Since 2010, larger banks across Louisiana have been swallowing up their smaller counterparts and taking control of the market, more than doubling their share of the total assets in the state. At the same time, smaller banks have seen their share of assets drop by about one-third, according to a new study by LSU released today.
Large banks, defined as banks with more than $1 billion in total assets, now constitute 50% of the market of total assets in the state, compared to 23% in 2010. Despite the consolidation, the report says the banking industry in Louisiana is strong with banks of all sizes reporting solid performance numbers.
The study also concludes that small- and medium-sized banks—banks that control less than $500 million in assets, and those with between $500 million and $1 billion—are attractive targets for acquisition by their larger counterparts, but for different reasons.
“Small banks’ high profit margin and return on equity make them attractive acquisition targets, but at a high price,” the study concludes. “Medium-sized banks … have been leading their peers in terms of interest and noninterest income as a percentage of total assets, despite their lower profit margins lagging in profitability. Thus, medium-sized banks are acquisition targets, but primarily for market share rather than performance.”
The study—conducted by Joseph Mason, a professor of banking in the E.J. Ourso College of Business, and Prateek Sharma, a doctoral student studying finance—is the first of a periodic series between the business college and the Louisiana Bankers Association on the state of the banking industry in Louisiana.
The study also finds that deposits at in-state banks has risen from $70 billion in 2010 to $97.8 billion in 2015, but the growth has slowed in recent years. The market share in large banks has increased, while the market shares in medium-sized banks has stayed consistent and smaller banks have seen their market share decrease.
“Thus, to the extent that it may appear small banks are shrinking, they simply command a smaller share of a larger pie,” the study says.
The authors point to 27 mergers and acquisitions as the culprit for these changing percentages, namely IberiaBank’s acquisition of Cameron State Bank and Omni Bank in 2011, which jumped the market share of large banks up from 23% to 35%, as well as IberiaBank’s acquisition of Teche Federal Bank in 2014.
