$FNBC Clinton Group Issues Letter To Board Of Directors

NEW YORK, Nov. 10, 2016  — Today, Clinton Group, Inc. (“Clinton Group”), a stockholder of First NBC Bank Holding Company (“First NBC” or the “Company”) (NASDAQ: FNBC), issued an open letter to the board of directors of First NBC.  Clinton Group has proposed a set of initiatives aimed to enhance shareholder value of FNBC.

This communication is not a proxy solicitation, which may be done only pursuant to a definitive written proxy statement.

About Clinton Group, Inc.
Clinton Group, Inc. is a diversified asset management firm that is a Registered Investment Advisor. The firm has been investing in global markets since its inception in 1991 with expertise that spans a wide range of investment styles and asset classes.

[Clinton Group Letterhead]

November 9, 2016

First NBC Bank Holding Company (“First NBC or the “Company”)
210 Baronne Street
New Orleans, Louisiana 70112

Attention:         Board of Directors

Gentlemen:

We were heartened to see your release of November 1, 2016 that showed continued profitability at First NBC Bank and your continued focus on returning all of the Bank’s regulatory ratios to well-capitalized levels.  Clinton Group is a shareholder and has recently accumulated additional stock as we believe it is currently undervalued.

We appreciate you listening to our views and look forward to providing additional shareholder perspectives in the future.  We are happy to see that you have engaged Sandler O’Neill & Partners LP and Piper Jaffray & Co. to explore strategic options for First NBC and are confident that they will work to a solution that creates value for all stakeholders.

We would encourage you to be as transparent as possible about your plans, your business model and your path forward. As Aristotle first postulated, “Nature abhors a vacuum” and his words apply equally to the marketplace and its view on information.  Give the investor community detailed information and let them make informed decisions, rather than allowing speculation and unfounded concerns drive the stock away from its fundamental value.

Our firm has had extensive experience successfully investing in, and serving on boards, of banks that required capital infusions.  We look forward to providing whatever expertise we can to help First NBC navigate its current situation.

With decisive leadership at this critical juncture, First NBC can improve its capital ratios, supplement its balance sheet and return to shareholder value creation.  We have set forth below in more fulsome detail a tactical plan with a variety of options that can be considered to best maximize shareholder value.

1.  Contraction of the Balance Sheet

We believe that First NBC should consider opportunistically reducing the balance sheet to reduce its capital need.

2.  Divestiture of Florida Assets

During 2015, the Company acquired $62 million in assets and 3 branches in the Florida panhandle through the purchase of First National Bank of Crestview.  We are in touch with a possible buyer of these assets and all of your Florida branches, and this potential buyer is extremely well capitalized and interested in making a cash acquisition.

3.  Divestiture of Impaired Assets

Consider selling the Company’s ethanol receivable.  For example, a divestiture of this asset at a 50% haircut of its value of approximately $70 million would allow the Company to create roughly $35 million in book equity with no dilution or punitive effects on existing shareholders.

4.  Divestiture of Tax Entities

We believe that opportunistically divesting some of the current investments in tax entities would be a positive step forward for the Company to both reduce the impairment expense moving forward and to create equity value.   Given the bank’s current earning profile and legacy deferred tax asset (“DTA”), the income generated by the tax credit will essentially roll into the DTA where it will be subject to the haircuts imposed by Basel III.  It is our understanding that often tax entities of this nature trade at or near face value.  For example, we believe, if First NBC were to sell investments in tax entities of $50 million at face value this could have the effect of essentially creating significant common equity tier one capital with no dilution to existing shareholders and no risk of impairment of the DTA.  This equity value creation would help in meeting First NBC’s capital requirements and would create flexibility in the creation of capital.  We are in touch with an institution that would be interested in possibly acquiring some of your investments in tax entities and would be happy to facilitate an introduction.

5.  Strategic Alternatives for the Company’s DTAs

Our institution has spent a lot of intellectual and financial capital in studying the protection of net operating losses (“NOLs”) and deferred tax assets.  We believe that First NBC has a number of transactions and opportunities available today to bring on pre-tax earnings without expending an abundance of its liquidity or equity.

6. Potential Stock Appreciation from Above Initiatives

Your stock currently trades around $6.50/share, despite trading at a level of $11/share just three weeks ago and a level of $16/share in early August.  Given this steep decline, we believe that a prudent application of the above initiatives could result in a significant increase in your stock price.  Subsequently, any capital raise based on this higher stock price will be less dilutive to the current shareholders.

7. Develop a Phased Approach for Raising Necessary Capital

Common equity and/or preferred equity needs to be brought into the Company from a continued position of strength and improvement rather than in a hasty, injudicious manner.  While the company needs to be cognizant of its Basel III exclusions on its DTA, the balance sheet in 2018 could be very different than the balance sheet today if our suggested tactics are implemented in an optimized manner.  Furthermore, the concomitant capital needs could also differ significantly as the company reduces its direct investment in tax credits and pursues a syndication strategy.

We appreciate your attention to our ideas on tactics going forward at this critical time, and we welcome the opportunity to evaluate a primary investment to help the cause.  We appreciate the open dialogue to date, and can be reached at (212) 825-0400 to further the discussion.

Very Truly Yours,

//ss//

Scott R. Arnold
Managing Director