Commercial loans remain steady in state

Even as bankers continued to express uncertainty about the outlook for commercial loans in Fairfield County and Connecticut, new federal data show that the state continues to enjoy near-record levels of lending.

Commercial bank loans in Connecticut receded from their all-time high of $17.4 billion outstanding in the fourth quarter last year, as the extent of the housing crisis became evident, but at $17 billion are up 9 percent from a year ago. As is the case nationally, some area banks appear to be increasing commercial and industrial loans to sustain momentum lost from the collapse of the housing bubble.

Earlier this month, the U.S. Senate banking committee chaired by Sen. Christopher Dodd finalized a 435-page bill to overhaul federal home lending programs, which includes a $300 billion insurance pool to kick-start the mortgage market, and by extension, the overall lending markets.

New data from the Federal Deposit Insurance Corp. show Connecticut banks continue to make capital available, despite a sharp increase in charge-offs for problem loans on the books, which quadrupled to 0.59 percent of all loans and leases outstanding between the fourth quarter of 2007 and the first quarter of this year.

As of early June in Fairfield County, commercial loan demand had yet to fully recover ground it lost during the winter and spring, according to Steven Moran, a commercial loan officer with TD Commerce Bank, formed from the recent merger of Commerce Bank and TDBanknorth. He added, however, that the county appears to be faring comparatively well despite shocks in the financial markets.

With U.S. unemployment spiking a half percentage point in one month, the sharpest rise in two decades, the impact on overall commercial lending has yet to be seen. The state”™s 24 commercial banks reduced the size of their combined workforce 3 percent in the first quarter to 4,500 employees, according to FDIC figures.

As problem loans increase, banks often shore up their regulatory capital requirements by dipping into earnings. While bank first-quarter earnings nationally were down 46 percent from 2007, Connecticut”™s commercial banks suffered just a 4 percent drop in net income. State-chartered community banks, which rely on relatively small real estate deals for much of their loan income, did not fare as well, with earnings down 24 percent from a year ago.

 

“Community and mid-sized banks, in particular, increased their exposure to (commercial real estate) credit since it is a lending category where smaller institutions have remained competitive,” said Sheila Blair, FDIC chairwoman, testifying before Dodd”™s committee in early June. “In some markets the decline in the housing sector has begun to affect loans to develop shopping centers and other retail establishments.”

Paul Timpanelli, president of the Bridgeport Regional Business Council, said that the real estate development market is being impacted by the slowdown as much as any industry.

“Any (commercial) real estate project is being pushed back six months to a year,” Timpanelli said. “That is just a fact of life.”

The Federal Reserve Bank of New York was scheduled to release its periodic update on economic and banking conditions in its district, which includes Fairfield County.