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Pre Provision Profitability


April 8, 2010

By Larry W. Martin

As we all know, a significant percentage of banks lost money in 2009.  While this raises many questions, one of them is which banks lost money before the allowance for loan and lease loss provision and what does the future hold for them? 

What we did for the eight state region was to calculate the pre and post ALLL provision net income (before securities g/l, taxes and other extraordinary g/l) for each of the states.  While extraordinary expenses for professional fees, FDIC insurance or OREO expenses may inflate the non-interest expense for the banks with a pre-provision loss, it is an indicator of a potential inability to be profitable once loan problems are behind them and the economy stabilizes.

State

Total Banks 4th Quarter 2009

# Unprofitable After ALLL Provision*

% of Total Banks

# Unprofitable Before ALLL Provision**

% of Total Banks

Arizona

42

34

80.95%

25

59.52%

 Utah

33

20

60.61%

14

42.42%

 Idaho

16

13

81.25%

3

18.75%

Colorado

135

49

36.30%

19

14.07%

 New Mexico

49

8

16.33%

5

10.20%

 Kansas

323

66

20.43%

23

7.12%

 Nebraska

225

32

14.22%

12

5.33%

 Wyoming

34

5

14.71%

1

2.94%

 Total 8 State Region

857

227

26.49%

102

11.90%

 * NIM/AA+Non Int Income-Non Int Expense-Provision for ALLL

 

 ** NIM/AA+Non Int Income-Non Int Expense

     

Of course, a robust economic recovery will hide these issues and others. 

A key question for the banks that lost money pre provision expense in 2009 is, "What does the strategic plan call for to change the situation moving forward?" 

 If you would like Bank Strategies LLC to provide you with your bank's individual assessment, we are pleased to do so and to discuss your bank's situation and strategic plan moving forward.

To be added to our email list, email Jim@bankstrategiesllc.com with your name and email information.


Contact Information

Phone: 303-903-9369

Mail: 75 S. Joyce Street, Golden CO 80401

EMail: Jim@bankstrategiesllc.com