BNC profit jumps on commercial lending

A growing loan portfolio, driven by commercial lending, helped BNC Financial Group's net profit top $300,000 in the first quarter.

"We're pushing commercial and industrial," M. Jay Forgotson, BNC Financial's chief executive officer said by phone, Monday.

BNC is the holding company for the Bank of Fairfield and The Bank of New Canaan, which also operates Stamford First Bank. The group combined to post a net income of $374,000 in the first quarter, an 84 percent increase over the $203,000 made in the first quarter of 2011.

Forgotson said there are signs of strength in the commercial market for owner-occupied and investment real estate, where rent prices are increasing.

The residential side of the market continues to have some difficulties, Forgotson said, as the value of homes continues to fluctuate creating situations where appraisal values make it difficult to close a loan.

Still, the bank reported that gross loans in the first quarter ended March 31 rose 36 percent to $425 million, compared with last year at this time. The bank's net interest margin was 4.39 percent.

The bank is moving forward with plans to open a lending operation in Bridgeport next month.

BNC's profitability is still below what one would expect of a financial institution with $500 million in assets, one analyst said.

"It's now show time, from the standpoint of financial performance," said John Carusone, president of the Bank Analysis Center in Hartford. "Suffice it to say, BNC pursued a deliberate strategy of growth and market expansion at the expense of near-term profits."

Carusone said that's not a bad thing. The bank has been growing market share and achieving a size and scale from which it can accelerate performance. He noted the Stamford operation has gained enough size to contribute to the strength of the group.

Stamford First Bank reported $72 million in deposits and $55 million in loans at the end of the first quarter.

Carusone said it's a complicated economy, but BNC has a toehold in an important market.

It is indeed a difficult market, said Edward Deak, a professor of economics at Fairfield University. Deak was not speaking directly about BNC, but about the lending environment and small banks in general.

"A local bank is dealing with small commercial loans," Deak said. "In many instances, small commercial loans have been backed by equity in the home by the owner of the firm."

He said that's why the residential housing market remains a key to the economy, as it ties into more than just the ability to buy and sell homes, but it also supports business lending.

But growth in lending is a positive sign, Deak said. "To the extent that (BNC or other local banks) are making commercial loans at all, they are doing something that is unique in the marketplace and beneficial."