EXHIBIT 13
pathways to
GROWTH
[GRAPHIC]
iBERIABANK
Corporation(TM)
ANNUAL REPORT 2002
financial
HIGHLIGHTS
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(dollars in thousands, except per share data) 2002 2001 % Change
=========================================================================================================================
Income Data
Net Interest Income $ 59,594 $ 54,350 10%
Net Interest Income (Tax-equivalent Basis) 61,063 54,777 11%
Net Income 18,453 14,508 27%
Per Share Data
Net Income - Basic $ 3.26 $ 2.48 31%
Net Income - Diluted 3.02 2.36 28%
Cash Earnings - Diluted 3.06 2.76 11%
Book Value 24.88 23.03 8%
Tangible Book Value 18.57 16.92 10%
Cash Dividends 0.76 0.70 9%
Average Balance Sheet Data
Loans $ 976,326 $ 948,060 3%
Earning Assets 1,353,057 1,324,570 2%
Total Assets 1,464,419 1,418,980 3%
Deposits 1,224,522 1,211,785 1%
Shareholders' Equity 140,625 133,906 5%
Key Ratios
Return on Average Assets 1.26% 1.02%
Return on Average Equity 13.12% 10.83%
Net Interest Margin (Tax-equivalent Basis) 4.49% 4.11%
Efficiency Ratio 56.8% 60.0%
Tangible Efficiency Ratio (Tax-equivalent Basis) 55.0% 55.0%
Average Loans to Average Deposits 79.7% 78.2%
Nonperforming Assets to Total Assets 0.42% 0.91%
Allowance For Loan Losses to Loans 1.25% 1.16%
Net Charge-Offs to Average Loans 0.43% 0.44%
Average Equity to Average Total Assets 9.60% 9.44%
Tier 1 Leverage Ratio 7.62% 6.95%
Dividend Payout Ratio 23.7% 28.7%
CONTENTS
[2] Letters to Shareholders
[5] Pathways to Growth
[15] Financial Information
[18] Management's Discussion and Analysis
[34] Consolidated Financial Statements
[61] Board and Corporate Information
Color inset photo of Allard Oak by Paul Combel
[GRAPHIC]
pathways to
GROWTH
Built upon a solid foundation, the IBERIABANK pathway to growth has been
nurtured by a well executed transition from a historic thrift institution to the
highly regarded statewide commercial bank it is today.
For 116 years, IBERIABANK and its predecessors, have served communities that
value stability and steady growth. Like the magnificent oak trees that grace the
landscape of our state, IBERIABANK has become a symbol of Louisiana strength,
endurance and culture.
Our base is strong. Our reach is ever growing -- well planned and tended by a
leadership team and associates who combine exceptional expertise and experience
in banking with strong commitments to customer service and shareholder value.
IBERIABANK Corporation is a commercial bank holding company organized under the
laws of the State of Louisiana with consolidated assets at December 31, 2002, of
$1.6 billion. The lead bank for IBERIABANK Corporation is IBERIABANK. At the end
of 2002, IBERIABANK had 39 offices serving 9 parishes in Louisiana. IBERIABANK
and its predecessor organizations have served Louisiana customers for 116 years.
IBERIABANK Corporation is the third largest Louisiana-based bank holding
company.
strength
growth
endurance [GRAPHIC]
stability
longevity
letter to SHAREHOLDERS
[GRAPHIC]
Allard Oak, City Park, New Orleans
The creation of a thousand forests is in one acorn.
- Ralph Waldo Emerson
Dear Shareholders,
The year 2002 was a year of growth, perseverance and strength. We are proud of
the many accomplishments we achieved during the year, our current financial
condition and our prospects for the future. In many ways, we find the
characteristics of our organization, events and accomplishments to be analogous
to characteristics of the oak tree. This symbolism is enhanced by the oak tree's
indigenous nature to the markets we serve.
Three years ago, our leadership team planted a seed with a vision to make
shareholders a priority and to build a successful commercial bank that would
meet and surpass client needs. That seed has grown into an organization that has
met those expectations and continues to focus on exceeding them.
We believe that our company is uniquely positioned throughout Louisiana. We
deliver on our promise to be relationship focused by making decisions close to
our clients, in contrast to those made by other larger institutions
headquartered thousands of miles away. We are pleased to have comparable
resources to our larger competitors, but the agility of the smaller ones. We
firmly believe we can offer the best of all worlds. We have the unique
opportunity of being in the right place, at the right time, with the right
talent to be successful.
I am very proud of the skillful team we have in place at our company. A
combination of hard work and creative ideas is evident in the success we have
enjoyed. Our strong belief in continuous improvement provides a culture that
promotes progress. During 2002, we were able to supplement our people strength
with additional strategic hires. This talent includes client relationship
managers, private bankers and specialists in marketing, security, technology,
operations and others. We continue to operate a very lean organization through
our effective use of maximizing the talents that people bring to our company.
Teamwork is one of the hallmarks of our culture, and many of our associates are
expected to wear "different hats." This approach provides an excellent
opportunity for our leadership team and associates to be most effective and
efficient by applying their technical expertise in other areas of our
organization.
During the year, we established advisory boards in three of our markets. In each
case, the involvement and advice of these business leaders has dramatically
exceeded our expectations. We appreciate their willingness to lend us their
expertise and guidance that makes us a better company for our clients and
communities.
Our continued success is, in part, a function of the fertile soil upon which our
franchise grows. As described later in this report, the local economies we serve
continue to perform well, particularly when compared to the national economic
scene. Oil and natural gas have had a positive influence on our local economies.
However, we believe our markets have become less effected by the volatility of
energy prices. The Acadiana region (the five parish area we serve in south
central Louisiana) has demonstrated an excellent skill at diversifying its
economic sources of revenue and is performing very well. While the tourism trade
has had some dampening effect on the New Orleans economy, our franchise in this
market continues to flourish. For example, our commercial loans grew 76% during
2002 in New Orleans, which exceeded our expectations. North Louisiana's economy
remains stable and continues to experience some of the lowest unemployment
statistics in the state.
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stability
The interest rate environment during 2002 has been a very challenging one for
financial institutions. Substantial write-downs of credits in airline,
telecommunications, technology, health care, and other beleaguered industries,
along with interest-rate spread compression, mortgage servicing write-downs and
operational difficulties combined, made 2002 a year many bank investors want to
forget. We have successfully navigated these difficult times by staying local,
remaining focused on our clients and applying strict disciplines in our approach
to business. In addition to the interest rate challenges, we literally
"weathered the storm" of Hurricane Lili. I am particularly proud of our people
and the communities we serve that showed tremendous strength and determination
in the face of this recent adversity.
The year of 2002 was a very successful one for our company. As the theme of our
annual report, "Pathways to Growth," suggests, we embarked upon a number of
different paths to achieve growth. We experienced strong growth through organic
means--namely, loan originations and deposit gathering. Our total loans
outstanding passed the $1 billion mark near the end of the year. We also
announced plans for external expansion--namely, we announced the first
acquisition since the current management team joined the Company. On February
28, 2003, we completed the acquisition of Acadiana Bancshares, Inc., parent
company of LBA Savings Bank.
Similar to the 500-year old oak tree with its towering presence outside St.
John's Cathedral in Lafayette, the roots of LBA Savings Bank and IBERIABANK go
back many generations. Our organizations are two of the oldest banks in
continuous operation in the Acadiana region. The 103-year old LBA Savings Bank
and 116-year old IBERIABANK are examples of financial institutions that have
grown and persevered over time. We have taken similar pathways, and at times,
different pathways, but we have joined in pursuit of the common endeavor of
improving shareholder value. We welcome the shareholders of Acadiana Bancshares,
Inc. and the clients and associates of LBA Savings Bank to our family.
During the year, we successfully traversed other pathways to growth. We worked
assertively to improve the infrastructure of our company, with the intention of
further enhancing service quality and responsiveness to our clients. We began to
replace PCs, routers, servers and the telephone system. We upgraded our
mainframe as well as completed other technology and telecommunication
enhancements. We also implemented new fee initiatives for retail and commercial
clients and improved our net interest margin and revenue base. Our level of
nonperforming assets was cut nearly in half during the year, while at the same
time, our reserves for loan losses climbed 18% since the beginning of the year.
We made excellent progress toward achieving the long-term goals we set a few
years ago. The goals we set were a return on average equity ("ROE") goal of 13%
to 15%, tangible efficiency ratio of less than 50% and double-digit core
earnings growth. Our ROE improved from 11.02% in the fourth quarter of 2001 to
13.29% in the fourth quarter of 2002 (our ratio was 9.40% three years ago).
Tangible efficiency ratio on a taxable equivalent basis, which is a measure of
operating efficiency, increased from 52.6% in the fourth quarter of 2001 to
54.8% in the fourth quarter of 2002 (this ratio was 64.6% three years ago).
Including the favorable impact of Financial Accounting Standard ("FAS") 142,
fully diluted earnings per share ("EPS") increased 28% in 2002 compared to 2001.
For the final quarter of 2002, we reported fully diluted EPS of $0.79, up 75%
compared to $0.45 EPS in the third quarter of 1999. Through the fourth quarter
of 2002, we reported record quarterly operating earnings for 12 consecutive
quarters.
Overall, we are pleased with the achievements we attained in 2002, the improved
strength of our balance sheet and our excellent position for growth in the
future. We are grateful for your continued support and confidence as we improve
our franchise. Our corporate philosophy focuses on "continuous improvement" as a
way of life for our organization. As such, we will strive for further progress
in 2003 and beyond as we venture down new pathways to growth.
Sincerely,
/s/ Daryl G. Byrd
- -------------------------------------
Daryl G. Byrd
President and Chief Executive Officer
endurance
3
CHAIRMAN'S
letter to shareholders
[GRAPHIC]
Shadows-On-The-Teche, New Iberia
Dear Shareholders,
IBERIABANK's belief, commitment to excellence and internal focus on
accountability for both the goals that we set and the way that we attain them,
have made 2002 a very good year for our shareholders, clients, associates and
communities.
Our philosophy - that continuous improvement in core operating earnings
ultimately leads to an improved stock price - appears to be confirmed by the
results exhibited in our stock performances over the last three years. Our stock
has been a rewarding investment and stands in stark contrast to the volatile
stock market during this same period of time.
Not since 1933 to 1936, has our nation experienced three consecutive years of
negative returns in stock prices, as measured by the Dow Jones Industrial
Average. The Dow, S&P 500 and the Russell 2000 Index (of which IBERIABANK
Corporation is a member) all reported substantial negative returns during each
of the last three years. In contrast, our company's stock increased 58%, 27% and
45% in 2000, 2001 and 2002, respectively. Our performance relative to the
banking industry as a whole was also extremely favorable. Over the last three
years, IBERIABANK Corporation's common stock price increased 192%. Of 215
publicly traded bank holding companies in the United States with market
capitalization in excess of $150 million, our company was the 4th best performer
in stock price appreciation over this period. We were also the top performer of
52 publicly traded bank holding companies in the Southeast with market
capitalization in excess of $150 million.
Most importantly, we remain well grounded. IBERIABANK is committed to each of
the markets it serves and to its focus of making local decisions. The Company
strategically invests money and time to help ensure that its communities
continue to be healthy and stable business environments.
I am proud of our leadership team led by Daryl Byrd and our Board of Directors
for their unwavering commitment to a strategic vision that sets IBERIABANK apart
from its competitors and peers. I also look forward to continuing our model of
continuous improvement and appreciate you, our shareholders, for your support of
our new pathways to growth that lie ahead.
Sincerely,
/s/ William H. Fenstermaker
William H. Fenstermaker
Chairman of the Board of Directors
4
pathways to GROWTH
solid foundation
During the 17th and 18th centuries, in what is now present-day Istanbul, Turkey,
floral gifts such as flowers, plants, spices and trees were used to convey
messages between people in a clandestine manner. This floral code was eventually
taken up by the French and English during the period. Flowers were selected by
the sender to convey a specific message to the recipient. As an example, over
800 flowers alone have special meanings associated with them. The oak tree
conveys messages as well. Appropriately, the floral code gives the oak tree the
meaning of "hospitality" and the White Oak in particular, implies
"independence." Similarly, leaves of the oak tree mean "bravery." The traits
associated with oak trees symbolized in this floral code are metaphorical
examples of just a few traits consistent with the culture we have developed at
IBERIABANK. Much like the oak tree, we are patient, have enjoyed significant
growth, exude strength and exhibit rejuvenation. We continue to grow and to
offer shareholders stability from the solid foundation we have built.
PATIENCE
Many a genius has been slow of growth.
Oaks that flourish for a thousand years do
not spring up into beauty like a reed.
- George H. Lewis, 1817 - 1878
Just as an oak tree can take many years to produce its first crop of acorns,
IBERIABANK is a patient, methodical organization. In a nutshell, our approach to
business is simply undertaking sound, conservative underwriting practices,
focusing on client needs, and making disciplined investments in our franchise
that are in the best long-term interest of our shareholders. Our approach is
simple and exhibited in many different ways at our company.
We instituted a "portfolio management" process that began to bear fruit in early
2002. Industries and specific companies evolve over time and have different
credit needs and risk profiles. Our portfolio management process highlights
opportunities where industry or company-specific dynamics may change the risk
profile, such that additional credit opportunities exist or the client no longer
fits our risk profile guidelines. This process entails a constant review of our
credit relationships to ensure those relationships are consistent with our
operating philosophies, and when those relationships are not consistent with our
philosophies, we migrate those relationships to other banks. This proactive
approach is an example of how we differ from other banking organizations and how
patience and discipline benefit our shareholders.
We experienced an exceptional improvement in asset quality during the year. As
we entered 2002, we had three relatively large nonperforming assets ("NPAs").
While a rapid resolution of these NPAs could have been accomplished at a
significant cost to our shareholders, we exhibited conservativeness and patience
in addressing these issues. By year-end 2002, we resolved two of the three NPAs
and reduced our NPA level by almost half. During 2002, we also increased our
reserve for loan losses by 18% to $13.1 million at December 31, 2002.
Beginning around the middle of the year 2000, we began a process of methodically
cleansing our portfolio of securities that were not consistent with our
investment philosophy. We believe these bonds did not compensate us for the
risks we were taking, and therefore, were considered for liquidation. This
cleansing process was completed during 2002 as many of these less desirable
instruments were sold or "cash flowed out" over time. These poorly structured
instruments were replaced with well-structured, shorter instruments that were
also lower yielding.
[GRAPHIC]
Oak Alley, Vacherie
5
longevity
As a result, we sacrificed income for the sake of improving the risk posture of
the Company. Our research indicates our bond portfolio remains very short
relative to many other banks. Clearly, we could improve near-term earnings, at
any time, by simply extending maturities, but we have elected to keep the
portfolio short in duration at this time. We have been very patient and
disciplined in our approach to investing our liquidity.
Our conviction to run a well-managed commercial bank is evident in many ways.
One is to adhere to the highest standards of corporate governance and financial
disclosure. We have been very open and forthright in our communications with
investors. We are proud to certify the financial statements we file with the
Securities and Exchange Commission. Our management team feels strongly that
honesty and integrity are critical elements of our foundation.
To further assist us in cementing this foundation, on July 1, 2002, we
officially became a member of the Federal Reserve System. This decision was due,
in significant part, to our interest in ensuring we have the insight and
expertise of the very capable examiners associated with this agency. We are
delighted to have become a member of the Federal Reserve System, and we look
forward to gaining insight and wisdom from our affiliation with this agency.
We are an organization focused on continuous improvement, methodical in our
approach to investment and disciplined in building our foundation for growth.
While patience may mean sacrificing near-term benefits for long-term stability
and gains, this is an approach consistent with our culture. As the French
philosopher, Joseph Marie de Maistre, once said, "To know how to wait is the
great secret of success."
GROWTH
While the oak tree is many times associated with patience, it also bears the
characteristic of growing quickly. For example, under favorable soil conditions,
a live oak may experience a rapid first year growth rate of up to four feet.
Likewise, IBERIABANK Corporation demonstrated exceptional growth over the last
few years both internally and externally.
The level of our internal growth is evident in our financial results for the
year just completed. During a period when many banks experienced margin
compression, our tax-equivalent net interest margin improved from 4.11% in 2001
to 4.49% in 2002, or 38 basis points. Net interest income, on a tax-equivalent
basis, increased over 11% in 2002 compared to 2001. Likewise, total revenues, on
a tax-equivalent basis, gained nearly 14% over the same period. Net income grew
27% during 2002 and fully diluted earnings per share ("EPS") climbed 28%,
including the favorable impact of FAS 142. We reported record operating earnings
and we have met or exceeded average analyst expectations for fully diluted EPS
in each of the last 12 quarters.
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Growth Features
Profitability - Quarterly EPS
[BAR CHART]
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Total loans increased over 9% between December 31, 2001 and December 31, 2002,
led by a 20% increase in commercial loans. Commercial loan growth was most
evident in our New Orleans franchise, where commercial loans jumped 76% during
the year. Growth in the New Orleans market continues to exceed our expectations.
Tangible book value per share climbed nearly 10% between year-ends 2001 and
2002. Over the same period, total assets expanded by 10%, which is the fastest
asset growth we experienced since 1998.
6
External growth was also evident during 2002. Over the last few years, many
acquisition opportunities have been presented to us. For various reasons, the
vast majority of these opportunities did not fit the risk/return profile of our
company or the cultural fit of the merger partner was not consistent with the
culture of our organization. Our patience paid off with the announcement on
September 23, 2002, of our intention to acquire Acadiana Bancshares, Inc.
("Acadiana"), the holding company for LBA Savings Bank ("LBA"), in Lafayette,
Louisiana. We believe the cultural fit of our respective organizations is
outstanding. In addition, we believe the financial and strategic implications of
the acquisition are compelling for the shareholders of both companies.
At December 31, 2002, Acadiana had $306 million in assets, $206 million in
deposits and $29 million in equity. LBA has five offices serving Lafayette and
New Iberia. Our company had offices within a mile of every one of LBA's
branches. We projected cost savings totaling approximately one-half of the
expense structure of Acadiana at the time of the announcement. Based on the most
recent deposit market share data available, as of June 30, 2002, IBERIABANK has
moved to the number one market position, in what we collectively refer to as the
Acadiana region (including Lafayette, Iberia, Acadia, St. Martin and Vermilion
Parishes). Based on deposits within the State of Louisiana, IBERIABANK also has
the fifth largest market share of financial institutions in the state.
We recognize that the value of any franchise is the right combination of
clients, associates and the communities served. In keeping with this philosophy,
IBERIABANK and LBA worked diligently to ensure a smooth transition in the
acquisition process. Over 80% of the associates of LBA were offered comparable
positions with IBERIABANK, and a comprehensive effort was made to find
employment for displaced LBA associates.
We reported record production of mortgage loans during 2002. Mortgage
originations totaled $209 million in 2002, up 18% compared to 2001. The majority
of mortgage production that was originated during the year was sold into the
secondary market. However, the Company typically retains mortgage loans
associated with private banking clients. The potential for continued production
appeared strong as indicated by the pipeline at the end of 2002. The pipeline in
December 2002 was the 3rd highest month in the Company's history at nearly $43
million.
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Mortgage Loans - Closed and Average Pipeline
[BAR CHART]
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Private banking initiatives made tremendous headway during 2002. Top private
bankers were hired during 2002 and early 2003 in Lafayette and New Orleans. By
the end of 2002, total private banking mortgage loans were approximately $29
million, or 3% of total loans outstanding. We anticipate additional growth in
this category in 2003.
The Company commenced various fee initiatives during 2002. These initiatives
included new commercial and retail fee programs, waived service fees and
modification of fee structures. These programs demonstrated tremendous success
during the year, as service charge income increased 24% in 2002 compared to
2001. Additional fee schedule enhancements are anticipated to become effective
during 2003.
Between December 31, 2001 and December 31, 2002, the market price of IBERIABANK
Corporation's common stock climbed 45%, from $27.72 to $40.16 per share. By
comparison over this same period, the S&P 500 Index plummeted 23%, the Dow Jones
Industrial Average fell 17% and the Russell 2000 Index, of which IBERIABANK
Corporation is a member, plunged 22%. This is the third straight year that our
share price performance has outperformed these indices.
7
vibrant
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IBKC vs. S&P 500
[LINE CHART]
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STRENGTH
Characteristics shared by IBERIABANK Corporation and the oak tree include
strength and endurance. As an example, foresters estimate the "Seven Sisters
Oak" in Mandeville, Louisiana is 1,200 years old. Similarly, our company has
roots dating back to 1887, and is one of the oldest banking entities in the
state. Our organization was built on a foundation of strength and continues to
this day with that same philosophy. Our capital position remains formidable.
The year 2002 exhibited an improved capital position. Shareholders' equity
increased approximately 4% between December 31, 2001 and December 31, 2002.
Equity as a percentage of total assets was a very strong 8.89% at December 31,
2002. On December 3, 2002, we announced the completion of the share repurchase
program within the anticipated one-year time frame that was announced on
December 18, 2001. Under that program, we repurchased 300,000 shares of
IBERIABANK Corporation common stock at a weighted average cost of $37.77 per
share.
Our capital position was enhanced during the year as a result of the issuance of
$10 million in trust preferred securities on November 15, 2002. These
instruments qualify for regulatory purposes as Tier 1 capital, but are
considered a form of debt, with tax-deductible interest, for tax purposes. The
instruments have 30-year maturities, callable after five years, and have a fixed
cost of 6.67% for the first five years and float thereafter at a rate of 325
basis points over 3-month LIBOR. A supplemental share repurchase program was
announced in association with the trust preferred offering. Under this
supplemental program, the Company is authorized to purchase between 60,000 and
130,000 shares of IBERIABANK Corporation common stock. At December 31, 2002, the
Company's Tier 1 leverage ratio was 7.62%, up 67 basis points from one year ago.
Despite the enhanced capital position, we increased our quarterly dividend by
11% during the year to $0.20 per share, beginning in the third quarter of 2002.
A company's ability to sustain or grow its quarterly dividend stream is many
times measured by the
8
company's dividend payout ratio. The lower the dividend payout ratio, the
greater the company's ability to sustain or increase dividends in the future.
The quarterly dividend payout ratio of IBERIABANK Corporation has decreased
significantly over the last few years as the growth in earnings outpaced the
growth in dividends.
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Dividend Payout Ratio
[BAR CHART]
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REJUVENATION
Rejuvenation is an important part of all living matter. Deciduous trees, such as
the oak tree, exhibit an annual cycle of life. Leaves and acorns grow, and then
fall to the ground to create mulch and saplings, later to become trees as the
cycle of life continues. In a similar manner, our company engaged in activities
of pruning and growing through new endeavors.
On June 21, 2002, we completed the divestiture of our one-office operation in
Morgan City, Louisiana. This divestiture entailed the sale of approximately $12
million in deposits and $5 million in primarily consumer loans. We recorded a
pre-tax gain of $382,000, or approximately $0.04 per fully diluted share, in the
second quarter of 2002. The decision to divest this operation was a result of
internal reflection upon our strategic direction associated with that market.
During 2002, the Company reduced the operating hours of, and subsequently
closed, our Jackson Street office in Monroe, Louisiana. Loans and deposits
associated with this office were consolidated into another nearby IBERIABANK
branch. On December 30, 2002, the Jackson Street facility was sold to an
investor associated with a de novo minority bank that was in the process of
formation. The arrangement associated with the sale of this facility was a
positive development for both organizations and the local community.
Over many years, our organization has accumulated and "grandfathered" various
deposit account types. For example, at one point, we had over 30 different types
of checking accounts. In 2002, we continued to unify our loan and deposit
product sets through our efforts at product simplification. At the same time, we
rejuvenated our product set by introducing new products and services to our
clients. During 2002, we introduced a new Private Platinum checking account and
a Private Platinum Plus money market savings account for our private banking
clients, a business debit card for business banking clients, and "skip-a-pay"
and "bounce protection" programs for our retail clients.
An integral part of the rejuvenation process is nurturing the environment. We
believe that giving back to our communities is a priority and critical to the
future success of our company and the vitality of our surroundings. We are proud
to be an active community partner supporting local organizations that care for
the communities in which we live.
SOLID FOUNDATION
We continue to invest in the infrastructure of our company. These investments
are necessary to ensure that we have the resources to grow in the future and
that we have the depth to appropriately evaluate and address potential risk
factors. During the year, we added to our talent pool in internal audit, legal,
security, accounting, technology, marketing and operations.
During 2002, we embarked upon other significant improvements as well. Throughout
the year, we completed five external branch makeovers in our "branch branding"
efforts and made significant incremental improvements to our facilities. This
improvement process is only just beginning. We are making great progress in our
efforts to enhance our
9
growth
technology platform and information systems processes. In accordance with the
Bank Secrecy Act and Patriot Act promulgated during 2002, we have stepped up our
security, expanded our "know your client" initiatives and improved other
operating processes. We initiated implementation of a new information technology
infrastructure, including new servers and desktop stations. New communications
systems were installed during the year. Upgrades and operating enhancements were
made to our mainframe and subsystems, along with the introduction of a new
comprehensive financial forecasting and reporting system. These efforts will
enhance the accuracy of operating information, dramatically improve our
responsiveness to clients, and provide significant internal efficiencies that
will lead to future cost reductions.
STABILITY
Our national economy is experiencing a period of significant upheaval. The
national economic slowdown has resulted in higher unemployment, reduced
corporate earnings, record bankruptcy filings, plummeting equity prices and
falling consumer confidence.
To stave off some of the economic challenges in 2001 and 2002, the Federal
Reserve Board cut short-term interest rates drastically. Since January 1, 2001,
the Federal Reserve Board reduced interest rates 12 times by a total of 525
basis points. For many banks, this significant change in rates had a negative
impact on bank net interest margins. As interest rates declined during the year,
our net interest margin and net interest income increased. A significant portion
of the benefit we experienced was the result of improved asset mix and lowering
of deposit rates in excess of the decrease in interest income on our earning
assets. Our interest rate risk modeling indicates that our interest rate risk
exposure is fairly nominal compared to many other financial institutions. At
December 31, 2002, our interest rate risk modeling projected a 100 basis point
decrease in interest rates would negatively impact our projected net interest
income over the next 12 months by 3.4%. Conversely, a 100 basis point increase
in interest rates would benefit our 12-month net interest income projection by
4.4%. Relative to many other financial institutions, these results are
indicative of a fairly well balanced institution.
Overall, the markets we serve continue to perform well, particularly in relation
to the challenges facing our national economy. While the national rate of
unemployment escalated from 5.7% in December 2001 to 6.0% in December 2002, the
unemployment picture in Louisiana, and in particular, in our local markets, was
much more favorable. The unemployment rate generally declined in our markets
during this period.
================================================================================
Unemployment Rates
(not seasonally adjusted)
[BAR CHART]
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10
The United States Consumer Confidence Index, a measure of consumer confidence,
declined significantly during the year, reaching a low in October 2002. In
contrast, the same index for the State of Louisiana showed little change and
remained well above the national level throughout the year. Through this
measure, the citizens of Louisiana are demonstrating their relative well being
and optimism in the economic future of Louisiana.
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Consumer Confidence Index
[LINE CHART]
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The economic well being of Louisiana is affected, to some degree, by the
fortunes of the energy sector. Louisiana is the second largest producer of
natural gas and the fifth largest producer of oil in the country. In addition,
Louisiana holds approximately 15% of all the oil in the United States and 16% of
the country's natural gas supply. Our citizens are affected either directly or
indirectly as oil and natural gas prices change. The state has benefited from
the increase in oil and gas prices during the year, thus adding to the optimism
of the citizen base.
Crude oil prices rose from $19.39 per barrel in December 2001 to $29.46 in
December 2002. The average rig count of 165 for Louisiana in 2002 was down from
last year's 231. Although Louisiana suffered minor employment decreases in 2002
in the energy service sector due to a decrease in Louisiana drilling and
exploration, it did not have an affect on the statewide unemployment rate.
Forecast for 2003 (Oil & Gas Journal, January 27, 2003) states that United
States energy demand will increase in 2003 as the anticipated economic recovery
takes hold. Consumption of petroleum products, natural gas and coal will grow
while demand for other primary forms of energy is on par for 2002.
Historically, Louisiana experienced substantial swings in economic fortunes as a
result of changes in energy prices. After many repeated swings in energy prices,
companies in the energy field became more focused and conservative in their
financial affairs. In addition, economic diversification became a more important
part of the local economies. Over the last few decades, many communities in
Louisiana have been able to diversify their revenue base with sources of income
outside of the oil and gas sectors. For example, in 1980, approximately 5.5% of
the Louisiana workforce was in oil and gas related fields. By 2002, this figure
declined to 2.5%. In 1980, 1.5 million people were employed, and in 2002 the
workforce increased to 1.9 million. Therefore, while the state has experienced a
significant benefit from improved oil and gas prices, the diversification of the
local economies helps soften the negative cyclical nature of the changes in oil
and gas prices.
Louisiana is known for other accomplishments outside of the energy sector as
well. The following are just a few of the notable items of interest:
o Ranked 1st in harvested acres of sugar cane and 2nd in sweet potatoes and
rice (2001 Louisiana Agricultural Statistics, October 2002).
o Ranked 3rd in percentage of growth in income over the last two years - up
9.4% since 2000 (Bureau of Economic Analysis, October 2002).
o Ranked 1st in productivity of manufacturing workers as measured by value
of shipments per production worker and ranked 4th most productive in value
added per production worker (Bureau of Census, November 2002).
11
o Ranked 4th in "tax friendliness" to retirees and ranked 9th in "tax
friendliness" to families (Bloomberg Personal Finance, May 2002).
o Ranked 4th for e-commerce, based on how state laws, regulations and
administrative actions support Internet use by Louisiana citizens
(Progressive Policy Institute, March 2002).
o Ranked 5th in percentage of earnings given to charity (Catalogue for
Philanthropy, November 2002).
o Ranked 45th in per capita taxation (U.S. Census Bureau, 2001).
o Five of the top 12 deepwater ports are in Louisiana.
o All seven of Louisiana's metropolitan areas were included on the
Forbes/Milken Institute list of Best Places for Business and Careers. In
the large metropolitan area category, Lafayette was ranked 70th and New
Orleans was ranked 168th. In the small metro category, Monroe was ranked
22nd and Alexandria was ranked 66th (Forbes Magazine, May 2002).
[GRAPHIC]
Evangeline Oak, St. Martinville
o Three Louisiana cities were named among the best small metropolitan areas
for growing businesses--Baton Rouge 10th, Lafayette 13th, and Shreveport
48th (Inc. magazine, 2000).
o New Orleans ranked 4th in the nation in "Wealth Builder Areas", defined as
areas having below median population growth, but having above median real
per-capita income growth (The Brookings Institution Center on Urban and
Metropolitan Policy, February 2002).
OUR MARKETS
Louisiana is an excellent state in which to conduct business and we are
delighted to be an integral part of the commercial banking landscape. We are
very proud to serve three distinct regions in the State of Louisiana. These
markets provide excellent geographic and economic diversification to our
franchise. We also believe that we are uniquely positioned to serve commercial
banking clients in these markets.
Acadiana
The Acadiana area economic statistics continued to demonstrate growth and
diversification. Improvements during 2002 included retail sales, general housing
market, tourism and healthcare. Lafayette led the state with the largest job
growth in 2001. That trend continued as unemployment rates declined in Lafayette
from 5.8% in 2001 to 5.3% in 2002. Retail sales climbed in excess of 30% in 2002
compared to 2001. Over the same period, residential construction grew 25% over
2001. Lafayette serves as a regional medical center with recent expansions of
three major cardiac care centers and the construction of a neurological spinal
hospital. Tourism provides revenues of approximately $51 million annually to
Acadiana and is expected to improve with its new 80,000 square foot Convention
Center ($16 million project), which opened in 2002.
New Orleans
The New Orleans market has significant ties to tourism. In addition to annual
events such as Mardi Gras and Jazz Fest, the city played host to the Super Bowl
in 2002 and
strength
12
the Sugar Bowl and NCAA Final Four in 2003. The massive Morial Convention Center
has major events booked through the year 2030. New Orleans is also preparing for
a festive year-long celebration of the 200th anniversary of the Louisiana
Purchase. This year-long celebration of statewide activities and events is
expected to entertain, educate and inspire Louisiana citizens and visitors
throughout the state.
Important to the New Orleans economy is one of America's leading general cargo
ports. Over the last 10 years, the Port of New Orleans has invested in new state
of the art facilities and improved other features. This facility is scheduled to
open in Spring 2003. The Port of Orleans and Northrup Grumman received a grant
from the state that will allow them to modernize the shipyard and to compete for
additional shipbuilding contracts. This new initiative is anticipated to have a
favorable impact on the local economy.
North Louisiana
North Louisiana has enjoyed steady employment for years. The 5.3% unemployment
rate (Ouachita Parish) has remained the same as last year. Employment in the
area is generally tied to light manufacturing and service-related industries.
Monroe-based CenturyTel was recently named the number one U.S.-based
telecommunication company by Business Week magazine in their December 2002
edition. State Farm Insurance recently completed a $10 million addition to its
office complex and employs 1,500 people. Chase Manhattan Mortgage is another
significant employer in the area. Chase employs 1,050 full-time and 250
part-time people and recently moved into a 95,000 square foot facility in
Monroe.
Overall, the markets we serve are both dynamic and well diversified. We are
pleased to be important corporate citizens in these communities. As we have
stated many times, the degree of success we achieve is a function of the
prosperity of our communities and clients who believe in us.
ever growing
[GRAPHIC]
Louisiana Purchase Gardens and Zoo, Monroe
13
[GRAPHIC]
St. John's Cathedral Oak, Lafayette
TAKING CARE OF OUR COMMUNITIES
As our organization grows, we are able to provide greater value to the
communities around us. Supporting organizations and initiatives that better the
lives of our associates and clients is a priority. At our core, we truly believe
that by taking care of the communities we serve, we can make a significant
difference.
We have continued to be recognized by United Way in Acadiana and North Louisiana
as top givers, which is defined by corporate giving, associate contributions and
exceptional campaigns. This year, we were also recognized by the United Way of
New Orleans for an 18% increase in contributions to the 2002 campaign.
In the year 2002, we are particularly proud of our work with Southern Mutual
Help Association ("SMHA"), which helps low-wealth families in underserved
communities increase assets and build wealth. The Federal Home Loan Bank in
Dallas presented the Spotlight Award for Louisiana to SMHA, IBERIABANK and three
other banks for being steadfast partners in making affordable home ownership
available to our community markets in need. SMHA also received a $200,000
capital grant from IBERIABANK that was matched with a $400,000 grant from the
Community Development Fund of the U.S. Department of Treasury.
Across the state, we are also pleased to be associated with the Adopt-A-School
programs. Our involvement gives us an opportunity to work hands on with students
and teachers through a successful program that has proven to better our
educational system.
Much like an oak tree, the larger we grow, the further our reach. We recognize
the importance of nurturing our environment and look forward to continuing to
provide financial support and hours of service in all markets.
St. John's Cathedral Oak, Lafayette
- --------------------------------------------------------------------------------
mission statement
[GRAPHIC] Provide exceptional value-based client service
[GRAPHIC] Great place to work
[GRAPHIC] Growth that is consistent with high performance
[GRAPHIC] Shareholder focused
[GRAPHIC] Strong sense of community
- --------------------------------------------------------------------------------
OUR MISSION STATEMENT
A mission statement is designed to provide guidance to associates, management,
Board of Directors, clients, communities served and shareholders regarding the
sense of purpose and direction of the Company. We are very client focused,
conservative in our business practices, expect high performance from our
associates, and believe the communities in which we serve are critical to the
well being of our company.
FORWARD-LOOKING INFORMATION SAFE HARBOR STATEMENT
Statements contained in this report which are not historical facts and which
pertain to future operating results of IBERIABANK Corporation and its
subsidiaries constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve significant risks and uncertainties. Actual results may
differ materially from the results discussed in these forward-looking
statements. A discussion of factors affecting IBERIABANK Corporation's business
and prospects is contained in the Company's periodic filings with the Securities
and Exchange Commission.
14
INFORMATION
[GRAPHIC]
financial
iBERIABANK Corporation(TM)
15
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
December 31,
-------------------------------------------------------------------------
(dollars in thousands, except per share data) 2002 2001 2000 1999 1998
=============================================================================================================================
Balance Sheet Data
Total assets $1,570,588 $1,426,825 $1,396,162 $1,363,578 $1,401,630
Cash and cash equivalents 63,775 51,681 34,541 47,713 145,871
Loans receivable 1,044,492 956,015 940,525 842,878 768,235
Investment securities 368,122 321,907 344,545 384,881 377,556
Goodwill and acquisition intangibles 35,401 35,644 38,796 42,063 45,352
Deposit accounts 1,242,232 1,237,394 1,143,187 1,100,014 1,220,594
Borrowings 172,261 43,776 114,843 135,053 45,639
Shareholders' equity 139,598 134,417 127,042 117,189 123,967
Book value per share (1) $ 24.88 $ 23.03 $ 20.99 $ 18.62 $ 18.91
Tangible book value per share (1) (2) 18.57 16.92 14.58 11.94 11.99
=============================================================================================================================
Years Ended December 31,
-------------------------------------------------------------------------
2002 2001 2000 1999 1998
=================================================================================================================================
Income Statement Data
Interest income $ 87,552 $ 100,368 $ 103,966 $ 95,029 $ 79,224
Interest expense 27,958 46,018 52,730 45,380 38,458
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income 59,594 54,350 51,236 49,649 40,766
Provision for loan losses 6,197 5,046 3,861 2,836 903
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 53,397 49,304 47,375 46,813 39,863
Noninterest income 17,866 15,144 12,818 13,735 10,214
Noninterest expense 44,032 41,711 39,704 44,881 33,758
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 27,231 22,737 20,489 15,667 16,319
Income taxes 8,778 8,229 7,514 6,138 6,182
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 18,453 $ 14,508 $ 12,975 $ 9,529 $ 10,137
=================================================================================================================================
Earnings per share - basic $ 3.26 $ 2.48 $ 2.14 $ 1.55 $ 1.61
Earnings per share - diluted 3.02 2.36 2.12 1.53 1.56
Cash earnings per share - diluted 3.06 2.76 2.54 1.95 1.84
Cash dividends per share 0.76 0.70 0.66 0.63 0.57
=================================================================================================================================
16
At or For the Years Ended December 31,
----------------------------------------------------------
2002 2001 2000 1999 1998
=================================================================================================================
Key Ratios (3)
Return on average assets 1.26% 1.02% 0.94% 0.70% 0.93%
Return on average equity 13.12 10.83 10.75 7.84 8.47
Equity to assets at end of period 8.89 9.42 9.10 8.59 8.84
Earning assets to interest-bearing liabilities 117.24 116.99 114.66 112.83 114.55
Interest rate spread (4) 4.13 3.52 3.36 3.50 3.48
Net interest margin (TE) (4) (5) 4.49 4.11 3.95 3.96 4.03
Noninterest expense to average assets 3.01 2.94 2.87 3.31 3.11
Efficiency ratio (6) 56.85 60.02 61.99 70.81 66.22
Tangible efficiency ratio (TE) (2) (5) 55.03 55.03 56.72 65.29 62.12
Dividend payout ratio 23.68 28.71 31.42 41.88 36.56
Asset Quality Data
Nonperforming assets to total assets
at end of period (7) 0.42% 0.91% 0.57% 0.24% 0.44%
Allowance for loan losses to nonperforming
loans at end of period (7) 301.64 159.86 135.78 279.25 124.37
Allowance for loan losses to total loans
at end of period 1.25 1.16 1.09 1.04 0.93
Consolidated Capital Ratios
Tier 1 leverage capital ratio 7.62% 6.95% 6.67% 6.26% 5.81%
Tier 1 risk-based capital ratio 10.66 9.96 10.05 9.42 9.89
Total risk-based capital ratio 11.89 11.09 11.19 10.43 10.80
=================================================================================================================
(1) Shares used for book value purposes exclude shares held in treasury and
unreleased shares allocated to the Employee Stock Ownership Plan at the
end of the period.
(2) Tangible calculations eliminate the effect of goodwill and acquisition
related intangible assets and the corresponding amortization expense on a
tax-effected basis where applicable.
(3) With the exception of end-of-period ratios, all ratios are based on
average daily balances during the respective periods.
(4) Interest rate spread represents the difference between the weighted
average yield on earning assets and the weighted average cost of
interest-bearing liabilities. Net interest margin represents net interest
income as a percentage of average earning assets.
(5) Fully taxable equivalent (TE) calculations include the tax benefit
associated with related income sources that are tax-exempt using a
marginal tax rate of 35%.
(6) The efficiency ratio represents noninterest expense as a percentage of
total revenues. Total revenues is the sum of net interest income and
noninterest income.
(7) Nonperforming loans consist of nonaccruing loans and loans 90 days or more
past due. Nonperforming assets consist of nonperforming loans and
repossessed assets.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis is intended to assist readers in
understanding the financial condition and results of operations of IBERIABANK
Corporation (the "Company") and its subsidiaries as of December 31, 2001 and
2002 and for the years ended December 31, 2000 through 2002. This review should
be read in conjunction with the audited consolidated financial statements,
accompanying footnotes and supplemental financial data included herein.
OVERVIEW
The Company's net income for 2002 totaled $18.4 million, or $3.02 per share on a
diluted basis. This is a 28% increase over the $2.36 per share, or $14.5 million
earned for 2001. In accordance with new accounting standards issued in 2001, the
amortization of goodwill ceased completely beginning in 2002. Excluding this
benefit, net income increased $1.9 million, or 13% over last year. Earnings
performance for 2002 was influenced by many factors, the key components of which
are summarized below.
o Net interest income increased by $5.2 million, or 10%. The
corresponding net interest margin on a tax-equivalent basis improved
to 4.49% from 4.11%. Improvement in the mix of both earning assets
and deposits coupled with the management of interest rates in the
low rate environment were the major factors contributing to the
increases.
o Improvement in noninterest income of $2.7 million was reflected in
2002 as compared to the prior year. Increased service charge
revenues on deposit accounts and the full year impact of revenues
associated with bank-owned life insurance were the contributing
factors to the growth.
o Noninterest expense increased by $2.3 million from 2001 to 2002.
Compensation expense was $1.9 million higher from year to year. This
was due in part to the rising cost of the Employee Stock Ownership
Plan ("ESOP") as it relates to the value of Company stock, strategic
hires as opportunities were presented and the increased
competitiveness of salaries as well as enhanced incentive
compensation. Additionally, Other Real Estate Owned ("OREO") related
charges increased by $1.3 million compared to last year, largely the
result of writedowns on OREO properties. These increases were offset
by the impact of $2.8 million from the discontinuance of goodwill
amortization in 2002.
o The Company provided $6.2 million for possible loan losses for 2002
as compared to $5.0 million for 2001 to bring the allowance for loan
losses as a percent of total loans to 1.25% at the end of the year,
as compared to 1.16% at the end of 2001. Net charge-offs for 2002
were $4.2 million, or 0.43% of average loans compared to $4.2
million, or 0.44% a year earlier. Nonperforming assets
decreased $6.4 million since the end of 2001.
FINANCIAL CONDITION
Earning Assets
Earning assets are composed of any interest or dividend-bearing asset, including
loans, securities, short-term investments and loans held for sale. Interest
income associated with earning assets is the Company's primary source of income.
Total average earning assets increased $28 million, or 2%, in 2002 as compared
to 2001. The changing mix of earning assets shown in the following charts
reflects the Company's continuing progression from an earning asset base more
closely associated with a savings institution to that of a commercial bank with
resulting higher yielding assets on a relative basis.
================================================================================
2002 Year-End Earning Assets
[PIE CHART]
================================================================================
18
LOANS AND ASSET QUALITY - Lending activities resulted in growth of $88.5
million, or 9.3%, to $1.0 billion in the loan portfolio at December 31, 2002 as
compared to $956.0 million at December 31, 2001. The increase during 2002 was
generally due to growth in commercial loans of $68.2 million, or 19.7%, and
growth in mortgage loans of $19.3 million, or 9.4%. Loan growth came primarily
from the commercial and private banking sectors of the New Orleans and Acadiana
Markets, with no one customer representing a disproportionate percentage of the
increase. The loss of any one customer, or group of customers engaged in similar
activities, would not have a material adverse effect on the Company. The
percentage of fixed rate loans within the total loan portfolio has decreased
slightly from 72% in 2001 to 71% in 2002.
The following table sets forth the composition of the Company's loan portfolio
as of December 31 for the years indicated.
TABLE 1 - LOAN PORTFOLIO COMPOSITION
December 31,
--------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000 1999 1998
================================================================================================================================
Commercial loans:
Real estate $ 254,688 25% $228,284 24% $196,479 21% $157,248 19% $117,768 15%
Other 159,339 15 117,530 12 78,986 8 82,485 10 83,237 11
- --------------------------------------------------------------------------------------------------------------------------------
Total commercial loans 414,027 40 345,814 36 275,465 29 239,733 29 201,005 26
- --------------------------------------------------------------------------------------------------------------------------------
Mortgage loans:
Residential 1-4 family 207,130 20 198,403 21 279,193 30 266,161 31 299,987 39
Construction 16,470 1 5,915 1 7,482 1 6,381 1 7,402 1
- --------------------------------------------------------------------------------------------------------------------------------
Total mortgage loans 223,600 21 204,318 22 286,675 31 272,542 32 307,389 40
- --------------------------------------------------------------------------------------------------------------------------------
Loans to individuals:
Indirect automobile 219,280 21 220,698 23 205,143 22 179,350 21 118,529 15
Home equity 122,799 12 114,056 12 108,070 11 91,531 11 73,185 10
Other 64,786 6 71,129 7 65,172 7 59,722 7 68,127 9
- --------------------------------------------------------------------------------------------------------------------------------
Total consumer loans 406,865 39 405,883 42 378,385 40 330,603 39 259,841 34
- --------------------------------------------------------------------------------------------------------------------------------
Total loans receivable $1,044,492 100% $956,015 100% $940,525 100% $842,878 100% $768,235 100%
================================================================================================================================
COMMERCIAL LOANS. Commercial real estate and commercial business loans generally
have higher yields and shorter repayment periods than residential 1-4 family
loans. The Company has increased its investment in commercial real estate loans
from $228.3 million, or 23.9% of the total loan portfolio, as of December 31,
2001 to $254.7 million, or 24.4% of the total loan portfolio, as of December 31,
2002. The increase in commercial real estate loans reflects, in part, the
Company's focused efforts to originate such loans in its market area. The
Company intends to moderately increase the amount of commercial real estate
lending in the Company's portfolio. The properties securing the Company's
commercial real estate loans are located in the Company's market area, and
include owner-occupied, multi-family, strip shopping centers, professional
office buildings, small retail establishments and warehouses. The Company's
underwriting standards generally provide for loan terms of three to five years,
with amortization schedules of no more than twenty years. Loan-to-value ratios
are usually limited to no more than 80%. As a rule, the Company obtains personal
guarantees of the principals as additional security for any commercial real
estate loan.
The Company originates commercial business loans on a secured and, to a lesser
extent, unsecured basis. As of December 31, 2002, the Company's commercial
business loans amounted to $159.3 million, or 15.2% of the Company's gross loan
portfolio. The Company's commercial business loans may be structured as term
loans or revolving lines of credit. Term loans are generally structured with
terms of no more than three to five years, with amortization schedules of no
more than seven years. The Company's commercial business term loans are
generally secured by equipment, machinery or other corporate assets. The Company
also provides for revolving lines of credit generally structured as advances
upon perfected security interests in accounts receivable and inventory.
Revolving lines of credit generally have an annual maturity. As a rule, the
Company obtains personal guarantees of the principals as additional security for
any commercial business loan.
19
MORTGAGE LOANS. Substantially all of the Company's mortgage loans consist of
residential 1-4 family loans. The vast majority of the Company's residential 1-4
family mortgage loan portfolio is secured by properties located in its market
area and is originated under terms and documentation which permit their sale in
the secondary market. Company practice has been to sell, or hold for sale in the
secondary market, the majority of all conforming fixed rate loan originations
and retain adjustable rate loan originations in the portfolio.
Over the past two years, there was a considerable amount of refinancing activity
in the Company's mortgage loan portfolio as a result of the decline in long-term
rates and subsequent low rate environment over a prolonged period. Consistent
with previous practice, the Company continued to sell the majority of newly
originated and refinanced conventional loans in the secondary market. This was
done to reduce portfolio rate risk on loans with longer expected durations and
limited cross-sell opportunities. From the end of 2001, the mortgage loan
portfolio grew by $19.3 million, or 9.4%. Mortgage loan increases were primarily
the result of construction lending and retention of larger private banking
residential loans. Additionally, opportunities available in the secondary market
afforded the ability to selectively purchase in-market jumbo mortgage loans
(over $322,700 individually) as part of the Company's efforts to build private
banking relationships. At December 31, 2002, $139.3 million, or 62.3%, of the
Company's residential 1-4 family mortgage and construction loans were fixed rate
loans and $84.3 million, or 37.7%, were adjustable rate loans.
CONSUMER LOANS. The Company offers consumer loans in order to provide a full
range of retail financial services to its customers. At December 31, 2002,
$406.9 million, or 39.0% of the Company's total loan portfolio, was comprised of
consumer loans. The Company originates substantially all of such loans in its
primary market area. During the second quarter of the year, the Company
completed the sale of the Morgan City, Louisiana branch office. The branch sale
included approximately $5.4 million in total loans, of which $4.8 million were
classified as consumer loans.
The largest component of the Company's consumer loan portfolio consists of
indirect automobile loans. These loans are originated by the automobile
dealerships and applications are forwarded to Company personnel for approval or
denial. The Company relies on the dealerships, in part, for loan qualifying
information. To that extent, there is risk inherent in indirect automobile loans
associated with fraud perpetrated by the automobile dealership. To limit this
risk, an emphasis is placed on established dealerships that have demonstrated
reputable behavior, both within the community and through long relationships
with the Company. A decrease of $1.4 million in the indirect automobile loan
category was the intentional result of management's decision to control growth
in this line of business given the uncertainty of the economy, while maintaining
a focus on prime, or low risk, paper. At December 31, 2002, $219.3 million, or
21.0% of the Company's total loan portfolio, consisted of indirect automobile
loans.
At December 31, 2002, the Company's remaining consumer loan portfolio was
comprised of home equity loans, direct automobile loans, credit card loans and
other consumer loans. On the retail side, growth of $8.7 million in home equity
loans was offset by a small decrease in other consumer categories. Excluding the
branch sale, direct consumer loans grew by $7.2 million from the end of 2001 to
the end of 2002. At December 31, 2002, $122.8 million, or 11.8% of the Company's
total loan portfolio, made up the home equity loan balance. At December 31,
2002, the Company's direct automobile loans amounted to $25.9 million, or 2.5%
of the Company's total loan portfolio. The Company's VISA and MasterCard credit
card loans totaled $9.4 million, or 0.9% of the Company's total loan portfolio
at such date. The Company's other personal consumer loans amounted to $29.5
million, or 2.8% of the Company's total loan portfolio at December 31, 2002.
The following table sets forth the scheduled contractual maturities of the
Company's loan portfolio at December 31, 2002, unadjusted for scheduled
principal reductions, prepayments or repricing opportunities. Demand loans,
loans having no stated schedule of repayments and no stated maturity and
overdraft loans are reported as due in one year or less. The average life of a
loan is substantially less than the contractual terms because of prepayments. As
a result, scheduled contractual amortization of loans is not reflective of the
expected term of the Company's loan portfolio. Approximately 80% of the value of
loans with a maturity greater than one year bears a fixed rate of interest.
20
TABLE 2 - LOAN MATURITIES BY TYPE
------------------------------------------------------
One Year One Through After Five
(dollars in thousands) or Less Five Years Years Total
====================================================================================================================
Commercial real estate $ 50,622 $175,239 $ 28,827 $ 254,688
Commercial other 60,050 71,591 27,698 159,339
Mortgage residential 1-4 family 3,254 11,198 192,678 207,130
Mortgage construction -- -- 16,470 16,470
Consumer 83,080 235,831 87,954 406,865
- --------------------------------------------------------------------------------------------------------------------
Total $197,006 $493,859 $353,627 $1,044,492
====================================================================================================================
ASSET QUALITY. Management has stated to shareholders that it will quickly
recognize and disclose significant problem loans, and address material
weaknesses in those credits. Historically, management feels that this has been
evidenced by actions taken and plans to continue to do so in the future as
efforts are made to improve the risk adjusted level of return within the loan
portfolio. The Company has also worked assertively in transitioning the loan
portfolio to be more representative of a commercial bank. Commercial bank loan
portfolios typically have higher charge-off and nonperforming levels, but
produce higher returns for investors. The Company has significantly increased
the allowance for loan losses, tightened underwriting guidelines and procedures,
improved the underwriting risk/return dynamics, adopted more conservative
consumer loan charge-off and nonaccrual guidelines, rewritten the loan policy
and established an internal loan review function.
The lending activities of the Company are subject to written underwriting
standards established by the Board of Directors and management. The Company
provides centralized underwriting of all residential mortgage, construction and
consumer loans. The commercial credit department, in conjunction with senior
lending personnel, underwrites all commercial business and commercial real
estate loans. Established loan origination procedures include obtaining
appropriate documentation, such as credit reports. For loans secured by real
property, the Company generally requires property appraisals, title insurance or
a title opinion, hazard insurance and flood insurance, where appropriate.
The Company monitors the payment performance on all loans and late charges are
assessed on past due accounts. A centralized department collects delinquent
consumer, residential mortgage and construction loans. Every effort is made to
minimize any potential loss, including instituting legal proceedings, as
necessary. Commercial loans of the Company are periodically reviewed through
a loan review process. All other loans are also subject to loan review through a
periodic sampling process.
In compliance with guidelines established by the Federal Reserve Board, the
Company utilizes an asset classification system as part of its efforts to
improve commercial asset quality. In connection with examinations of insured
institutions, both federal and state examiners also have the authority to
identify problem assets and, if appropriate, classify them. There are three
classifications for problem assets: "substandard," "doubtful" and "loss."
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full, based on currently existing facts, conditions
and values questionable, and there is a high possibility of loss. An asset
classified as loss is not considered collectable and of such little value that
continuance as an asset of the institution is not warranted. Commercial loans
with adverse classifications are reviewed by the Loan Committee of the Board of
Directors on at least a monthly basis. Loans are placed on nonaccrual status
when, in the judgment of management, the probability of collection of interest
is deemed to be insufficient to warrant further accrual. When a loan is placed
on nonaccrual status, previously accrued but unpaid interest is deducted from
interest income.
At December 31, 2002, the Company had $3.5 million of assets classified as
substandard, $271,000 of assets classified as doubtful, and no assets classified
as loss. At such date, the aggregate of the Company's classified assets amounted
to 0.24% of total assets.
21
Real estate acquired by the Company as a result of foreclosure or by
deed-in-lieu of foreclosure is classified as real estate owned until sold, and
is carried at the balance of the loan at the time of acquisition or at estimated
fair value less estimated costs to sell, whichever is less.
Under Generally Accepted Accounting Principles, the Company is required to
account for certain loan modifications or restructurings as "troubled debt
restructurings." In general, the modification or restructuring of a debt
constitutes a troubled debt restructuring if the Company for economic or legal
reasons related to the borrower's financial difficulties grants a concession to
the borrower that the Company would not otherwise consider under current market
conditions. Debt restructurings or loan modifications for a borrower do not
necessarily always constitute troubled debt restructurings, however, and
troubled debt restructurings do not necessarily result in nonaccrual loans. The
Company had no troubled debt restructuring as of December 31, 2002.
Nonperforming loans, defined for these purposes as nonaccrual loans plus
accruing loans past due 90 days or more, totaled $4.3 million and $7.0 million
at December 31, 2002 and 2001, respectively. The Company's foreclosed property
amounted to $2.3 million and $6.0 million at December 31, 2002 and 2001,
respectively. The Company's total nonperforming assets as a percentage of total
assets, which consist of nonperforming loans plus foreclosed property, were
0.4%, or $6.6 million, at December 31, 2002 compared to 0.9%, or $13.0 million,
at December 31, 2001. The following table sets forth the composition of the
Company's nonperforming assets, including accruing loans past due 90 or more
days, as of the dates indicated. The decrease in nonperforming assets was due to
the sale of a commercial real estate property at book value, the resolution of
several problem credits, improvement in the amount of loans past due and
writedowns of OREO properties.
TABLE 3 - NONPERFORMING ASSETS AND TROUBLED DEBT RESTRUCTURINGS
December 31,
--------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000 1999 1998
========================================================================================================================
Nonaccrual loans:
Commercial, financial and agricultural $1,693 $ 4,088 $5,169 $1,293 $ 259
Mortgage 334 122 137 208 481
Loans to individuals 1,230 1,053 161 429 439
- ------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 3,257 5,263 5,467 1,930 1,179
Accruing loans 90 days or more past due 1,086 1,691 2,074 1,203 4,558
- ------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 4,343 6,954 7,541 3,133 5,737
Foreclosed property 2,267 6,009 421 185 384
- ------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets 6,610 12,963 7,962 3,318 6,121
Performing troubled debt restructurings -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets and
troubled debt restructurings $6,610 $12,963 $7,962 $3,318 $6,121
========================================================================================================================
Nonperforming loans to total loans (1) 0.42% 0.73% 0.80% 0.37% 0.75%
Nonperforming assets to total assets (1) 0.42% 0.91% 0.57% 0.24% 0.44%
Nonperforming assets and troubled
debt restructurings to total assets (1) 0.42% 0.91% 0.57% 0.24% 0.44%
========================================================================================================================
(1) Nonperforming loans and assets include accruing loans 90 days or more past
due.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is maintained at an
appropriate level based on management's analysis of the potential risk of loss
in the loan portfolio. The Company's policy is to establish reserves for
estimated losses on delinquent and other problem loans when it determines that
losses are expected to be incurred on such loans and leases. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, past loss experience, current economic conditions, volume, growth,
composition of the portfolio and other relevant factors. The allowance is
increased by provisions for loan losses, which are charged against income.
22
Management of the Company presently believes that its allowance for loan losses
was adequate at December 31, 2002, based on facts and circumstances available,
to cover any potential losses in the Company's loan portfolio. However, future
adjustments to this allowance may be necessary, and the Company's results of
operations could be adversely affected if circumstances differ substantially
from the assumptions used by management in making its determinations in this
regard. The following table presents the allocation of the allowance for loan
losses to the total amount of loans in each category listed as of the dates
indicated.
TABLE 4 - ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
December 31,
-----------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000 1999 1998
=============================================================================================================================
Commercial, financial
and agricultural $ 6,243 40% $ 5,066 36% $ 4,152 29% $3,484 29% $2,714 26%
Real estate - mortgage 569 20 555 21 763 30 773 31 1,303 39
Real estate - construction 45 1 17 1 21 1 18 1 32 1
Loans to individuals 4,992 39 5,000 42 4,616 40 3,828 39 2,412 34
Unallocated 1,252 N/A 479 N/A 687 N/A 646 N/A 674 N/A
- -----------------------------------------------------------------------------------------------------------------------------
Total allowance
for loan losses $13,101 100% $11,117 100% $10,239 100% $8,749 100% $7,135 100%
=============================================================================================================================
The allowance for loan losses amounted to $13.1 million, or 1.25% and 301.6% of
total loans and total nonperforming loans, respectively, at December 31, 2002
compared to 1.16% and 159.9%, respectively, at December 31, 2001. The allowance
for loan losses increased $2.0 million, or 17.8%, from $11.1 million at December
31, 2001. The increase included a $6.2 million provision for loan losses. On a
percentage basis, net charge-offs for 2002 were 0.43% of total average loans,
down from 0.44% in 2001. The Company believes this level of net charge-offs was
more favorable than that of peer institutions with assets in the $1 to $10
billion range based on data published by the FFIEC. The following table sets
forth the activity in the Company's allowance for loan losses during the periods
indicated.
TABLE 5 - SUMMARY OF ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES
Years Ended December 31,
---------------------------------------------------------------
(dollars in thousands) 2002 2001 2000 1999 1998
=============================================================================================================================
Allowance at beginning of period $ 11,117 $ 10,239 $ 8,749 $ 7,135 $ 5,258
Allowance from acquisition -- -- -- -- 1,392
Provisions 6,197 5,046 3,861 2,836 903
Charge-offs:
Commercial, financial and agricultural 1,331 1,861 1,174 140 43
Mortgage 60 15 37 71 2
Loans to individuals 3,391 2,797 1,654 1,460 818
- -----------------------------------------------------------------------------------------------------------------------------
Total charge-offs 4,782 4,673 2,865 1,671 863
- -----------------------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial, financial and agricultural 68 110 52 86 175
Mortgage 35 17 22 37 36
Loans to individuals 466 378 420 326 234
- -----------------------------------------------------------------------------------------------------------------------------
Total recoveries 569 505 494 449 445
- -----------------------------------------------------------------------------------------------------------------------------
Net charge-offs (4,213) (4,168) (2,371) (1,222) (418)
- -----------------------------------------------------------------------------------------------------------------------------
Allowance at end of period $ 13,101 $ 11,117 $ 10,239 $ 8,749 $ 7,135
=============================================================================================================================
Allowance for loan losses to total loans at end of period 1.25% 1.16% 1.09% 1.04% 0.93%
Net charge-offs to average loans 0.43% 0.44% 0.26% 0.15% 0.06%
=============================================================================================================================
23
INVESTMENT SECURITIES - The Company's investment securities consist primarily of
securities issued by the U.S. Government and federal agency obligations and
mortgage-backed securities. As of December 31, 2002, the Company's investment
securities available for sale amounted to $309.6 million, which includes a
pre-tax net unrealized gain of $2.9 million, and its investment securities held
to maturity amounted to $58.5 million with a pre-tax net unrealized gain of $2.1
million. At such date, investment securities available for sale consisted of
$255.6 million of mortgage-backed securities, $25.9 million of obligations of
state and political subdivisions, $5.2 million of U.S. Government and federal
agency obligations, and $15.6 million of other debt securities. The remaining
balance of $7.3 million was composed of marketable equity securities. At
December 31, 2002, investment securities held to maturity consisted of $31.2
million of mortgage-backed securities, $17.3 million of obligations of state and
political subdivisions and $10.0 million of U.S. Government and federal agency
obligations. See Note 3 to the Consolidated Financial Statements.
Investment securities increased by an aggregate of $46.2 million, or 14.4%, to
$368.1 million at December 31, 2002 compared to $321.9 million at December 31,
2001. This increase was the result of purchases of investment securities
amounting to $283.2 million and a $1.8 million improvement in the market value
of investment securities available for sale, both of which were partially offset
by $210.2 million from scheduled principal payments and maturities, $26.3
million in sales of investment securities and $2.5 million from the amortization
of premiums and accretion of discounts. Funds generated as a result of sales and
prepayments were used to fund loan growth and purchase other securities. The
Company continues to monitor market conditions and take advantage of market
opportunities with appropriate rate and risk return elements. Note 3 to the
Consolidated Financial Statements provides further information on the Company's
investment securities.
OTHER EARNING ASSETS - Included in other earning assets are short-term
investments resulting from excess funds that fluctuate daily depending on
funding needs of the Company. These funds are invested overnight in an
interest-bearing deposit account at the Federal Home Loan Bank ("FHLB") of
Dallas, the total balance of which earns interest at the ending FHLB discount
rate. The balance in this account increased by $11.5 million, from $15.7 million
at December 31, 2001 to $27.2 million at December 31, 2002. The average rate on
these funds during 2002 was 1.59%.
Also a component of other earning assets are loans held for sale, which
decreased $7.2 million, or 45.3%, to $8.7 million at December 31, 2002 compared
to $15.9 million at December 31, 2001. Loans held for sale have primarily been
fixed rate single-family residential mortgage loans under contract to be sold in
the secondary market. In most cases, loans in this category are sold within
thirty days. During 2002, approximately 72% of total single-family mortgage
originations of the Bank were sold in the secondary market as compared to 80% in
2001.
Funding Sources
The Company's principal source of funds for use in lending and other business
purposes has traditionally come from deposits obtained from clients in its
primary market areas. The Company attracts local deposit accounts by offering a
wide variety of accounts, competitive interest rates and convenient branch
office locations and service hours. Increasing core deposits through the
development of client relationships is a continuing focus of the Company. Other
funding sources include borrowings, subordinated debt and shareholders' equity.
The following discussion highlights the major changes in the mix during 2002.
DEPOSITS - Deposits associated with the sale of a branch office during the
second quarter of this year amounted to approximately $12.1 million. Excluding
this transaction, deposits increased by $16.9 million, or 1.4%. The increase in
deposits continues to reflect relatively balanced growth across all markets and
deposit categories. The Company believes the increase to be the result of
several factors including the development of customer relationships,
opportunities in the public funds arena and clients shifting out of equity
markets. Certificates of deposit $100,000 and over decreased $3.0 million, or
2.0%, from $153.9 million at December 31, 2001 to $150.9 million at December 31,
2002. At December 31, 2002, $159.0 million, or 12.8%, of the Company's total
deposits were noninterest bearing, compared to $154.6 million, or 12.5%, at
December 31, 2001. The following table shows large-denomination certificates of
deposit by remaining maturities. Additional information regarding deposits is
provided in Note 7 to the Consolidated Financial Statements.
24
TABLE 6 - REMAINING MATURITY OF CDS $100,000 AND OVER
December 31,
----------------------------------------
(dollars in thousands) 2002 2001 2000
================================================================================
3 months or less $ 45,254 $ 46,846 $ 18,431
Over 3-12 months 68,434 73,735 88,419
Over 12-36 months 25,081 25,134 31,120
More than 36 months 12,157 8,233 3,120
- --------------------------------------------------------------------------------
Total $150,926 $153,948 $141,090
================================================================================
BORROWINGS AND DEBT - The Company may obtain advances from the FHLB of Dallas
upon the security of the common stock it owns in that bank and certain of its
residential mortgage loans and securities held to maturity, provided certain
standards related to creditworthiness have been met. Such advances are made
pursuant to several credit programs, each of which has its own interest rate and
range of maturities. The Company's short-term borrowings at December 31, 2002
were comprised of $21.8 million of securities sold under agreements to
repurchase and $75.0 million of advances from the FHLB of Dallas. The average
amount of short-term borrowings in 2002 was $33.0 million.
The Company's short-term borrowings of $12.3 million at December 31, 2001
consisted of $8.1 million of securities sold under agreements to repurchase and
$4.2 million outstanding on a $15.0 million line of credit with a correspondent
bank. Total short-term borrowings increased $84.5 million, or 684.5%, to $96.8
million at December 31, 2002 compared to $12.3 million at December 31, 2001. The
weighted average rate on short-term borrowings was 1.36% at December 31, 2002,
compared to 2.57% at December 31, 2001. For additional information regarding
short-term borrowings, see Note 8 to the Consolidated Financial Statements.
At December 31, 2002, the Company's long-term borrowings increased $44.0
million, or 140.0%, to $75.4 million at December 31, 2002 compared to $31.4
million at December 31, 2001. The majority of the Company's long-term
borrowings, $65.4 million, were comprised of advances from the FHLB of Dallas
which cannot be paid off without incurring substantial prepayment penalties. The
remaining debt consists of $10.0 million of junior subordinated debt as a result
of a $10.0 million trust preferred offering, which closed on November 15, 2002.
The trust preferred securities qualify as Tier 1 Capital for regulatory purposes
and bear an interest rate equal to three-month LIBOR plus 3.25%. The term of the
securities is 30 years, and they are callable at par by the Company anytime
after 5 years. Interest is payable quarterly and may be deferred at any time at
the election of the Company for up to 20 consecutive quarterly periods. During
such period the Company is subject to certain restrictions, including being
prohibited from declaring dividends to its common shareholders. For additional
information see Note 9 to the Consolidated Financial Statements.
SHAREHOLDERS' EQUITY - Shareholders' equity provides a source of permanent
funding, allows for future growth and provides the Company with a cushion to
withstand unforeseen adverse developments. At December 31, 2002, shareholders'
equity totaled $139.6 million, an increase of $5.2 million from the previous
year-end level. The increase in shareholders' equity in 2002 was the result of
net income of $18.4 million, $1.8 million of common stock released by the
Company's Employee Stock Ownership Plan ("ESOP") trust, $794,000 of common stock
earned by participants of the Company's Recognition and Retention Plan ("RRP")
trust and $1.1 million for the reissuance of treasury stock for stock options
exercised. These increases were partially offset by cash dividends declared on
the Company's common stock of $4.4 million, repurchases of $12.6 million of the
Company's common stock that were placed into treasury and a $27,000 reduction in
other comprehensive income.
25
RESULTS OF OPERATIONS
The Company reported net income of $18.4 million, $14.5 million and $13.0
million for the years ended December 31, 2002, 2001 and 2000, respectively.
Earnings per share ("EPS") on a diluted basis, including any one-time items, was
$3.02 for 2002, $2.36 for 2001 and $2.12 for 2000. In accordance with new
accounting standards issued in 2001, the amortization of goodwill ceased
completely beginning in 2002. Excluding this after-tax benefit of $2.0 million,
net income increased $1.9 million, or 13.2% over last year. The corresponding
EPS for 2002, excluding this benefit, would have been $2.68, or a 13.6%
increase. During 2002, interest income decreased $12.8 million, interest expense
decreased $18.1 million, the provision for loan losses increased $1.2 million,
noninterest income increased $2.7 million, noninterest expense increased $2.3
million and income tax expense increased $549,000. Cash earnings, defined as net
income before the amortization of acquisition intangibles, amounted to $18.7
million, $16.9 million and $15.5 million for the years ended December 31, 2002,
2001 and 2000, respectively.
================================================================================
Net Interest Margin(TE)
[BAR CHART]
================================================================================
NET INTEREST INCOME - As the primary driver of core earnings, net interest
income is subject to constant evaluation. The rate of return and relative risk
associated with earning assets are weighed to determine the appropriateness and
mix of earning assets. Additionally, the need for lower cost funding sources is
weighed against relationships with clients and future growth requirements. Net
interest income is the difference between interest realized on earning assets
and interest paid on interest-bearing liabilities. The Company's average
interest rate spread, which is the difference between the yields earned on
earning assets and the rates paid on interest-bearing liabilities, was 4.13%,
3.52% and 3.36% during the years ended December 31, 2002, 2001 and 2000,
respectively. The Company's net interest margin on a taxable equivalent basis,
which is net interest income as a percentage of average earning assets, was
4.49%, 4.11% and 3.95% during the years ended December 31, 2002, 2001 and 2000,
respectively.
Net interest income increased $5.2 million, or 9.6%, in 2002 to $59.6 million
compared to $54.3 million in 2001. This increase was due to an $18.1 million, or
39.2%, decrease in interest expense, which was partially offset by a $12.8
million, or 12.8%, decrease in interest income. In 2001, net interest income
increased $3.1 million, or 6.1%, to $54.3 million compared to $51.2 million in
2000. The reason for the increase was a $6.7 million, or 12.7%, decrease in
interest expense, which was partially offset by a $3.6 million, or 3.5%,
decrease in interest income.
Average loans made up 72.2% of average earning assets as of December 31, 2002 as
compared to 71.6% at December 31, 2001. This was an increase of 3.0%. The
increase in average loans was mainly funded by increased borrowings. Average
investment securities made up 24.7% of average earning assets at December 31,
2002 compared to 22.5% at December 31, 2001. Average interest-bearing deposits
made up 93.1% of average interest-bearing liabilities at December 31, 2002
compared to 94.6% at December 31, 2001. Average borrowings made up 6.9% of
average interest-bearing liabilities at December 31, 2002 compared to 5.4% at
December 31, 2001. Tables 7 and 8 further explain the changes in net interest
income.
26
TABLE 7 - AVERAGE BALANCES, NET INTEREST INCOME AND INTEREST YIELDS / RATES
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income of the Company from earning
assets and the resultant average yields; (ii) the total dollar amount of
interest expense on interest-bearing liabilities and the resultant average rate;
(iii) net interest income; (iv) net interest spread; and (v) net interest
margin. Information is based on average daily balances during the indicated
periods. Tax equivalent (TE) yields are calculated using a marginal tax rate of
35%.
Years Ended December 31,
-----------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000
================================================================================================================================
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- --------------------------------------------------------------------------------------------------------------------------------
Earning assets:
Loans receivable:
Mortgage loans $ 197,239 $14,881 7.54% $ 252,696 $ 19,859 7.86% $ 288,198 $ 22,654 7.86%
Commercial loans (TE) 378,090 23,211 6.27 298,586 23,945 7.98 261,463 24,763 9.37
Consumer and other loans 400,997 33,061 8.24 396,778 35,461 8.94 361,022 31,963 8.85
- --------------------------------------------------------------------------------------------------------------------------------
Total loans 976,326 71,153 7.34 948,060 79,265 8.35 910,683 79,380 8.69
- --------------------------------------------------------------------------------------------------------------------------------
Loans held for sale 6,149 362 5.89 9,184 682 7.43 1,785 167 9.36
Investment securities (TE) 333,850 15,316 4.78 298,601 17,833 6.04 370,836 23,545 6.36
Other earning assets 36,732 721 1.96 68,725 2,588 3.77 12,284 874 7.11
- --------------------------------------------------------------------------------------------------------------------------------
Total earning assets 1,353,057 87,552 6.55 1,324,570 100,368 7.58 1,295,588 103,966 8.01
- --------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (11,774) (10,061) (9,096)
Nonearning assets 123,136 104,471 96,996
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,464,419 $1,418,980 $1,383,488
================================================================================================================================
Interest-bearing liabilities:
Deposits:
NOW accounts $ 258,087 3,055 1.18 $ 207,851 3,473 1.67 $ 179,746 3,554 1.98
Savings and money
market accounts 318,708 4,353 1.37 291,009 7,794 2.68 251,834 8,879 3.53
Certificates of deposit 497,988 17,154 3.44 572,532 30,860 5.39 575,828 32,133 5.58
- --------------------------------------------------------------------------------------------------------------------------------
Total deposits 1,074,783 24,562 2.29 1,071,392 42,127 3.93 1,007,408 44,566 4.42
Short-term borrowings 32,961 619 1.85 13,508 617 4.51 65,831 4,243 6.34
Long-term debt 46,346 2,777 5.91 47,308 3,274 6.83 56,691 3,921 6.80
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 1,154,090 27,958 2.42 1,132,208 46,018 4.06 1,129,930 52,730 4.65
- --------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing
demand deposits 149,739 140,393 121,494
Noninterest-bearing liabilities 19,965 12,473 11,378
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,323,794 1,285,074 1,262,802
Shareholders' equity 140,625 133,906 120,686
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 1,464,419 $1,418,980 $1,383,488
================================================================================================================================
Net earning assets $ 198,967 $ 192,362 $ 165,658
Net interest spread $59,594 4.13% $ 54,350 3.52% $ 51,236 3.36%
Net interest margin (TE) 4.49% 4.11% 3.95%
Ratio of earning assets to
interest-bearing liabilities 117.24% 116.99% 114.66%
================================================================================================================================
27
TABLE 8 - SUMMARY OF CHANGES IN NET INTEREST INCOME
The following table analyzes the dollar amount of changes in interest income and
interest expense for major components of earning assets and interest-bearing
liabilities. The table distinguishes between (i) changes attributable to rate
(changes in rate multiplied by the prior period's volume), (ii) changes
attributable to volume (changes in volume multiplied by the prior period's
rate), (iii) mixed change (changes in rate multiplied by changes in volume) and
(iv) total increase (decrease).
2002 / 2001 2001 / 2000
Change Attributable To Change Attributable To
---------------------------------------------------------------------------------------------
Total Total
Rate/ Increase Rate/ Increase
(dollars in thousands) Volume Rate Volume (Decrease) Volume Rate Volume (Decrease)
===============================================================================================================================
Earning assets:
Loans:
Mortgage loans $(4,358) $ (794) $ 174 $ (4,978) $(2,791) $ (5) $ 1 $(2,795)
Commercial loans 6,376 (5,615) (1,495) (734) 3,516 (3,795) (539) (818)
Consumer and other loans 377 (2,748) (29) (2,400) 3,166 302 30 3,498
Loans held for sale (225) (142) 47 (320) 692 (34) (143) 515
Investment securities 2,105 (4,134) (488) (2,517) (4,586) (1,398) 272 (5,712)
Other earning assets (1,205) (1,239) 577 (1,867) 4,016 (412) (1,890) 1,714
- -------------------------------------------------------------------------------------------------------------------------------
Total net change in income
on earning assets 3,070 (14,672) (1,214) (12,816) 4,013 (5,342) (2,269) (3,598)
- -------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
NOW accounts 839 (1,013) (244) (418) 556 (551) (86) (81)
Savings and money
market accounts 742 (3,819) (364) (3,441) 1,381 (2,134) (332) (1,085)
Certificates of deposit (4,018) (11,138) 1,450 (13,706) (184) (1,095) 6 (1,273)
Borrowings 1,183 (1,287) (391) (495) (4,112) (325) 164 (4,273)
- -------------------------------------------------------------------------------------------------------------------------------
Total net change in expense on
interest-bearing liabilities (1,254) (17,257) 451 (18,060) (2,359) (4,105) (248) (6,712)
- -------------------------------------------------------------------------------------------------------------------------------
Change in net interest income $ 4,324 $ 2,585 $(1,665) $ 5,244 $ 6,372 $(1,237) $(2,021) $ 3,114
===============================================================================================================================
The Federal Reserve Board reduced overnight rates by 50 basis points during 2002
and 475 basis points during 2001. The Company has not been significantly
affected by changes in interest rates over an extended period of time. During
the past year, the Company has shifted to a moderately liability sensitive
position in the short-term. As a result, although rate reductions by the Federal
Reserve Board did exert downward pressure on net interest income earlier in the
year, this has moderated. The Company is most impacted at this time by the
overall low level of rates and ability to reduce transaction and
limited-transaction deposit account rates further. The Company is also
experiencing a higher than anticipated level of premium amortization on mortgage
related investment securities as a result of prepayment speeds associated with
the current refinancing market. Downward repricing of the maturing certificate
of deposit portfolio in the current low rate environment, which has allowed the
Company to significantly reduce funding costs, offsets these factors. It is
believed that any potential run off in this category as a result of lowered
rates will not adversely impact funding needs of the Company. Additionally, the
improved mix of earning assets and interest-bearing liabilities also serve to
improve net interest income.
PROVISION FOR LOAN LOSSES - Provisions for loan losses are charged to earnings
to bring the total allowance for loan losses to a level considered appropriate
by management based on various factors as they relate to the collectability of
the Company's loan portfolio. Management of the Company assesses the allowance
for loan losses on a quarterly basis and will make provisions for loan losses as
deemed appropriate in order to maintain the adequacy of the allowance for loan
losses. Provisions for loan losses are charged against income.
28
During 2002, the Company made a provision for loan losses of $6.2 million
compared to $5.0 million and $3.9 million for 2001 and 2000, respectively. Net
loan charge-offs for both 2002 and 2001 totaled $4.2 million. The increase in
the provision for 2002 was the result of loan growth, the changing mix of loans
in the total loan portfolio and other external factors such as the economy. A
discussion of credit quality can be found in the section on "Loans and Asset
Quality."
NONINTEREST INCOME - For 2002, the Company reported noninterest income of $17.9
million compared to $15.1 million for 2001. The primary reasons for the $2.7
million, or 18.0%, increase in noninterest income was a $1.9 million, or 24.0%,
increase in service charges on deposit accounts, a $934,000, or 338.3%, increase
in earnings and cash surrender value of bank owned life insurance, a $118,000,
or 7.9%, increase in ATM fee income from improved usage, and a $105,000, or
34.9%, increase in gain on sale of assets. These increases were partially offset
by a $153,000, or 6.8%, decrease in gains on the sale of mortgage loans in the
secondary market and a $51,000, decrease in other net noninterest income. The
additional gain on the sale of mortgage loans in 2001 was solely attributable to
the sale of a select group of older mortgage loans originated through the
construction process in previous years. Additionally, the year 2002 included a
$42,000 loss on the sale of investment securities compared to a $119,000 gain in
2001.
Total noninterest income amounted to $15.1 million and $12.8 million for the
years ended December 31, 2001 and 2000, respectively. The primary reasons for
the $2.3 million, or 18.1%, increase in noninterest income in 2001 as compared
to 2000 was a $1.8 million, or 451.6%, increase in gains on the sale of mortgage
loans, a $182,000, or 13.9%, increase in ATM fee income, and a $179,000, or
6.5%, increase in other income. These increases were partially offset by a $1.7
million, or 85.3%, decrease in gain on sale of assets. Additionally, the year
2001 included a $119,000 gain on the sale of investment securities compared to a
$1.8 million loss in 2000.
NONINTEREST EXPENSE - The Company has focused on both increasing revenues and
controlling costs. Expense management is part of the Company's corporate
culture. Discretionary expenses, staffing levels and compensation are regularly
reviewed. Noninterest expense includes costs related to salary and employee
benefits, occupancy and equipment, communication and delivery, marketing and
business development, amortization of acquisition intangibles and other
expenses. Noninterest expense amounted to $44.0 million, $41.7 million and $39.7
million for the three years ended December 31, 2002, 2001 and 2000,
respectively. The principal reason for the $2.3 million, or 5.6%, increase in
noninterest expense for 2002 compared to 2001 was an increase in salaries and
employee benefits of $1.9 million, or 8.9%. This was due in part to improving
the delivery system across the state, management's commitment to improve overall
staffing and competitive compensation across the markets. In addition, the
Company also experienced a rising cost associated with employee benefits due in
part to the increased market value of the Company's common stock as it relates
to the Company's ESOP. Other expense increases included $324,000 in the
franchise and share tax assessments, $130,000 in marketing and business
development expense, $200,000 in data processing expense, primarily as a result
of improvements in technology, $686,000 in legal and professional expense, and
$1.3 million in OREO related charges, primarily related to writedowns. Other net
noninterest expenses increased by $635,000. Such increases were partially offset
by a $66,000, or 8.8%, decrease in printing and supplies expense, and a pre-tax
decrease of $2,751,000 from non-amortization of goodwill as a result of adopting
FAS 142.
The main reason for the $2.0 million, or 5.1%, increase in noninterest expense
for 2001 compared to 2000 was an increase in salaries and employee benefits of
$2.7 million, or 14.5%. This was due in part to improving the delivery system
across the state and management's commitment to make strategic hires as
opportunities were presented. In 2001, the Company also experienced a rising
cost associated with employee benefits due in part to the increased market value
of the stock as it relates to the Company's ESOP. Additionally, the year 2001
included a full bonus payout as compared to the prior year in which senior
management chose to forego bonuses. These increases were partially offset by a
$150,000, or 2.7%, decrease in occupancy and equipment expense, a $116,000, or
3.6%, decrease in the amortization of acquisition intangibles, a $113,000, or
8.3%, decrease in data processing expense and a $291,000, or 2.7%, decrease in
all other expenses.
INCOME TAXES - For the years ended December 31, 2002, 2001 and 2000 the Company
incurred income tax expense of $8.8 million, $8.2 million and $7.5 million,
respectively. The Company's effective tax rate amounted to 32.2%, 36.2% and
36.7% during 2002, 2001 and 2000, respectively. The difference between the
effective tax rate and the statutory tax rate primarily related to variances in
the items that are either nontaxable or non-deductible, primarily the effect of
tax-exempt income, the non-deductibility of part of the amortization of
29
acquisition intangibles, and the non-deductible portion of the ESOP compensation
expense. The change in the effective rate for 2002 was mainly attributable to
the elimination of the non-deductible portion of goodwill upon the adoption of
FAS 142 and additional tax-exempt income. For more information, see Note 10 to
the Consolidated Financial Statements.
CAPITAL RESOURCES
Federal regulations impose minimum regulatory capital requirements on all
institutions with deposits insured by the Federal Deposit Insurance Corporation
("FDIC"). The Board of Governors of the Federal Reserve System ("FRB") imposes
similar capital regulations on bank holding companies. Compliance with bank and
bank-holding company regulatory capital requirements, which include leverage and
risk-based capital guidelines, are monitored by the Company on an ongoing basis.
Under the risk-based capital method, a risk weight is assigned to balance sheet
and off-balance sheet items based on regulatory guidelines. At December 31,
2002, the Company exceeded all regulatory capital ratio requirements with a Tier
1 leverage capital ratio of 7.62%, a Tier 1 risk-based capital ratio of 10.66%
and a total risk-based capital ratio of 11.89%. At December 31, 2002, IBERIABANK
exceeded all regulatory capital ratio requirements with a Tier 1 leverage
capital ratio of 7.05%, a Tier 1 risk-based capital ratio of 9.86% and a total
risk-based capital ratio of 11.09%.
During 2002, the Company issued $10 million in trust preferred securities that
qualified as Tier 1 capital. For additional information, see Note 9 to the
Consolidated Financial Statements.
================================================================================
Regulatory Capital
[BAR CHART]
================================================================================
LIQUIDITY
The Company's liquidity, represented by cash and cash equivalents, is a product
of its operating, investing and financing activities. The Company manages its
liquidity with the objective of maintaining sufficient funds to respond to the
needs of depositors and borrowers and to take advantage of earnings enhancement
opportunities. The primary sources of funds for the Company are deposits,
borrowings, repayments and maturities of loans and investment securities,
securities sold under agreements to repurchase, as well as funds provided from
operations. Certificates of deposit scheduled to mature in one year or less at
December 31, 2002 totaled $332.5 million. Historically, a significant portion of
maturing deposits have remained on deposit with the Company. The Company
continues to experience significant cash flows, primarily due to the relatively
short planned duration of the investment security portfolio. Also, as a result
of classifying the majority of the investment security portfolio as
available-for-sale, the ability to liquidate them as needed is available to the
Company.
While scheduled cash flows from the amortization and maturities of loans and
securities are relatively predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by general interest rates, economic
conditions and competition. The FHLB provides an additional source of liquidity
to make funds available for general requirements and also to assist with the
variability of less predictable funding sources. At December 31, 2002, the
Company had $140.5 million of outstanding advances from the FHLB of Dallas.
Additional advances available at December 31, 2002 from the FHLB of Dallas
amounted to $202.8 million.
The Bank and the Company also have various funding arrangements with commercial
banks providing up to $35 million in the form of federal funds and other lines
of credit. At December 31, 2002, there was no balance outstanding on these lines
and all of the funding was available to the Company. Excess liquidity is
generally invested in short-term investments such as overnight deposits.
30
ASSET/LIABILITY MANAGEMENT and MARKET RISK
The principal objective of the Company's asset and liability management function
is to evaluate the interest rate risk included in certain balance sheet
accounts, determine the appropriate level of risk given the Company's business
focus, operating environment, capital and liquidity requirements and performance
objectives, establish prudent asset concentration guidelines and manage the risk
consistent with Board approved guidelines. Through such management, the Company
seeks to reduce the vulnerability of its operations to changes in interest
rates. The Company's actions in this regard are taken under the guidance of the
Asset/Liability Committee ("ALCO"), which is comprised of members of the
Company's senior management. ALCO generally meets on a monthly basis, to review,
among other things, the sensitivity of the Company's assets and liabilities to
interest rate changes, local and national market conditions and interest rates.
In connection therewith, ALCO generally reviews the Company's liquidity, cash
flow needs, maturities of investments, deposits, borrowings and capital
position.
The objective of interest rate risk management is to control the effects that
interest rate fluctuations have on net interest income and on the net present
value of the Company's earning assets and interest-bearing liabilities.
Management and the Board are responsible for managing interest rate risk and
employing risk management policies that monitor and limit this exposure.
Interest rate risk is measured using net interest income simulation and
asset/liability net present value sensitivity analyses. The Company uses
financial modeling to measure the impact of changes in interest rates on the net
interest margin and predict market risk. As of December 31, 2002, the model
indicated the impact of an immediate and sustained 200 basis point rise in rates
over the 12 months would approximate a 5.4% increase in net interest income,
while a 200 point decline in rates over the same period would approximate a 4.5%
decrease in net interest income from an unchanged rate environment. As of
December 31, 2002, the model indicated the impact of an immediate and sustained
100 basis point rise in rates over the 12 months would approximate a 4.4%
increase in net interest income, while a 100 point decline in rates over the
same period would approximate a 3.4% decrease in net interest income from an
unchanged rate environment. Estimates are based upon numerous assumptions
including the nature and timing of interest rate levels including yield curve
shape, prepayments on loans and securities, deposit decay rates, pricing
decisions on loans and deposits, reinvestment/replacement of asset and liability
cash flows and others. These analyses provide a range of potential impacts on
net interest income and portfolio equity caused by interest rate movements.
Computations of interest rate risk do not necessarily include certain actions
that management may undertake to manage this risk in response to anticipated
changes in interest rates. Management believes that the Company is not
significantly affected by changes in interest rates over an extended period of
time.
Included as part of its asset/liability management strategy, the Company has
emphasized the origination of commercial and consumer loans, which typically
have shorter terms than residential mortgage loans and/or adjustable or variable
rates of interest. The majority of fixed-rate, long-term residential loans were
sold in the secondary market during 2002 and 2001 to avoid assumption of the
rate risk associated with longer duration assets in the current low rate
environment. As of December 31, 2002, $301.6 million, or 28.9%, of the Company's
total loan portfolio had adjustable interest rates.
The Company's strategy with respect to liabilities in recent periods has been to
emphasize transaction accounts, particularly noninterest bearing transaction
accounts, which are not as sensitive to changes in interest rates as
certificates of deposit. At December 31, 2002, 61.2% of the Company's deposits
were in transaction and limited-transaction accounts, compared to 56.8% at
December 31, 2001. Noninterest bearing transaction accounts total 12.8% of total
deposits at December 31, 2002, compared to 12.5% of total deposits at December
31, 2001.
As part of an overall interest rate risk management strategy, off-balance sheet
derivatives may also be used as an efficient way to modify the repricing or
maturity characteristics of on-balance sheet assets and liabilities. Management
may from time to time engage in interest rate swaps to effectively manage
interest rate risk. As of December 31, 2002, the Company had no derivatives
other than interest-rate swaps accounted for as cash-flow hedges, all of which
met the criteria to be classified as effective hedges. Through these
instruments, interest rate risk is managed by hedging with an interest rate swap
contract designed to pay fixed and receive floating interest. The interest rate
swaps of the Company were executed to modify net interest sensitivity to levels
deemed appropriate.
31
OTHER OFF-BALANCE SHEET ACTIVITIES
In the normal course of business, the Company is a party to a number of
activities that contain credit, market and operational risk that are not
reflected in whole or in part in the Company's consolidated financial
statements. Such activities include traditional off-balance sheet credit-related
financial instruments, commitments under operating leases and long-term debt.
The Company provides customers with off-balance sheet credit support through
loan commitments, lines of credit and standby letters of credit. Many of the
unused commitments are expected to expire unused or be only partially used;
therefore, the total amount of unused commitments does not necessarily represent
future cash requirements. The Company anticipates it will continue to have
sufficient funds together with available borrowings to meet its current
commitments. At December 31, 2002, the total approved loan commitments
outstanding amounted to $23.1 million. At the same date, commitments under
unused lines of credit, including credit card lines, amounted to $193.9 million.
Included in these totals are commercial commitments amounting to $111.2 million
as shown in Table 9 below.
TABLE 9 - COMMERCIAL COMMITMENT EXPIRATION PER PERIOD
Less Than 1 - 3 4 - 5 Over 5
(dollars in thousands) 1 Year Years Years Years Total
=======================================================================================================================
Unused commercial lines of credit $ 91,376 $2,054 $ -- $818 $ 94,248
Unused loan commitments 15,465 -- -- -- 15,465
Standby letters of credit 1,500 3 -- -- 1,503
- -----------------------------------------------------------------------------------------------------------------------
Total $108,341 $2,057 $ -- $818 $111,216
=======================================================================================================================
The Company has entered into a number of long-term leasing arrangements to
support the ongoing activities of the Company. The required payments under such
commitments and long-term debt at December 31, 2002 are shown in Table 10 below.
TABLE 10 - LONG-TERM LEASES AND LONG-TERM DEBT COMMITMENTS
-------------------------------------------------------------------------------------
2007
(dollars in thousands) 2003 2004 2005 2006 and After Total
============================================================================================================================
Operating leases $777 $645 $ 559 $ 387 $ 1,660 $ 4,028
Long-term debt -- -- 10,921 2,061 62,476 75,458
- ----------------------------------------------------------------------------------------------------------------------------
Total $777 $645 $11,480 $2,448 $64,136 $79,486
============================================================================================================================
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with generally accepted accounting
principles, which generally require the measurement of financial position and
operating results in terms of historical dollars, without considering changes in
relative purchasing power over time due to inflation. Unlike most industrial
companies, virtually all of the Company's assets and liabilities are monetary in
nature. As a result, interest rates generally have a more significant impact on
the Company's performance than does the effect of inflation. Although
fluctuation in interest rates are neither completely predictable nor
controllable, the Company regularly monitors its interest rate position and
oversees its financial risk management by establishing policies and operating
limits. Interest rates do not necessarily move in the same direction or in the
same magnitude as the prices of goods and services, since such prices are
affected by inflation to a larger extent than interest rates. Although not as
critical to the banking industry as to other industries, inflationary factors
may have some impact on the Company's growth, earnings, total assets and capital
levels. Management does not expect inflation to be a significant factor in 2003.
32
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Generally accepted accounting principles are complex and require management to
apply significant judgment to various accounting, reporting and disclosure
matters. Management must use assumptions and estimates to apply these principles
where actual measurement is not possible or practical. The determination of the
allowance for loan losses, which represents management's estimate of probable
losses inherent in the Company's credit portfolio, is based on estimates that
involve a higher degree of judgment and complexity than the application of other
significant accounting policies. Factors considered in this determination and
the process used are described in the section of this discussion entitled "Loans
and Asset Quality." For a further discussion of the allowance for loans losses
and the Company's other significant accounting policies, see Note 1 of the
Consolidated Financial Statements. These policies are dependent, in part, upon
subjective judgments, assumptions and estimates. Changes in such estimates may
have a significant impact on the financial statements.
ACQUISITION OF ACADIANA BANCSHARES, INC.
On February 28, 2003, the Company completed its acquisition of Acadiana
Bancshares, Inc. ("Acadiana"), holding company of LBA Savings Bank. As
consideration the Company issued 981,821 shares of common stock and paid
approximately $9.8 million in cash to Acadiana shareholders. In accordance with
FAS No. 141, the transaction was accounted for as a purchase. For further
information, see Note 2 to the Consolidated Financial Statements and the
Company's Current Report filed on Form 8-K dated February 28, 2003.
33
INDEPENDENT AUDITORS' REPORT
[LETTERHEAD OF CASTAING HUSSEY & LOLAN, LLC]
To the Board of Directors
IBERIABANK Corporation
We have audited the accompanying consolidated balance sheets of IBERIABANK
Corporation and Subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 2002. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with U. S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of IBERIABANK
Corporation and Subsidiaries as of December 31, 2002 and 2001, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2002, in conformity with U. S. generally accepted accounting
principles.
/s/ Castaing Hussey & Lolan, LLC
New Iberia, Louisiana
February 6, 2003, except for
Note 2 as to which the
date is February 28, 2003.
34
IBERIABANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
(dollars in thousands, except share data) 2002 2001
=============================================================================================================================
Assets
Cash and due from banks $ 36,555 $ 35,945
Interest-bearing deposits in banks 27,220 15,736
- ----------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 63,775 51,681
Investment securities:
Available for sale, at fair value 309,636 219,825
Held to maturity, fair values of $60,600 and $102,116, respectively 58,486 102,082
Mortgage loans held for sale 8,683 15,867
Loans, net of unearned income 1,044,492 956,015
Allowance for loan losses (13,101) (11,117)
- ----------------------------------------------------------------------------------------------------------------------------
Loans, net 1,031,391 944,898
Premises and equipment, net 18,161 19,455
Goodwill and acquisition intangibles 35,401 35,644
Other assets 45,055 37,373
- ----------------------------------------------------------------------------------------------------------------------------
Total Assets $ 1,570,588 $ 1,426,825
=============================================================================================================================
Liabilities
Deposits:
Noninterest-bearing $ 159,005 $ 154,580
Interest-bearing 1,083,227 1,082,814
- ----------------------------------------------------------------------------------------------------------------------------
Total deposits 1,242,232 1,237,394
Short-term borrowings 96,803 12,339
Long-term debt 75,458 31,437
Other liabilities 16,497 11,238
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,430,990 1,292,408
- ----------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Preferred stock, $1 par value - 5,000,000 shares authorized -- --
Common stock, $1 par value - 25,000,000 shares authorized; 7,380,671 shares issued 7,381 7,381
Additional paid-in-capital 72,769 70,477
Retained earnings 102,390 88,306
Unearned compensation (2,690) (3,683)
Accumulated other comprehensive income 712 739
Treasury stock at cost - 1,667,842 and 1,392,626 shares, respectively (40,964) (28,803)
- ----------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 139,598 134,417
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 1,570,588 $ 1,426,825
=============================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an
integral part of these Financial Statements.
35
IBERIABANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000
------------------------------------------------
(dollars in thousands, except per share data) 2002 2001 2000
===================================================================================================================
Interest and Dividend Income
Loans, including fees $ 71,153 $ 79,265 $ 79,380
Mortgage loans held for sale, including fees 362 682 167
Investment securities:
Taxable interest 14,130 17,435 23,461
Tax-exempt interest 1,186 398 84
Other investments 721 2,588 874
- -------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 87,552 100,368 103,966
- -------------------------------------------------------------------------------------------------------------------
Interest Expense
Deposits 24,562 42,127 44,566
Short-term borrowings 613 617 4,243
Long-term debt 2,783 3,274 3,921
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 27,958 46,018 52,730
- -------------------------------------------------------------------------------------------------------------------
Net interest income 59,594 54,350 51,236
Provision for loan losses 6,197 5,046 3,861
- -------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 53,397 49,304 47,375
- -------------------------------------------------------------------------------------------------------------------
Noninterest Income
Service charges on deposit accounts 9,984 8,054 8,050
ATM fee income 1,609 1,491 1,309
Gain on sale of loans, net 2,081 2,234 405
Gain on sale of assets 406 301 2,047
Gain (loss) on sale of investments, net (42) 119 (1,759)
Other income 3,828 2,945 2,766
- -------------------------------------------------------------------------------------------------------------------
Total noninterest income 17,866 15,144 12,818
- -------------------------------------------------------------------------------------------------------------------
Noninterest Expense
Salaries and employee benefits 23,066 21,187 18,510
Occupancy and equipment 5,432 5,439 5,589
Communication and delivery 2,551 2,510 2,510
Franchise and shares tax 1,681 1,357 1,382
Data processing 1,456 1,256 1,369
Marketing and business development 1,006 876 867
Printing, stationery and supplies 687 753 731
Amortization of acquisition intangibles 243 3,151 3,267
Other expenses 7,910 5,182 5,479
- -------------------------------------------------------------------------------------------------------------------
Total noninterest expense 44,032 41,711 39,704
- -------------------------------------------------------------------------------------------------------------------
Income before income tax expense 27,231 22,737 20,489
Income tax expense 8,778 8,229 7,514
- -------------------------------------------------------------------------------------------------------------------
Net Income $ 18,453 $ 14,508 $ 12,975
- -------------------------------------------------------------------------------------------------------------------
Earnings per share - basic $ 3.26 $ 2.48 $ 2.14
Earnings per share - diluted $ 3.02 $ 2.36 $ 2.12
===================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an
integral part of these Financial Statements.
36
IBERIABANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
----------------------------------------------
Additional
(dollars in thousands, Common Paid-In Retained Unearned
except share and per share data) Stock Capital Earnings Compensation
============================================================================================================
Balance, December 31, 1999 $7,381 $68,749 $ 69,065 $(5,673)
Comprehensive income:
Net income 12,975
Change in unrealized loss on securities
available for sale, net of deferred taxes
Total comprehensive income
Cash dividends declared, $.66 per share (4,077)
Common stock released by ESOP trust 340 582
Common stock earned by participants of recognition
and retention plan trust, including tax benefit 47 565
Common stock purchased by recognition and
retention plan trust 128 (128)
Compensation expense on stock option plans (33)
Treasury stock acquired at cost, 300,000 shares
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 7,381 69,231 77,963 (4,654)
Comprehensive income:
Net income 14,508
Change in unrealized loss on securities
available for sale, net of deferred taxes
Total comprehensive income
Cash dividends declared, $.70 per share (4,165)
Reissuance of treasury stock under stock option plan,
net of shares surrendered in payment, 29,308 shares 155
Common stock released by ESOP trust 906 546
Common stock earned by participants of recognition
and retention plan trust, including tax benefit 185 425
Treasury stock acquired at cost, 300,000 shares
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 7,381 70,477 88,306 (3,683)
Comprehensive income:
Net income 18,453
Change in unrealized gain on securities
available for sale, net of deferred taxes
Change in accumulated net gain (loss) on
cash flow hedges, net of deferred taxes
Total comprehensive income
Cash dividends declared, $.76 per share (4,369)
Reissuance of treasury stock under stock option plan,
net of shares surrendered in payment, 52,628 shares 645
Common stock released by ESOP trust 1,337 509
Common stock earned by participants of recognition
and retention plan trust, including tax benefit 310 484
Treasury stock acquired at cost, 334,300 shares
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 $7,381 $72,769 $ 102,390 $(2,690)
============================================================================================================
---------------------------------------
Accumulated
Other
(dollars in thousands, Comprehensive Treasury
except share and per share data) Income Stock Total
=====================================================================================================
Balance, December 31, 1999 $(7,124) $ (15,209) $ 117,189
Comprehensive income:
Net income 12,975
Change in unrealized loss on securities
available for sale, net of deferred taxes 4,831 4,831
---------
Total comprehensive income 17,806
Cash dividends declared, $.66 per share (4,077)
Common stock released by ESOP trust 922
Common stock earned by participants of recognition
and retention plan trust, including tax benefit 612
Common stock purchased by recognition and
retention plan trust --
Compensation expense on stock option plans (33)
Treasury stock acquired at cost, 300,000 shares (5,377) (5,377)
- -----------------------------------------------------------------------------------------------------
Balance, December 31, 2000 (2,293) (20,586) 127,042
Comprehensive income:
Net income 14,508
Change in unrealized loss on securities
available for sale, net of deferred taxes 3,032 3,032
---------
Total comprehensive income 17,540
Cash dividends declared, $.70 per share (4,165)
Reissuance of treasury stock under stock option plan,
net of shares surrendered in payment, 29,308 shares 197 352
Common stock released by ESOP trust 1,452
Common stock earned by participants of recognition
and retention plan trust, including tax benefit 610
Treasury stock acquired at cost, 300,000 shares (8,414) (8,414)
- -----------------------------------------------------------------------------------------------------
Balance, December 31, 2001 739 (28,803) 134,417
Comprehensive income:
Net income 18,453
Change in unrealized gain on securities
available for sale, net of deferred taxes 1,157 1,157
Change in accumulated net gain (loss) on
cash flow hedges, net of deferred taxes (1,184) (1,184)
---------
Total comprehensive income 18,426
Cash dividends declared, $.76 per share (4,369)
Reissuance of treasury stock under stock option plan,
net of shares surrendered in payment, 52,628 shares 483 1,128
Common stock released by ESOP trust 1,846
Common stock earned by participants of recognition
and retention plan trust, including tax benefit 794
Treasury stock acquired at cost, 334,300 shares (12,644) (12,644)
- -----------------------------------------------------------------------------------------------------
Balance, December 31, 2002 $ 712 $ (40,964) $ 139,598
=====================================================================================================
The accompanying Notes to Consolidated Financial Statements are an
integral part of these Financial Statements.
37
IBERIABANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
-------------------------------------
(dollars in thousands) 2002 2001 2000
===========================================================================================================================
Cash Flows from Operating Activities
Net income $ 18,453 $ 14,508 $ 12,975
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 3,872 6,440 6,615
Provision for loan losses 6,197 5,046 3,861
Noncash compensation expense 2,217 1,717 1,320
Gain on sale of assets (391) (256) (2,047)
Loss (gain) on sale of investments 42 (119) 1,759
Amortization of premium/discount on investments 2,491 722 290
Current provision for deferred income taxes (678) 107 (71)
Net change in loans held for sale 7,184 (12,520) 1,424
Other operating activities, net (2,651) (13,891) (2,183)
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 36,736 1,754 23,943
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Proceeds from sales of securities available for sale 26,288 118,851 43,706
Proceeds from maturities, prepayments and calls of securities available for sale 162,094 56,601 37,155
Purchases of securities available for sale (278,370) (122,332) (43,744)
Proceeds from maturities, prepayments and calls of securities held to maturity 48,096 20,212 9,013
Purchases of securities held to maturity (4,855) (46,277) --
Increase in loans receivable, net (100,122) (26,875) (101,513)
Proceeds from sale of premises and equipment 160 1,181 4,875
Purchases of premises and equipment (1,582) (1,256) (1,061)
Proceeds from disposition of real estate owned 4,304 1,579 1,279
Cash paid in excess of cash received on branch sale (5,999) -- --
Other investing activities, net (4,101) 2,674 (594)
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Provided by Investing Activities (154,087) 4,358 (50,884)
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Increase in deposits 16,969 94,207 43,173
Net change in short-term borrowings 84,464 (41,661) (29,000)
Proceeds from long-term debt 52,000 -- 16,650
Repayments of long-term debt (7,979) (29,406) (7,860)
Dividends paid to shareholders (4,066) (3,981) (3,817)
Proceeds from sale of treasury stock for stock options exercised 701 283 --
Payments to repurchase common stock (12,644) (8,414) (5,377)
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 129,445 11,028 13,769
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) In Cash and Cash Equivalents 12,094 17,140 (13,172)
Cash and Cash Equivalents at Beginning of Period 51,681 34,541 47,713
- ---------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 63,775 $ 51,681 $ 34,541
===========================================================================================================================
Supplemental Schedule of Noncash Activities
Acquisition of real estate in settlement of loans $ 1,550 $ 7,217 $ 1,495
Exercise of stock options with payment in company stock $ 495 $ 521 $ --
===========================================================================================================================
Supplemental Disclosures
Cash paid for:
Interest on deposits and borrowings $ 29,170 $ 47,369 $ 52,634
Income taxes, net $ 8,825 $ 8,350 $ 7,081
===========================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an
integral part of these Financial Statements.
38
IBERIABANK CORPORATION AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS: IBERIABANK Corporation, (the "Company") is a Louisiana
corporation that serves as the bank holding company for IBERIABANK, (the "Bank")
a Louisiana chartered state commercial bank. Through the Bank, the Company
offers commercial and retail products and services to customers throughout the
state, including south central Louisiana, north Louisiana and the greater New
Orleans area. Management of the Company monitors the revenue streams of the
various products, services and markets; however, operations are managed and
financial performance is evaluated on a company-wide basis. Accordingly, all of
the Company's banking operations are considered by management to be aggregated
in one reportable operating segment.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of IBERIABANK Corporation and its wholly owned subsidiaries,
IBERIABANK, as well as all of the Bank's subsidiaries, Iberia Financial
Services, LLC, Jefferson Insurance Corporation, Metro Service Corporation,
Finesco, LLC and IBERIABANK Insurance Services, LLC. All significant
intercompany balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
CONCENTRATION OF CREDIT RISKS: Most of the Company's business activity is with
customers located within the State of Louisiana. The Company's lending activity
is concentrated in the Company's three market areas in Louisiana. The Company in
recent years has emphasized originations of commercial loans and indirect
automobile loans. Repayment of loans is expected to come from cash flow of the
borrower. Losses are limited by the value of the collateral upon default of the
borrowers.
CASH AND CASH EQUIVALENTS: For purposes of presentation in the consolidated
statements of cash flows, cash and cash equivalents are defined as cash,
interest-bearing deposits and noninterest-bearing demand deposits at other
financial institutions.
INVESTMENT SECURITIES: Debt securities that management has the ability and
intent to hold to maturity are classified as held to maturity and carried at
cost, adjusted for amortization of premiums and accretion of discounts using
methods approximating the interest method. Securities not classified as held to
maturity or trading, including equity securities with readily determinable fair
values, are classified as available for sale and recorded at fair value, with
unrealized gains and losses excluded from earnings and reported in other
comprehensive income. Declines in the value of individual held to maturity and
available for sale securities below their cost that are other than temporary are
included in earnings as realized losses. The cost of securities sold is
recognized using the specific identification method.
MORTGAGE LOANS HELD FOR SALE: Mortgage loans originated and intended for sale in
the secondary market are carried at the lower of cost or estimated fair value in
the aggregate. Net unrealized losses, if any, are recognized through a valuation
allowance by charges to income.
LOANS: Loans receivable are stated at the unpaid principal balances, less the
allowance for loan losses and net deferred loan origination fees and unearned
discounts. Interest income on loans is accrued over the term of the loans based
on the principal balance outstanding. Loan origination fees, net of certain
direct origination costs, are deferred and recognized as an adjustment of the
related loan yield, using the interest method.
The accrual of interest on commercial loans is discontinued at the time the loan
is 90 days delinquent unless the credit is well-secured and in process of
collection. Mortgage, credit card and other personal loans are typically charged
off to net collateral value, less cost to sell, no later than 180 days past due.
In all cases, loans are placed on nonaccrual or charged off at an earlier date
if collection of principal or interest is considered doubtful.
39
In general, all interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed against interest income. The interest on
these loans is accounted for on the cash-basis method or cost-recovery method,
until qualifying for return to accrual. Loans are returned to accrual status
when all principal and interest amounts contractually due are brought current
and future payments are reasonably assured.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is established as
losses are estimated to have occurred through a provision charged to earnings.
Loan losses are charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any,
are credited to the allowance. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. Changes in the allowance related to impaired loans are charged or
credited to the provision for loan losses.
The allowance for loan losses is maintained at a level which, in management's
opinion, is adequate to absorb credit losses inherent in the portfolio. The
amount of the allowance is based on management's evaluation of various factors,
including the collectibility of the loan portfolio, credit concentrations,
trends in historical loss experience, specific impaired loans, and economic
conditions. This evaluation is inherently subjective as it requires estimates
that are susceptible to significant revision as more information becomes
available.
A loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired.
The impairment loss is measured on a loan by loan basis for commercial and
construction loans by either the present value of expected future cash flows
discounted at the loan's effective interest rate, the loan's obtainable market
price, or the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for
impairment. Accordingly, the Company does not separately identify individual
consumer, residential and small business loans for impairment disclosures.
CREDIT RELATED FINANCIAL INSTRUMENTS: In the ordinary course of business, the
Company has entered into commitments to extend credit, including commitments
under credit card arrangements, commercial letters of credit and standby letters
of credit. Such financial instruments are recorded when they are funded.
LOAN SERVICING: Mortgage servicing rights are recognized on loans sold where the
institution retains the servicing rights. Capitalized mortgage servicing rights
are reported in other assets and are amortized in proportion to, and over the
period of, estimated net servicing revenues. Impairment of mortgage servicing
rights is assessed based on the fair value of those rights. Fair values are
estimated using discounted cash flows based on a current market interest rate.
FORECLOSED PROPERTY: Real estate and other assets acquired in settlement of
loans are recorded at the balance of the loan or at estimated fair value less
estimated selling costs, whichever is less, at the date acquired. Subsequent to
foreclosure, management periodically performs valuations and the assets are
carried at the lower of cost or fair value less estimated selling costs. Revenue
and expenses from operations, gain or loss on sale and changes in the valuation
allowance are included in net expenses from foreclosed assets. There was no
allowance for losses on foreclosed property at December 31, 2002 and 2001.
PREMISES AND EQUIPMENT: Land is carried at cost. Buildings and equipment are
carried at cost, less accumulated depreciation computed on a straight line basis
over the estimated useful lives of 15 to 40 years for buildings and 5 to 10
years for furniture, fixtures and equipment.
GOODWILL: Goodwill is accounted for in accordance with Statement of Financial
Accounting Standards ("FAS") No. 142, Goodwill and Other Intangible Assets, and
accordingly is not amortized but is evaluated at least annually for impairment.
Prior to the adoption of FAS 142 on January 1, 2002 goodwill was amortized over
periods ranging from 15 to 25 years using the straight-line method.
40
TRANSFERS OF FINANCIAL ASSETS: Transfers of financial assets are accounted for
as sales when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when 1) the assets have been
isolated from the Company, 2) the transferee obtains the right, free of
conditions that constrain it from taking advantage of that right, to pledge or
exchange the transferred assets, and 3) the Company does not maintain effective
control over the transferred assets through an agreement to repurchase them
before their maturity.
INCOME TAXES: The Company and all subsidiaries file a consolidated federal
income tax return on a calendar year basis. Deferred income tax assets and
liabilities are determined using the liability (or balance sheet) method. Under
this method, the net deferred tax asset or liability is determined based on the
tax effects of the temporary differences between the book and tax bases of the
various balance sheet assets and liabilities and gives current recognition to
changes in tax rates and laws. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
DERIVATIVE FINANCIAL INSTRUMENTS: The Company may enter into derivative
contracts for the purposes of managing exposure to interest rate risk or to meet
the financing needs of its customers. In accordance with FAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended, all derivatives
are required to be recorded on the balance sheet at fair value.
For derivatives designated as hedging the exposure to changes in the fair value
of an asset or liability (fair value hedge), the gain or loss is recognized in
earnings in the period of change together with the offsetting loss or gain to
the hedged item attributable to the risk being hedged. Earnings will be affected
to the extent to which the hedge is not effective in achieving offsetting
changes in fair value. For derivatives designated as hedging exposure to
variable cash flows of a forecasted transaction (cash flow hedge), the effective
portion of the derivative's gain or loss is initially reported as a component of
other comprehensive income and subsequently reclassified into earnings when the
forecasted transaction affects earnings or when the hedge is terminated. The
ineffective portion of the gain or loss is reported in earnings immediately. For
derivatives that are not designated as hedging instruments, changes in the fair
value of the derivatives are recognized in earnings immediately.
In applying hedge accounting for derivatives, the Company establishes a method
for assessing the effectiveness of the hedging derivative and a measurement
approach for determining the ineffective aspect of the hedge upon the inception
of the hedge. These methods are consistent with the Company's approach to
managing risk.
STOCK COMPENSATION PLANS: FAS No. 123, Accounting for Stock-Based Compensation,
encourages all entities to adopt a fair value based method of accounting for
employee stock compensation plans, whereby compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. It also allows an entity to
continue to measure compensation cost for those plans using the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion
("APB") No. 25, Accounting for Stock Issued to Employees, whereby compensation
cost is the excess, if any, of the quoted market price of the stock at the grant
date (or other measurement date) over the amount an employee must pay to acquire
the stock. Stock options issued under the Company's stock option plans generally
have no intrinsic value at the grant date, and under Opinion No. 25 no
compensation cost is recognized for them. The Company has elected to continue
with the accounting methodology in Opinion No. 25 and, as a result, has provided
proforma disclosures of net income and earnings per share and other disclosures,
as if the fair value based method of accounting had been applied.
EARNINGS PER COMMON SHARE: Basic earnings per share represents income available
to common shareholders divided by the weighted average number of common shares
outstanding during the period. Diluted earnings per share reflects additional
common shares that would have been outstanding if dilutive potential common
shares had been issued, as well as any adjustment to income that would result
from the assumed issuance. Potential common shares that may be issued by the
Company relate to outstanding stock options and unvested restricted stock, and
are determined using the treasury stock method.
41
COMPREHENSIVE INCOME: Accounting principles generally require that recognized
revenue, expenses, gains and losses be included in net income. Although certain
changes in assets and liabilities, such as unrealized gains and losses on
available for sale securities, are reported as a separate component of the
equity section of the balance sheet, such items, along with net income, are
components of comprehensive income.
SEGMENT INFORMATION: FAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, requires the reporting of information about a company's
operating segments using a "management approach." The Statement requires that
reportable segments be identified based upon those revenue-producing components
for which separate financial information is produced internally and are subject
to evaluation by the chief operating decision maker in deciding how to allocate
resources to segments.
The Company has evaluated its potential operating segments against the criteria
specified in the Statement and has determined that no operating segment
disclosures are required in 2002, 2001 or 2000.
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS: In June 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standard
("FAS") No. 141, Business Combinations. It supercedes Accounting Principles
Board ("APB") Opinion No. 16 of the same name. FAS 141 requires that all
business combinations be accounted for by a single method - the purchase method.
Use of the pooling of interests method of accounting is no longer permissible.
FAS 141 also establishes criteria for the identification of acquired intangibles
separate from goodwill and includes additional disclosure requirements. The
provisions of this Statement apply to all business transactions initiated after
June 30, 2001. This Statement also applies to all business combinations
accounted for using the purchase method for which the date of acquisition is
July 1, 2001, or later.
In June 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible
Assets. This Statement addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
Intangible Assets. It addresses how intangible assets that are acquired
individually or with a group of other assets (but not acquired in a business
combination) should be accounted for in financial statements upon their
acquisition and subsequent to their acquisition. FAS 142 provides that
intangible assets with definite lives will be amortized and that intangible
assets with indefinite lives and goodwill will not be amortized, but rather will
be tested at least annually for impairment. Under FAS 142, identifiable
intangible assets other than goodwill continue to be amortized over their
estimated useful lives to their estimated residual values, if any. They are
reviewed for impairment in accordance with FAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.
The Company adopted the provisions of FAS 142 for its fiscal year beginning
January 1, 2002. In transitioning to the new accounting standard, the Company
was required to assess by the end of the second quarter of 2002 whether there
was an indication that goodwill was impaired at the date of adoption. During the
second quarter of 2002, the Company completed the first of the required
impairment tests of goodwill measured as of January 1, 2002. The results of
these tests did not indicate impairment on the Company's recorded goodwill. The
carrying amount of goodwill not subject to amortization that will be tested
annually for impairment totals $35.4 million. The elimination of the
amortization of goodwill resulted in a reduction of noninterest expense of $2.8
million before tax and $2.0 million after tax, or $0.32 to $0.33 per diluted
share on an annual basis.
In August 2001, the FASB issued Statement No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. The Statement supersedes FAS 121 and certain
provisions of APB 30. The Statement requires that one accounting model be used
for long-lived assets to be disposed of, whether previously held and used or
newly acquired, and applies to discontinued operations. Statement 144 is
effective for fiscal years beginning after December 15, 2001. The provisions of
the Statement generally are to be applied prospectively.
42
In April 2002, the FASB issued Statement No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections.
The Statement updates, clarifies and simplifies existing accounting
pronouncements on several specific, specialized matters, including
extinguishments of debt and sale-leaseback transactions. The adoption of this
Statement is not expected to have a material effect on the Company's financial
position or results of operations.
In June 2002, the FASB issued Statement No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force ("EITF") No. 94-3. The principal difference
between this Statement and EITF 94-3 relates to its requirements for recognition
of a liability for a cost associated with an exit or disposal activity. This
Statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred, rather than at
the date of an entity's commitment to an exit plan. The provisions of this
Statement are effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. The Company does not
currently have any activities that are subject to the provisions of this
Statement.
In October 2002, the FASB issued Statement No. 147, Acquisitions of Certain
Financial Institutions - an Amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9. Except for transactions between two or more mutual
enterprises, this Statement removes acquisitions of financial institutions from
the scope of both Statement 72 and Interpretation 9 and requires that those
transactions be accounted for in accordance with FAS No. 141 and 142. This
Statement also clarifies that a branch acquisition that meets the definition of
a business should be accounted for as a business combination, otherwise the
transaction should be accounted for as an acquisition of net assets that does
not result in the recognition of goodwill. The provisions of this Statement are
effective on October 1, 2002. The adoption of FAS 147 did not have any effect on
the financial position or results of operations of the Company.
In December 2002, the FASB issued Statement No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure - an Amendment of FASB Statement No. 123.
The Statement amends FAS No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee
compensation. It also amends the disclosure provisions of that Statement to
require prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based employee
compensation. The Statement also amends APB Opinion No. 28, Interim Financial
Reporting, to require disclosure about those effects in interim financial
information. The Company currently does not use FAS 123 to account for its stock
options.
RECLASSIFICATIONS: Certain reclassifications have been made to the 2000 and 2001
consolidated financial statements in order to conform to the classifications
adopted for reporting in 2002.
NOTE 2 - ACQUISITION OF ACADIANA BANCSHARES, INC.:
On February 28, 2003, the Company acquired all of the outstanding stock of
Acadiana Bancshares, Inc. ("Acadiana") for approximately $48,367,000 consisting
of 981,821 shares of the Company's common stock valued at $38,586,000 and
$9,781,000 in cash. The transaction will be accounted for under the purchase
method of accounting. The acquisition is an in-market merger and presents the
Company with significant opportunities for branch consolidation and operating
efficiencies, as well as obtaining a qualified and locally known workforce. At
December 31, 2002, total assets of Acadiana were $305,760,000, including
$193,279,000 in loans receivable and $64,137,000 in investment securities. Total
deposits at such date were $205,780,000.
43
NOTE 3 - INVESTMENT SECURITIES:
The amortized cost and fair values of investment securities, with gross
unrealized gains and losses, consist of the following:
-------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gains Losses Value
=============================================================================================================================
December 31, 2002
Securities available for sale:
U.S. Government and federal agency obligations $ 5,000 $ 157 $ -- $ 5,157
Obligations of state and political subdivisions 25,506 438 (37) 25,907
Mortgage backed securities 253,467 2,598 (425) 255,640
Other debt securities 15,441 265 (74) 15,632
Marketable equity securities 7,305 -- (5) 7,300
- -----------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $306,719 $3,458 $(541) $309,636
=============================================================================================================================
Securities held to maturity:
U.S. Government and federal agency obligations $ 10,000 $ 344 $ -- $ 10,344
Obligations of state and political subdivisions 17,285 327 (72) 17,540
Mortgage backed securities 31,201 1,515 -- 32,716
- -----------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity $ 58,486 $2,186 $ (72) $ 60,600
=============================================================================================================================
December 31, 2001
Securities available for sale:
U.S. Treasury securities $ 5,002 $ 109 $ -- $ 5,111
U.S. Government and federal agency obligations 34,998 5 (232) 34,771
Obligations of state and political subdivisions 7,823 -- (81) 7,742
Mortgage backed securities 125,449 1,476 (350) 126,575
Other debt securities 38,332 325 (103) 38,554
Marketable equity securities 7,084 -- (12) 7,072
- -----------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $218,688 $1,915 $(778) $219,825
=============================================================================================================================
Securities held to maturity:
U.S. Government and federal agency obligations $ 34,248 $ -- $(433) $ 33,815
Obligations of state and political subdivisions 13,202 -- (374) 12,828
Mortgage backed securities 54,582 841 -- 55,423
Other debt securities 50 -- -- 50
- -----------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity $102,082 $ 841 $(807) $102,116
=============================================================================================================================
Securities with carrying values of $160,352,000 and $135,608,000 at December 31,
2002 and 2001, respectively were pledged to secure public deposits and other
borrowings.
44
The amortized cost and estimated fair value by maturity of investment securities
at December 31, 2002 are shown in the following table. Securities are classified
according to their contractual maturities without consideration of principal
amortization, potential prepayments or call options. Accordingly, actual
maturities may differ from contractual maturities.
Securities Securities
Available for Sale Held to Maturity
------------------------------------------------------------------------------
Weighted
Average Amortized Fair Amortized Fair
(dollars in thousands) Yield Cost Value Cost Value
=======================================================================================================================
Within one year or less 5.40% $ 4,821 $ 4,852 $ -- $ --
One through five years 5.31 22,231 22,801 10,000 10,344
After five through ten years 4.32 64,933 65,650 1,100 1,135
Over ten years 4.12 207,429 209,033 47,386 49,121
Marketable equity securities 2.52 7,305 7,300 -- --
- -----------------------------------------------------------------------------------------------------------------------
Totals 4.25% $306,719 $309,636 $58,486 $60,600
=======================================================================================================================
The following is a summary of realized gains and losses from the sale of
securities available for sale:
Years Ended December 31,
------------------------------------------
(dollars in thousands) 2002 2001 2000
========================================================================================================================
Realized gains $ 257 $ 184 $ --
Realized losses (299) (65) (1,759)
- ------------------------------------------------------------------------------------------------------------------------
Net realized gains (losses) $ (42) $ 119 $(1,759)
========================================================================================================================
The tax benefit (provision) applicable to these realized gains and losses is
calculated at the federal income tax rate of 35%.
NOTE 4 - LOANS RECEIVABLE:
Loans receivable at December 31, 2002 and 2001 consists of the following:
------------------------
(dollars in thousands) 2002 2001
=======================================================================================================================
Residential mortgage loans:
Residential 1-4 family $ 207,130 $198,403
Construction 16,470 5,915
- -----------------------------------------------------------------------------------------------------------------------
Total residential mortgage loans 223,600 204,318
- -----------------------------------------------------------------------------------------------------------------------
Commercial loans:
Real estate 254,688 228,284
Business 159,339 117,530
- -----------------------------------------------------------------------------------------------------------------------
Total commercial loans 414,027 345,814
- -----------------------------------------------------------------------------------------------------------------------
Consumer loans:
Indirect automobile 219,280 220,698
Home equity 122,799 114,056
Other 64,786 71,129
- -----------------------------------------------------------------------------------------------------------------------
Total consumer loans 406,865 405,883
- -----------------------------------------------------------------------------------------------------------------------
Total loans receivable $1,044,492 $956,015
=======================================================================================================================
45
Loans receivable include approximately $301,623,000 and $268,583,000 of
adjustable rate loans and $742,868,000 and $687,432,000 of fixed rate loans at
December 31, 2002 and 2001, respectively.
The amount of loans for which the accrual of interest has been discontinued
totaled approximately $3,257,000 and $5,263,000 at December 31, 2002 and 2001
respectively.
A summary of changes in the allowance for loan losses for the years ended
December 31, 2002, 2001 and 2000 is as follows:
----------------------------------
(dollars in thousands) 2002 2001 2000
=============================================================================================================
Balance, beginning of year $ 11,117 $ 10,239 $ 8,749
Provision charged to operations 6,197 5,046 3,861
Loans charged-off (4,782) (4,673) (2,865)
Recoveries 569 505 494
- -------------------------------------------------------------------------------------------------------------
Balance, end of year $ 13,101 $ 11,117 $ 10,239
=============================================================================================================
The following is a summary of information pertaining to impaired loans as of
December 31:
--------------------
(dollars in thousands) 2002 2001
- -------------------------------------------------------------------------------------------------------------
Impaired loans without a valuation allowance $ -- $ 608
Impaired loans with a valuation allowance 3,504 5,009
- -------------------------------------------------------------------------------------------------------------
Total impaired loans $ 3,504 $ 5,617
=============================================================================================================
Valuation allowance related to impaired loans $ 304 $ 1,309
=============================================================================================================
----------------------------------
(dollars in thousands) 2002 2001 2000
=============================================================================================================
Average investment in impaired loans $ 3,651 $ 7,561 $ 3,612
Interest income recognized on impaired loans 236 230 397
Interest income recognized on a cash basis on impaired loans 240 230 397
=============================================================================================================
The Company is also committed to lend an additional $513,000 to two customers
whose loans are classified as impaired.
NOTE 5 - LOAN SERVICING:
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of mortgage loans
serviced for others were $16,094,000 and $24,382,000 at December 31, 2002 and
2001, respectively.
Custodial escrow balances maintained in connection with the foregoing portfolio
of loans serviced for others, and included in demand deposits, were
approximately $58,000 and $84,000 at December 31, 2002 and 2001, respectively.
The balance of mortgage servicing rights was $122,000 and $150,000 at December
31, 2002 and 2001, respectively.
46
NOTE 6 - PREMISES AND EQUIPMENT:
Premises and equipment at December 31, 2002 and 2001 is summarized as follows:
-----------------------
(dollars in thousands) 2002 2001
================================================================================
Land $ 3,379 $ 3,503
Buildings 15,767 15,952
Furniture, fixtures and equipment 14,418 16,050
- --------------------------------------------------------------------------------
Total premises and equipment 33,564 35,505
Less accumulated depreciation 15,403 16,050
- --------------------------------------------------------------------------------
Total premises and equipment, net $18,161 $19,455
================================================================================
Depreciation expense was $2,341,000, $2,559,000 and $2,670,000 for the years
ended December 31, 2002, 2001 and 2000, respectively.
The Company actively engages in leasing office space that it has available.
Leases have different terms ranging from monthly rental to five-year leases. At
December 31, 2002, the monthly lease income was $27,000 per month. Total lease
income for 2002, 2001 and 2000 was $304,000, $288,000 and $394,000,
respectively. Income from leases was reported as a reduction in occupancy and
equipment expense. The total allocated cost of the portion of the buildings held
for lease at December 31, 2002 and 2001 was $1,995,000 and $1,542,000,
respectively, with related accumulated depreciation of $746,000 and $588,000,
respectively.
The Company leases certain branch offices, land and ATM facilities through
noncancellable operating leases with terms that range from one to twenty years,
with renewal options thereafter. Total rent expense for the years ended December
31, 2002, 2001 and 2000 amounted to $805,000, $674,000 and $548,000,
respectively.
Minimum future annual rent commitments under these agreements for the indicated
periods follow:
------
(dollars in thousands) Amount
================================================================================
Year Ending December 31,
2003 $ 777
2004 645
2005 559
2006 387
2007 and thereafter 1,660
- --------------------------------------------------------------------------------
Total $4,028
================================================================================
NOTE 7 - DEPOSITS:
Certificates of deposit with a balance of $100,000 and over were $150,926,000
and $153,948,000 at December 31, 2002 and 2001, respectively.
47
A schedule of maturities of certificates of deposit is as follows:
--------
(dollars in thousands) Amount
================================================================================
Year Ending December 31,
2003 $332,498
2004 62,450
2005 50,681
2006 13,136
2007 and thereafter 23,142
- --------------------------------------------------------------------------------
Total $481,907
================================================================================
NOTE 8 - SHORT-TERM BORROWINGS:
Short-term borrowings at December 31, 2002 and 2001 are summarized as follows:
(dollars in thousands) 2002 2001
================================================================================
Securities sold under agreements to repurchase $21,803 $ 8,089
Federal Home Loan Bank advances 75,000 --
Bank line of credit -- 4,250
- --------------------------------------------------------------------------------
Total short-term borrowings $96,803 $12,339
================================================================================
Securities sold under agreements to repurchase, which are classified as secured
borrowings, generally mature daily. Securities sold under agreements to
repurchase are reflected at the amount of cash received in connection with the
transaction. The Company may be required to provide additional collateral based
on the fair value of the underlying securities.
The short-term borrowings at December 31, 2002 consist of FHLB advances with
maturity terms of 2 days, at fixed interest rates ranging from 1.30% to 1.35%.
The short-term borrowings at December 31, 2001 consist of a bank line of credit
secured by stock of the Bank, with 90-day maturity terms, at fixed interest
rates ranging from 2.90% to 3.38%.
-----------------------------------
(dollars in thousands) 2002 2001 2000
================================================================================
Outstanding at December 31 $96,803 $12,339 $54,000
Maximum month-end outstandings 96,803 52,058 88,500
Average daily outstandings 32,961 13,508 65,831
Average rate during the year 1.86% 4.57% 6.45%
Average rate at year end 1.36% 2.57% 6.40%
================================================================================
NOTE 9 - LONG-TERM DEBT:
Long-term debt at December 31, 2002 and 2001 is summarized as follows:
--------------------
(dollars in thousands) 2002 2001
================================================================================
Federal Home Loan Bank notes at:
1.71 to 1.96% variable, 3 month LIBOR index $35,000 $ --
4.33 to 7.28% fixed 30,458 31,437
Junior Subordinated debt 10,000 --
- --------------------------------------------------------------------------------
Total long-term debt $75,458 $31,437
================================================================================
48
FHLB advance repayments are amortized over periods ranging from three to thirty
years, and have a balloon feature at maturity. Advances are collateralized by a
blanket pledge of mortgage loans and a secondary pledge of FHLB stock and FHLB
demand deposits. Total additional advances available from the FHLB at December
31, 2002 were $70,705,000 under the blanket floating lien and $132,079,000 with
a pledge of investment securities. The weighted average rate at December 31,
2002 was 3.85%.
Junior Subordinated Debt consists of a $10,000,000 trust preferred offering,
which closed on November 15, 2002. The trust preferred securities qualify as
Tier 1 Capital for regulatory purposes and bear an interest rate equal to
three-month London Interbank Offered Rate ("LIBOR") plus 3.25%. The term of the
securities is 30 years, and they are callable at par by the Company anytime
after 5 years. Interest is payable quarterly and may be deferred at any time at
the election of the Company for up to 20 consecutive quarterly periods. During
such period the Company is subject to certain restrictions, including being
prohibited from declaring dividends to its common shareholders.
The Company instituted partial hedges against the effect of rising interest
rates on its variable rate debt by entering into interest rate swap agreements
during 2002 whereby the Company will receive quarterly variable rate payments
and pay fixed rates on notional amounts totaling $10,000,000. Net settlements on
the swap agreements are accrued monthly, effectively converting $10,000,000 of
trust preferred offering from variable rates to a fixed rate of 3.42%. The Bank
also entered into interest rate swap agreements during 2002 whereby the Bank
will receive quarterly variable rate payments and pay fixed rates on notional
amounts totaling $25,000,000. Net settlements on the swap agreements are accrued
monthly, effectively converting $25,000,000 of FHLB advances from variable rates
to an average fixed rate of 4.74%.
Advances and long-term debt at December 31, 2002 have maturities in future years
as follows:
---------
(dollars in thousands) Amount
================================================================================
Year Ending December 31,
2003 $ --
2004 --
2005 10,921
2006 2,061
2007 and thereafter 62,476
- --------------------------------------------------------------------------------
Total $ 75,458
================================================================================
NOTE 10 - INCOME TAXES:
The provision for income tax expense consists of the following:
Years Ended December 31,
-----------------------------------
(dollars in thousands) 2002 2001 2000
================================================================================
Current expense:
Federal $ 9,456 $8,119 $ 7,653
State -- 3 (68)
- --------------------------------------------------------------------------------
Total current expense 9,456 8,122 7,585
Deferred federal expense (678) 107 (71)
- --------------------------------------------------------------------------------
Total income tax expense $ 8,778 $8,229 $ 7,514
================================================================================
There was an overpayment of federal income taxes of $52,000 at December 31, 2002
and a balance due of $108,000 at December 31, 2001.
49
The provision for federal income taxes differs from the amount computed by
applying the federal income tax statutory rate of 35 percent on income from
operations as indicated in the following analysis:
Years Ended December 31,
---------------------------------
(dollars in thousands) 2002 2001 2000
=========================================================================================
Federal tax based on statutory rate $ 9,531 $ 7,958 $ 7,171
Increase (decrease) resulting from:
Effect of tax-exempt income (1,378) (374) (113)
Amortization of acquisition intangibles 85 376 416
Interest and other nondeductible expenses 161 83 38
Nondeductible ESOP expense 389 242 56
State income tax on non-bank entities -- 3 (74)
Other (10) (59) 20
- ----------------------------------------------------------------------------------------
Income tax expense $ 8,778 $ 8,229 $ 7,514
=========================================================================================
Effective rate 32.2% 36.2% 36.7%
=========================================================================================
The net deferred tax asset (liability) at December 31, 2002 and 2001 is as
follows:
-------------------
(dollars in thousands) 2002 2001
========================================================================================
Deferred tax asset:
Allowance for loan losses $ 4,034 $ 3,168
Deferred directors' fees 102 106
Real estate owned 271 6
Deferred compensation 230 225
Unrealized loss on cash flow hedges 638 --
Other 394 16
- ----------------------------------------------------------------------------------------
Subtotal 5,669 3,521
- ----------------------------------------------------------------------------------------
Deferred tax liability:
FHLB stock (1,045) (914)
Premises and equipment (1,579) (1,807)
Acquisition premium (727) --
Unrealized gain on investments classified as available for sale (1,021) (398)
Other (274) (72)
- ----------------------------------------------------------------------------------------
Subtotal (4,646) (3,191)
- ----------------------------------------------------------------------------------------
Deferred tax asset, net $ 1,023 $ 330
========================================================================================
A summary of the changes in the net deferred tax asset (liability) for the years
ended December 31, 2002 and 2001 is as follows:
-------------------
(dollars in thousands) 2002 2001
========================================================================================
Balance, beginning $ 330 $ 2,070
Deferred tax expense, charged to operations 678 (107)
Other comprehensive income, charged to equity 15 (1,633)
- ----------------------------------------------------------------------------------------
Balance, ending $ 1,023 $ 330
========================================================================================
Retained earnings at December 31, 2002 and 2001 included approximately
$14,791,000 accumulated prior to January 1, 1987 for which no provision for
federal income taxes has been made. If this portion of retained earnings is used
in the future for any purpose other than to absorb bad debts, it will be added
to future taxable income.
50
NOTE 11 - EARNINGS PER SHARE:
Weighted average shares of common stock outstanding for basic EPS excludes the
weighted average shares not released by the Employee Stock Ownership Plan
("ESOP") of 126,287, 179,007 and 235,748 shares at December 31, 2002, 2001 and
2000, respectively and the weighted average unvested shares in the Recognition
and Retention Plan ("RRP") of 146,662, 172,573 and 187,454 shares at December
31, 2002, 2001 and 2000, respectively. Shares not included in the calculation of
diluted EPS because they are anti-dilutive were stock options of 14,000, 44,283
and 238,507 and RRP grants of 7,000, 6,026 and 73,500 at December 31, 2002, 2001
and 2000, respectively. The following sets forth the computation of basic net
income per common share and diluted net income per common share.
Years Ended December 31,
---------------------------------------------
2002 2001 2000
=================================================================================================
Numerator:
Income applicable to common shares $18,453,000 $14,508,000 $12,975,000
=================================================================================================
Denominator:
Weighted average common shares outstanding 5,662,810 5,843,861 6,056,148
Effect of dilutive securities:
Stock options outstanding 420,788 267,618 46,821
RRP grants 35,846 31,479 10,602
- -------------------------------------------------------------------------------------------------
Weighted average common shares outstanding -
assuming dilution 6,119,444 6,142,958 6,113,571
=================================================================================================
Earnings per common share $ 3.26 $ 2.48 $ 2.14
Earnings per common share - assuming dilution $ 3.02 $ 2.36 $ 2.12
=================================================================================================
NOTE 12 - CAPITAL REQUIREMENTS AND OTHER REGULATORY MATTERS:
The Company (on a consolidated basis) and the Bank are subject to various
regulatory capital requirements administered by the federal and state banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors. Prompt corrective action provisions are not applicable to bank
holding companies.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of total
and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average
assets. Management believes, as of December 31, 2002 and 2001, that the Company
and the Bank met all capital adequacy requirements to which they are subject.
As of December 31, 2002, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, an institution must maintain minimum total risk-based, Tier 1
risk-based and Tier 1 leveraged ratios as set forth in the following table.
There are no conditions or events since the notification that management
believes have changed the Bank's category. The Company's and the Bank's actual
capital amounts and ratios as of December 31, 2002 and 2001 are also presented
in the table.
51
Actual Minimum Well Capitalized
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
==============================================================================================================
December 31, 2002
Tier 1 leverage capital:
IBERIABANK Corporation $113,469 7.62% $59,536 4.00% $ N/A N/A%
IBERIABANK 104,715 7.05 59,393 4.00 74,241 5.00
Tier 1 risk-based capital:
IBERIABANK Corporation 113,469 10.66 42,596 4.00 N/A N/A
IBERIABANK 104,715 9.86 42,501 4.00 63,752 6.00
Total risk-based capital:
IBERIABANK Corporation 126,570 11.89 85,191 8.00 N/A N/A
IBERIABANK 117,816 11.09 85,003 8.00 106,254 10.00
December 31, 2001
Tier 1 leverage capital:
IBERIABANK Corporation $ 98,011 6.95% $56,406 4.00% $ N/A N/A%
IBERIABANK 101,886 7.23 56,365 4.00 70,457 5.00
Tier 1 risk-based capital:
IBERIABANK Corporation 98,011 9.96 39,368 4.00 N/A N/A
IBERIABANK 101,886 10.35 39,364 4.00 59,047 6.00
Total risk-based capital:
IBERIABANK Corporation 109,128 11.09 78,736 8.00 N/A N/A
IBERIABANK 113,003 11.48 78,729 8.00 98,411 10.00
==============================================================================================================
NOTE 13 - BENEFIT PLANS:
401(K) PROFIT SHARING PLAN
The Company has a 401(k) Profit Sharing Plan covering substantially all of its
employees. Annual employer contributions to the plan are set by the Board of
Directors. No contributions were made by the Company for the years ended
December 31, 2002, 2001 and 2000. The Plan provides, among other things, that
participants in the Plan be able to direct the investment of their account
balances within the Profit Sharing Plan into alternative investment funds.
Participant deferrals under the salary reduction election may be matched by the
employer based on a percentage to be determined annually by the employer.
EMPLOYEE STOCK OWNERSHIP PLAN
In 1995, the Company established an ESOP for the benefit of all eligible
employees of the Bank. The leveraged ESOP is accounted for in accordance with
American Institute of Certified Public Accountants ("AICPA") Statement of
Procedures ("SOP") 93-6, Employers' Accounting for Employee Stock Ownership
Plans.
Full-time employees of the Bank who have been credited with at least 1,000 hours
of service during a 12- month period and who have attained age 21 are eligible
to participate in the ESOP. It is anticipated that contributions will be made to
the plan in amounts necessary to amortize the debt to the Company over a period
of 10 years.
52
Under SOP 93-6, unearned ESOP shares are not considered outstanding and are
shown as a reduction of shareholders' equity as unearned compensation. Dividends
on unallocated ESOP shares are considered to be compensation expense. The
Company will recognize compensation cost equal to the fair value of the ESOP
shares during the periods in which they become committed to be released. To the
extent that the fair value of the Company's ESOP shares differ from the cost of
such shares, this differential will be credited to equity. The Company will
receive a tax deduction equal to the cost of the shares released. As the loan is
internally leveraged, the loan receivable from the ESOP to the Company is not
reported as an asset nor is the debt of the ESOP shown as a Company liability.
Dividends on allocated shares have been used to pay the ESOP debt.
Compensation cost related to the ESOP for the years ended December 31, 2002,
2001 and 2000 was $1,621,000, $1,238,000 and $741,000, respectively. The fair
value of the unearned ESOP shares, using the closing quoted market price per
share at year end was approximately $4,065,000 and $4,217,000 at December 31,
2002 and 2001, respectively.
A summary of the ESOP share allocation as of December 31 of the year indicated
is as follows:
-------------------------------------
2002 2001 2000
===========================================================================================
Shares allocated beginning of year 355,789 343,029 304,067
Shares allocated during the year 50,899 54,539 58,183
Shares distributed during the year (35,163) (41,779) (19,221)
- -------------------------------------------------------------------------------------------
Total allocated shares held by ESOP at year end 371,525 355,789 343,029
Unreleased shares 101,219 152,118 206,657
- -------------------------------------------------------------------------------------------
Total ESOP shares 472,744 507,907 549,686
===========================================================================================
STOCK OPTION PLANS
The Company issues stock options under various plans to directors, officers and
other key employees. The option exercise price cannot be less than the fair
value of the underlying common stock as of the date of the option grant and the
maximum option term cannot exceed ten years. The stock options granted have
vesting periods from two to seven years. There was no compensation expense
recorded in 2002, 2001 or 2000 related to stock option plans. At December 31,
2002 future awards of 295,009 shares could be made under the stock option plans.
The stock option plans also permit the granting of Stock Appreciation Rights
("SAR's"). SAR's entitle the holder to receive, in the form of cash or stock,
the increase in the fair value of Company stock from the date of grant to the
date of exercise. No SAR's have been issued under the plans.
53
The following table summarizes the activity related to stock options:
-------------------------------
Options Weighted Average
Outstanding Exercise Price
=====================================================================================
At January 1, 2000 869,347 $17.02
Granted 105,100 13.93
Canceled (50,632) 17.47
Exercised -- --
- -------------------------------------------------------------------------------------
At December 31, 2000 923,815 16.64
Granted 199,833 25.92
Canceled (63,981) 17.94
Exercised (48,781) 16.48
- -------------------------------------------------------------------------------------
At December 31, 2001 1,010,886 18.40
Granted 198,750 29.51
Canceled (19,933) 22.38
Exercised (66,229) 18.06
- -------------------------------------------------------------------------------------
At December 31, 2002 1,123,474 $20.31
=====================================================================================
Exercisable at December 31, 2000 381,258 $16.54
Exercisable at December 31, 2001 447,806 $16.57
Exercisable at December 31, 2002 532,603 $17.20
=====================================================================================
The following table presents the weighted average remaining life as of December
31, 2002 for options outstanding within the stated exercise prices:
Outstanding Exercisable
- --------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Exercise Number Average Average Number Average
Price Range Of Exercise Remaining Of Exercise
Per Share Options Price Life Options Price
====================================================================================================================
$13.38 to $15.06 189,369 $13.74 7.1 years 71,716 $13.75
$15.88 384,926 $15.88 3.4 years 334,279 $15.88
$16.31 to $19.75 58,500 $18.28 6.0 years 33,643 $18.21
$20.25 to $25.00 128,745 $22.39 6.6 years 52,285 $22.31
$25.13 to $29.80 339,434 $27.50 8.7 years 40,680 $26.70
$34.28 to $40.09 22,500 $36.67 9.4 years -- --
====================================================================================================================
54
In October 1995, the FASB issued FAS 123, which requires disclosure of the
compensation cost for stock-based incentives granted after January 1, 1995 based
on the fair value at grant date for awards. Applying FAS 123 would result in pro
forma net income and earnings per share amounts as follows:
---------------------------------------
2002 2001 2000
================================================================================
Net income:
As reported $18,453 $14,508 $12,975
Pro forma $17,422 $13,847 $12,530
Earnings per share:
As reported - basic $ 3.26 $ 2.48 $ 2.14
diluted $ 3.02 $ 2.36 $ 2.12
Pro forma - basic $ 3.08 $ 2.37 $ 2.07
diluted $ 2.89 $ 2.28 $ 2.06
================================================================================
The fair value of each option is estimated on the date of grant using an
option-pricing model with the following weighted average assumptions used for
2002, 2001 and 2000 grants: dividend yields of 2.10, 2.64 and 4.21 percent;
expected volatility of 18.32, 29.91 and 25.53 percent; risk-free interest rate
of 5.04, 5.30 and 6.35 percent; and expected lives of 7.0, 8.5 and 8.5 years.
The weighted average fair value per share at the date of grant for shares
granted during 2002, 2001 and 2000 was $7.14, $8.54 and $3.46, respectively.
RESTRICTED STOCK PLANS
The Company established the RRP for certain officers and directors during the
year ended December 31, 1996. A supplemental stock benefit plan adopted in 1999
and the 2001 Incentive Plan also allow grants of restricted stock. The cost of
the shares of restricted stock awarded under these plans is recorded as unearned
compensation, a contra equity account. The fair value of the shares on the date
of award is recognized as compensation expense over the vesting period, which is
generally seven years. The holders of the restricted stock receive dividends and
have the right to vote the shares. For the years ended December 31, 2002, 2001
and 2000 the amount included in compensation expense was $596,000, $479,000 and
$612,000 respectively. At December 31, 2002, 43,114 shares were available in the
RRP plan for future awards. The weighted average grant date fair value of the
restricted stock granted during the years ended December 31, 2002, 2001 and 2000
was $30.74, $28.00 and $14.49, respectively. A summary of the changes in awarded
shares follows:
----------------------------------------
2002 2001 2000
================================================================================
Balance, beginning of year 90,967 132,280 155,754
Granted 35,000 4,313 13,600
Forfeited (1,716) (17,008) (5,142)
Earned and issued (27,558) (28,618) (31,932)
- --------------------------------------------------------------------------------
Balance, end of year 96,693 90,967 132,280
================================================================================
NOTE 14 - RELATED PARTY TRANSACTIONS:
In the ordinary course of business, the Bank has granted loans to executive
officers and directors and their affiliates amounting to $1,319,000 and
$1,213,000 at December 31, 2002 and 2001, respectively. During the year ended
December 31, 2002, total principal additions were $130,000 and total principal
payments were $24,000.
55
NOTE 15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS, COMMITMENTS AND
CONTINGENCIES:
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Such commitments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated balance sheets. The same credit policies are used in these
commitments as for on-balance sheet instruments. The Company's exposure to
credit loss in the event of nonperformance by the other parties is represented
by the contractual amount of the financial instruments.
At December 31, 2002 and 2001, the Company had the following financial
instruments outstanding, whose contract amounts represent credit risk:
Contract Amount
------------------------
(dollars in thousands) 2002 2001
================================================================================
Commitments to grant loans $ 23,071 $ 18,278
Unfunded commitments under lines of credit 193,876 149,077
Commercial and standby letters of credit 1,503 2,212
================================================================================
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to be drawn
upon, the total commitment amounts generally represent future cash requirements.
The Company evaluates each customer's credit-worthiness on a case-by-case basis.
The amount of collateral, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the counterparty.
Unfunded commitments under commercial lines-of-credit, revolving credit lines
and overdraft protection agreements are commitments for possible future
extensions of credit to existing customers. These lines-of-credit usually do not
contain a specified maturity date and may not be drawn upon to the total extent
to which the Company is committed.
At December 31, 2002 and 2001, the Company had no derivatives other than
interest-rate swaps accounted for as cash-flow hedges. Derivatives are
investments in financial instruments or agreements whose value is linked to or
derived from changes in the value of some underlying assets or index. Examples
of derivatives include futures, forward contracts, option contracts,
interest-rate swap agreements and other financial arrangements with similar
characteristics.
The Company is subject to certain claims and litigation arising in the ordinary
course of business. In the opinion of management, after consultation with legal
counsel, the ultimate disposition of these matters is not expected to have a
material effect on the consolidated financial position of the Company.
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair value of a financial instrument is the current amount that would be
exchanged between willing parties, other than in a forced liquidation. Fair
value is best determined based upon quoted market prices. However, in many
instances, there are no quoted market prices for the Company's various financial
instruments. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. Accordingly, the fair value
estimates may not be realized in an immediate settlement of the instrument. FAS
107 excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented may not necessarily represent the underlying fair value of the
Company.
56
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Cash Equivalents: The carrying amounts of cash and short-term
instruments approximate their fair value. The carrying amounts of
interest-bearing deposits maturing within ninety days approximate their
fair values.
Investment Securities: Fair value equals quoted market prices and dealer
quotes.
Loans: The fair value of mortgage loans receivable was estimated based on
present values using entry-value rates at December 31, 2002 and 2001,
weighted for varying maturity dates. Other loans receivable were valued
based on present values using entry-value interest rates at December 31,
2002 and 2001 applicable to each category of loans. Fair values of
mortgage loans held for sale are based on commitments on hand from
investors or prevailing market prices.
Deposits: The fair value of NOW accounts, money market deposits and
savings accounts was the amount payable on demand at the reporting date.
Certificates of deposit were valued using a weighted average rate
calculated based upon rates at December 31, 2002 and 2001 for deposits of
similar remaining maturities.
Short-term Borrowings: The carrying amounts of short-term borrowings
maturing within ninety days approximate their fair values.
Long-term Borrowings: The fair values of the Company's long-term
borrowings are estimated using discounted cash flow analyses based on the
Company's current incremental borrowing rates for similar types of
borrowing arrangements.
Derivative Instruments: Fair values are estimated using independent
pricing sources.
Off-Balance Sheet Items: The Company has outstanding commitments to extend
credit and standby letters of credit. These off-balance sheet financial
instruments are generally exercisable at the market rate prevailing at the
date the underlying transaction will be completed and, therefore, have no
current fair value.
The estimated fair values and carrying amounts of the Company's financial
instruments are as follows:
December 31, 2002 December 31, 2001
-------------------------- --------------------------
Carrying Fair Carrying Fair
(dollars in thousands) Amount Value Amount Value
==================================================================================================
Financial Assets
Cash and cash equivalents $ 63,775 $ 63,775 $ 51,681 $ 51,681
Investment securities 368,122 370,236 321,907 321,941
Loans and loans held for sale, net 1,040,074 1,054,414 960,765 990,079
Financial Liabilities
Deposits $1,242,232 $1,245,646 $1,237,394 $1,245,014
Short-term borrowings 96,803 96,803 12,339 12,339
Long-term debt 75,458 77,180 31,437 31,230
Derivative instruments 1,822 1,822 -- --
==================================================================================================
57
The fair value estimates presented herein are based upon pertinent information
available to management as of December 31, 2002 and 2001. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and, therefore, current estimates
of fair value may differ significantly from the amounts presented herein.
NOTE 17 - COMPREHENSIVE INCOME:
The following is a summary of the components of other comprehensive income:
Years Ended December 31,
-----------------------------------
(dollars in thousands) 2002 2001 2000
==================================================================================================================
Unrealized gain (loss) on securities available for sale, net $ 1,738 $ 4,784 $ 5,674
Unrealized gain (loss) on cash flow hedges (1,822) -- --
Reclassification adjustment for net (gains) losses realized in net income 42 (119) 1,759
- ------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) (42) 4,665 7,433
Income tax (expense) benefit related to other comprehensive income 15 (1,633) (2,602)
- ------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of income taxes $ (27) $ 3,032 $ 4,831
==================================================================================================================
NOTE 18 - RESTRICTIONS ON DIVIDENDS, LOANS AND ADVANCES:
The Bank is restricted under applicable laws in the payment of dividends to an
amount equal to current year earnings plus undistributed earnings for the
immediately preceding year, unless prior permission is received from the
Commissioner of Financial Institutions for the State of Louisiana. Dividends
payable without permission by the Bank in 2003 will be limited to 2003 earnings
plus an additional $1,346,000.
Accordingly, at January 1, 2003, $139,567,000 of the Company's equity in the net
assets of the Bank was restricted. Funds available for loans or advances by the
Bank to the Company amounted to $11,782,000.
NOTE 19 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS:
Condensed financial statements of IBERIABANK Corporation (parent company only)
are shown below. The parent company has no significant operating activities.
CONDENSED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
------------------------
(dollars in thousands) 2002 2001
================================================================================
Assets
Cash in bank $ 9,552 $ 1,756
Investment in subsidiaries 141,223 138,298
Other assets 856 369
- --------------------------------------------------------------------------------
Total assets $151,631 $140,423
================================================================================
Liabilities and Shareholders' Equity
Liabilities $ 12,033 $ 6,006
Shareholders' equity 139,598 134,417
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $151,631 $140,423
================================================================================
58
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
----------------------------------------
(dollars in thousands) 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Operating income
Dividends from subsidiaries $18,000 $15,050 $ 9,600
Interest income 24 29 45
- -------------------------------------------------------------------------------------------------------------------------
Total operating income 18,024 15,079 9,645
- -------------------------------------------------------------------------------------------------------------------------
Operating expenses
Interest expense 152 172 563
Other expenses 1,241 1,049 1,072
- -------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,393 1,221 1,635
- -------------------------------------------------------------------------------------------------------------------------
Income before income tax expense and increase in
equity in undistributed earnings of subsidiaries 16,631 13,858 8,010
Income tax benefit 476 414 620
- -------------------------------------------------------------------------------------------------------------------------
Income before increase in equity in undistributed earnings
of subsidiaries 17,107 14,272 8,630
Increase in equity in undistributed earnings of subsidiaries 1,346 236 4,345
- -------------------------------------------------------------------------------------------------------------------------
Net Income $18,453 $14,508 $12,975
=========================================================================================================================
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------
(dollars in thousands) 2002 2001 2000
=============================================================================================================================
Cash Flows from Operating Activities
Net income $ 18,453 $ 14,508 $ 12,975
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 12 -- --
Increase in equity in net income of subsidiaries (1,346) (236) (4,345)
Noncash compensation expense 596 479 579
Other, net 186 2,955 (2,355)
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 17,901 17,706 6,854
- -----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchases of premise and equipment (223) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (223) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Dividends paid to shareholders (4,066) (3,981) (3,817)
Capital contributed to subsidiaries (123) (152) (175)
Proceeds from long-term debt 10,000 -- 4,650
Repayments of long-term debt -- (9,225) (3,000)
Net change in short-term borrowings (4,250) 4,250 --
Payments received from ESOP 500 578 655
Payments to repurchase common stock (12,644) (8,414) (5,377)
Proceeds from sale of treasury stock 701 283 --
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (9,882) (16,661) (7,064)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 7,796 1,045 (210)
Cash and Cash Equivalents at Beginning of Period 1,756 711 921
- -----------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 9,552 $ 1,756 $ 711
=============================================================================================================================
59
NOTE 20 - QUARTERLY RESULTS OF OPERATIONS (unaudited):
-----------------------------------------------
(dollars in thousands, First Second Third Fourth
except per share data) Quarter Quarter Quarter Quarter
=========================================================================================================
Year Ended December 31, 2002
Total interest income $22,174 $22,016 $21,720 $21,642
Total interest expense 7,723 7,078 6,710 6,447
- ---------------------------------------------------------------------------------------------------------
Net interest income 14,451 14,938 15,010 15,195
Provision for loan losses 1,200 1,798 1,500 1,699
- ---------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 13,251 13,140 13,510 13,496
Noninterest income 3,587 4,942 4,733 4,604
Noninterest expense 10,321 11,195 11,299 11,217
- ---------------------------------------------------------------------------------------------------------
Income before income taxes 6,517 6,887 6,944 6,883
Income tax expense 2,130 2,246 2,236 2,166
- ---------------------------------------------------------------------------------------------------------
Net Income $ 4,387 $ 4,641 $ 4,708 $ 4,717
=========================================================================================================
Earnings per share - basic $ 0.77 $ 0.81 $ 0.83 $ 0.85
Earnings per share - diluted $ 0.72 $ 0.75 $ 0.76 $ 0.79
=========================================================================================================
Year Ended December 31, 2001
Total interest income $25,762 $25,824 $25,222 $23,560
Total interest expense 13,030 12,314 11,626 9,048
- ---------------------------------------------------------------------------------------------------------
Net interest income 12,732 13,510 13,596 14,512
Provision for loan losses 714 896 1,088 2,348
- ---------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 12,018 12,614 12,508 12,164
Noninterest income 3,248 3,744 3,673 4,479
Noninterest expense 8,921 9,863 9,622 10,154
Goodwill amortization 798 792 784 777
- ---------------------------------------------------------------------------------------------------------
Income before income taxes 5,547 5,703 5,775 5,712
Income tax expense 2,056 2,116 2,111 1,946
- ---------------------------------------------------------------------------------------------------------
Net Income $ 3,491 $ 3,587 $ 3,664 $ 3,766
=========================================================================================================
Earnings per share - basic $ 0.59 $ 0.61 $ 0.62 $ 0.66
Earnings per share - diluted $ 0.57 $ 0.58 $ 0.59 $ 0.63
=========================================================================================================
60
corporate
LEADERSHIP
[GRAPHIC]
61
directors and executive
OFFICERS
BOARD OF DIRECTORS
IBERIABANK CORPORATION
William H. Fenstermaker
Chairman of the Board,
IBERIABANK Corporation
President and Chief Executive Officer,
C.H. Fenstermaker and Associates, Inc.
E. Stewart Shea III
Vice Chairman of the Board,
IBERIABANK Corporation
Managing Partner, The Bayou Companies, L.L.C.
Managing Partner, Bayou Coating, L.L.C.
Elaine D. Abell
Attorney, private practice
Harry V. Barton, Jr.
Certified Public Accountant
Ernest P. Breaux, Jr.
Regional Operating Officer - Region IV,
Integrated Electrical Services
Chairman, Ernest P. Breaux Electrical, Inc.
Cecil C. Broussard
Associate Broker, Absolute Realty, Inc.
Daryl G. Byrd
President and Chief Executive Officer,
IBERIABANK Corporation and Iberiabank
John N. Casbon
Executive Vice President,
First American Title Insurance Company
Chief Executive Officer and President,
First American Transportation Title
Insurance Company
Larrey G. Mouton
Owner and Manager,
Mouton Financial Services, L.L.C.
Jefferson G. Parker
Senior Vice President, Institutional Equities,
Howard Weil, a division of Legg Mason
Wood Walker, Inc.
EXECUTIVE OFFICERS
IBERIABANK CORPORATION AND IBERIABANK
Daryl G. Byrd
President and Chief Executive Officer
Michael J. Brown
Senior Executive Vice President,
Chief Credit Officer
John R. Davis
Senior Executive Vice President,
Finance and Retail Strategy
George J. Becker III
Executive Vice President,
Corporate Secretary
Marilyn W. Burch
Executive Vice President,
Chief Financial Officer
MARKET PRESIDENTS
IBERIABANK
Taylor F. Barras
New Iberia and Community Banks
Michael J. Brown
New Orleans
Stephen E. Durrett
North Louisiana
Patrick J. Trahan
Lafayette
62
ADVISORY BOARD
members
NEW IBERIA MARKET
Taylor F. Barras Market President
Cecil C. Broussard Co-Chairman
E. Stewart Shea III Co-Chairman
Dr. John L. Beyt III
Martha B. Brown
Dr. George B. Cousin
David D. Daly
J. David Duplantis
Cecil A. Hymel II
Edward P. Landry
Thomas R. LeBlanc
Diane Musson
Glen J. Ritter
John Jeffrey Simon
LAFAYETTE MARKET
Patrick J. Trahan Market President
Elaine D. Abell Chairman
Clay Morgan Allen
Bennett Boyd Anderson, Jr.
Charles Theodore Beaullieu, Sr.
Dr. Charles W. Boustany, Jr.
Dr. Edward F. Breaux
Richard D. Chappuis, Jr.
James M. Doyle
George E. Fleming
Charles T. Goodson
W. J. "Tony" Gordon III
Robert D. Lowe
Frank X. Neuner, Jr.
James Michael Poole, Sr.
Dwight S. Ramsay
Gail A. Romero
William W. Rucks III
NEW ORLEANS MARKET
Michael J. Brown Market President
John N. Casbon Co-Chairman
Jefferson G. Parker Co-Chairman
John D'Arcy Becker
Darryl D. Berger
John D. Charbonnet
David L. Ducote
James P. Favrot
John D. Georges
William F. Grace, Jr.
Erik L. Johnsen
William H. Langenstein III
William M. Metcalf, Jr.
J. C. Rathborne
J. Benton Smallpage, Jr.
Stephen F. Stumpf
Steven W. Usdin
David R. Voelker
[GRAPHIC]
Shadows-On-The-Teche, New Iberia
63
corporate
INFORMATION
powerful
CORPORATE HEADQUARTERS
IBERIABANK Corporation
200 West Congress Street
Lafayette, LA 70501
(337) 521-4003
CORPORATE MAILING ADDRESS
P.O. Box 52747
Lafayette, LA 70505-2747
INTERNET ADDRESS
www.iberiabank.com
ANNUAL MEETING
- --------------------------------------------------------------------------------
IBERIABANK Corporation Annual Meeting of Shareholders will be held on Wednesday,
May 7, 2003 at 10:00 a.m. in the Cabildo Room at the Hotel Inter-Continental,
located at 444 St. Charles Avenue, New Orleans, Louisiana.
- --------------------------------------------------------------------------------
SHAREHOLDER ASSISTANCE
Shareholders requesting a change of address, records or information about lost
certificates should contact:
Investor Relations
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
(800) 368-5948
www.invrelations@RTCO.com
FOR INFORMATION
Copies of the Company's financial reports, including forms 10-K and 10-Q, are
available without cost by sending a written request to Investor Relations at the
corporate mailing address noted above. This and other information regarding
IBERIABANK Corporation and IBERIABANK may be accessed from our web site. In
addition, shareholders and others may contact:
Daryl G. Byrd
President and CEO
(337) 521-4003
John R. Davis
Senior Executive Vice President
(337) 521-4005
STOCK INFORMATION
- --------------------------------------------------------------------------------
MARKET PRICE DIVIDENDS
2002 HIGH LOW CLOSING DECLARED
================================================================================
First Quarter $34.67 $27.35 $34.67 $ 0.18
Second Quarter $40.54 $34.77 $40.54 $ 0.18
Third Quarter $41.00 $36.00 $37.63 $ 0.20
Fourth Quarter $40.16 $35.64 $40.16 $ 0.20
- --------------------------------------------------------------------------------
MARKET PRICE DIVIDENDS
2001 HIGH LOW CLOSING DECLARED
================================================================================
First Quarter $26.25 $20.38 $23.88 $ 0.17
Second Quarter $29.55 $23.06 $29.55 $ 0.17
Third Quarter $30.13 $25.90 $28.60 $ 0.18
Fourth Quarter $28.75 $26.15 $27.72 $ 0.18
================================================================================
At December 31, 2002, IBERIABANK Corporation had approximately 1,100
shareholders of record.
SECURITIES LISTING
IBERIABANK Corporation's common stock trades on the NASDAQ Stock Market under
the symbol "IBKC". In local and national newspapers, the company is listed under
"IBERIABANK".
DIVIDEND REINVESTMENT PLAN
IBERIABANK Corporation shareholders may take advantage of our Dividend
Reinvestment Plan. This program provides a convenient, economical way for
shareholders to increase their holdings of the Company's common stock. The
shareholder pays no brokerage commissions or service charges while participating
in the plan. A nominal fee is charged at the time that an individual terminates
plan participation. This plan does not currently offer participants the ability
to purchase additional shares with optional cash payments.
To enroll in the IBERIABANK Corporation Dividend Reinvestment Plan, shareholders
must complete an enrollment form. A summary of the plan and enrollment forms are
available from the Registrar and Transfer Company at the address provided under
Shareholder Assistance.
64
IBERIABANK Corporation | ANNUAL REPORT 2002
strength
growth
endurance
stability
longevity [GRAPHIC]
200 West Congress Street
Lafayette, LA 70501
337 521 4003
www.iberiabank.com
iBERIABANK
Corporation(TM)