McDERMOTT COLUMN: South Carolina's banks on the mend, but pockets of pain remain

A midyear review of the financial condition of South Carolina's banks point to an industry that's clawing its way back after more than five years of losses and upheaval.

It also shows just how far the lending industry fell since the housing market went bust.

The two sides of this coin are neatly and concisely organized in a series of easy-to-read statistical dossiers compiled by the Federal Deposit Insurance Corp. The agency recently posted the latest update on its website.

The upshot: For most lenders, the bulk of the pain that followed the numbing real estate crash and the 2008 global financial crisis has finally passed, adding some credence to what many local bankers have been saying for months.

“They're beyond bottoming out,” said Tony Plath, a professor of banking and finance at the University of North Carolina at Charlotte's Belk College of Business. “The average bank is not nearly as stressed as it was in 2009 or 2008.”

For example, federally insured lenders based in South Carolina collectively moved back into black figures at the halfway point of this year for the first time since June 30, 2007, the FDIC figures show. That compared with a combined loss of $685 million for the same six-month periods between 2008 and 2011.

Another positive sign is that the percentage of bad loans at those lenders is edging lower, slowly but surely.

But the industry is still hobbled by a fair share of discomfort and retrenchment. Loans and deposits in South Carolina were still down at June 30 from past years going back to at least 2004. The same trend applies to how much those banks are earning on their income-producing assets.

The wheels began to come off the state's banking business sometime in 2006, right around the time when the subprime loan crisis began to spread and residential real estate sales began to soften. It was the start of a frightening downhill ride, the FDIC midyear figures show.

At this time six years ago, the industry in South Carolina was flush with 98 banks employing slightly more than 12,000 workers and earning a decent amount of money as a group.

The slide was under way by mid-2007 and quickly accelerated from there. As of June 30 this year, the banking business was down to 71 institutions with a payroll of less than 9,000.

“It's a different industry today than five years ago,” Plath said. “There are fewer banks.”

And the survivors tend to be larger institutions.

“We lost many community banks to either direct failures or consolidation,” Plath said

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The climb out the hole won't be easy, he added.

“We are beginning to come back, but it will be slow. It's painfully and frustratingly slow in terms of the rate of job growth we're seeing,” Plath said. “But the good news is there is growth, and it's a trend that's continuing.”

One measuring stick Plath uses is the frequency of phone calls he fields from recruiters seeking new UNC-Charlotte graduates to fill finance jobs.

Before the downturn, “we could place everybody we educated,” he said.

“We couldn't train people fast enough because the appetite to hire was so great,” Plath said. “That just fell off the cliff in '08, and it's just coming back now.”

That's not to say the industry's slow-rising tide will lift all boats. As Plath said earlier, the banking business has changed, along with the rest of the world.

“A lot of people who are experienced and educated and out of work, particularly mid-career workers, will never return to jobs that pay what they made at their previous jobs,” Plath lamented.

Reach John McDermott at 937-5572.