Hartford Business Journal

www.HartfordBusiness.com • September 7, 2020 • Hartford Business Journal 11 Savings' loan portfolio. Meanwhile, the bank's mortgage lending arm is having a banner year, as the housing market has performed unexpectedly well, and commercial banking has been healthy too, she said. All that despite the fact that there's no definitive end in sight for the virus in the U.S., and thus far, no vaccine. Plus, Connecticut's unemployment rate stands at about 15%, stimulus money employers have used to cover payroll expenses is now spent or running out, and some loan forbearance deals struck back in April are also expiring. Hit from all sides Though Connecticut's banking sec- tor remained profitable during the second quarter, it wasn't unscathed. Earnings for the 34 banks ana- lyzed by the Hartford Business Jour- nal were down about 46% from $424 million a year ago, which Merkle attributes to profit margins being squeezed from multiple directions. "Some could say it was almost a perfect storm for us all," she said. One of the most significant impacts stems from the Federal Re- serve lowering interest rates to near zero back in March, which in the recent quarter eroded the amount of revenue banks generated from interest on loans to a record low nationwide, according to the FDIC. The Fed cut interest rates sharply as the country fell into recession in 2007 and 2008, where they remained for about six years before beginning to rise again in 2016. Four years later, Torrington Savings Bank President Lesa Vanotti says she's feeling deja vu. "It feels like we barely came out of the last period of historic lows and here we are again," said Vanotti, who will succeed John Janco Sr. as TSB's CEO later this year. TSB, which has a Hartford County branch in Burl- ington and $864 million in total assets, managed to keep its second quarter earnings level from a year ago, at $1.7 million. However, the bank remains in the red so far in 2020, thanks to a first-quarter loss caused by the stock market crash earlier this year, which fueled red ink at a dozen Connecticut banks during the January-to-March period. Vanotti shares some of Merkle's worries about the path the virus will take, but also says she has reasons to be confident. "Torrington Savings Bank is well- capitalized and has a highly liquid balance sheet," she said. "That will allow us to weather this storm." Another driver producing down- ward pressure was that banks, for the second quarter in a row, put more money than usual into reserve to prepare for the possibility that an increasing number of borrowers stop paying their loans down the road. Those set-asides, which lower a bank's profits, totaled $155 million in the second quarter, up from about $129 million last quarter, and just $29 million a year ago. "Banks are not waiting, they're putting as much as they can into their loan loss reserves," Merkle said. "We don't know what's going to happen, if it's going to happen or when it's going to happen, but we want to be ready." Connecticut bank deposits also spiked, reaching nearly $104 billion, up from $92 billion a year ago. That may sound like a good thing, but it can present a challenge for banks in a low-interest rate environ- ment, Merkle said. Banks must produce enough income — by making loans, charg- ing fees, etc. — to cover the costs of holding deposits, which pay an interest to the account holder. "It's hard to deploy that money," she said. "There's really nowhere for us to invest that cash for a good return." Another headwind for Connecticut banks during the recent quarter was plummeting consumer spending, as restaurants and some stores closed and many people stayed in their homes. For area banks, that meant fewer fees from credit and debit card transactions, and as a result, they saw their so-called non-interest income drop by nearly $41 million in total, down 17% from a year ago. 2020 will be remembered as a year of change, a year we were all forced to reevaluate the way we look at doing business. If your business strategy and physical work space needs to change with the times, trust Associated Builders to be your solution. Specializing in industrial manufacturing and distribution facilities, pre- engineered metal buildings, auto dealerships, out-patient healthcare facilities, offi ce space, commercial buildouts, additions and more. Associated Builders Inc. 4 Industrial Drive, South Hadley MA 01075 413-536-0021 www.abuilders.com BUILDING BUSINESS. BUILDING RELATIONSHIPS. BUILDING EXCELLENCE. BUILDING BUSINESS. BUILDING RELATIONSHIPS. BUILDING EXCELLENCE. 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