Borrowers ratcheted back loan deferrals with Connecticut’s two biggest homegrown banks heading into the fall, with executives expressing hope for a quicker-than-expected economic rebound from the COVID-19 pandemic.
On Friday, economists with the University of Connecticut issued a bleak forecast for the decade to come, stating Connecticut may not recover jobs lost in the pandemic until 2030.
The UConn Center for Economic Analysis assessment arrived on the heels of comparatively upbeat reports from People’s United Financial and Webster Financial, which trail only Bank of America in Connecticut for money in checking and savings accounts.
Both deposits and loans spiked in the third quarter for Bridgeport-based People’s United and Waterbury-based Webster. Deposit growth was driven in part by businesses drawing on existing lines of credit to bolster their cash reserves amid uncertainty over immediate revenue flows and unexpected expenses from prolonged hiatuses or the shift to remote work.
Loans were padded in part by the Paycheck Protection Program, through which the U.S. Department of the Treasury pledged to forgive loans if businesses did not lay off workers during the term of the loans, amounting to a grant for those who fulfilled the terms.
The ability of borrowers to make good on existing loans was a major worry early in the pandemic, with Connecticut banks and credit unions rubber-stamping deferrals on scheduled payments to help businesses and individuals strapped for cash.
On Thursday, Bridgeport-based People’s United reported its book of loans under deferral dropped to $1.6 billion at the end of September, down from $7.1 billion three months earlier, and that they remain on a downward trajectory in October. Nearly half of the ongoing deferrals are by hotels, which saw their room reservations decimated during the pandemic.
“We are definitely feeling good about the conversations ... with the customers,” said People’s United CEO Jack Barnes on a Thursday conference call. “The circumstance around all the business, including the hospitality pieces that are left, ... we’ve already kind of reached agreement on a framework to look at how we do go forward; and we’re feeling really good about it, including our part of helping them get to the other side of this.”
People’s United recorded profits of $144.6 million in the third quarter, a sizeable increase from both three months and a year earlier. Webster Financial’s earnings of $69.3 million, a sequential increase from the second quarter but 26 percent below the third quarter of 2019.
People’s United loans classified as “non-performing” — those with payments overdue by 90 days or more — crept up only 3 percent between the second and third quarters, to $306 million entering October. Problem loans at that point accounted for less than 0.7 percent of all loans outstanding, compared to more than 3.5 percent exiting 2010 during the Great Recession sparked by the collapse of the mortgage markets.
Webster Financial’s loan deferrals dropped by a big margin as well, to $482 million in September from $1.6 billion in June.
“We had some [borrowers] that were pushed over the edge initially that were having trouble before COVID,” said Jason Soto, chief credit officer for Webster Financial, speaking Thursday morning on a conference call. “I’m a little concerned about the business banking [and] small business portfolio, but if you look at the ... deposits for those borrowers overall at [Sept. 30] versus pre-COVID, they are actually very healthy, and deferrals overall are sort of going down.
“In terms of charges and [non-performing loans], I think those numbers will likely get a bit worse throughout 2021 before they return to normalized levels,” Soto added. “But I continue to be cautiously encouraged, and I think that the likelihood of some additional stimulus, given the rising cases throughout the country, will also be helpful and necessary at some level.”
Alex.Soule@scni.com; 203-842-2545; @casoulman
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October 24, 2020 at 05:00AM
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