A Technical Report by Nicholls State University, Department of Finance and Economics
ECF10-002
May 2010
Louisiana Community Banks: An Analysis of Recent Performance
By: John Lajaunie, Norbert Michel, Shari Lawrence, and Ronnie Fanguy
Executive Summary
This report is a continuation of the NSU College of Business Technical Report on Louisiana Community Banks. The initial report was released in April of 2010 and covered the period 2005-2008. As in the previous study, this report presents the results of an analysis of community banks in the state of Louisiana with total assets of $1 billion or less. The purpose of the report is to provide readers with a clear picture of the recent trends in the performance of these local banks as well as their current condition relative to the national average for banks of similar size. The analysis is based entirely on the banks. reported financial statements as filed with the Federal Financial Institution Examination Council (FFIEC). All banks are analyzed in terms of profitability, capital risk, credit risk, utilization, and liquidity. The time frame for this update is December 2008 to December 2009. Because different sized banks exhibit different business patterns and sensitivities relative to their local communities, the analysis is performed separately for three asset size groups of banks (Group 1 = less than or equal to $100 million, Group 2 = greater than $100 million and less than or equal to $500 million, and Group 3 = greater than $500 million and less than or equal to $1 billion). The main findings of the analysis are as follows:
Average net profit margin (NPM), return on equity (ROE), and return on assets (ROA) for Louisiana community banks in all size categories decreased in 2009 compared to 2008. However, Louisiana banks in general continue to outperform the nation in terms of NPM, ROE, and ROA.
The nonperforming loans to total loans (NPLTL), a measure for credit risk, for Louisiana community banks in all three groups continued an upward trend that has been observed over the previous four years. However, the metric is still well below the average for the national peer group.
The capital position for banks in Group 1 was solid and continued to improve in 2009. Although, the capital position for banks in Group 2 and Group 3 also continued to improve in 2009, these groups lag behind the national peer group for banks of similar size.
Louisiana banks in all three groups continued to maintain a strong liquidity position relative to their peers as of the end of 2009.
In 2009, Louisiana banks outperformed their peers in all profitability categories analyzed except net noninterest margin (NNIM).
Caveat:
The recent disaster in the Gulf of Mexico and government imposed moratorium on outer continental shelf exploratory drilling has clearly thrown the economy of southern Louisiana into a cauldron of uncertainty. While the metrics in this report suggest the community banks in Louisiana are handling the national recession reasonably well as of year-end 2009, the immediate and future impacts of the British Petroleum disaster and its fallout on the community banks could result in significant economic shifts for the region. As a result, the authors suggest appropriate diligence be applied in reviewing the future performance of all entities connected directly and indirectly to the oil and gas industry.