🔒Here are CT’s fastest-growing commercial lenders

As higher interest rates hung over the economy for most of 2024, banks and borrowers faced tougher lending conditions.

Demand for new loans slowed and credit availability tightened as lenders faced a more uncertain economic outlook and were more risk-averse, experts said.

In fact, the commercial and industrial loan portfolios of the 29 banks headquartered in Connecticut shrunk by a combined 8.23% through the first three quarters of 2024, according to a Hartford Business Journal analysis of Federal Deposit Insurance Corp. data.

Those banks, at the end of September, held a combined $16.1 billion in commercial and industrial loans, which are secured or unsecured credits to businesses for commercial and industrial purposes, and can include working capital advances, term loans, and loans to individuals for business purposes, according to the FDIC.

In September 2023, those banks held $17.5 billion in commercial and industrial loans.

Despite the challenges, deals still got done, and there was much more activity in other lending categories.

For example, Connecticut’s 29-based banks recorded a 5.34% increase in commercial real estate loans through the first three quarters of 2024, and a 4.55% bump in multifamily real estate loans, FDIC data shows.

Those increases were driven, in part, by some community banks diversifying their loan portfolios beyond residential to commercial real estate lending.

HBJ conducted an analysis of bank lending patterns to determine Connecticut-based banks with the fastest-growing commercial and industrial, and commercial real estate loan portfolios.

Here’s what we found:

Stable market

Darien-based DR Bank, with $704.3 million in assets, saw the biggest jump in commercial and industrial lending through the first three quarters of 2024, with its portfolio growing nearly 253% to $5.3 million.

Guilford Savings Bank, with $1.2 billion in assets, had the second-fastest growth rate of 130.8%. GSB grew its commercial and industrial loan portfolio to $27.3 million from $11.8 million, FDIC data shows.

Of the state’s 29 banks, 17 saw their commercial and industrial loan portfolios increase, while 10 saw a decrease; two others had no commercial and industrial loans.

Lyle T. Fulton, GSB’s executive vice president and chief lending officer, said his bank for the past couple years has implemented a strategic initiative to increase its commercial and industrial (C&I) lending.

“Besides the benefit of further diversifying the bank’s loan portfolio, it continues our desire to be a one-stop, full-service bank throughout Connecticut,” Fulton said. “To accomplish that, the bank has employed some of the top commercial lenders in the state to execute on our plan. Involvement in trade associations, calling on centers of influence and the traditional feet-on-the-street calling effort have proven to be effective.”

Fulton said GSB is optimistic about the prospects for increased commercial lending opportunities in 2025, but there is some economic uncertainty that could impact the year.

“Tariffs, interest rates, cuts in government spending and taxes are all topics on the national level that we are keeping an eye on,” he said. “Each could dampen corporate profitability and growth initiatives should they go in the wrong direction.”

Fulton added that Connecticut’s economy has been resilient for the past few years with low unemployment, increased defense spending, and a stable real estate market. On the flip side, the cost of doing business in the state remains elevated with rising utility rates and other expenses.

“Connecticut remains a great place to live, work and do business,” Fulton said. “We have one of the most educated workforces in the country, a prime location between New York and Boston at a more affordable cost, and a strong defense contracting industry with many tentacles. Overall, it provides a stable C&I market, presenting opportunities for banking services.”

Strategic shift: CRE loans

Lenders in 2024 were more active with commercial real estate deals, which provide capital for the acquisition, development and construction of income-producing properties.

Sixteen Connecticut-based banks saw their commercial real estate portfolios increase, while 12 banks saw a decrease.

Torrington Savings Bank, with $958.6 million in assets, and Chelsea Groton Bank, with $1.7 billion in assets, had the fastest-growing commercial real estate portfolios, increasing 48.8% and 23%, respectively, to $145.9 million and $180.5 million.

Torrington Savings in recent years made a strategic decision to expand its commercial real estate lending to diversify its largely residential loan portfolio, according to Paul F. Larsen, the bank’s senior vice president and chief lending officer.

As part of the strategy, the bank hired seasoned commercial bankers, he said.

“Opportunity to gain traction in this sector,” Larsen said, “was prompted by an increase in demand for apartment units and supporting infrastructure throughout the state, changing demographics, and a saturation of (commercial real estate) exposure at many of the banks which historically financed these deals, allowing for refinance opportunities.”

Larsen added that while the percent increase in the bank’s commercial real estate portfolio has grown significantly in recent years, the exposure relative to Torrington Savings’ overall assets and capitalization remains modest and lower than other banks in the market.

Richard Balestracci, senior vice president and commercial lending department manager at Chelsea Groton, said his bank has strategically grown its commercial lending team to six loan officers who in the past year responded to several market needs, particularly for the housing, medical, light industrial and independent living sectors.

Balestracci said he projects another year of strong commercial lending growth for the bank in 2025, particularly with the ongoing expansion of Groton-based Electric Boat and other major employers in the region.

“Our commercial lending pipeline remains strong, and while some property types are still in transition, our focus is on staying agile and closely monitoring the economic drivers of each property type.”

Apartment boom

The multifamily real estate market was a particularly active sector last year as eager investors and developers — spurred by Connecticut’s housing shortage and government incentives — proposed or began construction on new projects across the state.

Correspondingly, Connecticut’s 29-based banks grew their multifamily loan portfolios by 4.5% through the first three quarters of 2024 to $10.5 billion.

They were led by Essex Savings Bank, with $489.2 million in assets, and Thomaston Savings Bank, which grew their multifamily portfolios by 76.7% and 71.6%, respectively, to $11.3 million and $47.7 million.

Stephen Lewis, president and CEO of Thomaston Savings, said his bank’s growth was driven by Connecticut’s strong housing demand and existing commercial clients expanding their portfolios, as well as new business.

“Our lending activity has been well-balanced with funding towards traditional as well as affordable and senior housing,” he said.

The multifamily lending environment remains stable with high demand and limited supply, Lewis added. The challenge in 2025 will be rising interest rates, local zoning issues that block new projects, and increasing construction costs, he said.

“Despite the challenges, we continue to work with existing and new real estate developers that are looking to build new apartments in our market,” Lewis said. “We expect our multifamily portfolio to grow this year, but at a slower pace.”

Glenn Campbell, Essex Savings Bank’s chief lending officer, said 2025 may not be as robust a year as 2024, but the housing market continues to be “under-built,” creating additional financing opportunities.

His bank has been particularly active financing affordable housing projects, fitting with Essex Savings’ overall mission, Campbell said.

“We anticipate that banks will continue to support this space in the near term. That said, a downturn in the economy or unanticipated movement in interest rates could give potential investors pause,” Campbell said.

The federal funds rate ranged between 5.25% and 5.5% for most of 2024 — the highest levels since January 2001 — until the Federal Reserve initiated three separate rate cuts between September and December.

The current target rate ranges between 4.25% to 4.5%.

Larsen, of Torrington Savings, warned that banks and other lenders must be cautious over the next few years to see how the market absorbs all the new apartments that are being built.

Federal data shows the pace of new apartment development in Connecticut reached new highs in the last two years.

The number of building permits issued for multifamily housing projects with five or more units in 2024 (4,100) and 2023 (3,937) were the highest tallies on record in Connecticut since at least 1995, U.S. Census Bureau data shows.

Permits were issued in 2024 for 151 different multifamily buildings with five or more units.

“It’s important to move prudently, recognizing that the last few years have seen thousands of new apartment units introduced to the market and many additional projects remain to be completed,” Larsen said. “At some point soon, Connecticut will reach a saturation point for this type of property.”