IBERIABANK Corporation Reports Third Quarter Results

LAFAYETTE, La., Oct. 22, 2013 /PRNewswire/ -- IBERIABANK Corporation (NASDAQ: IBKC), holding company of the 126-year-old IBERIABANK (www.iberiabank.com), reported operating results for the third quarter ended September 30, 2013.  For the quarter, the Company reported income available to common shareholders of $23 million, or $0.78 fully diluted earnings per share.  In the third quarter of 2013, the Company incurred costs to implement previously disclosed earnings improvement initiatives and other non-operating costs equal to $2.2 million on a pre-tax basis, or $0.05 per share on an after-tax basis.  Excluding those items, EPS in the third quarter of 2013 was $0.83 per share on a non-GAAP operating basis, compared to $0.69 per share in the second quarter of 2013 (refer to press release supplemental table).

Daryl G. Byrd, President and Chief Executive Officer, commented, "During the third quarter of 2013, we experienced solid growth in loans and deposits and a fairly stable margin during the third quarter. The decline in mortgage activity in the third quarter was offset by excellent growth in other fee income products and services.  We are very pleased with the progress we achieved in our profitability improvement initiative during the third quarter.  Our enhanced efficiency efforts included closing or consolidating 10 bank branches and three mortgage locations as we fine-tune our distribution system.  This is an ongoing, proactive effort and we anticipate additional expense savings and revenue enhancements to be realized over the next few quarters.  We remain focused on achieving the EPS guidance we projected for the investment community and our shareholders."

Highlights for the Third Quarter of 2013 and September 30, 2013:

• The net interest margin declined two basis points on a linked quarter basis to 3.37%. Management stated comfort with expectations for the net interest margin in the fourth quarter of 2013 to be near the upper-end of the previously disclosed guidance range of 3.30% to 3.35%.
• The Company's profitability improvement initiatives have achieved aggregate annual run-rate benefits in excess of $21 million.  In the third quarter of 2013, operating expenses declined $4 million, or 4%, on a linked quarter basis.
• Gross loan growth was $295 million, or 4%, between quarter-ends (16% annualized rate), excluding all assets covered under under FDIC loss share agreements and other non-covered acquired assets (collectively "Acquired Assets").
• Total deposits increased $309 million, or 3%, between quarter-ends (12% annualized rate).  Noninterest bearing deposits increased $474 million, or 23%, and time deposits decreased $104 million, or 5%, during the third quarter.  Approximately 52% of the noninterest bearing deposit increase during the third quarter was the result of organic client growth and 48% due to a shift in interest-bearing deposits into noninterest bearing deposits.  At September 30, 2013, noninterest bearing deposits equated to 23% of total deposits.
• The Company's legacy asset quality continued to be strong in the third quarter of 2013.  Nonperforming assets ("NPAs"), excluding Acquired Assets, equated to 0.66% of total assets at September 30, 2013, compared to 0.69% at June 30, 2013.  On that basis, loans past due 30 days or more equated to 0.75% of total loans at September 30, 2013, compared to 0.88% at June 30, 2013.  Classified assets excluding Acquired Assets decreased $20 million, or 20%, during the third quarter, and decreased from 0.85% of total assets at June 30, 2013, to 0.66% at September 30, 2013.
• The Company recorded a $2 million loan loss provision in the third quarter of 2013, unchanged on a linked quarter basis.  Net charge-offs totaled $239,000 in the third quarter of 2013 (the second lowest level of net charge-offs in the Company's history), or an annualized 0.01% of average loans, compared to 0.05% of average loans in the second quarter of 2013, and 0.05% of average loans over the past seven quarters.
• Capital ratios remained strong. At September 30, 2013, the Company's tangible common equity ratio was 8.64%, Tier 1 common ratio was 10.95%, and total risk based capital ratio was 13.28%.

Refer to press release supplemental table for a reconciliation of GAAP and non-GAAP measures.

Operating Results

On a linked quarter basis, average earning assets increased $89 million, or 1%, as average loans and the FDIC receivable increased $186 million, or 2%, average investment securities increased $34 million, or 2%, and other earning assets declined $132 million, or 26%. Also on a linked quarter basis, the average earning asset yield decreased six basis points, and the cost of interest bearing liabilities decreased two basis points.  As a result, the tax-equivalent net interest margin declined two basis points.  Tax-equivalent net interest income increased $0.9 million, or 1%, as the growth in average earning assets offset the slight decline in the net interest margin.

The average investment yield improved six basis points during the third quarter of 2013 as a result of reduced bond premium amortization.

The non-covered loan yield declined one basis point as many of the major loan categories experienced fairly stable yields between quarters.  The covered loan yield (net of loss share receivable amortization) decreased 145 basis points and the associated covered income declined $4 million, or 35%.  The decline in covered income was $2 million less than projected primarily due to accelerated FDIC Indemnification Asset ("IA") amortization as cash flow improvements during the quarter contributed to higher levels of amortization. 

For the fourth quarter of 2013, the Company projects the prospective yield on the covered loan portfolio net of the IA to approximate 4.11%, compared to 3.66% in the third quarter.  The average balance of the net covered loan portfolio is projected to decline approximately $101 million, based on current cash flow assumptions and estimates.  Net income on the covered loan portfolio is projected to remain fairly stable between the third and fourth quarters of 2013.

On a period-end basis, the IA declined $36 million, or 15%, from $241 million at June 30, 2013 to $205 million at September 30, 2013.  The portion of the IA collectible from the FDIC decreased $23 million, or 26%, while the collectible portion from OREO and customers declined $13 million, or 9%.

In the third quarter of 2013, the Company recorded net charge-offs of $239,000, or 0.01% of average loans on an annualized basis and an aggregate provision for credit losses totaling $3.6 million that was divided into two parts – a $2 million provision for loan losses and a $1.6 million provision for unfunded lending commitments, the latter of which is included in noninterest expense.

Aggregate noninterest income increased less than $1 million, or 2%, on a linked quarter basis.  The primary changes in noninterest income on a linked quarter basis were:

• Decreased mortgage income of $2.5 million, or 14%;
• Decreased title revenue of $0.2 million, or 4%; offset by
• Increased deposit service charge income of $0.4 million, or 6%;
• Increased ATM and debit card income of $0.1 million, or 5%; and
• Increased client derivative income of $1.8 million.

The rapidly changing interest rate environment and greater client preferences for long-term fixed rate financing resulted in enhanced client interest in loan interest rate derivative-related transactions.  As a result, the Company has experienced a substantial increase in the level of interest rate derivative activity executed on behalf of clients, and thus, a significant increase in customer derivative commission income over the last several quarters.

The $2.5 million decline in mortgage income was the result of lower production and sales volumes and lower net valuations of derivatives and mortgage loans held for sale due primarily to the changing interest rate environment. The decline in income was partially offset by a $1.9 million reduction in mortgage commission and mortgage production incentives expense (included in noninterest expense).

In the third quarter of 2013, the Company originated $507 million in residential mortgage loans, down $165 million, or 25%, on a linked quarter basis.  The decrease in origination volume was the result of the unprecedented rapid increase in mortgage loan rates during the third quarter.  Client loan refinancing opportunities accounted for approximately 19% of mortgage loan applications in the third quarter of 2013, compared to 31% in the second quarter of 2013, and approximately 18% between September 30, 2013, and October 11, 2013.  The Company sold $552 million in mortgage loans during the third quarter of 2013, down $132 million, or 19%, on a linked quarter basis.  Margins on the sale of mortgage loans declined approximately 20 basis points on a linked quarter basis.  The mortgage origination pipeline was approximately $182 million at September 30, 2013, compared to $265 million at June 30, 2013, and was approximately $191 million at October 11, 2013.  Mortgage loan repurchases and make-whole payments were approximately $0.1 million in the third quarter of 2013, down compared to the second quarter of 2013.  The Company's mortgage business primarily focuses on retail mortgage loans originated through the Company's origination staff; less than 0.5% of originations year-to-date were purchased through correspondent mortgage loan providers (primarily for community reinvestment-related loan opportunities).

Assets under management at IBERIA Wealth Advisors ("IWA") were $1.1 billion at September 30, 2013, up 1% compared to June 30, 2013.  Income for IWA and IBERIA Capital Partners ("ICP") increased 7% and 5%, respectively, on a linked quarter basis.  ICP experienced modestly lower investment banking income in the third quarter but very strong sales and trading revenues.

Noninterest expense decreased $9 million, or 8%, on a linked quarter basis and included the following changes:

• Decreased mortgage commissions and production incentives of $1.9 million;
• Decreased legal and professional expenses of $0.9 million;
• Decreased base pay of $0.7 million;
• Decreased marketing and business development expense of $0.7 million;
• Decreased OREO property costs of $0.7 million;
• Decreased ATM/debit card expense of $0.6 million; partially offset by
• Increased provision for unfunded lending commitments of $1.1 million; and
• Increased merger and conversion-related expense of $0.1 million.

Excluding non-operating expenses, total expenses declined $4 million, or 4%, from $110 million in the second quarter of 2013 to $106 million in the third quarter of 2013.

During the third quarter, total headcount at the Company declined by 52 associates on a full-time equivalent basis, or 2%.  In aggregate since March 31, 2013, the net headcount reduction equated to 163 associates, or 6% of total headcount.  These figures do not include the favorable impact of reduced temporary and overtime costs.  While additional expense and revenue improvement initiatives continue in earnest throughout the Company with significant future benefits projected, management stated the specific initiatives outlined to date have been fully executed upon and the targeted benefits have been achieved in aggregate as anticipated.

Loans

Total loans increased $140 million, or 2%, between June 30, 2013 and September 30, 2013.  The loan portfolio associated with FDIC-assisted acquisitions at September 30, 2013, decreased $111 million, or 12%, compared to June 30, 2013.  Excluding Acquired Assets, total loans increased $295 million, or 4% (16% annualized rate) during the third quarter. Legacy commercial loans increased $153 million, or 3% (which included $34 million in business banking loan growth, up 5%, or 18% annualized rate), legacy consumer loans increased $77 million, or 5%, and legacy mortgage loans increased $64 million, or 20%, during the quarter.  Loan origination and renewal growth during the third quarter of 2013 were strongest in the Houston, Arkansas, and Baton Rouge markets.  Loan origination mix in the third quarter of 2013 was 57% fixed rate and 43% floating rate and total loans outstanding (excluding nonaccruals) were 52% fixed and 48% floating.  Loans and commitments originated and/or renewed during the third quarter of 2013 totaled $1.2 billion (down 6% on a linked quarter basis).  Energy-related loans outstanding totaled $674 million at September 30, 2013, up $12 million, or 2%, compared to June 30, 2013, and equated to approximately 7% of total loans. The Company had no student loans outstanding at September 30, 2013.

Deposits

Total deposits increased $309 million, or 3% (12% annualized rate), from June 30, 2013 to September 30, 2013.  Noninterest bearing deposits increased $474 million, or 23%, and equated to 23% of total deposits at September 30, 2013, while NOW accounts decreased $348 million, or 14%.  Approximately $246 million, or 48% of the change in noninterest bearing deposit volume, was the result of a transition of interest bearing NOW accounts into noninterest bearing deposits.  The differential in rate on the transitioned deposits was three basis points.  During the third quarter of 2013, the Company retained 95% of the deposit balances that were transferred to noninterest bearing deposits.

Money market and savings account volume increased $287 million, or 7%, between June 30, 2013 and September 30, 2013.  Time deposits declined $104 million, or 5% between quarter-ends.  Period-end deposit growth during the third quarter of 2013 was strongest in the Houston, Baton Rouge, Little Rock, Mobile, and Montgomery markets.

On an average balance and linked quarter basis, noninterest-bearing deposits increased $329 million, or 16%, and interest-bearing deposits decreased $239 million, or 3%.  The rate on average interest-bearing deposits in the third quarter of 2013 was 0.40%, a decrease of two basis points on a linked quarter basis.  Approximately $1.6 billion in time deposits are scheduled to re-price over the next 12 months at a weighted average cost of 0.63%.  An additional $0.2 billion in time deposits are scheduled to re-price the following 12 months at a weighted average cost of 1.07%.  During the third quarter of 2013, new and re-priced time deposits were booked at an average cost of 0.31%.  The Company experienced a time deposit retention rate of 87% in the third quarter of 2013 with an average 34 basis point reduction in rate.

Other Assets And Funding

Excess liquidity averaged $213 million in the third quarter of 2013, down $81 million, or 28%, on a linked quarter basis.  The investment portfolio remained stable at $2.1 billion on average in the third quarter of 2013.  On a period-end basis, the investment portfolio equated to $2.1 billion, or 16% of total assets at September 30, 2013, unchanged compared to June 30, 2013.  The investment portfolio had a modified duration of 3.5 years at September 30, 2013, down compared to 3.9 years at June 30, 2013.  At current prepayment speeds, the investment portfolio is projected to create cash flows of approximately $434 million over the next 15 months, or 21% of the total investment portfolio.  The Company estimates that a potential increase in interest rates of 100 and 200 basis points at September 30, 2013 would extend the duration of the investment portfolio by 0.6 and 0.8 years, respectively.  The investment portfolio went from an $8 million unrealized loss at June 30, 2013, to a $3 million unrealized loss at September 30, 2013.  The average yield on investment securities increased six basis points on a linked quarter basis to 1.98% in the third quarter of 2013.  The Company holds in its investment portfolio primarily government agency securities.  Municipal securities comprised only 9% of total investments at September 30, 2013.  The Company holds no sovereign debt, corporate debt or equity securities, or derivative exposure to foreign counterparties.

On a linked quarter basis, average long-term debt decreased $11 million, or 4%, and the cost of debt decreased two basis points to 3.37%.  The cost of average interest bearing liabilities was 0.49% in the third quarter of 2013, a decrease of two basis points 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.

Legacy NPAs at September 30, 2013 were $76 million, essentially unchanged compared to June 30, 2013.  NPAs equated to 0.66% of total assets at September 30, 2013, compared to 0.69% of total assets at June 30, 2013.  Loans past due 30 days or more (including nonaccruing loans) decreased $8 million, or 12%, and represented 0.75% of total loans at September 30, 2013, compared to 0.88% at June 30, 2013.  Classified assets declined $20 million, or 20%, during the third quarter of 2013.

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 September 30, 2013, the Company reported a tangible common equity ratio of 8.64%, down five basis points compared to June 30, 2013.  At September 30, 2013, the Company's preliminary Tier 1 leverage ratio was 9.65%, up six basis points compared to June 30, 2013.  The Company's preliminary total risk-based capital ratio at September 30, 2013 was 13.28%, down 18 basis points compared to June 30, 2013.  The decline in the risk-based capital ratio was due in part to the redeployment of 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 third quarter of 2013.  A total of 46,692 shares remain under the currently authorized share repurchase program.

At September 30, 2013, book value per share was $51.30, up $0.65 per share compared to June 30, 2013. Tangible book value per share was $37.00, up $0.70 per share compared to June 30, 2013.  Based on the closing stock price of the Company's common stock of $57.55 per share on October 22, 2013, this price equated to 1.12 times September 30, 2013 book value and 1.55 times September 30, 2013 tangible book value per share.

On September 17, 2013, 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 2.36%.

IBERIABANK Corporation

IBERIABANK Corporation is a financial holding company with 267 combined offices, including 170 bank branch offices and four LPOs in Louisiana, Arkansas, Tennessee, Alabama, Texas, and Florida, 21 title insurance offices in Arkansas and Louisiana, mortgage representatives in 63 locations in 12 states, 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 $1.7 billion, based on the NASDAQ closing stock price on October 22, 2013.

The following 12 investment firms currently provide equity research coverage on IBERIABANK Corporation:

• Bank of America Merrill Lynch
• FIG Partners, LLC
• Jefferies & Co., Inc.
• Keefe, Bruyette & Woods
• Merion Capital Group
• Oppenheimer & Co., Inc.
• Raymond James & Associates, Inc.
• Robert W. Baird & Company
• 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 Wednesday, October 23, 2013, beginning at 8:00 a.m. Central Time by dialing 1-800-553-5260. The confirmation code for the call is 304685.  A replay of the call will be available until midnight Central Time on October 30, 2013 by dialing 1-800-475-6701. The confirmation code for the replay is 304685.  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 are infrequent in nature. 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.

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. IBERIABANK Corporation's actual strategies and results in future periods may differ materially from those currently expected due to various risks and uncertainties.

Actual results 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 FDIC-assisted failed bank 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 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 changes in the Company's expectations. Certain tabular presentations may not reconcile because of rounding.

SOURCE IBERIABANK Corporation