Five Billion Dollar Bank Failure – First NBC Bank, New Orleans, Closed by Regulators

A very large bank failure occurred today when state regulators closed First NBC Bank, New Orleans, and appointed the FDIC as receiver.  To prevent losses to depositors, the FDIC took a significant hit to its Deposit Insurance Fund and sold First NBC Bank to Whitney Bank, Gulfport, Mississippi.

In terms of asset size the collapse of First NBC Bank is one of the largest banking failures since the peak of the banking crisis in 2008 – 2009 when over a dozen banks failed with assets of over $5 billion.  The total assets of First NBC Bank at $4.74 billion is almost 20 times larger than all the banking failures that occurred during 2016.  Total assets of all 7 domestic banks that failed during 2015 (excluding Doral Bank of Puerto Rico) was only $827.5 million.  Total assets of all 18 banking failures that occurred during 2014 totaled $3.1 billion.  We have to go all the way back to 2013 to find a time when failed banks held assets of over $4.74 billion.  Total assets of all 24 banks that failed during 2013  totaled $6.1 billion.

First NBC Bank

First NBC Bank experienced a combination of bad timing and aggressive lending.  The Bank was established in May 2006 ostensibly to help out the businesses and residents of New Orleans after the devastating Hurricane Katrina.  Unfortunately, shortly thereafter the country was hit by the severe banking and financial crisis that began in late 2008.  Aggressive lending was the norm before the financial crisis and as collateral values tanked banks began to experience huge loan losses.

First NBC Bank explained the operating philosophy of management on its web site as follows:

The Bank’s founders, led by New Orleans native and veteran Banker, Ashton J. Ryan Jr., were determined to develop a community bank guided by the principals of stability and soundness, building long-term banking relationships, responsiveness to customer needs, high quality service and becoming an active participant, with credibility, in the communities it serves.

Even during the recent economic downturn, First NBC Bank has not stopped lending and has been applauded for providing financial assistance to small businesses still recovering from the Hurricanes, as well as supplying capital for new small businesses to open their doors.

Despite the severe problems the banking industry was experiencing during the financial crisis, First NBC Bank managed to do quite well and during 2013 raised millions via private placement stock sales and an IPO offering to the public at $24 per share.  Those shares today trade at under $3 per share.  Last month, when the FDIC classified First NBC Bank as “significantly undercapitalized” it became clear that the end was near.

After the closure of First NBC Bank all deposit accounts were transferred to Whitney Bank and no depositors lost any money.  Various time deposits accounts, individual retirement accounts, brokered deposits and certain CDs were closed out and the FDIC will mail checks to the owners of those accounts.

Customers whose accounts were transferred to Whitney Bank will have immediate access to their money.  Over the weekend, deposit holders can also access their funds through the use of checks, debit cards and ATMs.

All 29 branches of First NBC will reopen during normal business hours as branches of Whitney Bank.  All depositors will continue to have their funds insured by the FDIC up to the applicable limits.

As of December 31, 2016, First NBC Bank had total assets of $4.74 billion and total assets of $3.54 billion.  Whitney Bank agreed to buy only about $1 billion of the failed bank’s assets, leaving the FDIC to dispose of the remaining assets.

The loss to the FDIC Deposit Insurance Fund (DIF) was a massive $996.9 million, greater than the losses that occurred on all bank failures over the prior two years.  At year end 2016 the DIF held $83.2 billion to cover future banking losses.  First NBC Bank was the fourth banking failure of 2017 and the first in Louisiana since November 2011.

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