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VOL. 131 | NO. 41 | Friday, February 26, 2016

Fed Numbers Show Improving Banking Market

By Andy Meek

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The five largest Memphis-based banks all got bigger over the past year. That’s according to new figures from the Federal Reserve Bank of St. Louis covering the fourth quarter, which show continued improvement among local banks in a variety of key metrics like loans and loan-loss reserves.

Taking the nearly two dozen banks the Fed includes in Memphis – with some falling outside the immediate city limits in places like West Memphis and suburbs like Millington and Germantown – profitability also saw a small improvement during the fourth quarter.

“All in all, the banking business is doing pretty well right now,” said Kirk Bailey, the Memphis chairman of Pinnacle Financial Partners, which wrapped up its first calendar year of business in the Memphis market after acquiring Magna Bank.

“Customer demand, it’s reasonably healthy,” he said. “There’s lot of competition for good credit opportunities in the marketplace. And loan demand is reasonably good right now.”

Setting aside the year-ago results of two banks (Magna and DeSoto County Bank) that got acquired by out-of-town institutions and no longer show up in the local numbers, total net income among the area’s banks in the fourth quarter was almost $183 million, down from a little more than $305 million in the year-ago period.

Much of that drop can be attributed to First Tennessee, which commands an outsized piece of the Memphis bank pie, according to the Fed numbers. The bank, for example, represents almost $26 billion of the $32.4 billion in assets controlled by local institutions.

In the year-ago fourth quarter, First Tennessee reported a little more than $257 million in net income. For the last three months of 2015, though, that number was $128.5 million.

Setting First Tennessee’s results aside, the rest of the area’s banks, in aggregate, actually eked out a small profit – growing their collective net income by about $1 million over the two fourth quarter periods.

Looking at other metrics for the fourth quarter, Memphis-area banks are continuing to lower on their loan loss reserves on a collective basis. That metric reflects the amount that banks reserve to cover losses they forecast in their loan portfolios.

Falling loan loss reserves suggest things like confidence in the economy and in market conditions, as well as in borrowers’ ability to repay.

Memphis-area banks reserved a little more than $271 million against loan losses in the fourth quarter, down from almost $294 million in the year-ago quarter.

“Fee income is another area for banks that’s important – fees from merchant services, from purchase cards, from insurance sales, investment sales, things like that,” Bailey said. “Those are increasing. Not robustly, but increasing. Expenses are also being controlled. There’s not huge pressure on compensation expenses, other than the cost of medical coverage for our associates.”

Meanwhile, total loans in Memphis also are up slightly. They approached $23 billion in the fourth quarter, up from $20.7 billion in the year-ago quarter.

The latest Fed numbers also show Memphis-based Independent Bank closing in on at least $1 billion in assets, a status currently enjoyed only by First Tennessee.

Independent grew its assets from a little more than $905 million during the fourth quarter of 2014 to a little more than $940 million in the third quarter of 2015. It ended the year with almost $973 million in assets, according to the Fed’s numbers.

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 0 133 1,342
MORTGAGES 0 131 1,047
FORECLOSURE NOTICES 20 39 190
BUILDING PERMITS 0 305 3,056
BANKRUPTCIES 17 135 753
BUSINESS LICENSES 0 53 329
UTILITY CONNECTIONS 0 0 0
MARRIAGE LICENSES 0 0 0