I am pleased to present an update on the progress of First NBC Bank. There have been a number of events which provide the opportunity for the bank to continue its rapid growth and expansion. We expect the future to continue to show significant returns and we will continue to offer quality customer service.
Results of Operations
As of September 30, 2007, the bank reached $343MM in total assets; an increase of $251MM or 273% since September 30, 2006. The Bank’s operating results reflect a steady trend of improvement. Our gross interest income for the nine months exceeded $10MM and our net interest income was $4.9MM. We expect significant non-interest income enhancement in 2008. Our non-interest expense remains in line with our expectations and
the Dryades Savings Bank acquisition should enhance our efficiency significantly. Our profitability at the 17 month level places us in the top 10% of the banks chartered in 2006.
Significant Developments
The past four months have provided a number of significant events which I would like to share with you and which harbor the opportunity for expanded growth and profitability for the year 2008 and beyond.
On November 9, 2007, First NBC Bank Holding Company entered into a definitive agreement to acquire all of the common stock of Dryades Bancorp, Inc. and its subsidiary, Dryades Savings Bank. As of September 30, 2007, Dryades Savings Bank reported total assets of $80MM. The transaction, which must be approved by the shareholders of Dryades and by the regulatory authorities, involves a stock for stock swap of First NBC Bank Holding Company stock for all of the outstanding stock of Dryades Bancorp. The two holding companies will be merged; however, we will maintain the existence of Dryades Savings Bank as a minority bank focused on the minority market which is a major segment of the New Orleans economy. The price paid for Dryades represents approximately 1 times their book value and we believe that the acquisition will be accretive to our shareholders from both a book value per share as well as earnings per share. We believe that the synergies achieved by consolidating the back room operations of the two entities as well as enhancements to income which will come from repositioning the Dryades $40MM plus security portfolio into high-yielding loans generated through the First NBC loan origination system will make this acquisition extremely favorable to our shareholders. We expect to close the acquisition in the early part of 2008.
Adding onto its branch network, the bank has signed leases for branches in Uptown, New Orleans at the intersection of St. Charles Avenue and Louisiana Avenue and also for the affluent Kenner area of Jefferson Parish. Our branch network is quickly coming into the position of providing the primary deposit support gathering activity in order to fund our loan growth which remains outstanding. These two new locations will provide additional opportunity to gain deposit market share through our branch system which has really fueled the majority of our growth since the first branch opened in February, 2007.
Our loan growth which has continued to excel during October and November is expected to follow that same pattern over the next 3-5 months based on our pipeline which is currently in excess of $100MM and continues to expand as fast as we are able to book loans. We have been pleasantly surprised with the opportunity we have had to provide proposals to many former First NBC customers and also to provide loan support to many of the top customers of our primary competitors. As the bank grows, we become attractive for a new set of potential customers and also as we add lending talent, we find that a large number of new potential customers are open to obtaining loans from our bank. Our success ratio with respect to our loan opportunities has been very high and we are now realizing the benefits of our high-quality service through our customers refinancing as to many customers with whom we have not previously had relationships.
Outlook of New Orleans Economy
Almost all of our loan growth over the past 17 months has had little to do with the recovery in the New Orleans area. The New Orleans economy remains strong by traditional standards such as unemployment levels, sales growth, and average wages. However, the significant expansion expected as a result of the major sources of recovery funding including the Louisiana Road Home program, the FEMA infrastructure reimbursements, and the substantial amount of unpaid insurance claims has not yet fully impacted New Orleans and the surrounding area. However, recent changes at the governmental level indicate that 2008 should be the beginning of a major expansion of the New Orleans economy resulting from $8 billion or $9 billion of Road Home money being paid out, $6 billion of FEMA infrastructure payments, and over $10 billion of insurance settlements. All of this funding is now being accelerated and should lead to an expansion of the New Orleans economy well beyond its current level. Moreover, the economic status of the area will also be helped by the significant slow down in the U.S. economy and especially in the home building industry which has been a major contributor to the U.S. economy over the past 5 years. I expect a large migration of construction companies, laborers, and capital attracted by the more positive environment for expansion in New Orleans as opposed to the rest of the United States. The New Orleans area still has a shortage of approximately 200,000 housing units to get back to its pre-Katrina status and 2008 and 2009 should be the years in which the majority of those units are brought back into service. Along with residential construction, there will also be significant commercial construction associated with both Katrina repairs as well as expansion of infrastructure in order to handle the influx of returning and new residents.
I hope that you are pleased with the accomplishments of First NBC during its first 17 months. We look forward to continuing these results and improving upon them to achieve our goals of rapid growth and high shareholder returns. Here’s to a great 2008.
