IBERIABANK Corporation Reports Significant Progress In Operating Leverage

LAFAYETTE, La., July 23, 2014 /PRNewswire/ -- IBERIABANK Corporation (NASDAQ: IBKC), holding company of the 127-year-old IBERIABANK (www.iberiabank.com), reported operating results for the second quarter ended June 30, 2014.  For the quarter, the Company reported income available to common shareholders of $18.5 million, or $0.60 per fully diluted earnings per share.  In the second quarter of 2014, the Company incurred non-operating costs equal to $17.1 million on a pre-tax basis, or $0.36 per share on an after-tax basis.   Excluding non-operating items, EPS in the second quarter of 2014 was $0.96 per share on a non-GAAP operating basis, compared to $0.73 per share in the first quarter of 2014 (refer to press release supplemental table.)  

The Company completed the acquisition of Teche Holding Company ("Teche") on May 31, 2014, and First Private Holdings, Inc. ("First Private") on June 30, 2014. Financial statements reflect the impact of the acquisitions beginning on their respective acquisition dates and are subject to future refinements to purchase accounting adjustments. 

Teche was headquartered in New Iberia, Louisiana, and net added 11 bank offices in Baton Rouge and the Acadiana region in Louisiana.  The acquisition added $700 million in loans (after preliminary discounts) and $646 million in deposits.  The conversions of branch and operating systems have been successfully completed.

First Private was headquartered in Dallas, Texas, and added two bank offices in the Dallas market.  The acquisition added $299 million in loans (after preliminary discounts) and $312 million in deposits.  The conversions of branch and operating systems are anticipated to be completed in the third quarter of 2014. The Company expects approximately $4 million in conversion-related costs will be incurred during the third quarter of 2014.

Daryl G. Byrd, President and Chief Executive Officer, commented, "We welcome our new clients from Teche and First Private, and we anticipate achieving cost savings in excess of our initial projections.  We recently recruited a commercial team leader in the Dallas market to enhance our growth prospects in that market. The conversion and integration of First Private remain on track."

Byrd continued, "Our operating performance improved considerably during the second quarter. Our fee businesses experienced significant rebounds in seasonal activity, and our organic loan growth during the quarter and commercial loan pipeline remain very strong. The financial benefits of our expense savings initiatives became more evident in the second quarter as our operating leverage improved considerably. Based on our current forecasts, we project our full year operating EPS to be in the range of $3.65 to $3.70 per share, or a 16% to 18% improvement for the full year of 2014 compared to last year.  Overall, we are very pleased with our progress to date in improving the financial performance of our Company, though we remain focused on achieving further improvements."

Highlights for the Second Quarter of 2014 and June 30, 2014:

• Total tax-equivalent operating revenues increased $17.8 million, or 13%, on a linked quarter basis, while operating expenses increased $4.6 million, or 4%, resulting in improved operating leverage.  The Company's tangible operating efficiency ratio improved from 73.6% in the first quarter of 2014 to 68.3% in the second quarter of 2014.  Based on current estimates, the Company forecasts a tangible efficiency ratio of approximately 67% for the remainder of 2014.
• Seasonal influences favorably influenced operating non-interest income in the second quarter of 2014. Mortgage income increased $7.8 million, or 77%, title revenue increased $1.1 million, or 26%, service charge income increased $1.2 million, or 17%, and capital markets income improved $1.3 million, or 79%, on a linked quarter basis. 
• Total loan growth (including acquired loans) was $1.3 billion, or 13%, between quarter-ends, while loan growth excluding all assets covered under FDIC loss share agreements and other non-covered acquired assets (collectively, "Acquired Assets") increased $382 million, or 4%, between quarter-ends (18% annualized rate).
• Total deposits (including acquired deposits) increased $1.1 billion, or 10%, between quarter-ends, and excluding all acquisitions increased $156 million, or 1% (6% annualized basis).  Non-interest-bearing deposits excluding acquired deposits increased $77 million, or 3%, between quarter-ends (11% on an annualized basis).
• The Company's legacy asset quality remained strong in the second quarter of 2014. At June 30, 2014, and excluding Acquired Assets, nonperforming assets ("NPAs"), equated to 0.53% of total assets, loans past due 30 days or more equated to 0.55% of total loans, and classified assets equated to 0.52% of total assets.
• Net charge-offs totaled $857,000 in the second quarter of 2014, or an annualized 0.03% of average loans, and excluding Acquired Assets, net charge-offs totaled $759,000, or an annualized 0.04% of average loans.  Over the past 10 quarters, net charge-offs averaged 0.05% of average loans.  The Company recorded a $4.7 million loan loss provision, compared to $2.1 million in the first quarter of 2014.
• The net interest margin decreased six basis points on a linked quarter basis to 3.48%, which was within the previously disclosed guidance range of 3.45% to 3.50%. Based on interest rate risk modeling and other factors, management reiterated its expectation of the net interest margin in 2014 to remain in the range of 3.45% to 3.50%.

Operating Results

On a linked quarter basis, average earning assets increased $605 million, or 5%, as average loans increased $452 million, or 5%, average indemnification asset ("IA") declined $23 million, or 15%, average investment securities decreased $4 million, or less than 1%, and other earning assets increased $136 million, or 79%. Also on a linked quarter basis, the average earning asset yield decreased seven basis points, and the cost of interest-bearing liabilities decreased one basis point.  As a result, the net interest spread decreased five basis points, and the net interest margin decreased six basis points.  Tax-equivalent net interest income increased $4.5 million, or 4%, as average earning assets increased while the net interest margin declined.

The non-covered loan yield decreased eight basis points, while the net covered loan yield (net of IA amortization) decreased two basis points.  The average covered loan volume declined $90 million, or 11%.  As a result of the reduction in yield and volume, the associated net covered income declined $0.7 million on a linked quarter basis, which was slightly better than management's expectations. 

For the third quarter of 2014, the Company projects the prospective yield on the covered loan portfolio net of the IA amortization to approximate 2.85%, compared to 3.16% in the second quarter.  The average balance of the net covered loan portfolio is projected to decline approximately $76 million, based on current cash flow assumptions and estimates.  Net income on the covered loan portfolio is projected to decline approximately $1.2 million between the second and third quarters of 2014.  The Company projects the net covered income to equate to less than 6% of total net interest income in 2014, compared to 11% in 2013.

On a period-end basis, the IA declined $21 million, or 15%, from $141 million at March 31, 2014, to $121 million at June 30, 2014.  The portion of the IA collectible from the FDIC decreased $18 million, or 44%, while the collectible portion from other real estate owned ("OREO") and customers declined $3 million, or 3%.

Aggregate non-interest income increased $12.3 million, or 34%, on a linked quarter basis.  Excluding non-operating items, operating non-interest income increased $14.1 million, or 42%.  The primary changes in operating non-interest income on a linked quarter basis were:

• Increased mortgage income of $7.8 million, or 77%;
• Increased service charge income of $1.2 million, or 17%;
• Increased title revenue of $1.1 million, or 26%;
• Increased ATM/debit card fee income of $0.5 million, or 19%; and
• Increased capital markets revenue of $1.3 million

The $7.8 million increase in mortgage income was the result of higher production and sales volumes, and improved margins. The improvement in mortgage income was partially offset by a $1.3 million increase in mortgage commission and production incentives expense (included in non-interest expense).

In the second quarter of 2014, the Company originated $436 million in residential mortgage loans, up $123 million, or 39%, on a linked quarter basis.  Client loan refinancing opportunities accounted for approximately 13% of mortgage loan applications in the second quarter of 2014, compared to 16% in the first quarter of 2014, and approximately 15% between June 30, 2014, and July 21, 2014.  The Company sold $395 million in mortgage loans during the second quarter of 2014, up $84 million, or 27%, on a linked quarter basis.  The gain on sale of mortgage loans increased $6.0 million on a linked quarter basis, while the market value adjustment on loans held in the pipeline and warehouse increased $1.7 million on a linked quarter basis during the second quarter of 2014.  The mortgage origination locked pipeline increased 14% during the second quarter of 2014, from $157 million at March 31, 2014, to $179 million at June 30, 2014.  At July 21, 2014, the locked pipeline was $184 million, or a 3% increase compared to June 30, 2014.  The mortgage business primarily focuses on retail mortgage loans originated by the Company.

Service charge income increased $1.2 million, or 17%, on a linked quarter basis.  This revenue increase was significantly influenced by the Teche acquisition, more calendar days, and seasonality differences between the quarters.

Assets under management at IBERIA Wealth Advisors ("IWA") were $1.2 billion at June 30, 2014, up 4% compared to March 31, 2014.  Revenues for IWA increased 7% on a linked quarter basis, and were up 9% compared to the second quarter of 2013.  IBERIA Financial Services revenues increased 5% on a linked quarter basis, and up 9% compared to the second quarter of 2013.  IBERIA Capital Partners experienced a $1.3 million, or 79%, improvement in revenues on a linked quarter basis, due to higher investment banking and institutional brokerage activity. 

On a linked quarter basis, the Company experienced an increased level of interest rate derivative activity executed on behalf of clients, resulting in a modest increase in customer derivative commission income in the second quarter of 2014.

Non-interest expense increased $19.9 million, or 19%, on a linked quarter basis, while operating expense increased $4.6 million, or 4%.  Operating expense changes included the following on a linked-quarter basis:

• Increased mortgage commissions of $1.3 million, or 57%;
• Increased operating expenses of $1.4 million associated with the cost of Teche's operations for one month in the second quarter; and
• Increased operating expenses of $1.9 million in all other expenses, or 2%.

Through the second quarter of 2014, the Company achieved approximately 65% of the targeted run-rate expense savings of $10.7 million. The Company continues to review its operating metrics for future opportunities to improve revenues and reduce expenses, and remains comfortable with the targeted run-rate savings during 2014.

Loans

Total loans increased $1.3 billion, or 13%, between March 31, 2014 and June 30, 2014.  The loan portfolio associated with FDIC-assisted acquisitions at June 30, 2014, decreased $79 million, or 12%, compared to March 31, 2014.  Excluding Covered and Acquired Assets, total loans increased $382 million, or 4% (18% annualized rate), during the second quarter. Legacy commercial loans increased $246 million, or 4% (which included $51 million in business banking loan growth, up 8%, or 30% annualized rate), legacy consumer loans increased $105 million, or 6%, and legacy mortgage loans increased $31 million, or 7%, during the quarter.  Loan origination and renewal growth during the second quarter of 2014 were strongest in the Houston, New Orleans, Birmingham, and Baton Rouge markets. Funded loan origination and renewal mix in the second quarter of 2014 was 44% fixed rate and 56% floating rate, and total loans outstanding (excluding nonaccruals) were 51% fixed and 49% floating.  Loans and commitments originated and/or renewed during the second quarter of 2014 totaled $1.0 billion (up 21% on a linked quarter basis).  Energy-related loans outstanding totaled $819 million at June 30, 2014, down $36 million, or 4%, compared to March 31, 2014, and equated to approximately 8% of total loans. The Company had no student loans outstanding at June 30, 2014.

Deposits

Total deposits increased $1.1 billion, or 10%, from March 31, 2014 to June 30, 2014.  Excluding acquired deposits, total deposits increased $156 million, or 1%. Non-interest-bearing deposits increased $318 million, or 12% ($77 million, or 3%, excluding acquired deposits), and equated to 25% of total deposits at June 30, 2014.  NOW accounts increased $40 million, or 2%, while money market and savings account volume increased $338 million, or 8%, between March 31, 2014 and June 30, 2014.  Time deposits increased $386 million, or 24% between quarter-ends.  Excluding acquisitions, period-end deposit growth during the second quarter of 2014 was strongest in the Little Rock, Lafayette, New Orleans, and Montgomery markets.

On an average balance and linked quarter basis, non-interest-bearing deposits increased $125 million, or 5%, and interest-bearing deposits increased $130 million, or 2%.  The rate on average interest-bearing deposits in the second quarter of 2014 was 0.35%, a decrease of one basis point on a linked quarter basis. 

Other Assets And Funding

Excess liquidity averaged $238 million in the second quarter of 2014, up $123 million, or 107%, on a linked quarter basis.  The investment portfolio increased $5 million, or less than 1%, to $2.1 billion on average in the second quarter of 2014.  On a period-end basis, the investment portfolio equated to $2.1 billion, or 14% of total assets at June 30, 2014, down slightly compared to 15% at March 31, 2014.  The investment portfolio had an effective duration of 3.5 years at June 30, 2014, a slight decrease compared to March 31, 2014.  The investment portfolio improved from a $10 million unrealized loss at March 31, 2014, to an $8 million unrealized gain at June 30, 2014.  The average yield on investment securities increased two basis points on a linked quarter basis to 2.24% in the second quarter of 2014.  The Company holds in its investment portfolio primarily government agency securities.  Municipal securities comprised only 9% of total investments at June 30, 2014.  The Company holds for investment no sovereign debt, corporate debt or equity securities, trust preferred securities, or derivative exposure to foreign counterparties.

On a linked quarter basis, average short-term debt increased $323 million, or 55%, and the cost of short-term debt decreased one basis point.  Average long-term debt increased $24 million, or 9%, and the cost of debt decreased eight basis points to 3.34%. The cost of average interest-bearing liabilities was 0.43% in the second quarter of 2014, a decrease of one basis point on a linked quarter basis.

Asset Quality

To provide additional consistency and transparency for financial reporting of Acquired Assets, the Company divides Acquired Assets into five distinct categories:

1. Legacy assets that were originated and not acquired;
2. Acquired Assets that are scheduled to lose FDIC loss share coverage over the next 12 months;
3. Acquired Assets that will continue to be covered under FDIC loss share coverage beyond the next 12 months;
4. Acquired Assets not covered under FDIC loss share agreements using SOP accounting treatment (in accordance with ASC Topic 310-30); and
5. Acquired Assets not covered under FDIC loss share agreements not using SOP accounting treatment.

Between March 31, 2014 and June 30, 2014, legacy NPAs increased $10 million, or 16%, due to $10 million in bank-owned properties that transferred to OREO.  At June 30, 2014, bank-owned properties in OREO totaled $19 million, or 27% of total NPAs. Legacy NPAs equated to 0.53% of total assets at June 30, 2014, and 0.39% of total assets excluding bank-owned properties. Loans past due 30 days or more (including non-accruing loans) increased $4 million, or 8%, and represented 0.55% of total loans at June 30, 2014, compared to 0.53% at March 31, 2014.

Table F provides a breakdown of Acquired Assets under the other four categories pertaining to Acquired Assets and the asset quality performance measures associated with Acquired Assets in each category. 

Capital Position

The Company maintains favorable capital strength.  At June 30, 2014, the Company reported a tangible common equity ratio of 8.46%, down 15 basis points compared to March 31, 2014.  At June 30, 2014, the Company's preliminary Tier 1 leverage ratio was 10.03%, up 42 basis points compared to March 31, 2014.  At June 30, 2014, pro forma Tier 1 leverage capital as a percentage of total assets adjusted for leverage capital purposes on a period-end basis would have equated to 9.16%.  The Company's preliminary total risk-based capital ratio at June 30, 2014 was 12.43%, down 26 basis points compared to March 31, 2014.  The decline in the risk-based capital ratio was due in part to the recently completed acquisitions and FDIC-loan pay downs that carried a 20% risk weighting, into non-covered loans that carried a higher risk weighting.

On October 26, 2011, the Company announced a share repurchase program totaling 900,000 shares of common stock. No shares were repurchased under this program during the second quarter of 2014.  A total of 46,692 shares remain under the currently authorized share repurchase program.

At June 30, 2014, book value per share was $53.86, up $1.82 per share compared to March 31, 2014. Tangible book value per share was $37.41, down $0.18 per share compared to March 31, 2014.  Based on the closing stock price of the Company's common stock of $65.78 per share on July 23, 2014, this price equated to 1.22 times June 30, 2014 book value and 1.76 times June 30, 2014 tangible book value per share.

On June 19, 2014, the Company declared a quarterly cash dividend of $0.34 per share. This dividend level equated to an annualized dividend rate of $1.36 per share and an indicated dividend yield of 2.07%.

IBERIABANK Corporation

The Company is a financial holding company with 278 combined offices, including 186 bank branch offices and three loan production offices in Louisiana, Arkansas, Tennessee, Alabama, Texas, and Florida, 22 title insurance offices in Arkansas and Louisiana, and mortgage representatives in 58 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 market capitalization was approximately $2.2 billion, based on the NASDAQ Global Select Market closing stock price on July 23, 2014.

The following 12 investment firms currently provide equity research coverage on the Company:

• Bank of America Merrill Lynch
• FIG Partners, LLC
• Jefferies & Co., Inc.
• Keefe, Bruyette & Woods, Inc.
• Merion Capital Group
• Raymond James & Associates, Inc.
• Robert W. Baird & Company
• Sandler O'Neill + Partners, L.P.
• Stephens, Inc.
• Sterne, Agee & Leach
• SunTrust Robinson-Humphrey
• Wunderlich Securities

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 Thursday, July 24, 2014, beginning at 8:30 a.m. Central Time by dialing 1-800-230-1074. The confirmation code for the call is 329854.  A replay of the call will be available until midnight Central Time on July 31, 2014 by dialing 1-800-475-6701. The confirmation code for the replay is 329854.  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 "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. 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. Since the presentation of these GAAP performance measures and their impact differ between companies, 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 included as tables at the end of this release.  Refer to press release supplemental table for this reconciliation.

Assumptions Regarding Projected Earnings in Future Periods

The Company's net interest margin and operating EPS guidance for full year 2014 were based on the following significant assumptions:

• Recent forward interest rate curve projections;
• No significant change in credit quality;
• No significant changes to the preliminary purchase accounting marks assumed on the Company's most recently completed acquisitions;
• No significant cash flow or credit quality changes on Acquired Assets;
• Achieving the $10.7 million in recently disclosed earnings enhancement initiatives; and
• Mortgage and title insurance projections continue to reflect the current environment and expectations.

Caution About Forward-Looking Statements

To the extent that statements in this press release and the accompanying PowerPoint presentation relate to future plans, objectives, financial results or performance of IBERIABANK Corporation, these statements are deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, which are based on management's current information, estimates and assumptions and the current economic environment, are generally identified by the use of the words "plan", "believe", "expect", "intend", "anticipate", "estimate", "project" or similar expressions. The Company's actual strategies, results and financial condition in future periods may differ materially from those currently expected due to various risks and uncertainties. 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.  Consequently, no forward-looking statement can be guaranteed.

Actual results or financial condition could differ materially because of factors such as the level of market volatility, our ability to execute our growth strategy, including the availability of future  bank acquisition opportunities, unanticipated losses related to the integration of, and 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, credit risk of our customers, effects of the on-going correction in residential real estate prices and reduced levels of home sales, our ability to satisfy new capital and liquidity standards such as those imposed by the Dodd-Frank Act and those adopted by the Basel Committee 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, reputational risk and social factors, changes in government regulations and legislation, increases in FDIC insurance assessments, geographic concentration of our markets and economic conditions in these markets, rapid changes in the financial services industry, dependence on our operational, technological, and organizational systems or infrastructure and those of third-party providers of those services, hurricanes and other adverse weather events, the modest trading volume of our common stock, and valuation of intangible assets. These and other factors that may cause actual results or financial condition to differ materially from these forward-looking statements are discussed in the Company's Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q, and other filings with the Securities and Exchange Commission (the "SEC"), available at the SEC's website, http://www.sec.gov, and at the Company's website, http://www.iberiabank.com, under the heading "Investor Information." All information in this release and the accompanying PowerPoint presentation is as of the date of this release. The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or financial condition or to changes in the Company's expectations. Certain tabular presentations may not reconcile because of rounding.

SOURCE IBERIABANK Corporation