S.C. able to avoid any bank closings

Federal regulators have closed 140 banks nationwide this year - six times the number that were shuttered in 2008 - but so far South Carolina has remained untouched.

That's a feat in itself given that South Carolina is the only coastal state between Maryland and Florida not to lose a bank in 2009 despite having the nation's third-highest jobless rate at 12.3 percent in November.

By comparison, 25 banks in neighboring Georgia were taken over by federal authorities and 14 Florida banks were shuttered during 2009.

"We are cautiously optimistic that as this economy improves we will ride through this with all of our banks remaining solvent and intact," said Lloyd Hendricks, president of the S.C. Bankers Association.

S.C. banks survived the economic turbulence because they were better capitalized, meaning they could absorb charge-offs from loan defaults, Hendricks said.

Also, most avoided trouble by staying out of the "housing bubble," said Steven Mann, a finance professor at USC's Moore School of Business.

The bubble came when home prices rocketed during the earlier part of the decade as some lenders loosened credit. Prices fell when the recession hit.

A number of homeowners wound up underwater on their mortgage - where they owed more than the property was worth, and couldn't keep up with the payments triggering loan defaults and foreclosures.

"It was really concentrated in 10 states and South Carolina was not among that number," Mann said. "So by implication, the downdraft hasn't been as severe here as other places."

One thing all banks have had to deal with during 2009 keeping profit margins up.

Bauer Financial, which analyzes banks' balance sheets for investors, said the percentage of S.C. banks that receive its top rating of 4 and 5 stars slipped to 31 percent for the third quarter of 2009, compared to 48 percent for all of 2008.

Bauer also reported that of the 89 S.C. banks it tracked, ratings were downgraded for 11 banks, and upgraded for just two.

As the economy struggles to bounce back and customers try to keep up with payments, some banks have restructured loans, putting more pressure on profits.

"I think it's our place to work with our borrowers and restructure their debt if you need to so that they can remain current," said Sterling Laffitte, president of Palmetto State Bank in Hampton County.

Lowering interest rates can affect bank's profits. "But do you want your interest back or your principal," said Laffitte, former chairman of the banks' association.

As far as 2010, bankers believe the worst of the recession has past, but the business climate in South Carolina could be dicey.

"We are hopeful that these economic indicators imply that we are getting closer to the bottom, which is a key factor in re-establishing market and consumer confidence," said Craig Nix, chief financial officer at Columbia-based First Citizens Bank. "Unemployment figures, however, present a significant headwind to full economic recovery."

People who may have borrowed in the past for a house, car or appliance are standing pat, Laffitte said.

"Prudent borrowers aren't borrowing now," Laffitte said. "If I don't need that new refrigerator I'm not going to buy it, whereas two years ago I might have."

Nix added consumers aren't spending because they're saving more of their paychecks. Federal reports indicate Americans are saving at the highest rate in eight years.

Another problem on the economic horizon is the amount of commercial retail space that's vacant, Mann said.

According to survey of commercial real estate by Colliers Keenan, the occupancy rate in the Columbia market dropped to 88.34 percent in 2009 from 90.94 the year before. That marked the first time in a decade that the occupancy rate dropped below 90 percent.

Banks in the next year will need to focus on boosting capital and increasing reserves to weather loan losses, Nix said.

While business may be struggling, but Hendricks noted owners are adopting better management practices, keeping their staffs lean, and renegotiating prices to make a profit.

"There's always some good that comes out of all of this," Hendricks said. "I think people will be smarter and do better in running their business."