S-1/A 1 d413833ds1a.htm S-1/A S-1/A
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As filed with the Securities and Exchange Commission on April 29, 2013

Registration No. 333-187787

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

PRE-EFFECTIVE AMENDMENT NO. 1

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

FIRST NBC BANK HOLDING COMPANY

(Exact name of registrant as specified in its charter)

 

 

 

Louisiana   6022   14-1985604

(State or other jurisdiction of

incorporation or organization)

  (Primary Standard Industrial
Classification Code Number)
 

(I.R.S. Employer

Identification Number)

 

 

210 Baronne Street

New Orleans, Louisiana 70112

(504) 566-8000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Ashton J. Ryan, Jr.

Chairman, President and Chief Executive Officer

First NBC Bank Holding Company

210 Baronne Street

New Orleans, Louisiana 70112

(504) 566-8000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

Chet A. Fenimore

Geoffrey S. Kay

Fenimore, Kay, Harrison & Ford, LLP

812 San Antonio Street, Suite 600

Austin, Texas 78701

(512) 583-5900

 

Mitchell S. Eitel

Robert Buckholz

Sullivan & Cromwell LLP

125 Broad Street

New York, New York 10004

(212) 558-4000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller reporting company   ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of
Securities to be Registered
  Amount
to be
Registered(1)
  Proposed
Maximum
Aggregate
Offering Price
Per Share(2)
  Proposed
Maximum
Aggregate
Offering Price(1)(2)
  Amount of
Registration Fee

Common stock, par value $1.00 per share

  4,791,667   $26.00   $124,583,342   $16,993.17

 

 

(1) Includes shares of common stock that the underwriters have the option to purchase pursuant to their over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933. This amount represents the proposed maximum aggregate offering price of the securities registered hereunder to be sold by the Registrant and the selling stockholders specified herein.
(3) $15,686 of such fee was previously paid.

 

 

The Registrant hereby amends this Registration Statement on such date as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED APRIL 29, 2013

4,166,667 Shares

PROSPECTUS

 

LOGO

Common Stock

This prospectus relates to the initial public offering of First NBC Bank Holding Company’s common stock. We are offering 4,166,667 shares of our common stock.

Prior to this offering, there has been no established public market for our common stock. We currently estimate that the public offering price per share of our common stock will be between $22.00 and $26.00 per share. We have applied to list our common stock on The Nasdaq Global Select Market under the symbol “NBCB.”

See “Risk Factors,” beginning on page 10, for a discussion of certain risks that you should consider before making an investment decision to purchase our common stock.

We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements.

 

     Per Share          Total      

Initial public offering price

     $                     $               

Underwriting discounts(1)

     $                     $               

Proceeds to us, before expenses

     $                     $               

 

 

(1) See “Underwriting” for additional information regarding the underwriting discount and certain expenses payable to the underwriters by us.

We have granted the underwriters an option to purchase up to an additional 625,000 shares of our common stock at the initial public offering price less the underwriting discount, within 30 days from the date of this prospectus, to cover over allotments.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The shares of our common stock that you purchase in this offering will not be savings accounts, deposits or other obligations of any of our bank or non-bank subsidiaries and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency.

The underwriters expect to deliver the shares of our common stock against payment in New York, New York on             , 2013.

 

 

 

SANDLER O’NEILL + PARTNERS, L.P.   

Keefe, Bruyette & Woods

A Stifel Company

Sterne Agee

 

FIG Partners LLC   Monroe Financial Partners

 

 

Prospectus dated                     , 2013


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LOGO


Table of Contents

TABLE OF CONTENTS

 

Prospectus Summary

     1   

The Offering

     6   

Selected Historical Consolidated Financial Information

     8   

Risk Factors

     10   

Cautionary Note Regarding Forward-Looking Statements

     26   

Use of Proceeds

     28   

Dividend Policy

     29   

Capitalization

     30   

Dilution

     31   

Price Range of our Common Stock

     33   

Business

     34   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     49   

Management

     80   

Executive Compensation

     87   

Principal Shareholders

     92   

Description of Capital Stock

     94   

Shares Eligible for Future Sale

     99   

Supervision and Regulation

     104   

Certain Material U.S. Federal Income Tax Consequences for Non-U.S. Holders of Common Stock

     114   

Underwriting

     117   

Legal Matters

     122   

Experts

     122   

Where You Can Find More Information

     122   

Index to Financial Statements

     F-1   


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About this Prospectus

We and the underwriters have not authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are not, and the underwriters are not, making an offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.

No action is being taken in any jurisdiction outside the United States to permit a public offering of our securities or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about, and to observe, any restrictions as to the offering and the distribution of this prospectus applicable to those jurisdictions. Unless otherwise expressly stated or the context otherwise requires, all information in this prospectus assumes that the underwriters have not exercised their option to purchase additional shares of common stock.

Market Data

Market data used in this prospectus has been obtained from independent industry sources and publications as well as from research reports prepared for other purposes. Industry publications and surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. We have not independently verified the data obtained from these sources. Forward-looking information obtained from these sources is subject to the same qualifications and the additional uncertainties regarding the other forward-looking statements in this prospectus.

Implications of Being an Emerging Growth Company

As a company with less than $1.0 billion in revenues during our last fiscal year, we qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company,

 

   

we may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations;

 

   

we are exempt from the requirement to obtain an attestation and report from our auditors on management’s assessment of our internal control over financial reporting under the Sarbanes-Oxley Act of 2002;

 

   

we are permitted to provide less extensive disclosure about our executive compensation arrangements; and

 

   

we are not required to give our shareholders non-binding advisory votes on executive compensation or golden parachute arrangements.

We have elected in this prospectus to take advantage of scaled disclosure relating only to executive compensation arrangements. We do not intend to take advantage of any other scaled disclosure or relief during the time that we qualify as an emerging growth company, although the JOBS Act would permit us to do so.

In addition to scaled disclosure and the other relief described above, the JOBS Act permits us an extended transition period for complying with new or revised accounting standards affecting public companies. However, we have elected not to take advantage of this extended transition period, which means that the financial statements included in this prospectus, as well as any financial statements that we file in the future, will be subject to all new or revised accounting standards generally applicable to public companies. Our election not to take advantage of the extended transition period is irrevocable.


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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to purchase common stock in this offering. You should read the entire prospectus carefully, including the section titled “Risk Factors,” our consolidated financial statements and the related notes thereto, and management’s discussion and analysis of financial condition and results of operations, before making an investment decision. Unless we state otherwise or the context otherwise requires, references in this prospectus to “we,” “our,” and “us” refer to First NBC Bank Holding Company, a Louisiana corporation, and its consolidated subsidiaries.

Overview

We are a bank holding company, headquartered in New Orleans, Louisiana, which offers a broad range of financial services through our wholly-owned banking subsidiary, First NBC Bank, a Louisiana state non-member bank. Our primary market is the New Orleans metropolitan area and the Mississippi Gulf Coast. We serve our customers from our main office located in the Central Business District of New Orleans, 31 full service branch offices located throughout our market and a loan production office in Gulfport, Mississippi. We believe that our market exhibits attractive demographic attributes and presents favorable competitive dynamics, thereby offering long-term opportunities for growth. Our strategic focus is on building a franchise with meaningful market share and strong revenues complemented by operational efficiencies that we believe will produce attractive risk-adjusted returns for our shareholders. As of December 31, 2012, on a consolidated basis, we had total assets of $2.7 billion, net loans of $1.9 billion, total deposits of $2.3 billion, and shareholders’ equity of $248.1 million.

We are the largest bank holding company by assets headquartered in New Orleans as of December 31, 2012. We are led by a team of experienced bankers, all of whom have substantial banking or related experience and relationships in the greater New Orleans market. We believe that recent changes and disruption within our primary market caused by significant acquisitions of local financial institutions and the operating difficulties faced by many local competitors have created an underserved base of small and middle-market businesses and high net worth individuals that are interested in banking with a company headquartered in, and with decision-making authority based in, the New Orleans market. We believe our management’s long-standing presence in the area gives us insight into the local market and the ability to tailor our products and services, particularly the structure of our loans, to the needs of our targeted customers. We seek to develop comprehensive, long-term banking relationships by cross-selling loans and core deposits, offering a diverse array of products and services and delivering high quality customer service. In addition to the reputation and local connections of our management, we believe that our strong capital position gives us an instant advantage over our competitors.

Our History and Growth

First NBC Bank was chartered with a commitment to the revival of the New Orleans metropolitan area, which was severely damaged by Hurricane Katrina in August 2005. Led by New Orleans native and veteran banker, Ashton J. Ryan, Jr., First NBC Bank commenced banking operations in May 2006. Since inception, First NBC Bank has experienced tremendous growth, both organically and acquisitively, in becoming a premier banking institution in New Orleans. Below are a few of our notable milestones:

 

   

May 2006 – Chartered with an initial capitalization of $61.8 million from local investors and highly sophisticated institutional investors, making it the largest initial capitalization of a de novo financial institution to commence operations under a Louisiana charter.

 

   

April 2008 – Completed acquisition of Dryades Bancorp, Inc., which contributed approximately $74 million in assets and four branches located in Orleans and Jefferson Parishes.

 

   

May 2008 – Completed the acquisition of a branch of Statewide Bank located in Jefferson Parish having approximately $60 million in deposits.

 

 

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June 2011 – Achieved the top deposit market share in the New Orleans market of any bank holding company headquartered in the New Orleans market.

 

   

November 2011 – Completed the FDIC-assisted acquisition of Central Progressive Bank assuming $345 million in deposits and purchasing $368 million in assets, followed by the sale to outside investors of certain nonperforming assets carried at $82.6 million by Central Progressive Bank, which represented substantially all of the acquired nonperforming assets.

 

   

December 2011 – Had $2.2 billion in assets, becoming one of only seven de novo institutions established since 2006 (out of 397) to reach that mark, and the largest de novo institution that has relied primarily on organic growth.

 

   

December 2012 – Achieved deposit growth of $168.7 million, or 49.5%, from the branches acquired from Central Progressive Bank.

Our Competitive Strengths

We believe that we are well-positioned to create value for our shareholders, particularly as a result of the following competitive strengths:

 

   

Experienced core management team with a local banking tradition of success. Our management team is led by Ashton J. Ryan, Jr., who has more than 40 years of financial services experience, including 20 years in Arthur Andersen’s financial institutions audit practice and more than 20 years of commercial banking experience. Following his service as President and Chief Executive Officer of the former First National Bank of Commerce, Mr. Ryan served as President and Chief Executive Officer of First Bank & Trust (New Orleans) for approximately seven years before chartering First NBC Bank. Our senior management team, which also includes William J. Burnell, our Chief Credit Officer; Marsha S. Crowle, our Chief Compliance Officer; and Mary Beth Verdigets, our Chief Financial Officer, has been with the bank since inception. These officers have an average experience of approximately 33 years in banking or related fields in the New Orleans market. Additionally, 14 of our top 18 senior executives worked for First Commerce Corporation or its lead bank, First National Bank of Commerce, at the time of their acquisition by Bank One Corporation in 1998. At the time of its acquisition, First National Bank of Commerce was the largest financial institution in the New Orleans market, with approximately $6.0 billion in assets and a 28% deposit market share.

 

   

Strong brand and reputation in our market. We believe that our strong brand and market reputation have become and will remain a competitive advantage within our market. We have developed a reputation as an active lender in our community. Recently, other financial institution competitors in our market have been dealing with legacy asset problems associated with national economic conditions, which have had far less impact on us given the timing of our formation. By capitalizing on the business and personal relationships of our senior management team and relationship managers, we believe that we are positioned to continue taking advantage of the market dislocation in the New Orleans market resulting from several significant acquisitions of local financial institutions and the operating difficulties faced by many local competitors. We expect to accomplish this by continuing to attract talented bankers and customers, acquiring other institutions, and growing organically.

 

   

Stable and scalable platform. Since the current economic crisis began in 2008, many of our competitors have suffered significant operating and regulatory challenges and, as a result, we believe, have been unable to effectively service their customers’ needs and compete in our market. Throughout our operating history, we have maintained a stable banking platform with strong capital levels and sound asset quality. At December 31, 2012, we had a 7.15% tangible common equity ratio, a 9.04% tier 1 leverage capital ratio, a 11.26% tier 1 risk-based capital ratio and a 12.51% total risk-based capital ratio. Contributing to our stability is our track record of sound asset quality trends. Our highest

 

 

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annual rate of net loan charge-offs to average loans over the past five years was 0.19% in 2011, and our average annual rate of net loan charge-offs to average loans over the same period was 0.08%. Furthermore, utilizing the prior experience of our management team at larger banks, we believe that we have built a scalable corporate infrastructure, including technology and banking processes, capable of supporting acquisitions and continued growth while improving operational efficiencies. We believe that our strong capital and asset quality levels will allow us to grow and that our operating platform will allow us to manage that growth effectively, resulting in greater efficiency and improved profitability.

 

   

Growing deposit base. A significant driver of our franchise is the growth and stability of our deposits, which we use to fund our loans and investment portfolio. From December 31, 2008 through December 31, 2012, our total deposits grew at a compound annual growth rate of approximately 40%. Our deposit growth has been driven significantly by the growth in our transaction account deposits, which represented approximately 50% of our total deposits at December 31, 2012, up from 34% of our total deposits at December 31, 2009. We seek to cross-sell deposit products at loan origination, which provide a basis for expanding our banking relationships and a stable source of funding. Except for our utilization of Promontory Interfinancial Network, LLC’s CDARS® Reciprocal products to serve the needs of our higher balance deposit customers, we had no brokered deposits at December 31, 2012.

Our Operating Strategy

Our business model focuses on a traditional, relationship-based, community bank structure guided by the following principles: disciplined risk management; responsive, high-quality service; focus on building long-term relationships; credibility within our communities; creativity; and efficiency. We value our flexible organizational structure and strong risk management culture and believe that our level of market knowledge acquired by our management over the past 30 years and customer service differentiate us from other financial institutions. We are convinced that delivering our products and services through long-term relationship managers leads to successful outcomes for our customers and contributes to the retention of profitable customers, the keystone of our philosophy. We believe focusing on these principles will enable us to expand our capabilities for providing value-added services to our customer base and generate steady, long-term growth.

We are committed to the concept that a successful community bank must serve the needs of its community as well as its customers. Our officers and employees are heavily involved in civic and community organizations, and we provide substantial sponsorship dollars to activities that benefit our community. We believe that our business development strategies, which are focused on building market share through personal relationships as opposed to formal advertising, are consistent with our customer centric culture and are a cost effective way of developing new relationships and enhancing existing ones.

Organic and Acquisitive Growth

Our organic growth has focused on expanding market share in our existing and contiguous markets by attracting new customers with our personalized service and our ability to tailor commercial, consumer and specialized loans closely to local needs, particularly with respect to loan structure. We can then generate stable core deposits from these customers. We believe that our focus on and strong relationships in our market will provide long-term opportunities for organic growth, particularly in an improving economic environment.

Our acquisition activity complements our organic growth strategy and has primarily focused on strategic acquisitions in or around our existing market. As we evaluate potential acquisition opportunities in the future, we believe there are many banking institutions that continue to face credit challenges, capital constraints and liquidity issues and that lack the scale and management expertise to manage the increasing regulatory burden. Our management team has a long history of identifying targets, assessing and pricing risk and executing acquisitions in a creative, yet disciplined, manner. We seek acquisitions that provide meaningful financial

 

 

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benefits, long-term organic growth opportunities and expense reductions, without compromising our risk profile. Additionally, we seek banking markets with favorable competitive dynamics and potential consolidation opportunities.

Our Market

Our primary market is broadly defined as the Greater New Orleans metropolitan area and the Mississippi Gulf Coast. Reconstruction efforts in response to Hurricane Katrina and vibrant energy and tourism industries have revitalized the region and created a highly attractive demographic, economic and competitive landscape for us.

New Orleans serves as a major economic hub of the Gulf Coast region, providing major medical, financial, professional, governmental, transportation and retail services to Louisiana, Mississippi, and East Texas. The New Orleans metropolitan area had a population of 1.2 million people in 2012, which represented a growth rate of approximately 3.1% from 2010, a rate substantially higher than the national population growth rate of 1.4%.

The New Orleans economy has been traditionally driven by tourism and port activity, but recently a more diversified landscape has developed that includes petrochemical companies and growing medical services, technology and modern manufacturing industries. In 2012, 9.0 million visitors spent a new record of $6.0 billion, and the city seeks to increase visitors to 13.7 million and tourist spending to $11 billion by 2018. New Orleans hosted the NCAA Football BCS National Championship game and the NCAA Men’s Basketball Final Four Tournament in 2012 and the Super Bowl and the NCAA Women’s Basketball Final Four Tournament in 2013. All of these events were expected to generate significant tourism revenue for the local economy. Additionally, including offshore production, Louisiana is one of the top producers of crude oil and natural gas in the United States.

New Orleans is also the gateway to the Port of South Louisiana and the home of the Port of New Orleans, which are the largest and seventh largest ports in the United States by cargo tonnage and are fueled by the economic activity of the Mississippi River and the Gulf Coast region. The Panama Canal expansion, which is planned for completion in late 2014, is expected to provide an incremental boost to the region, as it will allow for shipping of more cargo between the Eastern United States and Asia that was previously transported by rail from West Coast ports.

In addition, the New Orleans economy has been and we expect will continue to benefit from substantial special funding from governmental and insurance sources. The New Orleans economy has been bolstered from insurance proceeds of more than $13 billion paid to Louisiana policyholders under the National Flood Insurance Program and approximately $25.3 billion from private insurers. In addition, the U.S. Government authorized $13.4 billion from its Community Development Block Grant program for recovery, $15 billion for restoration and enhancement of our flood protection system, $12.7 billion in the form of Gulf Opportunity Zone tax incentives allocated to Louisiana for economic development activities, and over $19.1 billion of funds through the Federal Emergency Management Agency to replace governmental infrastructure destroyed by Hurricanes Katrina and Rita, such as government buildings, schools, universities, drainage systems, and sewage and water systems, and aid individuals and households affected by the storm, among other things.

Recent Developments

The following is a discussion of certain unaudited financial information as of and for the three months ended March 31, 2013, all of which is preliminary in nature and based upon currently available information. The following quarterly results are also subject to revision based upon actual results, the review of those results by our independent auditors and an audit by our independent auditors of our annual results for the year ended December 31, 2013. Accordingly, we cannot assure you that upon completion of our review and the review of

 

 

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our independent auditors, we will not report materially different financial results than those set forth below. In addition, you should not assume that our operating results for the three months ended March 31, 2013 will be indicative of our operating results for the entire year ending December 31, 2013.

Results for the three months ended March 31, 2013 reflected similar trends as those experienced for the year ended December 31, 2012. As of March 31, 2013, we had total assets of approximately $2.8 billion, total loans of approximately $2.0 billion, total deposits of approximately $2.4 billion, and shareholder’ equity of approximately $255.9 million. As of March 31, 2013, book value per share was $15.83, an annualized increase of 15.5% from December 31, 2012.

Net interest income for the three months ended March 31, 2013 increased 10.0%, or approximately $1.8 million, to approximately $19.8 million, as compared to the same period in 2012. Total interest income for the three months ended March 31, 2013 increased 13.3%, or approximately $3.4 million, to approximately $28.7 million, primarily as a result of the growth in the average balance of interest-earning assets. Total interest expense for the three months ended March 31, 2013 increased 21.2%, or approximately $1.6 million, to $8.9 million, as compared to the same period in 2012, primarily due to an increase in the average balance of interest-bearing deposits. We estimate that our earnings per share, on a fully diluted basis, for the three months ended March 31, 2013 will be approximately $0.58 per share.

Following the end of the first quarter of 2013, First NBC Community Development Fund, LLC received an allocation of $50.0 million from the Community Development Financial Institutions Fund of the U.S. Treasury under its New Markets Tax Credit program. The allocation will generate $19.5 million in tax credits to us. The allocation represented a 25.0% increase over the Fund’s prior year allocation and increased the Fund’s total allocations under the program to $118 million.

Our Challenges

There are a number of risks that you should consider before investing in our common stock. These risks are discussed more fully in the section titled “Risk Factors,” beginning on page 10, and include, but are not limited to:

 

   

Our business may be adversely affected by general business and economic conditions;

 

   

We rely heavily on our management team and could be adversely affected by the unexpected loss of key officers;

 

   

Our business is concentrated in the New Orleans metropolitan area, and we are more sensitive than our more geographically diversified competitors to adverse changes in the local economy;

 

   

As recovery from Hurricane Katrina winds down in New Orleans, local economic activity may be depressed, which would adversely affect our growth;

 

   

The market in which we operate is susceptible to hurricanes and other natural disasters and adverse weather, as well as man-made disasters;

 

   

We operate in a highly regulated environment, which could restrain our growth and profitability; and

 

   

The lack of seasoning of our loan portfolio could increase the risk of credit defaults in the future.

Additional Information

Our principal executive office is located at 210 Baronne Street, New Orleans, Louisiana 70112, and our telephone number is (504) 566-8000. Our website address is www.firstnbcbank.com. The information contained on our website is not a part of, or incorporated by reference into, this prospectus.

 

 

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THE OFFERING

 

Securities offered by us    4,166,667 shares of common stock.
Underwriter purchase option    625,000 shares of common stock.
Securities offered as a percentage of outstanding shares of common stock        
31.9%, assuming the underwriters do not exercise their purchase option.
Common shares outstanding after completion of the offering        
17,229,692 shares of common stock, assuming the underwriters do not exercise their purchase option.(1)
Securities owned by directors and executive officers    Our directors and executive officers own 3,872,039 shares of our common stock, which amount is not expected to materially change as a result of the offering.
Use of proceeds    Assuming an initial public offering price of $24.00 per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus, we estimate that the net proceeds to us from the sale of our common stock in this offering will be $91.5 million (or $105.6 million if the underwriters exercise in full their purchase option), after deducting estimated underwriting discounts and offering expenses. We intend to use the net proceeds to us generated by this offering to support our organic growth and for other general corporate purposes. Although we may, from time to time in the ordinary course of business, evaluate potential acquisition opportunities that we believe are complementary to our business and provide attractive risk-adjusted returns, we do not have any immediate plans, arrangements or understandings relating to any material acquisition. For additional information, see “Use of Proceeds.”
Dividends    We do not expect to pay cash dividends on our common stock in the foreseeable future. Instead, we anticipate that all of our future earnings will be retained to support our operations and finance the growth and development of our business. Any future determination to pay dividends on our common stock will be made by our Board of Directors and will depend upon our results of operations, financial condition, capital requirements, regulatory and contractual restrictions, our business strategy and other factors that the Board deems relevant. For additional information, see “Dividend Policy.”

 

 

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Rank    Our common stock is subordinate to our Series D preferred stock, and on parity with our Series C preferred stock, with respect to the payment of dividends and the distribution of assets upon liquidation. In addition, our common stock will be subordinate to any debt that we may issue in the future and may be subordinate to any new series of preferred stock that we may issue in the future.
Listing    We have applied to list our common stock on the Nasdaq Global Select Market under the trading symbol “NBCB.”
Risk factors    Investing in our common stock involves risks. See “Risk Factors,” beginning on page 10, for a discussion of certain factors that you should carefully consider before making an investment decision.

 

(1) References in this section to the number of shares of our common stock outstanding after this offering are based on 13,063,025 shares of our common stock issued and outstanding as of April 15, 2013. Unless otherwise noted, these references exclude:

 

   

942,617 shares of common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of $13.20 per share (of which options to purchase 396,100 shares have vested);

 

   

319,124 shares of common stock reserved for issuance in connection with stock awards that remain available for issuance under our stock incentive plan;

 

   

916,841 shares of our outstanding Series C preferred stock, which will become convertible, and are expected to be converted in part, into shares of common stock upon completion of the offering;

 

   

162,500 shares of common stock issuable upon the exercise of warrants issued to the organizers of First NBC Bank at an exercise price of $10.00 per share; and

 

   

87,059 shares of common stock issuable upon the exercise of warrants issued to the shareholders of Dryades Bancorp, Inc. at an exercise price of $19.50 per share in connection with our acquisition of that entity.

 

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

You should read the selected historical consolidated financial and operating data set forth below in conjunction with the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Capitalization,” as well as the consolidated financial statements and the related notes included elsewhere in this prospectus. The historical financial information as of and for the years ended December 31, 2012 and 2011 and for the year ended December 31, 2010, except for the selected ratios, is derived from our audited financial statements included elsewhere in this prospectus. The historical financial information as of December 31, 2010 and as of and for the years ended December 31, 2009 and 2008, except for the selected ratios, is derived from our audited financial statements not included in this prospectus. Average balances have been computed using daily averages, except for average total assets, which is computed using beginning and end of month average balances. Our historical results may not be indicative of our future performance. We have presented certain information in the table below on a non-GAAP basis. We believe that these non-GAAP ratios, when taken together with the corresponding ratios calculated in accordance with GAAP, provide meaningful supplemental information regarding our performance for the periods presented. Reconciliations for all non-GAAP measures included in the table below are provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Use of Non-GAAP Financial Measures.”

 

     As of and for the year ended December 31,  
     2012     2011     2010      2009      2008  
     (dollars in thousands, except share data)  

Income Statement Data:

            

Interest income

   $ 106,457      $ 79,014      $ 60,691       $ 45,192       $ 33,349   

Interest expense

     31,666        26,367        24,328         21,925         17,634   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net interest income

     74,791        52,647        36,363         23,267         15,715   

Provision for loan losses

     11,035        8,010        5,514         2,466         1,574   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net interest income after provision

     63,756        44,637        30,849         20,801         14,141   

Noninterest income

     13,136        5,951        5,647         2,673         1,387   

Noninterest expense

     55,007        36,247        26,287         19,186         13,160   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Income before income taxes

     21,885        14,341        10,209         4,288         2,368   

Income tax expense (benefit)

     (7,565     (5,407     147         90         206   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net income

     29,450        19,748        10,062         4,198         2,162   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net income attributable to noncontrolling interests

     510        308                          

Preferred stock dividends

     510        792        972         634           

Accretion of discount on preferred stock

            580        179         134           
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

   $ 28,430      $ 18,068      $ 8,911       $ 3,430       $ 2,162   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Period-End Balance Sheet Data:

            

Investment securities, available-for-sale

   $ 486,399      $ 326,489      $ 220,990       $ 117,568       $ 61,991   

Loans, net of allowance for loan losses

     1,895,240        1,633,214        1,099,975         840,644         583,446   

Allowance for loan losses

     26,977        18,122        12,508         7,889         5,504   

Total assets

     2,670,867        2,216,456        1,459,943         1,076,875         711,205   

Noninterest-bearing deposits

     239,538        221,423        115,071         56,169         59,506   

Interest-bearing deposits

     2,028,990        1,680,587        1,179,710         911,896         533,020   

Long-term borrowings

     75,220        56,845        15,440         550         900   

Preferred shareholders’ equity

     49,166        58,517        18,105         17,927           

Common shareholders’ equity

     198,935        163,353        111,281         71,479         66,239   

Total shareholders’ equity

     248,101        221,870        129,386         89,406         66,239   

 

 

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     As of and for the year ended December 31,  
     2012     2011     2010     2009     2008  
     (dollars in thousands, except share data)  

Per Share Data:

          

Earnings

          

Basic

   $ 2.04      $ 1.55      $ 1.14      $ 0.52      $ 0.33   

Diluted

     2.02        1.54        1.13        0.51        0.32   

Book value

     15.24        13.44        11.63        10.66        9.97   

Tangible book value(1)

     14.58        12.70        11.07        9.84        9.13   

Weighted average common shares outstanding

          

Basic

     12,952,751        10,794,639        7,800,425        6,652,688        6,641,168   

Diluted

     13,112,791        10,860,928        7,858,410        6,689,713        6,786,835   

Performance Ratios:

          

Return on average common equity

     15.77     14.28     11.42     6.11     3.38

Return on average equity

     12.40        11.25        9.48        5.07        3.38   

Return on average assets

     1.19        1.17        0.79        0.45        0.40   

Net interest margin

     3.36        3.44        3.09        2.67        3.15   

Efficiency ratio(2)

     62.56        61.86        62.57        73.97        76.95   

Asset Quality Ratios:

          

Nonperforming assets to total loans, other real estate owned and other assets owned(3)(4)

     1.66     1.11     0.89     0.95     0.97

Allowance for loan losses to total loans(4)

     1.40        1.10        1.12        0.93        0.93   

Allowance for loan losses to nonperforming loans(3)

     115.19        173.92        333.99        140.27        96.17   

Net charge-offs to average loans

     0.12        0.19        0.09        0.01        0.01   

Capital Ratios:

          

Total shareholders’ equity to assets

     9.29     10.01     8.86     8.30     9.31

Tangible common equity to tangible assets(5)

     7.15        6.99        7.28        6.16        8.60   

Tier 1 leverage capital

     9.04        10.69        8.92        8.10        9.20   

Tier 1 risk-based capital

     11.26        12.02        10.07        9.91        9.68   

Total risk-based capital

     12.51        13.02        11.05        10.71        10.33   

 

(1) Tangible book value per common share is a non-GAAP financial measure. Tangible book value per common share is computed as total shareholders’ equity, excluding preferred stock, less intangible assets, divided by the number of common shares outstanding at the balance sheet date. We believe that the most directly comparable GAAP financial measure is book value per share.

 

(2) Efficiency ratio is the ratio of noninterest expense to net interest income and noninterest income.

 

(3) Nonperforming assets consist of nonperforming loans and real estate and other property that we have repossessed. Nonperforming loans consist of nonaccrual loans and restructured loans.

 

(4) Total loans are net of unearned discounts and deferred fees and costs.

 

(5) Tangible common equity to tangible assets is a non-GAAP financial measure. Tangible common equity is computed as total shareholders’ equity, excluding preferred stock, less intangible assets, and tangible assets are calculated as total assets less intangible assets. We believe that the most directly comparable GAAP financial measure is total shareholders’ equity to assets.

 

 

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RISK FACTORS

Investing in our common stock involves a significant degree of risk. You should carefully consider the following risk factors, in addition to the other information contained in this prospectus, before deciding to invest in our common stock. Any of the following risks, as well as risks that we do not know or currently deem immaterial, could materially and adversely affect our business, prospects, financial condition, results of operations and cash flow. As a result, the trading price of our common stock could decline, and you could lose all or part of your investment. Further, to the extent that any of the information in this prospectus constitutes forward-looking statements, the risk factors below also are cautionary statements identifying important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. See “Cautionary Note Regarding Forward-Looking Statements” on page 26.

Risks Relating to our Business

As a business operating in the financial services industry, our business and operations may be adversely affected in numerous and complex ways by weak economic conditions.

Our businesses and operations, which primarily consist of lending money to customers in the form of loans, borrowing money from customers in the form of deposits and investing in securities, are sensitive to general business and economic conditions in the United States. If the U.S. economy weakens, our growth and profitability from our lending, deposit and investment operations could be constrained. Uncertainty about the federal fiscal policymaking process, the medium and long-term fiscal outlook of the federal government, and future tax rates is a concern for businesses, consumers and investors in the United States. In addition, economic conditions in foreign countries, including uncertainty over the stability of the euro currency, could affect the stability of global financial markets, which could hinder U.S. economic growth. Weak economic conditions are characterized by deflation, fluctuations in debt and equity capital markets, a lack of liquidity and/or depressed prices in the secondary market for mortgage loans, increased delinquencies on mortgage, consumer and commercial loans, residential and commercial real estate price declines and lower home sales and commercial activity. The current economic environment is also characterized by interest rates at historically low levels, which impacts our ability to attract deposits and to generate attractive earnings through our investment portfolio. All of these factors are detrimental to our business, and the interplay between these factors can be complex and unpredictable. Our business is also significantly affected by monetary and related policies of the U.S. federal government and its agencies. Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control. Adverse economic conditions and government policy responses to such conditions could have a material adverse effect on our business, financial condition, results of operations and prospects.

We rely heavily on our management team and could be adversely affected by the unexpected loss of key officers.

We are led by an experienced core management team with substantial experience in the markets that we serve, and our operating strategy focuses on providing products and services through long-term relationship managers. Accordingly, our success depends in large part on the performance of our key personnel, as well as on our ability to attract, motivate and retain highly qualified senior and middle management. Competition for employees is intense, and the process of locating key personnel with the combination of skills and attributes required to execute our business plan may be lengthy. In particular, we believe that retaining Ashton J. Ryan, Jr., Marsha S. Crowle, William J. Burnell, George L. Jourdan, William M. Roohi and Mary Beth Verdigets is important to our success. We may not be successful in retaining our key employees, and the unexpected loss of services of one or more of our key personnel could have a material adverse effect on our business because of their skills, knowledge of our market, years of industry experience, long-term customer relationships, and the difficulty of promptly finding qualified replacement personnel. If the services of any of our key personnel should become unavailable for any reason, we may not be able to identify and hire qualified persons on terms acceptable to us, which could cause a material adverse effect on our business, financial condition, results of operations and prospects.

 

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Our business is concentrated in the New Orleans metropolitan area, and we are more sensitive than our more geographically diversified competitors to adverse changes in the local economy.

We conduct substantially all of our operations in Louisiana, and more specifically, within the New Orleans metropolitan area. Substantially all of the real estate loans in our loan portfolio are secured by properties located in Louisiana. In addition, as of December 31, 2012, approximately 79% of the loans in our loan portfolio (measured by dollar amount) were made to borrowers who live or conduct business in the New Orleans metropolitan area. The New Orleans economy is particularly sensitive to oil and gas prices and tourism demand. We compete against a number of financial institutions who maintain significant operations located outside of the New Orleans metropolitan area and outside the State of Louisiana. Accordingly, any regional or local economic downturn, or natural or man-made disaster, that affects Louisiana and New Orleans or existing or prospective property or borrowers in Louisiana and New Orleans may affect us and our profitability more significantly and more adversely than our more geographically diversified competitors, which could cause a material adverse effect on our business, financial condition, results of operations and prospects.

As recovery from Hurricane Katrina winds down in New Orleans, local economic activity may be depressed, which would adversely affect our growth.

New Orleans was devastated by Hurricane Katrina in 2005, which resulted in severe loss of life, property and infrastructure damage estimated to between $75-$100 billion, and depressed real estate and labor markets and economic activity. Rebuilding continues, aided by more than $70 billion in federal government spending to date. We believe that our growth since inception has been accelerated because of the economic growth in New Orleans stimulated by this spending. The expected reduction in government spending on rebuilding in New Orleans could reduce economic activity in the region, which would adversely affect our growth and could have a material adverse effect on our business, financial condition, results of operations and prospects.

The market in which we operate is susceptible to hurricanes and other natural disasters and adverse weather, as well as man-made disasters, which may adversely affect our business and operations.

Substantially all of our business is in the New Orleans metropolitan area, which is an area that has and will continue to be damaged by major hurricanes, floods, tornadoes, tropical storms, and other natural disasters and adverse weather. These natural disasters can disrupt our operations, cause widespread property damage, and severely depress the local economies in which we operate. Man-made disasters, like the 2010 Deepwater Horizon oil spill off the Louisiana coast, can also depress sectors that are critical to the New Orleans economy, such as tourism, energy and fishing, and other economic activity in the area. Economic losses from 2011 through 2013 for Louisiana commercial fisheries resulting from the oil spill are projected to be approximately $115-173 million. We believe that the moratorium on offshore drilling has also had an adverse impact on economic growth in the region. Any economic decline as a result of a natural disaster, adverse weather, oil spill or other man-made disaster can reduce the demand for loans and our other products and services. In addition, the rates of delinquencies, foreclosures, bankruptcies and losses on loan portfolios may increase substantially, as uninsured property losses or sustained job interruption or loss may materially impair the ability of borrowers to repay their loans. Moreover, the value of real estate or other collateral that secures the loans could be materially and adversely affected by a disaster. A disaster could, therefore, result in decreased revenue and loan losses that have a material adverse effect our business, financial condition, results of operations and prospects.

We may not be able to adequately measure and limit our credit risk, which could adversely affect our profitability.

Our business model is focused primarily on lending to customers. The business of lending is inherently risky, including risks that the principal of or interest on the loan will not be repaid timely or at all or that the value of any collateral supporting the loan will be insufficient to cover our outstanding exposure. These risks may be affected by the strength of the borrower’s business sector and local, regional and national market and economic conditions. Our risk management practices, such as monitoring the concentration of our loans within

 

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specific industries and our credit approval practices, may not adequately reduce credit risk, and our credit administration personnel, policies and procedures may not adequately adapt to changes in economic or any other conditions affecting customers and the quality of the loan portfolio. Finally, many of our loans are made to small and medium-sized businesses that are less able to withstand competitive, economic and financial pressures than larger borrowers. A failure to effectively measure and limit the credit risk associated with our loan portfolio could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our allowance for loan losses may prove to be insufficient to absorb losses inherent in our loan portfolio.

We maintain an allowance for loan losses that represents management’s best estimate of the loan losses and risks inherent in our loan portfolio. The level of the allowance reflects management’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic, political and regulatory conditions; and unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for loan losses is inherently highly subjective and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Inaccurate management assumptions, continuing deterioration of economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require us to increase our allowance for loan losses. In addition, our regulators, as an integral part of their examination process, periodically review our loan portfolio and the adequacy of our allowance for loan losses and may require adjustments based on judgments different than those of management. Further, if actual charge-offs in future periods exceed the amounts allocated to the allowance for loan losses, we may need additional provision for loan losses to restore the adequacy of our allowance for loan losses. If we are required to materially increase our level of allowance for loan losses for any reason, our business, financial condition, results of operations and prospects could be materially and adversely affected.

Our commercial real estate loan portfolio exposes us to risks that may be greater than the risks related to our other mortgage loans.

Our loan portfolio includes non-owner-occupied commercial real estate loans for individuals and businesses for various purposes, which are secured by commercial properties, as well as real estate construction and development loans. As of December 31, 2012, our non-owner-occupied commercial real estate loans totaled $345.5 million, or 18.0% of our total loan portfolio. Nonperforming non-owner-occupied commercial real estate loans totaled $59,000 as of December 31, 2012. These loans typically involve repayment dependent upon income generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and debt service. This may be adversely affected by changes in the economy or local market conditions. These loans expose a lender to greater credit risk than loans secured by residential real estate because the collateral securing these loans typically cannot be liquidated as easily as residential real estate. If we foreclose on these loans, our holding period for the collateral typically is longer than for a 1-4 family residential property because there are fewer potential purchasers of the collateral. Additionally, non-owner-occupied commercial real estate loans generally involve relatively large balances to single borrowers or related groups of borrowers. Accordingly, charge-offs on non-owner-occupied commercial real estate loans may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios. Unexpected deterioration in the credit quality of our commercial real estate loan portfolio would require us to increase our provision for loan losses, which would reduce our profitability and could materially adversely affect our business, financial condition, results of operations and prospects.

A prolonged downturn in the real estate market could result in losses and adversely affect our profitability.

As of December 31, 2012, approximately 55% of our loan portfolio was composed of commercial and consumer real estate loans. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. The recent recession has adversely affected real estate market values across the country, and, along with the damage from

 

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Hurricane Katrina, in New Orleans specifically, values may continue to decline. A further decline in real estate values could further impair the value of our collateral and our ability to sell the collateral upon any foreclosure, which would likely require us to increase our provision for loan losses. In the event of a default with respect to any of these loans, the amounts we receive upon sale of the collateral may be insufficient to recover the outstanding principal and interest on the loan. If we are required to re-value the collateral securing a loan to satisfy the debt during a period of reduced real estate values or to increase our allowance for loan losses, our profitability could be adversely affected, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Lack of seasoning of our loan portfolio could increase risk of credit defaults in the future.

As a result of our growth over the past three years, a large portion of loans in our loan portfolio and of our lending relationships are of relatively recent origin. In general, loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process referred to as “seasoning.” As a result, a portfolio of older loans will usually behave more predictably than a newer portfolio. Because a large portion of our portfolio is relatively new, the current level of delinquencies and defaults may not represent the level that may prevail as the portfolio becomes more seasoned. If delinquencies and defaults increase, we may be required to increase our provision for loan losses, which could materially adversely affect our business, financial condition, results of operations and prospects.

Our high concentration of large loans to certain borrowers may increase our credit risk.

Our growth over the last several years has been partially attributable to our ability to originate and retain large loans. Many of these loans have been made to a small number of borrowers, resulting in a high concentration of large loans to certain borrowers. As of December 31, 2012, our 10 largest borrowing relationships ranged from approximately $27.0 million to $45.7 million (including unfunded commitments) and averaged approximately $31.1 million in total commitments. Along with other risks inherent in these loans, such as the deterioration of the underlying businesses or property securing these loans, this high concentration of borrowers presents a risk to our lending operations. If any one of these borrowers becomes unable to repay its loan obligations as a result of economic or market conditions, or personal circumstances, such as divorce or death, our nonperforming loans and our provision for loan losses could increase significantly, which could materially and adversely affect our business, financial condition, results of operations and prospects.

Delinquencies, defaults and foreclosures in residential mortgages have recently increased, creating a higher risk of repurchases and indemnity requests, which could adversely affect our profitability.

We originate residential mortgage loans for sale to government-sponsored enterprises, such as Fannie Mae, and other investors. As a part of this process, we make various representations and warranties to these purchasers that are tied to the underwriting standards under which the investors agreed to purchase the loan. If a representation or warranty proves to be untrue, we could be required to repurchase one or more of the mortgage loans or indemnify the investor. Repurchase and indemnity obligations tend to increase during weak economic times, as investors seek to pass on the risks associated with mortgage loan delinquencies. If we are forced to repurchase delinquent mortgage loans that we have previously sold to investors, or indemnify those investors, our business, financial condition, results of operations and prospects could be adversely affected.

We face significant competition to attract and retain customers, which could adversely affect our growth and profitability.

We operate in the highly competitive banking industry and face significant competition for customers from bank and non-bank competitors, particularly regional and nationwide institutions, in originating loans, attracting deposits and providing other financial services. Our competitors are generally larger and have significantly more resources, greater name recognition, and more extensive and established branch networks than we do. Because of their scale, many of these competitors can be more aggressive than we can on loan and deposit

 

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pricing. Also, many of our non-bank competitors have fewer regulatory constraints and may have lower cost structures. We expect competition to continue to intensify due to financial institution consolidation; legislative, regulatory and technological changes; and the emergence of alternative banking sources.

Our ability to compete successfully will depend on a number of factors, including, among other things:

 

   

our ability to build and maintain long-term customer relationships while ensuring high ethical standards and safe and sound banking practices;

 

   

the scope, relevance and pricing of products and services that we offer;

 

   

customer satisfaction with our products and services;

 

   

industry and general economic trends; and

 

   

our ability to keep pace with technological advances and to invest in new technology.

Increased competition could require us to increase the rates that we pay on deposits or lower the rates that we offer on loans, which could reduce our profitability. Our failure to compete effectively in our market could restrain our growth or cause us to lose market share, which could materially and adversely affect our business, financial condition, results of operations and prospects.

As a community bank, our ability to maintain our reputation is critical to the growth of our business.

We are a community bank, and our reputation is one of the most valuable components of our business. Our growth over the past several years has depended on attracting new customers from competing financial institutions and increasing our market share, primarily by the involvement of our employees in the community and word-of-mouth advertising, rather than on growth in the market for banking services in New Orleans. As such, we strive to enhance our reputation by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve and delivering superior service to our customers. If our reputation is negatively affected by the actions of our employees or otherwise, we may be less successful in attracting new customers, and our business, financial condition, results of operations and prospects could be materially and adversely affected.

Our growth has been aided by acquisitions of our local competitors, which may not continue.

In recent years, several of our local competitors have been acquired by larger, regional or nationwide institutions. As a result of these acquisitions, whether because of disruptions caused by merger integration problems, a desire to stay with a New Orleans-based institution or otherwise, many customers of the target institutions have chosen instead to bank with us. However, since 2011, we have been the largest bank holding company based in New Orleans by a significant margin, and acquisitions of our New Orleans-based competitors in the future would be unlikely to result in a comparable number of customers seeking a new, locally based institution. The absence of these growth opportunities could materially and adversely affect our business, financial condition, results of operations and prospects.

We may not be able to manage the risks associated with our anticipated growth and expansion through de novo branching, which could adversely affect our profitability.

Our business strategy includes evaluating strategic opportunities to grow organically through the expansion of First NBC Bank’s branch banking network, and we believe that branch expansion has been meaningful to our growth since inception. De novo branching carries with it certain risks, including: significant costs and anticipated initial operating losses associated with establishing a de novo branch; the inability to secure the services of qualified senior management to operate the de novo branch; local market reception for de novo branches established outside of the New Orleans metropolitan area; local economic conditions in the market served by the de novo branch; challenges associated with securing attractive locations within a new market at a

 

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reasonable cost; and the additional strain on management resources and internal systems and controls. If we are unable to manage the risks associated with our anticipated growth through de novo branching, our business, financial condition, results of operations and prospects may be materially and adversely affected.

We may not be able to overcome the integration and other risks associated with acquisitions, which could adversely affect our growth and profitability.

Although we plan to continue to grow our business organically, we may from time to time consider acquisition opportunities that we believe complement our activities and have the ability to enhance our profitability. Our acquisition activities could be material to our business and involve a number of risks, including the following:

 

   

incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, resulting in our attention being diverted from the operation of our existing business;

 

   

using inaccurate estimates and judgments to evaluate credit, operations, management and market risks with respect to the target institution or assets;

 

   

intense competition from other banking organizations and other inquirers for acquisitions;

 

   

potential exposure to unknown or contingent liabilities of banks and businesses we acquire;

 

   

the time and expense required to integrate the operations and personnel of the combined businesses;

 

   

experiencing higher operating expenses relative to operating income from the new operations;

 

   

creating an adverse short-term effect on our results of operations;

 

   

losing key employees and customers as a result of an acquisition that is poorly received;

 

   

significant problems relating to the conversion of the financial and customer data of the entity

 

   

integration of acquired customers into our financial and customer product systems; or

 

   

risks of impairment to goodwill or other than temporary impairment.

Depending on the condition of any institution or assets or liabilities that we may acquire, that acquisition may, at least in the near term, adversely affect our capital and earnings and, if not successfully integrated with our organization, may continue to have such effects over a longer period. We may not be successful in overcoming these risks or any other problems encountered in connection with pending or potential acquisitions, and any acquisition we may consider will be subject to prior regulatory approval. Our inability to overcome these risks could have an adverse effect on our profitability, return on equity and return on assets, our ability to implement our business strategy and enhance shareholder value, which, in turn, could have a material adverse effect on our business, financial condition, results of operations and prospects.

If we fail to correct the material weakness that we have identified in our internal control over financial reporting or otherwise maintain effective internal control over financial reporting, we may not be able to report our financial results accurately and timely, in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports, and the price of our common stock may decline.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for evaluating and reporting on that system of internal control. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. As a public company, we will be required to comply with the Sarbanes-Oxley Act and other rules that govern public companies. In particular, we will be required to certify our compliance with Section 404 of the

 

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Sarbanes-Oxley Act beginning with our second annual report on Form 10-K, which will require us to furnish annually a report by management on the effectiveness of our internal control over financial reporting. In addition, unless we remain an emerging growth company and elect additional transitional relief available to emerging growth companies, our independent registered public accounting firm will be required to report on the effectiveness of our internal control over financial reporting beginning as of that second annual report.

During 2012, we identified a material weakness in our internal control that related to the accounting for the deferred tax aspects of certain of our investments in the entities that generate tax credits. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness in our internal control was the lack of a sufficient number of accounting employees with the appropriate technical skills and knowledge regarding tax credit investments. We have taken what we believe are the appropriate actions to address the weakness including, hiring additional accounting personnel, providing training to our personnel to develop the expertise in tax credits, using outside accountants and consultants to supplement our internal staff when necessary, and implementing additional internal control procedures. See “Management’s Discussion and Analysis – Restatement of Previously Issued Financial Statements and Internal Control Remediation Initiatives.” We will continue to periodically test and update, as necessary, our internal control systems, including our financial reporting controls. However, our actions may not be sufficient to result in an effective internal control environment.

If our actions are insufficient to fully correct the internal control weakness that we have identified, if we identify other material weaknesses in our internal control over financial reporting in the future, if we cannot comply with the requirements of the Sarbanes-Oxley Act in a timely manner or attest that our internal control over financial reporting is effective, or if our independent registered public accounting firm cannot express an opinion as to the effectiveness of our internal control over financial reporting when required, we may not be able to report our financial results accurately and timely. As a result, investors, counterparties and customers may lose confidence in the accuracy and completeness of our financial reports; our liquidity, access to capital markets, and perceptions of our creditworthiness could be adversely affected; and the market price of our common stock could decline. In addition, we could become subject to investigations by the stock exchange on which our securities are listed, the Securities and Exchange Commission, the Federal Reserve or the FDIC, or other regulatory authorities, which could require additional financial and management resources. These events could have a material adverse effect on our business, financial condition, results of operations and prospects.

Regulatory requirements affecting our loans secured by commercial real estate could limit our ability to leverage our capital and adversely affect our growth and profitability.

The federal bank regulatory agencies have indicated their view that banks with high concentrations of loans secured by commercial real estate are subject to increased risk and should hold higher capital than regulatory minimums to maintain an appropriate cushion against loss that is commensurate with the perceived risk. Because a significant portion of our loan portfolio is dependent on commercial real estate, a change in the regulatory capital requirements applicable to us as a result of these policies could limit our ability to leverage our capital, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We maintain a significant investment in tax credits, which we may not be able to fully utilize.

At December 31, 2012, we maintained an investment of $67.4 million in entities for which we receive allocations of tax credits, which we utilize to offset our taxable income. We earned and recognized $17.1 million and $13.1 million in tax credits in 2012 and 2011, respectively, and as of December 31, 2012, we had tax credit carryforwards of approximately $37.4 million. We also expect to receive an additional $63.7 million in tax credits related to New Markets Tax Credits for which qualified equity investments have already been made. Substantially all of these tax credits are related to development projects that are subject to ongoing compliance requirements over certain periods of time to fully realize their value. If these projects are not operated in full

 

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compliance with the required terms, the tax credits could be subject to recapture or restructuring. Any of these events could have a material effect on our business, financial condition, results of operations and prospects.

Our effective federal income tax rate may increase.

As a result of our utilization of tax credits, we have recognized federal income taxes at effective tax rates substantially below statutory tax rates in every year since our inception. In some years, we paid no federal income taxes, even though we were profitable. We expect that tax credit-motivated investments will continue to be a material part of our business strategy for the foreseeable future. However, our ability to continue to access tax credits in the future will depend, among other factors, on federal and state tax policies, as well as the level of competition for future tax credits. Any of these tax credit programs could be discontinued at any time by future legislative action. If we are unable for any reason to maintain a level of federal tax credits consistent with our historical allocations, our effective federal income tax rate and taxes paid would be expected to increase, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

The dividend rate on our Series D preferred stock fluctuates based on the changes in our “qualified small business lending” and other factors and may increase, which could adversely affect income to common shareholders.

We issued $37.9 million in Series D preferred stock to the U.S. Treasury in August 2011 in connection with the Small Business Lending Fund program. The dividend rate is subject to adjustment over the second through tenth dividend periods and could be as high as 5% per annum if our “qualified small business lending” decreases below certain levels or we fail to comply with certain other terms of our Series D preferred stock. From the eleventh dividend period through 4.5 years from our issuance of the Series D preferred stock, the annual dividend rate will be fixed at a rate between 1% and 7%, based upon the level of our “qualified small business lending” at the end of the ninth dividend period. In addition, if our “qualified small business lending” at the end of the ninth dividend period does not exceed our baseline calculation, we will also be subject to a lending incentive fee of 2% per annum, payable quarterly, calculated based on the liquidation value of our Series D preferred stock, beginning with dividend payment dates on or after April 1, 2014 and ending on April 1, 2016. The dividend rate increases to a fixed rate of 9% after 4.5 years from the issuance of our Series D preferred stock. Since issuance, we have maintained our “qualified small business lending” at levels that would enable us to qualify for the lowest dividend rate. If we are unable to maintain our “qualified small business lending” at certain levels, if we fail to comply with certain other terms of our Series D preferred stock, or if we are unable to redeem our Series D preferred stock within 4.5 years following issuance, the dividend rate on our Series D preferred stock could result in materially greater dividend payments, which in turn could adversely impact our business, financial condition, results of operations and prospects.

We are subject to interest rate risk, which could adversely affect our profitability.

Our profitability, like that of most financial institutions, depends to a large extent on our net interest income, which is the difference between our interest income on interest-earning assets, such as loans and investment securities, and our interest expense on interest-bearing liabilities, such as deposits and borrowings. We have positioned our asset portfolio to benefit in a higher or lower interest rate environment, but this may not remain true in the future. Our interest sensitivity profile was somewhat asset sensitive as of December 31, 2012, meaning that our net interest income and economic value of equity would increase more from rising interest rates than from falling interest rates. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board. Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and securities and the interest we pay on deposits and borrowings, but such changes could also affect our ability to originate loans and obtain deposits, the fair value of our financial assets and liabilities, and the average duration of our assets. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if

 

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the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our business, financial condition, results of operations and prospects.

In addition, an increase in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations. These circumstances could not only result in increased loan defaults, foreclosures and charge-offs, but also necessitate further increases to the allowance for loan losses which may materially and adversely affect our business, results of operations, financial condition and prospects.

Liquidity risk could impair our ability to fund operations and meet our obligations as they become due.

Liquidity is essential to our business. Liquidity risk is the potential that we will be unable to meet our obligations as they come due because of an inability to liquidate assets or obtain adequate funding. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity. In particular, approximately 50% of First NBC Bank’s liabilities as of December 31, 2012 were checking accounts and other liquid deposits, which are payable on demand or upon several days’ notice, while by comparison, 72% of the assets of First NBC Bank were loans, which cannot be called or sold in the same time frame. Our access to funding sources in amounts adequate to finance our activities or on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general. Market conditions or other events could also negatively affect the level or cost of funding, affecting our ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations and fund asset growth and new business transactions at a reasonable cost, in a timely manner and without adverse consequences. Any substantial, unexpected or prolonged change in the level or cost of liquidity could have a material adverse effect on our ability to meet deposit withdrawals and other customer needs, which could have a material adverse effect on business, financial condition, results of operations and prospects.

By engaging in derivative transactions, we are exposed to credit and market risk, which could adversely affect our profitability and financial condition.

We manage interest rate risk by, among other things, utilizing derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. Hedging interest rate risk is a complex process, requiring sophisticated models and constant monitoring, and is not a perfect science. As a result of interest rate fluctuations, hedged assets and liabilities will appreciate or depreciate in market value. The effect of this unrealized appreciation or depreciation will generally be offset by income or loss on the derivative instruments that are linked to the hedged assets and liabilities. By engaging in derivative transactions, we are exposed to credit and market risk. If the counterparty fails to perform, credit risk exists to the extent of the fair value gain in the derivative. Market risk exists to the extent that interest rates change in ways that are significantly different from what we expected when we entered into the derivative transaction. The existence of credit and market risk associated with our derivative instruments could adversely affect our net interest income and, therefore, could have a material adverse effect on our business, financial condition, results of operations and prospects.

The fair value of our investment securities can fluctuate due to factors outside of our control.

As of December 31, 2012, the fair value of our investment securities portfolio was approximately $486.4 million. Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. These factors include, but are not limited to, rating agency actions in respect of the securities, defaults by the issuer or with respect to the underlying securities, and changes in market interest rates and continued instability in the capital markets. Any of these factors, among others, could cause other-than-temporary impairments and realized and/or unrealized losses in future periods and declines in other comprehensive income, which could materially and adversely affect our

 

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business, results of operations, financial condition and prospects. The process for determining whether impairment of a security is other-than-temporary usually requires complex, subjective judgments about the future financial performance and liquidity of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security.

Deterioration in the fiscal position of the U.S. federal government and downgrades in U.S. Treasury and federal agency securities could adversely affect us and our banking operations.

The long-term outlook for the fiscal position of the U.S. federal government is uncertain, as illustrated by the 2011 downgrade by certain rating agencies of the credit rating of the U.S. government and federal agencies. However, in addition to causing economic and financial market disruptions, any future downgrade, failure to raise the U.S. statutory debt limit, or deterioration in the fiscal outlook of the U.S. federal government, could, among other things, materially adversely affect the market value of the U.S. and other government and governmental agency securities that we hold, the availability of those securities as collateral for borrowing, and our ability to access capital markets on favorable terms. In particular, it could increase interest rates and disrupt payment systems, money markets, and long-term or short-term fixed income markets, adversely affecting the cost and availability of funding, which could negatively affect our profitability. Also, the adverse consequences of any downgrade could extend to those to whom we extend credit and could adversely affect their ability to repay their loans. Any of these developments could materially adversely affect our business, financial condition, results of operations and prospects.

We may be adversely affected by the soundness of other financial institutions.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty, and other relationships. We have exposure to different industries and counterparties, and through transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, and other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. These losses or defaults could have a material adverse effect on our business, financial condition, results of operations and prospects.

We depend on our information technology and telecommunications systems and third-party servicers, and any systems failures or interruptions could adversely affect our operations and financial condition.

Our business depends on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party servicers. We outsource many of our major systems, such as data processing, loan servicing and deposit processing systems. For example, FIS Banking Solutions provides our entire core banking system through a service bureau arrangement. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions. If significant, sustained or repeated, a system failure or service denial could compromise our ability to operate effectively, damage our reputation, result in a loss of customer business, and subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may bear costs associated with the proliferation of computer theft and cybercrime.

We necessarily collect, use and hold data concerning individuals and businesses with whom we have a banking relationship. Threats to data security, including unauthorized access and cyber attacks, rapidly emerge and change, exposing us to additional costs for protection or remediation and competing time constraints to

 

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secure our data in accordance with customer expectations and statutory and regulatory requirements. It is difficult or impossible to defend against every risk being posed by changing technologies as well as criminals intent on committing cyber-crime. Increasing sophistication of cyber-criminals and terrorists make keeping up with new threats difficult and could result in a breach. Patching and other measures to protect existing systems and servers could be inadequate, especially on systems that are being retired. Controls employed by our information technology department and cloud vendors could prove inadequate. We could also experience a breach by intentional or negligent conduct on the part of employees or other internal sources. Our systems and those of our third-party vendors may become vulnerable to damage or disruption due to circumstances beyond our or their control, such as from catastrophic events, power anomalies or outages, natural disasters, network failures, and viruses and malware.

A breach of our security that results in unauthorized access to our data could expose us to a disruption or challenges relating to our daily operations as well as to data loss, litigation, damages, fines and penalties, significant increases in compliance costs, and reputational damage, any of which could have a material adverse effect on our business, results of operations, financial condition and prospects.

We are subject to environmental liability risk associated with our lending activities.

In the course of our business, we may purchase real estate, or we may foreclose on and take title to real estate. As a result, we could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination or may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. Any significant environmental liabilities could cause a material adverse effect on our business, financial condition, results of operations and prospects.

Risks Relating to the Regulation of our Industry

We operate in a highly regulated environment, which could restrain our growth and profitability.

We are subject to extensive regulation and supervision that governs almost all aspects of our operations. These laws and regulations, and the supervisory framework that oversees the administration of these laws and regulations, are primarily intended to protect consumers, depositors, the Deposit Insurance Fund and the banking system as a whole, and not shareholders and counterparties. These laws and regulations, among other matters, affect our lending practices, capital structure, investment practices, dividend policy, operations and growth. Compliance with the myriad laws and regulations applicable to our organization can be difficult and costly. In addition, these laws, regulations and policies are subject to continual review by governmental authorities, and changes to these laws, regulations and policies, including changes in interpretation or implementation of these laws, regulations and policies, could affect us in substantial and unpredictable ways and often impose additional compliance costs. Further, any new laws, rules and regulations, such as the Dodd-Frank Act, could make compliance more difficult or expensive. All of these laws and regulations, and the supervisory framework applicable to our industry, could have a material adverse effect on our business, financial condition, results of operations and prospects.

Federal and state regulators periodically examine our business and we may be required to remediate adverse examination findings.

The Federal Reserve, the FDIC and the Louisiana Office of Financial Institutions periodically examine our business, including our compliance with laws and regulations. If, as a result of an examination, a federal banking agency were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, it may take a number of different remedial actions as it deems

 

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appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place us into receivership or conservatorship. Any regulatory action against us could have a material adverse effect on our business, results of operations, financial condition and prospects.

Our FDIC deposit insurance premiums and assessments may increase.

The deposits of First NBC Bank are insured by the FDIC up to legal limits and, accordingly, subject it to the payment of FDIC deposit insurance assessments. The bank’s regular assessments are determined by its risk classification, which is based on its regulatory capital levels and the level of supervisory concern that it poses. High levels of bank failures since the beginning of the financial crisis and increases in the statutory deposit insurance limits have increased resolution costs to the FDIC and put significant pressure on the Deposit Insurance Fund. In order to maintain a strong funding position and restore the reserve ratios of the Deposit Insurance Fund, the FDIC increased deposit insurance assessment rates and charged a special assessment to all FDIC-insured financial institutions. Further increases in assessment rates or special assessments may occur in the future, especially if there are significant additional financial institution failures. Any future special assessments, increases in assessment rates or required prepayments in FDIC insurance premiums could reduce our profitability or limit our ability to pursue certain business opportunities, which could materially and adversely affect our business, financial condition, results of operations and prospects.

The short-term and long-term impact of the newly proposed regulatory capital rules is uncertain.

On June 7, 2012, the federal banking agencies announced proposed rulemaking for the purpose of strengthening the regulatory capital requirements of all banking organizations in the United States. The proposal is designed to implement the recommendations of the International Basel Committee on Bank Supervision. The proposed regulatory capital standards, commonly known as Basel III, were subject to public comment through October 22, 2012. Although the Basel III proposals were expected to begin phasing in on January 1, 2013, the federal banking agencies have delayed the implementation of the Basel III proposals to enable the agencies to consider the volume of comments received with respect to the proposals. Basel III creates a new regulatory capital standard based on tier 1 common equity and increases the minimum leverage and risk-based capital ratios applicable to all banking organizations. Basel III also changes how a number of the regulatory capital components are calculated. We cannot predict whether the proposed rules will be adopted in the form proposed or if they will be modified in any material way during the rulemaking process. Moreover, although we expect that the rulemaking process will result in generally higher regulatory capital standards, it is not certain at this time how any new standards will ultimately be applied to First NBC Bank and us. A significant increase in our capital requirement could reduce our growth and profitability and materially adversely affect our business, financial condition, results of operations and prospects.

We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.

The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution’s performance under the Community Reinvestment Act or fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

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We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.

The Bank Secrecy Act, the USA PATRIOT Act of 2001, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate. The federal Financial Crimes Enforcement Network is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration, and Internal Revenue Service. We are also subject to increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control. If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could materially and adversely affect our business, financial condition, results of operations and prospects.

Risks Relating to an Investment in our Common Stock

The market price of our common stock may be subject to substantial fluctuations, which may make it difficult for you to sell your shares at the volume, prices and times desired.

The market price of our common stock may be highly volatile, which may make it difficult for you to resell your shares at the volume, prices and times desired. There are many factors that may impact the market price and trading volume of our common stock, including, without limitation:

 

   

actual or anticipated fluctuations in our operating results, financial condition or asset quality;

 

   

changes in economic or business conditions;

 

   

the effects of, and changes in, trade, monetary and fiscal policies, including the interest rate policies of the Federal Reserve;

 

   

publication of research reports about us, our competitors, or the financial services industry generally, or changes in, or failure to meet, securities analysts’ estimates of our financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage;

 

   

operating and stock price performance of companies that investors deemed comparable to us;

 

   

future issuances of our common stock or other securities;

 

   

additions or departures of key personnel;

 

   

proposed or adopted changes in laws, regulations or policies affecting us;

 

   

perceptions in the marketplace regarding our competitors and/or us;

 

   

significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving our competitors or us;

 

   

other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services; and

 

   

other news, announcements or disclosures (whether by us or others) related to us, our competitors, our core market or the financial services industry.

The stock market and, in particular, the market for financial institution stocks, have experienced substantial fluctuations in recent years, which in many cases have been unrelated to the operating performance

 

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and prospects of particular companies. In addition, significant fluctuations in the trading volume in our common stock may cause significant price variations to occur. Increased market volatility may materially and adversely affect the market price of our common stock, which could make it difficult to sell your shares at the volume, prices and times desired.

We are an “emerging growth company,” and the reduced reporting requirements applicable to emerging growth companies may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although we could lose that status sooner if our gross revenues exceed $1.0 billion, if we issue more than $1.0 billion in non-convertible debt in a three year period, or if the market value of our common stock held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions, or if we choose to rely on additional exemptions in the future. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

An active, liquid market for our common stock may not develop or be sustained following the offering, which may impair your ability to sell your shares.

Before this offering, there has been no established public market for our common stock. We intend to apply to have our common stock listed on the Nasdaq Global Select Market, but our application may not be approved. Even if approved, an active, liquid trading market for our common stock may not develop or be sustained following the offering. A public trading market having the desired characteristics of depth, liquidity and orderliness depends upon the presence in the marketplace and independent decisions of willing buyers and sellers of our common stock, over which we have no control. Without an active, liquid trading market for our common stock, shareholders may not be able to sell their shares at the volume, prices and times desired. Moreover, the lack of an established market could materially and adversely affect the value of our common stock. The market price of our common stock could decline significantly due to actual or anticipated issuances or sales of our common stock in the future.

Actual or anticipated issuances or sales of substantial amounts of our common stock following this offering could cause the market price of our common stock to decline significantly and make it more difficult for us to sell equity or equity-related securities in the future at a time and on terms that we deem appropriate. In addition, 435,000 shares that are owned by Mr. Ryan, our Chief Executive Officer, are pledged as collateral to secure outstanding debt obligations and may be sold by the pledgees under certain circumstances. The issuance of any shares of our common stock in the future also would, and equity-related securities could, dilute the percentage ownership interest held by shareholders prior to such issuance. All 4,166,667 of the shares of common stock sold in this offering (or 4,791,667 shares if the underwriters exercise in full their purchase option) will be freely tradable, except that any shares purchased by “affiliates” (as that term is defined in Rule 144 under the Securities Act) may be sold publicly only in compliance with the limitations described under “Shares Eligible For Future Sale.” The remaining 13,063,025 million outstanding shares of our common stock, or 76.5% of our outstanding shares, will be deemed to be “restricted securities” as that term is defined in Rule 144, and may be sold in the market over time in private transactions or future public offerings. We also intend to file a registration statement on Form S-8 under the Securities Act to register an aggregate of approximately 1.3 million shares of common stock issued or reserved for future issuance under our stock incentive plan. We may issue all of these shares without any action or approval by our shareholders, and these shares, once issued (including upon exercise of outstanding options), will be available for sale into the public market, subject to the restrictions described above, if applicable, for affiliate holders.

 

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Securities analysts may not initiate or continue coverage on our common stock, which could adversely affect the market for our common stock.

The trading market for our common stock will depend in part on the research and reports that securities analysts publish about us and our business. We do not have any control over these securities analysts, and they may not cover our common stock. If securities analysts do not cover our common stock, the lack of research coverage may adversely affect its market price. If we are covered by securities analysts, and our common stock is the subject of an unfavorable report, the price of our common stock may decline. If one or more of these analysts cease to cover us or fail to publish regular reports on us, we could lose visibility in the financial markets, which could cause the price or trading volume of our common stock to decline.

Investors in this offering will experience immediate and substantial dilution.

The initial public offering price is expected to be substantially higher than the net tangible book value per share of our common stock immediately following this offering. Therefore, if you purchase shares in the offering, you will experience immediate and substantial dilution in net tangible book value per share in relation to the price that you paid for your shares. We expect the dilution as a result of the offering to be $7.64 per share, based on an assumed initial offering price of $24.00 per share (the midpoint of the range set forth on the cover page of this prospectus) and our pro forma net tangible book value of $16.36 per share as of December 31, 2012. In addition, upon completion of the offering, the Series C preferred stock will be convertible in part into shares of common stock, and we expect the conversion to occur promptly following the offering, which would result in additional dilution of approximately $0.11 per share. Additional dilution will occur upon the conversion of the remaining shares of Series C preferred stock. Accordingly, if we were liquidated at our pro forma net tangible book value, you would not receive the full amount of your investment.

We have broad discretion in the use of the net proceeds from this offering, and our use of those proceeds may not yield a favorable return on your investment.

We expect to use the net proceeds of this offering for general corporate purposes, which may include, among other things, funding loans and purchasing investment securities through our bank subsidiary. We may also use the net proceeds to fund acquisition opportunities, although we have no present plans in that regard. Our management has broad discretion over how these proceeds are used and could spend the proceeds in ways with which you may not agree. In addition, we may not use the proceeds of this offering effectively or in a manner that increases our market value or enhances our profitability. We have not established a timetable for the effective deployment of the proceeds, and we cannot predict how long it will take to deploy the proceeds. Investing the offering proceeds in securities until we are able to deploy the proceeds will provide lower margins that we generally earn on loans, potentially adversely affecting shareholder returns, including earnings per share, return on assets and return on equity.

The rights of our common shareholders are subordinate to the rights of the holders of our Series D preferred stock and any debt securities that we may issue and may be subordinate to the holders of any other class of preferred stock that we may issue in the future.

We have issued 37,935 shares of our Series D preferred stock to the U.S. Treasury in connection with our participation in the Small Business Lending Fund program. These shares have rights that are senior to our common stock. As a result, we must make payments on the preferred stock before any dividends can be paid on our common stock and, in the event of our bankruptcy, dissolution or liquidation, the holders of the Series D preferred stock must be satisfied in full before any distributions can be made to the holders of our common stock. Our Board of Directors has the authority to issue in the aggregate up to 10,000,000 shares of preferred stock, and to determine the terms of each issue of preferred stock, without shareholder approval. Accordingly, you should assume that any shares of preferred stock that we may issue in the future will also be senior to our common stock. Because our decision to issue debt or equity securities or incur other borrowings in the future will depend on market conditions and other

 

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factors beyond our control, the amount, timing, nature or success of our future capital raising efforts is uncertain. Thus, common shareholders bear the risk that our future issuances of debt or equity securities or our incurrence of other borrowings will negatively affect the market price of our common stock.

We do not intend to pay dividends in the foreseeable future.

Our Board of Directors intends to retain all of our earnings to promote growth and build capital. Accordingly, we do not expect to pay dividends in the foreseeable future. In addition, we are subject to certain restrictions on the payment of cash dividends as a result of banking laws, regulations and policies as well as our participation in the Treasury’s Small Business Lending Fund program. Finally, because First NBC Bank is our only material asset, our ability to pay dividends to our shareholders depends on our receipt of dividends from the bank, which is also subject to restrictions on dividends as a result of banking laws, regulations and policies. Accordingly, if the receipt of dividends over the near term is important to you, you should not invest in our common stock. For additional information, see “Dividend Policy.”

Our corporate governance documents, and certain corporate and banking laws applicable to us, could make a takeover more difficult.

Certain provisions of our articles of incorporation and bylaws, and corporate and federal banking laws, could make it more difficult for a third party to acquire control of our organization or conduct a proxy contest, even if those events were perceived by many of our shareholders as beneficial to their interests. These provisions, and the corporate and banking laws and regulations applicable to us:

 

   

enable our Board of Directors to issue additional shares of authorized, but unissued capital stock;

 

   

enable our Board of Directors to issue “blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by the Board;

 

   

enable our Board of Directors to increase the size of the Board and fill the vacancies created by the increase;

 

   

enable our Board of Directors to amend our bylaws without shareholder approval;

 

   

require advance notice for director nominations and other shareholder proposals; and

 

   

require prior regulatory application and approval of any transaction involving control of our organization.

These provisions may discourage potential acquisition proposals and could delay or prevent a change in control, including under circumstances in which our shareholders might otherwise receive a premium over the market price of our shares.

An investment in our common stock is not an insured deposit and is subject to risk of loss.

Your investment in our common stock will not be a bank deposit and will not be insured or guaranteed by the FDIC or any other government agency. Your investment will be subject to investment risk, and you must be capable of affording the loss of your entire investment.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but are not limited to, the following:

 

   

business and economic conditions generally and in the financial services industry, nationally and within our local market area;

 

   

changes in management personnel;

 

   

changes in government spending on rebuilding projects in New Orleans;

 

   

hurricanes, other natural disasters and adverse weather; oil spills and other man-made disasters; acts of terrorism, an outbreak of hostilities or other international or domestic calamities, acts of God and other matters beyond our control;

 

   

economic, market, operational, liquidity, credit and interest rate risks associated with our business;

 

   

deterioration of our asset quality;

 

   

changes in real estate values;

 

   

ability to execute our strategy;

 

   

increased competition in the financial services industry, nationally, regionally or locally, which may adversely affect pricing and terms;

 

   

our ability to identify potential candidates for, and consummate, acquisitions of banking franchises on attractive terms, or at all;

 

   

our ability to achieve organic loan and deposit growth and the composition of that growth;

 

   

changes in federal tax law or policy;

 

   

volatility and direction of market interest rates;

 

   

changes in the regulatory environment, including changes in regulations that affect the fees that we charge or expenses that we incur in connection with our operations;

 

   

changes in trade, monetary and fiscal policies and laws;

 

   

governmental legislation and regulation, including changes in accounting regulation or standards;

 

   

changes in interpretation of existing law and regulation;

 

   

further government intervention in the U.S. financial system; and

 

   

other factors that are discussed in the section titled “Risk Factors,” beginning on page 10.

 

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The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this prospectus. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of our common stock in this offering will be approximately $91.5 million, or approximately $105.6 million if the underwriters elect to exercise in full their purchase option, assuming an initial public offering price of $24.00 per share, the midpoint of the price range set forth on the cover of this prospectus, and after deducting estimated underwriting discounts and offering expenses. Each $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) the net proceeds to us of this offering by $3.9 million, or $4.5 million if the underwriters elect to exercise in full their purchase option, after deducting estimated underwriting discounts and offering expenses.

We intend to use the net proceeds to us generated by this offering to support our organic growth and for other general corporate purposes. We believe that these net proceeds can be deployed to support our organic growth without significantly diluting our earnings per share. Although we may, from time to time in the ordinary course of our business, evaluate potential acquisition opportunities that we believe are complementary to our business and provide attractive risk-adjusted returns, we do not have any immediate plans, arrangements or understandings relating to any material acquisition.

 

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DIVIDEND POLICY

We have not paid any dividends on our common stock since inception, and we do not intend to pay dividends for the foreseeable future. Instead, we anticipate that all of our future earnings will be retained to support our operations and to finance the growth and development of our business. Any future determination relating to our dividend policy will be made by our Board of Directors and will depend on a number of factors, including: (1) our historic and projected financial condition, liquidity and results of operations, (2) our capital levels and needs, (3) tax considerations, (4) any acquisitions or potential acquisitions that we may examine, (5) statutory and regulatory prohibitions and other limitations, (6) the terms of any credit agreements or other borrowing arrangements that restrict our ability to pay cash dividends, (7) general economic conditions and (8) other factors deemed relevant by our Board of Directors. We are not obligated to pay dividends on our common stock.

As a Louisiana corporation, we are subject to certain restrictions on dividends under the Louisiana Business Corporation Law. Generally, a Louisiana corporation may pay dividends to its shareholders out of its surplus (the excess of its assets over its liabilities and stated capital) or out of its net profits for the then current and preceding fiscal year unless the corporation is insolvent or the dividend would render the corporation insolvent. In addition, we are subject to certain restrictions on the payment of cash dividends as a result of banking laws, regulations and policies, as well as our participation in the Treasury’s Small Business Lending Fund program. For additional information, see “Supervision and Regulation – Dividends.”

Because we are a holding company and do not engage directly in business activities of a material nature, our ability to pay dividends to our shareholders depends, in large part, upon our receipt of dividends from First NBC Bank, which is also subject to numerous limitations on the payment of dividends under federal and state banking laws, regulations and policies.

The present and future dividend policy of First NBC Bank is subject to the discretion of its Board of Directors. First NBC Bank is not obligated to pay dividends.

 

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CAPITALIZATION

The following table shows our capitalization, including regulatory capital ratios, on a consolidated basis, as of December 31, 2012, on an actual basis and on an as adjusted basis after giving effect to the net proceeds from the sale by us of 4,166,667 shares of common stock in this offering (assuming the underwriters do not exercise their purchase option) at an assumed initial public offering price of $24.00 per share, the midpoint of the price range on the cover of this prospectus, after deducting estimated underwriting discounts and offering expenses. You should read the following table in conjunction with the sections titled “Selected Historical Consolidated Financial Information,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes appearing elsewhere in this prospectus.

 

      As of December 31, 2012  
      Actual     As adjusted
for  the
offering(1)  
 
     (dollars in thousands)  

Shareholders’ equity:

    

Common stock, par value $1.00 per share, 20,000,000 shares authorized, 13,052,583 shares issued and outstanding; and 17,219,250 shares issued and outstanding, as adjusted

   $ 13,052      $ 17,219   

Preferred stock, no par value, 10,000,000 shares authorized

    

Series C, 1,680,219 shares authorized, 916,841 shares issued and outstanding, actual and as adjusted

     11,231        11,231   

Series D, 37,935 shares authorized, issued and outstanding, actual and as adjusted

     37,935        37,935   

Additional paid-in capital

     128,984        216,280   

Accumulated earnings

     59,825        59,825   

Accumulated other comprehensive loss, net

     (2,926     (2,926
  

 

 

   

 

 

 

Total shareholders’ equity

     248,101        339,564   

Noncontrolling interest

     1        1   
  

 

 

   

 

 

 

Total equity

   $         248,102      $ 339,565   
  

 

 

   

 

 

 

Capital ratios:

    

Total shareholders’ equity to assets

     9.29     12.29

Tangible common equity to tangible assets(2)

     7.15        10.23   

Tier 1 leverage capital

     9.04        12.03   

Tier 1 risk-based capital

     11.26        15.49   
Total risk-based capital      12.51        16.73   

 

(1) References in this section to the number of shares of our common stock outstanding do not include the 916,841 shares of Series C preferred stock that will become convertible, and are expected to be converted in part, into common stock upon completion of the offering. The conversion of shares of Series C preferred stock into shares of common stock will have no impact on the total equity or capital ratios shown, but will result in a reduction of $5.7 million in Series C preferred stock outstanding and a corresponding increase in common stock outstanding and additional paid-in capital.

 

(2) Tangible common equity to tangible assets is a non-GAAP financial measure. Tangible common equity is computed as total shareholders’ equity, excluding preferred stock, less intangible assets, and tangible assets are calculated as total assets less intangible assets. We believe that the most directly comparable GAAP financial measure is total shareholders’ equity to assets. For a reconciliation of the non-GAAP measure to the most directly comparable GAAP financial measure, please refer to the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Use of Non-GAAP Financial Measures.”

 

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DILUTION

If you invest in our common stock, your ownership interest will be diluted to the extent that the initial public offering price per share of our common stock exceeds the tangible book value per share of our common stock immediately following this offering. Tangible book value per common share is equal to our total shareholders’ equity, excluding preferred stock, less intangible assets, divided by the number of common shares outstanding. As of December 31, 2012, the tangible book value of our common stock was $190.3 million, or $14.58 per share.

After giving effect to our sale of 4,166,667 shares of common stock in this offering (assuming the underwriters do not exercise their purchase option) at an assumed initial public offering price of 24.00 per share, the midpoint of the price range on the cover of this prospectus, and after deducting estimated underwriting discounts and offering expenses, the pro forma net tangible book value of our common stock at December 31, 2012 would have been approximately $281.7 million, or $16.36 per share. Therefore, this offering will result in an immediate increase of $1.78 in the tangible book value per share of our common stock of existing shareholders and an immediate dilution of $7.64 in the tangible book value per share of our common stock to investors purchasing shares in this offering, or approximately 31.8% of the assumed public offering price of $24.00 per share.

In addition, promptly following the offering, we expect that 464,482 shares of our Series C preferred stock will be converted on a one-for-one basis into shares of our common stock, which will result in additional dilution to new investors. After giving effect to the offering, in the manner described above, and assuming the subsequent conversion of 464,482 shares of Series C preferred stock into common stock, the pro forma net tangible book value per share of our common stock at December 31, 2012 would have been $16.25 per share. Accordingly, taking into account the conversion of 464,482 shares of Series C preferred stock, this offering will result in an immediate increase of $1.68 in the tangible book value per share of our common stock of existing shareholders and an immediate dilution of $7.75 in the tangible book value per share of our common stock to investors purchasing shares in this offering, or approximately 32.3% of the assumed public offering price of $24.00 per share. Additional dilution will occur upon the conversion of the remaining shares of Series C preferred stock.

The following table illustrates the calculation of the amount of dilution per share that a purchaser of our common stock in this offering will incur given the assumptions above:

 

Net tangible book value per common share at December 31, 2012

   $ 14.58   

Increase in net tangible book value per common share attributable to new investors

     1.78   

Pro forma tangible book value per common share after the offering

     16.36   

Initial public offering price

     24.00   
  

 

 

 

Dilution per common share to new investors from offering

     7.64   

Additional dilution per common share as a result of conversion of Series C preferred stock

     0.11   
  

 

 

 

Dilution per common share to new investors from offering and conversion

   $ 7.75   

The following table summarizes the total consideration paid to us and the average price paid per share by existing shareholders and investors purchasing common stock in this offering. This information is presented on a pro forma basis as of April 15, 2013, after giving effect to our sale of 4,166,667 shares of common stock in this offering (assuming the underwriters do not exercise their purchase option) at an assumed public offering price of $24.00 per share. The table also assumes the conversion of 464,482 shares of our outstanding Series C preferred stock into an equal number of shares of our common stock.

 

     Shares Purchased/Issued     Total Consideration     Average Price
per Share
 
     Number      Percent     Amount      Percent    

Shareholders as of February 28, 2013

     13,527,507         76.45   $ 149,683,587         59.95 %   $ 11.07   

New investors in this offering

     4,166,667         23.55   $ 100,000,008         40.05   $ 24.00   
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     17,694,174         100.00   $ 249,683,595         100.00   $ 14.11   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

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The table above excludes 1,192,176 shares of common stock issuable upon exercise of outstanding stock options and warrants at a weighted average exercise price of $13.83 per share, which includes 645,659 shares of common stock issuable upon exercise of stock options and warrants that have vested. To the extent that any of the foregoing options or warrants are exercised, investors participating in the offering will experience further dilution.

 

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PRICE RANGE OF OUR COMMON STOCK

Prior to this offering, our common stock has not been traded on an established public trading market, and quotations for our common stock were not reported on any market. As a result, there has been no regular market for our common stock. Although our shares may have been sporadically traded in private transactions, the prices at which such transactions occurred may not necessarily reflect the price that would be paid for our common stock in an active market. As of April 15, 2013, there were approximately 270 holders of record of our common stock.

We anticipate that this offering and the listing of our common stock on the Nasdaq Global Select Market will result in a more active trading market for our common stock. However, we cannot assure you that a liquid trading market for our common stock will develop or be sustained after this offering. You may not be able to sell your shares quickly or at the market price if trading in our common stock is not active. See the section of this prospectus titled “Underwriting” for more information regarding our arrangements with the underwriters and the factors considered in setting the initial public offering price.

 

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BUSINESS

Overview

We are a bank holding company, headquartered in New Orleans, Louisiana, which offers a broad range of financial services through our wholly-owned banking subsidiary, First NBC Bank, a Louisiana state non-member bank. Our primary market is the New Orleans metropolitan area and the Mississippi Gulf Coast. We serve our customers from our main office located in the Central Business District of New Orleans, 31 full service branch offices located throughout our market and a loan production office in Gulfport, Mississippi. We believe that our market exhibits attractive demographic attributes and presents favorable competitive dynamics, thereby offering long-term opportunities for growth. Our strategic focus is on building a franchise with meaningful market share and strong revenues complemented by operational efficiencies that we believe will produce attractive risk-adjusted returns for our shareholders. As of December 31, 2012, on a consolidated basis, we had total assets of $2.7 billion, net loans of $1.9 billion, total deposits of $2.3 billion, and shareholders’ equity of $248.1 million.

We are the largest bank holding company by assets headquartered in New Orleans as of December 31, 2012. We are led by a team of experienced bankers, all of whom have substantial banking or related experience and relationships in the greater New Orleans market. We believe that recent changes and disruption within our primary market has created an underserved base of small and middle-market businesses and high net worth individuals that are interested in banking with a company headquartered in, and with decision-making authority based in, the New Orleans market. We believe our management’s long-standing presence in the area gives us insight into the local market and, as a result, the ability to tailor our products and services, particularly the structure of our loans, more closely to the needs of our targeted customers. We seek to develop comprehensive, long-term banking relationships by cross-selling loans and core deposits, offering a diverse array of products and services and delivering high quality customer service. In addition to the reputation and local connections of our management, we believe that our strong capital position gives us an instant advantage over our competitors.

Our History and Growth

First NBC Bank was chartered with a commitment to the revival of the New Orleans metropolitan area, which was severely damaged by Hurricane Katrina in August 2005. Led by New Orleans native and veteran banker, Ashton J. Ryan, Jr., First NBC Bank commenced banking operations in May 2006. Since inception, First NBC Bank has experienced tremendous growth, both organically and acquisitively, in becoming a premier banking institution in New Orleans. In 2007, First NBC Bank shareholders exchanged their shares of common stock for shares of common stock of First NBC Bank Holding Company, and the bank thereby became our wholly-owned subsidiary. Below are a few of our notable milestones:

 

   

May 2006 – Chartered with an initial capitalization of $61.8 million from local investors and highly sophisticated institutional investors, making it the largest initial capitalization of a de novo financial institution to commence operations under a Louisiana charter.

 

   

April 2008 – Completed acquisition of Dryades Bancorp, Inc., which contributed approximately $74 million in assets and four branches located in Orleans and Jefferson Parishes.

 

   

May 2008 – Completed the acquisition of a branch of Statewide Bank located in Jefferson Parish having approximately $60 million in deposits.

 

   

June 2011 – Achieved the top deposit market share in the New Orleans market of any bank holding company headquartered in the New Orleans market.

 

   

November 2011 – Completed the FDIC-assisted acquisition of Central Progressive Bank assuming $345 million in deposits and purchasing $368 million in assets, followed by the sale to outside investors of certain nonperforming assets carried at $82.6 million by Central Progressive Bank, which represented substantially all of the acquired nonperforming assets.

 

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December 2011 – Had $2.2 billion in assets, becoming one of only seven de novo institutions established since 2006 (out of 397) to reach that mark, and the largest de novo institution that has relied primarily on organic growth.

 

   

December 2012 – Achieved deposit growth of $168.7 million, or 49.5%, from the branches acquired from Central Progressive Bank.

Our Competitive Strengths

We believe that we are well-positioned to create value for our shareholders, particularly as a result of the following competitive strengths:

Experienced core management team with a local banking tradition of success. Our management team is led by Ashton J. Ryan, Jr., who has more than 40 years of financial services experience, including 20 years in Arthur Andersen’s financial institutions audit practice and more than 20 years of commercial banking experience. Following his service as President and Chief Executive Officer of the former First National Bank of Commerce, Mr. Ryan served as President and Chief Executive Officer of First Bank & Trust (New Orleans) for approximately seven years before chartering First NBC Bank. Our senior management team, which also includes William J. Burnell, our Chief Credit Officer; Marsha S. Crowle, our Chief Compliance Officer; and Mary Beth Verdigets, our Chief Financial Officer, has been with the bank since inception. Each member of our senior management team has management experience at growing bank franchises. Members of our senior management team have worked together in executive management capacities at local New Orleans institutions. These officers have an average experience of 33 years in banking or related fields in our primary market. Moreover, 14 of our top 18 senior executives worked for First Commerce Corporation or its lead bank, First National Bank of Commerce, at the time of their acquisition by Bank One Corporation in 1998. At the time of its acquisition, First National Bank of Commerce was the largest financial institution in the New Orleans market with approximately $6.0 billion in assets and a 28% deposit market share.

Strong brand and reputation in our market. We believe that our strong brand and market reputation have become and will remain a competitive advantage within our market. We have developed a reputation as an active lender in our community at a time when other financial institution competitors in our market have been dealing with legacy asset problems associated with national economic conditions. By capitalizing on the business and personal relationships of our senior management team and relationship managers, we believe that we are positioned to continue taking advantage of the market dislocation in the New Orleans market resulting from several significant acquisitions of local financial institutions and the operating difficulties faced by many local competitors. We expect to accomplish this by continuing to attract talented bankers and customers, acquiring other institutions and growing organically.

Stable and scalable platform. Since the current economic crisis began in 2008, many of our competitors have suffered significant operating and regulatory challenges and, as a result, have been unable to effectively service their customers’ needs and compete in our market. Throughout our operating history, we have maintained a stable banking platform with strong capital levels and sound asset quality. At December 31, 2012, we had a 7.15% tangible common equity ratio, a 9.04% tier 1 leverage capital ratio, a 11.26% tier 1 risk-based capital ratio and a 12.51% total risk-based capital ratio. Contributing to our stability is our track record of sound asset quality. Our highest annual rate of net loan charge-offs to average loans over the past five years was 0.19% in 2011, and our average annual rate of net loan charge-offs to average loans over the same period was 0.08%. Furthermore, utilizing the prior experience of our management team at larger banks, we believe that we have built a scalable corporate infrastructure, including technology and banking processes, capable of supporting acquisitions and continued organic growth, while improving operational efficiencies. We believe that our strong capital and asset quality levels will allow us to grow and that our operating platform will allow us to manage that growth effectively, resulting in greater efficiency and improved profitability.

Growing deposit base. A significant driver of our franchise is the growth and stability of our deposits, which we use to fund our loans and investment portfolio. At December 31, 2012, our total deposits were $2.3

 

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billion. From December 31, 2008 through December 31, 2012, our total deposits have grown at a compound annual growth rate of approximately 40%. Our deposit growth has been driven significantly by the growth in our transaction account deposits, which represented approximately 50% of our total deposits at December 31, 2012, up from 34% of our total deposits at December 31, 2009. We seek to cross-sell deposit products at loan origination, which provide a basis for expanding our banking relationships and a stable source of funding. Except for our limited utilization of Promontory Interfinancial Network, LLC’s CDARS® Reciprocal products to serve the needs of our higher balance local deposit customers, we had no brokered deposits at December 31, 2012.

Our Operating Strategy

Our business model focuses on a traditional, relationship-based, community bank structure guided by the following principles: disciplined risk management; responsive, high-quality service; focus on building long-term relationships; credibility within our communities; creativity and efficiency. We value our flexible organizational structure and strong risk management culture and believe that the level of market knowledge acquired by our management over their banking careers and customer service differentiates us from other financial institutions. We believe focusing on these principles will enable us to expand our capabilities for providing value-added services to our customer base and generate steady, long-term growth.

Our organizational culture is focused on providing products and services that meet customer needs in a way that leads to increased depth of relationship, enhanced long-term profitability, customer referral and exceptional customer retention. A key aspect of this philosophy is a clear understanding of customer profitability and a differentiation of service value for the most profitable customer segments. We assign each customer who meets our profitability standards a relationship manager whose role it is to understand the customer’s needs and ensure that we meet those needs in providing products and services. We believe our clients prefer this type of highly personalized service. Our relationship managers are able to offer traditional banking services and also collaborate with certain specialists, such as investment consultants, mortgage originators, trust experts and cash management specialists, among others. We are convinced that delivering our products and services through long-term relationship managers leads to successful outcomes for our customers and contributes to retention of profitable customers, the keystone of our philosophy.

We are committed to the concept that a successful community bank must serve the needs of its community as well as its customers. Our officers and employees are also heavily involved in civic and community organizations, and we provide substantial sponsorship dollars to activities that benefit our community. In addition, we focus the vast majority of our advertising budget on sponsorships for important civic causes, rather than on traditional forms of media. We believe that our business development strategies, which are focused on building market share through personal relationships as opposed to formal advertising, are consistent with our customer centric culture and are a cost effective way of developing new relationships and enhancing existing ones. We also believe that our employees appreciate our investment in our local community. We have been selected as one of the “Best Places to Work” in the New Orleans metropolitan area each of the last four years by City Business, one of New Orleans’ leading business publications. We believe that our positive reputation as an employer and the experience of our senior management in the community will allow us to opportunistically hire relationship managers, loan officers and other revenue-generating employees who can bring an established customer base with them.

We earned a Community Reinvestment Act rating of “outstanding” in our first year of existence and have consistently maintained that rating since that time. Initially, the aftermath of Hurricane Katrina created a number of opportunities for us to help in the economic recovery of the area. From inception through December 31, 2012, we invested approximately $99.1 million in tax credit projects that have rebuilt affordable housing, created employment and supported redevelopment projects in our city and the surrounding areas. We organized First NBC Community Development Fund, LLC as a subsidiary of First NBC Bank and have obtained total investment allocations of $68 million in New Markets Tax Credits, which are expected to produce $26.5 million in income tax benefit. As of December 31, 2012, the entire $68 million allocation had been invested, $18.8

 

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million by us and $49.2 million by outside lenders. As a result of these investments, $1.1 million was earned and recognized in our tax provision in 2011, $3.4 million was earned and recognized in our tax provision in 2012, and $22.0 million is expected to be earned and recognized in 2013 and future periods. These investment allocations also enable us to, among other things, develop hundreds of affordable single family residences and commit to develop more.

We view ourselves as traditional community bankers from a customer service viewpoint, but we pride ourselves in the use of non-traditional investments in serving our customer base and our market. We are actively engaged in Small Business Administration and United States Department of Agriculture guaranteed financing to support local borrowers who might not otherwise qualify for conventional financing, while mitigating our credit risk and earning substantial fee income on the sale of these loans. We hold the distinction of being an SBA Preferred Lender.

Organic Growth

Our deposits, excluding deposits assumed in acquisitions and brokered deposits, increased by approximately $1.2 billion from December 31, 2008 to December 31, 2012. In addition, our assets increased by approximately $2.0 billion from December 31, 2008 to December 31, 2012, more than 80% of which we estimate represented organic asset growth.

Core deposits. We believe that our growth in core deposits is principally attributable to our efforts to penetrate deeper into the communities we serve and leverage existing relationships. We believe that we have developed a strong sales and customer service based culture that is an effective platform for future organic growth. Our acquisition of Central Progressive Bank has also allowed us to actively solicit deposits throughout the North Shore region of the New Orleans market, which we expect will offer meaningful growth opportunities.

Loans. Our loan operations grew substantially over the past several years despite challenges in the macroeconomic environment. Since our inception, we have focused on serving the credit needs of qualified borrowers and taking advantage of opportunities in the marketplace due to financial challenges faced by many of our competitors. Many of the larger national or regional banks with whom we compete in our local market, and even many of our local community bank competitors, have chosen not to increase lending in the market. We have experienced strong loan demand driven by recovery efforts to rebuild housing, commercial real estate and public sector infrastructure following Hurricane Katrina, the revival of the hospitality industry in our market and customer disruption associated with increased bank consolidation activity. We also believe that the long-term relationships that our relationship managers have with the commercial and middle-market businesses and private banking customers in our market have been a critical factor in the growth of our loan portfolio.

Capital. Our success in quickly raising new capital has significantly contributed to our ability to grow over the past several years. Over the past three years, we have consummated private offerings of our capital stock raising an aggregate of $84.7 million of tier 1 capital from private investors, each of which was completed quickly enough to give us the necessary capital to take advantage of specific growth or acquisition opportunities. We believe that the proceeds from this offering and the improved access to the capital markets as a public company will enhance our ability to pursue future growth opportunities as they arise.

Employee base. Our ability to achieve attractive organic loan and deposit growth has been directly related to our ability to attract and retain qualified relationship managers and other employees with deep and broad ties to the market we serve. We have grown our employee base from 33 at inception to approximately 433 full-time equivalent employees at December 31, 2012 (including former Central Progressive Bank employees), primarily by recruiting from all of our competitors and specifically targeting many employees who worked with members of our senior management team at the former First National Bank of Commerce. We also believe that the recent disruptions in our market and turnover associated with consolidation activity involving our competitors, our ability to remain an active lender in our market at a time when many competitors have pulled back, and our reputation for supporting the efforts of our managers in growing their portfolios, have enhanced our ability to

 

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attract qualified relationship managers and other employees. We expect that our position as the largest bank holding company headquartered in the New Orleans market will allow us to continue to attract qualified employees to support and enhance future organic growth.

Acquisition Strategy and Recent Acquisitions

Our acquisition activity complements our organic growth strategy and has primarily focused on strategic acquisitions in or around our existing market. As we evaluate potential acquisition opportunities in the future, we believe there are many banking institutions that continue to face credit challenges, capital constraints and liquidity issues and that lack the scale and management expertise to manage the increasing regulatory burden. Our management team has a long history of identifying targets, assessing and pricing risk and executing acquisitions in a creative, yet disciplined, manner. We seek acquisitions that provide meaningful financial benefits, long-term organic growth opportunities and expense reductions, without compromising our risk profile. Additionally, we seek banking markets with favorable competitive dynamics and potential consolidation opportunities. All of our acquisition activity is evaluated and overseen by a standing Merger and Acquisition Committee of our Board of Directors.

We have completed three acquisitions since our inception, each with a different structure: a whole bank acquisition, a branch purchase transaction and a failed bank purchase and assumption transaction with the FDIC. The whole bank acquisition and branch purchase have been, and the failed bank acquisition is expected to be, accretive to our earnings in the first full year following the acquisition, and we believe that each has enhanced our long-term growth prospects.

Central Progressive Bank. On November 18, 2011, we purchased substantially all of the assets, and assumed substantially all of the liabilities, of Central Progressive Bank from the FDIC, acting as receiver of the failed bank. In the transaction, we purchased assets totaling approximately $368 million and assumed approximately $345 million of deposits. In addition, the FDIC has paid approximately $60 million in connection with the transaction. The transaction did not involve any loss-sharing agreements with the FDIC. In connection with and following the transaction, First NBC Bank sold certain assets carried at $82.6 million by Central Progressive Bank, which represented substantially all of the acquired nonperforming assets, to unaffiliated third party purchasers. The third-party purchasers also assumed any liabilities and obligations arising under the transferred assets (i.e. the loans, tenant leases, notes, participation agreements and other contracts).

The acquisition of Central Progressive Bank strategically expanded the geographic footprint of First NBC Bank into an area that we believe is particularly attractive for core deposit generation and loan growth. Founded in 1967, Central Progressive Bank operated from 17 locations exclusively on the North Shore, which is north of Lake Pontchartrain and approximately a 30 to 45 minute drive north of downtown New Orleans. We identified the North Shore as a highly attractive area for expansion based on, among other things, the affluent demographics of the area, its proximity to First NBC Bank’s existing footprint, and our executive officers’ familiarity with the market. Since December 31, 2011 through December 31, 2012, we have grown deposits from the branches acquired from Central Progressive Bank by approximately $168.7 million, or 49.5%. We continue to remain open to further opportunities to make FDIC-assisted acquisitions in the markets in which we seek to grow.

Dryades Savings Bank. To supplement our organic growth and further expand our footprint, we acquired Dryades Bancorp, Inc. and its subsidiary bank, Dryades Savings Bank, F.S.B., in April 2008. In that transaction, we acquired $41 million in loans and $61 million in deposits. Dryades Savings Bank operated from three banking offices in Orleans Parish, one banking office in Jefferson Parish and a loan production office in Gulfport, Mississippi. We initially operated Dryades Savings Bank as a separate financial institution before merging it into First NBC Bank in November 2010.

Statewide Bank branch acquisition. We expanded our presence in Jefferson Parish in May 2008 through the acquisition of a branch facility of Statewide Bank in which we acquired approximately $60 million in deposits.

 

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Our Markets

Our current market is broadly defined as the Greater New Orleans metropolitan area and the Mississippi Gulf Coast. Reconstruction efforts in response to Hurricane Katrina and vibrant energy and tourism industries have revitalized the region and created a highly attractive demographic, economic and competitive landscape for us.

New Orleans serves as a major economic hub of the Gulf Coast region, providing major medical, financial, professional, governmental, transportation and retail services to Louisiana, Mississippi, and East Texas. The New Orleans metropolitan area had a population of 1.2 million people in 2012, which represented a growth rate of approximately 3.1% from 2010, a rate substantially higher than the national population growth rate of 1.4%.

Immediately following Hurricane Katrina, the hospitality industry in the New Orleans metropolitan area experienced a decline in visitors and significant damage to infrastructure. However, the hospitality industry has significantly improved, and tourism has returned to pre-hurricane levels. In 2012, 9.0 million visitors spent a new record of $6.0 billion, and the city seeks to increase visitors to 13.7 million and tourist spending to $11 billion by 2018. New Orleans hosted the NCAA Football BCS National Championship game and the NCAA Men’s Basketball Final Four Tournament in 2012 and the Super Bowl and NCAA Women’s Basketball Final Four Tournament in 2013. All of these events were expected to generate significant tourism revenue for the local economy.

New Orleans is also the gateway to the Port of South Louisiana and the home of the Port of New Orleans, which are the largest and seventh largest ports in the United States by cargo tonnage and are fueled by the economic activity of the Mississippi River and the Gulf Coast region. The Panama Canal expansion, which is planned for completion in late 2014, is expected to provide an incremental boost to the region, as it will allow for shipping of more cargo between the Eastern United States and Asia that was previously transported by rail from West Coast ports.

The New Orleans economy has been traditionally driven by tourism and port activity, but recently a more diversified landscape has developed that includes petrochemical companies and growing medical services, technology and modern manufacturing industries.

The Gulf Coast region is the heart of the United States petrochemical industry, and the New Orleans metropolitan area houses substantial operations for many refining and production companies, such as Royal Dutch Shell and Chevron. Given the change in outlook for domestic natural gas supply over the past five years, Cheniere Energy has announced plans and received $3.4 billion in committed financing to build a liquefied-natural-gas export facility located in Louisiana that will allow natural gas producers to ship the fuel overseas. Also, Chevron recently announced a $1.4 billion expansion to its Pascagoula, Mississippi refinery, which is expected to double its premium base oil production. Additionally, including offshore production, Louisiana is one of the top producers of crude oil and natural gas in the United States.

Hurricane Katrina, which resulted in property and infrastructure damage estimated to between $75-$100 billion, devastated the New Orleans metropolitan area and its economy. However, recovery activities to rebuild housing, commercial real estate and public sector infrastructure following Hurricane Katrina have resulted in a significantly positive impact to the local economy. The New Orleans economy has been bolstered from insurance proceeds of more than $13 billion paid to Louisiana policyholders under the National Flood Insurance Program and approximately $25.3 billion from private insurers. In addition, the U.S. Government authorized $13.4 billion from its Community Development Block Grant program for recovery, $15 billion for restoration and enhancement of our flood protection system, $12.7 billion in the form of Gulf Opportunity Zone tax incentives allocated to Louisiana for economic development activities, and over $19.1 billion of funds through the Federal Emergency Management Agency to replace governmental infrastructure destroyed by Hurricanes Katrina and Rita, such as government buildings, schools, universities, drainage systems, and sewage and water systems, and aid individuals and households affected by the storm, among other things.

 

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Competition

We compete with a wide range of financial institutions in our market, including local, regional and national commercial banks, thrifts and credit unions, and our primary competitors are the larger regional and national banks. Consolidation activity involving out-of-state financial institutions has altered the competitive landscape in our market within recent years. As of June 30, 2005, approximately 70% of the deposits in the New Orleans market were held in banks that were based in this market. Based on deposit data as of June 30, 2012, that number had decreased to less than 25%, due in large part to the acquisition of several large, locally-based financial institutions by large out-of-state banks, two of which held in the aggregate more than 50% of the in-market deposits at the time of their respective acquisitions. Although competition within our market area is strong, we believe that the customer disruption associated with these acquisitions, as well as the loss of in-market decision-making and relationship-based banking, will continue to provide us with additional growth opportunities as the largest bank holding company headquartered in the New Orleans market.

The following table depicts the top depository institution competitors within our marketplace, by holding company, and presents the respective market share of each competitor within the New Orleans market as of June 30, 2012. These figures have been adjusted to reflect subsequent acquisitions.

 

Rank

  

Institution (ST)

   Branches      Deposits      Market
Share
 
          (dollars in millions)  
1   

Capital One Financial Corp. (VA)

     55       $ 9,025         31.7%   
2   

Hancock Holding Co. (MS)

     50         4,832         16.4      
3   

JP Morgan Chase & Co. (NY)

     37         4,362         14.8      
4   

Regions Financial Corp. (AL)

     32         2,373         8.1      
5   

First NBC Bank Holding Co. (LA)

     26         1,923         6.5      
6   

IBERIABANK Corp. (LA)

     21         1,393         4.7      
7   

Fidelity Homestead Savings Bank (LA)

     14         735         2.5      
8   

Gulf Coast Bank & Trust Co. (LA)

     14         734         2.5      
9   

CB&T Holding Corp. (LA)

     3         568         1.9      
10   

First Trust Corp. (LA)

     8         522         1.8      
  

Total New Orleans market

             360        $     29,426             100.0%   
     

 

 

    

 

 

    

 

 

 

We also compete with mortgage companies, investment banking firms, brokerage houses, mutual fund managers, investment advisors, and other “non-bank” companies for certain of our products and services. Some of our competitors are not subject to the degree of supervision and regulatory restrictions that we are.

Interest rates, both on loans and deposits, and prices on fee-based services are significant competitive factors among financial institutions generally. Many of our competitors are much larger financial institutions that have greater financial resources than we do and that compete aggressively for market share. These competitors attempt to gain market share through their financial product mix, pricing strategies and banking center locations. Due to the benefits of scale, our larger regional and national bank competitors can, in many cases, offer pricing that is more attractive than that which we can offer, although this pricing has historically been reserved for customers of a size for which we generally would not compete.

Other important competitive factors in our market area include office locations and hours, quality of customer service, community reputation, continuity of personnel and services, capacity and willingness to extend credit, and ability to offer sophisticated cash management and other commercial banking services. Many of our competitors are organized along lines of business and use efficient but impersonal approaches to providing products and services to customers.

While we seek to be competitive with respect to rates, we believe that we compete most successfully on the basis of our service and relationship-based culture. We adjust our pricing to maximize our share of each

 

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customer’s total financial service spending. Because we are unburdened by legacy main frame computer systems, we believe that our technology platform enables us to be more flexible in developing and implementing new services in a competitive marketplace.

Lending Activities

General. Our primary lending focus is to serve commercial and middle-market businesses and their executives, high net worth individuals, not-for-profit organizations and consumers with a variety of financial products and services, while maintaining strong and disciplined credit policies and procedures. We offer a full array of commercial and retail lending products to serve the needs of our customers. Commercial lending products include owner-occupied commercial real estate loans, commercial real estate investment loans, commercial loans (such as business term loans, equipment financing and lines of credit) to small and mid-sized businesses and real estate construction and development loans. Retail lending products include residential first and second mortgage loans, home equity lines of credit and consumer installment loans such as loans to purchase cars, boats and other recreational vehicles. Our retail lending products are offered primarily as an accommodation to our commercial customers, and their executives and employees. We focus our lending activities on loans that we originate from borrowers located in our market areas.

We market our lending products and services to qualified borrowers through conveniently located banking offices, relationship networks and high touch personal service. We target our business development and marketing strategy primarily on businesses with between $500,000 and $50 million in annual revenue. Our relationship managers actively solicit the business of companies entering our market areas as well as long-standing businesses operating in the communities we serve. Our senior loan officers have an average of 36 years of experience. We seek to attract new lending customers through professional service, relationship networks, competitive pricing and innovative structure, including the utilization of federal and state tax incentives.

Commercial loans. We offer a wide range of commercial loans, including business term loans, equipment financing and lines of credit to small and midsized businesses. Our target commercial loan market is retail and professional establishments and small- to medium-sized businesses. The terms of these loans vary by purpose and by type of underlying collateral, if any. The commercial loans primarily are underwritten on the basis of the borrower’s ability to service the loan from cash flow. We make equipment loans with conservative margins generally for a term of five years or less at fixed or variable rates, with the loan fully amortizing over the term. Loans to support working capital typically have terms not exceeding one year and usually are secured by accounts receivable, inventory and personal guarantees of the principals of the business and often by the commercial real estate of the borrower. For loans secured by accounts receivable or inventory, principal typically is repaid as the assets securing the loan are converted into cash, and for loans secured with other types of collateral, principal is typically due at maturity. The quality of the commercial borrower’s management and its ability both to properly evaluate changes in the supply and demand characteristics affecting its markets for products and services and to effectively respond to such changes are significant factors in a commercial borrower’s creditworthiness. Although most loans are made on a secured basis, loans may be made on an unsecured basis where warranted by the overall financial condition of the borrower. Risks associated with our commercial loan portfolio include those related to the strength of the borrower’s business, which may be affected not only by local, regional and national market conditions, but also changes in the borrower’s management and other factors beyond the borrower’s control; those related to fluctuations in value of any collateral securing the loan; and those related to terms of the commercial loan, which may include balloon payments that must be refinanced or paid off at the end of the term of the loan. Our commercial loan portfolio presents a higher risk profile than our consumer real estate and consumer loan portfolios.

Commercial real estate loans. We offer real estate loans for commercial property that is owner-occupied as well as commercial property owned by real estate investors. Commercial loans that are secured by owner-occupied commercial real estate and primarily collateralized by operating cash flows are also included in this category of loan. Commercial real estate loan terms generally are limited to 20 to 25 years or less, although payments may be structured on a longer amortization basis. The interest rates on our commercial real estate loans

 

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may be fixed or adjustable, although rates typically are not fixed for a period exceeding five to 10 years. We generally charge an origination fee for our services. We typically require personal guarantees from the principal owners of the business supported by a review of the principal owners’ personal financial statements. Risks associated with commercial real estate loans include fluctuations in the value of real estate, the overall strength of the economy, new job creation trends, tenant vacancy rates, environmental contamination, and the quality of the borrower’s management. We make efforts to limit our risk by analyzing borrowers’ cash flow and collateral value. The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as owner-occupied offices/warehouses/production facilities, office buildings, hotels, mixed-use residential/commercial, retail centers and multifamily properties. Our commercial real estate loan portfolio presents a higher risk profile than our consumer real estate and consumer loan portfolios.

Construction loans. Our construction portfolio includes loans to small and midsized businesses to construct owner-user properties, loans to developers of commercial real estate investment properties and residential developments and, to a lesser extent, loans to individual clients for construction of single family homes in our market areas. Construction and development loans are generally made with a term of one to two years and interest is paid monthly. The ratio of the loan principal to the value of the collateral, as established by independent appraisal, typically will not exceed industry standards. Loan proceeds are disbursed based on the percentage of completion and only after the project has been inspected by an experienced construction lender or third-party inspector. Risks associated with construction loans include fluctuations in the value of real estate, project completion risk and change in market trends. We are also exposed to risk based on the ability of the construction loan borrower to finance the loan or sell the property upon completion of the project, which may be affected by changes in market trends since the time that we funded the construction loan.

Consumer real estate loans. We offer first and second one-to-four family mortgage loans, as well as home equity lines of credit, in each case primarily on owner-occupied primary residences. Our retail consumer real estate lending products are offered primarily as an accommodation to our commercial customers, and their executives and employees. We also originate for resale one-to-four family mortgage loans, and those loans are included as a part of our consumer real estate loan portfolio until sold to investors. However, as of December 31, 2012, we held only $25.9 million in mortgages for resale. Although our consumer real estate loan portfolio presents lower levels of risk than our commercial, commercial real estate and construction loan portfolios, we are exposed to risk based on fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrower’s financial condition, which could be affected by numerous factors, including divorce, job loss, illness or other personal hardship.

Consumer loans. We offer consumer loans as an accommodation to our existing customers, but do not market consumer loans to persons who do not have a pre-existing relationship with us. As of December 31, 2012, our consumer loans represented less than 1% of our total loan portfolio. We do not expect our consumer loans to become a material component of our loan portfolio at any time in the foreseeable future. Although we do not engage in any material amount of consumer lending, our consumer loans, which are underwritten primarily based on the borrower’s financial condition and, in many cases, are unsecured credits, subject us to risk based on changes in the borrower’s financial condition, which could be affected by numerous factors, including those discussed above.

Credit Policy and Procedures

General. We adhere to what we believe are disciplined underwriting standards, but also remain cognizant of the need to serve the credit needs of customers in our primary market areas by offering flexible loan solutions in a responsive and timely manner. We also seek to maintain a broadly diversified loan portfolio across customer, product and industry types. However, our lending policies do not provide for any loans that are highly speculative, subprime, or that have high loan-to-value ratios. These components, together with active credit management, are the foundation of our credit culture, which we believe is critical to enhancing the long term value of our organization to our customers, employees, shareholders and communities.

 

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We have a service-driven, relationship-based, business-focused credit culture, rather than a price-driven, transaction-based culture. Accordingly, substantially all of our loans are made to borrowers located or operating in our primary market areas with whom we have ongoing relationships across various product lines. The limited number of loans secured by properties located in out-of-market areas that we have are made to borrowers who are well-known to us.

Credit concentrations. In connection with the management of our credit portfolio, we actively manage the composition of our loan portfolio, including credit concentrations. Our loan approval policies establish concentrations limits with respect to industry and loan product type to enhance portfolio diversification. These limits are reviewed annually as part of our annual review program. In general, loan product concentration levels are monitored on a quarterly basis, and our commercial real estate concentrations are monitored at least monthly, by our Chief Credit Officer and the bank’s Loan Committee, and industry concentration levels are monitored on a quarterly basis.

Loan approval process. We seek to achieve an appropriate balance between prudent, disciplined underwriting, on the one hand, and flexibility in our decision-making and responsiveness to our customers, on the other hand. Our credit approval policies provide for various levels of officer and senior management lending authority for new credits and renewals, which are based on position, capability and experience. Credits in excess of these individual lending authorities are referred to the bank’s Senior Loan Committee, Board Loan Committee or full Board of Directors, as appropriate, based on the size of the loan. These authorities are periodically reviewed and updated by our Board of Directors. We believe that our credit approval process provides for thorough underwriting and efficient decision making.

We also manage concentration of credit to individual borrowers. We have established in-house borrower lending limits for each of our lending officers, up to a maximum of $5 million for our Chief Executive Officer. Loans presenting aggregate lending exposure in excess of $5 million, but not more than $12 million, are subject to approval of the bank’s Senior Loan Committee, which is composed of six bank officers, including the Chief Executive Officer and Chief Credit Officer. Loans presenting aggregate lending exposure in excess of $12 million, but not more than $20 million, are subject to the approval of the bank’s Board Loan Committee. Loans presenting aggregate lending exposure in excess of $20 million are subject to review and approval by the full Board of Directors. These limits are reviewed periodically by the Board Loan Committee and Board of Directors of First NBC Bank.

Credit risk management. Credit risk management involves a partnership between our relationship managers and our credit approval, credit administration and collections personnel. We conduct monthly loan meetings, attended by substantially all of our relationship managers, related loan production staff and credit administration staff at which asset quality and delinquencies are reviewed. Our evaluation and compensation program for our relationship managers includes significant goals that we believe motivate the relationship managers to focus on high quality credit consistent with our strategic focus on asset quality.

It is our policy to discuss each loan that has one or more past due payments at our monthly meeting with all lending personnel. Our policies require rapid notification of delinquency and prompt initiation of collection actions. Relationship managers, credit administration personnel and senior management proactively support collection activities in order to maximize accountability and efficiency.

In accordance with our procedures, we perform annual asset reviews of our larger multifamily and commercial real estate loans. As part of these asset review procedures, we analyze recent financial statements of the property and/or borrower to determine the current level of occupancy, revenues and expenses and to investigate any deterioration in the value of the real estate collateral or in the borrower’s financial condition. Upon completion, we update the grade assigned to each loan. Relationship managers are encouraged to bring potential credit issues to the attention of credit administration personnel. We maintain a list of loans that receive additional attention if we believe there may be a potential credit risk.

 

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Loans that are downgraded or classified undergo a detailed quarterly review by the Board Loan Committee. This review includes an evaluation of the market conditions, the property’s trends, the borrower and guarantor status, the level of reserves required and loan accrual status. Additionally, we have an independent, third-party review performed on our loan grades and our credit administration functions each year. Finally, we perform an annual stress test of our commercial real estate portfolio, in which we evaluate the impact on the portfolio of declining economic conditions, including lower rental rates, lower occupancy rates and lower resulting valuations. Management reviews these reports and presents them to the Board Loan Committee. These asset review procedures provide management with additional information for assessing our asset quality. In addition, for business and personal loans that are not secured by real estate, we perform frequent evaluations and regular monitoring.

Investments in Community Development Corporations

To support the redevelopment of our community following Hurricane Katrina, we organized First NBC Community Development, LLC as a wholly-owned “for profit” subsidiary of First NBC Bank. Through First NBC Community Development and its subsidiaries, we build or re-build affordable housing throughout our market area using government subsidies available for that purpose. We generate income from the sale or rental of these real estate projects and from profit sharing agreements that we maintain with the non-profit organizations that we assist. Over the past two years, through our community development corporation subsidiaries, we have developed hundreds of single family residences in the greater New Orleans area and throughout the state and have recently entered into agreements with three non-profit organizations to develop additional affordable housing. As of December 31, 2012, we had $6.9 million in investments through First NBC Community Development.

Investments in Tax Credit Entities

We make material investments in tax credit-motivated projects. We believe that these investments present attractive after tax economic returns, further our Community Reinvestment Act responsibilities and support the communities that we serve. To obtain the benefit of the tax credits, we are required to invest in the entity undertaking the project, and we do so through direct or indirect subsidiaries of First NBC Bank. At this time, our investments are directed at tax credits issued under the New Markets Tax Credit, Federal Historic Rehabilitation Tax Credit and Low Income Housing Tax Credit programs. We generate our returns on tax credit-motivated projects through the receipt of federal and, if applicable, state tax credits. We expect to expand our investments in tax credit entities as our earnings increase.

New Markets Tax Credits. The New Markets Tax Credit program is administered by the U.S. Department of the Treasury and designed to stimulate economic and community development and job creation in low-income communities, which includes certain census tracts within our market area. We participate in the New Markets Tax Credit program in two ways. First, we have organized First NBC Community Development Fund, LLC, or the Fund, as a wholly-owned subsidiary of First NBC Bank. In 2011, the Fund received an allocation of $28 million under the program, which will generate a total of $10.9 million in tax credit benefits. In 2012, the Fund received an allocation of $40 million under the program, which will generate a total of $15.6 million in tax credit benefits. Under the terms of the program, the Fund is required to make a total of $68 million in qualified equity investments in our community to enable us to obtain the full allotment of tax credits, subject to certain limitations. At December 31, 2012, the entire $68 million had been invested in qualified equity investments, with $46.5 million invested during 2012. Under the New Markets Tax Credit program, we receive a credit in each of the first three years equal to 5% of each of the Fund’s qualified equity investments and a credit in each of the following four years equal to 6% of each of the Fund’s qualified equity investments. The tax credits are subject to recapture if less than substantially all of the Fund’s proceeds are used by the Fund to make qualified investments, if the Fund ceases to be a certified development entity, or if the Fund redeems its investment prior to the designated term set forth in the program. At December 31, 2012, none of the recapture events had occurred, and we are not aware of any event or circumstance that would likely result in a recapture event in the foreseeable future. Tax benefits attributable to these

 

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partnerships totaled $3.4 million for the year ended December 31, 2012. We have applied for an additional allocation of New Markets Tax Credits for 2013, and that application is pending.

In addition to our investment in the Fund, we are also a limited partner in a number of limited partnerships whose purpose is to invest in approved New Markets Tax Credit projects that are not associated with the Fund. At December 31, 2012, we had $35.0 million invested in limited partnerships affiliated with these projects. Tax benefits attributable to these partnerships totaled $8.0 million for the year ended December 31, 2012. At December 31, 2012, the amount of tax credits attributable to these partnerships remaining available to offset future taxable income was $41.7 million.

We maintain an equity interest in each entity from which we receive New Markets Tax Credits, which provides certain protective measures designed to ensure performance during the compliance period. Each equity interest is amortized over the compliance period, and upon completion of the compliance period, the interest is subject to exchange for a nominal amount.

Federal Historic Rehabilitation Tax Credits. We invest in a number of limited partnerships whose purpose is to invest in approved Federal Historic Rehabilitation Tax Credit projects, which are aimed at the restoration or preservation of historic buildings. At December 31, 2012, we had $7.1 million invested in limited partnerships affiliated with these projects. Tax benefits attributable to these partnerships totaled $3.2 million for the year ended December 31, 2012.

As a part of our investment in projects that generate Federal Historic Rehabilitation Tax Credits, we may receive state tax credits. Because of the manner in which financial institutions are taxed by the State of Louisiana, we cannot utilize these tax credits. As a result, we generate additional income on the sale of the state tax credits. We earned $578,000 from the sale of state tax credits associated with Federal Historic Rehabilitation Tax Credit projects during 2012.

We maintain an equity interest in each entity from which we receive Federal Historic Rehabilitation Tax Credits, which provides certain protective measures designed to ensure performance during the compliance period. Each equity interest is amortized over the compliance period, as management believes that any potential residual value in the real estate will have limited value.

Low Income Housing Tax Credits. We invest in a number of limited partnerships whose purpose is to invest in approved Low Income Housing Tax Credit projects, which are aimed at developing and maintaining affordable housing. At December 31, 2012, we had $25.3 million invested in limited partnerships affiliated with these projects. Tax benefits attributable to these partnerships totaled $2.5 million for the year ended December 31, 2012.

We maintain an equity interest in each entity from which we receive Low Income Housing Tax Credits, which provides certain protective measures designed to ensure performance during the compliance period. Each equity interest is amortized over the compliance period, and upon completion of the compliance period, the interest is subject to exchange for a nominal amount.

Loans to Tax Credit Entities

In addition to our equity investments in tax credit-motivated projects, from time to time, we also make loans to the limited partnerships involved in the projects. In each case, the loan is unrelated to the generation or use of the tax credits associated with the project, underwritten according to our normal underwriting criteria and made on market terms. Moreover, because of the level of equity investment associated with each tax credit-motivated project, these loans generally carry loan-to-value ratios significantly lower than other similarly-situated real estate loans that we make that do not involve tax credits. Finally, these loans are repayable out of the cash flows from the underlying projects and are not tied to the tax credits. As of December 31, 2012, the balance

 

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of our loans to New Markets Tax Credit projects in which we maintained investments was $64.1 million, and the balance of our loans to Low Income Housing Tax Credit projects in which we maintained investments was $42.2 million. We had no long term loan commitments related to Federal Historic Rehabilitation Tax Credit projects in which we maintained investments at December 31, 2012. Because the loans have normal credit exposure and are made on market terms, they are included in “Loans” on our balance sheet.

Deposits

Deposits are our primary source of funds to support our earning assets. We offer traditional depository products, including checking, savings, money market and certificates of deposit with a variety of rates. We also offer sweep accounts, which are guaranteed through repurchase agreements, to our business and municipal customers. Deposits at First NBC Bank are insured by the FDIC up to statutory limits. We price our deposit products with a view to maximizing our share of each customer’s financial services business, and our loan pricing gives value to deposits from our loan customers.

Our deposit mix has changed substantially over our six year history. At inception, we relied almost exclusively on certificates of deposit, which require limited customer interaction or convenience in location, while our transactional account customer base and branch networks expanded. Since that time, we have built out a network of 31 deposit-taking branch offices, in addition to our full service main office, and attracted significant transaction account business through our relationship-based approach. As a result of our significant deposit growth in transaction accounts, which we define as demand, NOW and money market deposits, we have achieved a deposit mix between transaction accounts and certificates of deposit that is approximately equal.

Trust Services

We deliver a comprehensive suite of trust services through First NBC Bank. Enhancing and expanding our trust department is an important component of our strategic plan because trust and wealth management services can generate stable and recurring revenue and enhance banking customer loyalty, which can result in increased core deposits and greater cross-selling opportunities. Among other things, we serve as custodian for many large class action litigation settlements ranging from $5 million to $150 million. We also provide traditional trustee, custodial and escrow services for institutional and individual accounts, including corporate escrow accounts, serving as custodian for self-directed individual retirement accounts and other retirement accounts. In addition, we offer clients comprehensive investment management solutions whereby we manage all or a portion of a client’s investment portfolio on a discretionary basis. At this time, our investment management solutions are administrated through strategic or outsourced relationships. We may, in the future, provide those services directly. Finally, we provide retirement plan services, such as 401(k) programs, through a national vendor.

As of December 31, 2012, we had $68.5 million of trust assets under administration and 28 trust services accounts. At this time, our trust department does not generate significant earnings for our organization. We expect trust department asset growth and diversification to continue over the next several years, including through the possible acquisition of trust and other wealth management accounts from community banks seeking to exit this specialized, scale-dependent business, the opening of new trust offices and the hiring of established trust and wealth management professionals.

Investments

Due to the significant growth in our loan portfolio since inception, we manage our investment portfolio primarily for liquidity purposes, with a secondary focus on returns. We separate our portfolio into two categories: (1) short-term investments, including federal funds sold and 60 to 90 day commercial paper; and (2) investments with a two to four year duration (the current average is three years), all of which are classified as available-for-sale and can be used for pledging on public deposits, selling under repurchase agreements and meeting

 

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unforeseen liquidity needs. The latter category is invested in a variety of high-grade securities, including government agency securities, government guaranteed mortgage backed securities, highly rated corporate bonds and municipal securities. We regularly evaluate the composition of this category as changes occur with respect to the interest rate yield curve. Although we may sell investment securities from time to time to take advantage of changes in interest rate spreads, it is our policy not to sell investment securities unless we can reinvest the proceeds at a similar or higher spread, so as not to take gains to the detriment of future income.

The investment policy is reviewed annually by First NBC Bank’s Board of Directors. Overall investment goals are established by the Board of Directors, Chief Executive Officer, Chief Financial Officer and the Asset/Liability Management Committee of First NBC Bank. The Board of Directors has delegated the responsibility of monitoring our investment activities to the Asset/Liability Management Committee of First NBC Bank. Day-to-day activities pertaining to the investment portfolio are conducted within our accounting department under the supervision of our Chief Financial Officer.

Enterprise Risk Management

We place significant emphasis on risk mitigation as an integral component of our organizational culture. We believe that our emphasis on risk management is manifested in our solid asset quality statistics. Risk management with respect to our lending philosophy focuses, among other things, on structuring credits to provide for multiple sources of repayment, coupled with strong underwriting undertaken by experienced bank officers and credit policy personnel. Our risk mitigation techniques include quarterly loan reviews by an independent loan review team that reports directly to our Board of Directors and quarterly criticized asset action plans for those borrowers who display deteriorating financial conditions in order to monitor those relationships and implement corrective measures on a timely basis to minimize losses. In addition, we perform an annual stress test of our commercial real estate portfolio, in which we evaluate the impact on the portfolio of declining economic conditions, including lower rental rates, lower occupancy rates and lower resulting valuations. The stress test focuses only on the cash flow and valuation of the properties and ignores the liquidity, net worth and cash flow of any guarantors related to the credits. We measure the results of these stress tests against metrics approved by our Board of Directors.

We also focus on risk management in numerous other areas throughout our organization, including with respect to asset/liability management, regulatory compliance and internal controls. We have implemented an extensive asset/liability management process, have our own interest rate risk model and validate the results of that model through the use of an independent model provided by a reputable third party. We utilize hedging techniques whenever our models indicate short term (net interest income) or long term (economic value of equity) risk to interest rate movements.

We are implementing management assessment and testing of internal controls consistent with the Sarbanes-Oxley Act and have engaged an experienced independent public accounting firm to assist us with respect to compliance. We have also engaged another experienced independent public accounting firm to review and assess our controls with respect to technology, as well as to perform penetration testing to assist us in managing the risks associated with information security.

Employees

As of December 31, 2012, we had approximately 433 full-time equivalent employees. None of our employees are represented by any collective bargaining unit or are parties to a collective bargaining agreement. We believe that our relations with our employees are good.

Properties

Our main office is located at 210 Baronne Street in New Orleans, which was built in 1927 and housed the former First National Bank of Commerce in New Orleans until its sale to Bank One in 1998. In addition to our

 

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main office, we operate from 31 branch offices located in Orleans, Jefferson, Tangipahoa, St. Tammany, Livingston and Washington Parishes and a loan production office in Gulfport, Mississippi. We lease our main office and 14 of our branch offices, and we own the remainder of our offices. All of our banking offices are in free-standing permanent facilities, except for the Kenner and General De Gaulle banking offices. All of our banking offices are equipped with automated teller machines, and all of which provide for drive-up access, except for the main office.

Legal Proceedings

From time to time we are a party to various litigation matters incidental to the conduct of our business. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, prospects, financial condition, liquidity, results of operation, cash flows or capital levels.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section presents management’s perspective on our financial condition and results of operations. The following discussion and analysis is intended to highlight and supplement data and information presented elsewhere in this prospectus, including the consolidated financial statements and related notes, and should be read in conjunction with the accompanying tables and our annual audited financial statements. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.” We assume no obligation to update any of these forward-looking statements.

General

The following discussion and analysis presents our financial condition and results of operations on a consolidated basis. However, because we conduct all of our material business operations through First NBC Bank, the discussion and analysis relates to activities primarily conducted at the subsidiary level.

As a bank holding company that operates through one segment, community banking, we generate most of our revenue from interest on loans and investments, service charges, and gains on the sale of loans and securities. Our primary source of funding for our loans is deposits. Our largest expenses are interest on these deposits and salaries and related employee benefits. We measure our performance through our net interest margin, return on average assets and return on average common equity, while maintaining appropriate regulatory leverage and risk-based capital ratios.

Restatement of Previously Issued Financial Statements and Internal Control Remediation Initiatives

After the issuance on April 30, 2012 of our audited financial statements for the year ended December 31, 2011, we determined that we were required to restate our previously issued 2011, 2010, and 2009 audited financial statements. The restatement was necessary to properly allocate among the appropriate periods an amount related to our deferred income taxes that was originally recorded and presented only as part of our 2011 results of operations. In connection with the restatement, we also recorded other adjustments, including our final fair value adjustments associated with the Central Progressive Bank acquisition, other identified but previously unrecorded errors that were known when we issued our 2011 audited financial statements, and other amounts that we identified after April 30, 2012 while preparing our 2011 income tax return. The cumulative effect of recording all of these adjustments was not material to our previously reported 2010 or 2011 net income. Our 2009 net income was reduced 23.2%, compared to amounts previously reported.

We determined that the errors that required the restatement were caused by a lack of a sufficient number of accounting employees with the appropriate technical skills and knowledge regarding the income tax accounting for our tax credit investments. We concluded that this was a material weakness in our internal control that related to the accounting for the deferred tax aspects of certain of our investments in the entities that generate the tax credits. We have taken what we believe are the appropriate actions to address the weakness, including hiring additional accounting personnel, providing training to our personnel to develop the expertise in tax credits, using outside accountants and consultants to supplement our internal staff when necessary, and implementing additional internal control procedures. Our board of directors, in coordination with our audit committee, will continually assess the progress and sufficiency of these initiatives and make adjustments, as necessary.

 

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Application of Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States and with general practices within the financial services industry. Application of these principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances. These assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.

We have identified the following accounting policies and estimates that, due to the difficult, subjective or complex judgments and assumptions inherent in those policies and estimates and the potential sensitivity of our financial statements to those judgments and assumptions, are critical to an understanding of our financial condition and results of operations. We believe that the judgments, estimates and assumptions used in the preparation of our financial statements are appropriate.

Allowance for Loan Losses. Management evaluates the adequacy of the allowance for credit losses each quarter based on changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), trends in loan performance, regulatory guidance and economic factors. This evaluation is inherently subjective, as it requires the use of significant management estimates. Many factors can affect management’s estimates of inherent losses, including volatility of default probabilities, rating migrations, loss severity and economic and political conditions. The allowance is increased through provisions charged to operating earnings and reduced by net charge-offs.

We determine the amount of the allowance based on our assessment of inherent losses in the loan portfolio. The allowance recorded for commercial loans is based on reviews of individual credit relationships, an analysis of the migration of commercial loans and actual loss experience, together with qualitative factors as discussed for noncommercial loans. The allowance recorded for noncommercial loans is based on an analysis of loan mix, risk characteristics of the portfolio, delinquency and bankruptcy experiences and historical losses, adjusted for current trends, for each loan category or group of loans. The allowance for loan losses relating to impaired loans is based on the collateral for collateral-dependent loans or the discounted cash flows using the loan’s effective interest rate, if not collateral dependent.

Regardless of the extent of our analysis of customer performance, portfolio trends or risk management processes, certain inherent but undetected losses are probable within the loan portfolio. This is due to several factors, including inherent delays in obtaining information regarding a customer’s financial condition or changes in their unique business conditions, the subjective nature of individual loan evaluations, collateral assessments, the interpretation of economic trends, and industry concentrations. Volatility of economic or customer-specific conditions affecting the identification and estimation of losses for larger, non-homogeneous credits and the sensitivity of assumptions utilized to establish allowances for homogenous groups of loans are among other factors. We estimate a range of loss factors related to the existence and severity of these exposures. The estimates are based upon our evaluation of risk associated with the commercial and consumer portfolios and the estimated impact of the current economic environment.

Fair Value Measurement. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in a principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date, using assumptions market participants would use when pricing an asset or liability. An orderly transaction assumes exposure to the market for a customary period for marketing activities prior to the measurement date and not a forced liquidation or distressed sale. Fair value measurement and disclosure guidance provides a three-level hierarchy that prioritizes the inputs of valuation techniques used to measure fair value into three broad categories:

 

   

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.

 

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Level 2 – Observable inputs such as quoted prices for similar assets and liabilities in active markets, quoted prices for similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

 

   

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

Fair value may be recorded for certain assets and liabilities every reporting period on a recurring basis or under certain circumstances, on a non-recurring basis. The following represents significant fair value measurements included in the financial statements based on estimates.

We use interest rate derivative instruments to manage our interest rate risk. All derivative instruments are carried on the balance sheet at fair value. Fair values for over-the-counter interest rate contracts used to manage our interest rate risk are provided either by third-party dealers in the contracts or by quotes provided by independent pricing services. Information used by these third-party dealers or independent pricing services to determine fair values are considered significant other observable inputs. Credit risk is considered in determining the fair value of derivative instruments. Deterioration in the credit ratings of customers or dealers reduces the fair value of asset contracts. The reduction in fair value is recognized in earnings during the current period. Deterioration in our credit rating below investment grade would affect the fair value of our derivative liabilities. In the event of a credit down-grade, the fair value of our derivative liabilities would decrease.

The fair value of our securities portfolio is generally based on a single price for each financial instrument provided to us by a third-party pricing service determined by one or more of the following:

 

   

Quoted prices for similar, but not identical, assets or liabilities in active markets;

 

   

Quoted prices for identical or similar assets or liabilities in inactive markets;

 

   

Inputs other than quoted prices that are observable, such as interest rate and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates; and

 

   

Other inputs derived for or corroborated by observable market inputs.

The underlying methods used by the third-party services are considered in determining the primary inputs used to determine fair values. We evaluate the methodologies employed by the third-party pricing services by comparing the price provided by the pricing service with other sources, including brokers’ quotes, sales or purchases of similar instruments and discounted cash flows to establish a basis for reliance on the pricing service values. Significant differences between the pricing service provided value and other sources are discussed with the pricing service to understand the basis for their values. Based on this evaluation, we determined that the results represent prices that would be received to sell assets or paid to transfer liabilities in orderly transaction in the current market.

We evaluate impaired investment securities quarterly to determine if impairments are temporary or other-than-temporary. For impaired debt securities, management first determines whether it intends to sell or if it is more-likely than not that it will be required to sell the impaired securities. This determination considers current and forecasted liquidity requirements, regulatory and capital requirements and securities portfolio management. All impaired debt securities that we intend to sell or that we expect to be required to sell are considered other-than-temporarily impaired and the full impairment loss is recognized as a charge against earnings.

Tax Credits. We invest in tax credit-motivated projects, including those generating Low Income Housing, Federal Historic Rehabilitation and New Markets Tax Credits. Federal tax credits are recorded as an offset to the income tax provision in the year in which they are earned under federal income tax law. Low Income Housing Tax Credits are earned ratably over a period of either 10 or 15 years, beginning in the period in which rental

 

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activity commences. Federal Historic Rehabilitation Tax Credits are earned in the year that the certificate of occupancy is issued. New Markets Tax Credits are earned over a seven year period in the manner described below. The credits, if not used to reduce the income on our tax return in the year of origination, can be carried forward for 20 years. For certain of our investment structures for Federal Historic Rehabilitation and New Markets Tax Credits, we are required to reduce the tax basis of our investment in the entity used to earn the credit by the amount of the credit earned. Deferred taxes are provided in the year that the tax basis is reduced in accordance with ASC 740.

For Low Income Housing and Federal Historic Rehabilitation Tax Credits, we invest in a tax credit entity, usually a limited liability company, which owns the real estate. We receive a 99.9% nonvoting interest in the entity that must be retained during the compliance period for the credits (15 years for Low Income Housing credits and five years for Federal Historic Rehabilitation credits). In most cases, our interest in the entity is reduced from a 99.9% interest to a 10% to 25% interest at the end of the compliance period. Control of the tax credit entity rests in the 0.1% interest general partner, who has the power and authority to make decisions that impact economic performance of the project and is required to oversee and manage the project. Due to the lack of any voting, economic or managerial control, and due to the contractual reduction in the investment, we account for our investments by amortizing the investment over the compliance period. Any potential residual value in the real estate at the end of the compliance period will be recognized upon disposition of the investment.

New Markets Tax Credits are allocated to Community Development Entities, or CDEs. The CDE, in most cases, creates a special purpose subsidiary for the project through which the credits are allocated and through which the proceeds from the tax credit investor and a leverage lender, if applicable, flow through to the project, which in turn generate the credit. We participate in CDEs in two ways. First, we organized First NBC Community Development Fund, LLC, or the Fund, to become a CDE, and we serve as the tax credit investor in the Fund. When a project is funded through the Fund, we consolidate the Fund and its special purpose subsidiaries since we maintain control over these entities. Second, we are also a limited partner in a number of limited partnerships that invest in CDEs that are not associated with the Fund. We have no control of these CDEs, their special purpose subsidiaries or the qualifying project entity.

New Markets Tax Credits are calculated at 39% of the total project cost and earned and recognized at the rate of 5% for each of the first three years and 6% for each of the next four years. Federal tax law requires special terms benefitting the qualified project, which may include complete or partial debt forgiveness at the end of the seven-year term or below market rates. We expense the cost of any benefits provided to the project over the seven-year compliance period. When First NBC Bank also has the loan, commonly called a leverage loan, to the project, it is carried on our balance sheet as a loan as we have normal credit exposure to the project and are repaid at the end of the compliance period. In general, the leverage loan has no principal payments during the compliance period, but the bank requires that the borrowers fund a sinking fund over the compliance period to achieve the same risk reduction effect as if principal were being amortized.

For Low Income Housing, Federal Historic Rehabilitation and New Markets Tax Credit transactions when the bank is the CDE, we maintain the risk of credit recapture if the project fails to maintain compliance with applicable standards during the compliance period. These events, although rare, are accounted for when they occur, and no such events have occurred to date.

Income Tax Accounting. We estimate our income taxes for each period for which a statement of income is presented. This involves estimating our actual current tax exposure, as well as assessing temporary differences resulting from differing timing of recognition of expenses, income and tax credits for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. We actively participate in tax credit generating investments and accrue any credits in excess of taxes owed for the life of the carryforward period or until offset by eligible income taxes. We must also assess the likelihood that any deferred tax assets will be recovered from future taxable income and, to the extent that recovery is not likely, a valuation allowance must be established. Significant management judgment is required in determining income tax expense and deferred tax assets and liabilities.

 

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Stock-Based Compensation. We utilize a stock-based employee compensation plan, which provides for the issuance of stock options and restricted stock. We account for stock-based employee compensation in accordance with the fair value recognition provisions of ASC 718, Compensation – Stock Compensation. As a result, compensation cost for all share-based payments is based on the grant-date fair value estimated in accordance with ASC 718. Compensation cost is recognized as expense over the service period, which is generally the vesting period of the options and restricted stock. The expense is reduced for estimated forfeitures over the vesting period and adjusted for actual forfeitures as they occur.

Goodwill and Other Intangibles. Goodwill and intangible assets that have indefinite useful lives are subject to an impairment test at least annually, or more frequently if circumstances indicate their value may not be recoverable. Other identifiable intangible assets that are subject to amortization are amortized on a straight line basis over their estimated useful lives, ranging from two to 20 years. These amortizable intangible assets are reviewed for impairment if circumstances indicate their value may not be recoverable.

Acquisition Accounting. Acquisitions are accounted for under ASC 805, Business Combinations, which requires the use of the purchase method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No allowance for loan losses related to the acquired loans is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in ASC 820. In connection with the Central Progressive Bank transaction, we recorded the majority of the acquired loans that we retained at fair value in accordance with ASC 310-20 using a discounted cash flow method whereby contractual cash flows were discounted at a rate determined for the risk free rate at the date of acquisition, cost of funding, cost of servicing, credit risk and liquidity risk, all as viewed by a market participant. A small number of loans were determined to be credit impaired, as defined in ASC 310-30, and valued using current appraised values of the underlying collateral together with any other expected cash flows. The difference between the contractual acquired balance and the fair value was split between an accretable and nonaccretable portion, with the accretable portion representing the difference between the fair value and the expected cash flow of the loan. These loans will be assessed quarterly to determine any changes to the expected cash flows. Any favorable differences will result in a revision to the loan’s effective yield over its remaining estimated life. Unfavorable differences will result in an impairment provision. We considered the valuation of these loans to be level 3 input measurements under the fair value hierarchy. Identifiable intangible assets, including core deposit intangible assets, were recorded at fair value, and the consideration paid in excess of the net fair value of the acquired assets and liabilities resulted in the recognition of goodwill.

Central Progressive Bank Acquisition

On November 18, 2011, we purchased substantially all of the assets, and assumed substantially all of the liabilities, of Central Progressive Bank from the FDIC, acting as receiver of the failed bank. In connection with the transaction, we sold assets previously associated with Central Progressive Bank, carried at $82.6 million by Central Progressive Bank, all of which were nonperforming assets, to unaffiliated third party purchasers for cash consideration. The third-party purchasers also assumed any liabilities and obligations arising under the transferred assets. The FDIC has paid approximately $60 million in connection with the Central Progressive Bank transaction, and the transaction did not involve any loss-sharing agreements. The final amount received is still subject to adjustment; however, we do not expect any remaining adjustments to be material. Historical financial statements for Central Progressive Bank are not available, nor do we believe that information is relevant given the financial condition of that organization prior to its closing by the FDIC in November 2011 and the significant assets that we disposed of in connection with the transaction. Included within management’s discussion and analysis of financial condition and results of operations as of and for the year ended December 31, 2012 is a full year of the impact of the Central Progressive Bank acquisition. Additional information regarding the fair values of the assets and liabilities acquired as a result of the transaction is contained in note 3 to our audited financial statements for the periods ended December 31, 2012 and 2011 included in this prospectus.

 

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Performance Summary

Income available to common shareholders was $28.4 million for the year ended December 31, 2012, an increase of 56.9% from $18.1 million in 2011, which was an increase of 103.4% from $8.9 million in 2010. This performance resulted in basic earnings per share of $2.04 for the year ended December 31, 2012, an increase of 31.6% over our earnings per share of $1.55 for 2011, which was an increase of 36.0% over our earnings per share of $1.14 for 2010. The increases in net income and earnings per share over the respective periods were primarily the result of the growth of our franchise in the New Orleans market area.

Our return on average assets was 1.19% for 2012, as compared to 1.17% in 2011 and 0.79% in 2010, and our return on average common equity was 15.77% for 2012, as compared to 14.28% in 2011 and 11.42% for 2010. The increase in both ratios was due primarily to the increased net interest income resulting from loan growth, as well as a reduced share of expenses attributable to fixed costs.

Our net interest margin was 3.36% for 2012, as compared to 3.44% in 2011 and 3.09% in 2010. The decrease in our net interest margin during 2012 was primarily attributable to the increase in our tax credit investments, which provide an economic return by reducing our income tax liability, rather than providing an investment yield. The expansion of our net interest margin from 2010 to 2011 was achieved by maintaining our yield on loans over the period, while lowering our cost of interest-bearing deposits by 32 basis points. Our efficiency ratio was 62.56% for 2012, as compared to 61.86% in 2011 and 62.57% in 2010. Our improved efficiency ratio in 2011 was attributable to our increased operating leverage as we continued to grow our franchise throughout our market area, as well as to an increase in noninterest income. The slight increase in the ratio in 2012 resulted from the increased expenses associated with our acquisition in November 2011 of Central Progressive Bank and its less efficient branch network. At the time of the acquisition, we made the strategic decision to retain all of the acquired branches as we focused on market expansion in the acquired markets. To date, we believe that this strategy has been successful as we have grown deposits from those branch offices from $344.8 million at the time of acquisition to $509.6 million at December 31, 2012, which represents deposit growth of 47.8% over approximately 13 months.

Our total assets increased $454.4 million, or 20.5%, to $2.7 billion as of December 31, 2012, compared to $2.2 billion as of December 31, 2011. Total assets increased $756.5 million, or 51.8%, to $2.2 billion as of December 31, 2011, compared to $1.5 billion as of December 31, 2010. Our net loans increased $262.0 million, or 16.0%, to $1.9 billion as of December 31, 2012, compared to $1.6 billion as of December 31, 2011. Net loans increased $533.2 million, or 48.5%, to $1.6 billion as of December 31, 2011, compared to $1.1 billion as of December 31, 2010. Total shareholders’ equity increased $26.2 million, or 11.8%, to $248.1 million as of December 31, 2012, compared to $221.9 million as of December 31, 2011. Total shareholders’ equity increased $92.5 million, or 71.5%, to $221.9 million as of December 31, 2011, compared to $129.4 million as of December 31, 2010.

Results of Operations For the Years Ended December 31, 2012, 2011 and 2010

Net Interest Income

Net interest income, the primary contributor to our earnings, represents the difference between the income that we earn on our interest-earning assets and the cost to us of our interest-bearing liabilities. Our net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the interest rates that we earn or pay on them. Net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as “volume changes.” It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as “rate changes.”

2012 vs 2011. Net interest income increased to $74.8 million for the year ended December 31, 2012 from $52.6 million for the year ended December 31, 2011, an increase of $22.1 million, or 42.1%. The primary driver

 

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was an increase in interest income to $106.5 million from $79.0 million for the year ended December 31, 2012 versus 2011, an increase of $27.5 million, or 34.8%, which was the result of the significant growth in average interest-earning assets to $2.2 billion from $1.5 billion. Interest expense grew to $31.7 million from $26.4 million for the year ended December 31, 2012 versus 2011, an increase of $5.3 million, or 20.1%, primarily as a result of an increase in interest-bearing deposits to $2.0 billion from $1.7 billion. The increase in expense was partially offset by the interest rate paid on these deposits, which decreased 35 basis points to 1.61% from 1.96%. The decrease in rates paid reflects the expansion of our service capabilities and growth in our customer base, which allowed us to continue transitioning our deposit mix from higher cost certificates of deposits into lower cost transaction accounts, which increased to 50.0% of total deposits in 2012 from 48.3% in 2011. The growth in earning assets and interest-bearing deposits during 2012 also reflected a full year of interest income and expense related to $245.5 million in earning assets and $344.8 million in deposits acquired in the Central Progressive Bank transaction. The remainder of the growth in earning assets and deposits was attributable to the continued implementation of our organic growth strategy as our existing branches continued to increase market share in their respective markets.

2011 vs 2010. Net interest income increased to $52.6 million for the year ended December 31, 2011 from $36.4 million for the year ended December 31, 2010, an increase of $16.3 million, or 44.8%. The primary driver was an increase in interest income to $79.0 million from $60.7 million for the year ended December 31, 2011 versus 2010, an increase of $18.3 million, or 30.1%, which was the result of the significant growth in average interest-earning assets to $1.5 billion from $1.2 billion. Interest expense grew to $26.4 million from $24.3 million for the year ended December 31, 2011 versus 2010, an increase of $2.1 million, or 8.6%, primarily as a result of an increase in interest-bearing deposits to $1.7 billion from $1.2 billion. The increase in expense was partially offset by the interest rate paid on these deposits, which decreased 32 basis points to 1.96% from 2.28%. The decrease in rates paid reflects the expansion of our service capabilities and growth in our customer base, which allowed us to continue transitioning our deposit mix from higher cost certificates of deposits into lower cost transaction accounts, which increased to 48.3% of total deposits in 2011 from 43.1% in 2010.

 

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The following table presents, for the periods indicated, the distribution of average assets, liabilities and equity, interest income and resulting yields earned on average interest-earning assets, and interest expense and rates paid on average interest-bearing liabilities. Nonaccrual loans are included in the calculation of the average loan balances, and interest on nonaccrual loans is included only to the extent recognized on a cash basis.

 

    For the Years Ended December 31,  
    2012     2011     2010  
                 
    Average
Outstanding
Balance
    Interest
Earned/
Paid
    Average
Yield/
Rate
    Average
Outstanding
Balance
    Interest
Earned/
Paid
    Average
Yield/
Rate
    Average
Outstanding
Balance
    Interest
Earned/
Paid
    Average
Yield/
Rate
 
    (dollars in thousands)        

Assets:

                 

Interest-earning assets:

                 

Short term investments

  $ 66,525      $ 144              0.22   $ 81,485      $ 168        0.21   $ 49,609      $ 97              0.19

Investment securities

    385,007        8,559        2.22        192,581        4,076        2.12        162,767        3,632        2.23   

Loans (including fee income)(1)

    1,775,436        97,754        5.51        1,254,201        74,770        5.96        963,551        56,962        5.91   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-earning assets

    2,226,968        106,457        4.78        1,528,267        79,014        5.17        1,175,927        60,691        5.16   

Less: Allowance for loan losses

    (21,386         (14,090         (9,782    

Noninterest-earning assets

    216,765            141,945            102,256       
 

 

 

       

 

 

       

 

 

     

Total assets

  $   2,422,347          $   1,656,122          $   1,268,401       
 

 

 

       

 

 

       

 

 

     

Liabilities and shareholders’ equity:

                 

Interest-bearing liabilities:

                 

Savings deposits

  $ 41,700      $ 263        0.63   $ 14,937      $ 121        0.81   $ 13,409      $ 124        0.92

Money market deposits

    397,818        6,433        1.62        331,188        5,807        1.75        265,642        5,705        2.15   

NOW accounts

    329,691        4,104        1.24        155,435        1,696        1.09        96,885        1.151        1.19   

Certificates of deposit under $100,000

    446,675        6,937        1.55        314,386        6,931        2.20        280,066        6,974        2.48   

Certificates of deposit of $100,000 or more

    513,865        9,145        1.78        348,583        7,654        2.20        290,392        7,210        2.48   

CDARS®

    111,399        2,715        2.44        103,409        2,676        2.59        115,386        2,992        2.59   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing deposits

    1,841,148        29,597        1.61        1,267,938        24,885        1.96        1,061,780        24,156        2.28   

Fed funds purchased and repurchase agreements

    40,343        592        1.47        29,027        448        1.54        8,416        105        1.25   

Other borrowings

    56,575        1,477        2.61        37,340        1,034        2.77        3,900        67        1.71   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing liabilities

    1,938,066        31,666        1.63        1,334,305        26,367        1.98        1,074,096        24,328        2.26   

Noninterest-bearing liabilities:

                 

Noninterest-bearing deposits

    229,102            133,204            77,194       

Other liabilities

    20,962            15,781            10,967       
 

 

 

       

 

 

       

 

 

     

Total liabilities

    2,188,130            1,483,290            1,162,257       
 

 

 

       

 

 

       

 

 

     

Shareholders’ equity

    234,217            172,832            106,144       
 

 

 

       

 

 

       

 

 

     

Total liabilities and equity

  $ 2,422,347          $ 1,656,122          $ 1,268,401       
 

 

 

       

 

 

       

 

 

     

Net interest income

    $ 74,791          $ 52,647          $ 36,363     
   

 

 

       

 

 

       

 

 

   

Net interest spread(2)

        3.15         3.19         2.90

Net interest margin(3)

        3.36         3.44         3.09

 

(1) Includes average outstanding balances of mortgage loans held for sale of $17,087, $5,084 and $750, respectively.

 

(2) Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.

 

(3) Net interest margin is net interest income divided by average interest-earning assets.

 

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The following table analyzes the dollar amount of change in interest income and interest expense with respect to the primary components of interest-earning assets and interest-bearing liabilities. The table shows the amount of the change in interest income or interest expense caused by either changes in outstanding balances or changes in interest rates. The effect of a change in balances is measured by applying the average rate during the first period to the balance (“volume”) change between the two periods. The effect of changes in rate is measured by applying the change in rate between the two periods to the average volume during the first period. Changes attributable to both rate and volume that cannot be segregated have been allocated proportionately to the absolute value of the change due to volume and the change due to rate. Changes attributable to the additional leap year day during 2012 are reflected in the number of days column.

 

    For the Years Ended December 31,  
    2012 Over 2011     2011 Over 2010  
    Increase/(Decrease) Due to Change In     Increase/(Decrease) Due to Change In  
    Volume     Rate     Number of
Days
     Total         Volume              Rate             Total      
    (dollars in thousands)  

Interest-earning assets:

               

Loans (including fee income)

  $ 30,331      $   (7,630   $   282       $   22,983      $   17,187       $ 621      $   17,808   

Short term investments

    (31     8        0         (23     63         8        71   

Securities available for sale

    4,070        391        22         4,483        656         (212     444   
 

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total increase (decrease) in interest income

  $ 34,370      $ (7,231   $ 304       $ 27,443      $ 17,906       $ 417      $ 18,323   
 

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Interest-bearing liabilities:

               

Savings deposits

  $ 201      $ (60   $ 1       $ 142      $ 13       $ (16   $ (3

Money market deposits

    1,126        (518     18         626        1,270         (1,168     102   

NOW accounts

    1,944        454        10         2,408        684         (140     544   

Certificates of deposit

    5,922        (4,444     58         1,536        1,862         (1,777     85   

Borrowed funds

    696        (115     6         587        948         363        1,311   
 

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total increase (decrease) in interest expense

    9,889        (4,683     93         5,299        4,777         (2,738     2,039   
 

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Increase (decrease) in net interest income

  $     24,481      $ (2,548   $ 211       $ 22,144      $ 13,129       $ 3,155      $ 16,284   
 

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Provision for Loan Losses

We consider a number of factors in determining the required level of our loan reserves and the provision required to achieve the appropriate reserve level including loan growth, loan quality rating trends, nonperforming loan levels, delinquencies, industry concentrations and economic trends in our market of operation and throughout the nation. We routinely perform stress testing to assess the risk in our portfolio to changes in economic trends. The provision for loan losses represents our determination of the amount necessary to be charged against the current period’s earnings to maintain the allowance for loan losses at a level that is considered adequate in relation to the estimated losses inherent in the loan portfolio.

Our provision for loan losses was $11.0 million in 2012, $8.0 million in 2011 and $5.5 million in 2010, which represented increases of 37.8% from 2011 to 2012 and 45.3% from 2010 to 2011. The increase in the provision for loan losses during 2012 was attributable to the growth in our loan portfolio; the increase in nonperforming and internally risk-classified loans, particularly with respect to one credit relationship of $11.2 million; the estimated effects of current economic conditions in our primary market, including the volatility within the oil and gas sector; and the slight deterioration in real estate values. The increase in the

 

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provision for loan losses during 2011 was attributable to the general growth in the risk in our loan portfolio due to economic factors within our market and loans acquired from Central Progressive Bank. As a result of these factors, our allowance for loan losses to total loans increased from 1.10% to 1.40% over the same time period.

Noninterest Income

Noninterest income was $13.1 million in 2012, compared with $6.0 million in 2011 and $5.6 million in 2010, representing an increase of approximately $7.1 million, or 118.3%, in 2012 and an increase of approximately $0.4 million, or 7.1%, in 2011. We experienced material growth in substantially all components of noninterest income. Excluding net investment securities gains, we experienced an increase in noninterest income of approximately $3.3 million, or 61.2%, during 2012 and $1.9 million, or 51.8%, during 2011. The following table presents the components of our noninterest income for the respective periods.

 

     For the Years Ended December 31,  
              2012                     2011                     2010          
     (dollars in thousands)  

Service charges on deposit accounts

   $         2,486      $         1,577      $         1,167   

Investment securities gains, net

     4,324        485        2,047   

Certified development entity fees earned

     1,136        670          

Gains on other real estate sold

     504                 

Gains (losses) on fixed assets, net

     (4     (147     1   

Gains on sales of loans, net

     603        779        419   

Cash surrender value income on bank-owned life insurance

     750        621        526   

State tax credits earned

     578        951        890   

ATM fee income

     1,686        500        232   

Other

     1,073        515        365   
  

 

 

   

 

 

   

 

 

 

Total noninterest income

   $ 13,136      $ 5,951      $ 5,647   
  

 

 

   

 

 

   

 

 

 

Service charges on deposit accounts. We earn fees from our customers for deposit-related services, and these fees comprise a significant and predictable component of our noninterest income. These charges increased $909,000, or 57.6%, in 2012 and $410,000, or 35.1%, in 2011. These fees increased over the periods shown as transaction volume increased with our growth. Income from service charges in 2011 and 2012 was further impacted by the acquisition of Central Progressive Bank, which was completed in November 2011. At the time of its acquisition, Central Progressive Bank had as many accounts (approximately 30,000) as we had prior to the acquisition, despite the disparity in asset size. In addition, these acquired accounts generally have had higher activity and lower average balances, resulting in higher fee income.

Investment securities gain. From time to time, we sell investment securities held as available-for-sale to fund loan demand, manage our asset/liability sensitivity or for other business purposes. Although sales of investment securities occur as a part of our banking operations, gains or losses experienced on the sale of investment securities are less predictable than many of the other components of our noninterest income because the amount of realized gains or losses are impacted by a number of factors, including the nature of the security sold, the purpose of the sale, the interest rate environment and other market conditions. We recorded a net investment securities gain of $4.3 million in 2012, compared to net gains of $485,000 in 2011 and $2.0 million in 2010. We elected to sell certain securities in 2012 and 2011 after considering reinvestment opportunities. These sales resulted in realized gains that we believe were attributable to the decline in market interest rates due in part to the financial distress occurring in Europe. The large net gain that we realized in 2010 reflected the impact of the European sovereign debt crisis, which drove U.S. Treasuries to very low rates. We took advantage of the interest rate environment to realize gains and reinvested the proceeds in municipal and corporate securities for which spreads had widened so that the sales had no negative impact on our yield on investment securities.

Community development entity fees earned. We earn management fees from First NBC Community Development Fund, LLC related to the Fund’s New Markets Tax Credit investments. Management fees are

 

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earned at the time that qualified equity investments are made and over the seven year term of the investment. These fees commenced in the second half of 2011 at the time of the Fund’s initial investments. The increase in community development entity fees earned in 2012 reflected a full year of management fees earned, as well as the increase in qualified equity investments during 2012 as compared to 2011.

Gains on sale of loans. We have historically been an active participant in Small Business Administration loan programs as a preferred lender and typically sell the guaranteed portion of the loans that we originate. In 2012, as a result of the Central Progressive Bank acquisition, we added a loan officer with extensive experience in loan programs guaranteed by the U.S. Department of Agriculture. As a result, we generated gains on loan sales of $603,000 in 2012, compared to $779,000 in 2011 and $419,000 in 2010. We believe that these government guaranteed loan programs are an important part of our service to the businesses in our communities and expect to continue expanding our efforts and income relating to these programs.

Cash surrender value income on bank-owned life insurance. We invest in bank-owned life insurance due to its attractive nontaxable return and protection against the loss of our key executives. As of December 31, 2012, we held $25.5 million in bank-owned life insurance. We record income based on the growth of the cash surrender value of these policies. Income attributable to bank-owned life insurance increased by $129,000, or 20.8%, during 2012, and by $95,000, or 18.1%, during 2011. The increases were primarily attributable to the purchase of $10.0 million of additional bank-owned life insurance during the second half of 2011. We earned tax-equivalent yields on these policies of 4.59% in 2012, 5.00% in 2011 and 5.96% in 2010. The decline in these yields are the result of interest rate trends in the United States over the three year period from 2010 to 2012.

State tax credits earned. As part of our investment in projects that generate federal income tax credits, we may receive state income tax credits along with our federal credits. Although we cannot utilize state tax credits, we earn income on the sale of state tax credits. For the years ended December 31, 2012, 2011 and 2010, we earned state tax credits of $578,000, $951,000 and $890,000, respectively. The decrease in 2012 was attributable to lower levels of investments in Federal Historic Rehabilitation Tax Credit projects during 2012. State tax credits were available for Federal Historic Rehabilitation Tax Credit and New Markets Tax Credit projects in 2010, but only for Federal Historic Rehabilitation Tax projects beginning in 2011. Moreover, only certain Federal Historic Rehabilitation Tax Credit projects qualify for state tax credits. For additional discussion of tax credits, see “Business – Investment in Tax Credit Entities.”

ATM fee income. This category includes income generated by automated teller machines, or ATMs. We experienced a significant increase in fees from our ATMs during 2011 and 2012 following the Central Progressive Bank transaction, as Central Progressive Bank added a significant number of transaction accounts and ATM locations. In addition, we generated additional fee income from non-bank customers who utilized former Central Progressive Bank ATMs to conduct banking transactions.

Other. This category includes a variety of other income producing activities, including income generated from trust services, credit cards and wire transfers. The increases in other noninterest income over the periods shown, which included increases in all of these other income producing activities, were attributable to increased customer activity resulting from our organic growth and the Central Progressive Bank transaction.

 

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Noninterest Expense

Our noninterest expense consists primarily of salary and employee benefits, occupancy and other expenses related to our operation and expansion. Noninterest expense increased by $18.8 million, or 51.8%, in 2012, and $10.0 million, or 37.9%, in 2011, primarily due to the Central Progressive Bank acquisition as well as our continued organic growth. The following table presents the components of our noninterest expense for the respective periods.

 

     For the Years Ended December 31,  
             2012                      2011                      2010          

Salaries and employee benefits

   $ 21,182       $ 12,801       $ 9,433   

Occupancy and equipment expenses

     9,755         6,428         5,357   

Professional fees

     3,269         3,969         2,357   

Taxes, licenses and FDIC assessments

     3,258         2,661         3,197   

Tax credit investment amortization

     4,808         2,868         611   

Write-down of other real estate owned

     295         1,212         73   

Other

     12,440         6,308         5,259   
  

 

 

    

 

 

    

 

 

 

Total noninterest expense

   $         55,007       $         36,247       $         26,287   
  

 

 

    

 

 

    

 

 

 

Salaries and employee benefits. Salaries and employee benefits are the largest component of noninterest expense and include employee payroll expense, the cost of incentive compensation, benefit plans, health insurance and payroll taxes, all of which have increased in each of the past three years as we have hired more employees and expanded our banking operations, branch network and transaction volumes. These expenses increased approximately $8.4 million, or 65.5%, during 2012 and $3.4 million, or 35.7%, during 2011, as a result of new personnel added to support the higher levels of assets, loan origination, deposit growth and wealth management activities. We had approximately 433 full-time equivalent employees at December 31, 2012, 390 employees as of December 31, 2011, and 213 employees as of December 31, 2010. The increase in 2011 included 137 full-time equivalent employees added during the fourth quarter of 2011 in connection with our acquisition of Central Progressive Bank. The increase in salaries and employee benefits during 2012 reflected a full year of expenses related to the increased employee levels resulting from the Central Progressive Bank acquisition, as compared to slightly more than one month during 2011. The increase in salaries and employee benefits during 2012 was also attributable to an increase in salary levels and an increase in employee bonuses attributable to our increasing profitability.

Occupancy and equipment expenses. Occupancy and equipment expenses, consisting primarily of rent and depreciation, were $9.8 million in 2012, an increase of $3.3 million, or 51.8%, from $6.4 million in 2011. Occupancy and equipment expenses were $6.4 million in 2011, an increase of $1.1 million in 2011, or 20.0%, as compared to $5.4 million in 2010. These expenses materially increased in 2011 and 2012, primarily as a result of our acquisition of Central Progressive Bank’s branch network. We opened one branch in 2011 and, in the fourth quarter of 2011, acquired Central Progressive Bank’s 17 branches. In 2012, we realized a full year of expenses related to the Central Progressive Bank branches acquired. Although we did not add any new branch offices during 2012, we relocated several existing branch offices into more attractive locations. The level of our occupancy expenses is related to the number of branch offices that we maintain, and we expect that these expenses will increase as we continue to implement our strategic growth plan.

Professional fees. Professional fees include fees paid to external auditors, loan review professionals and other consultants, as well as legal services required to complete transactions and resolve legal matters on delinquent loans. These expenses totaled $3.3 million in 2012, a $700,000, or 17.6%, decrease from 2011. The decrease in professional fees in 2012 was primarily related to the absence of the one-time transaction costs associated with our acquisition of Central Progressive Bank in 2011, and our implementation in 2011 of enhanced internal control requirements under the FDIC Improvement Act of 1991. Professional fees increased in 2011 primarily as a result of increased management expenses related to the increase in the volume of our New

 

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Markets Tax Credit and other community development investments, and the aforementioned costs related to internal control requirements and acquisition costs related to Central Progressive Bank.

Taxes, licenses and FDIC assessments. Our FDIC insurance premiums and assessments comprise the largest component of this category. Effective April 1, 2011, the FDIC modified the manner in which FDIC-insured institutions calculate deposit insurance assessments. See the section titled “Supervision and Regulation – Federal Deposit Insurance” for additional information regarding the manner in which our FDIC insurance premiums are calculated. Despite our deposit growth during 2011, the change in the calculation methodology resulted in a decrease in the FDIC assessments by $536,000, as compared to the year ended December 31, 2010. Our FDIC fees and assessments increased $597,000, or 22.5%, during 2012, primarily as a result of an increase in our assessment base. We expect our FDIC fees and assessments to continue to increase as our assessment base increases.

Tax credit investment amortization. Tax credit investment amortization reflects our amortization of investments in entities that undertake projects that qualify for tax credits against federal income taxes. At this time, our investments are directed at tax credits issued under the New Markets, Federal Historic Rehabilitation and Low Income Housing Tax Credit programs. We amortize investments related to New Markets Tax Credits and Low Income Housing Tax Credits over the minimum compliance period associated with the credit, and investments related to Federal Historic Rehabilitation Tax Credits over the period for which we retain ownership under the contracted terms. The following table presents the amortization of tax credit investments by type of credit for the respective periods.

 

     For the Years Ended December 31,  
             2012                      2011                      2010          
     (dollars in thousands)  

Low Income Housing

   $ 1,287       $ 1,602       $ 318   

Federal Historic Rehabilitation

     428         171         60   

New Markets

     3,093         1,095         233   
  

 

 

    

 

 

    

 

 

 

Total tax credit amortization

   $         4,808       $         2,868       $         611   
  

 

 

    

 

 

    

 

 

 

The significant increases in amortization expense across all categories reflect the increase in the level of activity throughout the three year period as we invested in additional projects and as some of our large Low Income Housing Tax Credit projects were completed in 2011. These Low Income Housing Tax Credit projects had been delayed for several years by the global financial crisis, which eliminated many of the buyers of these tax credits and caused the state sponsoring agency to substantially delay its tax credit award process. For further discussion regarding tax credits, see “Business – Investment in Tax Credit Entities.”

Other. These expenses include costs related to our information systems, advertising and marketing, insurance, customer service, communications, write-downs of other real estate, supplies and other operations. The increase in other noninterest expense over the periods shown was primarily attributable to an increase in categories of other noninterest expenses proportional to our overall growth and an increase in transaction volume and number of customers resulting from our organic growth and the Central Progressive Bank acquisition. Additionally, during 2011, we incurred a $1.2 million loss primarily attributable to the write-off of two real estate development loans on inner city properties.

Provision for Income Taxes

Our provision for income taxes varies due to the amount of income recognized for generally accepted accounting principles and tax purposes and as a result of the tax benefits derived from our investments in tax-advantaged securities and tax credit projects. As discussed in “Business – Investment in Tax Credit Entities, we engage in material investments in entities that are designed to generate tax credits, which we utilize to reduce our current and future taxes. These credits are recognized when earned as a benefit in our provision for income taxes.

 

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We recognized an income tax benefit in 2012 and 2011, compared to a modest income tax provision in 2010. The increase in income tax benefit during 2012 was due primarily to the significant increase in New Markets Tax Credit investment activity. The increase in income tax benefit during 2011 was due primarily to increases in tax credit activities over all categories. The increase in Low Income Housing and Federal Historic Rehabilitation tax credits in 2011 was attributable to the significant number of projects that were completed that year. The increase in New Markets Tax Credits in 2011 was generated from our significant New Markets Tax Credit investment activity, following the $28.0 million allocation of New Markets Tax Credits to First NBC Community Development Fund in 2011, which was partially invested in 2011. The increase in New Markets Tax Credits in 2012 was generated from our continued significant New Markets Tax Credit investment activity in 2012, which included investments utilizing the remainder of the 2011 allocation and the $40.0 million New Markets Tax Credit allocation received in 2012.

The following table presents the reconciliation of expected income tax provisions using statutory federal rates to our actual provisions (benefit) for income taxes recognized.

 

     For the Years Ended December 31,  
             2012                     2011                     2010          
     (dollars in thousands)  

Tax expense at statutory rates

   $             7,481      $             5,019      $             3,471   

Tax credits:

      

Low Income Housing

     (2,480     (2,818     (547

Federal Historic Rehabilitation

     (3,241     (2,442     (1,119

New Markets

     (11,379     (7,882     (2,789
  

 

 

   

 

 

   

 

 

 

Total tax credits

     (17,100     (13,142     (4,455

Tax credit basis reduction

     2,767        3,112        1,291   

Tax exempt income

     (655     (509     (395

Change in statutory rate

            293          

Other

     (58     (180     235   
  

 

 

   

 

 

   

 

 

 

Provision/(benefit) for income taxes

   $ (7,565   $ (5,407   $ 147   
  

 

 

   

 

 

   

 

 

 

Although our ability to continue to access new tax credits in the future will depend, among other factors, on federal and state tax policies, as well as the level of competition for future tax credits, we expect to recognize the following levels of tax credits over the next six calendar years based only on New Markets Tax Credit investments that have been made and over the next seven calendar years based upon the Low Income Housing investments already made.

 

     For the Year Ended December 31,  
         2013              2014              2015              2016              2017              2018              2019      
     (dollars in thousands)         

New Markets

   $ 11,724       $ 12,732       $ 13,099       $ 12,122       $ 10,052       $ 4,002         n/a   

Low Income Housing

   $ 3,580       $ 3,580       $ 3,580       $ 3,580       $ 3,580       $ 3,580       $ 3,580   

These projections do not include an aggregate of $37.4 million in tax credit carryforwards for tax return purposes, which were generated primarily from New Markets, Federal Historic Rehabilitation and Low Income Housing Tax Credits that we were unable to utilize in prior years, or $11.5 million in net operating loss carryforwards as of December 31, 2012, which may also be utilized in future periods to offset our liability for taxes payable.

Financial Condition as of December 31, 2012 and 2011

Our assets increased $454.4 million, or 20.5%, to $2.7 billion as of December 31, 2012, compared to $2.2 billion as of December 31, 2011 as we continued to grow in the New Orleans market area. Our net loans

 

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increased $262.0 million, or 16.0%, to $1.9 billion as of December 31, 2012, compared to $1.6 billion as of December 31, 2011. Our securities available-for-sale increased $159.9 million, or 49.0%, to $486.4 million as of December 31, 2012, compared to $326.5 million as of December 31, 2011. Our deposits increased $366.5 million, or 19.3%, to $2.3 billion as of December 31, 2012, compared to $1.9 billion as of December 31, 2011. Total shareholders’ equity increased $26.2 million, or 11.8% to $248.1 million as of December 31, 2012, compared to $221.9 million as of December 31, 2011, primarily as a result of our operating earnings.

Our assets increased $756.5 million, or 51.8%, to $2.2 billion as of December 31, 2011, compared to $1.5 billion as of December 31, 2010 as we continued to grow in the New Orleans market area. Our net loans increased $533.2 million, or 48.5%, to $1.6 billion as of December 31, 2011, compared to $1.1 billion as of December 31, 2010. Our securities available-for-sale increased $105.5 million, or 47.7%, to $326.5 million as of December 31, 2011, compared to $221.0 million as of December 31, 2010. Our deposits increased $607.2 million, or 46.9%, to $1.9 billion as of December 31, 2011, compared to $1.3 billion as of December 31, 2010. Total shareholders’ equity increased $92.5 million, or 71.5%, to $221.9 million as of December 31, 2011, compared to $129.4 million as of December 31, 2010, as a result of our operating earnings, additional net capital raised and the issuance of Small Business Lending preferred stock.

This growth was accomplished through expanding our branch network into new parts of our market, growing our market share in existing branches and opportunistic acquisitions, primarily the acquisition of Central Progressive Bank in 2011.

Loan Portfolio

Our primary source of income is interest on loans to small-and medium-sized businesses, real estate owners in our market area and our private banking clients. Our loan portfolio consists primarily of commercial loans and real estate loans secured by commercial real estate properties located in our primary market area. Our loan portfolio represents the highest yielding component of our earning asset base.

The following table sets forth the amount of loans, by category, as of the respective periods.

 

    As of December 31,  
    2012     2011     2010     2009     2008  
    Amount     Percent     Amount     Percent     Amount     Percent     Amount     Percent     Amount     Percent  
    (dollars in thousands)  

Construction

  $ 164,043        8.5   $ 194,295        11.8   $ 93,798        8.4   $ 120,057        14.1   $ 77,874        13.2

Commercial real estate

    945,443        49.2        805,101        48.7        577,994        52.0        424,657        50.1        280,355        47.6   

Consumer real estate

    103,516        5.4        81,663        4.9        58,802        5.3        11,369        1.3        15,920        2.7   

Commercial

    683,713        35.6        540,827        32.8        361,405        32.5        274,904        32.4        194,120        33.0   

Consumer

    14,073        0.7        14,318        0.9        7,518        0.7        7,670        0.9        5,912        1.0   

Other

    11,429        0.6        15,132        0.9        12,966        1.1        9,876        1.2        14,769        2.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

  $ 1,922,217        100.0   $ 1,651,336        100.0   $ 1,112,483        100.0   $ 848,533        100.0   $ 588,950        100.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the past five years, we have experienced significant growth in our loan portfolio, although the relative composition of our loan portfolio has not changed significantly over that time. Our primary focus has been on commercial real estate and commercial lending, which constituted 84.8% of our loan portfolio, as of December 31, 2012. Although we expect continued growth with respect to our loan portfolio, we do not expect any significant changes over the foreseeable future in the composition of our loan portfolio or in our emphasis on commercial real estate and commercial lending.

Our loan growth since inception has been reflective of the market we serve. We began lending in 2006, shortly after Hurricane Katrina, which heavily damaged a significant percentage of the real estate in our market. Thus, the primary economic driver of our lending activities in our early years was the recovery activities

 

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following Hurricane Katrina, which were partially funded by insurance proceeds and government funding in programs and tax credits allocated to rebuild and enhance flood protection and repair infrastructure. These rebuilding activities created substantial commercial real estate and construction lending opportunities for us. Our construction and commercial real estate lending portfolios have continued to experience strong growth over the past several years, as economic conditions within our market have improved and the hospitality industry has become revitalized. A significant portion of our commercial real estate exposure represents loans to commercial businesses secured by owner occupied real estate which, in effect, are commercial loans with the borrowers’ real estate providing a secondary source of repayment. Commercial loans represent the second largest category of loans in our portfolio. We attribute our commercial loan growth primarily to implementation of our relationship-based banking model and the success of our relationship managers in transitioning commercial banking relationships from other local financial institutions and in competing for new business from attractive small to mid-sized commercial customers located in our market for which our approach to customer service is desirable. Many of our larger commercial customers have lengthy relationships with members of our senior management team or our relationship managers that date back to the former First National Bank of Commerce.

The following table sets forth the contractual maturity ranges, and the amount of loans with fixed and variable rates, in each maturity range.

 

      As of December 31, 2012  
       Due Within One  
Year
     After One but
Within Five
Years
     After Five Years      Total  
     (dollars in thousands)  

Construction

   $ 87,273       $ 66,814       $ 9,956       $ 164,043   

Commercial real estate

     222,771         647,848         74,824         945,443   

Consumer real estate

     10,287         41,650         51,579         103,516   

Commercial

     346,661         271,069         65,983         683,713   

Consumer

     4,831         8,704         538         14,073   

Other

             11,429                 11,429   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 671,823       $ 1,047,514       $ 202,880       $ 1,922,217   
  

 

 

    

 

 

    

 

 

    

 

 

 

Amounts with fixed rates

   $ 237,420       $ 529,586       $ 120,080       $ 887,086   

Amounts with variable rates

     434,403         517,928         82,800         1,035,131   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $       671,823       $     1,047,514       $     202,880       $     1,922,217   
  

 

 

    

 

 

    

 

 

    

 

 

 

Nonperforming Assets

Nonperforming assets consist of nonperforming loans, other real estate owned and other repossessed assets. Nonperforming loans consist of loans that are on nonaccrual status and restructured loans, which are loans on which we have granted a concession on the interest rate or original repayment terms due to financial difficulties of the borrower. Other real estate owned consists of real property acquired through foreclosure. We initially record other real estate owned at the lower of carrying value or fair value, less estimated costs to sell the assets. Estimated losses that result from the ongoing periodic valuations of these assets are charged to earnings as noninterest expense in the period in which they are identified. We account for troubled debt restructurings in accordance with ASC 310, “Receivables.”

We generally place loans on nonaccrual status when they become 90 days past due, unless they are well secured and in the process of collection. We also place loans on nonaccrual status if they are less than 90 days past due if the collection of principal or interest is in doubt. When a loan is placed on nonaccrual status, any interest previously accrued, but not collected, is reversed from income.

 

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Once a foreclosure is completed, the loan is reclassified as other real estate owned until a sale date and title to the property is finalized. Once we own the property, it is maintained, marketed, rented and sold to recoup our investment. Historically, foreclosure trends have been low due to the seasoning of our portfolio. Any loans that are modified or extended are reviewed for classification as a restructured loan in accordance with regulatory guidelines. We complete a process that outlines the modification, the reasons for the proposed modification and documents the current status of the borrower.

The following table sets forth information regarding nonperforming assets as of the dates indicated:

 

     As of December 31,  
     2012     2011     2010     2009     2008  
     (dollars in thousands)  

Nonaccrual loans

   $     21,083      $     9,017      $     3,715      $     5,624      $     5,723   

Restructured loans

     2,336        1,403        30                 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total nonperforming loans

     23,419        10,420        3,745        5,624        5,723   

Other assets owned(1)

            18                        

Other real estate owned

     8,632        7,991        6,207        2,484          
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total nonperforming assets

   $ 32,051      $ 18,429      $ 9,952      $ 8,108      $ 5,723   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accruing loans past due 90+ days

   $      $      $ 131      $      $   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Nonperforming assets to loans, other real estate owned and other assets owned

     1.66     1.11     0.89     0.95     0.97

 

(1) Represents repossessed property other than real estate.

Approximately $426,000, $335,000 and $318,000 of gross interest income would have accrued if all loans on nonaccrual status had been current in accordance with their original terms for the years ended December 31, 2012, 2011, and 2010, respectively.

We have maintained low levels of nonperforming assets since our inception in 2006. Although total nonperforming assets increased $13.6 million in, or 73.92%, during 2012, this increase was primarily isolated in one customer relationship, which management does not believe is indicative of a future decline in asset quality. We believe that our historically low level of nonperforming assets reflects the strength of our local economy, as well as our long-term knowledge of and relationships with a significant percentage of our borrowers.

The following table sets forth the allocation of our nonaccrual loans among the various categories within our loan portfolio as of the respective periods.

 

     As of December 31,  
             2012                      2011                      2010                      2009                      2008          
     (dollars in thousands)  

Construction

   $ 806       $ 2,244       $       $ 223       $ 1,324   

Commercial real estate

     5,831         3,463         1,174         2,469         1,431   

Consumer real estate

     818         1,739         1,386         1,488         2,164   

Commercial

     13,556         1,489         1,103         1,434         800   

Consumer

     72         82         52         10         4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $     21,083       $     9,017       $     3,715       $     5,624       $     5,723   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Potential problem loans are those loans that are not categorized as nonperforming loans, but where current information indicates that the borrower may not be able to comply with present loan repayment terms. These are generally referred to as our watch list loans. We monitor past due status as an indicator of credit

 

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deterioration and potential problem loans. A loan is considered past due when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. To the extent that loans become past due, management assesses the potential for loss on such loans as it would with other problem loans and considers the effect of any potential loss in determining its provision for probable loan losses. Management also assesses alternatives to maximize collection of any past due loans, including, without limitation, restructuring loan terms, requiring additional loan guarantee(s) or collateral or other planned action. Additional information regarding past due loans as of December 31, 2012 is included in note 6 to our audited financial statements for the periods ended December 31, 2012 and 2011 included in this prospectus.

Allowance for Loan Losses

We maintain an allowance for loan losses that represents management’s best estimate of the loan losses and risks inherent in the loan portfolio. In determining the allowance for loan losses, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of the allowance for loan losses is based on internally assigned risk classifications of loans, historical loan loss rates, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates. For additional discussion of our methodology, please refer to the section of this discussion and analysis titled, “Application of Critical Accounting Policies and Accounting Estimates – Allowance for Loan Losses.”

The allowance for loan losses is increased by provisions charged against earnings and reduced by net loan charge-offs. Loans are charged-off when we determine that collection has become unlikely. Recoveries are recorded only when cash payments are received.

The allowance for loan losses was $27.0 million, or 1.40% of total loans, as of December 31, 2012, compared to $18.1 million, or 1.10% of total loans, as of December 31, 2011, and $12.5 million, or 1.12% of total loans, as of December 31, 2010. The increase in our allowance for loan losses as a percent of total loans in 2012 was primarily attributable to the estimated effects of economic conditions on our loan portfolio, the growth and composition of our loan portfolio and the increase in our non-performing loans. The decrease in our allowance for loan losses as a percent of total loans in 2011 was primarily attributable to the fact that the loans acquired from Central Progressive Bank were recorded at fair value, in accordance with generally accepted accounting principles, and thus required no separate allowance.

Net charge-offs as a percentage of average loans were 0.12%, 0.19% and 0.09% as of December 31, 2012, 2011 and 2010, respectively. The increase in net charge-offs as a percentage of average loans in 2011 was primarily attributable to the charge-offs related to two real estate development loans on inner city properties.

 

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The following table provides an analysis of the allowance for loan losses and net charge-offs for the respective periods.

 

     As of and for the
Years Ended December 31,
 
     2012     2011     2010     2009     2008  
     (dollars in thousands)  

Beginning balance

   $ 18,122      $ 12,508      $ 7,889      $ 5,504      $ 2,245   

Charge-offs:

          

Construction

                   22                 

Commercial real estate

     1,262        614        90                 

Consumer real estate

     59        700                        

Commercial

     1,068        864        773        27        45   

Consumer

     172        284        100        132        96   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total charge-offs

     2,561        2,462        985        159        141   

Recoveries:

          

Construction

     16               7                 

Commercial real estate

     132               38                 

Consumer real estate

     22        9                      2   

Commercial

     153        10        1        45        17   

Consumer

     58        47        44        33        49   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recoveries

     381        66        90        78        68   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     2,180        2,396        895        81        73   

Provision for loan loss

     11,035        8,010        5,514        2,466        1,575   

Transfer from purchase acquisition

                                 1,757   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $     26,977      $     18,122      $     12,508      $     7,889      $     5,504   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs to average loans

     0.12     0.19     0.09     0.01     0.01

Allowance for loan losses to total loans

     1.40     1.10     1.12     0.93     0.93

Although we believe that we have established our allowance for loan losses in accordance with accounting principles generally accepted in the United States and that the allowance for loan losses was adequate to provide for known and inherent losses in the portfolio at all times shown above, future provisions will be subject to ongoing evaluations of the risks in our loan portfolio. If we experience economic declines or if asset quality deteriorates, material additional provisions could be required.

 

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Our allowance for loan losses is allocated to loan categories based on the relative risk characteristics, asset classifications and actual loss experience of the loan portfolio. The following table sets forth the allocation of the total allowance for loan losses by loan type and sets forth the percentage of loans in each category to gross loans. The allocation of the allowance for loan losses as shown in the table should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in future periods will necessarily occur in these amounts or in the indicated proportions. The unallocated portion of the allowance for loan losses and the total allowance are applicable to the entire loan portfolio.

 

    As of December 31,  
    2012     2011     2010     2009     2008  
    Amount     % of
Loans to
Total
Loans
    Amount     % of
Loans to
Total
Loans
    Amount     % of
Loans to
Total
Loans
    Amount     % of
Loans to
Total
Loans
    Amount     % of
Loans to
Total
Loans
 
    (dollars in thousands)  

Construction

  $ 2,004        8.5   $ 722        11.8   $ 486        8.4   $ 314        14.1   $ 255        13.2

Commercial real estate

    10,716        49.2        9,871        48.7        6,594        52.0        3,119        50.1        1,665        47.6   

Consumer real estate

    2,450        5.4        1,519        4.9        983        5.3        1,853        1.3        1,421        2.7   

Commercial

    11,675        36.2        5,928        33.7        4,162        33.6        2,270        33.6        1,757        35.5   

Consumer

    132        0.7        82        0.9        283        0.7        333        0.9        406        1.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $     26,977        100.0   $     18,122        100.0   $     12,508        100.0   $     7,889        100.0   $     5,504        100.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Securities

Our securities portfolio is used to make various term investments, maintain a source of liquidity and serve as collateral for certain types of deposits and borrowings. We manage our investment portfolio according to a written investment policy approved by our Board of Directors. Investment balances in our securities portfolio are subject to change over time based on our funding needs and interest rate risk management objectives. Our liquidity levels take into account anticipated future cash flows and all available sources of credits and are maintained at levels management believes are appropriate to assure future flexibility in meeting our anticipated funding needs.

Our securities portfolio consists primarily of U.S. government agency obligations, mortgage-backed securities and municipal securities, although we also hold corporate bonds and other debt securities, all with varying contractual maturities. However, these maturities do not necessarily represent the expected life of the securities as the securities may be called or paid down without penalty prior to their stated maturities, and our targeted duration for our investment portfolios is in the three to four year range. No investment in any of these securities exceeds any applicable limitation imposed by law or regulation. The Asset Liability Committee reviews the investment portfolio on an ongoing basis to ensure that the investments conform to our investment policy. All of our securities as of December 31, 2012 were classified as Level 2 assets, as their fair value was estimated using pricing models or quoted prices of securities with similar characteristics.

Our investment portfolio consists entirely of “available-for-sale” securities. As a result, the carrying values of our investment securities are adjusted for unrealized gain or loss as a valuation allowance, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity.

Our available-for-sale securities, carried at their fair market value, increased to $486.4 million at December 31, 2012 from $326.5 million and $221.0 million at December 31, 2011 and 2010, respectively. The increases in available-for-sale securities were funded primarily from increases in deposits and $55.0 million in long-term debt issued in 2010 and 2011 in connection with our asset/liability management as a hedge against rising interest rates. As of December 31, 2012, investment securities having a carrying value of $121.4 million were pledged to secure public deposits, securities sold under agreements to repurchase and borrowings.

 

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The following table presents a summary of the amortized cost and estimated fair value of our investment portfolio, which was held entirely as available-for-sale.

 

    As of December 31,  
    2012     2011     2010  
    Amortized
Cost
    Unrealized
Gain /
(Loss)
    Estimated
Fair
Value
    Amortized
Cost
    Unrealized
Gain /
(Loss)
    Estimated
Fair
Value
    Amortized
Cost
    Unrealized
Gain /
(Loss)
    Estimated
Fair
Value
 
    (dollars in thousands)  

U.S. Treasury securities

  $ 10,040      $ 5      $ 10,045      $      $      $      $      $      $   

U.S. government agency securities

    128,665        82        128,747        56,640        17        56,657        4,006        1        4,007   

Municipal securities

    61,907        840        62,747        47,386        768        48,154        51,282        (126     51,156   

Mortgage-based securities

    152,481        1,361        153,842        165,162        2,586        167,748        113,506        (1,285     112,221   

Corporate bonds

    49,912        62        49,974        44,401        (651     43,750        16,737        (199     16,538   

Other debt securities

    81,044        0        81,044        10,180               10,180        37,068               37,068   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 484,049      $ 2,350      $ 486,399      $ 323,769      $ 2,720      $ 326,489      $ 222,599      $ (1,609   $ 220,990   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

All of our mortgage-backed securities are agency securities. We do not hold any Fannie Mae or Freddie Mac preferred stock, corporate equity, collateralized debt obligations, collateralized loan obligations, structured investment vehicles, private label collateralized mortgage obligations, sub-prime, Alt-A, or second lien elements in our investment portfolio. At December 31, 2012, our investment portfolio did not contain any securities that are directly backed by subprime or Alt-A mortgages.

The following table sets forth the fair value, maturities and approximated weighted average yield based on estimated annual income divided by the average amortized cost of our securities portfolio at December 31, 2012. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

    As of December 31, 2012  
    Due Within One Year     After One but Within
Five Years
    After Five but Within
Ten Years
    After Ten Years     Total  
      Amount         Yield         Amount         Yield         Amount         Yield         Amount         Yield         Amount         Yield    
    (dollars in thousands)  

U.S. Treasury securities

  $ 10,045        0.24   $          $          $          $ 10,045        0.24

U.S. government agency securities

    40,888        0.92        6,579        1.18        68,823        1.68        12,457        2.77        128,747        1.52   

Municipal securities

    10,056        1.06        19,730        3.40        30,871        4.21        2,090        4.65        62,747        3.43   

Mortgage-based securities

    53,764        1.60        71,355        1.85        5,491        2.09        23,232        2.25        153,842        1.83   

Corporate bonds

    5,000        2.00        10,685        2.42        25,773        3.39        8,516        3.27        49,974        3.02   

Other debt securities

    81,044        2.83                                                  81,044        2.83   
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Total

  $   200,797        1.87   $   108,349        2.15   $   130,958        2.59   $   46,295        2.67   $   486,399        2.20
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Cash Surrender Value of Bank-Owned Life Insurance

At December 31, 2012, we maintained investments of $25.5 million in bank-owned life insurance products due to its attractive risk-adjusted return and protection against the loss of key executives, as compared to $24.8 million and $14.1 million at December 31, 2011 and 2010, respectively. Our tax equivalent yield on these products was 4.59%, 5.00%, and 5.96% for the years ending December 31, 2012, 2011 and 2010, respectively.

 

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Deferred Tax Asset

We had a net deferred tax asset of $16.6 million as of December 31, 2012 due to our tax net operating losses, carryforwards related to unused tax credits, and the non-deductibility of our loan loss provision for tax purposes. We test the recoverability of our deferred tax asset annually, and the current level of taxable income provides for the ultimate realization of the carrying value of these deferred tax assets. Net deferred tax assets as of December 31, 2012 represented significant increases over net deferred tax assets of $6.5 million and $1.9 million as of December 31, 2011 and 2010, respectively, primarily as a result of the excess of our loan loss provision over the deductible net charge-offs and the increase in tax carryforwards related to unused tax credits.

Other Assets

Other assets, consisting primarily of prepaid expenses and software, totaled $20.9 million as of December 31, 2012, as compared to $22.5 million and $8.9 million at December 31, 2011 and 2010, respectively.

Deposits

Deposits are our primary source of funds to support our earning assets. Total deposits were $2.3 billion as of December 31, 2012, compared to $1.9 billion and $1.3 billion as of December 31, 2011 and 2010, respectively. We attribute the growth of our deposit base since inception to a number of factors, including the following:

 

   

Our ability to attract customers who banked at the former First National Bank of Commerce, which had 28% deposit market share at the time of its sale to Bank One in 1988;

 

   

The development of a branch network that provides deposit-taking services from 32 banking locations in the three major population centers of our market: Orleans, Jefferson and St. Tammany parishes;

 

   

The completion of our FDIC-assisted acquisition of Central Progressive Bank, which added $344.8 million to our deposit base as of November 18, 2011;