Area banks' profits take step back in Q4

Total assets top $20B for first time but there are signs that success is becoming harder to sustain

The Nashville area's community banks posted a combined profit of $45.2 million in the fourth quarter, down from $47.1 million in the three months ended Sept. 30 but up almost 10 percent from the year before.

For the year, the 29 banks we track earned a combined $179 million, an increase of about 8 percent from 2012. The banks finished 2013 with total assets of more than $20 billion — the first time that has happened — and loans of almost $13.3 billion, an increase of 3.1 percent from the third quarter number.

Credit quality continues to improve for local lenders: The median ratio of noncurrent loans to total loans fell to 0.89 percent in the quarter, the first time that's happened since early in the Great Recession. Total bad loans shrank to $157 million from $172 million in the late summer and were down 32 percent from the end of 2012.

Such improvements can do wonders for bottom lines but there are signs that overall success is becoming harder to sustain. Loan growth continues to be a struggle for a number of area lenders despite the economy's relative health. Eleven banks shrank their loan books in Q4, and the aggregate 7.5 percent year-over-year growth for the 29 institutions was the lowest in five quarters. And among the 20 smallest area banks, loan growth during the quarter was just 1.6 percent.

Often, growth ambitions are running headlong into strong competition from other lenders pushing to land the same good customers. The overall result is some growth but — as the Q4 numbers suggest — it doesn't often come with the desired level of profitability.

"Loan pricing for creditworthy borrowers is very competitive in our markets and has limited our ability to increase pricing on new and renewed loans over the last several quarters," wrote the leaders of Pinnacle Financial Partners in their annual report filed this week. "We anticipate that this challenging competitive environment will continue in 2014."

Check out the full set of Q4 numbers here and click here for our past quarterly wrap-ups.