Connecticut banks and savings institutions shed 141 jobs and reported a 44 percent drop in net income in the third quarter, but overall they fared better than their counterparts nationally as the financial crisis continued to take its toll.
Net income at Connecticut’s 58 federally-insured financial institutions dropped to $217 million in the period that ended Sept. 30 from $387 million a year earlier, according to the Federal Deposit Insurance Corp.
Nationally, earnings at federally-insured banks and savings institutions plunged 94 percent to $1.73 billion from $28.7 billion in the third quarter last year. Financial institutions in the Northeast performed better than the national average in the quarter, though earnings and credit quality deteriorated virtually across the board.
In Connecticut, earnings for the quarter were pulled down by one-time investment losses in shares of Fannie Mae and Freddie Mac.
But overall, Connecticut Banking Commissioner Howard Pitkin said he was fairly pleased with the picture. “Asset quality remains good and banks are generally well capitalized,” Pitkin said. “Compared to the national average, Connecticut banks performed very well.”
Pitkin said he is no longer worried about potential liquidity problems for Connecticut banks, a concern he voiced several months ago after second quarter results became public. He said depositors have regained confidence in the banking system in Connecticut and that community banks are not seeing an exodus of customers.
Pitkin also said that as many as two-thirds of Connecticut banks have applied for a share of the federal government’s $250 billion Capital Purchase Program to boost capital. Webster Bank has already been approved for $400 million and Connecticut Bank & Trust Co. has said it will receive $5.4 million.
Challenges Ahead
Pitkin, whose office regulates state-chartered banks, said the future performance of Connecticut banks will depend largely on how the broader national economy performs.
“Banking performance tends to reflect the economy,” Pitkin said. “If the economy in Connecticut keeps getting worse, then banks are going to reflect that.”
Damon DelMonte, a banking analyst at Keefe, Bruyette & Woods Inc. in Hartford, said the broader economic problems plaguing the rest of the country are starting to take hold in Connecticut.
“Things are getting more challenging for banks here,” DelMonte said. “It’s going to be a challenging year for a lot of banks in 2009.”
In third quarter, most of the Connecticut bank job losses occurred at federally chartered institutions, which cut more than 140 positions. State-chartered banks actually added 25 positions during the period.
Nationally, banks and savings institutions shed 33,212 jobs in the quarter.
While they fared better than the national average, Connecticut banks and savings institutions did report significant increases in nonperforming loans — loans that are at least 90 days past due.
Nonperforming loans as a percentage of total loans at banks rose to 1.35 percent from 0.56 percent in the 2007 third quarter. That ratio at the state’s savings institutions rose to 0.61 percent from 0.28 percent.
Nationally, the nonperforming ratio at banks jumped to 1.45 percent from 0.67 percent. The rate at savings institutions jumped to 2.24 percent from 1.06 percent.
Nationwide, a rise in troubled consumer and commercial loans led to increased provisions for loan losses in the quarter. Loss provisions totaled $50.5 billion, compared to $16.8 billion in the third quarter of 2007.
“We’ve had profound problems in our financial markets that are taking a rising toll on the real economy,” FDIC Chairman Sheila C. Bair said in a written statement.
The number of troubled U.S. banks also grew to 171, up from 117 in the previous quarter, the highest level in 13 years, Bair said.
Nine FDIC-insured institutions failed in the third quarter, the most since 1993.
Investments in shares of Fannie Mae and Freddie Mac hit banks across the country, and Connecticut institutions were not spared. The shares, which paid high dividends and had been considered safe investments, plunged in value when the quasi-government entities that finance most of the nation’s mortgages were bailed out by federal regulators in September.
The bailout was structured to protect Fannie and Freddie debt, but it nearly wiped out the value of their common and preferred shares.
But while their profitability ratios suffered from those losses, Connecticut banks reported slight gains in deposits and total assets in the third quarter.
