Connecticut’s 53 federally insured banks continued to see positive earnings growth in the second quarter of 2011, as industry profits increased nearly 72 percent from a year ago.
Their combined net income rose to $251 million through the first six months of 2011, up from $146 million a year earlier, according to the Federal Deposit Insurance Corp.
And those numbers no longer reflect the earnings of former New Haven lender NewAlliance Bank, which was acquired earlier this year by New York-based First Niagara Financial, making it an out-of-state company.
The absence of NewAlliance, which was the third largest Connecticut-based bank, dragged down the earnings of the state’s industry.
Regardless, profits are still up and a key factor in the earnings growth has been a reduction in problem loans banks are carrying on their books. That 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 second quarter of 2011, a 39 percent increase from the $20.9 billion in net income the industry reported in the second quarter of 2010.
Connecticut banks continue to be strong compared to others nationally, but it’s still going to take time 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 second quarter fell to 1.95 percent from 2.01 percent at the end of March. That’s a sign that fewer borrowers are falling behind on their loan payments.
Nationally, nonperforming assets as a percentage of total assets fell to 2.75 percent in the fourth quarter from 2.96 percent at the end of March.
Other major performance categories from Connecticut banks took a major hit, largely because of the absence of data from NewAlliance Bank. Total loans and leases, for example, shrunk to $50.2 billion at the end of the second quarter, compared to $54.9 billion in the first quarter of 2011.
Meanwhile, Connecticut banks deposits and total assets fell to $58 billion and $75.2 billion in the quarter, compared to $63.1 billion and $83.7 billion in March.
There is a concern among banks about future earnings potential. While many lenders have seen their bottom lines grow, their top lines are showing fewer signs of improvement. And that trend could accelerate, especially with the regulatory burdens related to the Dodd-Frank financial reform law, and new restrictions on swipe and overdraft fees, which have historically made up a significant part of bank’s non-interest income.
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Farmington adds new branch
Farmington Bank, which has been steadily been growing its footprint in Central Connecticut over the last few years, has its eyes set on Wethersfield.
The $1.6 billion bank, which recently went public, has submitted an application with the Connecticut Banking Department to open a new branch at 486 Silas Deane Highway in Wethersfield. Once approved, it will be the bank’s 17th branch in the state.
The new branch is part of Farmington Bank’s ambitious growth strategy that began in 2009. The strategy included a new 53,000-square-foot corporate headquarters in Farmington, an expanded senior leadership team, the addition of new brick and mortar branches as well as new services to its business portfolio.
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Greg Bordonaro writes the Financial Sense column every other week. Reach him at gbordonaro@HartfordBusiness.com.