Analysis: So we’re not there yet?

Q2 area bank results show bad-loan concerns aren’t going anywhere

This is a story about looking beyond the top-line numbers.

On the surface, our quarterly snapshot of community bank earnings and growth trends suggests a continuation: Loans at the 26 institutions we track grew more than 2 percent during the spring to just under $10 billion. That helped the banks grow their collective profits by about 10 percent from early this year once CapStar Bank’s $5.5 million tax benefit is backed out of the Q1 stats. Good news all around.

But peel back a few layers and it becomes apparent that the local community banking sector still has work to do to pass a rigorous health check. All of the net profit growth during the quarter can be attributed to the 10 largest institutions. As a group, those with assets of $400 million or less simply trod water — and that’s including a larger-than-usual gain on the sale of loans at Volunteer State Bank.

An even more telling indicator that we have a ways to go comes from the credit quality side of things. Excluding local market leader Pinnacle Financial Partners, which has shed almost $20 million in noncurrent loans in the past year, the 25 remaining banks finished the first of half of this year with $177.6 million in bad credits. (To get that number, we multiplied banks' net loans by their noncurrent loan ratios.) A year earlier, that figure was $178.3 million.

For example:

• At Reliant Bank in Brentwood, noncurrent loans spiked more than $5 million — and their ratio to total loans to a record 5.46 percent — because of soured residential real estate loans.

• First Freedom Bank in Lebanon saw its noncurrent loan ratio hit a three-year high because a number of commercial and industrial borrowers fell behind.

• At Commerce Union Bank in Springfield, which has posted steady profits in the past year, the noncurrent loan ratio nearly doubled from the spring to 2.1 percent because of commercial real estate loans going south.

Yes, you can find local positives to balance each of these negatives. And bank executives can claim that the circumstances and borrowers influencing their results are unique. But the fact that 25 banks have in the past year been able to whittle only a measly $760,000 from their collective bad-loan burden of almost $180 million speaks volume about the sluggish economy and the need to remain vigilant.

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