Material Loss Review of First NBC Bank, New Orleans, Louisiana

Material Loss Review—First NBC Bank, New Orleans, Louisiana

On November 3, 2017, we issued our Material Loss Review of the Failure of 
First NBC Bank (First NBC), New Orleans, Louisiana.  The Louisiana Office 
of Financial Institutions (OFI) closed First NBC and appointed the FDIC as 
Receiver on April 28, 2017.  First NBC’s total assets at closing were 
$4 billion, and the estimated loss to the Deposit Insurance Fund (DIF) was 
about $997 million. Our Material Loss Review analyzed the causes of First 
NBC’s failure and evaluated the FDIC’s supervision of First NBC.

Causes of Failure:  First NBC exhibited many of the characteristics of bank 
failures that we have identified in prior Material Loss Reviews and other 
reviews of the FDIC’s supervision program:  

• - a dominant official with broad lending authority and limited Board of   Directors (Board) oversight, 
• - rapid growth funded by high-cost deposits, and  
• - large lending relationships and concentrations without adequate risk  management controls to mitigate the risks.

  
The bank also developed significant concentrations in trade receivables and 
complex tax credit investments.  The losses the bank realized on its large 
loan relationships, trade receivables, and tax credit investments severely 
diminished earnings and depleted capital to a point at which the bank could 
not recover.

The FDIC’s Supervision of First NBC:  Between 2006 and 2017, the FDIC and OFI 
conducted nine full-scope joint safety and soundness examinations and six 
visitations of First NBC consistent with requirements.  However, the FDIC’s 
use of enforcement actions and examination ratings to address First NBC 
issues was counter to the agency’s forward-looking supervisory approach.  
That is, although examiners identified repeated risk management weaknesses, 
they relied too heavily on the bank’s financial condition and ability to raise 
capital in taking supervisory action and assigning management and asset quality 
ratings.  

From 2009 to 2015, First NBC adopted four Board Resolutions to address examination 
findings and matters requiring board attention.  The FDIC’s continued reliance on 
these Board resolutions and matters requiring board attention was largely 
ineffective in correcting the issues raised.  A stronger enforcement action was 
warranted as early as 2010 based on the bank’s risk profile.  Instead, the FDIC 
did not take more formal action at First NBC until late 2016 once the bank’s 
financial condition had deteriorated significantly.

Examiners rated First NBC as satisfactory overall from inception through 2015.  
Examiners reported repeated concerns with bank management and asset quality but 
assigned improved ratings to both areas in 2011 and 2014, years when First NBC 
received significant capital injections.  As for the management rating, a more 
critical assessment of the Chief Executive Officer’s influence on the bank’s 
activities was warranted in light of the bank’s rapid growth, reliance of 
volatile funding, and concentrations in risky loans and complex investments.
  
With respect to asset quality, we could not identify any significant improvements 
in the bank’s adversely classified assets trends during the 2011 and 2014 
examinations that would warrant an increase in the asset quality rating.  
The ratings did not reflect the impact of the loan administration issues 
identified nor the complex nature of First NBC’s assets, which required 
robust management practices.  

We made two recommendations in this report and management concurred.