Former First NBC executive Ashton Ryan, Jr., left center, walks to U.S. District Court in New Orleans with his lawyers, Peter Castaing, far left, Edward J. Castaing, Jr., right center, and Deborah Pearce for his trial on Tuesday, January 10, 2023. (Photo by Chris Granger | The Times-Picayune | The New Orleans Advocate)
Former First NBC executive Ashton Ryan, Jr., left center, walks to U.S. District Court in New Orleans with his lawyers, Peter Castaing, far left, Edward J. Castaing, Jr., right center, and Deborah Pearce for his trial on Tuesday, January 10, 2023. (Photo by Chris Granger | The Times-Picayune | The New Orleans Advocate)
A federal banking examiner testified this week to First NBC Bank’s slow crawl toward insolvency, which was detailed in comprehensive reports that raised alarm bells into the bank’s lending practices as early as a decade before its epic collapse.
Timothy Strain, a senior risk examiner for the Federal Deposit Insurance Corp., which regulates banks, said he first flagged First NBC’s need to improve in a 2007 report, prompting its board to formalize policies that would place limits on the risks of its loans and the borrowing power of its clients. He said that he continued to highlight those issues in his reports until the bank cratered in 2017 under the weight of its riskiest loans.
On April 28, 2017, a federal official announced First NBC’s closure in the lobby of its Baronne Street headquarters, which was packed with crestfallen employees, Strain said. He struggled to maintain his own composure on the stand as he described closing a bank.
“It’s like going to a funeral,” he said.
The testimony came in the fourth week of the federal trial of former First NBC Bank president Ashton Ryan Jr., who founded the bank after the wreckage of Hurricane Katrina, and Fred Beebe, a former bank manager. The executives are the only two of five men charged in a sweeping federal indictment who didn’t plead guilty on charges of bank fraud. Ryan and Beebe are accused of criminal actions that led to the bank’s untimely demise, and each face 30 years in prison if they’re convicted.
Tuesday was the second day Strain took the witness stand to describe his multi-page reports.
By 2012, Strain wrote in a report that the bank’s asset quality was less than satisfactory, and that it needed to “control the lines of credit and overdrafts” amid rising concerns of bank overdrafts.
He wrote that many customers, including Kenneth Charity, a local businessman who ultimately amassed approximately $18 million in bad loans at the bank, “routinely have large overdrafts” that would be covered by the bank until it issued new lines of credit, compounding their debts.
It was an issue Strain had raised before, he noted. But while the practices had been criticized in past reports, they “continue to spiral into larger and larger practices,” Strain wrote that year.
“At some point,” Strain said from the witness stand on Monday, “you gotta stop.”
In 2015, Strain wrote that the bank’s “liberal lending practices” to unreliable borrowers was a great risk to the bank. He also said that Ryan had dominated policy making while exerting “considerable influence over all key functions [of the bank] with limited … oversight,” raising its risk profile.
But Strain included notes in each report from conversations with Ryan, in which the bank president defended loans given to what he deemed to be sound borrowers in need of help.
Ryan’s attorney, Edward J. Castaing, Jr., made clear that the bank’s board members received each of the FDIC’s reports and yet appeared to take no corrective action to curb its lending policies, or to discipline or remove Ryan over the years.
He also pointed to another report, authored by another bank examiner, that in 2008 rated the bank’s asset class as satisfactory.
“You’ve never had to make a decision on whether to make a loan, correct?” Castaing asked Strain, seeming to imply the examiner may not understand the nuances of loan lending.
At one point, U.S. District Court Judge Eldon Fallon, who is presiding over the trial, interrupted during a dense line-by-line assessment of past FDIC reports to tell Castaing: “You’re boring us.”
“It’s not boring to Mr. Ryan,” Castaing replied.
Fallon later directed the jury to disregard his statement as inappropriate.
“It does get to be tedious sometimes,” he told the jurors. “But you’re doing a good job.”
Sara Johnson, who represents Beebe, pointed out that Strain had over the years brought reports highlighting the bank’s risky lending practices to the board and its senior managers.
“They continued to do it [engage in risky practices] anyway,” she said.
And while Ryan continued to “dominate policy making,” among a small echelon of senior executives, as one of Strain’s reports indicated, Beebe was not one of them, Johnson said.
The trial will continue this week with a lineup of witnesses that is expected to include Robert Brad Calloway, who had served as an executive vice president at the bank and is one of the men to plead guilty.
Email Jillian Kramer at jillian.kramer@theadvocate.com.
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