🔒Lower borrowing costs could boost lending in 2026 as CT bankers weigh MA, expansion plans and cyber risks

After two years of elevated borrowing costs that slowed loan demand, Connecticut banking executives say 2026 could finally bring some relief as interest rates ease and refinancing activity begins to stir. They caution, however, that competition from nonbank lenders, staffing pressures and mounting cybersecurity risks will continue to shape strategy in the year ahead. Banks are still digesting a volatile rate cycle. The Federal Reserve cut its benchmark rate three times in 2025, bringing the target range to 3.5% to 3.75%. At the same time, fintechs and private credit firms accelerated their push into commercial lending, forcing traditional banks to reassess customer relationships and credit strategy. One of the clearest examples of that pressure came from Live Oak Banking, a North Carolina-based, branchless small-business lender. The company led Connecticut in total U.S. Small Business Administration loan dollar volume in 2025, issuing 31 loans worth $51.4 million, federal data show. Six banks issued a larger number of SBA loans in fiscal 2025, but the closest to Live Oak in total dollar volume was Webster Bank, which made 64 loans totaling $30.5 million, SBA data show. The good news is that Connecticut banks entered 2026 on firmer footing. During the third quarter of 2025, 23 of the state’s 28 headquartered banks — about 82% — posted higher profitability, up sharply from the 31% that improved their net income a year earlier. Collectively, Connecticut banks grew net income during the first three quarters of 2025 to roughly $1.02 billion, compared with $759 million during the same period in 2024, according to Federal Deposit Insurance Corp. data. HBJ asked five banking executives and lenders to share their 2026 outlook for interest rates, loan demand, technology spending and regulatory issues. They included:

• Frank Micalizzi, regional president and head of Connecticut commercial banking at M&T Bank, which has $210 billion in assets;
• Brian Canina, president and chief operating officer of Massachusetts-based PeoplesBank ($4.3 billion in assets);
• Joe Gianni, Greater Hartford president of Bank of America ($2.6 trillion in assets);
• Kyle J. Eagleson, president and CEO of Guilford-based Ascend Bank ($1.4 billion in assets); and
• Michelle Orr, senior loan officer at Live Oak Banking, who is based in Monroe.

Here are some banking trends to watch in the year ahead.

Interest rate outlook

Several bankers said they expect the Federal Reserve to continue cutting interest rates in 2026, although they differ on timing and how much borrowing costs will fall.

Micalizzi expects the Fed to continue reducing its benchmark interest rate, reaching a range of 2.75% to 3% by the end of 2026. He said that would likely ease pressure on borrowers who delayed financing decisions in 2025. Canina said he projects interest rates could fall by about three-quarters of a percentage point over the next 12 months. If phased in gradually, he said, the cuts would be unlikely to disrupt markets and could help set the stage for steadier growth in 2027. Gianni said Bank of America expects two quarter-point rate cuts next year, in June and July, keeping its projected terminal rate unchanged at 3% to 3.25%. Eagleson forecasts one quarter-point rate cut in the first half of 2026, citing softer labor and economic data, but warned that inflation and larger federal deficits are likely to keep longer-term borrowing costs from falling as much as short-term rates.

Commercial lending conditions

Bank executives said they anticipate modest loan growth in 2026, especially if interest rates follow their expected trajectory. Total loans held by Connecticut-based banks reached $86.7 billion at the end of the third quarter of 2025, up about 6% from $81.6 billion a year earlier, according to FDIC data — an indication that credit activity has begun to recover after two years of rising rates. Canina said he expects “modest growth in commercial lending,” driven largely by refinancing opportunities as companies seek lower rates on existing debt. He also sees potential new credit demand from businesses that delayed projects during the last 18 months. Micalizzi said loan demand will likely remain “cautious but active,” citing ongoing concerns about economic uncertainty and tariff impacts. He noted that competition from private credit providers and fintech lenders will continue to influence pricing and deal flow, particularly on larger commercial deals.

Eagleson pointed to industrial, warehouse, manufacturing and medical sectors as areas of relative strength in 2026. Multifamily lending, he cautioned, presents more uncertainty amid elevated rents, slowing absorption and increasing pressure on household budgets. “It is tough to determine saturation, and with a stressed consumer we may start to see some weaknesses in this sector,” Eagleson said. Specialized small-business lending could also provide growth. Orr, of Live Oak Banking, said demographic trends are fueling SBA activity as more aging business owners consider retirement or succession options. She described 2026 as “a competitive but opportunity-rich environment for specialized lenders.”

Branch strategy

Banks are taking different approaches to their physical branch networks. Canina said PeoplesBank is “in full expansion mode in the Hartford market,” with a downtown Hartford branch scheduled to open in early 2026, and additional locations planned in Bloomfield and New Britain by 2027. Bank of America said it plans to complete interior renovations at 20 financial centers and exterior renovations at four others over the next two years, rather than opening new branches. By contrast, Eagleson said he expects continued branch consolidation. He said “physical branch visits continue to decline annually,” and many financial institutions are moving toward “smaller, more efficient footprints” while directing more resources into digital channels.

Technology spending and AI

Bankers said technology investment will continue to be a top priority in 2026, especially in cybersecurity and fraud detection. Micalizzi said cybersecurity will remain central to operational planning, requiring continued investments in “real-time monitoring, advanced detection tools and strong incident response capabilities.”

Gianni said Bank of America’s AI-driven tools have helped reduce fraud losses “by 50%,” underscoring growing interest in automated detection models. The bank said it expects the number of digital interactions, including mobile banking and digital payment transfers, to keep climbing in 2026. Eagleson said banks will increasingly rely on automation and data analytics to spot risks and improve service. He said AI can support “real-time awareness, reduced losses, and quicker response to suspicious activity,” while also improving personalization for clients.

Orr said “AI-driven fraud is becoming more sophisticated,” and warned that banks must balance innovation with compliance, especially as reporting requirements evolve. She said financial institutions will need to allocate significant resources for IT governance, cybersecurity infrastructure and fraud prevention.

Mergers and acquisitions

Merger activity could increase in 2026, several bankers said, driven by rising technology and regulatory costs. Canina called consolidation a “hot trend,” citing expenses tied to technology, regulation and staffing. He said large regional or national banks could become more active in the market. Eagleson said he expects “a meaningful uptick in mergers and acquisitions in 2026,” especially among smaller banks facing margin pressures.

Regulation and compliance

Orr pointed to potential state-level changes in 2026. She cited Connecticut legislation that calls for a Department of Banking study on digital banking, consumer protections and crypto licensing. Recommendations from that study are expected in early 2026, and banks are monitoring potential new requirements for basic accounts and reporting. Canina said he expects “significant regulatory changes” at the federal level, which could affect banks of all sizes. He said changes to consumer protections and capital requirements should be closely watched in the coming year.