Despite a pessimistic outlook for some U.S. banks, Connecticut banks pulled through the first quarter with an aggregate profit ”“ if barely.
Combined, 25 commercial banks doing business in Connecticut eked out $1 million in net income in the first quarter, according to the Federal Deposit Insurance Corp.
That sum is welcome news after commercial banks wracked up a $254 million loss in the fourth quarter last year and dropped the equivalent of 120 full-time jobs in the first quarter, a 2.6 percent contraction.
Savings banks, which focus on consumer loans, fared better in Connecticut, making $71 million in the first quarter, just a quarter of their profits in the fourth quarter, but a slight gain from a year ago.
If commercial banks”™ renewed profitability was a welcome move in the right direction, it was still the second poorest performance in the Northeast behind only the $13 million loss New Hampshire banks accumulated in the first quarter.
Connecticut commercial banks were coming off their first unprofitable quarter since the early 1990s, largely the result of massive losses at Waterbury-based Webster Financial Corp., which accepted $400 million from the federal government late last year as part of the Troubled Asset Relief Plan (TARP).
Whereas 15 commercial banks in Connecticut reported a loss in the fourth quarter of 2008, 11 did so in the first quarter this year. Banks face a new drain on their bottom line, as the FDIC prepares a new assessment currently set for 5 cents for every $100 under deposit to replenish its deposit guarantee fund.
Nationally, 21 banks failed in the first quarter, the highest number since 1992, and the FDIC added more than 50 banks to its list of “problem” institutions that now numbers more than 300 nationally.
U.S. commercial banks had combined net income of $7.6 billion in the first quarter, with FDIC indicating they continue to be impacted by higher loan-loss provisions, write downs, and reduced income from securities.
That in turn has affected bank lending. Last week, the U.S. Treasury reported that commercial lending by institutions that accepted TARP funding dropped 1.2 percent between the fourth quarter last year and the first quarter this year.
Banks are also dealing with rising interest rates that may dampen demand for loans just as they get their books back in order and ready themselves to resume the flow of credit.
“Banks are making good efforts to deal with the challenges they”™re facing, but ”¦ we”™re not out of the woods yet,” said Sheila Bair, FDIC chairman, in a prepared statement. “As I see it, we”™re now in the cleanup phase for the banking industry. It will take some more time.”
Still, delinquent loans at small- and mid-size businesses appear to have peaked in April, according to an index tracking equipment leasing maintained by Skokie, Ill.-based PayNet Inc. Loans overdue at least 30 days constituted less than 4.2 percent of all such loans outstanding, the lowest mark since December and the best month-over-month improvement in five years.
The question becomes when the improved environment will lead to a resumption in lending activity. In Connecticut, commercial banks added just $8 million to their total loans and leases outstanding in the first quarter, while taking in more than $1 billion in deposits on a net basis.
Problem loans rose to 2.8 percent of all loans outstanding, compared to 2.2 percent in the fourth quarter last year and 1.1 percent in the first quarter of 2008.
