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VOL. 133 | NO. 48 | Wednesday, March 7, 2018

Fed Numbers Show Local Lending Increase

By Andy Meek

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Robert Shaw is among the Memphis banking executives looking forward to what the rest of 2018 will bring. He is CEO of Memphis-based Paragon Bank, which at the end of February announced record-breaking revenue and pre-tax income for the fourth quarter of 2017. The numbers were driven by solid loan growth, a healthy net interest margin and continued attention to controlling expenses.

Among the highlights, gross loans increased $9.2 million during the fourth quarter to $315.1 million, the highest level in Paragon’s history.

Continued strong numbers just out from the Federal Reserve Bank of St. Louis illustrate increased activity in the fourth-quarter and year-end performance of banks based in the Memphis market.

Inside the lobby of Paragon Bank in East Memphis. Paragon saw gross loans increase by $9.2 million to $315.1 million in the fourth quarter, the largest in the bank’s history. (Daily News/Houston Cofield)

The Fed numbers show improvement in metrics like asset size and total loans, and tell a story about what banking is like today in Memphis.

For Shaw’s part, this year will hopefully be more of the same.

“I think a lot of it has to do with our balance sheet growth and our loan growth,” he said. “And that’s reflective, I think, of the relationships our people have with prospects and bringing in new customers.

“We’re hopefully going to do more of the same this year as we saw in 2017. An active calling effort, getting out into the community.”

The new Fed numbers showcase a Memphis banking picture that’s more positive than not.

For one thing, banks in Memphis have collectively boosted their lending. Total loans were up at year-end, according to the Fed numbers. They surpassed $34 billion at the end of the fourth quarter, up from a little more than $25 billion in the year-ago quarter.

Total year-to-date net income for the area’s banks through the end of 2017 collectively stood at $275.7 million, down from a little more than $333 million at the same point in 2016. Part of that drop is attributable to a decline in net income at First Tennessee Bank, which represents more than $41 billion of the market’s $48 billion in assets.

The Fed’s numbers show that in the fourth quarter, First Tennessee’s year-to-date net income was almost $215 million. That was down from a little more than $270 million at the same point in 2016.

Banks in the area are also getting bigger – again thanks mostly to First Tennessee. First Horizon National Corp., First Tennessee’s parent company, acquired Capital Bank in the fourth quarter in a $2.2 billion merger.

At the more than two dozen banks the Fed includes in the Memphis market there were $48.7 billion in collective assets in the fourth quarter, up from $35.3 billion in the year-ago period.

Julie Stackhouse, executive vice president and managing officer of supervision, credit, community development and learning innovation for the Federal Reserve Bank of St. Louis, also noted that 2017 earnings for all banks based in Memphis were affected by one-time accounting charges associated with the new tax law.

“Although we cannot estimate the precise impact to Memphis banks, we believe the tax adjustments reduced the return on average assets by approximately seven basis points,” she said. “We expect banks to quickly recover the cost of their one-time accounting charges as they gain the benefit of the lower corporate tax rate during 2018.”

Meanwhile, Memphis banks during the quarter collectively trimmed their loan loss reserves, 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. Memphis-area banks reserved $254.6 million against loan losses in the fourth quarter, down from $266.3 million in the year-ago quarter.

PROPERTY SALES 23 23 1,365
MORTGAGES 21 21 1,068
BUILDING PERMITS 117 117 3,173