The second quarter of 2008 has been a very active and productive quarter for our Company. We are excited about the progress our Company has made during its second full year of operation (May 19, 2007 to May 19, 2008). Our second anniversary marked the completion of two significant acquisitions as well as continued internal growth. The highlights of our second quarter are as follows:
Completed the acquisition and conversion to our systems of Dryades Savings Bank. This transaction was a stock for stock acquisition in which we issued 175,000 shares of our stock to Dryades shareholders. Dryades, a minority institution with $71,000,000 of total assets, will continue to operate as a separate legal entity targeting the minority community of New Orleans. Dryades operates a main office and two branches and also gives us entry into the Mississippi Gulf Coast area with its loan production office in Gulfport. The back room operations of the two banks are now combined providing significant cost savings for both banks.
Completed the acquisition of the $61,000,000 Statewide branch in Terrytown. This is our first location serving the Westbank of New Orleans, a major market in which we have had great success in the past. Dryades’s two branches are also on the Westbank and we will co-brand these locations to provide us with significant coverage of an area which houses over 250,000 people and is one of the last parts of the southshore of New Orleans which is available for future development.
First NBC Bank continued its strong internal growth with total assets increasing to $572,802,000 and total loans reaching $418,078,000.
Our branch expansion continued with the opening of our second Veterans Highway branch which will service a very high density of upper income families and a number of businesses in the Veterans retail corridor. We are now fully positioned to serve the population of East Jefferson Parish from the Orleans Parish line to the western border of Kenner. We also added branches on the Westbank in Orleans Parish and West Jefferson parish with our Dryades and Terrytown acquisitions.
We crossed the 10,000 customer level in June of 2008 which is amazing for a bank with only two years in existence. Our success in customer acquisition is primarily the result of our First NBC image in the market and our branch locations which added convenience for retail customers. Our loan portfolio is commercial in nature but our deposit base is substantially retail.
FIRST NBC BANK
Financial Position
The Bank continued its strong asset growth during the first six months of 2008. This growth resulted from the following:
Branch opening CD campaign in January and February of 2008 which generated over $100,000,000 in new deposits.
The acquisition of $61,000,000 of deposits in connection with the purchase of the Terrytown branch of Statewide Bank.
The opening of two new litigation settlement deposit accounts totaling $35,000,000 and of a liquidation account for a local business with $20,000,000 in deposits.
The Bank remained very liquid at June 30, 2008 with $37,000,000 of Federal funds sold and $86,000,000 in very short term securities. Overall liquidity increased due to the strong deposit growth; this liquidity will be used to fund the bank’s strong loan pipeline over the next six to eight months. Loans increased to $418,000,000, an increase of $226,372,000, or 118%, over that outstanding at June 30, 2007. Despite the strong loan growth, loan quality remains very high with an average rating of 6.98 (on a 10 point scale where 10 is only cash secured). The Bank continued to build its loan reserve as its loans increased with the reserve reaching $2,992,000, an increase of 81% over the $1,654,000 as of June 30, 2007.
Our deposits ended the second quarter at $481,000,000, an increase of $297,000,000, or 161%, over that as of June 30, 2007. This increase resulted from our branch success as we had just begun our branch expansion as of June 30, 2007. A summary of our branch deposit results as of June 30, 2008 is as follows:
Branch Date OpenedDepositsNumber of Customers
Elmwood 01/16/07 $91,761,000 1,874
Veterans @ Aris 06/27/07 90,569,000 2,043
Harrison 04/14/07 49,536,000 1,041
Kenner 02/11/08 12,212,000 350
Terrytown 05/23/08 58,780,000 336
Results of Operations
For the first half of the quarter, our Bank earned $982,000 compared to $76,000 for the first half of 2007. A discussion of the components of net income are as follows:
Total interest income was $13,810,000 as compared to $5,278,000 for the prior year six months. The increases were the result of the following:
Average Average Increase in CategoryBalance IncreaseRate ChangeInterest Income
Short-term Investments $ 20,423,000 (2.67%) $ 39,000
Investment Securities 30,659,000 ( .70%) 610,000
Loans 236,931,000 (1.35%) 7,883,000 $8,532,000
The increases in the average balances above reflect the growth described in this analysis. The rate declines reflect the impact of the Federal Reserve rate reductions to stimulate the economy. At the beginning of the first quarter of 2007, the Federal Funds rate was 5.25% and it had reached 2.00% by the end of the second quarter of 2008. The impact of the rate changes on our income has been moderated. This was achieved by active management of our investment portfolio, which reflected only a 70 basis points reduction, through the purchase of U.S. government agencies with call dates within a year. Our average interest rates on loans decreased only 1.35 percentage points due in part to the fixed rate portion of our loan portfolio and to more aggressive pricing on new loans compared to prime.
Total interest expense was $8,203,000 for the first half of 2008 as compared to $2,222,000 for the first half of 2007. This increase resulted from the following:
The interest rate declines for NOW, MMA, savings and repurchase agreements reflect the overall rate environment in the U.S. as the Federal Reserve lowered rates. The lower decrease in the CD rate reflects the fact that these instruments are fixed rate and only reprice at maturity. Approximately 60% of the CD’s at June 30, 2008 were issued in early 2008 for a seven to nine month term and will reprice in the fall of 2008. The large decreases in interest rates during the first quarter (the two largest rate decreases in U.S. history – 75 basis points and then 100 basis points) had the impact of squeezing our margin but this effect will adjust when the CD’s reprice in the fall of 2008.
As a result of the above, net interest income was $7,218,000, an increase of $2,604,000, or 56%, over that of the first half of 2007. Non-interest income was $585,000 in the first half of 2008, an increase of $413,000, or 240%, over that of the first half of 2007. This increase was the result of increased service charge income as we expanded our retail deposit base, income from our CDC activity remodeling and selling inner city affordable housing, security gains taken as part of our investment portfolio management and the initiation of our SBA lending program. Non-interest expense was $4,260,000, an increase of $1,906,000, or 81% over that of 2007. This increase resulted from staffing and other costs of our new branches. Expenses have grown at a much lower rate than our income as we are much more efficient in our cost structure at $572 million than at the $279 million of 2007. As we grow, our efficiency, which is at the top of our peer group, shall get better and better; the Dryades acquisition will also help in this area beginning in June, 2008 once we consolidate its back room operations into ours and take advantage of cost synergies.
The Bank continues to provide for loan losses as its loan portfolio grows despite its high quality loan portfolio. Our reserve was $2,992,000 at June 30, 2008, and our provision for the six months was $724,000.
Our pretax income totaled $1,208,000, an increase of $1,127,000, or 1391%, over that of the prior year first half. After a tax provision of $225,000, net income was $982,000 or 15¢ per share.
DRYADES SAVINGS BANK
Dryades was acquired effective April 21, 2008 in a transaction accounted for as a purchase. The financial information of Dryades as of June 30, 2008 and for the short period from April 21, 2008 to June 30, 2008 can be found in the attached holding company financials. Dryades’s computers and operations were converted as of May 23, 2008 and consolidation began after that date. Dryades lost about $62,000 during the stub period as it had not yet begun to participate in our loan originations nor had we achieved consolidation savings as of June 30, 2008. We expect the Dryades results to become positive in the third quarter as it is integrated into First NBC’s processes.
In closing, our economy remains strong and we continue to see high quality loan demand. Our loan pipeline at June 30, 2008 was approximately $340 million and reflects the strength of our New Orleans economy and our position in that market area as one of the lenders of choice. We are proud of the role our Bank is playing in the rebuilding of the City of New Orleans.
