankers said capital expenditure would be higher, while 38 percent said it would remain the same.