Banking isn’t out of the woods, but the trees are beginning to thin.
Since the end of the Great Recession, the number of bank failures is declining, the number of banks turning a profit is rising and federal bailout funds are being repaid.
Local banks continue to add to their reserves to cover potential losses, despite being profitable and lessening the amount of toxic assets on the books.
“Times are more stabilized than they were a couple of years ago during the beginning of the crisis,” said Remer Brinson, the president of First Bank of Georgia in Augusta. “I still think it is a weak economy. There’s a big lack of confidence out there on behalf of businesses and consumers.”
Employment in financial activities this year is the same as it was in pre-recession 2007.
There were 7,400 people working in that industry in Augusta that year, according to the U.S. Bureau of Labor Statistics. Last month, the Georgia Department of Labor reported 7,500 people in financial services, up slightly from the 7,400 people in January.
The industry’s employment levels began to recover in March 2010 after dropping from the 2008 peak of 7,800 workers.
Brinson said staffing levels at First Bank are close to what they were before the downturn, about 160 people across six offices.
“We’ve worked hard to keep people employed and also watch and reduce expenses where we could,” Brinson said.
The number of workers at Georgia Bank & Trust is down about 10 percent from pre-recession levels, said chief executive Dan Blanton, but most of that was because of attrition. The bank has about 310 employees, he said.
Blanton said that number is not expected to rise soon, mainly because there is little demand for commercial loans.
“I’ve got no loan demand. Because of the turmoil in the overall economy, there is very little loan demand out there. My customers don’t want any more debt to service,” Blanton explained.
Blanton, who also serves on committees for the American Bankers Association, said he thinks the signs also point to a more stable banking industry.
The national banking recovery still has a few more years in it.
“There are still the walking dead out there that have to be resolved,” Blanton said.
Regulators have closed 76 banks this year. The number of closures has fallen sharply this year as banks have worked their way through the bad debt accumulated in the recession. There were 157 bank failures in 2010 and 140 in 2009.
Blanton said he believes there will be a period of bank mergers following the FDIC’s work in closing all the troubled banks.
Of all the bank failures, 17 of them this year were Georgia banks. There have been 68 state banks shuttered since the middle of 2008. But none of them have happened in the Augusta area. Blanton said he believes that will remain the case.
Most banks will be reporting their quarterly earnings over the next two weeks, inlcuding the parent companies for Georgia Bank & Trust, Security Federal Bank and First Bank of Georgia.
For the second quarter, banks in Georgia did something that hasn’t been done in three years – collectively turn a profit. According to data from the FDIC, the state’s banks had a profit of $240 million. In the first quarter of the year, the banks cumulatively had a $90 million loss.
“That’s a good trend,” said David Oliver, the senior vice president for communications and marketing for the Georgia Bankers Association. “Likewise, loans that are not current declined in the second quarter. More people are able to pay on time.”
Banks are also seeing fewer new delinquencies on loans, he said. And with having two years to sort out the troubled assets, banks aren’t going to be surprised with a mountain of bad loans.
“There is the slow economic recovery, but there is hope that this is a trend that will continue,” Oliver said. “I would love to believe that this improved performance overall is a broader indicator of overall economic health, but I wonder though with the high level of unemployment.”
Brinson said there is nothing wrong with being cautious. First Bank continues to add to its reserves in case of losses.
“We’re like most banks, we’ve got a higher reserve than we’ve had historically,” Brinson said.
Some of how the banks have fared has to do with how Augusta fared during the Great Recession, not being hit as hard in the residential market as Atlanta, for example, Brinson said. “We didn’t see the catastrophic declines.”
“We’re not earnings conscious, we’re safe and sound conscious,” Blanton said.
Blanton said another risk to consider is, “you don’t know what will come out of Washington.”
The Dodd-Frank act, for example, is 2,300 pages, and regulators still haven’t written a fraction of the regulations that go with the law. Blanton said he is pleased that the administration has pushed back on legislators in letting them know that compliance will be delayed in order to do it right.