People’s Bank, whose Bridgeport headquarters are shown above, opened a loan production office about 20 miles northwest of Boston in August – its first location outside of Connecticut.

After two years of frantic mergers and acquisitions, 2005 was a relatively quiet one for the majority of banks in Connecticut. The state Department of Banking approved two acquisitions in 2005. Last year, by contrast, saw nine mergers and acquisitions, while 2003 saw five, according to the Department of Banking.

“I think we’ve been on hiatus [in terms of consolidation in the banking industry],” said Waterbury-based Webster Bank President Bill Bromage.

Bromage said he believes the break is probably due to rising interest rates, which have put more pressure on banks. Many banks do not have the confidence to make acquisitions, and the spate of acquisitions over the previous two years has left fewer players on the market. Fewer banks mean fewer acquisitions, Bromage noted.

In September, New Haven-based NewAlliance Bank received final approvals to acquire a Fairfield County community bank – its second acquisition in about a month.

NewAlliance Bancshares, the bank’s parent company, acquired Stamford-based Cornerstone Bancorp in a cash-and-stock transaction valued at about $48.7 million. Cornerstone, the parent company of Cornerstone Bank, has six branches in Stamford, Greenwich, Norwalk and Westport.

In March, NewAlliance reached an agreement to acquire Hartford-based Trust Co. of Connecticut for $19.3 million in cash and stock. That acquisition added more than $700 million to the bank’s assets under management.

‘Feeding the Need’

Although there were relatively few mergers and acquisitions, some banks still managed to grow across the state – and across state lines – with de novo branches.

Webster was among those. In January, the bank opened its fifth branch in New York’s Westchester County. Webster has invested heavily in expansion in 2005, according to Bromage. The bank recently opened eight branches and has invested in its core infrastructure and upgraded its operating systems.

“There’s a major investment in the future there,” Bromage said.

Bridgeport-based People’s Bank also crossed state lines in August, when it opened a loan production office about 20 miles northwest of Boston. The office – which, because it is a business unit of the bank, is called People’s Capital – is located in Burlington, Mass., along the Route 128 corridor. It is the bank’s first office outside of Connecticut.

All banks, whether they expanded this year or maintained the status quo, have been equally affected by economic factors like rising interest rates.

“The biggest story in terms of banking performance has been the interest-rate environment,” Bromage said.

The rates banks must pay in deposits have risen and the yield curve has flattened, putting more pressure on banks. But there have been signs of economic recovery, based on Webster’s experience with its commercial customers. Their strong performances and the increased availability of capital is an indication of a healthy economic market, which long has been touted across the country, and now seems to be trickling to Connecticut. Despite the challenges posed by rising interest rates, banks reflect their communities, so economically solid communities have made for strong banks, Bromage said.

That has been particularly evident in big cities.

“I am seeing some positive momentum in some of our urban centers in terms of amount of investment and the projects coming online,” Bromage said.

The development in downtown Hartford is particularly encouraging, he added.

The banking industry is also being buoyed by the state’s housing market in 2005. Although prices have flattened somewhat, the activity was beneficial for banks, Bromage noted.

“Our observation would be that the housing market in Connecticut has been strong in 2005,” he said.

Changes in technology also marked 2005. The biggest trend was an increased reliance on technology, said Bob Bessel, spokesman for Avon-based COCC.

There has been an increase in fraud and fraud solutions and the use of imaging technology, including image capture and exchange. The technology is changing so rapidly that many bankers are looking to outside firms, such as COCC, to manage the changes.

“It’s all feeding the need for more technology that, quite frankly, bankers are having a hard time absorbing and managing,” Bessel said.

Bromage agreed. Check 21 was one of the biggest trends of 2004, and its reverberations will be felt for a long time, he said.

“[Image capture is] a meaningful trend we are seeing at the end of 2005,” he noted.

Some other trends from 2004 bled over into 2005. The controversial acquisition of FleetBoston Financial Corp. by Charlotte, N.C.-based Bank of America grabbed headlines and angered public officials throughout 2004, and that continued this year. But the bank went some way toward tempering officials when, in February, it told Connecticut officials that it had plans for $4.63 billion in lending and investment over the next three years in the state. In 2004, officials expressed their displeasure when the bank laid off employees, despite previous promises of maintaining employment levels. The bank later released specific numbers and assured the state that employment levels would be maintained over time.

Last year also saw many plans for de novo banks, but few of those have come to fruition in 2005. One, the Bank of Southeastern Connecticut in New London, recently announced that, instead of seeking an independent charter for the bank, it would open as a division of New Haven-based Bank of Southern Connecticut.