Connecticut regional banks are opening their lending windows to businesses as greater demand for loans and a need to chase after higher yields is leading to a noticeable uptick in commercial lending.
But not all of that money is being loaned in the Nutmeg State. As Connecticut’s regional lenders continue to expand their geographic footprint, they are increasingly cashing in on opportunities in nearby, faster growing markets like Boston and New York City.
Still, regional bank officials say they are seeing an uptick in commercial loan activity in Connecticut as well.
Waterbury’s Webster Financial Inc. recorded its highest small business loan production year ever in 2012, with an overall 15.9 percent increase in loan commitments to companies with $10 million or less in annual revenue, said Timothy Bergstrom, the bank’s senior vice president of small business lending.
The fourth quarter in particular saw a flurry of activity for Webster Bank, which experienced a 20 percent increase in small business loans from October through December.
Nearby rival People’s United Bank, which is based in Bridgeport, said it originated $1.1 billion in loans during the fourth quarter, with the bulk of that activity — $889 million — coming from commercial and commercial real estate loans.
That was a 13.3 percent increase from a year earlier.
And First Niagara Bank, which is based in Buffalo but has a major presence in Connecticut after its 2011 acquisition of New Haven’s NewAlliance Bank, recorded its 12th consecutive quarter of double-digit commercial loan growth.
Banking experts say the increased activity is a result of several factors including an increased demand from borrowers, although business’s appetite for new debt still hasn’t reached prerecession levels.
“Broadly speaking, commercial lending activity has been stronger across the country, particularly in some of the more vibrant economies like New England,” said Mark Fitzgibbon, an analyst for the financial advisory firm Sandler O’Neill & Partners in New York. “We are seeing a resurgence in commercial lending activity.”
Fitzgibbon said businesses are starting to feel better about their prospects, which is making them more willing to take on debt to invest in property, plant and equipment or make acquisitions. Although economic conditions still have a ways to go before a full-fledged recovery is declared, many companies have put off investments for too long and face the need to take on a bit more risk, especially with interest rates being near historic lows.
Steve Buzash, CEO of Hartford’s Standard Metals, which provides alloys and other metals to commercial customers and the military — particularly to submarine bases and contractors — is one of the businesses bullish about its future.
Standard Metals closed on a $3.5 million loan from Webster Bank in November, which is providing his company much needed working capital for inventory purchases.
Buzash said his 33-year-old company has grown over the past two years from $3.5 million to $6.5 million in annual revenue thanks to supplies and materials Standard Metals is providing as a subcontractor to the Virginia-class submarines.
But to keep up with the growth, Buzash said his company, which has remained profitable, needed cash to buy its inventory upfront. After a previous lender capped the firm’s working capital limits, Buzash turned to Webster Bank, which provided a $3.5 million loan backed by the Small Business Administration, with an interest rate in the 4.5 percent range.
“Things were extremely tight, but we have substantially more working capital to run the business,” said Buzash, who employs 11 people.
From a strategic standpoint, Fitzgibbon said many regional banks are restructuring their balance sheets with a focus on increasing their commercial loan portfolio. That is because residential loans, which have traditionally been the bread and butter of Webster and People’s United Bank in particular, aren’t providing enough yield in this low-interest-rate environment putting downward pressure on margins.
Commercial loans, on the other hand, often have floating interest rates, which acts as a buffer in a low-interest-rate environment.
“Part of the reason banks are pushing hard into commercial loans is because they have been performing better during the economic downturn,” Fitzgibbon said. “Consumer loans have been hit a lot harder than commercial loans.”
Of course not all of the uptick in commercial lending activity is happening in Connecticut. Increasingly, regional banks in the area have been broadening their geographic footprints, with a particular eye on the Boston and New York markets.
People’s United Bank, for example, aggressively expanded into the New York market in 2010 with its acquisition of the Bank of Smithtown and has been increasingly bullish about that region. Last year, the bank bought 57 branches in the New York metro area from RBS Citizens and opened its first ground-up bank branch in Manhattan.
People’s United Bank now has a presence in Long Island, Westchester County and Manhattan, which is already paying dividends. Of the $412 million in commercial real estate loans People’s United made last quarter, about $146 million were from deals in New York.
First Niagara Bank made $302 million in commercial loans in the fourth quarter, an 11 percent increase from a year earlier, said David Ring, the company’s New England president.
In Connecticut, the bank saw a 10 percent increase in commercial lending, but where the bank saw its most aggressive growth was in the western and eastern Pennsylvania markets, where commercial lending grew by 12 percent and 28 percent, respectively.
Ring said loan demand has been consistent over the past few years, but not as robust as it was prior to the recession. Still, he said he sees good opportunity in the Connecticut market, where he has an eye toward adding to the bank’s roster of 21 commercial lenders.
Where things have changed, Ring said, is in the competition for the most creditworthy borrowers, especially as banks aim to boost their commercial lending portfolios.
“High credit borrowers got more attractive terms in 2012 than in the previous two or three years,” Ring said. “I think that trend will continue into 2013.”
