Middle Tennessee's community banks posted a combined profit of $47.1 million for the third quarter, an increase of 22 percent from a year ago, as further improvement in credit quality more than offset a slowdown in loan growth.
Just two institutions — the quasi-startup Southern Bank of Tennessee and the struggling Peoples State Bank of Commerce — posted losses during the three months ended Sept. 30 while 11 had profits of $1 million or more. Also encouraging is the improving health of the region's small and mid-sized banks: Excluding the 10 largest of the 29 banks in our database, the remaining lenders posted profits of $9.2 million versus $7.5 million in 2012's Q3.
Of the 29 banks we track, 17 posted loan growth during the third quarter, down from 24 in the spring. Combined, the lenders grew their books by $96 million — versus almost $400 million in Q2 — from the second quarter. As a result, their year-over-year growth dipped to a still-respectable 8.2 percent from 10 percent.
A number of local bank executives have said in recent quarters that a combination of lackluster demand and a rise in borrowers paying down existing balances has limited their ability to consistently grow. Other banks — such as Columbia's Community First Bank & Trust and Peoples State — have been whittling down their books to improve their capital ratios.
The bigger shift in local banks' numbers during the third quarter came in credit quality. For the third time in five quarters, the amount of noncurrent loans on their books fell by more than $20 million, ending at $172 million. (See chart.) Among the 29 banks, the ratio of bad loans to total loans now stands at 1.33 percent versus 1.88 at the end of last year.
That trend mirrors — and is actually quite a bit better than — the improving credit quality of the U.S. banking sector as a whole. The Federal Deposit Insurance Corp. this week said the industry's noncurrent loan ratio fell to 2.83 percent, its lowest since the third quarter of 2008.
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