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HARTFORDBUSINESS.COM | August 15, 2022 21 FOCUS: BANKING & FINANCE Outlook not all roses In the months ahead, John S. Carusone, pres- ident of the Bank Analysis Center in Hartford, predicts persistent stagflation and sharp interest rate increases to beat it back. Most Connecticut banks, however, are in strong enough financial position to withstand extensive stagflation and maintain earnings. "I'm guardedly optimistic," Carusone said. "I think this storm has the potential to be much more severe than what a lot of the sunshine economists are claiming." There will be challenges. The value of loan collat- eral will go down as interest rates go up, Carusone said. But he is also confident there will be little lasting damage to existing Connecticut banks, provided the downturn is not catastrophic. "The banking industry is well capitalized and gener- ally well reserved against loan losses," Carusone said. "The question is: Are we in a recession, and if we are, how long will it last?" Windsor Federal Windsor Federal Savings Pres- ident George Hermann said he is leery of an economic downturn, but his bank is "extremely well prepared." "For right now, so many things are in the best shape they've ever been in," said Hermann, whose bank has $745 million in assets. "Delinquency is at an all-time low. There is no delinquency in the commercial portfolio." Hermann said he doesn't expect this downturn to be "anything like" previous recessions. Savings levels are at an all-time high, he noted. A lot of Windsor Federal's commercial customers work for defense indus- tries, which are stable, he added. Like other bankers, Hermann stressed Windsor Federal will keep close contacts with customers who might face struggles. "We are not publicly traded," Hermann said. "If customers run into issues when there is a little bit of a downturn, we are here to help them, not abandon them." Hermann also doesn't expect people to walk away from home loans as easily as they might have in the wake of the 2008 housing crash. Rents are so high right now it doesn't make sense to leave a house, even if the mortgage is underwater, he said. Hermann also said consumers have been a lot smarter about not buying above their means. "You don't have that mentality of back when people were overlever- aging themselves and buying the biggest and the best," Hermann said. "Deposit balances are up. Balances have grown more than 30% during the pandemic. Where there were huge influxes of cash, money went into savings accounts. So there is a lot more insulation for individuals and businesses right now." George Hermann Your Local Cash Management Specialist Here to Help Your Local Business Flourish. Sherrie Dubois, Cash Management Specialist SDubois@ThomastonSB.com | 860.283.3651 Member FDIC ThomastonSB.com | 855.344.1874 ACH Origination, Positive Pay, Remote Deposit Capture & More CT bank loan portfolios see growth despite recession fears $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 1Q 2022 4Q 2021 3Q 2021 2Q 2021 1Q 2021 4Q 2020 TOTAL LOANS AND LEASES HELD BY CT-BASED BANKS $103,767 $83,838 $84,823 $86,751 $88,380 $89,820