South Carolina banks had another healthy run in 2013.
But one of their most powerful profit engines of the past few years began to sputter as they crossed the finish line.
A new report shows that banks statewide earned $16 million more in 2013 than they did in 2012.
The Federal Deposit Insurance Corp. said in its latest quarterly performance summary that the 69 financial institutions based in South Carolina made $166 million, up about 11 percent. The comparable year-over-year U.S. average was a 9.6 percent gain.
Not too shabby.
"I think the overall fundamental earnings continued to show improvements," said Fred Green III, chief executive officer of the S.C. Bankers Association, a Columbia-based trade group. "The banks that have done well are doing better, and those that have struggled are doing better as a whole."
The FDIC report is further evidence of the industry's slow but steady recovery more than five years after the global financial crisis.
But it also shows that while most South Carolina lenders are stronger, they're finding it increasingly tougher to earn a buck and grow their bottom lines based on fourth-quarter figures.
One of the main culprits is the abrupt but long-anticipated slowdown in the mortgage business. Other factors include tepid loan demand from commercial borrowers and mounting competition.
The pullback is reflected in the latest numbers from Charleston-based banks that made money in the fourth quarter. Their profits were lower across the board compared to the October-December period of 2012. The declines ranged from 2 percent to 64 percent.
A big contributor was a drop-off in the fees that lenders charge when they refinance or originate real estate loans, said Fleetwood S. Hassell, president and CEO of The Bank of South Carolina and a member of the state Board of Financial Institutions.
"In the fourth quarter ... the mortgage origination business collectively started falling off," he said.
Carolina Financial Corp., the owner of CresCom Bank and a large national mortgage business, can attest to that. It said in its latest earnings report that "noninterest" income from mortgage fees and other service charges fell 43 percent to $10 million in the last quarter, which was a drag on the Charleston company's profit for the period.
The trend isn't isolated to Charleston or South Carolina.
Industry heavyweights Wells Fargo, Bank of America and JPMorgan & Chase have recently announced they're shedding jobs across the country, partly in response to the decline in business at their mortgage units.
The uptick in interest rates over the past year is partly to blame for the slowdown. Also, the pool of borrowers isn't nearly as big as it was a few years ago.
"What you really saw was the refinancings of the refinancings of the refinancings dried up," Hassell said.
At the same time, local home sales are still on the upswing. But demand for those mortgages are relatively limited in terms of volume, meaning they can't completely offset the diminished profits from refinancings.
Another curious rub for the industry is that demand from business borrowers remains lackluster, even though the local and national economies are improving. "Commercial lending is certainly not robust," Hassell said. "But we're hoping that as our economy continues to improve, we'll be making loans predicated on an improving economy. We're just not seeing that yet."
Charlie Rivers, CEO of Charleston-based Harbor National Bank, agreed.
"The commercial market is slower to come back," he said.
Even so, the region has become a hotbed in recent years for out-of-town banks looking to make inroads in the Charleston market. About three dozen lenders are now vying to lend to businesses and homeowners throughout the three-county area.
"If it's under $5 million - and that's right in the wheelhouse of a community bank like ours - it's very competitive," Rivers said.
Contact John McDermott at 937-5572.