Hartford Business Journal

13 HARTFORDBUSINESS.COM | May 23, 2022 George Hermann, president and CEO of Windsor Federal Savings, said commercial loan demand remains strong despite higher interest rates. HBJ PHOTO | STEVE LASCHEVER Commercial lenders aren't sweating rate hikes – at least not yet By Michael Puffer mpuffer@hartfordbusiness.com C ommunity bank leaders say commercial loan demand remains strong despite recent hikes in the Federal Reserve's benchmark interest rate. The blitz on home loans and refinancings, however, is coming to a close. Ion Bank President and CEO David J. Rotatori said interest rates remain historically low and that builders and other commercial borrowers have "plenty of room to maintain profitability." "A lot of them have refinanced already, so they are all in a relatively strong condition, and the amount of liquidity in the market right now is very high," Rotatori said. Residential home loans are another story. Housing prices have jumped 20% to 45% in the past year. Interest rates have jumped from the low-3% to mid-5% range, making monthly payments more expensive and less affordable, Rotatori said. There are still purchases being made, but it is slowing. Mortgage refinancing dried up two months ago, he said. Rotatori said he advised his own daughter, who recently graduated from the University of Connecticut's pharmacy school, against buying a house right now. It's better to wait six months and see what the landscape looks like, he said. Rototari still predicts a record year at his $1.7 billion-asset bank for commercial lending, prompted by construction of apartments, warehouses, healthcare facilities and manufacturing capacity. Economic activity doesn't seem to be clustered in any sector, he said. George Hermann, president and CEO of $739.6 million- asset Windsor Federal Savings, acknowledged the economy is being buffeted from several angles. There are supply chain shortages, the war in Ukraine and associated inflation. But Hermann predicts the robust economy can weather these shocks without recession, provided current supply chain woes don't drag on too long. Hermann said it will take time for the impact of the recent rate hikes to manifest. But they have been well telegraphed by federal officials, allowing businesses and investors to prepare, he said. Many took the plunge on borrowing ahead of rising interest rates. CT Banks Held $83.8B In Total Loans And Leases At End Of 2021 Here is a breakdown of the combined loan portfolios of Connecticut's 32 federally-insured banks. Dollar amounts are in thousands. Dec. 2021 Dec. 2020 Dec. 2019 Dec. 2018 Total loans and leases $83,837,583 $89,459,603 $86,476,416 $75,188,151 Real estate loans $56,227,566 $58,867,557 $62,547,088 $54,200,352 Commercial and industrial loans $20,043,064 $22,082,646 $17,839,142 $16,197,340 Loans to individuals $20,043,064 $22,082,646 $17,839,142 $16,197,340 Source: Federal Deposit Insurance Corp. Federal Funds Rate March 15, 2020 — 0.05% March 16, 2022 — 0.25% - 0.5% May 4, 2022 — 0.75% - 1% Source: John Carusone, Bank Analysis Center "If they were trying to decide if they were going to do something or not, they pulled the trigger and did it," Hermann said. Banks have also cultivated high levels of available cash as a hedge. That was helped by the pandemic, which caused bank deposits to soar as individuals and businesses were reluctant to spend and borrow money amid uncertainty from the health crisis. Connecticut's 32 federally-insured banks held $116.3 billion in deposits at the end of December, up 7.5% from a year earlier, according to Federal Deposit Insurance Corp. data. "It's like buying inventory in advance," Hermann said. "So, the impact of the rate increase really hasn't hit yet and realistically it probably won't show up much before the summer." The interest rate hikes have slowed home loans, but it hasn't killed activity entirely as might be expected, Hermann said. He attributes this to an ongoing shortage of available housing. Hermann said it is hard to predict if there will be an economic slowdown. Commercial lending activity remains robust, he said. At the end of December,

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