Hartford Business Journal

12 HARTFORDBUSINESS.COM | OCTOBER 4, 2021 By Terry Corcoran tcorcoran@hartfordbusiness.com A fter a year of turbulence and uncertainty, Connecticut banks are seeing a boom in profits as the economy continues to rebound. But they're also reporting a noticeable decline in their loan portfolios. The numbers seem to be at odds with each other. After all, banks make the majority of their money on the interest they charge customers for everything from mortgages to small business loans. But local lenders say the numbers aren't all that surprising in the aftermath of a once-in-a-century pandemic that saw demand for traditional bank loans decline as many struggling businesses chased free or cheap money from the federal government's Paycheck Protection Program (PPP). "The reason most banks' [loan portfolios] are down is because of all the PPP loans that were forgiven," said George Hermann, president and CEO of Windsor Federal Savings. After three rounds of the PPP program, more than 119,000 loans were approved in Connecticut totaling $9.9 billion, according to the U.S. Small Business Administration. Banks processed and approved those loans and kept them on their books while they were active. However, many businesses during the first half of this year began to apply for and were granted loan forgiveness. After that, banks removed the loans from their books and were also able to fully collect fees paid for by the federal government, helping boost profitability. "When we booked the PPP loans, we could not take any of the fees," said Stephen Lewis, president and CEO of Thomaston Savings Bank. "It has to be amortized over the life of the loan. But when the loan is forgiven, any leftover fee income will be recognized." The numbers Connecticut's 32 federally-insured banks have nearly doubled their profits through the first six months of 2021, reporting $736 million in net income. That represented an 89% increase over the $389 million in profits the banks reported during the first half of 2020 and puts them close to pre-pandemic earning levels, according to data from the Federal Deposit Insurance Corp. In addition to PPP loan activity, other factors are helping improve bank profitability. For example, the rebound in the economy has allowed banks to reduce the amount of money they set aside for loans that may go bad in the future. That directly boosts the bottom line. Thomaston Savings saw its net income through the first half of the year more than double to $7.1 million, according to the FDIC. "We've had record residential activity, including refinances, new purchases and construction loans," Lewis said. "That activity helps on the income side so that's been very positive for us." Windsor Federal's net income increased 13.2% during the first half of 2021 to $1.91 million, FDIC data show. Hermann said Windsor Federal's growth influenced its profitability. "We're 25% larger than a year ago so you hope that continues," he said. Middletown-based Liberty Bank's profits more than tripled through the first six months of the year jumping to $38.3 million, FDIC data show. Liberty Bank Senior Vice President and CFO Paul Young said the mutual lender's strategy included focusing more on commercial and industrial lending and reducing its deposit costs. Nationwide, the increase in bank profits was even larger. According to the FDIC, the 4,951 commercial banks and savings institutions it insures reported an aggregate net income of $70.4 CT bank profitability surges as pandemic recovery continues George Hermann is the president and CEO of Windsor Federal Savings, which saw its profits increase 13.2% during the first half of 2021. Paul Young Stephen Lewis HBJ FILE PHOTO

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