IBERIABANK Corporation Reports First Quarter Results

LAFAYETTE, La., April 27, 2017 /PRNewswire/ -- IBERIABANK Corporation (NASDAQ: IBKC), holding company of the 130-year-old IBERIABANK (www.iberiabank.com), reported financial results for the quarter ended March 31, 2017.  For the quarter, the Company reported income available to common shareholders of $46.9 million, or $1.00 fully diluted earnings per common share ("EPS").  On a non-GAAP basis, EPS excluding non-core revenues and non-core expenses ("Core EPS") in the first quarter of 2017 was $1.02 per common share (refer to press release supplemental tables for a reconciliation of GAAP to non-GAAP metrics), which exceeded consensus analyst expectations.

Daryl G. Byrd, President and Chief Executive Officer, commented, "Many events transpired this quarter as we expected and as we communicated to our investors last quarter. First, asset quality statistics associated with our energy-related loans continued to show significant improvements this quarter, and energy-related loans grew slightly during the first quarter.  Second, we are well-positioned for rising short-term interest rates, and the Federal Reserve's short-term rate increases in December 2016 and March 2017 resulted in a rebound in our margin and significant improvement in net interest income this quarter. We expect these benefits to continue into future quarters as well.  Third, we anticipated our loan growth would slow during the first quarter, due in part to typical seasonal trends, and we expected a portion of the massive inflow of deposits that we experienced in the final quarter of 2016 would begin to flow out during the first quarter of 2017. While some deposit outflow occurred as expected, we maintained a considerable amount of excess liquidity throughout the quarter.  Finally, in December 2016, we issued and sold common equity with the expectation we would find an excellent investment opportunity in which we could deploy that capital. With our recently signed agreement to acquire Sabadell United Bank, we now have an excellent opportunity in which to deploy that capital, as well as capital raised in March 2017 when we issued and sold additional common shares. We are very excited to partner with the team at Sabadell United and double the size of our Florida franchise."

Byrd continued, "Our financial performance in the first quarter of 2017 has started off well this year. During the first quarter, we experienced favorable average earning asset growth and a tremendous improvement in the net interest margin. We achieved our strongest first quarter EPS in nine years, and we achieved record first quarter core EPS. Those results were achieved despite the 11-cent negative EPS carrying cost in this quarter associated with the two common stock sales. Our core return on average assets was 0.96% in the first quarter, an improvement of six basis points compared to the same quarter last year, and despite the traditional seasonal slowness in our fee income businesses. We are still carrying a significant amount of capital and liquidity, which once deployed, should further enhance our financial performance."

Highlights for the first quarter of 2017 and at March 31, 2017:

• The Company remains very asset sensitive from an interest rate risk position. Primarily as a result of recent increases in short-term interest rates combined with a two basis point increase in total deposit costs during the first quarter of 2017 resulted in improvements on a linked quarter basis in the Company's reported and cash net interest margins of 15 and 11 basis points, respectively. The yield on average earning assets increased 16 basis points and the cost of total interest bearing liabilities increased two basis points.
• Primarily as a result of the improvement in the net interest margin and a 4% increase in average earning assets, tax equivalent net interest income increased $11.3 million, or 7%, on a linked quarter basis.
• Non-interest income declined $5.9 million, or 11%, on a linked quarter basis, primarily as a result of seasonal declines in the Company's fee income businesses.
• Energy-related loans ("energy loans") increased slightly and equated to 3.7% of total loans at March 31, 2017, unchanged from year-end 2016. Classified energy loans and non-performing assets each decreased 23% during the first quarter of 2017.
• On February 28, 2017, the Company announced an agreement to acquire Sabadell United Bank, headquartered in Miami, Florida. In association with the pending acquisition, on March 7, 2017, the Company issued and sold approximately 6.1 million shares of common stock at $83.00 per common share, resulting in net proceeds of $485 million.

Operating Results

On a linked quarter basis, average loan volume (including the FDIC loss share receivable) increased $113 million, or 1%, and the associated tax-equivalent yield increased 23 basis points.  Over that period, average legacy loans increased $279 million, or 2%, with an increase in yield of 15 basis points, and average acquired loans (including the FDIC loss share receivable) decreased $166 million, or 7%, and the yield increased 82 basis points.  All other average earning assets, including investment securities, mortgage loans held for sale, and interest-bearing deposits in other institutions, increased a net of $624 million, or 14%.

Primarily as a result of rising short-term interest rates and lower levels of balance sheet liquidity, the Company's reported and cash net interest margins increased 15 and 11 basis points, respectively, on a linked quarter basis.

On a linked quarter basis, average earning assets increased $737 million, or 4%, and the average earning asset yield increased 16 basis points.  Average interest-bearing liabilities increased $271 million, or 2%, and the cost of interest-bearing liabilities increased two basis points. On a linked quarter basis, tax-equivalent net interest income increased $11.3 million, or 7%.

The Company's provision for loan losses increased $1.0 million, or 19%, on a linked quarter basis to $6.2 million. The provision for loan losses covered net charge-offs in the first quarter of 2017 by 102% compared to 68% in the fourth quarter of 2016.

In the first quarter of 2017, non-interest income on a GAAP and non-core basis decreased $5.9 million, or 11%, compared to the fourth quarter of 2016.  The primary changes in non-interest income on a linked quarter basis included:

• Decreased mortgage income of $2.0 million, or 12%;
• Decreased capital markets and brokerage commission of $1.3 million, or 32%;
• Decreased gains on the sale of SBA loans of $1.3 million;
• Decreased title revenues of $0.6 million, or 11%; and
• Decreased client derivative income of $0.2 million.

In the first quarter of 2017, the Company originated $384 million in residential mortgage loans, down $154 million, or 29%, on a linked quarter basis.  Client loan refinancing opportunities accounted for approximately 21% of mortgage loan applications in the first quarter of 2017, compared to 30% on a linked quarter basis.  The Company sold $427 million in mortgage loans during the first quarter of 2017, down $156 million, or 27%, on a linked quarter basis.  Loans held for sale decreased from $157 million at December 31, 2016, to $122 million at March 31, 2017.  The mortgage origination locked pipeline was $240 million at March 31, 2017, up $74 million, or 46%, between quarter-ends, and was down 30% compared to one year ago.  At April 24, 2017, the locked mortgage pipeline was $266 million, up 27% compared to March 31, 2017.

Non-interest expense decreased $10.6 million, or 7%, on a linked quarter basis. The decrease in non-interest expense was significantly influenced by the $17.8 million loss on the early termination of FDIC loss share agreements in the fourth quarter of 2016 and $1.4 million net impairment of long-lived assets in the first quarter of 2017. Excluding those non-core expenses, core non-interest expense increased $5.9 million, or 4%, and was comprised of the following items on a linked-quarter basis:

• Increased salary and benefits cost of $1.1 million, or 1%, which included:
• Increased payroll tax expense of $2.2 million;
• Increased health care costs of $2.0 million;
• Increased compensation expense of $0.8 million; partially offset by
• Decreased mortgage commission expenses of $1.9 million; and
• Decreased phantom stock incentives expense of $1.6 million; partially offset by
• Increased provision for unfunded commitments of $1.2 million;
• Increased marketing expense of $0.9 million;
• Increased FDIC insurance premium expense of $0.7 million;
• Increased legal and professional expense of $0.5 million; and
• Increased occupancy and equipment expense of $0.5 million.

On a linked quarter basis, the Company's revenues and non-GAAP core revenues each increased $5.3 million, or 2%. Over the same period, GAAP expenses decreased $10.6 million, or 7%, and non-GAAP core expenses increased $5.9 million, or 4%. The efficiency ratio decreased from 70.5% to 64.1%, while the non-GAAP core tangible efficiency ratio increased from 60.3% to 61.6% on a linked quarter basis. The Company continues to focus on expense containment and revenue enhancement strategies intended to further improve its core tangible efficiency ratio.

Due to a recent change in accounting principle, the effective tax rate for the first quarter of 2017 was 30.9% and was favorably impacted by a $1.8 million decrease in income tax expense associated with restricted stock vesting during the quarter. Absent any future exercises or vesting, the Company expects the effective tax rate in the remaining three quarters of 2017 to be approximately 33.5%. Vesting and exercise of share-based compensation is expected to have an impact on tax expense in the first quarter of future years as well.

Loans

Total loans increased $67 million, or less than 1%, between December 31, 2016, and March 31, 2017.  Over that period, acquired loans decreased $161 million, or 7%, and legacy loans increased $229 million, or 2% (7% annualized rate), including an increase in total energy loans of $2 million, or less than 1%, and a decline in indirect automobile loans of $21 million, or 16%.  During the first quarter of 2017, legacy commercial loans increased $204 million, or 2%, legacy consumer loans decreased $23 million, or 1%, and legacy mortgage loans increased $48 million, or 6%.  Period-end loan growth during the first quarter of 2017 was strongest in the Atlanta, Tampa, Mobile, Orlando, and southeast Florida markets.  Funded loan origination and renewal mix in the first quarter of 2017 was 39% fixed rate and 61% floating rate, and total loans outstanding (excluding non-accruals) were 43% fixed and 57% floating.   Commitments originated and/or renewed during the first quarter of 2017 were $1.3 billion (down 7% on a linked quarter basis).  Loans originated and/or renewed during the first quarter of 2017 totaled $847 million (down 10% on a linked quarter basis).  At March 31, 2017, the Company's probably-weighted commercial loan pipeline was approximately $600 million.

Energy loans outstanding totaled $564 million at March 31, 2017, up $2 million, or less than 1%, compared to year-end 2016, and equated to approximately 3.7% of total loans (unchanged compared to year-end 2016).  Energy-related commitments totaled $1.0 billion at March 31, 2017, up $56 million, or 6%, compared to December 31, 2016. The increase in energy loans and commitments during the quarter was primarily  due to increases at exploration and production ("E&P") and midstream companies. E&P companies accounted for 47% of energy loans outstanding and 53% of energy loan commitments, midstream companies accounted for 22% of energy loans and 23% of energy loan commitments, and service companies accounted for 31% of energy loans and 24% of energy loan commitments.

At March 31, 2017, $113 million in energy loans were on non-accrual status (down $37 million compared to December 31, 2016), and $2.3 million in energy loans (excluding non-accruing loans) were past due greater than 30 days at quarter-end.  Classified energy loans decreased $55 million, or 23%, and criticized energy loans decreased $70 million, or 22%, between quarter-ends. At March 31, 2017,  approximately 32% of energy loans were classified and 44% were criticized, compared to 42% and 57%, respectively, at December 31, 2016.  To date, the Company has experienced $19 million in energy-related net charge-offs.  Additional information regarding the Company's energy loan and energy-related commitment exposure is provided in Table 7 of this press release and in the supplemental investor presentation.

At March 31, 2017, the Company's indirect automobile lending business had approximately $110 million in loans outstanding, down $21 million, or 16%, compared to year-end 2016 (0.7% of total loans outstanding compared to 0.9% at December 31, 2016).

Deposits

Total deposits decreased $96 million, or 1%, between December 31, 2016 and March 31, 2017.  Over that period, non-interest-bearing deposits increased $103 million, or 2%, and equated to 29% of total deposits at March 31, 2017.  Money market accounts increased $153 million, or 2%, NOW accounts decreased $229 million, or 7%, time deposits decreased $122 million, or 6%, and savings deposits declined $1 million, or less than 1%. Deposit growth during the first quarter of 2017 was strongest in the New Orleans, southwest Louisiana, Mobile, Birmingham, and Little Rock markets.

On an average balance and linked quarter basis, non-interest-bearing deposits increased $108 million, or 2%, and interest-bearing deposits increased $510 million, or 4%.  The rate on average interest-bearing deposits in the first quarter of 2017 was 0.52%, up two basis points on a linked quarter basis. The increase in the cost of interest-bearing deposits was primarily the result of a less favorable change in the mix of deposits during the first quarter of 2017. Marginal deposit rates remained stable throughout the first quarter of 2017.

Other Assets And Funding

On an average balance and linked quarter basis, the investment portfolio increased $587 million, or 19%, in the first quarter of 2017, to $3.7 billion.  On a period-end basis, the investment portfolio equated to $3.9 billion, or 18% of total assets at March 31, 2017, up $375 million, or 11%, compared to December 31, 2016.  The investment portfolio had an effective duration of 3.8 years at March 31, 2017, unchanged compared to year-end 2016.  The investment portfolio had a $32 million unrealized loss at March 31, 2017, an improvement from a $39 million unrealized loss at year-end 2016.  The average yield on investment securities increased 15 basis points on a linked quarter basis to 2.24% in the first quarter of 2017. The Company holds in its investment portfolio primarily government agency securities.  Municipal securities comprised 9% of total investments at March 31, 2017.

On a linked quarter basis, average short-term borrowings (including repurchase agreements) decreased $193 million, or 32%, and the cost of short-term borrowings decreased nine basis points.  At March 31, 2017, short-term borrowings (including repurchase agreements) decreased $60 million, or 12%, compared to December 31, 2016.  On a linked quarter basis, average long-term debt decreased $46 million, or 7%, and the cost of long-term debt increased seven basis points to 2.22%.  The cost of average interest-bearing liabilities was 0.59% in the first quarter of 2017, up two basis points on a linked quarter basis.

Asset Quality

Non-performing assets ("NPAs") decreased $31 million, or 13%, to $220 million at March 31, 2017.  Acquired NPAs increased $4 million, while legacy NPAs, which include energy and non-energy loans, decreased $36 million, or 15%, and equated to 0.99% of total assets. Energy-related NPAs (which are included in legacy loans) decreased by $35 million, or 23%, and accounted for the decrease in the Company's total NPAs during the first quarter of 2017.  At March 31, 2017, non-energy-related NPAs increased $3 million, or 3%, and equated to 0.49% of total assets, up slightly compared to 0.48% at year-end 2016.

Aggregate loans past due 30 to 89 days increased $7 million, or 25%, and equated to 0.24% of total loans at March 31, 2017, compared to 0.19% at year-end 2016.

Net charge-offs totaled $6.1 million in the first quarter of 2017, down $1.6 million, or 21%, compared to the fourth quarter of 2016.  Annualized net charge-offs equated to 0.16% of average loans in the first quarter of 2017, a five basis point improvement on a linked quarter basis.  Energy loans accounted for approximately 47% of the net charge-offs incurred during the first quarter of 2017.

Capital Position

At March 31, 2017, the Company reported a non-GAAP tangible common equity ratio of 12.10%, up 228 basis points compared to December 31, 2016, and the preliminary Tier 1 leverage ratio was 12.91%, up 205 basis points compared to December 31, 2016. The Company's preliminary calculation of its total risk-based capital ratio at March 31, 2017, was 16.92%, up 279 basis points compared to December 31, 2016.

At March 31, 2017, book value per common share was $65.25, up $2.57 per share, or 4%, compared to year-end 2016. Tangible book value per common share was $50.46, up $4.66 per share, or 10%, compared to year-end 2016.  Based on the closing stock price of the Company's common stock of $79.35 per share on April 27, 2017, this price equated to 1.22 times March 31, 2017 book value per common share and 1.57 times March 31, 2017 tangible book value per common share.

Cash Dividends On Common Stock.  On March 20, 2017, the Company declared a quarterly cash dividend of $0.36 per common share, a 6% increase compared to the same quarter in the prior year. This common dividend level equated to an annualized dividend rate of $1.44 per common share.  Based on the Company's closing common stock price on April 27, 2017, the indicated dividend yield was 1.81% per common share. The payment of dividends on the common stock is at the discretion of the Board of Directors.

Common Stock Repurchase Program.  On May 4, 2016, the Board of Directors of the Company authorized the repurchase of up to 950,000 shares of the Company's common stock. The Company did not repurchase common shares under the authorized program during the first quarter of 2017. The Company has approximately 747,000 shares of common stock remaining that may be purchased under the currently authorized program.

Series B Preferred Stock.  On August 5, 2015, the Company sold 3.2 million depositary shares, each representing a 1/400th interest in a share of non-cumulative perpetual preferred stock. The Series B preferred stock has an initial coupon equal to 6.625% for a period of 10 years, and thereafter floats at a rate of LIBOR plus 426.2 basis points. The Company raised approximately $80 million in gross proceeds from the transaction.  On January 4, 2017, the Company declared a semi-annual cash dividend of $0.8281 per depositary share that was paid on February 1, 2017.

Series C Preferred Stock.  On May 9, 2016, the Company sold 2.3 million depositary shares, each representing a 1/400th interest in a share of non-cumulative perpetual preferred stock. The Series C preferred stock has an initial coupon equal to 6.60% for a period of 10 years, and thereafter floats at a rate of LIBOR plus 492 basis points. The Company raised approximately $57.5 million in gross proceeds from the transaction.  On March 20, 2017, the Company declared a quarterly cash dividend of $0.4125 per depositary share that is payable on May 1, 2017.

Common Stock.  On December 7, 2016, the Company issued and sold 3.6 million shares of common stock at a price of $81.50 per common share. After deducting underwriting discounts and commissions and other related expenses, net proceeds of the sale were approximately $279 million.  On March 7, 2017, the Company issued and sold 6.1 million shares of common stock at a price of $83.00 per common share. After deducting underwriting discounts and commissions and other related expenses, net proceeds of the sale were approximately $485 million. The estimated dilutive impact of carrying the excess capital associated with these two common stock offerings was approximately $0.11 per common share during the first quarter of 2017, and will be approximately $0.06 per month on an ongoing basis until the capital is fully deployed.

IBERIABANK Corporation

IBERIABANK Corporation is a financial holding company with 300 combined offices, including 202 bank branch offices and two loan production offices in Louisiana, Arkansas, Tennessee, Alabama, Texas, Florida, Georgia, and South Carolina, 24 title insurance offices in Arkansas and Louisiana, and mortgage representatives in 64 locations in 10 states.  The Company has eight locations with representatives of IBERIA Wealth Advisors in four states, and one IBERIA Capital Partners L.L.C. office in New Orleans.

The Company's common stock trades on the NASDAQ Global Select Market under the symbol "IBKC". The Company's Series B Preferred Stock and Series C Preferred Stock trade on the NASDAQ Global Select Market under the symbols "IBKCP" and "IBKCO", respectively.  The Company's common stock market capitalization was approximately $4.0 billion, based on the NASDAQ Global Select Market closing stock price on April 27, 2017.

The following 13 investment firms currently provide equity research coverage on the Company:

• Bank of America Merrill Lynch
• FBR & Co.
• FIG Partners, LLC
• Hovde Group, LLC
• Jefferies & Co., Inc.
• JMP Securities LLC
• Keefe, Bruyette & Woods, Inc.
• Piper Jaffray & Co.
• Raymond James & Associates, Inc.
• Robert W. Baird & Company
• Sandler O'Neill + Partners, L.P.
• Stephens, Inc.
• SunTrust Robinson-Humphrey

Conference Call

In association with this earnings release, the Company will host a live conference call to discuss the financial results for the quarter just completed. The telephone conference call will be held on Friday, April 28, 2017, beginning at 8:30 a.m. Central Time by dialing 1-888-317-6003. The confirmation code for the call is 3978156.  A replay of the call will be available until midnight Central Time on May 5, 2017 by dialing 1-877-344-7529. The confirmation code for the replay is 10104130.  The Company has prepared a PowerPoint presentation that supplements information contained in this press release.  The PowerPoint presentation may be accessed on the Company's web site, www.iberiabank.com, under "Investor Relations" and then "Financial Information" and "Presentations."

Non-GAAP Financial Measures

This press release contains financial information determined by methods other than in accordance with GAAP. The Company's management uses these non-GAAP financial measures in their analysis of the Company's performance.  Non-GAAP measures in this press release include, but are not limited to, descriptions such as core, tangible, and pre-tax pre-provision.  These measures typically adjust GAAP performance measures to exclude the effects of the amortization of intangibles and include the tax benefit associated with revenue items that are tax-exempt, as well as adjust income available to common shareholders for certain significant activities or transactions that in management's opinion can distort period-to-period comparisons of the Company's performance. Transactions that are typically excluded from non-GAAP performance measures include realized and unrealized gains/losses on former bank owned real estate, realized gains/losses on securities, income tax gains/losses, merger-related charges and recoveries, litigation charges and recoveries, and debt repayment penalties. Management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Company's core businesses. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.  Reconciliations of GAAP to non-GAAP disclosures are presented in the supplemental tables at the end of this release.  Please refer to the supplemental tables for these reconciliations.

Caution About Forward-Looking Statements

This press release contains "forward-looking statements," which may include forecasts of our financial results and condition, expectations for our operations and businesses, and our assumptions for those forecasts and expectations. Do not place undue reliance on forward-looking statements. Due to various factors, actual results may differ materially from our forward-looking statements. Factors that could cause our actual results to differ materially from our forward-looking statements are described under "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Risk Factors" and "Regulation and Supervision" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016, and in other documents subsequently filed by the Company with the Securities and Exchange Commission, available at the SEC's website, http://www.sec.gov, and the Company's website, http://www.iberiabank.com. To the extent that statements in this press release relate to future plans, objectives, financial results or performance by the Company, these statements are deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are generally identified by use of words such as "may," "believe," "expect," "anticipate," "intend," "will," "should," "plan," "estimate," "predict," "continue" and "potential" or the negative of these terms or other comparable terminology.

Forward-looking statements represent management's beliefs, based upon information available at the time the statements are made, with regard to the matters addressed; they are not guarantees of future performance.  Forward-looking statements are subject to numerous assumptions, risks and uncertainties that change over time and could cause actual results or financial condition to differ materially from those expressed in or implied by such statements.  Factors that could cause or contribute to such differences include, but are not limited to: the level of market volatility, our ability to execute our growth strategy, including the availability of future bank acquisition opportunities, our ability to execute on our revenue and efficiency improvement initiatives, unanticipated losses related to the completion and integration of mergers and acquisitions, refinements to purchase accounting adjustments for acquired businesses and assets and assumed liabilities in these transactions, adjustments of fair values of acquired assets and assumed liabilities and of deferred taxes in acquisitions, actual results deviating from the Company's current estimates and assumptions of timing and amounts of cash flows, utilization of non-GAAP financial measures, credit risk of our customers, resolution of assets formerly subject to loss share agreements with the FDIC, effects of the on-going correction in residential real estate prices and  levels of home sales, our ability to satisfy capital and liquidity standards such as those imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act and those adopted by the Basel Committee on Banking Supervision and federal banking regulators, sufficiency of our allowance for loan losses, changes in interest rates, access to funding sources, reliance on the services of executive management, competition for loans, deposits and investment dollars, competition from competitors with greater financial resources than the Company, reputational risk and social factors, compliance with laws and regulations, increases in FDIC insurance assessments, geographic concentration of our markets, economic and business conditions in our markets or nationally, including the impact of volatility of oil and gas prices, rapid changes in the financial services industry, significant litigation, cyber-security risks including dependence on our operational, technological, and organizational systems and infrastructure and those of third party providers of those services, hurricanes and other adverse weather events, and valuation of intangible assets. All information is as of the date of this press release. Except to the extent required by applicable law or regulation, the Company undertakes no obligation to revise or update publicly any forward-looking statement for any reason.

SOURCE IBERIABANK Corporation