Hartford Business Journal Special Editions

16 Hartford Business Journal • November 26, 2012 www.HartfordBusiness.com Celebrating 20 Years of Business News BANKING 20 Years of Section Sponsored By By Gregory Seay gseay@HartfordBusiness.com I n the past 20 years, Connecticut has recorded 18 bank failures – none in the five years since the start of the worst national recession since the Great Depression. During a slender, three-year window from 1989 — when the bottom fell out of the New England real estate market — to 1992, 42 Connecticut banks and savings and loans collapsed. The key difference in the intervening two decades is that Connecticut bankers got bet- ter at forecasting good credit risks and bad ones. That's the assessment of two long-time Connecticut banking observers – one the state's top bank regulator, the other a veteran bank director and economist. "Bankers learned the difference between 'excessive risk' and 'acceptable risk' after the 42 failed,'' said state Banking Commissioner Howard Pitkin, a 35-year regulatory veteran who was a bank examiner during period so many state banks collapsed. "Everything isn't perfect,'' Pitkin said in a recent interview. "Banks are in acceptable condition. They have adequate capital levels and are better at managing risks.'' John J. Carson, a University of Hart- ford vice president who sits on the board of Farmington Bank, said the lesson was a simple one: "Get good, sound loans and don't lend 100 percent of what the borrower needs." During the 1980s and 1990s, Carson was a director at several Connecticut lenders, including former Glastonbury Bank & Trust, now part of TD Bank. Community bankers quickly embraced the notion of managing their risks, Carson and Pitkin said. Today, risk management is a tool bankers increasingly rely on to mitigate the pace and volume of credits that turned sour. Webster Bank, Liberty Bank and most other large Connecticut banks, and many smaller ones, have risk-management officers on their payrolls. While bankers have gotten better choos- ing which loans to underwrite, they also are avoiding overinvesting in certain industries or sectors, such as real estate, observers say. It was that attention to their risk knitting that spared Connecticut the ignominy of states, like Florida and Nevada, whose banks succumbed in record numbers to the siren song of the late 2000s' real estate bubble. And it isn't just bankers who have learned. Today's bank directors are more engaged in overseeing the balance sheet and how man- agers are running it, Carson said. Not long ago, most bank boards resembled country clubs, where local businessmen and civic leaders were handpicked to back manage- ment's actions — good or bad. The penalty for doing that, experts say, is that many bank managers relied on their boards to rubber-stamp loans to cozy bor- rowers, or for projects that had little, if any, economic justification. Over the coming two decades, Pitkin sees the number of banks in Connecticut and the U.S. continuing to shrink. Between 1994 — the earliest date avail- able — and 2012, Connecticut went from 110 banks and S&Ls in the market to 71, state banking department data shows. In that same period, familiar local and regional lender names that dominated the Hartford banking market — Shawmut, Fleet, People's, Bank of Boston and Union Trust — merged with or were acquired by rivals. Only People's United Bancorp., which acquired Vermont's Chittenden Corp. in 2007, remains one of Connecticut's five larg- est banks, based on deposit share. But a bigger concern for Pitkin and his state regulator peers is the mounting CT's few bank failures reflect lenders' risk learning curve Veteran CT bank director John J. Carson says bank- ers and directors have gotten their acts together. Banking Commissioner Howard Pitkin likes lenders' overall health, but frets the state's community banks are "an endangered species.'' Traces of Connecticut's once biggest banks are still etched on the building facades like old Mechanics Savings quarters at 100 Pearl St. in downtown Hartford. Between 1994 — the earliest date available — and 2012, Connecticut went from 110 banks and S&Ls in the market to 71, state banking department data shows. Continued on page 18 P H O T O / G R E G O R Y S E A Y

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