Banking After FNBC Fallout

Industry pros discuss how New Orleans fared.

As we move into 2018, it’s evident that it’s been an eventful year for the U.S. economy and for national and local banking.

Despite beginning the year with uncertainty, the domestic economy has shown signs of strong momentum for continued growth.

According to Forbes Magazine, U.S. consumer confidence is at a 17-year high, and a wave of optimism is washing over the banking industry, driven by a growing belief that deregulation and tax reform will come to fruition in Washington D.C. in the year ahead.

Locally, unfortunately, New Orleans grabbed headlines this year for being home to the nation’s largest bank failure since the end of the financial crisis in 2010. After the collapse of First NBC Bank (FNBC) due to their dealing in some risky loans, the bank was seized and its assets sold by federal regulators over poor lending standards. As a result of the fallout, many projects around the city stalled for lack of financing.

“The failure of FNBC resulted in some deposit and loan displacement, which means there has been opportunity to service and grow relationships with new clients,” says Chris Ferris, president and CEO of Fidelity Bank. “However, it is never a good thing when a bank fails.

Consumers and businesses put their trust in the financial industry and it is our duty to uphold that trust, provide our clients a safe and sound investment and conduct ourselves with integrity.”

According to the president of Hancock and Whitney Bank, Joe Exnicios, Whitney Bank was in a unique position during the FNBC failure.

“Honestly, the fallout was not a negative for us,” he said. “Let me preface that by saying we were in negotiations at that time with FNBC for two transactions — one negotiated in December 2016 — and our goal and efforts after a four-to-six-week conversation was to affect a transaction to assist with resolving their issues. We acquired one-third of their loan portfolio, totaling approximately $1.6 billion.”

As part of the negotiations, Whitney Bank reopened all 29 branches of FNBC as Whitney Bank in Louisiana (24 branches) and Hancock Bank in Florida (five branches). Depositors with transactional accounts of FNBC automatically become depositors of Whitney Bank.

Customers of FNBC retained their existing branch until they received notice from Whitney Bank that it had completed systems changes to allow other Whitney Bank branches to process their accounts.

In addition to assuming the transactional deposit accounts of the failed bank, Whitney Bank agreed to purchase approximately $1 billion of the failed bank’s assets. The FDIC retained the remaining assets for later disposition.

“FNBC had $600 million in advances from the federal loan bank,” Exnicios said. “We assumed that, as well as other deposits and assets. At the end of the day [FNBC] was able to increase its capital asset and got $200 million in liquidity by reducing their loan portfolio. We worked with the FDIC so FNBC’s customers wouldn’t be adversely affected or in limbo. Also, we acquired all of their branches for 90 days to process transactions and then pushed them back to FDIC, as well as adding 65 to 75 employees to our ranks.”

Exnicios said Whitney Bank entered negotiations with intentions to keep the bank going. “It’s never good when a bank closes in a community,” he said. “We were glad we were able to help with the situation.”

President and CEO of Gulf Coast Bank, Guy Williams, said that FNBC grew rapidly after opening branches following Hurricane Katrina and supported the community through new loans for rebuilding and new businesses. FNBC experienced substantial growth; its assets went from nonexistent to $5 billion in a little over 10 years.

“FNBC wanted to help the city out and they did,” Williams said. “But, the credits got too big and complex. Unfortunately, they did not succeed, but there are a lot of banks and competition in New Orleans and plenty of opportunities for customers to find the right financial institute that suits their needs. I expect 2018 to be a good year for the city, for small businesses and entrepreneurs to grow and expand.”

Williams says he doesn’t expect the FNBC fallout to harm the banking industry in the city.

“The rest of the banks are ready and able to pick up the pieces,” he said, “and in the long run the consumers weren’t hurt, they got all of their money back, so that is a positive.”

Exnicios suspects that many of the community banks in New Orleans hired FNBC employees and acquired new business afterward.

“One could surmise that the fallout created a fair amount of activity, mostly positive, in the industry,” he said. “But you never like to get business at the cost of a competitor. There is enough business to go around., but I can say we do have a new customer base as a result.”
Fidelity Bank’s Ferris said he expects 2018 to be an exciting year for the banking industry, saying that he thinks the tax reform will have a positive impact on the business community and banks.

“For the past several years, small business owners had been hesitant to make investments due to economic uncertainty and the ever-changing regulatory environment,” he said. “Now, given the recent tax reform, which will lower the overall tax rate on businesses which is a positive, the bill also provides small business owners the opportunity to invest in and upgrade things like equipment, computers and rolling stock, because they will keep more revenue and be able to expense 100 percent of the equipment to replace the old. This will stimulate the overall economy. The tax reform will also benefit the banking community as it will allow us to take some of the cost savings due to the lower absolute tax rate, and re-invest it into our business so that we can better support our clients, associates and the communities we serve.”

“When you look around the city and see development and growth, generally a bank is behind the financing,” Exnicios said. “The recently signed tax act will affect banks of all sizes and create more profitability and more capital faster, resulting in more loans. We have a duty to get money back into the economy. “

Despite the FNBC failure, the local banking industry has remained strong. Even though federally insured financial institutions nationwide experienced a decline in net loans and leases, bank lending in the New Orleans area experienced close to a 10 percent increase over the past year.

The Wall Street Journal reported a “downshift” of nationwide net loans and leases by FDIC-insured institutions compared to last year, but New Orleans is actually in better shape. Lending at eight New Orleans-area banks was up nearly 10 percent year after year, according to an analysis of data pulled from the Uniform Bank Performance Report by the Federal Institutions Examination Council.

“I am optimistic about where New Orleans is going and what lies ahead,” Exnicios added. “I think it would be difficult not to be optimistic about the city, and the banks that operate in the city are willing to change and expand with the growing needs of the community.”