More S.C. banks get warnings

CLARIFICATION - The story below, that ran in the Sunday Business section Aug. 29, about S.C. banks that have received federal enforcement actions should have said First Community Bank’s capital ratios — signs of the bank’s health and exposure to risky loans — are better than those expected by regulators.

Nearly one of every four banks based in South Carolina has received public enforcement actions from federal regulators since the recession began 21/2 years ago.

At least 21 S.C.-based banks now have received orders to improve their balance sheets since 2008, according to records from regulators’ websites. The number has doubled this year.

Some of those banks are in more serious trouble than others — operating under court orders to fix problems or risk going under.

Four S.C. banks have failed this year — the first state-based banks to go under in more than a decade.

And the largest bank based in South Carolina, Carolina First, was sold soon after it received a court order from regulators.

To be sure, regulators have a quicker trigger to act as more banks struggle with a lingering down economy showing little hope for improvement, said Tony Plath, a banking professor at the University of North Carolina-Charlotte.

“They don’t want to be seen as being asleep at the switch,” he said.

And if banks fail, deposits up to $250,000 are insured.

Still, more South Carolina banks have received enforcement actions than those based in larger neighbor North Carolina. Some 89 banks are headquartered in South Carolina, while North Carolina has 105, according to industry tracker BauerFinancial.

But just 13 North Carolina-based banks have agreed or been ordered to address their finances since 2008, according to regulators’ records. Two of those banks have failed.

Ten S.C. banks have reached agreements with regulators to repair their portfolio and practices. More banks could be operating under agreements that have not been made public.

The agreements mean that regulators are telling banks, “We’re not asking anymore; we’re ordering you to do these things,” Plath said.

Two Columbia-area banks are under these agreements, BankMeridian and First Community Bank.

First Community said in its latest earnings release that its capital ratios, signs of the bank’s health and exposure to risky loans, are higher than those expected by regulators. The bank was hurt by downgrades in its investments in mortgage-backed securities, not by major dings to its loan portfolio, chief executive Mike Crapps said.

Efforts to reach leaders at BankMeridian, which was founded in 2006, were unsuccessful last week.

Seven other state-based banks are under more serious cease-and-desist orders, which are obtained usually after early attempts to repair balance sheets don’t work, Plath said.

“This means the fat lady is warming up to sing,” he said.

Two Columbia-area banks are under cease-and-desist orders, South Carolina Community Bank and Congaree State Bank.

South Carolina Community, the state’s only African-American controlled bank, caters to an underbanked market, “so it stands to reason we’re going to be affected more than the average bank by the recession,” president Clente Fleming said.

The bank is tightening lending standards and changing loan terms with borrowers wrestling to make payments, Fleming said, while working to win more investment. Fleming said he does not see a need to sell the 11-year-old bank because it has adequate capital. Congaree, opened just four years ago, had “taken a position that it was going to grow,” said Charlie Kirby, the bank’s chief executive since June. “They were good quality loans when they were made, but then came the recession with people losing their jobs and businesses getting stressed.”

Congaree is in compliance with risk levels mandated by regulators in the May court order and has cut bad loans in half, Kirby said. Congaree, which has no immediate plans to seek new capital, is scheduled for another exam by regulators this fall.

“You don’t turn around a bank in six months,” Kirby said. “It’s just going to take some time.”