Bank CT profitability increases as pandemic recovery continues


After a year of turmoil and uncertainty, Connecticut banks are seeing profits rise as the economy continues to rebound. But they are also reporting a noticeable drop in their loan portfolios.

The numbers seem to contradict each other. After all, banks earn the majority of their money from the interest they charge customers on everything from mortgages to small business loans.

But local lenders say the numbers aren’t all that surprising following a once-in-a-century pandemic that saw demand for traditional bank loans decline as many struggling businesses chased free or good money. Federal Government Paycheque Protection Program (P3) market.

“The reason why most banks [loan portfolios] are down because of all the P3 loans that have been canceled, ”said George Hermann, President and CEO of Windsor Federal Savings.

After three cycles of the PPP program, more than 119,000 loans have been approved in Connecticut for a total of $ 9.9 billion, according to the US Small Business Administration. Banks processed and approved these loans and kept them on their books while they were active. However, many companies in the first half of this year started to apply for and got loan forgiveness.

After that, the banks took the loans off their books and were also able to fully recover the fees paid by the federal government, helping to increase profitability.

“When we booked the PPP loans, we couldn’t take any of the fees,” said Stephen Lewis, president and CEO of Thomaston Savings Bank. “It must be amortized over the life of the loan. But when the loan is canceled, all remaining fee income will be recognized. “


Connecticut’s 32 federally insured banks nearly doubled their profits in the first six months of 2021, posting net income of $ 736 million. This represents an 89% increase from the $ 389 million in profits reported by banks in the first half of 2020 and brings them closer to pre-pandemic income levels, according to data from the Federal Deposit Insurance Corp.

Besides the PPP lending activity, other factors contribute to improving the profitability of banks. For example, the rebounding economy has allowed banks to reduce the amount of money they set aside for loans that could go wrong in the future. This directly increases the bottom line.

Thomaston Savings saw its net income in the first half of the year more than double to $ 7.1 million, according to the FDIC.

“We have had record residential activity, including refinances, new purchases and construction loans,” Lewis said. “This activity is helping on the income side, so it has been very positive for us. “

Windsor Federal’s net income rose 13.2% in the first half of 2021 to $ 1.91 million, according to FDIC data. Hermann said the growth of Windsor Federal has influenced its profitability.

“We’re 25% bigger than a year ago, so you’re hoping this continues,” he said.

Profits at Middletown-based Liberty Bank more than tripled in the first six months of the year to $ 38.3 million, according to FDIC data.

Liberty Bank senior vice president and chief financial officer Paul Young said the mutual lender’s strategy was to focus more on commercial and industrial lending and lower its deposit costs.

Nationally, the increase in bank profits was even greater.

According to the FDIC, the 4,951 commercial banks and savings institutions it insures reported combined net income of $ 70.4 billion in the second quarter, an increase of 281 percent from a year ago.

“The banking industry posted strong second quarter 2021 earnings, supported by continued economic growth and further improvements in credit quality,” said FDIC President Jelena McWilliams.

In addition to rising profits, bank deposits have also skyrocketed, as many people were able to boost their savings during the pandemic through a combination of reduced spending and government stimulus controls.

Connecticut-based banks held $ 112.5 billion in deposits at the end of the second quarter, up 8.4% from a year ago and 18.3% from the second quarter of 2019 , according to FDIC data.

Loan trends

While profitability was on the rise, the value of local banks’ group loan portfolios at the end of the second quarter was down 5.9% from a year ago, according to FDIC data.

Banks’ net loans and leases increased from $ 92 billion as of June 30, 2020 to $ 86.8 billion as of June 30, 2021.

Windsor Federal and Thomaston Savings – smaller community banks with $ 707 million and $ 1.5 billion in assets, respectively – saw only a 2% decline in their loan portfolios over the course of year compared to the nearly 6% statewide average, and both banks report that commercial lending has recently picked up.

“Right now demand is good for us,” said Hermann of Windsor Federal, which saw its loan portfolio decline slightly from $ 472.6 million at the end of the second quarter of 2020 to $ 464 million at the end of the second quarter of 2020. end of June 2021, according to FDIC data.

The bank currently gives more commercial loans to manufacturing and construction companies than to the retail or service sectors, he said.

Lewis said Thomaston Savings’ commercial loan pipeline looks strong through the end of the year. Its portfolio held $ 901.8 million in loans and leases at the end of the second quarter, down 1.6% from a year ago.

Its loans are focused on construction and manufacturing, including capital purchases.

“I’m also seeing business acquisitions, some small businesses buying out, which has been positive,” Lewis said.

Meanwhile, Liberty Bank, Connecticut’s third-largest bank with $ 7.3 billion in assets, has seen its loan portfolio shrink 9.5% in the past year to $ 4.1 billion, because it adjusted its lending strategy.

Young said he expects lending activity to pick up quickly, in part thanks to the bank’s greater focus on commercial and industrial lending along the Interstate 91 corridor.

Liberty opened loan production offices in New Haven, Hartford and East Longmeadow, Mass., And staffed them with experienced lenders hired from some of the larger banks that merged.

“Our plan is to expand lending in the I-91 corridor,” he said. “We took advantage of the market disruptions. We were able to get a lot of top talent.

Liberty made less than $ 40 million in I-91 corridor loans last year, but $ 200 million so far this year, Young said.

Some uncertainty

While bank executives are optimistic about the immediate future, the pandemic continues to cast doubt on the long term, as do labor shortages and clogged supply chains.

“Currently the trading conditions are very good,” said Hermann. “The biggest challenge our business customers face is the ability to get skilled help. “

“A lot of companies could do more if they had people – it’s the manufacturing side, the restaurant side and in most areas,” Lewis said, adding that the alternative for many companies will be automation.

Young said Liberty Bank does not expect a return to normal until the second quarter of 2022.

“And if you’re in the hospitality and service industries, it will take you longer to recover…” Young said. “We expect inflation and prices to increase, and supply chain disruption remains a problem.”

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