Pandemic plunges one-third of state’s banks into Q1 red ink

A third of Connecticut banks lost money in the first three months of 2020 — largely the result of declines in the value of securities investments, but with the March shock of the coronavirus pandemic prompting some borrowers to postpone scheduled payments on loans outstanding as well.

As a group, Connecticut banks reported their lowest net profit for any first quarter in six years, at $161 million according to a Federal Deposit Insurance Corp. study on Tuesday. Not since the Great Recession of 2009 had Connecticut’s percentage of money-losing banks reached 30 percent.

While Connecticut and New York did not declare public emergencies until mid-March, FDIC officials said that entering that month, banks were already seeing commercial businesses draw on existing lines of credit, socking away cash in deposit accounts to ride out any extended interruptions in revenue.

Deposit totals could see a new surge in the current quarter, as retail bank customers deposited federal stimulus payments under the Coronavirus

Aid, Relief and Economic Security Act.

“There has been a shock to the economy that’s reflected in the numbers, but that the banks have been able to withstand,” said Jelena McWilliams, FDIC chair, speaking Tuesday morning. “The issue with a crisis like this is usually they take up to two quarters to fully play out.”

Stafford Savings Bank incurred the biggest loss of any institution in Connecticut at $17.3 million in the first quarter as disclosed to FDIC. Middletown-based Liberty Bank was next at $11.4 million followed by Torrington Savings Bank at $6.3 million.

Others reporting smaller losses in the first quarter included Patriot Bank in Stamford; DR Bank in Darien; Ion Bank in Naugatuck; Guilford Savings Bank; Northwest Community Bank in Winchester; Chelsea Groton Bank; Jewett City Savings Bank; and Eastern Connecticut Savings Bank in Norwich.

With lending by FDICinsured banks in Connecticut at $88.4 billion as of March 31, an alltime high, that figure will be in a state of flux for the remainder of this year due to the Paycheck Protection Program. Under PPP, Connecticut banks had issued $6.6 billion in new loans over the span of weeks, which are forgivable if commercial borrowers keep employees on the payroll during the coronavirus pandemic. For loans that must be repaid, banks are covered by the federal government in the event of any loan defaults.

PPP generated early complaints from business owners frustrated with web-based application glitches, as banks cobbled together systems on the fly.

“Although it was a tough start, we were building the product as it was announced ... [and] we got an awful lot of money to a lot of small businesses actually quite quickly,” said Gordon Smith, co-president of JPMorgan Chase which has dozens of Connecticut branches. “It took about 10 days to 12 days to build the technology, and then ... over the course of about 24 hours we were able to submit and then fund about 220,000 loans in basically a 24-hour window.”

Alexander Soule/Hearst Connecticut Media / The Post Road East headquarters of Westport National Bank, whose parent company Connecticut Community Bank was among those to eke out a small profit in the first quarter of 2020. A third of banks statewide incurring losses as the coronavirus pandemic shut down businesses.