When the S.C. Bankers Association kicks off its annual convention next Sunday in downtown Charleston, the talk might turn to how the industry is changing — by shrinking.
The latest figures from the Federal Deposit Insurance Corp. should provide plenty of fodder to the estimated 400 attendees.
A decade ago, 98 banks with nearly 10,600 workers on the payroll were based in South Carolina. As of March 31, the numbers had fallen 36 percent and 32 percent, respectively, to 63 financial institutions with 7,165 employees, according to the latest quarterly FDIC analysis released Wednesday.
It’s not to say traditional banks are on the endangered species list. But those that call the Palmetto State home are vanishing from the landscape at a higher pace than the national average.
Some of the decline can be traced to the handful of South Carolina bank failures during and after the last recession and real estate crash.
But most can be traced to basic, bottom-line consolidation, as opportunistic bigger banks “from off” expand into the state by gobbling up smaller peers.
The biggest example last year was the friendly takeover of Columbia-based First Citizens by its much larger Raleigh-based cousin with the same brand name. On a smaller scale, Harbor National Bank of Charleston agreed to sell to BNC Bancorp, which is headquartered in High Point, N.C.
More recently, the owner of the Palmetto Bank announced in April it is being snapped up by United Community Bank. The expansion-minded buyer from Blairsville, Ga., said that deal will help it enhance “its position in the attractive Greenville and Upstate South Carolina area.”
The only exception of any size in recent years was the mid-2013 combination of two longtime homegrown financial institutions — SCBT of Columbia and First Federal of Charleston — that created South State Bank.
“Some are in-state,” said former NBSC executive Fred Green, now president and CEO of the S.C. Bankers Association.
South Carolina is hardly the only state to see its local lenders fade away.
At the national level, the number of banks has been pruned by more than 2,500, or 28 percent, over the past decade to 6,419 independently owned institutions. Green noted that exactly 600 have disappeared in the last two years, even as the industry has gradually stabilized.
Most forecasts call for even more shrinkage.
“There has been significant consolidation in the banking industry nationally, and South Carolina is following suit. ... The typical question is, ‘Why?’ ” Green said.
One reason is the mounting costs of complying with what he called the growing “regulatory burden” of running a bank these days, such as stricter reporting requirements.
“These are fixed expenses,” he said. “A heavy fixed-expense burden on smaller institutions as a percentage of their costs is very, very high. That’s been one of the reasons that has led to consolidation nationally and ... in South Carolina, as well.”
Accelerating the thinning of the blue-suit herd is the fact that, unlike past business cycles, virtually no new banks are being formed to replace the incumbent lenders that either sell or fail. It’s not that regulators are turning away startups, Green said.
“Nobody has applied,” he said, blaming the void on increasing regulatory costs and slim profit margins.
R. Lee Burrows Jr., CEO of Atlanta-based industry consultant Banks Street Partners, agreed.
“The increasing costs of regulation and slower economic growth coupled with prolonged low interest rates have created a very difficult operating environment for smaller community banks,” he said.
Not every local bank is shrinking.
The Bank of South Carolina, for example, is adding an office in North Charleston.
And Charleston-based CresCom Bank doubled the size of its brick-and-mortar network in December by purchasing 13 branches, mostly along the Grand Strand and eastern North Carolina. The seller was a Virginia-based lender that had decided to downsize.
Contact John McDermott at 937-5572.