ABOUT THE INDEX OF BANKING ACTIVITYThe Index of Banking Activity is a composite index of business conditions in the U.S. banking sector. It is a result of the monthly SourceMedia Research “Banking Activity Survey” of more than 300 banking executives from banks of all sizes. The Index comprises a number of selected sub-indicators that summarize various business activities in banking, such as loan activity, loan pricing, deposit account activity, staffing, and business and real estate conditions. Each sub-indi-cator is based on survey responses that describe a change from the previous month (e.g., higher, lower, or no change). Respondents are also asked to elaborate on any of the changes and provide their opinions.

For each sub-indicator, a diffusion index is produced by calculating the sum of percentages of those indicating “higher” (for positive sub-indicators) and “lower” (for negative sub-indicators) and half of those indicating the “same.” A reading of over 50 indicates an expansion relative to the prior month, and a reading below 50 indicates a contraction.

Business activity in the banking indus-try maintained its solid momentum in April, according to American Banker’s

Index of Banking Activity (IBA).

The IBA’s April composite reading of 58.3, down a bit from March’s near-record 61.1 level, nonetheless demonstrated that business trends remain favorable for banks. This month’s survey also revealed that banks across the IBA’s four regions all par-ticipated in the gains, in contrast to recent months which saw sharp divergences in re-gional activity. In this case, the convergence saw growth in the South and Midwest edge back to levels more in line with those in the Northeast and West.

As was the case in March, all but one of the IBA’s components contributed to the positive reading, with commercial lending indicators showing exceptional strength in April. The one IBA outlier, which tracks deposit pricing, is likely to continue to drag on the index given the general expectation that rates will be on the rise for some time.

Noteworthy also was a rise in the compo-nent that tracks banks’ staffing levels. For now, it remains too early to attach much significance to that component as gains were driven primarily by positive responses from the West. However, the increase bears watching as this component has had a strong tendency to hover along the 50-point “unchanged” line. ■

Seasonal expansion broadens in the month, albeit at a somewhat more moderate pace. On balance, readings point to a solid extension of the IBA’s traditional seasonal rally.

INDEX OF BANKING ACTIVITYMAY 2017

April IBA at 58.3

IndexAprilIndex

MarchIndex

% Point Change

Change/Rate of Change

TrendTrend Duration

(months)

IBA 58.3 61.1 -2.9 Slower Expansion 59

Consumer Loan Applications 57.2 67.9 -10.6 Slower Expansion 3

Commercial Loan Applications

62.6 65.3 -2.6 Slower Expansion 15

Consumer Loan Approvals 57.9 66.1 -8.3 Slower Expansion 3

Commercial Loan Approvals 61.7 67.9 -6.2 Slower Expansion 15

Consumer Loan Rejections 56.4 55.2 1.2 Faster Expansion 30

Commercial Loan Rejections 57.7 56.9 0.8 Slower Expansion 30

Consumer Loan Delinquencies

54.4 55.4 -1.0 Slower Expansion 15

Commercial Loan Delinquencies

56.0 61.4 -5.3 Slower Expansion 59

Consumer and Commercial Loans Outstanding

71.1 72.8 -1.7 Slower Expansion 59

Pricing on New Consumer Loans

60.9 65.0 -4.1 Slower Expansion 8

Pricing on New Commercial Loans

64.0 68.2 -4.2 Slower Expansion 7

Consumer and Commercial Deposit Pricing

39.5 40.2 -0.7 Faster Contraction 9

Consumer and Commercial Checking Accounts

59.9 63.8 -3.9 Slower Expansion 59

Staffing Level 55.2 53.0 2.2 Faster Expansion 2

Business Conditions 56.1 58.4 -2.2 Slower Expansion 4

Real Estate Conditions 61.4 60.5 1.0 Faster Expansion 3

2012 2013 2014 2015 2016 2017

35

40

45

50

55

60

65

70

75

58.3

INDEX OF BANKING ACTIVITY: APRIL 2017

INDEX OF BANKING ACTIVITYMAY 2017

▶ Loan Rejections*Fairly stable month-over-month on both the con-sumer and commercial side, these components held to modestly bullish levels. The readings on this indicator, for now, suggest that credit standards are holding (but for the reasons cited above bear watching.)

*Note: When survey respondents report increases in contrary indicators (delinquencies, rejections, and deposit pricing) the composite index numbers drop, reflecting worsening business conditions. Contrary indicators are thus calculated inversely to quantify this effect.

▶ Loan Delinquencies* These components, which have held to solidly positive territory in recent memory, edged back to more neutral levels in April. A few survey respondents acknowledged increases in delin-quencies in the month, both in consumer and commercial lending, but those voices remain the minority.

▶ Loan ApplicationsRespondents reported that loan demand remained robust in April, although growth did not match the power suggested by March’s end-of-winter readings. Some mixed signals from the consumer as several respondents reported strong gains in consumer mortgage activity but a couple pointed to weaker demand in autos.

▶ Loan ApprovalsApproval rates maintained much of their March momentum, outstripping growth on the appli-cation side by a larger margin than typically is seen in the IBA. While not necessarily a harbin-ger of weakening standards, this is a trend that merits attention.

INDEX OF BANKING ACTIVITYMAY 2017

▶ Loans OutstandingOne of the few sure things in banking — loans outstanding — have risen each and every month in the IBA’s nearly five year history. Gains here were most pronounced in the Northeast and Midwest.

*Note: When survey respondents report increases in contrary indicators (delinquencies, rejections, and deposit pricing) the composite index numbers drop, reflecting worsening business conditions. Contrary indicators are thus calculated inversely to quantify this effect.

▶ Deposit Pricing*The pricing story for deposits mirrors that of loans, with several bankers noting stiff competi-tion for market share.

▶ Pricing On New LoansBanks’ relative pricing power on new loans was still in force in April. While likely to continue giv-en the overall rate outlook, a couple of respon-dents said they sensed “pushback” on pricing in the month.

▶ Checking AccountsAnother IBA pillar of expansionary support. The component that tracks new transaction account generation has been reliably positive through all the IBA’s surveys.

58.0WEST

MIDWEST60.4

SOUTH56.3

NORTHEAST56.9

INDEX OF BANKING ACTIVITYMAY 2017

IBA BY REGION▶ Northeast: A very stable month-over-month set of readings in this region, with com-mercial lending activity holding up particularly well. A weak March reading in real estate was reversed in the month and delinquency-linked components also improved. Deposit pricing was particularly fierce here.

▶ Midwest: Some moderation from March’s torrid expansion but the Midwest re-mained the strongest region in the IBA in April, powered by relatively strong loan demand and loan pricing component scores.

▶ South: An outlier on the high side in March, this region edged back to middle of the pack in April as some loan-pricing momentum appeared to dissipate in the month. In some instances, special offers on consumer loans were cited as the reason for pricing pressure.

▶ West: Similar to the Northeast in terms of stability month-over-month. The one exception, staffing levels. This may be transitory - one respondent attributed additional staffing to a decision to fill positions that had been open

▶ Real EstateThe upbeat story on real estate extended into April. Respondents from all four regions were mostly positive here, with some expressing mild concern about how quickly real estate values were increasing in certain markets.

▶ Staffing & BusinessAs noted above, the (small ) increase in the staffing-level IBA component put that indicator at a higher than usual 55.2 reading. The push higher appears to be isolated to a reading in the West and at this point isn’t enough to rely on as a trend-setter. On balance, business conditions held to modestly positive levels in most respon-dents’ home markets.

since the start of the year — but if this trend holds, it would represent the first real trend toward higher staffing recorded by the IBA.