Tennessee Banks

Tennessee banks posted return on assets of 1.18% in Q1 2026, up 6 basis points from 1.12% last quarter and 17 basis points from 1.01% a year earlier—the strongest ROA in the series shown. QoQ, the improvement was modest; YoY, it was substantial. The trend is accelerating YoY but decelerating QoQ, suggesting profitability gains are moderating after a strong 2025. At 1.18%, Tennessee banks trail the national ROA benchmark of 1.20% by only 1 basis point, a near-parity position that reflects the state's Commercial and Agricultural bank mix rather than a structural profitability deficit.

The ROA expansion is driven by net interest margin improvement and efficiency gains. NIM rose 5 basis points QoQ to 3.93% from 3.88%, and 26 basis points YoY from 3.68%, now 12 basis points above the national 3.82%. The efficiency ratio fell 143 basis points QoQ to 63.94% from 65.37%, and 366 basis points YoY from 67.60%, now 20 basis points below the national 64.14%. The combination—wider NIM and lower efficiency—mechanically lifts ROA. Net interest income as a percentage of revenue fell sharply QoQ, dropping 55 basis points to 0.17% from 0.72%, but held stable YoY at 0.17%. The QoQ drop is an outlier in the series and may reflect timing of noninterest revenue recognition; the YoY stability suggests the underlying revenue mix is unchanged.

Specialization patterns are pronounced. Credit Card specialists (10 banks, 0.2% of the national cohort) post NIM of 13.80%—999 basis points above the national 3.82%—and ROA of 2.26%, driving outsized profitability despite elevated delinquency at 2.57%. Agricultural specialists (21.3% of Tennessee banks) post efficiency ratios of 59.51%, 451 basis points below the national average, reflecting lower operating leverage in rural markets. Mortgage specialists lag at 76.96% efficiency, 1,281 basis points above national, due to origination-cycle costs. If Tennessee's NIM continues expanding at the current QoQ pace of 5 basis points per quarter, it will reach 4.08% by year-end 2026, widening the gap over national NIM and sustaining ROA above 1.20%.

Tennessee banks' asset growth accelerated to 6.06% annualized in Q1 2026, up 246 basis points from 5.91% last quarter but down 661 basis points from 6.49% a year earlier. The QoQ acceleration marks a reversal from the prior quarter's deceleration, though the YoY comparison shows growth is slowing over the longer arc. At 6.06%, Tennessee banks outpace the national asset-growth benchmark of 5.15% by 90 basis points, reflecting stronger balance-sheet expansion than the broader FDIC-insured banking universe.

The composition reveals a funding-mix tension: loan growth decelerated 119 basis points QoQ to 8.36% from 8.46%, but accelerated 1,600 basis points YoY from 7.20%, positioning Tennessee 216 basis points above the national loan-growth rate of 6.20%. Deposit growth, however, decelerated sharply—down 467 basis points QoQ to 5.62% from 5.90%, and down 2,299 basis points YoY from 7.30%. The result is a widening YoY gap between loan growth at 8.36% and deposit growth at 5.62%, a 274-basis-point spread that compresses liquidity and elevates the loan-to-deposit ratio. QoQ, the gap narrowed slightly as loan growth also decelerated, but the underlying trend is loans outpacing deposits. Tennessee deposit growth still exceeds the national 5.02% by 60 basis points, but the deceleration pace is faster than national trends.

The spread between Tennessee loan growth at 8.36% and national loan growth at 6.20% is 216 basis points and widening—last quarter the gap was narrower as Tennessee loan growth was decelerating faster. Commercial specialists (56.1% of Tennessee banks) and Agricultural specialists (21.3%) drive the loan-growth outperformance, as both specializations carry higher loan-to-asset ratios than Mortgage or Consumer banks. If deposit growth continues decelerating at the current QoQ pace of 467 basis points per quarter while loan growth holds near 8%, Tennessee banks will face funding constraints by Q3 2026, forcing either loan-growth moderation or increased reliance on wholesale funding.

Tennessee banks' delinquency rate rose to 0.58% in Q1 2026, up 11 basis points from 0.47% last quarter and 9 basis points from 0.50% a year earlier. The QoQ increase is the sharpest in the series shown, accelerating from the more modest YoY pace. At 0.58%, Tennessee delinquency remains 11 basis points below the national benchmark of 0.70%, indicating credit quality is still stronger than the broader FDIC-insured banking universe, but the gap is narrowing as Tennessee's delinquency rises faster than national trends.

The nonperforming-asset ratio climbed 5 basis points QoQ to 0.50% from 0.45%, and 13 basis points YoY from 0.37%, now 1 basis point below the national 0.51%. The NPA trajectory mirrors delinquency: both metrics are deteriorating QoQ and YoY, with the QoQ pace exceeding the YoY pace, signaling accelerating credit stress rather than stabilization. Tier 1 capital held stable QoQ at 13.78%, up only 1 basis point from 13.77% last quarter, and rose 7 basis points YoY from 13.72%. The YoY capital build is modest—less than 10 basis points—suggesting Tennessee banks are not materially thickening capital cushions despite rising delinquency. At 13.78%, Tennessee Tier 1 capital sits 47 basis points below the national 14.26%, a gap that has persisted across the series shown.

Specialization patterns show Credit Card specialists carry delinquency of 2.57%—187 basis points above the national 0.70%—reflecting the higher-risk consumer-credit model. Agricultural specialists post delinquency of 0.63%, 7 basis points below national, while Commercial specialists are at 0.72%, 2 basis points above. The spread between Tennessee delinquency at 0.58% and national at 0.70% is narrowing—the gap was 23 basis points last quarter and is now 11 basis points. If Tennessee delinquency continues rising at the current QoQ pace of 11 basis points per quarter, it will exceed the national rate by Q3 2026, reversing the state's historical credit-quality advantage.

Tennessee banks' loan-to-deposit ratio fell to 79.84% in Q1 2026, down 44 basis points from 80.28% last quarter but up 162 basis points from 78.21% a year earlier. The QoQ decline marks the first drop in the series shown, driven by deposit growth decelerating faster than loan growth. YoY, the ratio remains elevated, reflecting loan growth outpacing deposit accumulation over the past year. At 79.84%, Tennessee banks maintain a loan-to-deposit posture 346 basis points above the national benchmark of 76.38%, signaling a more aggressive lending stance relative to the broader FDIC-insured banking universe.

The driver is mechanical: deposit growth decelerated sharply QoQ, falling 467 basis points to 5.62% annualized from 5.90% last quarter, while loan growth decelerated only 119 basis points to 8.36% from 8.46%. YoY, the spread is wider—loan growth accelerated 1,600 basis points to 8.36% from 7.20%, while deposit growth decelerated 2,299 basis points to 5.62% from 7.30%. The result is a funding gap that compressed the LDR QoQ but widened it YoY. Noninterest-bearing deposit share fell 8 basis points QoQ to 18.48% and 73 basis points YoY from 19.20%, now 312 basis points below the national 21.60%, indicating Tennessee depositors are shifting to interest-bearing accounts faster than the national cohort.

The spread between Tennessee banks' LDR at 79.84% and the national benchmark at 76.38% is stable QoQ—the gap was 352 basis points last quarter and is now 346 basis points. Tennessee's elevated LDR reflects the state's Commercial and Agricultural bank concentration: Commercial specialists (56.1% of Tennessee banks) and Agricultural specialists (21.3%) both carry higher loan-to-deposit ratios than Mortgage or Consumer specialists. If deposit growth continues decelerating at the current QoQ pace while loan growth holds near 8%, the LDR will approach 81% by mid-2026, tightening liquidity cushions.