VOL. 132 | NO. 229 | Friday, November 17, 2017
Fed Official: Memphis Area Banks ‘Performed Well’ in Third Quarter
By Andy Meek
News is more positive that not these days for Memphis-based banks, according to a newly released report from the Federal Reserve Bank of St. Louis.
The numbers – covering the third quarter for 23 banks based in the Memphis market – show improvement in everything from asset size to net income to total loans.
In short, the story among Memphis banks is that many of them are getting bigger, the balance sheets are looking better and the institutions are more profitable than they were at this time last year.
That’s a generalization, of course, but it’s an assessment that also comes from Julie Stackhouse, executive vice president and managing officer of Supervision, Credit, Community Development and Learning Innovation for the Federal Reserve Bank of St. Louis.
Total year-to-date net income for the area’s banks through the third quarter, collectively, stood at $297.7 million, up from a little more than $255 million at the same point in 2016.
“However,” Stackhouse tells The Daily News, “after excluding the First Tennessee results, the performance of smaller banks slightly lagged the performance of similar banks nationally.
“With only a few exceptions, the asset quality of Memphis banks is good,” she said. “One item of note is the continuing high loan-to-deposit ratio of many Memphis-headquartered banks. Depositors are increasingly looking for higher rates, making it more difficult for banks to retain core deposit customers.”
The pressure on deposit rates, she says, could eventually result in some strain on bank earnings as other funding sources are explored or rates are adjusted.
What’s largely responsible for the size of the banking market in Memphis – and in its improvement over the past year – is the performance of First Tennessee Bank. First Tennessee represents more than $29 billion of the market’s $36.8 billion in assets.
The Fed’s numbers show that in the third quarter, First Tennessee’s year-to-date net income hit $246.3 million. That was up from a little more than $204 million at the same point in 2016, according to the Fed data.
That improvement is partly a reflection of the fact that it’s been a busy year for First Tennessee. The bank’s Memphis-based parent company, First Horizon National Corp., recently won the regulatory nod it needed from the Fed’s Board of Governors to acquire Charlotte, N.C.-based Capital Bank Financial Corp.
First Horizon is acquiring the bank for $2.2 billion, and the combined institution will be the fourth-largest regional bank in the Southeast.
After the bank’s latest quarterly earnings announcement in October, First Tennessee West Tennessee president Bo Allen said “2017 is shaping up to be a great year.”
And in response to the way CEO Bryan Jordan has steered the bank through an extended period of growth, First Horizon’s board approved a $5.5 million bonus for him in October.
Looking at other metrics for the market in the third quarter, total loans are up locally. They surpassed $26 billion during the quarter, up from almost $25 billion in the year-ago quarter.
Banks in the area are also getting bigger. Adding up the results for the nearly two dozen banks in the Memphis market shows $36.8 in collective assets in the third quarter, up from about $35.2 billion in the year-ago period.
Memphis banks have also been making moves that suggest they forecast a landscape that will continue to improve.
Area banks in the third quarter collectively trimmed their loan loss reserves, for example, which is a metric that reflects the amount that banks reserve to cover losses they forecast in their loan portfolios.
When that number falls, it suggests banks are more confident about market conditions and borrowers’ ability to repay their loans. To that end, Memphis-area banks reserved $261.3 million against loan losses in the third quarter, down from $264.3 million in the year-ago quarter.