Connecticut’s 54 federally insured banks continued to see positive earnings growth in the first quarter of 2011, as industry profits increased nearly 80 percent from a year ago.
Their combined net income rose to $139 million at the end of the first quarter, up from $78 million a year earlier, according to the Federal Deposit Insurance Corp.
A key factor in the earnings growth has been a reduction in problem loans banks are carrying on their books, which allows lenders to reduce reserves they set aside to cover loans that may go bad in the future.
Nationally, earnings at federally insured banks and savings institutions increased to $29 billion in the first quarter of 2011, a 67 percent increase from the $17.4 billion in net income the industry reported in the first quarter of 2010. That marks the seventh consecutive quarter that earnings registered a year-over-year increase.
“The industry shows continuing signs of improvement,” said FDIC Chairman Sheila C. Bair.
Connecticut banks continue to be strong compared to others nationally, but it’s still going to take time — possibly a year or longer — for the industry to regain prerecession health in profitability, nonperforming loans and capital ratios, banking experts say.
Still, the positive earnings growth is a good sign and is being spurred in part by improving credit quality.
Nonperforming assets as a percentage of total assets at Connecticut banks in the first quarter fell to 2.01 percent from 2.15 percent at the end of December. That’s a sign that fewer borrowers are falling behind on their loan payments. That allows banks to set aside smaller reserves to cover loans that may go bad in the future. During the financial crisis, many banks set aside significant funds for bad loans, which is an operating expense that cuts deeply into profitability. In recent quarters, however, that trend is reversing itself for many lenders, spurring earnings growth.
Nationally, nonperforming assets as a percentage of total assets fell to 2.95 percent in the fourth quarter from 3.11 percent at the end of December.
Total loans and leases on Connecticut bank’s books increased 5 percent during the first quarter of 2011, to $55 billion from $52 billion. That’s a sign that banks are beginning to lend more, although demand for new loans still remains weak and underwriting standards remain stringent.
Connecticut banks also listed gains in deposits and total assets in the first quarter, reaching $63.1 billion and $83.7 billion respectively. The state’s lending institutions also collectively shed a net six jobs during the quarter, leaving its fulltime workforce to 14,820.
Bank offers new product
Citizens Financial Group has launched a new all-in-one cash management system for small and mid-sized businesses that aims to accelerate the collection of account receivables and allow for secure vendor payments and payroll direct deposits.
The accessBUSINESS Manager product can be used via computer or mobile device and costs $295 per month.
Citizens Financial, which is the parent company of Citizens Bank with 51 branches in Connecticut, said that price represents a savings of 30 percent to 40 percent from the combined individual costs of the services provided.
The accessBUSINESS Manager product includes a receivables manager that allows for check scanning directly from a customer’s location, electronic payments and income wire transfers; a payables manager that allows for wire transfers and online bill payment; and an insured money market savings account and information manager.
Merger in Litchfield
Two small credit unions in Litchfield County have submitted plans with state banking regulators to merge their operations.
Northwest Hills Credit Union, Inc. and C.H.H. Credit Union, Inc., both of Torrington, have asked regulators for permission to join forces.
Northwest Hills, which has $32 million in assets and 6,374 members, reported an $8,641 loss in the first quarter of 2011, compared to a $36,370 gain a year earlier.
C.H.H. Credit Union, with $3 million in assets and 1,008 members, posted a $16,413 loss in the first quarter, compared to a $10,000 loss in the year-ago period. C.H.H. has been losing money in every quarter since at least the first quarter of 2010, financial records show.
Greg Bordonaro writes the Financial Sense column every other week. Reach him at gbordonaro@HartfordBusiness.com.
