Analysis: Local banks’ loan growth finally turns positive

The flip side: Credit troubles far from digested at many

For the past few quarters, we’ve looked at the financial state of Middle Tennessee’s community banks and surmised that two distinct camps were emerging. One group had either kept the collective noses relatively clean during the Great Recession or took early action to handle their bad loans. The other had kicked its distressed asset can down the road but found that problems came back to bite them harder.

Checking out fourth-quarter data provided by the Federal Deposit Insurance Corp., that dynamic hasn’t suddenly disappeared. But what’s also becoming more apparent is that growth is back.

Of the more than two dozen institutions we track, nine posted loan growth from Sept. 30 to Dec. 31. That number is down slightly from the third quarter but its magnitude has grown. Driven by the addition of $154 million of loans at Pinnacle Financial, CapStar Bank and Volunteer State Bank, area banks’ total loan books grew 1.5 percent in the quarter to $9.16 billion.

More significantly, however, the Q4 growth lifted year-over-year comparisons of loan portfolios into positive territory for the first time since the March 2011 quarter.

It’s worth noting that this is the first set of numbers that does not include the failed Tennessee Commerce Bank, which had been shedding loans rapidly in the second half of last year. But the growth — which also included contributions from First Freedom Bank in Lebanon and InsBank, among others — reflects the increasing confidence among both lenders and borrowers that the region’s economic growth has founded a steadier footing.

That’s not to say there aren’t still hiccups ahead. The credit quality numbers among local lenders set a benchmark of their own in the fourth quarter: The median ratio of noncurrent loans to total loans among the 25 banks in our group jumped more than 40 basis points to 2.20 percent, its highest level since we began tracking the numbers in early 2007.

The leaders of five banks — Farmers Bank in Portland, Volunteer State, Community Bank & Trust in Ashland City, CedarStone Bank in Lebanon and Civic Bank & Trust — saw their noncurrent loan ratio pop more than a full percentage point during the quarter.

To check out our fourth-quarter data set, click here. Previous quarters’ analyses are available here.