Middle Tennessee’s community banks posted their first collective profit in a year last quarter as many booked much smaller loan loss provisions, a sign that the local economy is stabilizing.

Federal Deposit Insurance Corp. data compiled by NashvillePost.com shows that the 28 banks based in the region (or, in the case of GreenBank, doing about half its business here) earned a combined $5.6 million in the first quarter, reversing a trend that saw them post losses of more than $200 million in the last nine months of 2009.

Only five banks – Pinnacle, The Bank of Nashville, American Security Bank & Trust, Civic Bank & Trust and de novo CapStar – were in the red early this year, down from 11 in late 2009. Seven institutions improved their bottom lines by at least $1 million from the fourth quarter.

Among the factors helping local bankers post those improving numbers was a stabilization of their worst problem loans. The median chargeoff ratio – loans written off as a percent of total loans – fell from 75 basis points to 48 basis points and two-thirds of banks posted lower ratios. The region’s smaller lenders posted especially dramatic declines. (For the full set of numbers, click here.)

At the same time, many of the banks showing the strongest Q1 improvements did so with help from lower loan loss provisions. Community First Bank & Trust swung from a $2.1 million loss late last year to a profit of about $800,000 in large part because its provision was just $1.1 million – about a quarter of its Q4 number – while MidSouth Bank’s provision fell from $2.2 million to $300,000.

One trend that did not reverse itself is the shrinkage of lenders’ loan portfolios. The total value of loans on banks’ books fell 1.3 percent to $12.8 billion and is now also below year-ago levels for the first time during this economic cycle. Since March of 2009, the ratio of loans to assets at local institutions has fallen by almost 250 basis points – and is likely to continue to drift lower.

“We’re not seeing any noticeable changes in the underlying economy,” said Houston Parks, general counsel of First Farmers, which runs 19 offices on the western and southern edges of the Nashville MSA. “Borrowers are still trying to regain their footing.”

Since May Day weekend, that will be trickier. Many businesses are still gathering themselves from the flooding that devastated parts of Middle Tennessee. For a number of them, the disruption and loss of equipment will be fatal, which will deliver another blow to lenders who may have thought they had handled their worst credit quality problems.

– For past quarterly reports on local FDIC data, click here.