This time last year, things were looking pretty bleak economically for Acadiana. Oil was trading around $60 a barrel, job losses mounted in the hundreds and armchair forecasting hit all time levels of despair. The 1980s loomed once again as a rampant specter of Lafayette’s previous rock-bottom — an economic crisis that decimated Lafayette’s financial industry and left us with nowhere to go but up.
Moving past the first quarter of 2016, an oft-predicted turnaround has yet to arrive, and Acadiana’s banks have become as parsimonious with their optimism as they’ve been with their loan operations.
Indeed, many community banks are reporting significant reductions in loans since 2014. That should come as no surprise given that new drilling permits are down 37 percent from the same quarter in 2015, and Lafayette’s mining job numbers are down 26 percent in the same window. With oil selling for about $32 per barrel earlier this year, 2015 may seem like halcyon days to banking and financial institutions that continue to hitch their wagons to a struggling economic engine. But for banks that have diversified both geographically and on their loan balance sheets, things are relatively rosy.
Publicly traded Home Bank, with less than 3 percent of loans in energy-related businesses, posted a net revenue increase of more than 20 percent from 2014 to 2015. And its stock price is up 28 percent over the past 12 months, according to Tulane University’s Burkenroad Reports.
The secret to that success should seem obvious — don’t put too many of your chickens in a barrel of oil. That’s not a new strategy for Home Bank, according to Joseph Zanco, Home Bank’s chief financial officer since 2008.
“I got to the bank when it was 108 years old,” Zanco tells ABiz. “We’ve stuck to what we know. We have traditionally not had a great deal of exposure to oil and gas. Our geographic diversification has allowed us to expand our profit even when our home market is not doing that well.”
Since going public in 2008, the Lafayette-based institution has managed to expand loans and deposits while reducing its dependence on its home market.
An initial public offering of $89 million financed rapid geographic growth outside of Lafayette’s immediate surrounds. The move diversified the bank’s geographic interests, while retaining branch presence and service in Lafayette.
At the time of its IPO, Home Bank did virtually all of its business in Lafayette. Through branch acquisitions in Mississippi and metro-New Orleans, and de novo expansions in Baton Rouge, Home Bank reduced its proportional reliance on the Lafayette market to around 25 percent of its total loan portfolio.
Home Bank’s strategic success comes in stark contrast with the profit and stock value loss seen at Lafayette’s MidSouth Bank. With roughly 20 percent of its loan portfolio in oil and gas, MidSouth has among the highest energy exposure of the banks ABiz researched for this story. At this time last year, MidSouth officials told ABiz they planned to stick with the industry that gave them years of boom, but the bank is now turning its attention to other, more diversified markets, primarily in Texas.
So far, the venerable bank has had a tough ride. According to Burkenroad Reports, MidSouth’s stock fell 46 percent in the past year.
Success in trying times doesn’t necessarily mean profit growth, however. Other community banks are simply approaching the present downturn with caution, and counting a storm weathered as a win. Considering the number of banks lost in the 1980s, they’re not wrong to look at it that way.
St. Martin Bank President and CEO Paul Durand reports that his bank has had a stellar 2016, despite a small decline in its loan-to-deposit ratio, from 93 percent to 89 percent this year. St. Martin historically does not stake much in oil and gas, instead doing most of its loan business in real estate, a sector at least indirectly affected by the oil downturn.
“We’re not complaining,” says Durand.
“There are a lot of banks around here that are around 40 [percent loan-to-deposit ratio] and would love to be where we are.”
There’s a glimmer of hope to be seen in the form of outside banks still seeing gains in new Acadiana branches.
Jennings-based JD Bank moved into the Acadiana market just under two years ago with de novo openings in Lafayette, New Iberia and Opelousas. Throughout its territories, JD Bank has continued to expand loan operations and see income growth thanks to Lake Charles’ booming natural gas industry. Locally, JD Bank has seen its Acadiana branches grow at rates consistent with its pre-downturn expectations.
“We’re not panicking,” JD Bank President an CEO Boyd Boudreaux says. “There are opportunities, of course, but we’re not going to be seeking out oil and gas loans. We’ll make the ones that make sense. We’re still optimistic about Acadiana, and we think it is, long term, good growth strategy for the bank.”
At current, JD Bank has not suspended any plans to move forward with further expansion into the Acadiana market — though Boudreaux says the bank is keeping a watchful eye for indications of a rebound. And that’s likely the same for everyone in Acadiana’s beleaguered banking industry.
Until then, Acadiana’s banks will continue to un-hitch their wagons from a falling star, looking instead to different industries and other markets that don’t depend as much on oil and gas to keep their economies running.