First NBC Bank Failure Worst Since Financial Crisis

New Orleans-based First NBC Bank (NASDAQ:FNBC) was seized by regulators on Friday, with the Louisiana Office of Financial Institutions handing the bank to the Federal Deposit Insurance Corp. The FDIC will mail $1.4 billion in checks, including interest accrued through Friday, to depositors beginning Monday. No depositor will lose money. First NBC Bank had about $4.74 billion in assets and $3.54 billion in deposits, as of Dec. 31.

The event is the costliest bank failure since the financial crisis. The last time the FDIC paid more than $1 billion to absorb losses was when two banks in Puerto Rico failed in 2010. During the 2010 peak of the Great Recession, regulators shuttered 157 banks, the most in any year since the savings and loan crisis two decades earlier. The previous year, 140 banks were closed. Since then, bank closures have been infrequent.

The cleanup costs for the failure is estimated at $1 billion. That loss comes from the difference in the FDIC’s obligations and what it can expect to collect from the assets. The FDIC was only able to sell part of the bank to Hancock Holding Co. of Gulfport, Mississippi. It must now dispose of roughly $2.5 billion in assets that Hancock didn’t want. FDIC spokesman David Barr said Hancock was the sole bidder.

Hancock bought $1.6 billion in deposits and $1 billion in assets, planning to fold the First NBC branches into its own operations. According to the plans, Hancock will place First NBC’s 24 Louisiana branches into its Whitney Bank unit and First NBC’s five Florida Panhandle branches into its Hancock Bank unit. For the time being, depositors and borrowers can continue to do business with their current branches.

Hancock CEO John Hairston said of the deal, “It’s a really big growth opportunity for our company.” The acquisition of the accounts will make Hancock’s Whitney unit one of the largest banks in metro New Orleans by deposits. Hancock previously purchased $1.3 billion in loans, $400 million in deposits and nine branches from First NBC earlier this year during First NBC’s attempt to avoid failure. This was the fourth failure of a federally insured bank this year.

The closure of the bank comes three days after the lender reported accounting issues dating back to at least 2015. First NBC, founded in 2006, was unusually reliant on projects revolving around federal tax credits for low-income or less developed areas. It got into trouble when regulators decided the bank was overstating the value of those tax credits, forcing a write down in their value. The bank was ordered to raise capital, but increasing loan losses sealed the bank’s fate. Shares of the lender, which closed at $2.65, were trading at 20 cents in after-market hours on Friday.

 

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