Eighty percent of state-chartered banks across North Carolina made money last year, up from 46 percent during the depths of the recession in 2009, according to a new report.
In addition, the banks’ aggregate profits of $2.08 billion in 2012 was more than double the amount of a year earlier, according to the annual report compiled by Ray Grace, interim state commissioner of banks. State-chartered banks collectively lost money in 2009.
The four out of five state-chartered banks that were profitable last year also was a marked improvement over 2011, when 65 percent were profitable.
“Although economic challenges continued in 2012, North Carolina state-chartered banks and savings institutions showed signs of improvement and experienced a generally favorable year,” Grace wrote in the report. “While economic difficulties continue, most institutions are well-capitalized and remain viable and important contributors to the communities and markets they serve.”
Last month Gov. Pat McCrory nominated Grace, who was named acting state banking commissioner last year, to become North Carolina’s top banking regulator.
The report covers the 74 banks that are chartered by the state. Most of those banks are community banks, with notable exceptions including Winston-Salem-based BB&T and Raleigh’s First Citizens Bank. Some of the largest banks operating in the Triangle, such as Bank of America, PNC, SunTrust and Wells Fargo, are either federally chartered or chartered in other states.
‘Still a ways to go’
One state-chartered bank failed last year: Waccamaw Bank, which was headquartered in Whiteville. Altogether, five state-chartered banks have failed since 2009, according to the banking commission.
Total assets at state-chartered banks declined 7.2 percent in 2012, but that was principally because of the sale of Raleigh-based RBC Bank to PNC Financial Services, which is based in Pittsburgh.
“Our member banks … are seeing better economic times,” said Nathan Batts, senior vice president and counsel at the N.C. Bankers Association. “I think that is part of the broader economic recovery we are seeing nationally. Things are definitely looking better (but) there is still a ways to go.”
Batts lamented that further progress by the banking industry is being held back by the headwinds generated by federal regulators as they implement the Dodd-Frank Wall Street Reform and Consumer Protection Act, which President Barack Obama signed into law in 2010.
Banks are concerned about how much capital they will be required to maintain and the accounting rules that will apply to that capital, Batts said.
“Any time you make those types of sweeping overhauls, there could be a broad impact,” he said. “When you start looking at capital treatment, for example, that affects a financial institution’s balance sheet and could have a spillover effect on the types of loans they can make and how they do their business.”
Bill Wagner, a Raleigh-based investment banker with Raymond James, said that although there are still some struggling banks in the state, most have weathered the economic storm well and are moving forward.
Still, Wagner stressed that although the industry is healthier today, that’s in comparison to “a pretty low bar” established in recent years.
“It is nowhere (near) where it needs to be or where it was” prior to the recession, he said.
The stabilization of the real estate market, combined with banks pulling back from the riskiest types of real estate loans – land acquisition, development and construction loans – have greatly helped the industry, Wagner said.
At the same time, banks in recent years have been able to shed the bulk of their problem loans one way or another – either by charging them off, restructuring their terms or foreclosing on the properties.
“The weaker stuff has gotten purged out of the system,” Wagner said. “The banks are left with the healthier developments, the healthier borrowers.”
Delinquent loans reduced
The banking commissioner’s report notes that loans in which borrowers were behind on their payments fell from 3.98 percent of total loans in 2011 to 2.94 percent last year. Loans that were 90 or more days past due dropped 26.5 percent.
Unfortunately, Wagner said, raising new capital continues to be a challenge for community banks because Wall Street remains nervous about the banking industry.
That has led to what are known in the industry as “zombie banks.”
“It’s a bank that is dead, but it’s still living,” Wagner said. “It can’t really grow, it can’t move forward, because it doesn’t really have (the capital) it really needs to grow.”
Those banks are building up their capital through their earnings, but that’s a gradual process.
“There are a number of banks out there that aren’t going to fail, but their capital has been depleted somewhat through this cycle,” Wagner said.
Low interest rates also have depressed banks’ profits because it has compressed the spread between the interest on deposits and the interest on loans, Wagner said.