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A Message From Our President

May 18, 2012
 

It is my pleasure to present the financial results of our Company for the quarter ended March 31, 2012 along with an analysis of those results. During the first quarter, our Company focused its attention on the integration of the former Central Progressive Bank (CPB), which was acquired on November 18, 2011, by First NBC. This effort was finalized with the March 25 conversion of the CPB systems to the First NBC systems. This process was accomplished without a hitch over the last weekend in March. Our reception on the northshore of New Orleans (the former CPB footprint) has been special with our northshore deposits increasing by $27MM from the acquisition date to March 31, 2012. On the asset quality side, we continued our disposal of the problem CPB assets with sales of nonperforming loans and other real estate. We expect to have the remaining nonperforming assets sold by June 30, 2012. We are still in the process of finalizing the purchase accounting for the acquisition as well as finalizing the settlement with the FDIC. Again, we expect the acquisition accounting process to be complete by June 30, 2012 once the FDIC settlement is complete and all appraisals required for the final asset valuation are received.

As of March 31, 2012, our Company reported total assets of $2,321,000,000, an increase of $783,000,000, or 51%, over that of the first quarter of 2011 and $103,000,000, or 5%, over that of December 31, 2011.  For the first quarter, our Company earned $5,908,000, an increase of $1,982,000, or 50%, over the $3,926,000 for the first quarter of 2011.  Earnings per common share for the quarter were $.46 per common share, an increase of $.06 per share over the $.40 earned in 2011’s first quarter.  Our Company’s book value per share was $14.01 per share, an increase of $1.84, or 15%, over the $12.17 per share as of March 31, 2011. 

FIRST NBC BANK

Financial Position

First NBC Bank finished the quarter with total assets of $2,323,000,000, an increase of $782,000,000 over total assets of March 31, 2011 and of $103,000,000 over total assets of December 31, 2011.  This represented annual growth rates of 18% for the quarter and 51% for the year.  This growth was achieved as follows (in thousands):

  Quarter Year Impact of CPB Acquisition
  $ % $ % $ %
Demand Deposits 13,940 6 103,546 77 52,960 48
NOW Deposits 15,548 6 130,993 92 40,217 78
MMA Deposits <1,532> -- 87,063 28 26,891 21
Savings Deposits <147> -- 25,985 182 24,402 14
Certificates of Deposit   63,675  6   296,261     39 196,935     7
  Total Deposits 91,484 5 643,848 48 340,865 21
Repurchase Agreements 8,616 48 3,628 16 -- 62
Borrowings <1,515> 3 40,000 266 1,515 267
Other Liabilities <2,205> <13> 7,463 290 -- --
Equity         6,596 3   87,198  61   --    -- 
  102,976 18 782,137  51 342,380 22

Obviously, the year on year growth rates were materially impacted by the CPB acquisition as reflected in the above table.  Exclusive of the acquisition, the Bank continued to reflect strong growth rates in its deposits as a result of its expanded branch network and the expansion of its commercial business with the accompanying increase in demand deposits.  Particularly impressive is the shift in the mix of our deposits with transaction accounts now making up 48% of our deposits at March 31, 2012, compared to 45% at March 31, 2011.  This continues the trend of the last four years at which time our deposit mix was 70/30 in favor of CD’s.  During the past year, our Bank has substantially increased equity through sales of common and preferred B stock ($47,079,000) by the holding company and sales of Small Business Lending Preferred stock, net of repayment of TARP (net $20,649,000), with almost all of the proceeds being invested in the Bank to provide the capital to support our growth.  The remainder of the increase in equity is the result of our retained earnings.

On March 25, 2012, we completed the conversion of the CPB computer systems to ours and our focus for the next year will be to expand our deposit base on the northshore.

The above described funding sources were employed as follows (in thousands):

  Quarter Year Impact of CPB Acquisition
  $ % $ % $ %
Cash <13,211> <41> <46,356> <71> -- --
Short-Term Investments 75,099 214 42,863 64 2,978 4
Investments 9,616 3 227,397 209 421 --
Loans 30,723 2 506,992 43 223,068 19
Property 1,679 5 2,367 8 68 --
Tax Credit Investments <2,248> <4> 16,872 37 -- --
Other Assets     1,318     2    32,574   67     7,287 15
  102,976     4 782,709   11 233,822 15

The year to year comparisons reflect the continued growth of the Bank enhanced by the CPB acquisition.  Loans have continued their growth at approximately $25MM per month which has been our growth pattern over the past several years.  Our deposit growth has outstripped our loan demand and thus our longer term investments have been increased.  We have continued to invest in tax credit generating projects continuing our strategy of using funds we would pay in income taxes to invest in real estate projects in our city.  Other assets increased due to an additional $10MM investment in Bank Owned Life Insurance, an increase of $5MM in other real estate driven primarily by the CPB acquisition, a $3MM increase in intangibles due to a $3MM core deposit intangible associated with CPB, a $4MM increase in the deferred tax asset and a $7MM increase in miscellaneous other assets due to the general growth of the Bank. 

An analysis of the increase in outstanding loans from the past year is as follows:

  3/31/12 3/31/11 Increase <Decrease>
  $ $ $ %
Commercial Real Estate - Construction 126,692 91,902 34,790 38
Commercial R/E - 1 to 4 Family  153,593 92,283 61,310 66
Commercial R/E - Multi-Family 99,898 55,678 44,220 79
Commercial R/E – Other 625,613 460,760 164,853 36
Consumer Real Estate   105,712      76,934      28,778 37
   Total Real Estate 1,111,508 777,557 333,931 43
Commercial 555,110 388,069 167,041 43
Consumer 12,915 7,459 5,456 73
Other      21,015      15,201     5,814 38
   Total 1,700,548 1,186,284 514,263  43

It is important to note that $332,481,000 at March 31, 2012 of our real estate loans were owner occupied real estate and represent commercial loans based upon the commercial business with the real estate taken as additional security as opposed to speculative real estate dependent on real estate conditions.  The New Orleans economy, which is still rebuilding after Katrina, provides a very positive environment for real estate as we rebuild the 80% of real estate which was flooded or destroyed by the hurricane.  Each year we perform a stress test to evaluate our exposure to changes in the real estate market and we find our real estate portfolio performs well even in a deteriorating real estate economy.  The primary concentration in our real estate portfolio are hotels and gas stations/convenience stores, which are both performing well during the past two years and for both of which the next several years’ outlook is strong in our area.  Also, much of our real estate loans are enhanced by tax credit equity (historic, new market and LIHTC), which provide unusually low loan to value and debt service coverage ratios. 

Our asset quality ratios remain extremely strong despite the small remnant of CPB nonperforming assets left on our balance sheet at March 31, 2012.  In April, we sold a significant portion of the remaining CPB nonperforming assets and expect to have all of them sold by June 30.  Even with the CPB effect on past dues, nonperforming assets and net charge-offs, our asset quality ratios remain strong, especially when compared to our peer banks as noted below:

  Ratio Peer Bank
Average*
First NBC
Percentile
Past Due Loans/Total Loans
.72
2.79
85
Non-Accrual/Total Loans
.50
2.50
91
Charge-Offs/Total Loans
.09
.48
75
Loan Reserve to Charge-Offs
13.59
7.85
81
Loan Reserve Coverage to Past Due
1.66
.73
80
Loan Reserve Coverage of Non Accruals
2.41
1.23
85

*Peer banks are all banks $1 to $3 billion

Our loan loss reserve reached $20,400,000 as of March 31, 2012 versus $13,136,000 one year ago.  We continue to build our reserve faster than our loans with the reserve at 1.2% of loans in 2012 versus 1.1% in 2011.

Results of Operations

For the quarter ended March 31, 2012, the Bank reported net income of $6,086,000, an increase of $1,839,000, or 43%, over the $4,247,000 for the first quarter of 2011.  The growth in net income has been driven by the asset growth, the increase in our efficiency as our fixed costs are spread over a larger base and our increased investment in tax credits.  The following provides a more detailed analysis of the factors driving our profitability:
 
Interest income for the first quarter of 2012 was $25,578,000, an increase of $7,950,000, or 45%, over that of the first quarter of 2011.  An analysis of the increase follows (in thousands):

Category Average Balance Change Average Rate Change Increase <Decrease>
in Interest Income
Short-term Investments
$      6,148
.23%
$              21
Securities
119,815
--
683
Loans
546,111
<  .34%>
     7,246
   Total
 
 
$   7,950

The change in the average balance was discussed in the financial position section. The reduction in the average loan yield reflects the continued impact of the low rate environment so that as loans mature, they reprice at lower rates bringing the average rate down. The CPB acquisition also lowered the average rate as CPB’s average yields were below those of First NBC.

Total interest expense for the first quarter was $8,022,000, an increase of $1,835,000, or 30% above that of the corresponding quarter in 2011. An analysis of the causes of the change in interest expense is as follows (dollars in thousands):

Category Increase <Decrease> in Average Balance Increase <Decrease> in Average Rate Increase <Decrease>
in Interest Income
NOW
$      131,361
< .04%>
$         519
MMA
88,071
< .17%>
82
Savings
40,784
.19%
14
CDs
267,340
< .27%>
910

Repurchase Agreements/
Borrowed Funds

48,711
.42%
            314
$       1,835

Net interest income for the quarter was $17,555,000, an increase of $6,114,000, or 53%, over that of the first quarter in 2011.  The net interest margin remained practically constant at 3.8% between the two periods.

Non-interest income for the first quarter of 2012 was $2,674,000, an increase of $2,212,000, or 479%, over that of the first quarter of 2011. 

Non-interest expenses were $13,434,000 for the first quarter of 2012, an increase of $5,953,000, or 80%, over that of the same period of 2011.  Obviously, the acquisition of CPB with its 17 branch network is a major driver of the increase in non-interest expense for 2012.  In detail, salaries and benefits increased by $3,874,000, or 136%, over that of the prior year due to CPB employees as well as the normal growth in employees for the general and administrative area to handle the expanded number of locations and transaction volume.  Occupancy expense increased by $880,000, or 61%, almost totally due to the CPB acquisition.  Professional fees increased by $331,000, or 55%, due primarily to CPB acquisition expenses and increased audit fees due to CPB and also our first time required compliance with Sarbanes-Oxley internal control testing.  Tax credit amortization increased by $960,000 due to the substantial increase in our tax credit investment done since March 31, 2011, which was amortized based on our tax credit accounting policy.  Other non-interest expense increased $1,130,000, or 82%, due to the following:  1) $379,000 of increased data processing due to the doubling of our transaction volume due to CPB’s 30,000 customers; 2) $170,000 of increased advertising and marketing expense due to the expanded footprint of First NBC after the acquisition; 3) $95,000 of increased director expenses due to an increase in the average director fee to bring it into line with peers; 4) $222,000 of additional postage and printing associated with the CPB acquisition communications and the increase in monthly mailings due to CPB’s 30,000 customers; and 5) a normal increase in operating expenses such as insurance, correspondent bank charges, courier and armored car expense. 

Our income before the loan loss provision was $6,796,000, an increase of $2,375,000, or 54%, over the $4,421,000 of 2011’s first quarter.  The provision for loan losses for the first quarter was $2,635,000, an increase of $1,435,000, or 120%, over the $1,200,000 for 2011.  See previous discussion regarding loan loss reserve and provision as well as our overall asset quality.

Pre-tax income for the quarter was $4,160,000, an increase of $939,000, or 29%, over the $3,221,000 of 2011.  The tax provision for the first quarter of 2012 was a credit of $2,044,000 as opposed to a credit of $1,026,000 in 2011.  The credit resulted from a normal provision of $1,197,000 on taxable income offset by $3,241,000 of the three tax credits as follows:

NMTC (Net) $1,608,000
Historic $   738,000
LIHTC $   895,000

Conclusion

We once again received an unqualified audit opinion on April 30, 2012 for timely submission to the regulatory authorities.  Included this year for the first time was an opinion of our internal controls which indicated no material weakness findings.  We believe this to be a major accomplishment given our rapid growth. 

As I mentioned last quarter, we received a $40MM allocation of NMTC’s in February from the U.S. CDFI, and we have over $200MM of requests for the credits which should enhance our future non-interest income.

Our economy has continued to expand with probably the largest tourist season in our City’s history during the 2012 spring.  The hospitality industry has been on fire and even is looking forward to a reasonable summer (historically our worst season).  The rebuilding of our city continues to provide substantial construction work and our overall unemployment is around 6%.  Oil and gas activity has taken off due to the high oil prices with oil consistently above $80 per barrel for over two years.  Moreover, the development of technology to remove hydrocarbons out of shale has opened the doors for many Louisiana companies to profit in the Wyoming and Dakota areas.  We have our own major shale play at Haynesville (near Shreveport), Louisiana.  The long awaited expansion of our Medical District (over $3B of expected construction) has begun with the regional VA Hospital under construction and the larger new Charity Hospital in the pile driving stage.  Our economic outlook looks strong for the next several years at least.  Finally, BP contributes again agreeing to a $7.8B class action settlement which will now be paid out with much of that going to claimants in our area.

All economic indicators point to the positive and we believe we are well positioned to take advantage of the current situation. 

Sincerely,


Ashton J. Ryan, Jr.
President - CEO

 

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