UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
Commission File Number 0-25756
IBERIABANK Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Louisiana 72-1280718
- ------------------------------------------------------- ---------------------------------------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification Number)
1101 East Admiral Doyle Drive
New Iberia, Louisiana 70560
- ---------------------------------------------------- ---------------------------------------------------
(Address of principal executive office) (Zip Code)
(337) 267-4458
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
The Registrant had 6,007,124 shares of common stock, $1.00 par value, which were
issued and outstanding as of May 13, 2002.
IBERIABANK CORPORATION AND SUBSIDIARY
TABLE OF CONTENTS
Part I. Financial Information Page
- ------- --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets 2
(As of March 31, 2002 and December 31, 2001)
Consolidated Statements of Income 3
(For the three months ended March 31, 2002 and 2001)
Consolidated Statements of Shareholders' Equity 4
(For the three months ended March 31, 2002 and 2001)
Consolidated Statements of Cash Flows 5
(For the three months ended March 31, 2002 and 2001)
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Part II. Other Information
- -------- -----------------
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
IBERIABANK CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (unaudited)
(dollars in thousands)
March 31, December 31,
2002 2001
----------------- ------------------
Assets
Cash and due from banks $ 22,009 $ 35,945
Interest-bearing deposits in banks 87,960 15,736
----------------- ------------------
Total cash and cash equivalents 109,969 51,681
Investment securities:
Available for sale, at fair value 239,658 219,825
Held to maturity, fair values of $95,022 and $102,116, respectively 94,826 102,082
Federal Home Loan Bank stock, at cost 5,642 5,600
Mortgage loans held for sale 4,359 15,867
Loans, net of unearned income 934,299 956,015
Allowance for loan losses (11,454) (11,117)
----------------- ------------------
Loans, net 922,845 944,898
Premises and equipment, net 19,010 19,455
Goodwill and acquisition intangibles 35,562 35,644
Other assets 38,941 31,773
----------------- ------------------
Total Assets $ 1,470,812 $1,426,825
================= ==================
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Noninterest-bearing $ 153,398 $ 154,580
Interest-bearing 1,098,628 1,082,814
----------------- ------------------
Total deposits 1,252,026 1,237,394
Short-term borrowings 16,268 12,339
Long-term debt 43,186 31,437
Other liabilities 21,402 11,238
----------------- ------------------
Total Liabilities 1,332,882 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 70,852 70,477
Retained earnings 91,641 88,306
Unearned compensation (3,431) (3,683)
Accumulated other comprehensive income 172 739
Treasury stock at cost - 1,384,676 and 1,392,626 shares (28,685) (28,803)
----------------- ------------------
Total Shareholders' Equity 137,930 134,417
----------------- ------------------
Total Liabilities and Shareholders' Equity $ 1,470,812 $1,426,825
================= ==================
See Notes to Consolidated Financial Statements
2
IBERIABANK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(dollars in thousands, except per share data)
For the Three Months
Ended March 31,
------------------------------------
2002 2001
---------------- ----------------
Interest and Dividend Income:
Loans, including fees $ 17,940 $ 20,180
Mortgage loans held for sale, including fees 98 63
Investment securities:
Taxable interest 3,586 4,996
Tax-exempt interest 248 40
Federal Home Loan Bank dividends 41 111
Interest-bearing demand deposits 261 372
---------------- ----------------
Total interest and dividend income 22,174 25,762
---------------- ----------------
Interest Expense:
Deposits 7,020 11,743
Short-term borrowings 90 340
Long-term debt 613 947
---------------- ----------------
Total interest expense 7,723 13,030
---------------- ----------------
Net interest income 14,451 12,732
Provision for loan losses 1,200 714
---------------- ----------------
Net interest income after provision for loan losses 13,251 12,018
---------------- ----------------
Noninterest Income:
Service charges on deposit accounts 1,959 1,969
ATM fee income 368 350
Gain on sale of loans, net 365 267
Gain on sale of assets 10 -
Gain (loss) on sale of investments, net 5 (8)
Other income 880 670
---------------- ----------------
Total noninterest income 3,587 3,248
---------------- ----------------
Noninterest Expense:
Salaries and employee benefits 5,668 4,830
Occupancy and equipment 1,363 1,376
Amortization of acquisition intangibles 82 798
Franchise and shares tax 373 278
Communication and delivery 634 616
Marketing and business development 242 228
Data processing 335 305
Printing, stationery and supplies 196 205
Other expenses 1,428 1,083
---------------- ----------------
Total noninterest expense 10,321 9,719
---------------- ----------------
Income before income tax expense 6,517 5,547
Income tax expense 2,130 2,056
---------------- ----------------
Net Income $ 4,387 $ 3,491
================ ================
Earnings per share - basic $ 0.77 $ 0.59
================ ================
Earnings per share - diluted $ 0.72 $ 0.57
================ ================
See Notes to Consolidated Financial Statements
3
IBERIABANK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)
(dollars in thousands)
Accumulated
Additional Other
Common Paid-In Retained Unearned Comprehensive Treasury
Stock Capital Earnings Compensation Income Stock Total
----------- ------------ ------------ ----------------------------- ----------- ----------
Balance, December 31, 2000 $ 7,381 $ 69,231 $ 77,963 $ (4,654) $ (2,293) $(20,586) $127,042
Comprehensive income:
Net income 3,491 3,491
Change in unrealized loss on
securities available for sale,
net of deferred taxes 2,694 2,694
----------
Total comprehensive income 6,185
Cash dividends declared, $.17 per
share (1,030) (1,030)
Reissuance of treasury stock under
stock option plan 5 34 39
Common stock released by ESOP trust 188 139 327
Common stock earned by participants
of recognition and retention plan
trust, including tax benefit 11 105 116
----------- ------------ ------------ -------------- ------------- ----------- ----------
Balance, March 31, 2001 $ 7,381 $ 69,435 $ 80,424 $ (4,410) $ 401 $(20,552) $132,679
=========== ============ ============ ============== ============= =========== ==========
Balance, December 31, 2001 $ 7,381 $ 70,477 $ 88,306 $ (3,683) $ 739 $(28,803) $134,417
Comprehensive income:
Net income 4,387 4,387
Change in unrealized gain on
securities available for sale,
net of deferred taxes (659) (659)
Change in accumulated net gains
on cash flow hedges, net of
deferred taxes 92 92
----------
Total comprehensive income 3,820
Cash dividends declared, $.18 per
share (1,052) (1,052)
Reissuance of treasury stock under
stock option plan 72 118 190
Common stock released by ESOP trust 275 130 405
Common stock earned by participants
of recognition and retention plan
trust, including tax benefit 28 122 150
----------- ------------ ------------ -------------- ------------- ----------- ----------
Balance, March 31, 2002 $ 7,381 $ 70,852 $ 91,641 $ (3,431) $ 172 $(28,685) $137,930
=========== ============ ============ ============== ============= =========== ==========
See Notes to Consolidated Financial Statements
4
IBERIABANK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(dollars in thousands)
For the Three Months
Ended March 31,
--------------------------------
2002 2001
------------ ------------
Cash Flows from Operating Activities:
Net income $ 4,387 $ 3,491
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 865 1,626
Provision for loan losses 1,200 714
Noncash compensation expense 500 385
Loss on sale of assets 7 6
(Gain) Loss on sale of investments (5) 8
Amortization of premium/discount on investments 435 (284)
Current provision for deferred income taxes - 349
FHLB stock dividends (41) (111)
Net change in loans held for sale 11,508 (3,349)
Other, net 2,480 1,697
------------- -------------
Net Cash Provided by Operating Activities 21,336 4,532
------------- -------------
Cash Flows from Investing Activities:
Activity in available for sale securities:
Sales 11,011 75,973
Maturities, prepayments and calls 30,204 5,847
Purchases (62,321) -
Activity in held to maturity securities:
Maturities, prepayments and calls 7,777 3,237
Purchases (635) (9,120)
Decrease in loans receivable, net 20,574 1,841
Purchases of premises and equipment (151) (148)
Proceeds from disposition of real estate owned 986 515
------------- -------------
Net Cash Provided by Investing Activities 7,445 78,145
------------- -------------
Cash Flows from Financing Activities:
Increase in deposits 14,632 53,074
Net change in short-term borrowings 3,929 (48,202)
Proceeds from long-term debt 12,000 -
Repayments of long-term debt (251) (13,678)
Dividends paid to shareholders (992) (1,022)
Proceeds from sale of treasury stock for stock options exercised 189 39
------------- -------------
Net Cash Provided by (Used in) Financing Activities 29,507 (9,789)
------------- -------------
Net Increase In Cash and Cash Equivalents 58,288 72,888
Cash and Cash Equivalents at Beginning of Period 51,681 34,541
------------- -------------
Cash and Cash Equivalents at End of Period $ 109,969 $ 107,429
============= =============
Supplemental Schedule of Noncash Activities:
Acquisition of real estate in settlement of loans $ 280 $ 341
============= =============
Supplemental Disclosures:
Cash paid (received) for:
Interest on deposits and borrowings $ 8,109 $ 15,007
============= =============
Income taxes, net $ 300 $ 300
============= =============
See Notes to Consolidated Financial Statements
5
IBERIABANK CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(unaudited)
1. Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
The accompanying consolidated financial statements were prepared in accordance
with the instructions to Form 10-Q, and therefore, do not include information or
footnotes necessary for a complete presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. All normal, recurring adjustments, which, in the opinion of
management, are necessary for a fair presentation of the financial statements,
have been included. These interim financial statements should be read in
conjunction with the audited financial statements and note disclosures for
IBERIABANK Corporation (the "Company") previously filed with the Securities and
Exchange Commission in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001.
Business
The principal business of the Company is conducted through its wholly owned
subsidiary, IBERIABANK (the "Bank"), headquartered in New Iberia, Louisiana. The
Bank operates 42 offices in its market areas located in south central Louisiana,
north Louisiana and the greater New Orleans area. The Bank provides a variety of
financial services to individuals and businesses throughout its service area.
Primary deposit products are checking, savings and certificate of deposit
accounts and primary lending products are consumer, commercial and mortgage
loans. The Bank offers discount brokerage services through its wholly owned
subsidiary, Iberia Financial Services, LLC. The Bank also provides insurance
services to its clients through IBERIABANK Insurance Services, LLC, a joint
venture between the Bank and Burch, Marcus, Pool, Krupp, Daniel & Babineaux,
Inc.
The Bank is subject to examination and regulation by the Office of Financial
Institutions of the State of Louisiana, which is the Bank's chartering authority
and primary regulator. The Bank is also subject to regulation by the Federal
Deposit Insurance Corporation ("FDIC") and to certain reserve requirements
established by the Federal Reserve Board ("FRB"). As a Louisiana chartered
commercial bank, the FDIC insures deposits to the maximum extent permitted by
law. The Bank is a member of the Federal Home Loan Bank of Dallas ("FHLB").
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, IBERIABANK, as well as all of the Bank's
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
2. Recent Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board ("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.
6
3. Loans Receivable
Loans receivable at March 31, 2002 and December 31, 2001 consisted of the
following:
March 31, December 31,
(dollars in thousands) 2002 2001
-----------------------------------------------------------------------------------------------------
Residential mortgage loans:
Residential 1-4 family $ 184,481 $ 198,403
Construction 7,627 5,915
--------- ----------
Total residential mortgage loans 192,108 204,318
--------- ----------
Commercial loans:
Real estate 238,315 228,284
Business 107,367 117,530
Lease financing receivables 2,274 -
--------- ----------
Total commercial loans 347,956 345,814
--------- ----------
Consumer loans:
Indirect automobile 211,619 220,698
Home equity 115,011 114,056
Other 67,605 71,129
--------- ----------
Total consumer loans 394,235 405,883
--------- ----------
Total loans receivable $ 934,299 $ 956,015
========= ==========
4. Earnings Per Share
For the three months ended March 31, 2002, basic earnings per share were based
on 5,688,884 weighted average shares outstanding and diluted earnings per share
were based on 6,075,969 weighted average shares outstanding. For the same
period, the calculations for both basic and diluted shares outstanding exclude:
(a) the weighted average unreleased shares owned by the Employee Stock Ownership
Plan ("ESOP") of 145,604; (b) the weighted average shares owned by the
Management Recognition Plan and Trust ("MRP") of 157,177; and (c) the weighted
average shares purchased in Treasury Stock of 1,389,006.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Form 10-Q may contain certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Examples of
forward-looking statements include, but are not limited to, estimates with
respect to the financial condition, results of operations and business of the
Company that are subject to various factors which would cause actual results to
differ materially from the estimates. These factors include, but are not limited
to, general economic conditions, changes in interest rates, deposit flows, loan
demand, real estate values, and competition; changes in accounting principles,
policies, or guidelines; changes in legislation or regulation; and other
economic, competitive, governmental, regulatory, and technological factors
affecting the Company's operations, pricing, products and services.
The following discussion and analysis describes the major changes in the
Company's financial condition and results of operations during the first three
months of the year.
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
7
sale. Interest income associated with earning assets is the Company's
primary source of income. At March 31, 2002, the total consolidated
earning assets of the Company amounted to $1.4 billion, an increase of
$52.6 million, or 4.0%, from December 31, 2001.
Loans and Allowance for Possible Loan Losses -- Loans, net of unearned
income, decreased $21.7 million, or 2.3%, to $934.3 million at March 31,
2002, compared to $956.0 million at December 31, 2001. The Company's loan
to deposit ratio at March 31, 2002 was 74.6% compared to 77.3% at December
31, 2001.
The decrease in loans was primarily due to a reduction in residential
mortgage loans of $12.2 million, or 6.0%, resulting from loans refinancing
at fixed rates in the lower rate environment and normal mortgage paydowns.
It is currently the Company's posture that it is preferable to sell fixed
rate mortgage loans and recognize the attendant up front income rather
than assume the rate risk associated with a longer term asset at the
current rates. A decrease was also reflected in indirect automobile loans
that were down $9.1 million, or 4.1%, during the first quarter of 2002.
Indirect financing has slowed considerably over the last two quarters as a
result of competitive factors. The Company continues to focus on prime
indirect paper.
Additionally, over time, the company has implemented several portfolio
management policies and procedures to identify credit exposures that do
not meet risk profile guidelines. During the quarter, several of these
credits were transitioned to other banks resulting in a reduction in the
commercial loan portfolio. This will be an ongoing process as changes
occur within credits and relative risk is reassessed. The New Orleans
market generated the majority of the commercial loan growth offsetting
this decrease. Commercial loans in this market were up 27.1% during the
first quarter of this year with no one customer representing a
disproportionate percentage of the increase.
Nonperforming assets, defined as nonaccrual loans, accruing loans past due
90 days or more and foreclosed property, amounted to $11.8 million, or
0.81% of total assets at March 31, 2002, compared to $13.0 million, or
0.91% of total assets at December 31, 2001. Based on the Company's normal
loan loss reserve analysis, the Company is adequately reserved for the
risk of loss in the loan portfolio at this time. The allowance for loan
losses amounted to $11.5 million, or 1.23% and 174.8% of total loans and
total nonperforming loans, respectively, at March 31, 2002 compared to
1.16% and 159.9%, respectively, at December 31, 2001.
The allowance for loan losses is maintained at an appropriate level based
on management's analysis of the potential risk in the loan portfolio. This
is the result of various factors, including historical experience, the
volume and type of lending conducted by the Company, the amount of the
Company's classified assets, seasoning of the loan portfolio, the status
of past due principal and interest payments, general economic conditions,
particularly as they relate to the Company's market area and other
elements related to the collectibility of the Company's loan portfolio.
Although management of the Company believes that the Company's allowance
for loan losses was adequate at March 31, 2002 based on facts and
circumstances available, there can be no assurances that additions to such
allowance will not be necessary in future periods, which would adversely
affect the Company's results of operations.
Investment Securities -- The Company's investment securities available for
sale increased $19.8 million, or 9.0%, to $239.7 million at March 31,
2002, compared to $219.8 million at December 31, 2001. The increase was
due primarily to purchases of investment securities of $62.3 million,
which was partially offset by sales of $11.0 million, prepayments and
maturities totaling $30.2 million, and a decrease of $659,000 in the
market value of the portfolio.
The Company's investment securities held to maturity decreased $7.3
million, or 7.1%, to $94.8 million at March 31, 2002, compared to $102.1
million at December 31, 2001. This decrease was due primarily to
prepayments and maturities of $7.8 million, which was partially offset by
purchases of investment securities of $635,000.
Short-term Investments -- Excess overnight funds are currently invested 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. As a result of increased liquidity, the balance in
8
interest-bearing deposits at other institutions increased $72.2 million to
$88.0 million at March 31, 2002, compared to $15.7 million at December 31,
2001. Increased liquidity was the result of several factors including
deposit growth, the impact of mortgage loan sales and investment security
cash flows.
Loans Held for Sale -- Loans held for sale decreased $11.5 million, or
72.5%, to $4.4 million at March 31, 2002 compared to $15.9 million at
December 31, 2001. This group of loans has 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.
Funding Sources
The primary source of funding for the Company continues to be deposits.
Our focus continues to be increasing core deposits through the development
of long-term relationships. Other funding sources include short-term and
long-term borrowings and shareholders' equity. The following discussion
highlights the major changes in the mix during the first three months of
the year.
Deposits -- Deposits increased $14.6 million, or 1.2%, to $1.3 billion at
March 31, 2002, compared to $1.2 billion at December 31, 2001. The
increase in deposits reflects relatively balanced growth across all
markets. The Company believes it to be the result of several factors
including the development of customer relationships and continued calling
efforts. Deposit growth consisted of a $14.2 million increase in
interest-bearing checking accounts and an $18.9 million increase in
savings and money market accounts. These increases were partially offset
by a $17.3 million decrease in time deposits and a $1.2 million decrease
in noninterest-bearing checking accounts.
Short-term Borrowings -- The Company's short-term borrowings at March 31,
2002 were comprised of $12.5 million of securities sold under agreements
to repurchase and $3.8 million outstanding on a $15.0 million line of
credit with a correspondent bank. Short-term borrowings increased $3.9
million, or 31.8%, to $16.3 million at March 31, 3002, compared to $12.3
million at December 31, 2001.
Long-term Borrowings -- At March 31, 2002, the Company's long-term
borrowings were comprised of fixed rate advances from FHLB of Dallas.
Long-term borrowings increased $11.7 million, or 37.4%, to $43.2 million
at March 31, 2002, compared to $31.4 million at December 31, 2001. This
increase was due primarily to borrowings of $12.0 million, which was
partially offset by normal amortization payments. The remaining debt,
which is composed of FHLB long-term advances, cannot be paid off without
incurring substantial prepayment penalties.
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. Total
shareholders' equity increased $3.5 million, or 2.6%, to $137.9 million at
March 31, 2002, compared to $134.4 million at December 31, 2001. The
increase in shareholders' equity was the result of the Company's net
income of $4.4 million, $405,000 of common stock released by the Company's
Employee Stock Ownership Plan ("ESOP") trust, $150,000 of common stock
earned by participants in the Company's Recognition and Retention Plan
trust, and $190,000 from the reissuance of treasury stock for stock
options exercised. Such increases were partially offset by cash dividends
declared on the Company's common stock of $1.1 million and a $567,000
decrease in accumulated other comprehensive income after taxes.
RESULTS OF OPERATIONS
The Company reported net income of $4.4 million for the three months ended
March 31, 2002, compared to $3.5 million earned during the three months
ended March 31, 2001, an increase of $896,000, or 25.7%. The Company's net
interest income increased $1.7 million, noninterest income increased
$339,000, the provision for loan losses increased $486,000, noninterest
expense increased $602,000, and income tax expense increased $74,000
during the three months ended March 31, 2002 compared to the first quarter
of 2001.
Net Interest Income -- Net interest income is the difference between
interest realized on earning assets net of interest paid on
9
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 4.02% during the three
months ended March 31, 2002, compared to 3.30% for the comparable period
in 2001. The Company's net interest margin on a taxable equivalent basis,
which is net interest income as a percentage of average earning assets,
was 4.41% during the three months ended March 31, 2002, compared to 3.96%,
for the comparable period in 2001.
Net interest income increased $1.7 million, or 13.5%, to $14.5 million for
the three months ended March 31, 2002, compared to $12.7 million for the
three months ended March 31, 2001. The increase was due to a $5.3 million,
or 40.7%, decrease in interest expense, which was partially offset by a
decrease of $3.6 million in interest income. The decrease in interest
income was the result of a 130 basis point decrease in the yield earned on
earning assets, which was partially offset by a $50.2 million, or 3.9%
increase in the average balance of earning assets. The decrease in
interest expense was the result of a 202 basis point decrease in the cost
of interest-bearing liabilities, which was partially offset by a $35.4
million, or 3.2%, increase in the average balance of interest-bearing
liabilities.
Management believes that the Company is not significantly affected by
changes in interest rates over an extended period of time; however, the
Company is moderately asset sensitive in the 30-day period. As a result,
interest rate reductions by the FRB have exerted downward pressure on net
interest income. Over time, the Company expects that loan volume and
redeployment of a portion of these funds into investment securities will
improve this sensitivity. The Company will continue to monitor investment
opportunities and weigh the associated risk/return. The Company has also
engaged in an interest rate swap, which is a form of a derivative
financial instrument, to modify its indicated net interest sensitivity to
levels deemed to be appropriate. Through this instrument, interest rate
risk is managed by hedging with an interest rate swap contract designed to
pay fixed and receive floating interest.
Downward repricing of the maturing certificate of deposit portfolio in the
current low rate environment has allowed the Company to reduce funding
costs and thereby offset the negative impact of FRB rate reductions. It is
believed that any potential run off in this category as a result of
lowered rates will not adversely impact short-term funding needs of the
Company.
Table 1 presents average balance sheets, net interest income and average
interest rates for the three-month periods ended March 31, 2002 and 2001.
10
TABLE 1:
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%.
Three Months Ended March 31,
----------------------------------------------------------------------
2002 2001
--------------------------------- --------------------------------
Average Average
Average Yield/ Average Yield/
(dollars in thousands) Balance Interest Rate(1) Balance Interest Rate(1)
- ---------------------------------------------------------------------------------------- --------------------------------
Earning assets:
Loans receivable:
Mortgage loans $ 198,810 $ 3,871 7.79% $ 283,034 $ 5,556 7.85%
Commercial loans (TE) 348,106 5,688 6.72 275,082 6,111 8.93
Consumer and other loans 398,324 8,381 8.53 376,713 8,513 9.16
Lease Financing Receivable 101 0 0.00 0 0
------------ --------- ------------ ---------
Total loans 945,341 17,940 7.71 934,829 20,180 8.70
------------ --------- ------------ ---------
Loans held for sale 5,982 98 6.55 3,663 63 6.88
Investment securities (TE) 314,865 3,834 5.04 312,611 5,036 6.47
Federal Home Loan Bank stock 5,602 41 2.97 8,000 111 5.63
Other earning assets 66,681 261 1.59 29,180 372 5.17
------------ --------- ------------ ---------
Total earning assets 1,338,471 22,174 6.75 1,288,283 25,762 8.05
--------- ---------
Allowance for loan losses (11,140) (10,191)
Nonearning assets 122,844 99,860
------------ ------------
Total assets $ 1,450,175 $ 1,377,952
============ ============
Interest-bearing liabilities:
Deposits:
NOW accounts $ 251,669 791 1.27 $ 182,981 866 1.92
Savings and money market accounts 316,456 1,180 1.51 275,090 2,457 3.62
Certificates of deposit 525,684 5,049 3.90 576,876 8,420 5.92
------------ --------- ------------ ---------
Total deposits 1,093,809 7,020 2.60 1,034,947 11,743 4.60
Borrowings 41,679 641 6.15 74,722 1,260 6.75
Securities sold under agreements to repurchase 11,536 62 2.15 1,964 27 5.50
------------ --------- ------------ ---------
Total interest-bearing liabilities 1,147,024 7,723 2.73 1,111,633 13,030 4.75
--------- ---------
Noninterest-bearing demand deposits 147,435 126,046
Noninterest-bearing liabilities 18,794 10,058
------------ ------------
Total liabilities 1,313,253 1,247,737
Shareholders' Equity 136,922 130,215
------------ ------------
Total liabilities and shareholders'
equity $ 1,450,175 $ 1,377,952
============ ============
Net earning assets $ 191,447 $ 176,650
============ ============
Net interest spread $ 14,451 4.02% $12,732 3.30%
========= ======= ========= =========
Net interest margin (TE) 4.41% 3.96%
======= =========
Ratio of earning assets to
interest-bearing liabilities 116.69% 115.89%
============ ============
- ----------------------------------
(1) Annualized.
11
Interest Income -- The Company's total interest income was $22.2 million
for the three months ended March 31, 2002, compared to $25.8 million for
the three months ended March 31, 2001. The reasons for the $3.6 million
decrease in interest income were a $2.2 million, or 11.1%, decrease in
interest income from loans, a $1.3 million, or 24.7%, decrease in interest
and dividend income on investment securities, and a $111,000 or 29.8%,
decrease in interest on deposits held at other institutions. Such
decreases were partially offset by an increase of $35,000, or 55.6% in
interest income on loans held for sale. The decrease in interest income
from loans was the result of a 99 basis point decrease in the loan yield
earned thereon, which was partially offset by a $10.5 million, or 1.1%,
increase in the average balance of loans. The decrease in interest and
dividend income from investment securities was the result of a $144,000
decrease in the average balance of investment securities, together with a
409 basis point decrease in the yield earned thereon. The decrease in
interest from deposits at other institutions was the result of a 358 basis
point decrease in the yield earned thereon, which was partially offset by
a $37.5 million, or 128.5%, increase in the average balance of deposits at
other institutions. The increase in interest income from loans held for
sale was the result of a $2.3 million, or 63.3%, increase in the average
balance of loans held for sale, which was partially offset by a 33 basis
point decrease in the yield earned thereon.
Interest Expense -- The Company's total interest expense was $7.7 million
for the three months ended March 31, 2002, compared to $13.0 million for
the three months ended March 31, 2001. The reasons for the $5.3 million,
or 40.7%, decrease in total interest expense was due to a $4.7 million, or
40.2%, decrease in interest expense on deposits as a result of a 200 basis
point decrease in the cost of such deposits, a $250,000 or 73.5% decrease
in short-term borrowings, and a $334,000 or 35.3%, decrease in long-term
borrowings as a result of a $33.0 million, or 44.2%, decrease in the
average balance on borrowings, together with a 60 basis point decrease in
the cost of such borrowings.
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. Management of the Company assesses
the allowance for loan losses on a quarterly basis and makes provisions
for loan losses as deemed appropriate in order to maintain the adequacy of
the allowance for loan losses.
For the three months ended March 31, 2002, the provision for loan losses
was $1.2 million as compared to $714,000 for the same period in 2001. The
higher provision is primarily attributable to loan growth and changes in
the mix of loans from period to period. The allowance for loan losses as a
percentage of outstanding loans, net of unearned income, was 1.23% at
March 31, 2002, compared to 1.10% at March 31, 2001.
Noninterest Income -- The Company's total noninterest income was $3.6
million for the three months ended March 31, 2002, compared to $3.2
million for the same period in 2001. Noninterest income increased
$339,000, or 10.4%, for the three months ended March 31, 2002, compared to
the same period in 2001. The increase was due primarily to a $98,000
increase in gains on the sale of mortgage loans in the secondary market
and a $263,000 increase in earnings and cash surrender value of bank owned
life insurance. All other net noninterest income decreased $45,000.
Additionally, the first quarter of 2002 included a $10,000 gain on the
sale of assets and a $5,000 gain on the sale of investment securities,
compared to an $8,000 loss on the sale of investment securities in the
first quarter of 2001.
Noninterest Expense -- 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 increased $602,000, or
6.2%, for the three months ended March 31, 2002, to $10.3 million,
compared to $9.7 million for the three months ended March 31, 2001. This
increase is due in part to an $838,000 increase in salaries and employee
benefits. Included in this increase were $477,000 in salary expense
partially attributable to improving overall staffing across the state as
opportunities arose, a $280,000 increase in hospitalization expense, and
an $81,000 increase in the ESOP retirement contribution expense caused by
the increase in the average fair market value of the Company's common
stock. Other increases included $95,000 in the franchise and share tax
assessment and $30,000 in data processing. Other noninterest expenses
increased by $355,000, including increases of $63,000 for net cost of OREO
property and $62,000 for credit and loan related expenses. Such increases
12
were partially offset by a pre-tax decrease of $716,000 from
non-amortization of goodwill as a result of adopting FAS 142.
Income Tax Expense -- Income tax expense increased $74,000, or 3.6%, for
the three months ended March 31, 2002 to $2.1 million as compared to the
three months ended March 31, 2001. The increase in income tax expense was
due primarily to the increase in income before income taxes. The effective
tax rate for the three months ended March 31, 2002 and 2001 was 32.7% and
37.1%, respectively. The difference between the effective tax rate and the
statutory tax rate primarily relate to variances in the items that are
either nontaxable or non-deductible, mainly the non-deductible portion of
the ESOP compensation expense and the nontaxable portion of municipal
investments. Additionally, prior to adoption of FAS 142 on January 1,
2002, a portion of the acquisition intangible amortization was
non-deductible.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The
Company's primary sources of funds are deposits, amortization, prepayments
and maturities of outstanding loans, investment securities and other
short-term investments and funds provided from operations. While scheduled
payments from the amortization of loans, maturing investment securities,
and short-term investments are relatively predictable sources of funds,
deposit flows and loan and investment security prepayments are greatly
influenced by general interest rates, economic conditions and competition.
In addition, the Company obtains additional funds through borrowings,
which provide liquidity to meet lending requirements. The Bank has been
able to generate sufficient cash through its deposits as well as
borrowings. At March 31, 2002, the Company had $43.2 million in
outstanding advances from the Federal Home Loan Bank of Dallas.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term
investments such as overnight deposits. On a longer-term basis, the
Company maintains a strategy of investing in various lending products. The
Company uses its sources of funds primarily to meet its ongoing
commitments and fund loan commitments. At March 31, 2002, the total
approved loan commitments outstanding amounted to $43.5 million. At the
same time, commitments under unused lines of credit, including credit card
lines, amounted to $159.2 million. Certificates of deposit scheduled to
mature in twelve months or less at March 31, 2002 totaled $405.0 million.
Based on past experience, management believes that a significant portion
of maturing deposits will remain with the Company. The Company anticipates
it will continue to have sufficient funds to meet its liquidity
requirements.
At March 31, 2002, the Company and the Bank had regulatory capital that
was in excess of regulatory requirements. The Company's actual levels and
current requirements as of March 31, 2002 are detailed below (dollars in
thousands):
Actual Capital Required Capital
-------------- ----------------
Amount Percent Amount Percent
------ ------- ------ -------
Tier 1 Leverage $102,165 7.22% $56,584 4.00%
Tier 1 Risk-Based $102,165 10.35% $39,489 4.00%
Total Risk-Based $113,619 11.51% $78,978 8.00%
13
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosures about market risk are presented
at December 31, 2001 in Item 7A of the Company's Annual Report on Form
10-K, filed with the Securities and Exchange Commission on March 31, 2002.
Management believes there have been no material changes in the Company's
market risk since December 31, 2001.
14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not Applicable
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not Applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not Applicable
Item 5. Other Information
-----------------
On May 2, 2002, the Company announced the following:
o At the 2002 Annual Meeting of Stockholders held on May 1, 2002,
the following directors were re-elected, each for a three-year
term: Harry V. Barton, Jr., E. Stewart Shea III and Daryl G.
Byrd.
o Management has narrowed the earnings per share comfort range for
the year 2002 to $2.93 to $2.98, including the favorable impact
on the Company of FAS 142.
o The Bank has reached an agreement with an investor to sell an
oilfield service loan placed on nonaccrual status during 2001. A
substantial reserve was previously created to cover the credit.
The reserve is adequate to address the charge-off associated with
the note sale.
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits
Not Applicable
(b) Reports on Form 8-K
Current Report on Form 8-K dated January 22, 2002, reporting (i)
under Item 5, the issuance of a press release dated January 22,
2002, announcing earnings for the fourth quarter and fiscal year
ended December 31, 2001 (the "Press Release"); (ii) under Item
7, a copy of the Press Release; and (iii) under Item 9,
confirmation of comfort with the Company's previously stated
range of $2.60 to $2.70 per share for 2002 fully diluted EPS,
excluding the effect of FAS 142, estimated to be $0.32 to $0.33
per share annually.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IBERIABANK Corporation
Date: May 15, 2002 By: /s/ Daryl G. Byrd
------------ ------------------------
Daryl G. Byrd
President and Chief Executive Officer
Date: May 15, 2002 By: /s/ Marilyn W. Burch
------------ --------------------------
Marilyn W. Burch
Executive Vice President and
Chief Financial Officer
16