Lessons learned after oil bust linger in banking

In spite of the lending crisis that rocked banks and forced closures across the nation, Louisiana’s banks remain sound, said several people in the state and regional banking industry.

Robert Taylor, chief executive officer of the Louisiana Bankers Association, summed the situation up, saying, “The disturbing news in the national media has nothing to do with ‘Main Street’ FDIC insured Louisiana financial institutions. Louisiana banks and thrifts are highly regulated and have nothing in common with the problems we have seen unfold, over the last year, in other parts of the country.”

Taylor also mentioned that Louisiana bankers saw a similar crisis in the 1980s and have applied many of those lessons to their current business strategy.

Rusty Cloutier, CEO and president of MidSouth Bank, a veteran of that era, agreed.

“I think what happened this time around is that we didn’t have the speculation on the front end,” he said. “We all learned a very serious lesson in the ’80s. We learned it the hard way, and most of the people running banks today were around then and they haven’t forgotten it.”

On a local level, Synergy Bank CEO and President Jerry Ledet Jr. said the stability in Louisiana’s economy has staved off the worst effects of the recession.

“High local employment has allowed us to escape the levels of foreclosures experienced in other parts of the country. Our demand for mortgage loans continues to be strong,” he said.

Sid Seymour is the chief examiner of the Louisiana Board of Financial Institution, which is in charge of regulating local banks and compiling related statistics. According to financial institutions from his office, Louisiana banks are level or dipping slightly, but remain very sound.

“If you were to look at any of the key economic indicators, earnings or capital or asset quality, our institutions by and large continue to do well and I think they will continue to do well,” he said. “Just about every indicator looks good next to what the national trend is.”

Although banks in the state remain strong, they haven’t come out of this crisis unscathed. Statistics such as non-performing assets to total assets and non-current loans to total loans have dipped over the past year and the past quarter, and Seymour believes that trend will continue.

“I think they’ll get beat up a little bit,” Cloutier said, “but I don’t think that we’re going to have the massive failures they’ve had in Florida and Georgia and other parts of the country.”

Rusty Cloutier’s son Troy is the regional vice president of MidSouth for the Tri-parish area, and explained in spite of recent losses, community banks remain stable.

“Loan demand is not there today, and as far as losses, yes, we’re seeing more losses,” he said. “But we’re not like the bigger banks that may be going out of business. We’re not in that realm of the banks… The deterioration in assets is nothing that we can’t recover from, and it’s not something that has to close our doors.”

The mild downturn in the Tri-parish area could also be the affect of a normalizing market.

“It is clear that many companies are not enjoying the uncharacteristic growth in 2009 that they experienced post-Katrina in 2006 through 2008,” Ledet explained.

To date, Louisiana has seen no bank failures, and only five banks have taken money from the federal Troubled Asset Relief Program, better known as TARP. Of those five banks, the FBP Financial Corporation in Hammond took $3.24 million, MidSouth received $20 million, Community Trust Financial received $24 million, Iberia Bank received $90 million and Whitney Bank received $300 million.

Troy Cloutier said that, for his bank, receiving TARP funds is not a sign of major weakness or imminent failure.

“We took TARP money from the government and we decided to keep our TARP money as an insurance policy,” he said. “We can return it at any time.”

Although larger national banks may have more branches and be more convenient, they may not be as reliable as banks with roots in the community

Seymour, of the Office of Financial Institutions, said, “What you have in southern Louisiana is the great majority of our institutions are community institutions. They serve the local community, and when you have good experienced management working with local customers and borrowers you pretty much stick to your niche.

“As long as you stick to what you know and you’re attuned to what’s going on within the community, you tend to insulate yourself from the wide swings that you’re seeing in other parts of the country.”

Rusty Cloutier, who recently wrote a book on the subject called “Big Bad Banks,” was much less forgiving in analyzing why community banks have fared better than larger banks.

“The big problems at the larger national banks were greed and corruption, whereas community banks are much more home town and live in their communities. They just don’t do a lot of stupid things that they did. There’s no nice way to put it: (larger banks) did some really dumb things,” said Cloutier.

“Community banks know their customers and have a relationship, rather than just turning a profit off of a transaction,” he added.

In the end, they all agreed that the vast majority of people have nothing to worry about because the FDIC insures all accounts of up to $250,000, and every bank in the state is insured by the FDIC.

“Even through the worst of times in the ’80s, I can’t remember a single depositor losing a dime,” said Seymour.