Hartford Business Journal

8 Hartford Business Journal • May 4, 2020 • www.HartfordBusiness.com By Matt Pilon mpilon@hartfordbusiness.com A utomobile lending at Connecticut's largest credit union has sputtered into the slow lane, as statewide car sales plummet amid the coronavirus pandemic. East Hartford's American Eagle Financial Credit Union saw a 50% drop in its consumer-lending portfolio during the first five weeks of the economic slowdown, one of many signs that COVID-19 is taking an economic toll on the state. But it's not all bad news. The $2.1-billion credit union has also seen its residential mortgage lending pipeline double this year, thanks to a spike in home-loan refi- nancing activity. "Will it equalize the impacts over- all? We're still trying to determine that," said American Eagle CEO Dean Marchessault. American Eagle's ups and downs amid the coronavirus pandemic reflect the experience of many in-state lend- ers. Banks and credit unions across the state have seen big business from the federal government's Paycheck Protection Program, but other areas of lending have slowed, while borrower credit quality has deteriorated, forcing lenders to set aside more money to cover potential bad bets. That raises questions about what the lending environment might look like in the months ahead. Bankers say they remain well capitalized, so a lot depends on what demand looks like, particularly among business borrow- ers, and how long the coronavirus- fueled economic downturn lasts. After the gold rush Connecticut lenders have been plenty busy writing feder- ally-guaranteed loans through the Paycheck Protection Program, which recently re- ceived another $310-billion infusion from Congress. During the initial $350-billion round of funding, Connecticut banks helped process more than 18,000 loans worth $4.1 billion. However, as evidenced by American Eagle's drop-off in auto lending, bor- rower demand for some types of more conventional loans is on the decline. That's true at Guilford Savings Bank, said CEO Timothy Geelan, whose team had processed nearly $40 million worth of PPP loans heading into the second round of funding last month. "No new projects are coming in, as far as people looking to start a new project or a new business or expan- sions," Geelan said. "That's gone. Right now, all you're getting is the PPP and loan modifications, and all of our lend- ers who would be out hunting right now, are doing that [instead]." Geelan will be watching the com- ing quarter or two to see how bank financials are impacted. So far it's been mostly lower prof- its and setting aside more reserves to prepare for potential loan losses in the future. But he worries that the federal stimulus won't be a long enough bridge to an eventual recovery for many businesses, and there are serious concerns about how quickly consumers will go back to restau- rants and other venues. "That could be pretty darn ugly," Geelan said. "We'll weather it, but we're really just dealing with the help part right now." In a recent credit note, Moody's Analytics agreed the recovery for many small and medium-sized busi- nesses (which Moody's calls "SMEs") will take longer than the PPP funds are projected to last. "A wave of SME closures would exacerbate the U.S. economic down- turn and hold back the recovery, given that SMEs play a crucial role in economic activity and job cre- ation," Moody's analysts wrote. Geelan said Guilford Savings, which has $838 million in assets, has not made any significant changes to lending standards and remains well capitalized, with plenty of as- sets to cover a downswing. In the first quarter, he said Guilford's key capital ratios that measure fiscal strength dipped only slightly. "We carry a robust capital buf- FOCUS: BANKING & FINANCE Turbulent Times For CT lenders, COVID-19 creates wild wave of ups and downs Timothy Geelan, CEO of Guilford Savings Bank, is confident his institution will weather the coming downturn, but if consumer confidence doesn't rebound quickly, for many banks it could be "pretty darn ugly," he said. American Eagle's mortgage outlook American Eagle Financial Credit Union is a major mortgage lender in Con- necticut and it's seen a wave of refinancing demand amid the coronavirus pandemic. Here's a peak at its projected activity in 2020. 2019 mortgage production $177M 2020 expected volume (fueled mainly by refis) $212M+ 2020 expected home equity loan volume $70M 2020 total originations expected $280M Source: American Eagle Financial Credit Union

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