Louisiana Community Banks: An Analysis of Recent Performance
By: John Lajaunie, Norbert Michel, Shari Lawrence, and Ronnie Fanguy
Executive Summary
The recent turmoil in the banking sector of the U.S. economy has caused many people to question the viability of the banking system. 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 the study is 2005 to 2008. 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:
- As of this writing, one Louisiana community bank has failed. On March 12, 2009, for the first time since 2002, the FDIC shut down a Louisiana bank. The recently failed bank was in Group 2, with approximately $243 million in assets. Fortunately, the failed bank was purchased by a competitor who assumed all of the failed banks deposits. Therefore, the bank failure amounted to nothing more than a transition from one bank to another for depositors.
- A few of the smallest LA community banks (Group 1) experienced a drop in profitability in 2008. As a group, however, these banks appear to have remained profitable through 2008 and have outperformed the average for their national peers.
- On average, the Group 1 banks have increased their equity positions and/or reduced their risky assets as of the end of 2008. By year end 2008, Louisiana Community Banks in Group 1 had surpassed the average equity capital position of their national peers.
- A few of the mid-sized LA community banks (Group 2) experienced a drop in profitability in 2008. However, as a group, these banks appear to have remained profitable through 2008.
- On average, the banks in Group 2 have increased their equity positions and/or reduced their .risky assets as of the end of 2008.
- Problems with nonperforming loans for the Group 2 banks appear to be isolated within a small number of banks.
- The largest LA community banks (Group 3) remained profitable through 2008 with even less volatility than exhibited by the Group 1 and Group 2 banks.
- On average, the Group 3 banks have increased their equity positions and/or reduced their .risky assets as of the end of 2008.
- Relative to the national peer group, most LA community banks appear to have maintained adequate credit standards.