Analysis: Banking’s winners begin to emerge

Locals’ combined assets shrank in Q2, but there are pockets of growth and profitability

It’s becoming apparent that community banking in Middle Tennessee is increasingly a business of haves and have-nots.

The 27 lenders tracked by posted a collective loss of $7.6 million in the three months ended June 30. Those numbers were skewed downward by lots of red ink at struggling lenders GreenBank and Tennessee Commerce, which are both under tight regulatory scrutiny. Excluding those two institutions, the remaining 25 banks earned $14.0 million, down slightly from the first quarter but almost triple their profits from late 2010.

So at first glance, things appear to picking up for the local banking sector. But a closer look at the numbers and their trends show that clear camps are emerging. On one side are banks that have seemingly digested the worst of the downturn, both in terms of riding out slack demand and handling soured loans. On the other are institutions that are nowhere near over their indigestion and simply have no right to even think about growing again.

For example:

• On the plus side: Relatively new players Avenue Bank and CapStar Bank continued their ascent — with CapStar’s assets actually passing those of Avenue, which is a year older — and posted their largest-ever combined profits.

• Not so hot: Fellow young gun Reliant Bank, which was founded in 2006, slipped into the red for only the second time in 10 quarters as its net charge-offs spiked. The percentage of commercial and development loans charged off jumped to 6.8 percent from 1.5 percent in the first three months of the year and those of 1- to 4-family loans rose to 4.2 percent from less than 1 percent.

• The good news: Suburban players Cedarstone Bank in Wilson County posted record quarterly net income of $238,000 and First Federal in Dickson earned more than $1.4 million, its biggest profit in nine quarters.

• The bad: Peoples State Bank of Commerce is suddenly dealing with a big pile of problem loans. More than one in eight of its commercial and industrial loan dollars are not current, up from 1.8 percent early this year. Similarly, 7 percent of its commercial real estate loans are in arrears. The company recently agreed to turn over most of its stock to Tennessee Commerce in a planned debt-to-equity conversion.

• The growth: Loans at Commerce Union in Springfield popped 20 percent during the spring to $145 million, primarily on the back of CRE and C&I activity. The bank, which turned five this month, has grown its lending book every quarter since opening.

• The contraction: Community First Bank & Trust, a leader in much of the southern fringe of the Nashville MSA, shrank its loan book by $14 million — almost 3 percent — and posted its seventh loss in 10 quarters.

Adding spice to the mix is that these groups are taking shape in a zero-growth environment: Local banks’ combined assets shrank slightly in the second quarter, the first time that’s happened from one three-month period to the next since the current downturn began. Similarly, their total loans are down 7 percent from their peak in the fall of 2009.

That magnifies the need for struggling bankers to get back up on their feet ASAP. There will be no rising tide, no growing out of troubles without having to face up to them in full.

“There's no hiding from the economic indicators,” said Bill Nigh, CEO of The Bank of Nashville, which no longer reports stand-alone numbers since its charter was consolidated with other Synovus Financial units. “Retail and commercial customers are in a period of deleveraging and it will take years for real growth in loan demand to return.”

Until that happens, look for the healthy to get stronger and the sick to wither some more.

To view our full set of Q2 numbers, click here. For our past quarterly wraps of local bank numbers, click here.