Richard O'Dom had no experience in the industry when he sought an $8 million personal loan to buy a Georgia auto insurance company in 2007, court records show.
O'Dom nonetheless found a willing lender in First NBC Bank, which had been founded a year earlier by well-known New Orleans banker Ashton Ryan Jr.
And O'Dom’s firm went back to the well repeatedly over the following years, taking out more loans with First NBC and eventually putting the rapidly growing bank's exposure at $12.4 million.
The bank kept lending to Southern Casualty Insurance Co., the company O'Dom purchased, even as the company teetered toward disaster, court filings allege. And Ryan, a former partner at a Big Five accounting firm, should have known how bad things were as he had become "integrally involved" in the company's operations, according to a 2015 lawsuit filed by Georgia's insurance commissioner, Ralph Hudgens.
Six weeks after First NBC Bank's sudden collapse, few details have emerged publicly about what exactly forced it into receivership and set off the costliest American bank failure since 2010.
An affidavit filed by the Louisiana Office of Financial Institutions asserts that the bank absorbed heavy losses to its loan portfolio and tax-credit investments in recent months, despite efforts to shore up its finances.
To be sure, the O'Dom firm’s failed loans are modest in size compared to the $201 million write-down the bank recorded in April to cover potential losses.
But the episode was consistent with a pattern of aggressive and risky loan-making that Ryan and the bank engaged in, according to multiple lawsuits reviewed by The Advocate.
In interviews, veterans of the banking business have noted that Ryan had an unusual taste for risk and lending outside of his community. And several of the lawsuits have made a similar allegation: that First NBC continued lending money to some distressed clients even after their long-term prospects were exposed as questionable at best.
"That's what they've been known for — just being an aggressive lender," said Paul Bonitatibus, a former president of First Metropolitan Bank in Metairie, which was acquired by Hibernia National Bank in 1985.
Internal fissures and signs of oversight problems were apparent when the bank filed its 2015 financials last August. Four months later, Ryan was out as CEO but remained as president of the bank and its parent company. He resigned altogether in April.
"I don't want to talk about anything related to what happened," Ryan, reached by phone, told The Advocate in recent weeks.
'The money is already out'
An internal review said Ryan had a "dominant influence" at the bank, and the same review blamed the bank's board of directors for a lack of "adequate oversight” over its lending practices. The disclosure was made public in First NBC's annual report.
In a sworn deposition this year, Bill Burnell, First NBC's chief credit officer, testified that Ryan himself OK'd loans, which would be reviewed by the board only after the fact. But by then, Burnell testified, "the money is already out."
The lawsuit filed by Hudgens, Georgia's insurance commissioner, accused O'Dom and his hired managers of "gross derogation of their duties to engage in sound and diligent insurance practices."
Also named as defendants were Ryan and First NBC Bank, accused of "negligence for their continued, systematic and reckless financing."
First NBC issued the loans to "straw men," or surrogates operating on Southern Casualty's behalf, according to Hudgens' lawsuit. That allowed the money to flow into the company's coffers without its having to book the loans as liabilities. Had Southern Casualty listed the loans as liabilities, it would have had more difficulty meeting minimum capital and surplus levels.
By 2010, Southern Casualty's independent accountant, Porter Keadle Moore LLP, offered a grim prognosis, contending that a "substantial net loss" in 2009 and "substantial negative cash flow from operations" for the previous two years had caused lasting damage.
Auditors also noted that Southern Casualty's capital and surplus levels had fallen by almost half and were barely above the state-mandated $3 million minimum.
In early 2013, Southern Casualty was declared insolvent, and it was Hudgens' job to liquidate it.
O'Dom, reached recently by phone, declined to discuss the case. "There's a lot of things going on right now that I don't feel free to talk about, and some of it I don't even know the real facts," he said.
Katelyn McCreary, a spokeswoman for Georgia Attorney General Chris Carr, whose office is handling the case, declined to comment, citing pending litigation. The lawsuit seeks unspecified damages suffered by policyholders and creditors.
In addition to targeting First NBC, Hudgens' lawsuit also named as a defendant Clifford Olsen, a Louisiana resident identified as a director of Southern Casualty's parent company, also owned by O'Dom.
Olsen signed a guarantee for $1.2 million as part of O'Dom's initial $8 million personal loan, according to a cross-claim Olsen filed last month. He alleged that Ryan had represented the move as being done "to shore up the bank's loan portfolio, not because the loan was high-risk."
In his filing, Olsen said he did not knowingly act as a straw lender. Rather, he maintains he was "the victim of a related scheme concocted and implemented by Ryan and the bank."
"This scheme involved Ryan and the bank fraudulently inducing Olsen to agree to obtain various loans and lines of credit under the guise of investing in (Southern Casualty) and other properties, and then using Olsen’s funds as a till for the bank" to make payments on other outstanding loans, Olsen's court filing said.
"Ryan and the bank not only have taken and spent Olsen's money without his knowledge or consent, but have also knowingly sought and obtained funds from Olsen in excess of his actual obligation to the bank," the filing said.
A taste for risk
Another episode that charts Ryan’s apparent taste for risk is the story of Vincent Promuto, a Florida businessman who had retired after owning and operating a successful waste-management company.
Promuto and Michael Flaherty, a Louisiana resident and veteran of the construction industry, went into business together in 2009, court records show. The two men purchased a crushed stone supplier named Central Rock Corp. and a trucking operation named Southwinds Express Construction.
In 2010, Promuto sought a line of credit for the businesses, and he signed a personal guarantee with First NBC, court records show.
In June 2016, First NBC sued Promuto in federal court in Florida, alleging that he owes almost $4.6 million.
Promuto claims Flaherty ran the businesses, and he assumed they were in good shape because First NBC continued to loan them more money.
From March 2013 to September 2015, First NBC made a dozen loans totaling more than $13 million to the businesses. Even after the two companies’ credit risk was downgraded in September 2014, the bank loaned them almost $8 million more, according to James Rives, a banking expert who issued a report in support of Promuto’s defense in the First NBC suit.
Rives' report said First NBC issued loans despite the borrowers' "history of losing money" and a demonstrated "difficulty making loan payments."
Rives said First NBC's loan-making practices were "gradually compromised and exhibited unwarranted and excessive levels of credit risk."
Citing a "pattern of over-extending credit," Rives said new loans were extended to make interest payments on existing loans "regardless of the threat of insolvency" to the borrowers by adding excessive debt.
Taking a long view of First NBC's sudden failure, Rives surmised that the bank had "historically managed to maintain adequate capital levels until the results of its growth strategy began to materialize."
"In other words," he wrote, "weaknesses in loan underwriting, risk selection and poor credit administration practices began to surface in its financial results in 2015 and 2016."
In court records, First NBC has denied the assertions in Rives' report.
Rives alleges several other warning signs in his report: Central Rock and Southwinds had little operating history, and Flaherty's credit score was below 650. Also, deposit accounts were "seriously overdrawn," with year-to-date negative balances averaging hundreds of thousands of dollars.
Once the two firms’ credit was downgraded, Rives said, the bank "should have stopped lending at this time and initiated a thoughtful loan workout strategy."
Attempts to reach Flaherty were unsuccessful. He was not named as a defendant in the lawsuit.
Yet another lawsuit, this one filed last year in Orleans Parish Civil District Court, makes similar criticisms about First NBC's lending practices.
In May 2015, creditors who were owed almost $9.6 million forced Baton Rouge software company Thinkstream into bankruptcy, carrying more than $21 million in debt.
Months later, J. Smith Thomas, founder of the Baton Rouge IT firm BIG Networks, founded Thinkstream Acquisition in an effort to purchase First NBC's claims against the original company, which stood at about $4.9 million.
In September, Thinkstream Acquisition sued First NBC for damages, alleging breach of contract.
In court records, Thomas' outfit alleges that First NBC "kept lending more and more money" to the original company and its president, Barry Bellue Sr., beginning in 2010, "even though both he and the corporation were in default on existing loans and were insolvent."
The lawsuit alleges the bank "artificially kept loans 'current' by continuing to advance funds under the loans to pay itself interest as it became due."
Attempts to reach Bellue were unsuccessful.
Ringing the bell
It’s hard to say for certain whether such accusations, if true, were more a symptom or a cause of First NBC's demise.
First NBC began growing rapidly as soon as it was founded, in 2006. Net loans grew by more than 100 percent between 2011 and 2015, reaching $3.4 billion.
The bank was Ryan's creation. The name harked back to First National Bank of Commerce, a prominent New Orleans bank that Ryan led until it was acquired by Bank One in 1998. He spent the next seven years as CEO and president of First Bank & Trust.
As First NBC grew, so too did Ryan's celebrity, earning him status as the city's best-known banker, even though his bank was far from the biggest. He played a prominent role in the city's business community as it recovered after Hurricane Katrina in 2005, and he was a regular presence within many of the city's civic groups.
He earned roughly $1.6 million in total compensation in 2015, securities filings show. And when the company went public in 2013, Ryan got to ring the opening bell at the New York Stock Exchange. Nearly 4.2 million shares of stock were priced at $24 each, and they rose to nearly $42 a share before tumbling in late 2015 amid questions about Ryan's management.
Even before the crash, some banking experts had wondered how First NBC was able to manage such spectacular growth.
"The one comment among bankers outside of that bank for the last five years was, 'How are they doing this? How do you go from being a brand-new charter to having $5 billion in assets?'" said Bonitatibus, who owns Hibernia Consultants, a New Orleans banking consulting firm.
Part of the answer was that First NBC had a track record of taking on large loans, which is inherently riskier than making a large number of small loans, since the failure of just a few can be devastating. The bank's 10 biggest loans averaged about $76 million, according to its 2015 financial filings. That’s a remarkably high figure for a bank of its size, according to observers.
"We were all waiting for the other shoe to drop," Bonitatibus said. "We didn't know when, but you just don't experience that kind of growth in that short a period of time."
When asked by The Advocate about the three lawsuits that raise questions about First NBC’s lending practices, Ryan bristled. None of the loans in question led to the bank's demise, he said, describing litigation as the cost of doing business.
"Look, you're way off-base. It had nothing to do with the failure of the bank. All those loans were charged off a long time ago," he said before hanging up abruptly.
While the loans at issue in those lawsuits were not among First NBC’s biggest, the bank also ran into trouble with two other recent, risky and much larger investments that unraveled.
In August, First NBC disclosed that it took a $90.2 million impairment for a loan to an exploration and production company that went south. In regulatory filings, the bank blamed "fluctuations in energy commodity prices and the lack of production."
'Just out of the norm'
First NBC also recorded an almost $70 million hit from a complex and exotic investment it made in ethanol receivables.
Over two years in 2013, First NBC paid Murex LLC, a Texas energy distributor, to acquire receivables owed to the firm by Abengoa Bioenergy Co., a unit of a Spanish renewable energy company.
Trouble began in early 2016, when dozens of Abengoa's U.S. subsidiaries filed for bankruptcy protection.
Ryan acknowledged the episode during his September call with analysts. He explained that First NBC had made similar investments before and had "actually done very well in terms of returns."
But this time was different, Ryan added, and the only hope of recovery was through litigation. That month, First NBC filed a suit against Murex in federal court in New York.
In its lawsuit, First NBC alleged that the transactions were ultimately a sham, and in fact "no ethanol was shipped, delivered or received, and it is unlikely that the ethanol even existed."
Murex's attorneys called the bank's argument "wholly inconsistent and entirely implausible."
By then, First NBC had already decided to get out of the short-term receivables game, according to its 2015 financial report.
Nonetheless, the episode raised eyebrows among local banking veterans and national analysts, some of whom questioned the role of a community bank in making large, specialty investments in markets well beyond its home base.
"Banks do not want to take an inordinate amount of risk in any one particular loan or relationship. It doesn't make sense," said Randall Howard, a former president and CEO of Argent Bank, which merged with Hibernia National Bank in 1998.
As Hibernia's chief commercial banking officer, Howard considered a $15 million loan unusually large.
"There were very few loans that were probably above $30 million," Howard said.
"It's not a criticism of First NBC," he added. "That's just what they decided to do, but that's just out of the norm."