Scoreboard: Which Mid-South bank had the best year?

Published on: February 21, 2014

Feb21 2014

Rob Robertson, Memphis Business Journal

Memphis community banks (plus First Tennessee) had a pretty good year, with all but one bank turning a profit and most banks maintaining or improving their asset quality.

Measures of performance

Banks measure performance in all kinds of ways, but for this list we stick to return on average assets (ROAA) and Texas ratio. You can read more about those ways here.

ROAA (annualized net income divided by average assets) indicates how well a bank’s assets are being used to generate profits regardless of balance sizes.

The Texas ratio (total non-performing assets, including loans more than 90 days delinquent, divided by the sum of the company’s tangible equity capital and loan loss reserves) is one of the best single ways to look at a bank’s health, because it considers equity strength as well as potential losses. The lower the Texas ratio, the better. Banks with Texas ratios above 1:1 (or 100 percent) are considered to be at the greatest risk of failure.

Net income is also a useful way to chart how a bank is doing, but it does not adjust for the bank’s size, which makes it hard to compare how one bank is doing relative to another. Still, it’s always nice to see a bank’s bottom line, so we’re including it here.

How we ranked them

We collected data from calendar year 2013 on commercial banks with average assets of more than $100 million that are either based in Memphis or hold most of their deposits here. We then ranked the banks’ performance based on a combination of return on assets (ROA) and Texas ratio relative to one another.

How they fared

Financial Federal Bank topped the list, with the second-highest ROA and the third-lowest Texas ratio. It should be noted that Financial Federal is a different cat: With just one office and a heavy emphasis on private and business banking, Financial Federal is more of a boutique operation than the other banks on this list. But, tape don’t lie.

One could argue that Independent Bank, holding down the No. 2 spot on our list, also is something of an odd bird with its heavy interest in auto lending. While Memphis’ largest community bank is growing its mortgage and real estate loan businesses, auto lending still makes up more than two-thirds of the bank’s entire lending portfolio.

Other top performers included Paragon National Bank, which just enjoyed the most profitable year in the bank’s nearly nine-year history. It was the biggest mover on the performance list, moving up from 14th to third over the past three quarters.

It also needs to be noted that First Tennessee Bank is obviously unique among this group, with its own unique advantages and disadvantages that come with being a multi-billion regional bank with operations and interests far from Memphis. They booked a bad third quarter, but bounced back in the fourth and actually ended the year on a good note.

Meanwhile, Memphis’ main outlier continues to be Tri-State Bank, which lost another $7,000 in the fourth quarter of 2013 (it’s best quarter in 2013 by far) to bring its losses for the year to $359,000.

Tri-State has lost money in all but two of the past 12 quarters and hasn’t recorded a profit in any quarter since 2011.

See you next quarter.