UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
Commission File Number 0-25756
IBERIABANK Corporation
(Exact name of registrant as specified in its charter)
Louisiana 72-1280718
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1101 East Admiral Doyle Drive
New Iberia, Louisiana 70560
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(Address of principal executive office) (Zip Code)
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Registrant's telephone number, including area code: (337) 267-4458 Securities registered pursuant of Section 12(b) of the Act: Not Applicable Securities registered pursuant of Section 12(g) of the Act
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 by check mark if disclosure of delinquent filers pursuant of
Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. [ ]
As of March 14, 2002, the aggregate market value of the 5,658,936 shares of Common Stock of the Registrant issued and outstanding on such date, which excludes 336,224 shares held by all directors and executive officers of the Registrant as a group, was approximately $191.6 million. This figure is based on the closing sale price of $33.850 per share of the Registrant's Common Stock on March 14, 2002.
Number of shares of Common Stock outstanding as of March 14, 2002: 5,995,160
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and the Part of the Form 10-K into which the document is incorporated: (1) portions of the Annual Report to Stockholders for the fiscal year ended December 31, 2001 are incorporated into Part II, Items 5 through 8 of this Form 10-K; (2) portions of the definitive proxy statement for the 2002 Annual Meeting of Stockholders to be filed within 120 days of Registrant's fiscal year end are incorporated into Part III, Items 9 through 13 of this Form 10-K.
PART 1.
Item 1. Business.
General
IBERIABANK Corporation, formerly ISB Financial Corporation (the "Company"), is the bank holding company for IBERIABANK, a Louisiana chartered commercial bank (the "Bank"). The only significant assets of the Company are the capital stock of the Bank, the Company's loan to an employee stock ownership plan and cash. To date, the business of the Company has consisted of the business of the Bank. The Company's common stock trades on the NASDAQ Stock Market under the symbol "IBKC." At December 31, 2001, the Company had total assets of $1.4 billion, total deposits of $1.2 billion and shareholders' equity of $134.4 million.
The Bank conducts business from its main office located in New Iberia, Louisiana and 42 branch offices located in New Iberia, Lafayette, Jeanerette, Morgan City, Crowley, Rayne, Kaplan, St. Martinville, Abbeville, Scott, Carencro, Ruston, Monroe, West Monroe, Gretna, Marrero, River Ridge, New Orleans, and Metairie, all of which are in Louisiana. The Bank's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC"), within applicable limits.
The Company is primarily engaged in attracting deposits from the general public and using those funds to originate loans. Previous to 1996, the Company's primary lending emphasis was loans secured by first and second liens on single-family (one-to-four units) residences located in the Company's primary market area. At December 31, 2001, such loans amounted to $198.4 million, or 20.8% of the Company's gross loan portfolio. The Company's emphasis is on the origination of consumer, commercial real estate and commercial business loans. Consumer loans consist of home equity loans, home equity lines of credit, automobile loans, indirect automobile loans, loans secured by deposit accounts and other consumer loans. At December 31, 2001, $405.9 million, or 42.5%, of the Company's gross loans were consumer loans. Of that amount $220.7 million, or 23.1% of gross loans, were indirect automobile loans. Commercial loans consist of commercial real estate loans and commercial business loans. At December 31, 2001, $228.3 million, or 23.9% of gross loans, were secured by commercial real estate and $117.5 million, or 12.3%, were commercial business loans. The Company also originates loans for the purpose of constructing residential 1-4 family units. At December 31, 2001, $5.9 million, or 0.6% of the Company's loans, were construction loans.
The Bank offers discount brokerage services through its wholly owned subsidiary, Iberia Financial Services, LLC. The brokerage services are provided through ProEquities, Inc.
In January 2001, the Bank formed a new company, IBERIABANK Insurance Services, LLC to provide insurance services to its clients. The new company is a joint venture between the Bank and Burch, Marcus, Pool, Krupp, Daniel and Babineaux, a local insurance agency and one of Louisiana's largest agent-owned independent insurance agencies.
The Company, as a bank holding company, is subject to regulation and supervision by the Board of Governors of the Federal Reserve System ("FRB"). The Bank is subject to examination and comprehensive regulation by the Office of Financial Institutions of the State of Louisiana ("OFI"), which is the Bank's chartering authority and primary regulator. The Bank is also subject to regulation by the FDIC and to certain reserve requirements established by the FRB. The Bank is a member of the Federal Home Loan Bank ("FHLB") of Dallas, which is one of the 12 regional banks comprising the FHLB System.
In addition to its deposit gathering and lending activities, the Company invests in mortgage-backed securities, substantially all of which are issued or guaranteed by U.S. Government agencies and government sponsored enterprises, as well as U.S. Treasury and federal government agency obligations and other investment securities. At December 31, 2001, the Company's investment securities totaled $321.9 million, or 22.6% of total assets. Mortgage-backed securities amounted to $181.2 million, or 12.7% of total assets, U.S. government and federal agency securities amounted to $69.0 million, or 4.8% of total assets, asset-backed securities amounted to $25.8 million, or 1.8% of total assets, state and municipal securities amounted to $21.0 million, or 1.5% of total assets and other securities amounted to $24.9 million, or 1.8% of total assets. A total of $219.8 million, or 68.3% of total investment securities, were classified as available for sale at December 31, 2001.
Lending Activities
Loan Portfolio Composition. The following table sets forth the composition of the Company's loans held in portfolio at the dates indicated. (1)
December 31,
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2001 2000 1999 1998 1997
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(dollars in thousands) Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
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Mortgage loans:
Residential 1-4 family $ 198,403 20.75% $ 279,193 29.68% $ 266,161 31.58% $ 299,987 39.05% $ 370,055 56.06%
Construction 5,915 0.62 7,482 0.80 6,381 0.76 7,402 0.96 7,890 1.20
--------- ------ ---------- ------ --------- ------ --------- ------ --------- ------
Total mortgage loans 204,318 21.37 286,675 30.48 272,542 32.34 307,389 40.01 377,945 57.26
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Commercial loans:
Real estate 228,284 23.88 196,479 20.89 157,248 18.65 117,768 15.33 50,462 7.64
Business 117,530 12.29 78,986 8.40 82,485 9.79 83,237 10.83 57,620 8.73
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Total commercial loans 345,814 36.17 275,465 29.29 239,733 28.44 201,005 26.16 108,082 16.37
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Consumer loans:
Indirect automobile 220,698 23.09 205,143 21.81 179,350 21.28 118,529 15.43 94,282 14.28
Home equity 114,056 11.93 108,070 11.49 91,531 10.86 73,185 9.53 34,192 5.18
Automobile 28,793 3.01 25,297 2.69 23,432 2.78 24,631 3.21 9,434 1.43
Credit card 10,403 1.09 9,559 1.02 6,436 0.76 4,584 0.60 4,150 0.63
Other 31,933 3.34 30,316 3.22 29,854 3.54 38,912 5.06 31,978 4.85
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Total consumer loans 405,883 42.46 378,385 40.23 330,603 39.22 259,841 33.83 174,036 26.37
--------- ------ ---------- ------ --------- ------ --------- ------ --------- ------
Total loans receivable $ 956,015 100.00% $ 940,525 100.00% $ 842,878 100.00% $ 768,235 100.00% $ 660,063 100.00%
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(1) This schedule does not include loans held for sale of $15.9 million, $3.3 million, $4.8 million, $18.4 million and $4.4 million at December 31, 2001, 2000, 1999, 1998 and 1997, respectively.
Contractual Maturities. The following table sets forth the scheduled contractual maturities of the Company's loans held to maturity at December 31, 2001. 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 amounts shown for each period do not take into account loan prepayments and normal amortization of the Company's loan portfolio held to maturity.
Commercial
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(dollars in thousands) Construction Real Estate Business Total
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Amounts due in:
One year or less $ -- $ 59,547 $ 58,609 $118,156
After one year through five years -- 134,684 43,319 178,003
After five years 5,915 34,053 15,602 55,570
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Total $ 5,915 $228,284 $117,530 $351,729
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Interest rate terms on amounts
Due after one year:
Fixed rate $ 5,005 $127,350 $ 40,026 $172,381
Adjustable rate 910 41,387 18,895 61,192
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Total $ 5,915 $168,737 $ 58,921 $233,573
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Scheduled contractual amortization of loans does not reflect the expected term of the Company's loan portfolio. The average life of loans is substantially less than their contractual terms because of prepayments.
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, ensures appropriate underwriting of 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.
Residential 1-4 Family Loans. Substantially all of the Company's residential 1-4 family mortgage loans consist of conventional 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 are originated under terms and documentation which permit their sale in the secondary market. Since 1996, the Company has decided 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 its portfolio.
At December 31, 2001, $97.1 million, or 47.5%, of the Company's residential 1-4 family mortgage and construction loans were fixed rate loans and $107.2 million, or 52.5%, were adjustable rate loans.
Commercial Real Estate Loans. The Company has increased its investment in commercial real estate loans from $50.5 million, or 7.6% of the total loan portfolio, as of December 31, 1997, to $228.3 million, or 23.9% of the total loan portfolio, as of December 31, 2001. 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 continue to expand its involvement in commercial real estate lending and to increase moderately the amount of such loans in the Company's portfolio. The properties securing the Company's commercial real estate loans are generally located in the Company's market area, and include strip shopping centers, professional office buildings, small retail establishments and warehouses. As of December 31, 2001, the Company's largest commercial real estate loan had a balance of $7.4 million. The loan is secured by real estate in the Company's market area and is performing in accordance with its terms.
The Company's commercial real estate loans may bear a variable interest rate based upon the Prime Rate, as quoted in The Wall Street Journal, or may bear a fixed rate of interest. Generally, interest rates are fixed for no more than three years. Fees of 50 basis points to 2% of the principal loan balance are generally charged to the borrower upon closing. 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 generally 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.
Commercial Business Loans. The Company originates commercial business loans on a secured and, to a lesser extent, unsecured basis. As of December 31, 2001, the Company's commercial business loans amounted to $117.5 million, or 12.3% 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, real property 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. The interest rates on commercial business loans may be either fixed for the term of the loan or variable. Variable rates are generally based upon the Prime Rate of interest, as quoted in the Wall Street Journal. As of December 31, 2001, the Company's largest commercial business loan had a principal balance of $7.1 million. The loan has performed in accordance with its terms since origination.
Commercial real estate and commercial business loans generally have higher yields and shorter repayment periods than residential 1-4 family 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, 2001, $405.9 million, or 42.5% 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.
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 facsimiled 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 apart from the ability of the consumer to repay the loan, that being fraud perpetrated by the automobile dealership. To limit its exposure, the Company emphasizes dealing with automobile dealerships which have demonstrated reputable behavior. At December 31, 2001, $220.7 million, or 23.1% of the Company's total loan portfolio, were indirect automobile loans.
At December 31, 2001, the Company's remaining consumer loan portfolio was comprised of home equity loans, educational loans, loans secured by deposits at the Company, direct automobile loans, credit card loans and other consumer loans. At December 31, 2001, $114.1 million, or 11.9% of the Company's total loan portfolio, were home equity loans. At December 31, 2001, the Company's direct automobile loans amounted to $28.8 million, or 3.0% of the Company's total loan portfolio. The Company's VISA and MasterCard credit card loans totaled $10.4 million, or 1.1% of the Company's total loan portfolio at such date. The Company's other personal consumer loans amounted to $31.9 million, or 3.3% of the Company's total loan portfolio at December 31, 2001. See Note 4 to the Consolidated Financial Statements for more information.
Asset Quality
General. All loans of the Company are periodically reviewed through a loan review process. The Company utilizes an asset classification system as part of its efforts to improve commercial asset quality. Commercial loans with adverse classifications are reviewed by the Loan Committee of the Board of Directors on at least a quarterly basis.
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.
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. See Note 4 of the Notes to Consolidated Financial Statements.
Real estate acquired by the Company as a result of foreclosure or by deed-in-lieu of foreclosure are classified as real estate owned until sold, and are 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, 2001. See the table below under "Nonperforming Assets and Troubled Debt Restructurings."
At December 31, 2001, impaired loans amounted to $5.6 million, a decrease of 4.6% from December 31, 2000. The valuation allowance related to these loans was $1.3 million at December 31, 2001.
Nonperforming Assets and Troubled Debt Restructurings. The following table sets forth information relating to the Company's nonperforming assets and troubled debt restructurings at the dates indicated.
December 31,
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(dollars in thousands) 2001 2000 1999 1998 1997
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Nonaccrual loans:
Commercial, financial and agricultural $ 4,088 $ 5,169 $ 1,293 $ 259 $ 30
Mortgage 122 137 208 481 1,698
Loans to individuals 1,053 161 429 439 419
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Total nonaccrual loans 5,263 5,467 1,930 1,179 2,147
Accruing loans 90 days or more past due 1,691 2,074 1,203 4,558 3
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Total nonperforming loans (1) 6,954 7,541 3,133 5,737 2,150
Foreclosed property 6,009 421 185 384 473
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Total nonperforming assets (1) 12,963 7,962 3,318 6,121 2,623
Performing troubled debt restructurings -- -- -- -- --
------- ------- ------- ------- -------
Total nonperforming assets and
Troubled debt restructurings (1) $12,963 $ 7,962 $ 3,318 $ 6,121 $ 2,623
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Nonperforming loans to total loans (1) 0.73% 0.80% 0.37% 0.75% 0.33%
Nonperforming assets to total assets (1) 0.91% 0.57% 0.24% 0.44% 0.28%
Nonperforming assets and troubled
debt restructurings to total assets (1) 0.91% 0.57% 0.24% 0.44% 0.28%
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(1) Nonperforming loans and assets include accruing loans 90 days or more past due.
Other Classified Assets. Federal regulations require that the Company classify its commercial assets on a regular basis. In addition, in connection with examinations of insured institutions, federal examiners have 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, on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted.
At December 31, 2001, the Company had $5.1 million of assets classified substandard, $262,000 of assets classified doubtful, and no assets classified loss. At such date, the aggregate of the Company's classified assets amounted to 0.38% of total assets.
Allowance For Loan Losses. The Company's policy is to establish reserves for estimated losses on delinquent loans when it determines that losses are expected to be incurred on such loans and leases. The allowance for losses on loans is maintained at a level believed adequate by management to absorb potential losses in the portfolio. 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. As shown in the table below, at December 31, 2001, the Company's allowance for loan losses amounted to 159.9% and 1.2% of the Company's nonperforming loans and gross loans receivable, respectively.
The following table sets forth the activity in the Company's allowance for loan losses during the periods indicated.
Year Ended December 31,
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(dollars in thousands) 2001 2000 1999 1998 1997
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Allowance at beginning of period $ 10,239 $ 8,749 $ 7,135 $ 5,258 $ 4,615
Allowance from acquisition -- -- -- 1,392 --
Provisions 5,046 3,861 2,836 903 1,097
Charge-offs:
Commercial, financial and agricultural 1,861 1,174 140 43 191
Mortgage 15 37 71 2 50
Loans to individuals 2,797 1,654 1,460 818 562
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Total charge-offs 4,673 2,865 1,671 863 803
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Recoveries:
Commercial, financial and agricultural 110 52 86 175 55
Mortgage 17 22 37 36 79
Loans to individuals 378 420 326 234 215
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Total recoveries 505 494 449 445 349
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Net charge-offs (4,168) (2,371) (1,222) (418) (454)
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Allowance at end of period $ 11,117 $ 10,239 $ 8,749 $ 7,135 $ 5,258
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Allowance for loan losses to total
loans at end of period 1.16% 1.09% 1.04% 0.93% 0.80%
Net charge-offs to average loans 0.44% 0.26% 0.15% 0.06% 0.07%
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Management of the Company presently believes that its allowance for loan losses is adequate 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 at the dates indicated.
December 31,
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2001 2000 1999 1998 1997
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(dollars in thousands) Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
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Commercial, financial
and agricultural $ 5,066 36% $ 4,152 29% $ 3,484 29% $ 2,714 26% $ 1,921 17%
Real estate - mortgage 555 21 763 30 773 31 1,303 39 1,589 56
Real estate - construction 17 1 21 1 18 1 32 1 38 1
Loans to individuals 5,000 42 4,616 40 3,828 39 2,412 34 1,710 26
Unallocated 479 N/A 687 N/A 646 N/A 674 N/A -- N/A
------- --- ------- --- ------- --- ------- --- ------- ---
Total allowance for loan losses $11,117 100% $10,239 100% $ 8,749 100% $ 7,135 100% $ 5,258 100%
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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, 2001, the Company's investment securities available for sale amounted to $219.8 million, which includes a pre-tax net unrealized gain of $1.1 million, and its investment securities held to maturity amounted to $102.1 million with a pre-tax net unrealized gain of $34,000. At such date, investment securities available for sale consisted of $126.6 million of mortgage-backed securities, $34.8 million of U.S. Government and Federal agency obligations, and $38.5 million of other debt securities. The remaining balance of $19.9 million was composed of U.S. treasury securities, obligations of state and political subdivisions and other marketable equity securities. At December 31, 2001, investment securities held to maturity consisted of $54.6 million of mortgage-backed securities and $34.2 million of U.S. Government and Federal agency obligations. The remaining balance of $13.3 million was primarily composed of obligations of state and political subdivisions. See Note 3 to the Consolidated Financial Statements.
The Company attempts to maintain a high degree of liquidity in its investment securities portfolio and generally does not invest in securities with terms exceeding five years. The following table sets forth information regarding the Company's investment securities at the dates indicated. The weighted average yield is not calculated on a taxable equivalent basis.
December 31, 2001
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Securities Available Securities Held to
for Sale Maturity
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Weighted
Average Amortized Fair Amortized Fair
(dollars in thousands) Yield Cost Value Cost Value
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Within one year or less 6.29% $ 5,849 $ 5,959 $ 50 $ 50
One through five years 5.04 54,243 55,012 34,248 33,815
After five through ten years 5.03 57,765 57,775 1,195 1,093
Over ten years 5.46 93,747 94,007 66,589 67,158
Marketable equity securities 3.75 7,084 7,072 -- --
---- -------- -------- -------- --------
Totals 5.24% $218,688 $219,825 $102,082 $102,116
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Sources of Funds
General. The Company's principal source of funds for use in lending and for other general business purposes has traditionally come from deposits obtained through the Company's branch offices. The Company also derives funds from short-term and long-term borrowings, amortization and prepayments of outstanding loans and mortgage-related securities, and from maturing investment securities. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by general interest rates and money market conditions.
Deposits. The Company's current deposit products include savings accounts, NOW accounts, MMDA, certificates of deposit ranging in terms from 30 days to seven years and noninterest-bearing personal and business checking accounts. The Company's deposit products also include certificates for Individual Retirement Accounts ("IRA") and qualified retirement plans.
Deposits are obtained primarily from residents in its primary market area. The Company attracts local deposit accounts by offering a wide variety of accounts, competitive interest rates, and convenient branch office locations and service hours. The acquisition of Bank of Lafayette in 1996 helped the Company double its market share in the greater Lafayette market. The acquisition of Jefferson Federal Saving Bank in 1996 established the Company in a new market, the greater New Orleans area. The purchase of 17 branches from First Commerce Corp. subsidiaries in September of 1998 helped the Company gain the number two market share in the greater Lafayette market and established the Company, with a
number two market share, in a new market, the greater Monroe area. The Company utilizes traditional marketing methods to attract new customers and savings deposits, including print and broadcast advertising and increased calling efforts. However, the Company does not solicit funds through deposit brokers nor does it pay any brokerage fees if it accepts such deposits. The Company participates in several ATM networks, including Cirrus, Pulse, Maestro, VISA and MasterCard.
The Company has been competitive in the types of accounts and in interest rates it has offered on its deposit products but does not necessarily seek to match the highest rates paid by competing institutions. With the significant decline in interest rates paid on deposit products, the Company in prior years has experienced disintermediation of deposits into competing investment products. Also, in prior years, the Company experienced runoff of some of the higher priced deposits assumed in the acquisitions as it was unwilling to pay up to retain the deposits. In the year 2001, the Company's deposits grew by $94.2 million, or 8.2%. The increase in deposits continues to reflect relatively balanced growth across all markets and deposit categories. The Company believes it 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. Additional information regarding deposits is provided in Note 7 to the Consolidated Financial Statements.
The following table sets forth certain information relating to the Company's deposits at the dates indicated.
December 31,
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2001 2000 1999
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Average Average Average
Average Rate Average Rate Average Rate
(dollars in thousands) Balance Paid Balance Paid Balance Paid
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NOW account deposits $ 207,851 1.67% $ 179,746 1.98% $ 192,528 1.94%
Savings and money market accounts 291,009 2.68 251,834 3.53 218,624 2.40
Certificates of deposit 572,532 5.39 575,828 5.58 618,582 5.10
---------- ---------- ----------
Total interest bearing deposits 1,071,392 3.93 1,007,408 4.42 1,029,734 3.93
Noninterest-bearing demand deposits 140,393 0.00 121,494 0.00 116,097 0.00
---------- ---------- ----------
Total deposits $1,211,785 3.48% $1,128,902 3.95% $1,145,831 3.53%
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The following table shows large-denomination ($100,000 and over) certificates of deposit by remaining maturities.
December 31,
-----------------------------------
(dollars in thousands) 2001 2000 1999
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Certificates of deposit:
3 months or less $ 46,846 $ 18,431 $ 23,963
Over 3-12 months 73,735 88,419 69,885
Over 12-36 months 25,134 31,120 28,982
More than 36 months 8,233 3,120 1,708
-------- -------- --------
Total $153,948 $141,090 $124,538
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Borrowings. 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, 2001 were comprised 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. The weighted average rate on short-term borrowings was 2.57% at December 31, 2001. The average amount of short-term borrowings in 2001 was $13.5 million. See Note 8 to the Consolidated Financial Statements.
At December 31, 2001, the Company's long-term borrowings were comprised of fixed rate advances from the FHLB of Dallas. Long-term borrowings decreased $29.4 million, or 48.3%, to $31.4 million at December 31, 2001 compared to $60.8 million at December 31, 2000. The Union Planters Bank line of credit, which amounted to $9.2 million at the end of the year 2000, was paid off during 2001. The remaining debt, which is composed of FHLB long-term advances, cannot be paid off without incurring substantial prepayment penalties. Normal amortization payments on this debt accounted for the remaining decrease. See Note 9 to the Consolidated Financial Statements.
Segments
The Company has evaluated its potential operating segments against the criteria specified in Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, and has determined that no operating segment disclosures are required in 2001, 2000 or 1999 because of the aggregation concepts in the statement.
Subsidiaries
The Bank has only one active, wholly owned subsidiary, Iberia Financial Services, LLC. ("Iberia Services"). At December 31, 2001, the Bank's equity investment in Iberia Services was $1.9 million, and Iberia Services had total assets of $1.9 million. For the years ended December 31, 2001 and 2000, Iberia Services had total revenues of $709,000 and $1.0 million, respectively, and net income of $142,000 and $294,000, respectively. See Note 1 to the Consolidated Financial Statements. The business of Iberia Services consists of acting as a broker for the sale of annuities and certain other securities to the general public.
Competition
The Company faces strong competition both in attracting deposits and originating loans. Its most direct competition for deposits has historically come from other commercial banks, savings institutions and credit unions located in its market areas, including many large financial institutions that have greater financial and marketing resources available to them. In addition, during times of high interest rates, the Company has faced additional significant competition for investors' funds from short-term money market securities, mutual funds and other corporate and government securities. The ability of the Company to attract and retain savings deposits depends on its ability to generally provide a rate of return, liquidity and risk comparable to that offered by competing investment opportunities.
The Company experiences strong competition for loan originations principally from other commercial banks, savings institutions and mortgage banking companies. The Company competes for loans principally through the interest rates and loan fees it charges, the efficiency and quality of services it provides borrowers and the convenient locations of its branch office network. Competition may increase as a result of the continuing reduction of restrictions on the interstate operations of financial institutions.
Employees
The Company had 417 full-time employees and 75 part-time employees as of December 31, 2001. None of these employees is represented by a collective bargaining agreement. The Company believes that it enjoys excellent relations with its personnel.
Supervision and Regulation
General. The banking industry is extensively regulated under both federal and state law. The Company is subject to regulation under the Bank Holding Company Act of 1956 ("BHCA") and to supervision by the FRB. The BHCA requires the Company to obtain the prior approval of the FRB for bank and non-bank acquisitions and prescribes certain limitations in connection with acquisitions and the non-banking activities of the Company. The Company is subject to regulation and examination by the OFI and by the FDIC and also subject to certain requirements established by the FRB.
The banking industry is affected by the monetary and fiscal policies of the FRB. An important function of the FRB is to regulate the national supply of bank credit to moderate recessions and to curb inflation. Among the instruments of monetary policy used by the FRB to implement its objectives are: open-market operations in U.S. Government securities, changes in the discount rate and the federal funds rate (which is the rate banks charge each other for overnight borrowings) and changes in reserve requirements on bank deposits.
Financial Modernization Legislation. The Gramm-Leach-Bliley Act of 1999 (the "GLB Act") includes a number of provisions intended to modernize and to increase competition in the American financial services industry, including authority for bank holding companies to engage in a wider range of nonbanking activities. Under the GLB Act, a bank holding company that elects to become a financial holding company may engage in any activity that the FRB, in consultation with the Secretary of the Treasury, determines by regulation or order is (i) financial in nature, (ii) incidental to any such financial activity, or (iii) complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally. The GLB Act specifies certain activities that are deemed to be financial in nature, including lending, exchanging, transferring, investing for others, or safeguarding money or securities; underwriting and selling insurance; providing financial, investment, or economic advisory services; underwriting, dealing in or making a market in, securities; and any activity currently permitted for bank holding companies by the FRB. A bank holding company may elect to be treated as a financial holding company only if all depository institution subsidiaries of the holding company are and continue to be well-capitalized and well-managed and have at least a satisfactory rating under the Community Reinvestment Act.
National banks and state banks with requisite investment authority
under applicable state law are also authorized by the GLB Act to engage, through
"financial subsidiaries," in any activity that is permissible for a financial
holding company (as described above) and any activity that the Secretary of the
Treasury, in consultation with the FRB, determines is financial in nature or
incidental to any such financial activity, except (i) insurance underwriting,
(ii) real estate development or real estate investment activities (unless
otherwise permitted by law), (iii) insurance company portfolio investments and
(iv) merchant banking. The authority of a bank to invest in a financial
subsidiary is subject to a number of conditions, including, among other things,
requirements that the bank must be well-managed and well-capitalized (after
deducting from capital the bank's outstanding investments in financial
subsidiaries).
The GLB Act also adopts a number of consumer protections, including provisions intended to protect privacy of bank customers' financial information and provisions requiring disclosure of ATM fees imposed by banks on customers of other banks.
At this time, the Company has not determined whether it will become a financial holding company in order to utilize the expanded powers offered by the GLB Act. The Bank believes that the GLB Act's financial subsidiary provisions and consumer protections have not had a material impact on its operations.
Federal Taxation
The Company and the Bank are subject to the generally applicable corporate tax provisions of the Internal Revenue Code (the "Code"), and the Bank is subject to certain additional provisions of the Code which apply to financial institutions. The Company, the Bank and all subsidiaries file a consolidated federal income tax return on the basis of a fiscal year ending on December 31.
Retained earnings at December 31, 2001 and 2000 included approximately $14.8 million 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.
The net deferred tax asset at December 31, 2001 includes $10,060,000 of future deductible temporary differences. Included is $9,051,000 related to book deductions for the bad debt reserve that have not been deducted for tax purposes.
State Taxation
Louisiana does not permit the filing of consolidated income tax returns. The Company is subject to the Louisiana Corporation Income Tax based on its separate Louisiana taxable income, as well as a corporate franchise tax. The Bank is not subject to the Louisiana income or franchise taxes. However, the Bank is subject to the Louisiana Shares Tax which is imposed on the assessed value of its stock. The formula for deriving the assessed value is to calculate 15% of the sum of (a) 20% of the Company's capitalized earnings, plus (b) 80% of the Company's taxable stockholders' equity, and to subtract from that figure 50% of the Company's real and personal property assessment. Various items may also be subtracted in calculating a company's capitalized earnings. The Louisiana shares tax expense is included in noninterest expenses.
Item 2. Properties.
The Company, through IBERIABANK, operates 42 offices in 3 areas of Louisiana. A total of 25 offices are owned and 17 are leased. During 2001, one facility in Gretna was sold. The Company felt it was in its best interest to dispose of the facility and lease back the portion necessary for the Bank. A gain of $251,000 was recognized on the sale of this property in 2001.
The Company and the Bank consider all facilities, both owned and leased, to be suitable and adequate for their intended purposes.
Item 3. Legal Proceedings.
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.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers
Set forth below is information with respect to the executive officers of the Company and principal occupations and positions held for periods including the last five years.
DARYL G. BYRD, age 47, serves as President and Chief Executive Officer of the Company and the Bank. He has served in this capacity since July 1999, with the exception of Chief Executive Officer of the Company to which position he was promoted in July 2000. Prior to joining the Company, Mr. Byrd was President and Chief Executive Officer of Bank One New Orleans Region from 1998 to 1999. Mr. Byrd was Executive Vice President of First Commerce Corporation in charge of the commercial bank and mortgage banking groups from 1992 to 1998.
MICHAEL J. BROWN, age 38, serves as Senior Executive Vice President and Chief Credit Officer of the Company and the Bank, positions he has held since January 2001. Mr. Brown also serves as New Orleans Market President and Commercial Segment Leader for the Bank. Mr. Brown was hired as Executive Vice President in December 1999. Prior to joining the Company, Mr. Brown served in several senior roles with Bank One Louisiana, including Chief Credit Officer from 1998 to 1999. From 1996 to 1998, Mr. Brown served as Senior Vice President, Manager of Credit and Client Services of First Commerce Corporation. Mr. Brown is also a Chartered Financial Analyst.
JOHN R. DAVIS, age 41, serves as Senior Executive Vice President of Finance and Retail Strategy of the Company and the Bank, positions he has held since January 2001. Mr. Davis was hired as Executive Vice President and Chief Strategic Officer in December 1999. Prior to joining the Company, Mr. Davis served as Corporate Senior Vice President of Crestar Financial Corporation of Virginia from 1997 to June 1999. From 1993 to 1997, Mr. Davis served as Senior Vice President of First Commerce Corporation. Mr. Davis is also a Chartered Financial Analyst.
GEORGE J. BECKER III, age 61, serves as Executive Vice President of Corporate Operations and Corporate Secretary of the Company and the Bank, positions he has held since March 2002. Mr. Becker was hired as Executive Vice President and Northeast Louisiana Market President in December 1999. Prior to joining the Company, Mr. Becker worked on special projects for Bank One Corporation from 1998 to 1999. From 1991 to 1998, Mr. Becker served as Senior Vice President of First Commerce Corporation. Mr. Becker is also a Certified Public Accountant.
MARILYN W. BURCH, age 51, serves as Executive Vice President and Chief Financial Officer of the Company and the Bank, positions she has held since January 2001. Ms. Burch was hired as Senior Vice President and Controller in October 1999. Prior to joining the Company, Ms. Burch served as Sr. Vice President and Controller of First National Bank of Lafayette, a subsidiary of First Commerce Corporation, from 1985 to 1997. Ms. Burch is also a Certified Public Accountant.
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The information required herein, to the extent applicable, is incorporated by reference on the inside back cover page of the Registrant's 2001 Annual Report to Stockholders (the "Annual Report").
Item 6. Selected Financial Data.
The information required herein is incorporated by reference from pages 16 and 17 of the Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The information required herein is incorporated by reference from pages 18 through 32 of the Annual Report.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.
The information required herein is incorporated by reference from pages 29 through 31 of the Annual Report.
Item 8. Financial Statements and Supplementary Data.
The information required herein is incorporated by reference from pages 33 through 60 of the Annual Report.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Not Applicable.
PART III.
Item 10. Directors and Executive Officers of the Registrant.
The information required herein is incorporated by reference from the Registrant's definitive proxy statement for the 2002 Annual Meeting of Stockholders (the "Proxy Statement").
Item 11. Executive Compensation.
The information required herein is incorporated by reference from the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required herein is incorporated by reference from the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required herein is incorporated by reference from the Proxy Statement.
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents Filed as Part of this Report.
(1) The following financial statements are incorporated by reference from Item 8 hereof (see Exhibit No. 13):
Report of Independent Auditors.
Consolidated Balance Sheets as of December 31, 2001 and 2000.
Consolidated Statements of Income for the Years Ended December 31, 2001, 2000 and 1999.
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2001, 2000 and 1999.
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999.
Notes to Consolidated Financial Statements.
(2) All schedules for which provision is made in the applicable accounting regulation of the SEC are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements and related notes thereto.
(3) The following exhibits are filed as part of this Form 10-K, and this list includes the Exhibit Index.
Exhibit Index
Exhibit No. 3.1 Articles of Incorporation, as amended.
Exhibit No. 3.2 Bylaws of the Company, as amended - incorporated herein by reference to Exhibit 3.1
to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2001.
Exhibit No. 4.1 Stock Certificate - incorporated herein by reference to Registration Statement on
Form S-8 (File No. 33-93210).
Exhibit No. 10.1 Employee Stock Ownership Plan - incorporated herein by reference to Registration
Statement on Form S-1 (File No. 33-96598).
Exhibit No. 10.2 Profit Sharing Plan and Trust - incorporated herein by reference to Registration
Statement on Form S-8 (File No. 33-93210).
Exhibit No. 10.3 Employment Agreement with Larrey G. Mouton - incorporated herein by reference to
Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000.
Exhibit No. 10.4 Employment Agreement with Daryl G. Byrd, as amended and restated.
Exhibit No. 10.5 Indemnification Agreements with Daryl G. Byrd and Michael J. Brown - incorporated
herein by reference to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 2000.
Exhibit No. 10.6 Severance Agreement with Michael J. Brown and John R. Davis - incorporated herein by
reference to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000.
Exhibit No. 10.7 Severance Agreement with Marilyn W. Burch and George J. Becker III - incorporated
herein by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 2000.
Exhibit No. 10.8 1996 Stock Option Plan - incorporated herein by reference to Exhibit 10.1 to
Registration Statement on Form S-8 (File No. 333-28859).
Exhibit No. 10.9 1999 Stock Option Plan - incorporated herein by reference to Registrant's definitive
proxy statement dated March 19, 1999.
Exhibit No. 10.10 Recognition and Retention Plan - incorporated herein by reference to Registrant's
definitive proxy statement dated April 16, 1996.
Exhibit No. 10.11 Supplemental Stock Option Plan - incorporated herein by reference to Exhibit 10.10 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
Exhibit No. 10.12 2001 Incentive Compensation Plan - incorporated herein by reference to Exhibit 10.1
to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2001.
Exhibit No. 13 2001 Annual Report to Stockholders - Except for those portions of the Annual Report
to Stockholders for the year ended December 31, 2001, which are expressly
incorporated herein by reference, such Annual Report is furnished for the information
of the Commission and is not to be deemed "filed" as part of this Report.
Exhibit No. 21 Subsidiaries of the Registrant - reference is made to "Item 1. Business" for the
required information.
Exhibit No. 23 Consent of Castaing, Hussey & Lolan, LLC.
Exhibit No. 99 Audit Committee Charter - incorporated herein by reference to Registrant's definitive
proxy statement dated April 6, 2001.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 29, 2002 By: /s/ Daryl G. Byrd
------------------
Daryl G. Byrd
President/CEO and Director
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dated indicated.
Name Title Date
---- ----- ----
/s/ Daryl G. Byrd President, Chief Executive Officer and March 29, 2002
----------------- Director
Daryl G. Byrd
(Principal Executive Officer)
/s/ Marilyn W. Burch Executive Vice President and Chief Financial March 29, 2002
-------------------- Officer
Marilyn W. Burch
(Principal Financial and Accounting
Officer)
/s/ Elaine D. Abell Director March 29, 2002
-------------------
Elaine D. Abell
/s/ Harry V. Barton, Jr. Director March 29, 2002
------------------------
Harry V. Barton, Jr.
/s/ Ernest P. Breaux, Jr. Director March 29, 2002
-------------------------
Ernest P. Breaux, Jr.
/s/ Cecil C. Broussard Director March 29, 2002
----------------------
Cecil C. Broussard
/s/ John N. Casbon Director March 29, 2002
------------------
John N. Casbon
/s/ William H. Fenstermaker Director March 29, 2002
---------------------------
William H. Fenstermaker
/s/ Larrey G. Mouton Director March 29, 2002
--------------------
Larrey G. Mouton
/s/ Jefferson G. Parker Director March 29, 2002
-----------------------
Jefferson G. Parker
/s/ E. Stewart Shea III Director March 29, 2002
-----------------------
E. Stewart Shea III
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ARTICLES OF INCORPORATION
OF
IBERIABANK CORPORATION
Article 1. Name. The name of the corporation is IBERIABANK Corporation (hereinafter referred to as the "Corporation").
Article 2. Nature of Business. The purpose of the Corporation is to:
(a) act as a savings bank holding company; (b) engage in any lawful act or
activity for which a corporation may be formed under the Louisiana Business
Corporation Law, as amended (the "BCL"); (c) purchase, sell, lease and deal in
services, personal and real property; and (d) do each and everything necessary,
suitable or proper for the accomplishment of any of the purposes or for the
attainment of any one or more of the objects herein enumerated or which at any
time appear conducive to or expedient for the protection or benefit of the
Corporation.
The foregoing shall be construed as powers as well as objects and purposes and the matter expressed in each clause shall, unless herein otherwise expressly provided, be in no wise limited by reference to or inference from the terms of any other clause, but shall be regarded as independent objects, purposes and powers and shall not be construed to limit or restrict in any manner the meaning of the general terms or the general powers of the Corporation.
Article 3. Duration. The term of the existence of the Corporation shall be perpetual.
Article 4. Capital Stock.
A. Authorized Amount. The total number of shares of capital stock which the Corporation has authority to issue is 30,000,000, of which 5,000,000 shall be serial preferred stock, par value $1.00 per share (hereinafter the "Preferred Stock"), and 25,000,000 shall be common stock, par value $1.00 per share (hereinafter the "Common Stock"). Except to the extent required by governing law, rule or regulation, the shares of capital stock may be issued from time to time by the Board of Directors without further approval of stockholders. The Corporation shall have the authority to purchase its capital stock out of funds lawfully available therefore.
B. Common Stock. Except as provided in this Article 4 (or in any resolution or resolutions adopted by the Board of Directors pursuant hereto), the exclusive voting power shall be vested in the Common Stock, with each holder thereof being entitled to one vote for each share of such Common Stock standing in the holder's name on the books of the Corporation. Subject to any rights and preferences of any class of stock having preference over the Common Stock, holders of Common Stock shall be entitled to such dividends as may be declared by the Board of Directors out of funds lawfully available therefore. Upon any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Common Stock shall be entitled to receive pro rata the remaining assets of the Corporation after the holders of any class of stock having preference over the Common Stock have been paid in full any sums to which they may be entitled.
C. Authority of Board to Fix Terms of Preferred Stock. The Board of Directors shall have the full authority permitted by law to divide the authorized and unissued shares of Preferred Stock into series and to fix by resolution full, limited, multiple or factional, or no voting rights, and such designations, preferences, qualifications, privileges, limitations, restrictions, options, conversion rights, and other special or relative rights of the Preferred Stock or any series thereof that may be desired.
Article 5. Incorporator. The name and mailing address of the sole incorporator is as follows.
Name Address
---- -------
Iberia Savings Bank 1101 East Admiral Doyle Drive
New Iberia, Louisiana 70560
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Article 6. Directors. The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors.
A. Number. The number of directors of the Corporation shall be as specified in the Corporation's Bylaws, as may be amended from time to time.
B. Classification and Term. The Board of Directors shall be divided into three classes as nearly equal in number as possible, with one class to be elected annually. At each annual meeting of stockholders, the directors elected to succeed those in the class whose terms are expiring shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders and when their respective successors are elected and qualified.
C. No Cumulative Voting. Stockholders of the Corporation shall not be permitted to cumulate their votes for the election of directors.
D. Vacancies. Any vacancy occurring in the Board of Directors, including any vacancy created by reason of any increase in the number of directors, shall be filled by a majority vote of the directors then in office, whether or not a quorum is present, or by a sole remaining director, and any director so chosen shall serve until the term of the class to which he was appointed shall expire and until his successor is elected and qualified. When the number of directors is changed, the Board of Directors shall determine the class or classes to which the increased or decreased number of directors shall be apportioned, provided that no decrease in the number of directors shall shorten the term of any incumbent director.
E. Removal. Any director (including persons elected by directors to fill vacancies in the Board of Directors) may be removed from office without cause by an affirmative vote of not less than 75% of the total votes eligible to be cast by stockholders at a duly constituted meeting of stockholders called expressly for such purpose and may be removed from office with cause by an affirmative vote of not less than a majority of the total votes eligible to be cast by stockholders. Cause for removal shall exist only if the director whose removal is proposed has been either declared incompetent by an order of a court,
convicted of a felony or of an offense punishable by imprisonment for a term of more than one year by a court of competent jurisdiction, or deemed liable by a court of competent jurisdiction for gross negligence or misconduct in the performance of such director's duties to the Corporation. At least 30 days prior to such meeting of stockholders, written notice shall be sent to the director whose removal will be considered at the meeting.
F. Nominations of Directors. Nominations of candidates for election as directors at any annual meeting of stockholders may be made (a) by, or at the direction of, a majority of the Board of Directors or (b) by any stockholder entitled to vote at such annual meeting. Only persons nominated in accordance with the procedures set forth in this Article 6.F shall be eligible for election as directors at an annual meeting. Ballots bearing the names of all the persons who have been nominated for election as directors at an annual meeting in accordance with the procedures set forth in this Article 6.F shall be provided for use at the annual meeting.
Nominations, other than those made by or at the direction of the Board
of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this Article 6.F. To be timely, a
stockholder's notice shall be delivered to, or mailed and received at, the
principal executive offices of the Corporation not later than 60 days prior to
the anniversary date of the immediately preceding annual meeting of stockholders
of the Corporation; provided, however, that with respect to the first scheduled
annual meeting following the completion of the mutual-to-stock conversion of
Iberia Savings Bank, New Iberia, Louisiana (the "Savings Bank"), and the
reorganization of the Savings Bank into the holding company structure, notice by
the stockholder must be so delivered or received no later than the close of
business on the tenth day following the day on which notice of the date of the
scheduled annual meeting was mailed, provided further that the notice by the
stockholder must be delivered or received no later than the close of business on
the fifth day preceding the date of the meeting. Such stockholder's notice shall
set forth (a) as to each person whom the stockholder proposes to nominate for
election or re-election as a director and as to the stockholder giving the
notice (i) the name, age, business address and residence address of such person,
(ii) the principal occupation or employment of such person, (iii) the class and
number of shares of Corporation stock which are Beneficially Owned (as defined
in Article 9.A(e)) by such person on the date of such stockholder notice, and
(iv) any other information relating to such person that is required to be
disclosed in solicitations of proxies with respect to nominees for election as
directors, pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), including, but not limited to, information
required to be disclosed by Items 4, 5, 6 and 7 of Schedule 14A and information
which would be required to be filed on Schedule 14B with the Securities and
Exchange Commission (or any successors of such items or schedules); and (b) as
to the stockholder giving the notice (i) the name and address, as they appear on
the Corporation's books, of such stockholder and any other stockholders known by
such stockholder to be supporting such nominees and (ii) the class and number of
shares of Corporation stock which are Beneficially Owned by such stockholder on
the date of such stockholder notice and, to the extent known, by any other
stockholders known by such stockholder to be supporting such nominees on the
date of such stockholder notice. At the request of the Board of Directors, any
person nominated by, or at the direction of, the Board for election as a
director at any annual meeting shall furnish to the Secretary of the Corporation
that
information required to be set forth in a stockholder's notice of nomination which pertains to the nominee.
The Board of Directors may reject any nomination by a stockholder not timely made in accordance with the requirements of this Article 6F if the Board of Directors, or a designated committee thereof, determines that the information provided in a stockholder's notice does not satisfy the informational requirements of this Article 6.F in any material respect, the Secretary of the Corporation shall promptly notify such stockholder of the deficiency in the notice. The stockholder shall have an opportunity to cure the deficiency by providing additional information to the Secretary within such period of time, not to exceed five days from the date such deficiency notice is given to the stockholder, as the Board of Directors or such committee shall reasonably determine. If the deficiency is not cured within such period, or if the Board of Directors or such committee reasonably determines that the additional information provided by the stockholder, together with information previously provided, does not satisfy the requirements of this Article 6.F. in any material respect, then the Board of Directors may reject such stockholder's nomination. The Secretary of the Corporation shall notify a stockholder in writing whether his nomination has been made in accordance with the time and informational requirements of this Article 6.F. Notwithstanding the procedures set forth in this paragraph, if neither the Board of Directors nor such committee makes a determination as to the validity of any nominations by a stockholder, the presiding officer of the annual meeting shall determine and declare at the annual meeting whether the nomination was made in accordance with the terms of this Article 6.F. If the presiding officer determines that a nomination was made in accordance with the terms of this Article 6.F, he shall so declare at the annual meeting and ballots shall be provided for use at the meeting with respect to such nominee. If the presiding officer determines that a nomination was not made in accordance with the terms of this Article 6.F, he shall so declare at the annual meeting and the defective nomination shall be disregarded.
G. Discharge of Duties. In discharging the duties of their respective positions, the Board of Directors, committees of the Board of Directors and individual directors shall, in considering the best interests of the Corporation, consider the effects of any action upon the employees of the Corporation and its subsidiaries, the depositors and borrowers of any insured institution subsidiary, the communities in which offices or other establishments of the Corporation or any subsidiary are located and all other pertinent factors.
H. Any director may resign at any time by sending a written notice of such resignation to the registered office of the Corporation addressed to the Chairman of the Board or the President. Unless otherwise specified, such resignation shall take effect upon receipt by the Chairman of the Board or the President.
I. Rights of Holders of Preferred Stock. Notwithstanding the foregoing, and except as otherwise required by law, whenever the holders of any one or more series of Preferred Stock shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the provisions of this Article 6 with respect to the director or directors elected by such holders of Preferred Stock shall be subject to the terms of any resolution adopted by the Board of Directors pursuant to Article 4 hereof creating such class or series of Preferred Stock.
Article 7. Preemptive Rights. No holder of the capital stock of the Corporation shall be entitled as such, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock of any class whatsoever of the Corporation, or of securities convertible into stock of any class whatsoever, whether now or hereafter authorized, or whether issued for cash or other consideration or by way of a dividend.
Article 8. Personal Liability, Indemnification, Advancement of Expenses and Other Rights of Officers, Directors, Employees and Agents.
A. Personal Liability of Directors and Officers. A director or officer of the Corporation shall not be personally liable for monetary damages for any action taken, or any failure to take any action, as a director or officer except to the extent that by law a director's or officer's liability for monetary damages may not be limited.
B. Indemnification. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, including actions by or in the right of the Corporation, whether civil, criminal administrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding to the full extent permissible under Louisiana law.
C. Advancement of Expenses. Reasonable expenses incurred by an officer, director, employee or agent of the Corporation in defending an action, suit or proceeding described in Section B of this Article 8 may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding if authorized by the board of directors (without regard to whether participating members thereof are parties to such action suit or proceeding), upon receipt of a commitment by or on behalf of such person to repay such amount if it shall ultimately be determined that the person is not entitled to be indemnified by the Corporation.
D. Other Rights. The indemnification and advancement of expenses provided by or pursuant to this Article 8 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, insurance or other agreement, vote of stockholders or directors (regardless of whether directors authorizing such indemnification are beneficiaries thereof) or otherwise, both as to actions in their official capacity and as to actions in another capacity while holding an office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person.
E. Insurance. The Corporation shall have the power to purchase and maintain insurance or other similar arrangement on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture or other enterprise, against any liability asserted against or incurred by him in any such capacity,
or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article 8.
F. Security Fund; Indemnity Agreements. By action of the Board of Directors (notwithstanding its interest in the transaction), the Corporation may create and fund a trust fund or other fund or form of self-insurance arrangement of any nature, and may enter into agreements with its officers, directors, employees and agents for the purpose of securing or insuring in any manner its obligation to indemnify or advance expenses provided for in this Article 8.
G. Modification. The duties of the Corporation to indemnify and to advance expenses to any person as provided in this Article 8 shall be in the nature of a contract between the Corporation and each such person, and no amendment or repeal of any provision of this Article 8, and no amendment or termination of any trust or other fund or form of self-insurance arrangement created pursuant to Section F of this Article 8, shall alter to the detriment of such person the right of such person to the advance of expenses or indemnification related to a claim based on an act or failure to act which took place prior to such amendment, repeal or termination.
H. Proceedings Initiated by Indemnified Persons. Notwithstanding any other provision of this Article 8, the Corporation shall not indemnify a director, officer, employee or agent for any liability incurred in an action, suit or proceeding initiated (which shall not be deemed to include counter-claims or affirmative defenses) or participated in as an intervener or amicus curiae by the person seeking indemnification unless such initiation of or participation in the action, suit or proceeding is authorized, either before or after its commencement, by the affirmative vote of a majority of the directors in office.
Article 9. Meetings of Stockholders and Stockholder Proposals
A. Definitions.
(a) Acquire. The term "Acquire" includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise.
(b) Acting in Concert. The term "Acting in Concert" means (a) knowing participation in joint activity or conscious parallel action towards a common goal whether or not pursuant to an express agreement, or (b) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to an contract, understanding, relationship, agreement or other arrangement, whether written or otherwise.
(c) Affiliate. An "Affiliate" of, or a Person "affiliated with," a specified Person, means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified.
(d) Associate. The term "Associate" used to indicate a relationship with any Person means:
(i) Any corporation or organization (other than the Corporation or a Subsidiary of the Corporation), or any
subsidiary or parent thereof, of which such Person is a director, officer or partner or is, directly or indirectly, the Beneficial Owner of 10% or more of any class of equity securities;
(ii) Any trust or other estate in which such Person has a 10% or greater beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity, provided, however, such term shall not include any employee stock benefit plan of the Corporation or a Subsidiary of the Corporation in which such Person has a 10% or greater beneficial interest or serves as a trustee or in a similar fiduciary capacity;
(iii) Any relative or spouse of such Person (or any relative of such spouse) who has the same home as such Person or who is a director or officer of the Corporation or a Subsidiary of the Corporation (or any subsidiary or parent thereof); or
(iv) Any investment company registered under the Investment Company Act of 1940 for which such Person or an Affiliate or Associate of such Person serves as investment advisor.
(e) Beneficial Owner (including Beneficially Owned). A Person shall be considered the "Beneficial Owner" of any shares of stock (whether or not owned of record):
(i) With respect to which such Person or any Affiliate or Associate of such Person directly or indirectly has or shares (A) voting power, including the power to vote or to direct the voting of such shares of stock, and/or (B) investment power, including the power to dispose of or to direct the disposition of such shares of stock;
(ii) Which such Person or any Affiliate or Associate of such Person has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, and/or (B) the right to vote pursuant to any agreement, arrangement or understanding (whether such right is exercisable immediately or only after the passage of time); or
(iii) Which are Beneficially Owned within the meaning of (i) or (ii) of this Article 9.A(e) by any other Person with which such first-mentioned Person or any of its Affiliates or Associates either (A) has any agreement, arrangement or understanding, written or oral, with respect to acquiring, holding, voting or disposing of any shares of stock of the Corporation or any Subsidiary of the Corporation or acquiring, holding or disposing of all or substantially all, or any Substantial Part, of the assets or business of the Corporation or a Subsidiary of the Corporation, or (B) is Acting in Concert. For the purpose only of determining whether a Person is a Beneficial Owner of a percentage specified in this Article 9 of the outstanding Voting Shares, such shares shall
be deemed to include any Voting Shares which may be issuable pursuant to any agreement, arrangement or understanding or upon the exercise of conversion right, exchange rights, warrants, options or otherwise and which are deemed to be Beneficially Owned by such Person pursuant to the foregoing provisions of this Article 9.A(e), but shall not include any other Voting Shares which may be issuable in such matter.
(f) Offer. The term "Offer" shall mean every offer to buy or acquire, solicitation of an offer to sell, tender offer or request or invitation for tender of, a security or interest in a security for value; provided that the term "Offer" shall not include (i) inquiries directed solely to the management of the Corporation and not intended to be communicated to stockholders which are designed to elicit an indication of management's receptivity to the basic structure of a potential acquisition with respect to the amount of cash and or securities, manner of acquisition and formula for determining price, or (ii) nonbinding expressions of understanding or letters of intent with the management of the Corporation regarding the basic structure of a potential acquisition with respect to the amount of cash and or securities, manner of acquisition and formula for determining price.
(g) Person. The term "Person" shall mean any individual, partnership, corporation, association, trust, group or other entity. When two or more Persons act as a partnership, limited partnership, syndicate, association or other group for the purpose of acquiring, holding or disposing of shares of stock, such partnership, syndicate, associate or group shall be deemed a "Person."
(h) Substantial Part. The term "Substantial Part" as used with reference to the assets of the Corporation or of any Subsidiary means assets having a value of more than 10% of the total consolidated assets of the Corporation and its Subsidiaries as of the end of the Corporation's most recent fiscal year ending prior to the time the determination is being made.
(i) Subsidiary. "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Person in question.
(j) Voting Shares. "Voting Shares" shall mean shares of the Corporation entitled to vote generally in an election of directors.
(k) Certain Determinations With Respect to Article 9. A majority of the directors shall have the power to determine for the purposes of this Article 9, on the basis of information known to them and acting in good faith: (A) the number of Voting Shares of which any Person is the Beneficial Owner, (B) whether a Person is an Affiliate or Associate of another, (C) whether a Person has an agreement, arrangement or understanding with another as to the matters referred to in the definition of "Beneficial Owner" as herein above defined, and (D) such other matters with respect to which a determination is required under this Article 9.
(l) Directors, Officers or Employees. Directors, officers or employees of the Corporation or any Subsidiary thereof shall not be deemed to be a group with respect to their individual acquisitions of any class of equity
securities of the Corporation solely as a result of their capacities as such.
B. Special Meetings of Stockholders. Except as otherwise required by law and subject to the rights of the holders of any class or series of Preferred Stock, special meetings of the stockholders of the Corporation may be called only by (i) the Board of Directors pursuant to a resolution approved by the affirmative vote of a majority of the directors then in office, (ii) the Chairman of the Board or the President, or (iii) by Persons who Beneficially Own an aggregate of at least 50% of the outstanding Voting Shares.
C. Action Without a Meeting. Any action permitted to be taken by the stockholders at a meeting may be taken without a meeting if consent in writing setting forth the action so taken shall be signed by all of the stockholders who would be entitled to vote at a meeting for such purpose and filed with the Secretary of the Corporation as part of the corporate records.
D. Stockholder Proposals. At an annual meeting of stockholders, only such new business shall be conducted, and only such proposals shall be acted upon, as shall have been brought before the annual meeting by, or at the direction of, (a) the Board of Directors or (b) any stockholder of the Corporation who complies with all the requirements set forth in this Article 9.D.
Proposals, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation as set forth in this Article 9.D. For stockholder proposals to be included in the Corporation's proxy materials, the stockholder must comply with all the timing and informational requirements of Rule 14a-8 of the Exchange Act (or any successor regulation). With respect to stockholder proposals to be considered at the annual meeting of stockholders but not included in the Corporation's proxy materials, the stockholder notice shall be delivered to, or mailed and received at, the principal executive offices of the Corporation not later than 60 days prior to the anniversary date of the immediately preceding annual meeting of stockholders of the Corporation; provided, however, that with respect to the first scheduled annual meeting following the completion of the mutual-to-stock conversion of the Savings Bank and the reorganization of the Savings Bank into the holding company structure, notice by the stockholder must be so delivered or received no later than the close of business on the tenth day following the day on which notice of the date of the scheduled annual meeting was mailed, provided further that the notice by the stockholder must be delivered or received no later than the close of business on the fifth day preceding the date of the meeting. Such stockholder's notice shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, and, to the extent known, any other stockholders known by such stockholder to be supporting such proposal, (c) the class and number of shares of the Corporation's capital stock which are Beneficially Owned by the stockholder on the date of such stockholder notice and, to the extent known, by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder notice, and (d) any
financial interest of the stockholder in such proposal (other than interests which all stockholders would have).
The Board of Directors may reject any stockholder proposal not timely
made in accordance with the terms of this Article 9.D. If the Board of
Directors, or a designated committee thereof, determines that the information
provided in a stockholder's notice does not satisfy the information requirements
of this Article 9.D, the Secretary of the Corporation shall promptly notify such
stockholder of the deficiency in the notice. The stockholder shall have an
opportunity to cure the deficiency by providing additional information to the
Secretary within such period of time not to exceed five days from the date such
deficiency notice is given to the stockholder as the Board of Directors or such
committee shall reasonably determine. If the deficiency is not cured within such
period, or if the Board of Directors or such committee determines that the
additional information provided by the stockholder, together with information
previously provided does not satisfy the requirements of this Article 9.D in any
material respect, then the Board of Directors may reject such stockholder's
proposal. The Secretary of the Corporation shall notify a stockholder in writing
whether his proposal has been made in accordance with the time and informational
requirements of this Article 9.D. Notwithstanding the procedures set forth in
this paragraph, if neither the Board of Directors nor such committee makes a
determination as to the validity of any stockholder proposal, the presiding
officer of the annual meting shall determine and declare at the annual meeting
whether the stockholder proposal was made in accordance with the terms of this
Article 9.D. If the presiding officer determines that a stockholder proposal was
made in accordance with the terms of this Article 9.D, he shall so declare at
the annual meeting and ballots shall be provided for use at the meeting with
respect to any such proposal. If the presiding officer determines that a
stockholder proposal was not made in accordance with the terms of this Article
9.D, he shall so declare at the annual meeting and any such proposal shall not
be acted upon at the annual meeting.
This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees of the Board of Directors, but in connection with such reports, no new business shall be acted upon at such annual meeting unless stated, filed and received as herein provided.
Article 10. Restrictions on Offers and Acquisitions of the Corporation's Equity Securities.
A. Restrictions. The definitions and other provisions set forth in Article 9.A are also applicable to this Article 10. Except as set forth in Article 10.B, for a period of five years from the completion of the mutual-to-stock conversion of the Savings Bank and the reorganization of the Savings Bank into the holding company structure, no Person shall directly or indirectly Offer to acquire or acquire the Beneficial Ownership of (i) more than 10% of the issued and outstanding shares of any class of an equity security of the Corporation, or (ii) any securities convertible into, or exercisable for, any equity securities of the Corporation if, assuming conversion or exercise by such Person of all securities of which such Person is the Beneficial Owner which are convertible into, or exercisable for, such equity securities (but of no securities convertible into, or exercisable for, such equity securities of which such Person is not the Beneficial Owner), such Person would be the Beneficial
Owner of more than !0% of any class of an equity security of the Corporation.
B. Exclusions. The foregoing restrictions shall not apply to (i) any Offer with a view toward public resale made exclusively to the Corporation by underwriters or a selling group acting on its behalf, (ii) any employee benefit plan or arrangement established by the Corporation or the Savings Bank and any trustee of such a plan or arrangement, and (iii) any other Offer or acquisition approved in advance by the affirmative vote of two-thirds of the Corporation's Board of Directors.
C. Remedies. In the event that shares are acquired in violation of this Article 10, all shares Beneficially Owned by any Person in excess of !0% shall be considered "Excess Shares" and shall not be counted as shares entitled to vote and shall not be voted by any Person or counted as Voting Shares in connection with any matters submitted to stockholders for a vote, and the Board of Directors may cause such Excess Shares to be transferred to an independent trustee for sale on the open market or otherwise, with the expenses of such trustee to be paid out of the proceeds of the sale.
D. Expirations. Article 10 of these Articles of Incorporation shall expire and, along with all references thereto, no longer be a part hereof on the fifth anniversary of the completion of the mutual-to-stock conversion of the Savings Bank and the reorganization of the Savings Bank into the holding company structure.
Article 11. Amendment of Articles and Bylaws.
A. Articles. The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, in the manner now or hereafter prescribed by law, and all rights conferred upon stockholders herein are granted subject to this reservation. No amendment, addition, alteration, change or repeal of these Articles of Incorporation shall be made unless it is first approved by the Board of Directors of the Corporation pursuant to a resolution adopted by the affirmative vote of a majority of the directors then in office, and thereafter is approved by the holders of a majority (except as provided below) of the shares of the Corporation entitled to vote generally in an election of directors, voting together as a single class, as well as such additional vote of the Preferred Stock as may be required by the provisions of any series thereof. Notwithstanding anything contained in these Articles of Incorporation to the contrary, the affirmative vote of the holders of at least 75% of the shares of the Corporation entitled to vote generally in an election of directors, voting together as a single class, as well as such additional vote of the Preferred Stock as may be required by the provisions of any series thereof, shall be required to amend, adopt, alter, change or repeal any provisions inconsistent with Article 6, 7, 8, 9, 10 and 11.
B. Bylaws. The Board of Directors, to the extent permitted by law, or stockholders may adopt, alter, amend or repeal the Bylaws of the Corporation. Such action by the Board of Directors shall require the affirmative vote of a majority of the directors then in office at any regular or special meeting of the Board of Directors. Such action by the stockholders shall require the affirmative vote of the holders of a majority of the shares of the Corporation
entitled to vote generally in an election of directors, voting together as a single class, as well as such additional vote of the Preferred Stock as may be required by the provisions of any series thereof, provided that the affirmative vote of the holders of at least 75% of the shares of the Corporation entitled to vote generally in an election of directors, voting together as a single class, as well as such additional vote of the Preferred Stock as may be required by the provisions of any series thereof, shall be required to amend, adopt, alter, change or repeal any provision inconsistent with Section 4.1, 4.2, 4.3 and 4.4 of the Bylaws and Articles VIII and XII of the Bylaws.
EXHIBIT 10.4
EMPLOYMENT AGREEMENT WITH DARYL G. BYRD
AS AMENDED AND RESTATED
AMENDED AND RESTATED AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT, dated this 20th day of August, 2001, between IBERIABANK Corporation (the "Corporation"), a Louisiana chartered corporation, IBERIABANK (the "Bank"), a Louisiana-chartered bank and wholly-owned subsidiary of the Corporation, and Daryl G. Byrd (the "Executive"), amends and restates the agreement among the parties dated July 7, 1999.
W I T N E S S E T H:
WHEREAS, the Corporation and the Bank (collectively the "Employers") wish to employ the Executive as an executive officer; and
WHEREAS, the Employers desire to be assured of the Executive's active participation in the business of the Employers; and
WHEREAS, in order to induce the Executive to accept employment with the Employers, the parties desire to specify the severance benefits which shall be due the Executive in the event that his employment with the Employers is terminated under specified circumstances;
NOW THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereby agree as follows:
1. Definitions. The following words and terms shall have the meanings set forth below for the purposes of this Agreement:
(a) Base Salary. "Base Salary" shall have the meaning set forth in Section 3(a) hereof.
(b) Cause. Termination of the Executive's employment for "Cause" shall mean, in the good faith determination of the Board of Directors of each of the Corporation and the Bank and after giving the Executive Notice of Termination satisfying the requirements of paragraph (i) below and a reasonable opportunity to cure, termination because of personal dishonesty, incompetence in the performance of his duties, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation
(other than traffic violations or similar offenses) or final cease-and-desist order or material breach of any provision of this Agreement. For purposes of this paragraph, no act or failure to act on the Executive's part shall be considered "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interest of the Employers. Any act, or failure to act, based upon authority given pursuant to a resolution of the Board or the advice of counsel for the Employers shall be conclusively presumed to be in good faith and in the Employers' best interests. The cessation of Executive's employment shall not be deemed to be for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the vote of not less than three-quarters of the entire membership of the Board at a meeting called and held for such purpose (after reasonable notice is provided to the Executive and he is given an opportunity, together with counsel, to be heard before the Board), finding that, in the Board's good faith opinion, the Executive is guilty of the conduct described above, and specifying the particulars thereof in detail.
(c) Change in Control. "Change in Control" shall mean (i) a change in control of the Corporation, of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act") or any successor thereto, whether or not any security of the Corporation is registered under Exchange Act; provided that, without limitation, such a Change in Control shall be deemed to have occurred if any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 25% or more of the combined voting power of the Corporation's then outstanding securities; (ii) during any period of two consecutive years, individuals (the "Continuing Directors") who at the beginning of such period constitute the Board of Directors of the Corporation (the "Existing Board") cease for any reason to constitute at least two-thirds thereof, provided that any individual whose election or nomination for election as a member of the Existing Board was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director unless his or her initial assumption of office occurs as a result of an actual or threatened contest with respect to the election or removal
of directors or other actual or threatened solicitation of proxies by or on behalf of someone other than a Continuing Director; or (iii) the acquisition of ownership, holding or power to vote more than 25% of the voting stock of the Bank by any person other than the Corporation.
(d) Code. "Code" shall mean the Internal Revenue Code of 1986, as amended, and "Code 280G Maximum" shall mean the product of 2.99 and the Executive's "base amount" within the meaning of Section 280G of the Code.
(e) Date of Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated for Cause or for Disability, the date specified in the Notice of Termination, and (ii) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given or as specified in such Notice.
(f) Disability. Termination by the Employers of the Executive's employment based on "Disability" shall mean termination because of any physical or mental impairment which qualifies the Executive for disability benefits under the applicable long-term disability plan maintained by the Employers or any subsidiary or, if no such plan applies, which would qualify the Executive for disability benefits under the Federal Social Security System.
(g) Good Reason. Termination by the Executive of the Executive's employment for "Good Reason" shall mean termination by the Executive based on:
(i) Without the Executive's express written consent, the failure to elect or to reelect or to appoint or to re-appoint the Executive to the positions of President and Chief Executive Officer of each of the Corporation and the Bank or a material adverse change made by the Employers in the Executive's functions, duties or responsibilities with the Employers;
(ii) Without the Executive's express written consent, a reduction by the Employers in the Executive's Base Salary as the same may be increased from time to time or, except to the extent permitted by Section 3(b) hereof, a reduction in the package of fringe benefits provided to the Executive, taken as a whole;
(iii) The principal executive office of the Employers is relocated outside of the parishes of Iberia or Lafayette, Louisiana, or, without the Executive's express written consent, the Employers require the Executive to be based anywhere other than an area in which the Employers' principal executive office is located, except for reasonably required travel on business of the Employers;
(iv) Any purported termination of the Executive's employment for Cause, Disability or Retirement which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (i) below; or
(v) The failure by the Employers to obtain the assumption of and agreement to perform this Agreement by any successor as contemplated in Section 8 hereof.
For purposes of this Section 1(g), any good faith determination of "Good Reason" made by the Executive shall create a rebuttable presumption that "Good Reason" exists. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the effective date of a Change in Control shall be deemed to be a termination for Good Reason for all purposes of this Agreement.
(h) IRS. IRS shall mean the Internal Revenue Service.
(i) Notice of Termination. Any purported termination of the
Executive's employment by the Employers for any reason,
including without limitation for Cause, Disability or
Retirement, or by the Executive for any reason, including
without limitation for Good Reason, shall be communicated by
written "Notice of Termination" to the other party hereto.
For purposes of this Agreement, a "Notice of Termination"
shall mean a dated notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's
employment under the provision so indicated, (iii) specifies
a Date of Termination, which shall be not less than thirty
(30) nor more than ninety (90) days after such Notice of
Termination is given, except in the case of the Employers'
termination of Executive's employment for Cause; and (iv) is
given in the manner specified in Section 9 hereof.
(j) Protected Period shall mean the period that begins on the date three months before a Change in Control and ends on the
later of the third annual anniversary of the Change in Control or the date this Agreement would have expired had there been no Change in Control; except that if the Executive's employment with the Employers is terminated prior to the first day of this period at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or otherwise in connection with or anticipation of a Change in Control, then the Protected Period shall commence on the date immediately prior to the date of such termination.
(k) Retirement. Termination by the Employers of the Executive's employment based on "Retirement" shall mean voluntary termination by the Employee in accordance with the Employers' retirement policies, including early retirement, generally applicable to their salaried employees.
2. Term of Employment.
(a) The Employers hereby employ the Executive as President and Chief Executive Officer of the Corporation and President and Chief Executive Officer of the Bank, and Executive hereby accepts said employment and agrees to render such services to the Employers on the terms and conditions set forth in this Agreement. During the term of this Agreement, the Executive shall also serve as a director of the Bank and the Corporation (the parties hereto acknowledge that Executive's re-election as a director of the Corporation will be subject to stockholder approval). The term of employment under this Agreement shall be for three years, commencing on the date of this Agreement (the "Commencement Date"), subject to earlier termination as provided for herein. Beginning on the day which is one year subsequent to the Commencement Date and on each annual anniversary thereafter (each an "Anniversary Date"), the term of this Agreement shall be extended for an additional year, provided that the Employers have not given notice to the Executive in writing at least 90 days prior to any such Anniversary Date that the term of this Agreement shall not be extended further. Reference herein to the term of this Agreement shall refer to both such initial term and such extended terms. Notwithstanding the foregoing, however, if a Protected Period begins before this Agreement would otherwise expire, this Agreement shall continue in full force and effect until the end of the Protected Period.
(b) During the term of this Agreement, the Executive shall perform such executive services for the Employers as may be consistent with his titles and from time to time assigned to him by the Employers' Board of Directors.
3. Compensation and Benefits.
(a) The Employers shall compensate and pay Executive for his services during the term of this Agreement a minimum salary of $240,000 per year, which may be increased from time to time in such amounts as may be determined by the Boards of Directors of the Employers and may not be decreased without the Executive's express written consent (hereinafter, referred to as Executive's "Base Salary"). In addition, the Executive will participate in the Employers' Executive Bonus Plan.
(b) During the term of the Agreement, Executive shall be entitled to participate in and receive the benefits of any pension or other retirement benefit plan, profit sharing, stock option, employee stock ownership, or other plans, benefits and privileges given to employees and executives of the Employers, to the extent commensurate with his then duties and responsibilities, as fixed by the Board of Directors of the Employers. The Employers shall not make any changes in such plans, benefits or privileges which would adversely affect Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Employers and does not result in a proportionately greater adverse change in the rights of or benefits to Executive as compared with any other executive officer of the Employers. As of July 7, 1999, the Executive was granted options (the "Stock Options") to acquire 84,000 shares of the Corporation's common stock, par value $1.00 per share ("Common Stock") as well as awards ("RRP Awards") under the Corporation's Recognition and Retention Plan ("RRP") of 28,000 restricted shares of Common Stock. The Stock Options and the RRP Awards are subject to the terms and provisions of the Corporation's 1999 Stock Option Plan and its RRP, respectively, and were granted on a basis consistent with prior options and awards granted by the Corporation including a seven-year vesting schedule. Nothing paid to Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to Executive pursuant to Section 3(a) hereof.
(c) During the term of this Agreement, Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of the Employers, which shall in no event be less
than three weeks per annum. Executive shall not be entitled to receive any additional compensation from the Employers for failure to take a vacation, nor shall Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Boards of Directors of the Employers.
(d) In the event of termination by the Employers of the Executive's employment based on Disability (as defined herein), the Employers shall provide continued medical insurance for the benefit of the Executive, his spouse and his minor children for the remaining term of this Agreement, and such insurance shall be comparable to that which is provided to the Executive as of the date of this Agreement notwithstanding anything to the contrary in this Agreement; provided further, in the event of the death of the Executive during the term of this Agreement, the Employers shall provide said medical insurance for the benefit of the Executive's spouse and his minor children for the remaining term of this Agreement.
(e) In the event of the Executive's death during the term of
this Agreement, his spouse, estate, legal representative or
named beneficiaries (as directed by the Executive in
writing) shall be paid on a monthly basis the Executive's
annual compensation from the Employers at the rate in effect
at the time of the Executive's death for a period of twelve
(12) months from the date of the Executive's death.
4. Expenses. The Employers shall reimburse Executive or otherwise provide for or pay for all reasonable expenses incurred by Executive in furtherance of, or in connection with the business of the Employers, including, but not by way of limitation, automobile and traveling expenses, and all reasonable entertainment expenses (whether incurred at the Executive's residence, while traveling or otherwise), subject to such reasonable documentation and other limitations as may be established by the Boards of Directors of the Employers. If such expenses are paid in the first instance by Executive, the Employers shall reimburse the Executive therefor.
5. Termination.
(a) The Employers shall have the right, at any time upon prior Notice of Termination, to terminate the Executive's employment hereunder for any reason, including without limitation termination for Cause, Disability or Retirement, and Executive shall have the right, upon prior Notice of Termination, to terminate his employment hereunder for any reason.
(b) In the event that (i) Executive's employment is terminated by the Employers for Cause, Disability or Retirement or in the event of the Executive's death, or (ii) unless the termination occurs under one or more of the circumstances contemplated by subsection (d) of this Section, in which case such subsection rather than this subsection shall control, Executive terminates his employment hereunder other than for Good Reason, Executive shall have no right pursuant to this Agreement to compensation or other benefits for any period after the applicable Date of Termination other than as enumerated in subsections 3(d) and 3(e) hereinabove.
(c) Unless the termination occurs under one or more of the
circumstances contemplated by subsection (d) of this
Section, in which case such subsection rather than this
subsection shall control, in the event that Executive's
employment is terminated by the Employers for other than
Cause, Disability, Retirement or the Executive's death or
such employment is terminated by the Executive for Good
Reason or due to a material breach of this Agreement by the
Employers, which breach has not been cured within fifteen
(15) days after a written notice of non-compliance has been
given by the Executive to the Employers, then the Employers
shall, subject to the provisions of Section 6 hereof, if
applicable:
(i) pay to the Executive, in equal monthly installments beginning with the first business day of the month following the Date of Termination, a cash severance amount equal to the greater of (x) the Base Salary which the Executive would have earned over the remaining term of this Agreement as of his Date of Termination or (y) an amount equal to one (1) times the Executive's Base Salary as of his Date of Termination; and
(ii) maintain and provide for a period ending at the earlier of (x) the expiration of the remaining term of employment pursuant hereto prior to the Notice of Termination or (y) the date of the Executive's full-time employment by another employer (provided that the Executive is entitled under the terms of such employment to benefits substantially similar to those described in this subparagraph (B), at no cost to the Executive, the Executive's continued participation in all group insurance, life insurance, health and accident, disability and other employee benefit plans, programs and arrangements in which the Executive was entitled to participate immediately prior to the Date
of Termination (other than stock option and restricted stock plans of the Employers), provided that in the event that the Executive's participation in any plan, program or arrangement as provided in this subparagraph (B) is barred, or during such period any such plan, program or arrangement is discontinued or the benefits thereunder are materially reduced or such benefits are less than the benefits provided to Executive immediately prior to his termination of employment with the Employers, the Employers shall arrange to provide the Executive with benefits which (together with any benefits provided to Executive by another employer in the event has accepted full-time employment with another employer) are substantially similar to those which the Executive was entitled to receive under such plans, programs and arrangements immediately prior to the Date of Termination.
(d) In the event that Executive's employment is terminated (i)
for Good Reason within (A) ninety (90) days of an event that
occurs during the Protected Period, or (B) thirty (30) days
after the first anniversary of the effective date of a
Change in Control, (ii) without Cause during the Protected
Period, or (iii) by the Executive for any reason other than
Cause within thirty (30) days after a Change in Control,
then the Employers shall, subject to the provisions of
Section 6 hereof, if applicable:
(i) pay to the Executive a cash severance amount equal to
the greater of (x) the Base Salary which the Executive
would have earned over the remaining term of this
Agreement, (y) an amount equal to two (2) times the
Executive's Base Salary as of his Date of Termination
or (z) 100% of his Code S280G Maximum; payable either
(i) in one lump sum within ten days of the later of the
date of the Change in Control and the Executive's last
date of employment with the Employers, or (ii)
according to the schedule elected in duly executed
irrevocable written form by the Board on the date of
approval of this Agreement, but only if filed with the
Employer prior to the date which is 90 days before the
date on which a Change in Control occurs; deferred
amounts shall bear interest from the date on which they
would otherwise be payable until the date paid at a
rate equal to 120% of the applicable federal rate; and
(ii) maintain and provide for a period ending at the earlier of (x) 39 months following termination or (y) the date of the Executive's full-time employment by another employer (provided that the Executive is entitled under the terms of such employment to benefits substantially similar to those described in this subparagraph (B), at no cost to the Executive, the Executive's and his dependants' continued participation in all group insurance, life insurance, health and accident, disability and other employee benefit plans, programs and arrangements in which the Executive was entitled to participate immediately prior to the Date of Termination (other than stock option and restricted stock plans of the Employers), provided that in the event that the Executive's participation in any plan, program or arrangement as provided in this subparagraph (B) is barred, or during such period any such plan, program or arrangement is discontinued or the benefits thereunder are materially reduced or such benefits are less than the benefits provided to Executive immediately prior to his termination of employment with the Employers, the Employers shall arrange to provide the Executive with benefits which (together with any benefits provided to Executive by another employer in the event Executive has accepted full-time employment with another employer) are substantially similar to those which the Executive was entitled to receive under such plans, programs and arrangements immediately prior to the Date of Termination.
(e) If the Executive becomes liable, in any taxable year, for
the payment of an excise tax under Section 4999 of the Code
on account of any payments to the Executive pursuant to this
Section 5, and the Employers choose not to contest the
liability or have exhausted all administrative and judicial
appeals contesting the liability, the Employers shall pay
the Executive (i) an amount equal to the excise tax for
which the Executive is liable under Section 4999 of the
Code, (ii) the federal, state, and local income taxes, and
interest if any, for which the Executive is liable on
account of the payments pursuant to item (i), and (iii) any
additional excise tax under Section 4999 of the Code and any
federal, state and local income taxes for which the
Executive is liable on account of payments made pursuant to
items (i) and (ii).
(f) This subsection 5(f) applies if the amount of payments to the Executive under subsection 5(e) has not been determined
with finality by the exhaustion of administrative and judicial appeals. In such circumstances, the Employers and the Executive shall, as soon as practicable after the event or series of events has occurred giving rise to the imposition of the excise tax, cooperate in determining the amount of the Executive's excise tax liability for purposes of paying the estimated tax. The Executive shall thereafter furnish to the Employers or their successors a copy of each tax return which reflects a liability for an excise tax under Section 4999 of the Code at least 20 days before the date on which such return is required to be filed with the IRS. The liability reflected on such return shall be dispositive for the purposes hereof unless, within 15 days after such notice is given, the Employers furnish the Executive with a letter of the auditors or tax advisor selected by the Employers indicating a different liability or that the matter is not free from doubt under the applicable laws and regulations and that the Executive may, in such auditor's or advisor's opinion, cogently take a different position, which shall be set forth in the letter with respect to the payments in question. Such letter shall be addressed to the Executive and state that he is entitled to rely thereon. If the Employers furnish such a letter to the Executive, the position reflected in such letter shall be dispositive for purposes of this Agreement, except as provided in subsection 5(g) below.
(g) Notwithstanding anything in this Agreement to the contrary,
if the Executive's liability for the excise tax under
Section 4999 of the Code for a taxable year is subsequently
determined to be less than the amount paid by the Employers
pursuant to subsection 5(f), the Executive shall repay the
Employers at the time that the amount of such excise tax
liability is finally determined, the portion of such income
and excise tax payments attributable to the reduction (plus
interest on the amount of such repayment at the rate
provided on Section 1274(b)(2)(B) of the Code and if the
Executive's liability for the excise tax under Section 4999
of the Code for a taxable year is subsequently determined to
exceed the amount paid by the Employers pursuant to Section
5, the Employers shall make an additional payment of income
and excise taxes in the amount of such excess, as well as
the amount of any penalty and interest assessed with respect
thereto at the time that the amount of such excess and any
penalty and interest is finally determined.
(h)(i)Not later than ten business days after a Change in Control, the Corporation shall (x) establish a grantor trust (the "Trust") designed in accordance with Revenue Procedure 92-64 and having a trustee independent of the Corporation
and the Bank, (y) deposit in said Trust an amount equal to the amount payable under subsection 5(d)(i), unless the Executive has previously provided a written release of any claims under this Agreement, and (z) provide the trustee of the Trust with a written direction to hold said amount and any investment return thereon in a segregated account for the benefit of the Executive, and to follow the procedures set forth in the next paragraph as to the payment of such amounts from the Trust; and
(ii) During the 39-consecutive month period after a Change in Control, the Executive may provide the trustee of the Trust with a written notice requesting that the trustee pay to the Executive an amount designated in the notice as being payable pursuant to this Agreement. Within three business days after receiving said notice, the trustee of the Trust shall pay such amount to the Executive, and coincidentally shall provide the Corporation or its successor with notice of such payment. Upon the earlier of the Trust's final payment of all amounts due under the preceding paragraph or the date 39 months after the Change in Control, the trustee of the Trust shall pay to the Corporation the entire balance remaining in the segregated account maintained for the benefit of the Executive. The Executive shall thereafter have no further interest in the Trust.
6. Mitigation; Exclusivity of Benefits.
(a) The Executive shall not be required to mitigate the amount of any benefits hereunder by seeking other employment or otherwise, nor shall the amount of any such benefits be reduced by any compensation earned by the Executive as a result of employment by another employer after the Date of Termination or otherwise.
(b) The specific arrangements referred to herein are not intended to exclude any other benefits which may be available to the Executive upon a termination of employment with the Employers pursuant to employee benefit plans of the Employers or otherwise.
7. Withholding. All payments required to be made by the Employers hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Employers may reasonably determine should be withheld pursuant to any applicable law or regulation.
8. Assignability. The Employers may assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any corporation, bank or other entity with or into which the Employers may hereafter merge or consolidate or to which the Employers may transfer all or substantially all of its assets, if in any such case said corporation, bank or other entity shall by operation of law or expressly in writing assume all obligations of the Employers hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights and obligations hereunder. The Executive may not assign or transfer this Agreement or any rights or obligations hereunder.
9. Notice. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below:
To the Employers: IBERIABANK Corporation
IBERIABANK
1101 East Admiral Doyle Drive
New Iberia, Louisiana 70560
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To the Executive: Daryl G. Byrd
10. Amendment; Waiver. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer or officers as may be specifically designated by the Board of Directors of the Employers to sign on its behalf. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.
11. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Louisiana.
12. Nature of Obligations. Except as specifically provided herein, nothing contained herein shall create or require the Employers to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the
Employers hereunder, such right shall be no greater than the right of any unsecured general creditor of the Employers.
13. Expense Reimbursement. In the event that any dispute arises between the Executive and the Bank or the Corporation as to the terms or interpretation of this Agreement, whether instituted by formal legal proceedings or otherwise, including any action that the Executive takes to enforce the terms of this Agreement or to defend against any action taken by the Bank or the Corporation, they shall reimburse the Executive for all costs and expenses, including reasonable attorneys' fees, arising from such dispute, proceedings or actions. Such reimbursement shall be paid within ten days of Executive's furnishing to the Bank or the Corporation written evidence, which may be in the form, among other things, of a cancelled check or receipt, of any costs or expenses incurred by the Executive.
14. Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
15. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect.
16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
17. Regulatory Prohibition. Notwithstanding any other provision of this Agreement to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the FDIA (12 U.S.C.S1828(k)) and any regulations promulgated thereunder.
18. Arbitration. The Executive acknowledges that, concurrently herewith, he is entering into the "IBERIABANK Arbitration Agreement." Any and all payments and benefits provided for under the terms of this Agreement shall be subject to the terms of such Arbitration Agreement.
IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written.
IBERIABANK CORPORATION
By: /s/ William H. Fenstermaker
---------------------------
William H. Fenstermaker
Chairman of the Board
Attest: IBERIABANK
/s/Victoria Vincent By: /s/ William H. Fenstermaker
------------------------- ---------------------------
William H. Fenstermaker
Chairman of the Board
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Witness: DARYL G. BYRD
/s/Cindy Leger By: /s/ Daryl G. Byrd
-------------- -----------------
Daryl G. Byrd, Individually
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Committed to
Continuous
Improvement
IBERIABANK Corporation is a commercial bank holding company organized under the laws of the State of Louisiana with consolidated assets at December 31, 2001 of $1.4 billion. The lead bank for IBERIABANK Corporation is IBERIABANK. At the end of 2001, IBERIABANK had 42 offices serving 10 parishes in Louisiana. IBERIABANK and its predecessor organizations have served Louisiana customers for 115 years. IBERIABANK Corporation is the third largest Louisiana-based bank holding company. At December 31, 2001, IBERIABANK Corporation had approximately 1,149 shareholders of record.
IBERIABANK
Corporation(TM)
CONTENTS
Letters to Shareholders 2
Power of Progression 5
Financial Information 15
Management's Discussion and Analysis 18
Consolidated Financial Statements 33
Board and Corporate Information 61
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Financial Highlights (dollars in thousands, except per share data) 2001 2000 % Change -------------------------------------------------------------------------------- Income Data Net Income $ 14,508 $ 12,975 12% Net Interest Income 54,350 51,236 6% Per Share Data Net Income - Basic $ 2.48 $ 2.14 16% Net Income - Diluted 2.36 2.12 11% Cash Earnings - Diluted 2.76 2.54 9% Book Value 23.03 20.99 10% Tangible Book Value 16.92 14.58 16% Cash Dividends 0.70 0.66 6% Average Balance Sheet Data Loans $ 948,060 $ 910,683 4% Earning Assets 1,324,570 1,295,588 2% Total Assets 1,418,980 1,383,488 3% Deposits 1,211,785 1,128,902 7% Shareholders' Equity 133,906 120,686 11% Key Ratios Return on Average Assets 1.02% 0.94% Return on Average Equity 10.83% 10.75% Net Interest Margin (Tax-equivalent 4.11% 3.95% Basis) Net Charge-Offs to Average Loans 0.44% 0.26% Tangible Efficiency Ratio 55.0% 56.7% (Tax-equivalent Basis) Average Loans to Average Deposits 78.2% 80.7% Nonperforming Assets to Total Assets 0.91% 0.57% Allowance For Loan Losses to Loans 1.16% 1.09% Tier 1 Leverage Ratio 6.95% 6.67% |
Letter to Shareholders
Dear Shareholders:
Just two years ago, IBERIABANK Corporation launched a strategic plan, which included changing the direction of the Company, improving core profitability and delivering results to shareholders. The new direction was defined with specific goals and initiatives to meet those expectations. The year 2000 reflected dramatically improved financial results and I am delighted to report that 2001 was a year of continuous improvement. The fourth quarter 2001 marked the eighth consecutive quarter of record operating results. The results exceeded average analyst expectations in all but one of those eight quarters and reflect the strongest financial condition of the Company in its 115-year history. However, we refuse to rest. We have made considerable strides and are committed to continuous improvement as a corporate way of life.
We made great progress in 2001 on many fronts. On the financial side, we improved nearly all of our key financial ratios, strengthened the balance sheet and met our challenging financial targets. On the client side, we improved our distribution system, invested for the future through some key strategic personnel hires in each of our major markets, attracted new quality clients to our franchise and deepened our relationships with our current clients. On the shareholder side, owners of our stock experienced a significant increase in share price and dividends, producing total returns well in excess of comparable alternatives. In addition, we significantly reduced the risk posture of the Company in many respects. We remain on track with the strategic and financial goals we presented publicly two years ago. Our growth trajectory remains intact.
I am pleased with the momentum IBERIABANK has gained in all of its markets. We demonstrated significant gains in New Iberia, Lafayette, New Orleans and Northeastern Louisiana. Our distribution system in the Acadiana area, which we define as the six-parish region of south-central Louisiana, serves the communities well and provides a stable foundation for future growth. Our relationships and our ability to make decisions close to our clients position us as the bank of choice in our market. We believe that our focus on securing new client relationships has been extremely successful and has led to increased market share.
During 2001, we added a new market headquarters office in the Central Business District of New Orleans. This new office was added to serve the needs of our rapidly growing presence in that market. We added a few new faces to the New Orleans team, which continues to perform exceptionally well. They each come with a wealth of experience and relationships that are beneficial to us. Our 2002 Annual Shareholder Meeting is scheduled for Wednesday, May 1, 2002 at 10 a.m., local time, at the Pan-American Life Media and
Conference Center at 601 Poydras Street in New Orleans. Our shareholders are invited to attend the meeting and visit with the leadership team, Board of Directors and fellow shareholders of IBERIABANK Corporation.
Also during the year, we opened a new Northeast Louisiana market headquarters office on Royal Avenue in Monroe. During 2001, we experienced significant deposit growth in the Ouachita/Lincoln Parish market. Based on June 30, 2001 data, IBERIABANK currently ranks third in deposit market share in that two-parish market. We continue to invest in the Northeast Louisiana community with quality people who bring hands-on banking experience to our franchise and further develop our abilities to serve the area. During 2001, we added resources in each of our major markets and all of these strategic hires are beginning to pay handsome dividends.
In concert with our philosophy regarding local decision-making within our markets, we recently announced the formation of Advisory Boards in Lafayette, New Iberia and New Orleans and anticipate launching an Advisory Board in Northeast Louisiana in the near future. We recognize that we need the advice of community and business leaders in our local markets. A list of our Advisory Board members is provided in the back section of this annual report. We look forward to the insight they can offer from experience in the diverse industries they represent and feedback from the communities they lead. The tremendous leadership and counsel these individuals bring to our organization will be extremely beneficial and helpful in further developing IBERIABANK as the bank of choice in the markets we serve.
The advancements achieved during 2001 were accomplished during a period of incredible strife and uncertainty. The tragic events surrounding September 11th challenged us as individuals and as a nation. We are deeply saddened by the loss of friends of our organization at Keefe, Bruyette & Woods and Sandler O'Neill & Partners, LP. Our prayers go out to the families, friends and associates of those who suffered from this senseless and shameless act. The September 11th disaster further challenged our nation as it accelerated the descent of the deteriorating economic conditions that existed prior to that date. During the year, corporate profits seemed to disappear, employee layoffs mounted, corporate and individual bankruptcies increased and investment savings evaporated. Our outstanding performance during 2001 stands in stark contrast with many other companies, particularly in light of this economic backdrop.
Our accomplishments were the direct result of incredible hard work and sacrifice on the part of all of our associates, members of our leadership team and Board of Directors. We "raised the bar" and we delivered. We have a value proposition that is working well and is recognized as being very valuable by our current and potential clients. By focusing on quality service, making decisions close to our clients and empowering a talented workforce, we have found success begets success. Our focus on continuous improvement will advance the needs of our clients and further enhance shareholder value. Similar to the development of the butterfly, our focus on continuous improvement results in exponential advancements in the grace, strength and trajectory of our company. While we have made great progress, IBERIABANK is just beginning to take flight.
Thank you for your continued support and confidence in the Board of Directors, the leadership team and the associates of IBERIABANK Corporation.
Sincerely,
/s/Daryl G. Byrd ---------------- Daryl G. Byrd President and Chief Executive Officer |
Chairman's Letter to Shareholders
Dear Shareholders:
The year 2001 was a year of extremes. Economically, the year started well after reaching new heights in the latter half of the prior year. The bull market for equities, housing and capital investment seemed endless. Labor markets remained tight and explosive technological spending was finally easing back. However, as the year progressed, the economy was sent into a tailspin, culminating in a recessionary environment in the latter half of 2001. Investment savings plummeted and capital spending dried up. The nation experienced massive job losses and unprecedented fear following the events surrounding September 11th. That fear eventually gave way to patriotic fervor and a sense that, as one nation, we can overcome challenges from any foe. This optimism paused as several activities associated with a few large corporate bankruptcies late in the year and in early 2002 were called into question. As a result of these extremes, people began to lose faith in the financial markets and even in the integrity of the Boards of Directors, leadership teams and financial statements of various companies.
We recognize the importance of earning and keeping the trust of IBERIABANK's shareholders, clients, associates and their families. We also recognize the important fiduciary responsibilities that we, as Directors, have to our shareholders. I commend the new leadership team under Daryl Byrd for the integrity they have demonstrated in improving the profitability and reducing the risk posture of the Company. Shareholders of IBERIABANK Corporation common stock have clearly benefited from the tenacious drive, focus on high quality performance and teamwork that have been demonstrated by our leadership team, associates and my fellow Board members. The process of improvement has been one focused on steady, high quality advancements in core profitability. In extreme and unpredictable times like we experienced during 2001, we all find comfort in this time-tested approach. As stated throughout this report, we will strive to continuously improve the value of our franchise. The continued support of our shareholders is greatly appreciated.
Sincerely,
/s/William H. Fenstermaker -------------------------- William H. Fenstermaker Chairman of the Board |
"To improve is to change;
to be perfect is to change often."
- Winston Churchill
Prime Minister
Great Britain
1874 - 1965
The Power of Progression
Change is good and IBERIABANK has certainly experienced its share. The Company initiated strategic changes during the past two years to improve the earnings stream, increase share price and deepen our commitment to the communities we serve. We laid out a path for growth that included promises for improved performance. And we have delivered.
This year's focus on continuous improvement is similar to the growth of a butterfly. The development process can be considered an ever-improving cycle leading to extraordinary results. The Company established challenging goals and has continued to focus on meeting and exceeding those goals by delivering results that are beneficial to our customers, our shareholders, our employees and the community.
While we are pleased with the progress we have made to our franchise over the last two years, we do not rest on our laurels. We are strong believers in continuous improvement as a corporate way of life. In mathematical terms, continuous improvement results in compounded, or exponential, results--what we call the power of progression. Albert Einstein once commented that compound interest was mankind's greatest invention.
Over the last two years, our improvements in profitability, enhancements in shareholder returns, development of our employee-base, reduction in the risk posture of the Company and investments in the future stand in stark contrast to the general economy. As a result of the hard work on the part of our associates, management and Board, our progress has translated into more prosperous results for our constituents.
The advances we have made and our focus on continuous improvement is predicated on a value proposition that is client-focused. We believe providing excellent service, understanding client needs, keeping an attention to detail and making decisions close to the client is the value proposition clients are looking for and one that positions us as the bank of choice in all of our markets.
The Path of Progression
The Latin prefix "pro" means "forward." For the past two years, IBERIABANK has been proactive in all areas of the Company and has delivered impressive results. The path of progression begins with promises made and continues to thrive when profitable results are produced. The year 2001 was indicative that our commitment to hard work is just beginning. We are committed to making progress in which all parties involved will continue to prosper as we rise to new heights.
Prosper Progress Produce Promise
We firmly believe that improvements in the core profitability of our Company translate into improved returns to our shareholders. On February 17, 2000, our stock price was $13.63 per share, down from $26.50 two years prior. On that day, we publicly laid out a change of strategic direction that included a few key financial metrics. The challenging financial goals were stated as follows:
o Double-digit fully diluted earnings per share (EPS) growth (flat on a core basis at start)
o 13% to 15% Return on Average Equity in 3-5 years (9.00% at the start)
o Tangible Efficiency Ratio below 50% by the end
of the 3-5 year period (64.6% at the start)
o Annual balance growth throughout the 3-5 year period of:
o Loans 7% to 10% (growing 9.7% at start)
o Deposits 2% to 4% (declining 9.9% at start)
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In order to produce the results to fulfill the promises made, our Company needed to focus on improvements on multiple fronts. We laid the groundwork for raising revenues, lowering expenses, improving balance sheet mix, managing the capital position, investing for future growth and lowering the risk posture of the Company. By the fourth quarter of 2001, we made significant strides on all of these fronts and made progress toward attainment of our challenging goals.
EPS Growth - On a core EPS basis, the Company earned on average $0.45 per fully diluted share per quarter throughout 1999. Since that time, we changed the trajectory of the earnings stream significantly. By the 4th quarter of 2001, EPS was $0.63, up 10.2% versus one-year prior and up 40% from the run-rate in the 4th quarter of 1999. For the full year, fully diluted EPS grew from $2.12 in 2000 to $2.36 in 2001, or an increase of 11.3%. For the full year and 4th quarter, total revenues climbed 8.5% and 18.0%, respectively versus the prior year. The revenue improvements were the result of improved balance sheet mix, mortgage-related income and a higher net interest margin. The margin improved from 3.88% in the 4th quarter of 2000 to 4.33% in the 4th quarter of 2001, or an improvement of 45 basis points. Total expenses increased 5.1% for the year and 24.4% in the 4th quarter of 2001 versus the same period in 2000. The significant increase in the 4th quarter is a result of senior management's decision to forgo their bonuses for 2000 that were accrued throughout the year. The reversal of bonuses in the 4th quarter of 2000 resulted in a substantial reduction in compensation expense during that quarter and for the year.
On a core basis, management stated a comfort range of $2.60 to $2.70 per share for 2002 or an increase of 10% to 14% over 2001 actual results. Including the impact of Financial Accounting Standards Statement No. 142, management anticipates EPS to improve 24% to 28% in 2002 compared to 2001.
[graphic-graph depicting Fully-Diluted EPS]
Return on Equity - Significant growth in profitability resulted in improved ROE throughout the year 2000. However, the continued improvement in profitability in 2001 translated into higher ROE for the full year 2001, but not on a quarterly basis. Throughout the year 2001, the Company rapidly increased its capital position. The Company's equity-to-assets ratio climbed from 9.10% at December 31, 2000 to 9.42% at December 31, 2001. This capital expansion occurred despite the completion of a $8.4 million share repurchase program totaling 300,000 shares that was completed on December 18, 2001.
[graphic-graph depicting Recurring ROE]
Tangible Efficiency Ratio - Throughout the year 2001, the Company expanded revenues and controlled costs. The result of these efforts was a significant improvement in the Tangible Efficiency Ratio, a measure of the degree to which the Company is managed efficiently. (This ratio is simply the total non-interest expense less intangible amortization expense, divided by the sum of taxable equivalent net interest income plus noninterest income.) The Tangible Efficiency Ratio improved from 64.6% in late 1999 to 56.7% during 2000 to 55.0% during 2001. For the 4th quarter of 2001, the ratio dropped to 52.6%.
[graphic-graph depicting Core Tangible Efficiency Ratio (TE)]
Annual Balance Growth - The Company exhibited strong growth in consumer and commercial loans throughout the year. Excluding mortgage loans, period-end loans climbed 15% during 2001. Mortgage loans declined 29% during the year as a result of three primary factors. First, mortgage loan refinancing reached record levels during the year resulting in reduced balances. Second, the Company retains adjustable rate mortgage loans that are originated. However, in the current rate environment, few clients are selecting adjustable rate loans. Finally, in the current market, clients are favoring fixed rate products and the Company generally sells the vast majority of current fixed rate production into the secondary market. Therefore, mortgage loan volumes declined due to the refinancing wave and mortgage balances were not replaced as the vast majority of new production was sold to investors.
The Company experienced exceptionally strong deposit growth, particularly in transaction type categories. Total deposits climbed $94 million, or 8.2%, during the year. Noninterest bearing deposits increased 19.4% and interest-bearing deposits grew 6.8% since year-end 2000. The deposit growth we experienced during 2001 was the result of many factors, including improved deposit pricing, product enhancements, equity market turmoil and intensified calling efforts of our associates.
Based on management's comfort ranges for 2002, management anticipates continued progress towards the goals outlined two years ago. Future earnings improvements are anticipated to be derived from many different sources. These sources include additional mix improvements in assets and liabilities, expansion of high quality revenue sources, continued expense management and volume expansion emanating from recent strategic hires. The Company has invested significantly in strategic personnel hires in each of the major markets served. These personnel additions provide the Company new high quality client relationships, that resulted in exceptional commercial balance growth. The combined impact of having the right people and the right value proposition are a powerful combination for future growth.
While we continue to develop our associates, our management team and our earnings stream, there are other improvements that may be less visible. The Company has made significant enhancements in the operating infrastructure of the organization. In addition, the Company began a review process of improving the distribution system. In January 2002, the Company announced the formation of Advisory Boards in Lafayette, New Iberia and New Orleans. A number of large local banks have done away with advisory boards with the mistaken belief that advisory boards serve very limited value. We believe community leaders that are members of advisory boards can provide unique and valuable insights into the communities served, potential client needs and how to "build a better bank". We are delighted to have the tremendous talent, leadership and wise counsel that these Advisory Board members bring to our organization. The commitment from a group of this caliber signifies their confidence in our track record and in our future. A listing of our newly formed Advisory Boards is provided in the back section of this report.
Both improving profitability and reducing the risk posture of the Company can enhance the value of a company. As described earlier, we have made tremendous progress in improving the profitability of the Company. In addition, we have made great progress in reducing the risk posture of the Company. Over the last two years, we have worked diligently to improve our credit risk and interest rate risk profiles.
On the credit risk side, we significantly increased the loan loss reserve, tightened underwriting guidelines and procedures, improved the underwriting risk/return dynamics, adopted more conservative FFIEC guidelines, rewrote the entire loan policy, aggressively and rapidly worked potential problem credits and established an internal loan review function. On the interest rate risk side, we restructured $45 million in low yielding bonds, liquidated approximately $100 million in poorly structured bonds, and reduced the negative sensitivity of interest rate changes on the earnings stream and market value of the Company. These risk posture improvements have been made over a period of time and at minimal cost.
We have repeatedly stated our belief that enhancements to core earnings will drive improved returns to our shareholders. Over the last two years we have changed the trajectory of the earnings stream, produced eight consecutive quarters of record operating earnings, exceeded average analyst expectations in seven of the last eight quarters, invested for future growth and reduced the risk posture of the Company. The result of these actions was a 58% improvement in our stock price in 2000 and an additional 27% improvement in 2001. As indicated in the accompanying chart, our price improvements in both 2000 and 2001 exceeded nearly all comparable measures by a wide margin. In addition, the Company increased the dividends paid to shareholders by approximately 6%, further enhancing the total return to shareholders. On a total return basis, defined as the increase in stock price plus reinvested dividends, shareholders holding the shares on January 1, 2000 experienced a 115% total return through December 31, 2001.
[graphic-graph depicting Stock Price % Change]
Sectors and Markets We Serve
We are deeply saddened by the tragic events and the loss of some friends of our organization surrounding September 11, 2001. We are amazed at the tremendous compassion, caring and support that the investment community has demonstrated during this period of loss. The impact of these tragic events and the associated general economic slowdown tested the fabric of our nation. However, the spirit and enduring strength of our nation will persevere. We are very fortunate to be in resilient sectors and communities, given the challenging economic circumstances our nation has faced recently. Energy and tourism sectors of the economy suffered in the wake of the September 11th attacks. While Louisiana as a whole has been affected via these two sectors, our organization has not been materially impacted.
Louisiana produces 5.6% of the nation's annual oil production (ranked fourth in the United States) and 26.5% of natural gas production (ranked second in the United States). In addition, the Acadiana market serves as the primary staging ground for supplying and servicing the exploration and drilling activities on the Continental Shelf off the coast of Louisiana and in deep water regions in the Gulf of Mexico. The price of both commodities experienced significant cyclical fluctuations over the last few years. Interestingly, the dramatic increases and subsequent softening in prices of these commodities have not had the degree of negative impact as in past years. Many years ago, price swings resulted in local economic gyrations that resembled "boom-and-bust" cycles. These cyclical swings have given way to consistent, steady improvements in the local economy. Many of the jobs tied to the energy industry have been absorbed by other sound sectors, such as a vibrant health care industry.
Local Acadiana economic statistics relating to retail sales, business commerce and the general housing market have all demonstrated exceptional strength. As an example, recent statistics show Lafayette Parish had the second lowest unemployment rate in the state at 3.9%. IBERIABANK serves the six-parish Acadiana region with 23 offices and has the second largest deposit market share. During 2001, we increased loans by 18.3% and deposits by 7.3% in this market.
The tourism industry in Acadiana is rebounding. A new convention center will open in 2002 in the heart of Lafayette and is expected to have a positive economic impact on the "hub city" as well as the surrounding rural communities. A new interstate system, Interstate 49, is a corridor that currently connects Alexandria in the middle of the state to Lafayette. Funding has been approved and plans drawn for the next leg to run through Lafayette, New Iberia and east to New Orleans. The crossroad of Interstate 10 and I-49 should increase accessibility through the Acadiana region and should continue to make this market attractive to business development.
IBERIABANK's direct exposure to the energy segment is fairly insignificant. Oil and gas related businesses account for only 9% of the total loan portfolio. Likewise, IBERIABANK's exposure to the hospitality segment is very minimal, equating to less than 4.7% of the total loan portfolio. The majority of our hospitality exposure is in the New Orleans market.
The New Orleans market, which has significant ties to the tourism trade, experienced an initial slowdown but has since rebounded to pre-September levels. A significant portion of the tourism trade in New Orleans arrives by car and rail, in addition to air traffic. Of the air traffic, much of this is associated with particular events that remain quite robust (conventions, conferences, Super Bowl, Mardi Gras, Jazz Fest, NCAA Regionals, etc.). New Orleans has probably been less affected than many other tourist destinations as a result of tourist apprehension regarding air travel. Recent employment statistics show Jefferson Parish, where the vast majority of IBERIABANK's New Orleans deposits reside, had the 5th lowest unemployment rate in the state. Since the beginning of 2001, our growth in loans and deposits was 41% and 16.8%, respectively. Our growth in New Orleans was primarily in the commercial and public finance arenas. During 2001, we opened a new office in the Central Business District in New Orleans to better serve our growing client base in that area.
Additional branch expansion is expected in the Greater New Orleans market in 2002. IBERIABANK currently serves the New Orleans market with eight offices.
Northeast Louisiana has no energy and very little tourism exposure. The communities of Monroe, West Monroe and Ruston have very stable and favorable demographic characteristics. Monroe and West Monroe serve as the commerce and trade hub for the northeastern part of the state. The area boasts many service and light manufacturing businesses that continually provide excellent employment opportunities for the region. Recent employment statistics indicate Ouachita Parish had the 7th lowest unemployment rate in the state. Likewise, Lincoln Parish, of which Ruston is the parish seat, had the 8th lowest unemployment rate in the state. Lincoln Parish is the home of two major universities--Louisiana Tech University in Ruston and Grambling State University in nearby Grambling. IBERIABANK has 11 offices serving this two-parish market, with the third largest market share. Since the beginning of 2001, loans decreased by 15.3% and deposits grew 2.9% in Northeast Louisiana.
Community Involvement
IBERIABANK has been and will continue to be committed to investing in the needs of the communities it serves. By supporting education, the arts and efforts that help those in need, we can enrich the communities in which our customers live, work and play. Through sponsorships, donations and volunteerism, IBERIABANK believes in building strong communities for a promising tomorrow.
In all of our markets, we support organizations such as United Way, the American Heart Association, a variety of arts and cultural programs and a number of initiatives that benefit the underprivileged. The Company is actively involved in the chambers of commerce, the boards of realtors and other industry specific organizations. Several significant contributions in 2001 deserve recognition.
The Lafayette market was recognized by United Way with the highest honor available, the Torian Award. The award was given to IBERIABANK for the exceptional participation of employees, the corporate donation and for the creativity used throughout the campaign.
The New Iberia market continues to positively impact the efforts of the Southern Mutual Help Association by volunteering time and resources to assist the challenged, predominately rural communities in the area.
In Monroe, the bank and an associate were named the 2001 Affiliate of the Year by the Northeast Louisiana Board of Realtors. The bank was also nominated for the annual BART Arts Award for its contribution to the arts in the region.
Investing in the community is one aspect of the mission of our company to meet the varying needs of our clients and employees. The Company is focused on providing exceptional service, an enjoyable atmosphere and an environment that nurtures the growth of our people and the Company as a whole.
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.
MISSION STATEMENT
o PROVIDE EXCEPTIONAL VALUE-BASED
CLIENT SERVICE
o GREAT PLACE TO WORK
o GROWTH THAT IS CONSISTENT WITH HIGH
PERFORMANCE
o SHAREHOLDER FOCUSED
o STRONG SENSE OF COMMUNITY
This powerful path of progression is the story of IBERIABANK. The year 2001 is a chapter of our life we are proud of and believe it sets the stage for continuous improvement. Management will continue to refine the Company with innovative ideas and a commitment to quality. The combined efforts of the management team, the Board of Directors and experienced associates will continue to develop a dynamic company that is of great value to our customers, employees, shareholders and the community. IBERIABANK is just beginning to spread its wings.
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 subsidiary 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.
List of
Accomplishments 2001
o By the 4th quarter of 2001, earnings per share was $0.63, up 10.2% versus one-year prior.
o For the full year, fully diluted EPS grew from $2.12 in 2000 to $2.36 in 2001, an increase of 11.3%.
o For the full year and 4th quarter, total revenues climbed 8.5% and 18.0%, respectively, versus the prior year.
o Equity-to-assets ratio climbed from 9.10% at December 31, 2000 to 9.42% at December 31, 2001.
o The Tangible Efficiency Ratio improved from 64.6% in late 1999 to 56.7% during 2000 to 55.0% during 2001. For the 4th quarter of 2001, the ratio dropped to 52.6%.
o Total deposits climbed $94 million, or 8.2%, during the year. Noninterest bearing deposits increased 19.4% and interest-bearing deposits grew 6.8% since year-end 2000.
o Loans climbed 15% during 2001 (excluding mortgage loans).
o Dividends paid to shareholders increased by approximately 6%. On a total return basis, shareholders holding the shares on January 1, 2000 experienced a 115% total return through December 31, 2001.
o New market headquarters office opened in the Central Business District of New Orleans.
o A new Northeast Louisiana market headquarters office opened on Royal Avenue in Monroe.
o The formation of Advisory Boards in Lafayette, New Iberia and New Orleans were announced.
o The number of analysts following the Company grew from four to eight.
o Several markets were recognized for significant contributions to the communities they serve.
o Mortgage production was at an all time high of $176 million, 83% higher than last year.
o "Community Celebrations" were continued with one held in the New Iberia market to thank existing customers and to continue to build relationships with potential clients, the media and community leaders.
o In July 2001, the Company was included for the first time in the Russell 2000 Index. The Index is a basket of market weighted stocks.
o An $8.4 million share repurchase program was completed on December 18, 2001 totaling 300,000 shares.
o Two new board members from the New Orleans area were added to the Board of Directors.
Financial
Information
[grahic-logo for IBERIABANK Corporation(TM)
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(dollars in thousands, except
per share data)
December 31,
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2001 2000 1999 1998 1997
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Balance Sheet Data
Total assets $1,426,825 $1,396,162 $1,363,578 $1,401,630 $947,282
Cash and cash equivalents 51,681 34,541 47,713 145,871 44,307
Loans receivable 956,015 940,525 842,878 768,235 660,063
Investment securities 321,907 344,545 384,881 377,556 192,442
Goodwill and acquisition
intangibles 35,644 38,796 42,063 45,352 16,358
Deposit accounts 1,237,394 1,143,187 1,100,014 1,220,594 786,864
Borrowings 43,776 114,843 135,053 45,639 46,728
Shareholders' equity 134,417 127,042 117,189 123,967 115,564
Book value per share $ 23.03 $ 20.99 $ 18.62 $ 18.91 $ 17.75
Tangible book value
per share 16.92 14.58 11.94 11.99 15.24
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Year Ended December 31,
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2001 2000 1999 1998 1997
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Income Statement Data
Interest income $ 100,368 $ 103,966 $ 95,029 $ 79,224 $ 69,607
Interest expense 46,018 52,730 45,380 38,458 36,050
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Net interest income 54,350 51,236 49,649 40,766 33,557
Provision for loan losses 5,046 3,861 2,836 903 1,097
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Net interest income after
provision for loan losses 49,304 47,375 46,813 39,863 32,460
Noninterest income 15,144 12,818 13,735 10,214 5,664
Noninterest expense 41,711 39,704 44,881 33,758 29,001
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Income before income taxes 22,737 20,489 15,667 16,319 9,123
Income taxes 8,229 7,514 6,138 6,182 3,780
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Net income $ 14,508 $ 12,975 $ 9,529 $ 10,137 $ 5,343
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Earnings per share - basic $ 2.48 $ 2.14 $ 1.55 $ 1.61 $ 0.86
Earnings per share - diluted 2.36 2.12 1.53 1.56 0.83
Cash earnings per share -
diluted 2.76 2.54 1.95 1.84 1.07
Cash dividends per share 0.70 0.66 0.63 0.57 0.45
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At or For the Year Ended December 31,
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2001 2000 1999 1998 1997
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Key Ratios (1)
Return on average assets 1.02% 0.94% 0.70% 0.93% 0.57%
Return on average equity 10.83 10.75 7.84 8.47 4.66
Equity to assets at the
end of period 9.42 9.10 8.59 8.84 12.20
Earning assets to interest-
bearing liabilities 116.99 114.66 112.83 114.55 113.91
Interest rate spread (2) 3.52 3.36 3.50 3.48 3.09
Net interest margin (TE)(2)(3) 4.11 3.95 3.96 4.03 3.63
Noninterest expense to
average assets 2.94 2.87 3.31 3.11 3.07
Efficiency ratio (4) 60.02 61.99 70.81 66.22 73.94
Tangible efficiency ratio (TE) (3) 55.03 56.72 65.29 62.12 69.93
Dividend payout ratio 28.71 31.42 41.88 36.56 54.41
Asset Quality Data
Nonperforming assets to
total assets at end
of period (5) 0.91% 0.57% 0.24% 0.44% 0.28%
Allowance for loan losses
to nonperforming loans
at end of period (5) 159.86 135.78 279.25 124.37 244.56
Allowance for loan losses
to total loans at end
of period 1.16 1.09 1.04 0.93 0.80
Consolidated Capital Ratios
Tier 1 leverage capital ratio 6.95% 6.67% 6.26% 5.81% 10.54%
Tier 1 risk-based capital ratio 9.96 10.05 9.42 9.89 18.52
Total risk-based capital ratio 11.09 11.19 10.43 10.80 19.50
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(1) With the exception of end-of-period ratios, all ratios are based on average
daily balances during the respective periods and are annualized where
appropriate.
(2) 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.
(3) Fully taxable equivalent (TE) calculations use a marginal tax rate of 35%.
(4) The efficiency ratio represents noninterest expense, as a percentage of the
sum of net interest income and noninterest income.
(5) Nonperforming loans consist of nonaccruing loans and loans 90 days or
more past due. Nonperforming assets consist of nonperforming loans and
reposessed assets.
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 subsidiary for the years ended December 31, 1999 through 2001. This review should be read in conjunction with the audited consolidated financial statements, accompanying footnotes and supplemental financial data included herein.
OVERVIEW
During 2001, the Company earned $14.5 million, or $2.36 per share on a diluted basis. This is an 11% increase over the $2.12 per share, or $13.0 million earned for 2000. Earnings performance for 2001 was influenced by many factors, the key components of which are summarized below.
o Net interest income increased by $3.1 million, or 6%. The
corresponding net interest margin on a tax-equivalent basis
improved to 4.11% from 3.95%. This was largely attributable to
the management of interest rates in the declining rate
environment coupled with an improved mix of earning assets and
interest-bearing liabilities.
o Improvement in noninterest income of $2.3 million was
reflected in 2001 as compared to the prior year. Of this
amount, $1.8 million was the effect of increased gains on the
sale of mortgage loans.
o Noninterest expense increased by $2.0 million from 2000 to
2001. Compensation expense was $2.7 million higher from year
to year. This was due in part to management's commitment to
make strategic hires across the Company as opportunities are
presented and also the result of the increasing cost of
benefit expenses. Additionally, 2001 included a full bonus
payout as compared to the prior year in which senior
management chose not to receive bonuses. This was partially
offset by the favorable impact of ongoing expense control
efforts throughout the Company.
o The 2001 provision for loan losses increased by $1.2 million
as compared to 2000 due to a changing mix within the loan
portfolio and reserves attached to specific credits.
FINANCIAL CONDITION
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 $29 million in 2001 as compared to 2000. Although this increase was a modest 2%, overall mix improvement allowed the Company to realize a 7.58% return in 2001 as compared to 8.01% in the prior year, even in light of a substantially lower rate environment.
[graphic-pie chart depicting 2001 Year-End Earning Assets]
Loans and Allowance for Possible Loan Losses - Lending activities resulted in growth of $15.5 million, or 1.6%, to $956.0 million in the loan portfolio at December 31, 2001 as compared to $940.5 million at December 31, 2000. The increase during 2001 was primarily due to growth in commercial loans of $70.4 million, or 25.5%, and growth in consumer loans of $27.5 million, or 7.3%, which was offset by a reduction in mortgage loans of $82.4 million, or 28.7%. The mix change in the loan portfolio reflects management's continued emphasis on commercial and consumer lending. As a result of the declining mortgage loan portfolio, which is composed primarily of adjustable rate mortgages, the percentage of fixed rate loans within the total loan portfolio has increased slightly from 70% in 2000 to 72% in 2001. 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,
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(dollars in thousands) 2001 2000 1999 1998 1997
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Commercial loans:
Real estate $228,284 24% $196,479 21% $157,248 19% $117,768 15% $ 50,462 8%
Other 117,530 12 78,986 8 82,485 10 83,237 11 57,620 9
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Total commercial loans 345,814 36 275,465 29 239,733 29 201,005 26 108,082 17
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Mortgage loans:
Residential 1-4 family 198,403 21 279,193 30 266,161 31 299,987 39 370,055 56
Construction 5,915 1 7,482 1 6,381 1 7,402 1 7,890 1
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Total mortgage loans 204,318 22 286,675 31 272,542 32 307,389 40 377,945 57
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Loans to individuals:
Indirect automobile 220,698 23 205,143 22 179,350 21 118,529 15 94,282 14
Home equity 114,056 12 108,070 11 91,531 11 73,185 10 34,192 5
Other 71,129 7 65,172 7 59,722 7 68,127 9 45,562 7
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Total consumer loans 405,883 42 378,385 40 330,603 39 259,841 34 174,036 26
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Total loans receivable $956,015 100% $940,525 100% $842,878 100% $768,235 100% $660,063 100%
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The New Orleans and South Central Louisiana markets continue to generate the majority of the commercial loan growth. This was the result of the addition of several customers, with no one customer representing a disproportionate percentage of the increase. Consumer loan increases were due largely to indirect automobile loan growth of $15.6 million, with a continued focus on prime paper. Additional increases in other consumer loans came from across the state. Mortgage loan decreases were mainly the result of the sale of fixed rate loan originations and normal mortgage paydowns. During 2001, there was a greater demand by customers for fixed rates on both new and refinanced mortgage loans in the lower rate environment. Additionally, as a result of pricing opportunities available in the secondary market and the high likelihood of refinancing in the fixed rate portfolio, a select group of mortgage loans totaling $15.4 million, which were originated as construction loans and previously held in the portfolio, were sold during 2001.
The Company has transitioned its loan portfolio to be more representative to that of a commercial bank, which typically have higher charge-off and nonperforming levels, but produce higher returns for investors. Critical to the Company's success in this transition is managing the changing risk profile of the loan portfolio by revising credit policies and procedures to bring them in-line with those of a commercial institution. Over the past two years, many changes have been made and more are planned for the future. The Company has
already 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 entire loan policy and established an internal loan review function. In implementing these changes, management identified some loans that were experiencing difficulties. These loans, which are reflected in the nonperforming asset loan classification, were disclosed quickly and accounted for conservatively. As it relates to the Company's philosophy on nonperforming assets, management has a commitment to shareholders that it will quickly recognize problem loans, disclose them to investors and address them. Historically, management feels that this commitment has been satisfied and plans to continue to satisfy this commitment in the future as efforts are made to improve the risk adjusted level of return within the loan portfolio. For additional information on loans, see Note 4 to the Consolidated Financial Statements.
Nonperforming loans, defined for these purposes as nonaccrual loans plus accruing loans past due 90 days or more, totaled $7.0 million and $7.5 million at December 31, 2001 and 2000, respectively. The Company's foreclosed property amounted to $6.0 million and $421,000 at December 31, 2001 and 2000, respectively. The increase in foreclosed property was primarily attributable to two large commercial real estate properties totaling $4.9 million, which the Company took possession of during the fourth quarter of the year. As a percentage of total assets, the Company's total nonperforming assets, which consist of nonperforming loans plus foreclosed property, amounted to $13.0 million, or 0.9% at December 31, 2001 compared to $8.0 million, or 0.6%, at December 31, 2000. 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.
Table 2- Nonperforming Assets and Troubled Debt Restructurings
December 31,
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(dollars in thousands) 2001 2000 1999 1998 1997
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Nonaccrual loans:
Commercial, financial and agricultural $ 4,088 $ 5,169 $ 1,293 $ 259 $ 30
Mortgage 122 137 208 481 1,698
Loans to individuals 1,053 161 429 439 419
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Total nonaccrual loans 5,263 5,467 1,930 1,179 2,147
Accruing loans 90 days or more past due 1,691 2,074 1,203 4,558 3
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Total nonperforming loans(1) 6,954 7,541 3,133 5,737 2,150
Foreclosed property 6,009 421 185 384 473
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Total nonperforming assets(1) 12,963 7,962 3,318 6,121 2,623
Performing troubled debt restructurings -- -- -- -- --
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Total nonperforming assets and
troubled debt restructurings(1) $12,963 $ 7,962 $ 3,318 $ 6,121 $ 2,623
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Nonperforming loans to total loans(1) 0.73% 0.80% 0.37% 0.75% 0.33%
Nonperforming assets to total assets(1) 0.91% 0.57% 0.24% 0.44% 0.28%
Nonperforming assets and troubled
debt restructurings to total assets(1) 0.91% 0.57% 0.24% 0.44% 0.28%
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(1) Nonperforming loans and assets include accruing loans 90 days or more past due |
The allowance for loan losses amounted to $11.1 million, or 1.2% and 159.9% of total loans and total nonperforming loans, respectively, at December 31, 2001 compared to 1.1% and 135.8%, respectively, at December 31, 2000. The allowance for loan losses increased $878,000, or 8.6%, from $10.2 million at December 31, 2000. The increase included a $5.0 million provision for loan losses. The increase in the allowance for loan losses as a percentage of nonperforming loans was attributable to the decrease in nonperforming loans and a higher level of reserves in the allowance for loan losses.
The level of charge-offs for 2001 increased as a result of several factors. One of the contributing causes was related to a large commercial credit for which reserves were provided at the end of the year 2000. Due to foreclosure proceedings on this property during 2001, the loan was charged down during the year to the appraised value less the cost to sell. The year 2001 also brought a higher level of consumer bankruptcies consistent with a similar increase around the state and the country due to the weakening of the national economy and also in anticipation of changes in the bankruptcy law. As mentioned previously, in compliance with Federal Financial Institutions Council ("FFIEC") guidelines, the Company implemented tighter consumer policies that resulted in an initial acceleration of charge-offs into 2001. Despite the increase in the charge-off ratio as compared to previous periods, the Company believes it is comparable to 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 for the periods indicated.
Table 3- Summary of Activity in the Allowance for Loan Losses
Year Ended December 31,
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(dollars in thousands) 2001 2000 1999 1998 1997
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Allowance at beginning of period $10,239 $ 8,749 $7,135 $ 5,258 $ 4,615
Allowance from acquisition - - - 1,392 -
Provisions 5,046 3,861 2,836 903 1,097
Charge-offs:
Commercial, financial and agricultural 1,861 1,174 140 43 191
Mortgage 15 37 71 2 50
Loans to individuals 2,797 1,654 1,460 818 562
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Total charge-offs 4,673 2,865 1,671 863 803
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Recoveries:
Commercial, financial and agricultural 110 52 86 175 55
Mortgage 17 22 37 36 79
Loans to individuals 378 420 326 234 215
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Total recoveries 505 494 449 445 349
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Net charge-offs (4,168) (2,371) (1,222) (418) (454)
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Allowance at end of period $11,117 $10,239 $8,749 $ 7,135 $ 5,258
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Allowance for loan losses to total
loans at end of period 1.16% 1.09% 1.04% 0.93% 0.80%
Net charge-offs to average loans 0.44% 0.26% 0.15% 0.06% 0.07%
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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 December 31, 2001 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. The following table presents the allocation of the allowance for loan losses in each category listed as of the dates indicated.
Table 4- Allocation of the Allowance for Loan Losses
December 31,
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(dollars in thousands) 2001 2000 1999 1998 1997
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Commercial, financial
and agricultural $ 5,066 46% $ 4,152 41% $3,484 40% $2,714 38% $1,921 36%
Real estate - mortgage 555 5 763 7 773 9 1,303 18 1,589 30
Real estate - construction 17 0 21 0 18 0 32 1 38 1
Loans to individuals 5,000 45 4,616 45 3,828 44 2,412 34 1,710 33
Unallocated 479 4 687 7 646 7 674 9 - 0
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Total allowance for
loan losses $11,117 100% $10,239 100% $8,749 100% $7,135 100% $5,258 100%
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Investment Securities - At December 31, 2001, investment securities of the Company that were classified as available for sale amounted to $219.8 million, which includes a pre-tax net unrealized gain of $1.1 million. At such date, $126.6 million of this investment portfolio consisted of mortgage-backed securities, $34.8 million consisted of U.S. Government and Federal agency obligations, and $38.5 million consisted of other debt securities. The remaining balance of $19.9 million was composed of U.S. treasury securities, obligations of state and political subdivisions, and other marketable equity securities. At December 31, 2001, $102.1 million of the Company's investment securities were classified as held to maturity with a pre-tax net unrealized gain of $34,000. At such date, $54.6 million of this investment portfolio consisted of mortgage-backed securities and $34.2 million consisted of U.S. Government and Federal agency obligations. The remaining balance of $13.3 million was primarily composed of obligations of state and political subdivisions.
Investment securities decreased by an aggregate of $22.6 million, or 6.6%, to $321.9 million at December 31, 2001 compared to $344.5 million at December 31, 2000. This decrease was the result of $76.8 million from scheduled principal payments and maturities, $118.9 million in sales of investment securities and $722,000 from the amortization of premiums and accretion of discounts, all of which were offset by the purchase of investment securities amounting to $168.6 million and a $4.7 million improvement in the market value of investment securities available for sale. A favorable rate environment provided the opportunity to reduce market risk by selling securities from the Company's portfolio during the year, while recognizing a nominal gain of $119,000. Funds generated as a result of sales and prepayments were used to reduce borrowings and purchase other securities. Excess funds are invested overnight and will be used to fund future loan growth and additional purchases of 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.
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 this account increased by $13.2 million, from $2.5 million at December 31, 2000 to $15.7 million at December 31, 2001. The rate in effect at December 31, 2001 was 1.47%.
Loans Held for Sale - Loans held for sale increased $12.5 million, or 374.1%, to $15.9 million at December 31, 2001 compared to $3.3 million at December 31, 2000. Loans held for sale have primarily been fixed rate single-family residential mortgage loans under contract to be sold in the secondary market. The increase was largely attributable to increased demand by consumers for fixed rate loans in the current low rate environment. In most cases, loans in this category are sold within thirty days. It is currently the Company's posture that it is preferable to sell these loans and recognize the attendant up front income rather than assume the rate risk associated with a longer term asset at the current rates.
Of the total single-family mortgage originations during 2001, 80.1% were sold in the secondary market compared to 40.4% in 2000. The increase in the percentage of originations sold was attributable to an increase in fixed rate loans originated in 2001, which are generally not held in the portfolio.
Deposits, offered to our customers through a wide array of products, are the primary source of funding for the Company. 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 2001.
[graphic-pie chart depicting 2001 Year-End Deposits]
Deposits - Deposits increased by $94.2 million, or 8.2%, to $1.2 billion at December 31, 2001 compared to $1.1 billion at December 31, 2000. The increase in deposits continues to reflect relatively balanced growth across all markets and deposit categories. The Company believes it 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 increased $12.9 million, or 9.1%, from $141.1 million at December 31, 2000 to $153.9 million at December 31, 2001. At December 31, 2001, $154.6 million, or 12.5%, of the Company's total deposits were noninterest bearing, compared to $129.5 million, or 11.3%, at December 31, 2000. Additional information regarding deposits is provided in Note 7 to the Consolidated Financial Statements and in Table 5 of this section.
Short-term Borrowings - The Company's short-term borrowings at December 31, 2001 were comprised 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. The Company's short-term borrowings of $54.0 million
at December 31, 2000 consisted of advances from the FHLB of Dallas. Total short-term borrowings decreased $41.7 million, or 77.1%, to $12.3 million at December 31, 2001 compared to $54.0 million at December 31, 2000. The weighted average rate on short-term borrowings was 2.57% at December 31, 2001, compared to 6.40% at December 31, 2000. For additional information regarding short-term borrowings, see Note 8 to the Consolidated Financial Statements.
Long-term Borrowings - At December 31, 2001, the Company's long-term borrowings were comprised of fixed rate advances from FHLB of Dallas. Long-term borrowings decreased $29.4 million, or 48.3%, to $31.4 million at December 31, 2001 compared to $60.8 million at December 31, 2000. The Union Planters Bank line of credit debt, which amounted to $9.2 million at the end of the year 2000, was paid off during 2001. The remaining debt, which is composed of FHLB long-term advances, cannot be paid off without incurring substantial prepayment penalties. Normal amortization payments on this debt accounted for the remaining decrease. For additional information, including maturities of long-term borrowings, 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, 2001, shareholders' equity totaled $134.4 million, an increase of $7.4 million from the previous year-end level. The increase in shareholders' equity in 2001 was the result of net income of $14.5 million, $1.4 million of common stock released by the Company's Employee Stock Ownership Plan ("ESOP") trust, $610,000 of common stock earned by participants of the Company's Recognition and Retention Plan ("RRP") trust, $352,000 for the reissuance of treasury stock for stock options exercised, and a $3.0 million improvement in the unrealized market value adjustment on securities available for sale, all of which were partially offset by cash dividends declared on the Company's common stock of $4.2 million, and repurchases of $8.4 million of the Company's common stock which were placed into treasury.
[graphic-chart depicting Regulatory Capital]
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 imposes similar capital regulations on bank holding companies. At December 31, 2001, the Company exceeded all regulatory capital ratio requirements with a Tier 1 leverage capital ratio of 6.95%, a Tier 1 risk-based capital ratio of 9.96% and a total risk-based capital ratio of 11.09%. At December 31, 2001, IBERIABANK exceeded all regulatory capital ratio requirements with a Tier 1 leverage capital ratio of 7.23%, a Tier 1 risk-based capital ratio of 10.35% and a total risk-based capital ratio of 11.48%.
RESULTS OF OPERATIONS
The Company reported net income of $14.5 million, $13.0 million and $9.5 million for the years ended December 31, 2001, 2000 and 1999, respectively. Earnings in 1999 included a $454,000 after tax gain on the sale of property and a $766,000 after tax expense in restructuring charges. Without these and other one-time or non-operating items, the Company would have reported net income of $11.2 million for 1999. Earnings per share on a diluted basis, including any one-time items, was $2.36 for 2001, $2.12 for 2000 and $1.53 for 1999. During 2001, interest income decreased $3.6 million, interest expense decreased $6.7 million, the provision for loan losses increased $1.2 million, noninterest income increased $2.3 million, noninterest expense increased $2.0 million and income tax expense increased $715,000. Cash earnings, defined as net income before the amortization of acquisition intangibles, amounted to $16.9 million, $15.5 million and $12.2 million for the years ended December 31, 2001, 2000 and 1999, respectively.
Management is committed to continually improve the earnings stream. Considerable attention to the ongoing use of funds is required to achieve this objective. Interest income, which is the primary component of earnings, is principally derived from investing available cash from funding sources into loans and investment securities. In order to achieve best use of funds, the rate/risk returns associated with these instruments are subject to constant evaluation. Expense management is another tool utilized toward this objective. As part of the corporate culture, every dollar spent is closely watched. The need to improve profits of the Company requires an ongoing focus on expense control. In addition to monitoring discretionary expense, suitable staffing levels are regularly reviewed. Lower levels in headcount as compared to prior years have resulted in a flattened organizational structure that has several benefits. Many of the members of the senior management team have multiple functional responsibilities. This approach to human resource management provides maximum efficiency of talent, an understanding of client needs across disciplines, deeper knowledge of all facets of the Company and creative problem solving. Our focus on appropriate use of funds is intended to benefit not only the Company, but our clients and shareholders as well.
[graphic-graph depicting Net Interest Margin (TE)]
Net Interest Income - Net interest income is the difference between interest realized on earning assets net of 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 3.52%, 3.36%, and 3.50% during the years ended December 31, 2001, 2000, and 1999, 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 4.11%, 3.95% and 3.96% during the years ended December 31, 2001, 2000 and 1999, respectively.
Table 5 - 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) 2001 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------------------------------------------------------------------------------------------------------------------------------------
Earning assets:
Loans receivable:
Mortgage loans $ 252,696 $ 19,859 7.86% $ 288,198 $ 22,654 7.86% $ 278,905 $ 22,399 8.03%
Commercial loans (TE) 298,586 23,945 7.98 261,463 24,763 9.37 217,774 19,585 8.88
Consumer and other loans 396,778 35,461 8.94 361,022 31,963 8.85 296,069 25,629 8.66
------------------------------------------------------------------------------------------------------------------------------------
Total loans 948,060 79,265 8.35 910,683 79,380 8.69 792,748 67,613 8.50
------------------------------------------------------------------------------------------------------------------------------------
Loans held for sale 9,184 682 7.43 1,785 167 9.36 13,890 764 5.50
Investment securities (TE) 298,601 17,833 6.04 370,836 23,545 6.36 412,888 25,160 6.11
Federal Home Loan Bank stock 6,440 277 4.30 7,352 583 7.93 8,175 448 5.48
Other earning assets 62,285 2,311 3.71 4,932 291 5.90 24,128 1,044 4.33
------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 1,324,570 100,368 7.58 1,295,588 103,966 8.01 1,251,829 95,029 7.58
------------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (10,061) (9,096) (7,792)
Nonearning assets 104,471 96,996 112,814
------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,418,980 $ 1,383,488 $ 1,356,851
====================================================================================================================================
Interest-bearing liabilities:
Deposits:
NOW accounts $ 207,851 3,473 1.67 $ 179,746 3,554 1.98 $ 192,528 3,734 1.94
Savings and money
market accounts 291,009 7,794 2.68 251,834 8,879 3.53 218,624 5,248 2.40
Certificates of deposit 572,532 30,860 5.39 575,828 32,133 5.58 618,582 31,518 5.10
------------------------------------------------------------------------------------------------------------------------------------
Total deposits 1,071,392 42,127 3.93 1,007,408 44,566 4.42 1,029,734 40,500 3.93
Borrowings 53,354 3,634 6.72 122,522 8,164 6.55 79,741 4,880 6.02
Securities sold under
agreements to repurchase 7,462 257 3.40 -- -- -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 1,132,208 46,018 4.06 1,129,930 52,730 4.65 1,109,475 45,380 4.08
------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing
demand deposits 140,393 121,494 116,097
Noninterest-bearing liabilities 12,473 11,378 9,789
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,285,074 1,262,802 1,235,361
Shareholders' equity 133,906 120,686 121,490
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 1,418,980 $ 1,383,488 $ 1,356,851
====================================================================================================================================
Net earning assets $ 192,362 $ 165,658 $ 142,354
Net interest spread $ 54,350 3.52% $ 51,236 3.36% $ 49,649 3.50%
Net interest margin(TE) 4.11% 3.95% 3.96%
====================================================================================================================================
Ratio of earning assets to
interest-bearing liabilities 116.99% 114.66% 112.83%
====================================================================================================================================
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Table 6 - 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).
Years Ended December 31,
----------------------------------------------------------------------------------------------------------------------
2001/2000 2000/1999
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 $(2,791) $ (5) $ 1 $(2,795) $ 746 $ (475) $ (16) $ 255
Commercial loans 3,516 (3,795) (539) (818) 3,929 1,040 209 5,178
Consumer and other loans 3,166 302 30 3,498 5,623 583 128 6,334
Loans held for sale 692 (34) (143) 515 (666) 536 (467) (597)
Investment securities (4,586) (1,398) 272 (5,712) (2,563) 1,055 (107) (1,615)
Federal Home Loan Bank stock (72) (267) 33 (306) (45) 200 (20) 135
Other earning assets 3,384 (108) (1,256) 2,020 (831) 380 (302) (753)
------------------------------------------------------------------------------------------------------------------------
Total net change in income
on earning assets 3,309 (5,305) (1,602) (3,598) 6,193 3,319 (575) 8,937
------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
NOW accounts 556 (551) (86) (81) (248) 73 (5) (180)
Savings and money market
accounts 1,381 (2,134) (332) (1,085) 797 2,460 374 3,631
Certificates of deposit (184) (1,095) 6 (1,273) (2,178) 3,001 (208) 615
Borrowings (4,112) (325) 164 (4,273) 2,618 433 233 3,284
------------------------------------------------------------------------------------------------------------------------
Total net change in expense
on interest-bearing
liabilities (2,359) (4,105) (248) (6,712) 989 5,967 394 7,350
------------------------------------------------------------------------------------------------------------------------
Change in net interest income $ 5,668 $(1,200) $(1,354) $ 3,114 $ 5,204 $(2,648) $(969) $ 1,587
========================================================================================================================
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Net interest income increased $3.1 million, or 6.1%, in 2001 to $54.3 million compared to $51.2 million in 2000. Such increase was due to 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. In 2000, net interest income increased $1.6 million, or 3.2%, to $51.2 million compared to $49.6 million in 1999. The reason for such increase was an $8.9 million, or 9.4%, increase in interest income which was partially offset by a $7.3 million, or 16.2%, increase in interest expense.
Average loans made up 71.6% of average earning assets as of December 31, 2001 as compared to 70.3% at December 31, 2000. This was an increase of 4.1%. The increase in average loans was mainly funded by increased deposits and a decrease in investment securities. Average investment securities made up 22.5%
of average earning assets at December 31, 2001 compared to 28.6% at December 31, 2000. Average interest-bearing deposits made up 94.6% of average interest-bearing liabilities at December 31, 2001 compared to 89.2% at December 31, 2000. Average borrowings made up 4.7% of average interest-bearing liabilities at December 31, 2001 compared to 10.8% at December 31, 2000. Tables 5 and 6 further explain the changes in net interest income.
The FRB reduced overnight rates by 475 basis points during 2001. 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, rate reductions by the FRB did exert 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. Downward repricing of the maturing certificate of deposit portfolio in the current low rate environment has allowed the Company to significantly reduce funding costs offsetting 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 funding needs of the Company.
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 Company's market area and the collectibility 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.
The Company made a provision for loan losses of $5.0 million in 2001, compared to $3.9 million and $2.8 million for 2000 and 1999, respectively. Net loan charge-offs for 2001 totaled $4.2 million, compared to $2.4 million for 2000. The increase in the provision for 2001 was mainly due to a large commercial credit that was placed on nonaccrual status late in the year. A discussion of nonperforming loans can be found in the section on "Loans and Allowance for Possible Loan Losses."
Noninterest Income - For 2001, the Company reported noninterest income of $15.1 million compared to $12.8 million for 2000. The primary reasons for the $2.3 million, or 18.1%, increase in noninterest income was a $1.8 million, or 451.6%, increase in gains on the sale of mortgage loans in the secondary market, a $182,000, or 13.9%, increase in ATM fee income due to increased up time, 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.
Total noninterest income amounted to $12.8 million and $13.7 million for the years ended December 31, 2000 and 1999, respectively. The primary reasons for the $917,000, or 6.7%, decrease in noninterest income in 2000 as compared to 1999 was a $1.8 million loss on sale of investments compared to no gain or loss in 1999, a $658,000, or 61.9%, decrease in gain on the sale of loans and a $180,000, or 6.1% decrease in other income. These decreases were partially offset by a $1.2 million, or 140.3%, increase in gain on sale of assets, a $256,000, or 3.3%, increase in service charges on deposit accounts and a $229,000, or 21.2%, increase in ATM fee income.
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 amounted to $41.7 million, $39.7 million and $44.9 million for the three years ended December 31, 2001, 2000 and 1999, respectively.
The principal 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 improve overall staffing as opportunities are 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.
The main reason for the $5.2 million, or 11.5%, decrease in noninterest expense for 2000 compared to 1999 was a result of the 1999 restructuring and the continued efforts by management to control discretionary expenses. Restructuring expenses during 1999 totaled $1.2 million (for more information regarding restructuring expenses see Note 2 to the Consolidated Financial Statements). As compared to 1999, salaries and employee benefits decreased $2.3 million, or 10.9%, marketing and business development expense decreased $229,000, or 20.9%, printing and supplies expense decreased $215,000, or 22.7%, communication and delivery expense decreased $150,000, or 5.6%, the amortization of acquisition intangibles decreased $133,000, or 3.9%, occupancy and equipment expense decreased $66,000, or 1.2%, and all other expenses decreased $1.4 million, or 19.7%. This was partially offset by a data processing expense increase of $453,000, or 49.5%, primarily the result of improvements in technology.
Income Taxes - For the years ended December 31, 2001, 2000 and 1999 the Company incurred income tax expense of $8.2 million, $7.5 million and $6.1 million, respectively. The Company's effective tax rate amounted to 36.2%, 36.7% and 39.2% during 2001, 2000 and 1999, 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 non-deductibility of part of the amortization of acquisition intangibles, the non-deductible portion of the ESOP compensation expense and the capital loss carryforward used during 1999. For more information, see Note 10 to the Consolidated Financial Statements.
ASSET AND LIABILITY MANAGEMENT
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 margin simulations 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. As of December 31, 2001, the model indicated the impact of an immediate and sustained 200 basis point rise in rates over the 12 months would approximate a 7.3% decrease in net interest income, while a 200 point decline in rates over the same period would approximate a 5.4% 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.
Included as part of its asset/liability management strategy, the Company has emphasized the origination of consumer loans, commercial business loans and commercial real estate loans, all of which typically have shorter terms than residential mortgage loans and/or adjustable or variable rates of interest. The Company has also emphasized the origination of fixed-rate, long-term residential loans for sale in the secondary market. As of December 31, 2001, $268.6 million, or 28.1%, 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 time certificates of deposit. At December 31, 2001, 56.8% of the Company's deposits were in transaction accounts, compared to 50.2% at December 31, 2000. Noninterest bearing transaction accounts total 12.5% of total deposits at December 31, 2001, compared to 11.3% of total deposits at December 31, 2000.
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. As of December 31, 2001, the Company had no derivatives; however, management may from time to time engage in interest rate swaps to effectively manage interest rate risk.
LIQUIDITY, CAPITAL RESOURCES AND OTHER OFF-BALANCE SHEET ACTIVITIES
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, borrowings, loan and mortgage backed security amortizations, prepayments and maturities, maturities of investment securities and other short-term investments and funds provided from operations. While scheduled payments from the amortization of loans and mortgage backed securities are relatively predictable sources of funds, as are maturing investment securities and short-term investments, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company expects cash available for investment purposes to increase due to the maturing investment portfolio, increased security prepayments and tightened credit policy guidelines. The Company continues to experience significant cash flows. Until management fully redeploys these excess funds, the Company invests in overnight deposits and other short-term earning assets. Sufficient cash has been generated through deposits and borrowings to provide liquidity to meet lending requirements. At December 31, 2001, the Company had $31.4 million of outstanding advances from the FHLB of Dallas. Additional advances available at December 31, 2001 from the FHLB of Dallas amounted to $290.6 million. The Company also has $4.2 million of short-term debt outstanding on a $15.0 million line of credit with a correspondent bank at December 31, 2001. See Note 9 to the Consolidated Financial Statements.
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, to pay maturing certificates of deposit and deposit
withdrawals, to fund loan commitments and to maintain a portfolio of mortgage backed and investment securities. Certificates of deposit scheduled to mature in one year or less at December 31, 2001 totaled $403.6 million. Management believes that a significant portion of maturing deposits will remain on deposit with the Company.
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, 2001, the total approved loan commitments outstanding amounted to $18.3 million. At the same date, commitments under unused lines of credit, including credit card lines, amounted to $149.1 million. Included in these totals are commercial commitments amounting to $97.1 million as shown below:
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 $76,202 $5,205 $ 6 $ - $81,413
Unused loan commitments 13,471 - - - 13,471
Standby letters of credit 2,073 139 - - 2,212
========================================================================================
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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, 2001 are as follows:
2006
(dollars in thousands) 2002 2003 2004 2005 and After Total
----------------------------------------------------------------------------------------------
Operating leases $ 627 $ 466 $ 333 $ 286 $ 473 $ 2,185
Long-term debt 7,557 -- -- 9,081 14,799 31,437
----------------------------------------------------------------------------------------------
Total $ 8,184 $ 466 $ 333 $ 9,367 $15,272 $33,622
==============================================================================================
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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. 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2000, the Financial Accounting Standards Board ("FASB") issued FAS Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The statement replaces FAS Statement No. 125 of the same name. It revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of Statement 125's provisions without reconsideration. The statement is effective generally for transactions occurring after March 31, 2001. Disclosures are effective for years ending after December 15, 2000. Implementation of this standard is not expected to have a material impact on the Company's financial position or results of operations.
In June of 2001 the FASB issued Statement No. 141, Business Combinations, which supercedes the 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 requires additional disclosures. The provisions of this statement apply to all business transactions initiated after June 30, 2001 and all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later.
In June of 2001 the FASB also 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 17, Intangible Assets. Guidance is provided on the financial presentation and subsequent accounting treatment of intangible assets that are acquired individually or with a group of other assets, but not acquired in a business combination. Goodwill and intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. Intangible assets that have finite useful lives will continue to be amortized over their useful lives. Specific guidance for determining impairment is also provided. Goodwill will be tested for impairment at least annually using a two-step process. Additional disclosures are also required.
Application of the provisions of FAS 142 are required starting with fiscal years beginning after December 15, 2001, for all goodwill and other intangibles recognized in its financial statements at the beginning of an entity's fiscal year. The Company will be required to apply FAS 142 effective January 1, 2002. The Company currently has $35.6 million in acquisition intangibles, principally goodwill that arose from three prior business combinations. The Company has not yet evaluated the intangibles for impairment under the provisions of FAS 142. Amortization of goodwill for the year 2002 was projected to be $2.8 million before tax and $2.0 million after tax. The increase on diluted earnings per share for 2002 as a result of the discontinuance of the amortization of goodwill, assuming no impairment write-down, is estimated to range between $0.32 and $0.33 per diluted share.
In August of 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.
For additional information on these and other FAS statements, see Notes 1 and 13 to the Consolidated Financial Statements.
INDEPENDENT AUDITORS' REPORT
[LETTERHEAD CASTAING HUSSEY & LOLAN, LLC]
Samuel R. Lolan, CPA
Lori D. Percle, CPA
Debbie B. Taylor, CPA
Katherine H. Armentor, CPA
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Charles E. Castaing, CPA, Retired Robin G. Freyou, CPA
Roger E. Hussey, CPA, Retired Dawn K. Gonsoulin, CPA
Shalee M. Landry, CPA
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To the Board of Directors
IBERIABANK Corporation
We have audited the accompanying consolidated balance sheets of IBERIABANK Corporation and Subsidiary as of December 31, 2001 and 2000, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. 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 Subsidiary as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with U. S. generally accepted accounting principles.
/S/CASTAING HUSSEY & LOLAN, LLC ------------------------------- New Iberia, Louisiana February 4, 2002 |
525 Weeks Street o P.O. Box 14240 o New Iberia, Louisiana 70562-4240
Ph.: 337-364-7221 o Fax: 337-364-7235 o email: info@chlcpa.com
Members of American Institute of Certified Public Accountants
o Society of Louisiana Certified Public Accountants
IBERIABANK CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 2001 and 2000
(dollars in thousands) 2001 2000
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Assets
Cash and due from banks $ 35,945 $ 32,000
Interest-bearing deposits in banks 15,736 2,541
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Total cash and cash equivalents 51,681 34,541
Investment securities:
Available for sale, at fair value 219,825 268,223
Held to maturity, fair values of $102,116 and
$75,924, respectively 102,082 76,322
Federal Home Loan Bank stock, at cost 5,600 7,997
Mortgage loans held for sale 15,867 3,347
Loans, net of unearned income 956,015 940,525
Allowance for loan losses (11,117) (10,239)
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Loans, net 944,898 930,286
Premises and equipment, net 19,455 21,465
Goodwill and acquisition intangibles 35,644 38,796
Other assets 31,773 15,185
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Total Assets $ 1,426,825 $ 1,396,162
========================================================================================
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Noninterest-bearing $ 154,580 $ 129,468
Interest-bearing 1,082,814 1,013,719
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Total deposits 1,237,394 1,143,187
Short-term borrowings 12,339 54,000
Long-term debt 31,437 60,843
Other liabilities 11,238 11,090
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Total Liabilities 1,292,408 1,269,120
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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 70,477 69,231
Retained earnings 88,306 77,963
Unearned compensation (3,683) (4,654)
Accumulated other comprehensive income 739 (2,293)
Treasury stock at cost - 1,392,626 and 1,121,934 shares (28,803) (20,586)
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Total Shareholders' Equity 134,417 127,042
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Total Liabilities and Shareholders' Equity $ 1,426,825 $ 1,396,162
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The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements.
IBERIABANK CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
Years Ended December 31, 2001, 2000 and 1999
(dollars in thousands, except per share data) 2001 2000 1999
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Interest and Dividend Income:
Loans, including fees $ 79,265 $ 79,380 $ 67,613
Mortgage loans held for sale, including fees 682 167 764
Investment securities:
Taxable interest 17,435 23,461 25,047
Tax-exempt interest 398 84 113
Federal Home Loan Bank dividends 277 583 448
Interest-bearing demand deposits 2,311 291 1,044
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Total interest and dividend income 100,368 103,966 95,029
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Interest Expense:
Deposits 42,127 44,566 40,500
Short-term borrowings 617 4,243 1,665
Long-term debt 3,274 3,921 3,215
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Total interest expense 46,018 52,730 45,380
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Net interest income 54,350 51,236 49,649
Provision for loan losses 5,046 3,861 2,836
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Net interest income after provision
for loan losses 49,304 47,375 46,813
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Noninterest Income:
Service charges on deposit accounts 8,054 8,050 7,794
ATM fee income 1,491 1,309 1,080
Gain on sale of loans, net 2,234 405 1,063
Gain on sale of assets 301 2,047 852
Gain (loss) on sale of investments, net 119 (1,759) --
Other income 2,945 2,766 2,946
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Total noninterest income 15,144 12,818 13,735
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Noninterest Expense:
Salaries and employee benefits 21,187 18,510 20,776
Occupancy and equipment 5,439 5,589 5,655
Amortization of acquisition intangibles 3,151 3,267 3,400
Franchise and shares tax 1,357 1,382 1,374
Communication and delivery 2,510 2,510 2,660
Marketing and business development 876 867 1,096
Data processing 1,256 1,369 916
Printing, stationery and supplies 753 731 946
Restructuring (60) (46) 1,178
Other expenses 5,242 5,525 6,880
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Total noninterest expense 41,711 39,704 44,881
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Income before income tax expense 22,737 20,489 15,667
Income tax expense 8,229 7,514 6,138
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Net Income $ 14,508 $ 12,975 $ 9,529
===========================================================================================================
Earnings per share - basic $ 2.48 $ 2.14 $ 1.55
Earnings per share - diluted $ 2.36 $ 2.12 $ 1.53
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The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements.
IBERIABANK CORPORATION AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 2001, 2000 and 1999
Accumulated
Other
Additional Compre-
(dollars in thousands, except Common Paid-In Retained Unearned hensive Treasury
share and per share data) Stock Capital Earnings Compensation Income Stock Total
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $ 7,381 $68,021 $63,527 $ (6,950) $ 349 $ (8,361) $123,967
Comprehensive income:
Net income 9,529 9,529
Change in unrealized gain on securities
available for sale, net of deferred taxes (7,473) (7,473)
------
Total comprehensive income 2,056
Cash dividends declared, $.63 per share (3,991) (3,991)
Reissuance of treasury stock under stock
option plan, 13,371 shares 15 197 212
Common stock released by ESOP trust 577 618 1,195
Common stock earned by participants of recognition
and retention plan trust, including tax benefit 58 659 717
Compensation expense on stock option plans 78 78
Treasury stock acquired at cost, 336,500 shares (7,045) (7,045)
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Balance, December 31, 1999 7,381 68,749 69,065 (5,673) (7,124) (15,209) 117,189
Comprehensive income:
Net income 12,975 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) (4,077)
Common stock released by ESOP trust 340 582 922
Common stock earned by participants of recognition
and retention plan trust, including tax benefit 47 565 612
Common stock purchased by recognition
and retention plan trust 128 (128) -
Compensation expense on stock option plans (33) (33)
Treasury stock acquired at cost, 300,000 shares (5,377) (5,377)
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Balance, December 31, 2000 7,381 69,231 77,963 (4,654) (2,293) (20,586) 127,042
Comprehensive income:
Net income 14,508 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) (4,165)
Reissuance of treasury stock under stock
option plan, net of shares surrendered in
payment, 29,308 shares 155 197 352
Common stock released by ESOP trust 906 546 1,452
Common stock earned by participants of recognition
and retention plan trust, including tax benefit 185 425 610
Treasury stock acquired at cost, 300,000 shares (8,414) (8,414)
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Balance, December 31, 2001 $ 7,381 $70,477 $88,306 $ (3,683) $ 739 $(28,803) $134,417
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The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements.
IBERIABANK CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 2001, 2000 and 1999
(dollars in thousands) 2001 2000 1999
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Cash Flows from Operating Activities:
Net income $ 14,508 $ 12,975 $ 9,529
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,440 6,615 6,657
Provision for loan losses 5,046 3,861 2,836
Noncash compensation expense 1,717 1,320 1,826
Gain on sale of assets (256) (2,047) (852)
Loss (gain) on sale of investments (119) 1,759 --
Amortization of premium/discount on investments 722 290 872
Current provision for deferred income taxes 107 (71) (1,143)
FHLB stock dividends (277) (582) (447)
Net change in loans held for sale (12,520) 1,424 13,636
Other, net (13,614) (1,601) 3,992
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Net Cash Provided by Operating Activities 1,754 23,943 36,906
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Cash Flows from Investing Activities:
Activity in available for sale securities:
Sales 118,851 43,706 --
Maturities, prepayments and calls 56,601 37,155 25,500
Purchases (122,332) (43,744) (99,998)
Activity in held to maturity securities:
Maturities, prepayments and calls 20,212 9,013 55,166
Purchases (46,277) -- --
(Increase) decrease in loans receivable, net (26,875) (101,513) (77,653)
Proceeds from FHLB stock redemption 2,674 -- 4,853
Purchases of FHLB stock -- (594) (982)
Proceeds from sale of premises and equipment 1,181 4,875 1,301
Purchases of premises and equipment (1,256) (1,061) (2,332)
Proceeds from disposition of real estate owned 1,579 1,279 1,191
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Net Cash Provided by (Used in) Investing Activities 4,358 (50,884) (92,954)
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Cash Flows from Financing Activities:
Increase (decrease) in deposits 94,207 43,173 (120,881)
Net change in short-term borrowings (41,661) (29,000) 83,000
Proceeds from long-term debt -- 16,650 7,575
Repayments of long-term debt (29,406) (7,860) (1,161)
Dividends paid to shareholders (3,981) (3,817) (3,810)
Proceeds from sale of treasury stock
for stock options excercised 283 -- 212
Payments to repurchase common stock (8,414) (5,377) (7,045)
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Net Cash Provided by (Used in) Financing Activities 11,028 13,769 (42,110)
-------------------------------------------------------------------------------------------------
Net Increase (Decrease) In Cash and Cash Equivalents 17,140 (13,172) (98,158)
Cash and Cash Equivalents at Beginning of Period 34,541 47,713 145,871
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Cash and Cash Equivalents at End of Period $ 51,681 $ 34,541 $ 47,713
=================================================================================================
Supplemental Schedule of Noncash Activities:
Acquisition of real estate in settlement of loans $ 7,217 $ 1,495 $ 1,035
=================================================================================================
Supplemental Disclosures:
Cash paid (received) for:
Interest on deposits and borrowings $ 47,369 $ 52,634 $ 46,703
Income taxes, net $ 8,350 $ 7,081 $ 7,714
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The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nature of Operations: IBERIABANK Corporation, (the "Company") is a Louisiana corporation that serves as the bank holding company for IBERIABANK, formerly Iberia Savings Bank. In December of 1997, Iberia Savings Bank changed its charter from a state savings bank to a state commercial bank and changed its name to IBERIABANK (the "Bank").
The Bank operates 23 offices located in south central Louisiana, 11 offices located in northeast Louisiana and 8 offices located in the greater New Orleans area. The Bank provides a variety of financial services to individuals and businesses throughout its service area. Its primary deposit products are checking, savings and certificate of deposit accounts and its primary lending products are commercial business, consumer and mortgage loans. The Bank also offers discount brokerage services through a wholly owned subsidiary and offers insurance products through a joint venture with a local insurance agency.
Principles of Consolidation: The consolidated financial statements include the accounts of IBERIABANK Corporation and its wholly owned subsidiary, 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 in the past was concentrated in the southwestern part of Louisiana. That economy has historically been heavily dependent on the oil and gas industry. The Company in recent years has increased originations of commercial loans and indirect automobile loans, and through acquisitions has entered the New Orleans and Northeast Louisiana markets. Repayment of loans is expected to come from cash flow of the borrower or, particularly with the residential mortgage portfolio, from the sale of the real estate. 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.
Stock in the Federal Home Loan Bank of Dallas ("FHLB") is carried at cost. Since the Bank is a member of the FHLB, it is required to maintain an amount of FHLB stock based on its total assets and level of borrowings. At December 31, 2001 and 2000, the institution held more than the required level of FHLB stock.
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.
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, 2001 and 2000.
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 and Other Intangible Assets: Goodwill, representing the purchase price in excess of fair value of identifiable net assets at acquisition, has been amortized over periods not exceeding 25 years. Other acquired intangible assets, such as core deposit intangibles, are amortized over the periods benefited, not exceeding 8 years. Management evaluates whether events or circumstances have occurred that indicate the remaining useful life or carrying value of intangibles should be revised.
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.
Stock Compensation Plans: Statement of Financial Accounting Standards ("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.
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, was effective for 1998. This statement established standards for reporting 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 2001, 2000 or 1999.
Effects of New Accounting Pronouncements: In September 2000, the Financial Accounting Standards Board ("FASB") issued FAS Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The statement replaces FAS Statement No. 125 of the same name. It revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of the provisions of FAS 125 without reconsideration. The statement is effective generally for transactions occurring after March 31, 2001. Disclosures are effective for years ending after December 15, 2000. Implementation of this standard is not expected to have a material impact on financial position or results of operations.
In June of 2001 the FASB issued Statement No. 141, Business Combinations. It supercedes 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 of 2001 the FASB also 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 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. The Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Goodwill and intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. Intangible assets that have finite useful lives will continue to be amortized over their useful lives. Specific guidance for determining impairment is provided. Goodwill will be tested for impairment at least annually using a two-step process. Additional disclosures are also required.
The provisions of FAS 142 are required to be applied starting with fiscal years beginning after December 15, 2001 and to be applied to all goodwill and other intangible assets recognized in its financial statements at that date. As such, the Company adopted FAS 142 effective January 1, 2002. The Company currently has $35.6 million in acquisition intangibles, principally goodwill that arose from three prior business combinations. The Company will evaluate the intangibles for impairment within the six-month guideline allowed after adoption under the provisions of FAS 142. Amortization of goodwill for the year 2001 was $2.0 million after tax.
In August of 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.
Reclassifications: Certain reclassifications have been made to the 1999 and 2000 consolidated financial statements in order to conform to the classifications adopted for reporting in 2001.
On December 13, 1999 the Board of Directors approved a restructuring plan which improved the operating efficiency and profitability of the Company. The plan involved consolidating certain branches and eliminated thirty-three personnel positions primarily at corporate headquarters. The charges to 1999 earnings consisted of $451,000 of fixed asset impairments primarily consisting of leasehold improvements written down to book value for the remaining lease term, $198,000 of lease termination penalties and $35,000 of closure expenses all related to the branch consolidations and $244,000 of severance accruals for the personnel positions eliminated. As part of the plan, the four directors emeritus retired in December of 1999, which resulted in compensation expense of $250,000 for immediate vesting in their recognition and retention plan shares.
During 2000, branch consolidations resulted in the elimination of six branch employee positions, with severance packages totaling $43,000, which was charged against income. The Bank was released from lease termination penalties on two branches in 2000, which resulted in a reversal of a portion of the 1999 liability in the amount of $89,000. At December 31, 2000 the balance in the restructuring liability was $117,000, which was comprised of $89,000 in lease termination penalties and $28,000 in branch consolidation expenses remaining to be paid.
During 2001, the Bank was released from the remaining lease termination penalties for an additional branch, which resulted in a reversal of a portion of the 2000 liability in the amount of $60,000. Branch restructuring expenses in the amount of $51,000 were paid during the year. At December 31, 2001, the restructuring liability was $6,000, representing remaining closure costs for one branch location.
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
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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
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Total securities available for sale $ 218,688 $ 1,915 $ (778) $ 219,825
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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
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Total securities held to maturity $ 102,082 $ 841 $ (807) $ 102,116
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December 31, 2000
-----------------
Securities available for sale:
U.S. Treasury securities $ 10,011 $ 126 $ -- $ 10,137
U.S. Government and federal
agency obligations 87,990 -- (1,868) 86,122
Mortgage backed securities 167,021 754 (2,486) 165,289
Marketable equity securities 6,728 -- (53) 6,675
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Total securities available for sale $ 271,750 $ 880 $ (4,407) $ 268,223
======================================================================================================
Securities held to maturity:
Obligations of state and political
subdivisions $ 1,385 $ -- $ (16) $ 1,369
Mortgage backed securities 74,887 -- (382) 74,505
Other debt securities 50 -- -- 50
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Total securities held to maturity $ 76,322 $ -- $ (398) $ 75,924
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Securities with carrying values of $135,608,000 and $56,827,000 at December 31, 2001 and 2000, respectively were pledged to secure public deposits and other borrowings.
The amortized cost and estimated fair value by maturity of investment securities at December 31, 2001 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 Available Securities Held
for Sale to Maturity
----------------------------------------------------------------------------------
Amortized Fair Amortized Fair
(dollars in thousands) Cost Value Cost Value
----------------------------------------------------------------------------------
Within one year or less $ 5,849 $ 5,959 $ 50 $ 50
One through five years 54,243 55,012 34,248 33,815
After five through ten years 57,765 57,775 1,195 1,093
Over ten years 93,747 94,007 66,589 67,158
Marketable equity securities 7,084 7,072 - -
----------------------------------------------------------------------------------
Totals $218,688 $219,825 $102,082 $102,116
==================================================================================
|
For the years ended December 31, 2001 and 2000 proceeds from sales of securities available for sale amounted to $118,851,000 and $43,706,000, respectively. Gross realized losses amounted to $65,000 and $1,759,000 for 2001 and 2000, while gross realized gains amounted to $184,000 and $-0- for the same periods. The tax benefit (provision) applicable to these realized gains and losses amounted to ($42,000) and $616,000, respectively. There were no gains or losses on securities available for sale for the year ended December 31, 1999.
Loans receivable at December 31, 2001 and 2000 consists of the following:
(dollars in thousands) 2001 2000 --------------------------------------------------------------------- Residential mortgage loans: Residential 1-4 family $198,403 $279,193 Construction 5,915 7,482 --------------------------------------------------------------------- Total residential mortgage loans 204,318 286,675 --------------------------------------------------------------------- Commercial loans: Real estate 228,284 196,479 Business 117,530 78,986 --------------------------------------------------------------------- Total commercial loans 345,814 275,465 --------------------------------------------------------------------- Consumer loans: Indirect automobile 220,698 205,143 Home equity 114,056 108,070 Other 71,129 65,172 --------------------------------------------------------------------- Total consumer loans 405,883 378,385 --------------------------------------------------------------------- Total loans receivable $956,015 $940,525 ===================================================================== |
Loans receivable include approximately $268,583,000 and $277,847,000 of adjustable rate loans and $687,432,000 and $662,678,000 of fixed rate loans at December 31, 2001 and 2000, respectively.
The amount of loans for which the accrual of interest has been discontinued totaled approximately $5,263,000 and $5,467,000 at December 31, 2001 and 2000, respectively.
A summary of changes in the allowance for loan losses for the years ended December 31, 2001, 2000 and 1999 is as follows:
(dollars in thousands) 2001 2000 1999 -------------------------------------------------------------------------------- Balance, beginning of year $ 10,239 $ 8,749 $ 7,135 Provision charged to operations 5,046 3,861 2,836 Loans charged off (4,673) (2,865) (1,671) Recoveries 505 494 449 -------------------------------------------------------------------------------- Balance, end of year $ 11,117 $ 10,239 $ 8,749 ================================================================================ |
The following is a summary of information pertaining to impaired loans as of December 31:
(dollars in thousands) 2001 2000 -------------------------------------------------------------------------------- Impaired loans without a valuation allowance $ 608 $ 48 Impaired loans with a valuation allowance 5,009 5,843 -------------------------------------------------------------------------------- Total impaired loans $ 5,617 $ 5,891 ================================================================================ Valuation allowance related to impaired loans $ 1,309 $ 1,037 ================================================================================ (dollars in thousands) 2001 2000 1999 -------------------------------------------------------------------------------- Average investment in impaired loans $ 7,561 $ 3,612 $ 911 Interest income recognized on impaired loans 230 397 167 Interest income recognized on a cash basis on 230 397 167 impaired loans ================================================================================ |
The Company is also committed to lend an additional $120,000 for letters of credit to one customer.
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 $24,382,000 and $31,146,000 at December 31, 2001 and 2000, respectively.
Custodial escrow balances maintained in connection with the foregoing portfolio of loans serviced for others, and included in demand deposits, were approximately $84,000 and $107,000 at December 31, 2001 and 2000, respectively. The balance of mortgage servicing rights was $150,000 and $178,000 at December 31, 2001 and 2000, respectively.
Premises and equipment at December 31, 2001 and 2000 is summarized as follows:
(dollars in thousands) 2001 2000 ------------------------------------------------------------ Land $ 3,503 $ 3,737 Buildings 15,952 16,391 Furniture, fixtures and equipment 16,050 15,184 ------------------------------------------------------------ Total premises and equipment 35,505 35,312 Less accumulated depreciation 16,050 13,847 ------------------------------------------------------------ Total premises and equipment, net $19,455 $21,465 ============================================================ |
Depreciation expense was $2,559,000, $2,670,000 and $2,615,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
The Company actively engages in leasing office space that it has available. Leases have different terms ranging from monthly rental to ten-year leases. At December 31, 2001, the monthly lease income was $24,000 per month. Total lease income for 2001, 2000 and 1999 was $288,000, $394,000 and $439,000, 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, 2001 and 2000 was $1,542,000 and $1,570,000, respectively, with related accumulated depreciation of $588,000 and $471,000, 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, 2001, 2000, and 1999 amounted to $674,000, $548,000 and $570,000, respectively.
Minimum future annual rent commitments under these agreements for the indicated periods follow:
(dollars in thousands) Amount
--------------------------------------------------------------------------------
Year Ending December 31,
2002 $ 627
2003 466
2004 333
2005 286
2006 and thereafter 473
--------------------------------------------------------------------------------
Total $2,185
================================================================================
|
Note 7 - Deposits:
------------------
Certificates of deposit with a balance of $100,000 and over were $153,948,000
and $141,090,000 at December 31, 2001 and 2000, respectively.
A schedule of maturities of certificates of deposit is as follows:
(dollars in thousands) Amount
--------------------------------------------------------------------------------
Year Ending December 31,
2002 $403,598
2003 85,152
2004 22,951
2005 7,851
2006 and thereafter 14,518
--------------------------------------------------------------------------------
Total $534,070
================================================================================
|
Short-term borrowings at December 31, 2001 and 2000 are summarized as follows:
(dollars in thousands) 2001 2000 -------------------------------------------------------------------------------- Securities sold under agreements to repurchase $ 8,089 $ - Federal Home Loan Bank advances - 54,000 Bank line of credit 4,250 - -------------------------------------------------------------------------------- Total short-term borrowings $12,339 $54,000 ================================================================================ |
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, 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%. The short-term borrowings at December 31, 2000 consist of FHLB advances with terms ranging from 7 to 14 days, at fixed interest rates ranging from 6.39% to 6.42%.
(dollars in thousands) 2001 2000 1999 -------------------------------------------------------------------------- Outstanding at December 31 $12,339 $54,000 $83,000 Maximum month-end outstandings 52,058 88,500 83,000 Average daily outstandings 13,508 65,831 26,010 Average rate during the year 4.57% 6.45% 6.40% Average rate at year end 2.57% 6.40% 5.71% ========================================================================== |
Long-term debt at December 31, 2001 and 2000 is summarized as follows:
(dollars in thousands) 2001 2000 -------------------------------------------------------------------------------- Federal Home Loan Bank fixed rate notes at: 5.0 to 5.99% $ 237 $ 3,968 6.0 to 6.99% 27,205 28,593 7.0 to 7.99% 3,995 19,057 Union Planters Bank, $15MM variable rate line of credit - 9,225 -------------------------------------------------------------------------------- Total long-term debt $ 31,437 $ 60,843 ================================================================================ |
FHLB advance repayments are amortized over periods ranging from fifteen 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, 2001 were $205,485,000 under the blanket floating lien and $85,162,000 with a pledge of investment securities.
Advances and long-term debt at December 31, 2001 have maturities in future years as follows:
(dollars in thousands) Amount
--------------------------------------------------------------------------------
Year Ending December 31,
2002 $ 7,557
2003 -
2004 -
2005 9,081
2006 and thereafter 14,799
--------------------------------------------------------------------------------
Total $31,437
================================================================================
|
The provision for income tax expense consists of the following:
Years Ended December 31,
---------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999
---------------------------------------------------------------------
Current expense:
Federal $8,119 $7,653 $7,080
State 3 (68) 201
---------------------------------------------------------------------
Total current expense 8,122 7,585 7,281
Deferred federal expense 107 (71) (1,143)
---------------------------------------------------------------------
Total income tax expense $8,229 $7,514 $6,138
=====================================================================
|
There was a balance due of federal income taxes of $108,000 at December 31, 2001 and $453,000 at December 31, 2000.
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) 2001 2000 1999
----------------------------------------------------------------------------------------
Federal tax based on statutory rate $ 7,958 $ 7,171 $ 5,483
Increase (decrease) resulting from:
Effect of tax-exempt income (374) (113) (136)
Amortization of acquisition intangibles 376 416 457
Interest and other nondeductible expenses 83 38 40
Nondeductible ESOP expense 242 56 148
State income tax on non-bank entities 3 (74) 201
Other (59) 20 64
Benefit from change in deferred tax valuation
allowance -- -- (119)
----------------------------------------------------------------------------------------
Income tax expense $ 8,229 $ 7,514 $ 6,138
========================================================================================
Effective rate 36.2% 36.7% 39.2%
========================================================================================
|
The net deferred tax asset (liability) at December 31, 2001 and 2000 is as follows:
(dollars in thousands) 2001 2000
--------------------------------------------------------------------------------
Deferred tax asset:
Allowance for loan losses $ 3,168 $ 3,019
Deferred directors' fees 106 108
Net operating loss carryover -- 182
Deferred compensation 225 233
Unrealized loss on investments classified as -- 1,235
available for sale
Other 22 360
--------------------------------------------------------------------------------
Subtotal 3,521 5,137
--------------------------------------------------------------------------------
Deferred tax liability:
FHLB stock (914) (1,202)
Premises and equipment (1,807) (1,840)
Unrealized gain on investments classified as
available for sale (398) --
Other (72) (25)
--------------------------------------------------------------------------------
Subtotal (3,191) (3,067)
--------------------------------------------------------------------------------
Deferred tax asset, net $ 330 $ 2,070
================================================================================
|
A summary of the changes in the net deferred tax asset (liability) for the years ended December 31, 2001 and 2000 is as follows:
(dollars in thousands) 2001 2000 -------------------------------------------------------------------------------- Balance, beginning $ 2,070 $ 4,600 Deferred tax expense, charged to operations (107) 71 Unrealized gain (loss) on available for sale securities, charged to equity (1,633) (2,601) -------------------------------------------------------------------------------- Balance, ending $ 330 $ 2,070 ================================================================================ |
Retained earnings at December 31, 2001 and 2000 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.
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 179,007, 235,748 and 295,517 shares at December 31, 2001, 2000 and 1999, respectively and the weighted average unvested shares in the Recognition and Retention Plan ("RRP") of 172,573, 187,454 and 231,282 shares at December 31, 2001, 2000 and 1999, respectively. Shares not included in the calculation of diluted EPS because they are anti-dilutive were stock options of 44,283, 238,507 and 151,865 and RRP grants of 6,026, 73,500 and 54,000 at December 31, 2001, 2000 and 1999, 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,
-------------------------------------------------------------------------------------------------------
2001 2000 1999
-------------------------------------------------------------------------------------------------------
Numerator:
Income applicable to common shares $14,508,000 $12,975,000 $ 9,529,000
=======================================================================================================
Denominator:
Weighted average common shares
outstanding 5,843,861 6,056,148 6,144,081
Effect of dilutive securities:
Stock options outstanding 267,618 46,821 79,188
RRP grants 31,479 10,602 17,435
-------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding -
assuming dilution 6,142,958 6,113,571 6,240,704
=======================================================================================================
Earnings per common share $ 2.48 $ 2.14 $ 1.55
Earnings per common share - assuming dilution $ 2.36 $ 2.12 $ 1.53
=======================================================================================================
|
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, 2001 and 2000, that the Company and the Bank met all capital adequacy requirements to which they are subject.
As of December 31, 2001, 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, 2001 and 2000 are also presented in the table.
Actual Minimum Well Capitalized
--------------------------------------------------------------------------------
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------------------
December 31, 2001
-----------------
Tier 1 leverage capital:
IBERIABANK Corp. $ 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 Corp. 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 Corp. 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
December 31, 2000
-----------------
Tier 1 leverage capital:
IBERIABANK Corp. $ 90,487 6.67% $54,239 4.00% $ N/A N/A%
IBERIABANK 97,649 7.22 54,109 4.00 67,636 5.00
Tier 1 risk-based capital:
IBERIABANK Corp. 90,487 10.05 35,998 4.00 N/A N/A
IBERIABANK 97,649 10.86 35,980 4.00 53,970 6.00
Total risk-based capital:
IBERIABANK Corp. 100,726 11.19 71,996 8.00 N/A N/A
IBERIABANK 107,888 11.99 71,960 8.00 89,950 10.00
================================================================================
|
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, 2001, 2000 and 1999. 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.
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.
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, 2001, 2000 and 1999 was $1,238,000, $741,000 and $1,031,000, respectively. The fair value of the unearned ESOP shares, using the closing quoted market price per share at year end was approximately $4,217,000 and $4,495,000 at December 31, 2001 and 2000, respectively.
A summary of the ESOP share allocation as of December 31 of the year indicated is as follows:
2001 2000 1999
-------------------------------------------------------------------------------------
Shares allocated beginning of year 343,029 304,067 246,995
Shares allocated during year 54,539 58,183 61,819
Shares distributed during the year (41,779) (19,221) (4,747)
------------------------------------------------------------------------------------
Total allocated shares held by ESOP at year end 355,789 343,029 304,067
Unreleased shares 152,118 206,657 264,840
------------------------------------------------------------------------------------
Total ESOP shares 507,907 549,686 568,907
====================================================================================
|
The Company issues stock options under various plans to directors, officers, other key employees and consultants. 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. Compensation expense in 2001, 2000 and 1999 related
to the stock option plans was not material. At December 31, 2001 future awards of 473,826 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.
The following table summarizes the activity related to stock options:
Options Weighted Average
Outstanding Exercise Price
----------------------------------------------------------------------------------
At January 1, 1999 687,134 $ 17.04
Granted 287,000 17.40
Canceled (91,416) 18.57
Exercised (13,371) 15.88
----------------------------------------------------------------------------------
At December 31, 1999 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
==================================================================================
Exerciseable at December 31, 1999 299,748 $ 16.51
Exerciseable at December 31, 2000 381,258 $ 16.54
Exerciseable at December 31, 2001 447,806 $ 16.57
==================================================================================
|
The following table presents the weighted average remaining life as of December 31, 2001 for options outstanding within the stated exercise prices:
Outstanding Exerciseable
--------------------------------------------------------------------------------
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 $15.06 199,822 $13.76 8.1 years 47,030 $13.78
$15.88 431,403 $15.88 4.4 years 327,048 $15.88
$16.31 to $19.75 58,500 $18.28 7.0 years 25,786 $18.19
$20.25 to $25.00 135,500 $22.43 7.5 years 37,712 $22.36
$25.13 to $29.55 185,661 $26.36 9.1 years 10,230 $26.31
================================================================================
|
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:
(dollars in thousands) 2001 2000 1999
----------------------------------------------------------------------
Net income:
As reported $14,508 $12,975 $ 9,529
Pro forma $13,847 $12,530 $ 9,229
Earnings per share:
As reported - basic $ 2.48 $ 2.14 $ 1.55
diluted $ 2.36 $ 2.12 $ 1.53
Pro forma - basic $ 2.37 $ 2.07 $ 1.50
diluted $ 2.25 $ 2.05 $ 1.48
======================================================================
|
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 2001, 2000 and 1999 grants: dividend yields of 2.64, 4.21 and 3.31 percent; expected volatility of 29.91, 25.53 and 26.13 percent; risk-free interest rate of 5.30, 6.35 and 5.97 percent; and expected lives of 8.5 years for all options. The weighted average fair value per share at the date of grant for shares granted during 2001, 2000 and 1999 was $8.54, $3.46 and $4.60, respectively.
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 can also make 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, 2001, 2000 and 1999 the amount included in compensation expense was $479,000, $612,000 and $717,000 respectively. At December 31, 2001, 76,398 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, 2001, 2000 and 1999 was $28.00, $14.49 and $18.14, respectively. A summary of the changes in awarded shares follows:
2001 2000 1999
--------------------------------------------------------------------------------
Balance, beginning of year 132,280 155,754 136,695
Granted 4,313 13,600 95,500
Forfeited (17,008) (5,142) (32,060)
Earned and issued (28,618) (31,932) (44,381)
--------------------------------------------------------------------------------
Balance, end of year 90,967 132,280 155,754
================================================================================
|
In the ordinary course of business, the Bank has granted loans to executive officers and directors and their affiliates amounting to $1,213,000 and $618,000 at December 31, 2001 and 2000, respectively. During the year ended December 31, 2001, total principal additions were $920,000 and total principal payments were $325,000.
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, 2001 and 2000, the Company had the following financial instruments outstanding, whose contract amounts represent credit risk:
Contract Amount
----------------------------------------------------------------------
(dollars in thousands) 2001 2000
----------------------------------------------------------------------
Commitments to grant loans $ 18,278 $ 21,971
Unfunded commitments under lines of credit 149,077 167,659
Commercial and standby letters of credit 2,212 1,925
======================================================================
|
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, 2001 and 2000, the Company had no investments in financial instruments or agreements whose value is linked to or derived from changes in the value of some underlying assets or index. Such instruments or agreements include futures, forward contracts, option contracts, interest-rate swap agreements and other financial arrangements with similar characteristics and are commonly referred to as derivatives.
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.
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.
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. The carrying value of FHLB stock approximates fair value based on the redemption provisions of the FHLB.
Loans: The fair value of mortgage loans receivable was estimated based on present values using entry-value rates at December 31, 2001 and 2000, weighted for varying maturity dates. Other loans receivable were valued based on present values using entry-value interest rates at December 31, 2001 and 2000 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, 2001 and 2000 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.
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, 2001 December 31,2000
-----------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(dollars in thousands) Amount Value Amount Value
-----------------------------------------------------------------------------------
Financial Assets
Cash and cash equivalents $ 51,681 $ 51,681 $ 34,541 $ 34,541
Investment securities 321,907 321,941 344,545 344,147
Federal Home Loan Bank stock 5,600 5,600 7,997 7,997
Loans and loans held for sale, net 960,765 990,079 933,633 928,967
Financial Liabilities
Deposits $1,237,394 $1,245,014 $1,143,187 $1,133,385
Short-term borrowings 12,339 12,339 54,000 54,000
Long-term debt 31,437 31,230 60,843 62,008
===================================================================================
|
The fair value estimates presented herein are based upon pertinent information available to management as of December 31, 2001 and 2000. 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, currrent estimates of fair value may differ significantly from the amounts presented herein.
The following is a summary of the components of other comprehensive income:
Years Ended December 31,
--------------------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999
--------------------------------------------------------------------------------
Unrealized gain (loss) on securities
available for sale, net $4,784 $5,674 $(11,489)
Reclassification adjustment for net (gains)
losses realized in net income (119) 1,759 -
--------------------------------------------------------------------------------
Other comprehensive income (loss) 4,665 7,433 (11,489)
Income tax (expense) benefit related
to other comprehensive income (1,633) (2,602) 4,016
--------------------------------------------------------------------------------
Other comprehensive income (loss), net of
income taxes $3,032 $4,831 $ (7,473)
================================================================================
|
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 2002 will be limited to 2002 earnings plus an additional $236,000.
Accordingly, at January 1, 2002, $138,056,000 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 $11,300,000.
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, 2001 and 2000
(dollars in thousands) 2001 2000
--------------------------------------------------------------------------------
Assets
Cash in bank $ 1,756 $ 711
Investment in subsidiary 138,298 134,223
Other assets 369 3,123
--------------------------------------------------------------------------------
Total assets $140,423 $138,057
================================================================================
Liabilities and Shareholders' Equity
Liabilities $ 6,006 $ 11,015
Shareholders' equity 134,417 127,042
--------------------------------------------------------------------------------
Total liabilities and shareholders' equity $140,423 $138,057
================================================================================
|
Condensed Statements of Income
December 31, 2001, 2000 and 1999
(dollars in thousands) 2001 2000 1999
------------------------------------------------------------------------------------
Operating income:
Dividends from subsidiary $15,050 $ 9,600 $ 4,550
Interest income 29 45 27
------------------------------------------------------------------------------------
Total operating income 15,079 9,645 4,577
------------------------------------------------------------------------------------
Operating expenses:
Interest expense 172 563 263
Other expenses 1,049 1,072 2,489
------------------------------------------------------------------------------------
Total operating expenses 1,221 1,635 2,752
------------------------------------------------------------------------------------
Income before income tax expense and increase
in equity in undistributed earnings of subsidiary 13,858 8,010 1,825
Income tax benefit 414 620 800
------------------------------------------------------------------------------------
Income before increase in equity in undistributed
earnings of subsidiary 14,272 8,630 2,625
Increase in equity in undistributed
earnings of subsidiary 236 4,345 6,904
------------------------------------------------------------------------------------
Net Income $14,508 $12,975 $ 9,529
====================================================================================
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Condensed Statements of Cash Flows
Years Ended December 31, 2001, 2000 and 1999
(dollars in thousands) 2001 2000 1999
--------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 14,508 $ 12,975 $ 9,529
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in equity in net income of subsidiary (236) (4,345) (6,904)
Noncash compensation expense 479 579 795
Other, net 2,955 (2,355) 901
--------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 17,706 6,854 4,321
--------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Net Cash Provided by (Used in) Investing Activities -- -- --
--------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Dividends paid to shareholders (3,981) (3,817) (3,810)
Capital contributed to subsidiary (152) (175) (2,184)
(Payments on) proceeds from long-term debt (9,225) 1,650 7,575
Net change in short-term borrowings 4,250 -- --
Payments received from ESOP 578 655 738
Payments to repurchase common stock (8,414) (5,377) (7,045)
Proceeds from sale of treasury stock 283 -- 212
--------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (16,661) (7,064) (4,514)
--------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 1,045 (210) (193)
Cash and Cash Equivalents at Beginning of Period 711 921 1,114
--------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 1,756 $ 711 $ 921
============================================================================================
|
(dollars in thousands, except per First Second Third Fourth share data) Quarter Quarter Quarter Quarter -------------------------------------------------------------------------------- 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 ================================================================================ Year Ended December 31, 2000 ---------------------------- Total interest income $24,633 $25,823 $26,821 $26,689 Total interest expense 12,284 12,883 13,695 13,868 -------------------------------------------------------------------------------- Net interest income 12,349 12,940 13,126 12,821 Provision for loan losses 481 604 811 1,965 -------------------------------------------------------------------------------- Net interest income after provision for loan losses 11,868 12,336 12,315 10,856 Noninterest income 3,181 3,124 3,241 3,272 Noninterest expense 9,514 9,662 9,281 7,980 Goodwill amortization 828 820 813 806 -------------------------------------------------------------------------------- Income before income taxes 4,707 4,978 5,462 5,342 Income tax expense 1,752 1,858 2,036 1,868 -------------------------------------------------------------------------------- Net Income $ 2,955 $ 3,120 $ 3,426 $ 3,474 ================================================================================ Earnings per share - basic $ 0.48 $ 0.51 $ 0.56 $ 0.58 ================================================================================ Earnings per share - diluted $ 0.48 $ 0.51 $ 0.56 $ 0.57 ================================================================================ |
Advisory Board Members
Taylor F. Barras E. Stewart Shea III Market President Chairman Dr. John L. Beyt Edward P. Landry Martha B. Brown Thomas R. LeBlanc Dr. George B. Cousin Diane Musson David D. Daly Huey P. Olivier J. David Duplantis Glenn Jerry Ritter Cecil A. Hymel II John Jeffrey Simon |
Patrick J. Trahan Elaine D. Abell
Market President Chairman
Clay M. Allen George E. Fleming
Bennett Boyd Anderson, Jr. Charles T. Goodson
Charles Theodore Beaullieu, Sr. Robert D. Lowe
Dr. Charles W. Boustany, Jr. Frank X. Neuner, Jr.
Dr. Edward F. Breaux James Michael Pool, Sr
Richard D. Chappuis, Jr. Dwight S. Ramsay
James M. Doyle Gail A. Romero
William W. Rucks III
|
Michael J. Brown John N. Casbon
Market President Chairman
John D. Becker Erik L. Johnsen
Darryl D. Berger William H. Langenstein III
Donald T. Bollinger William M. Metcalf, Jr.
John D. Charbonnet J. Cornelius Rathborne
David L. Ducote James J. Reiss, Jr.
James P. Favrot John Benton Smallpage
John D. Georges Stephen F. Stumpf
William F. Grace, Jr. Steven W. Usdin
David R. Voelker
|
Special thanks to C.F. Fenstermaker and Associates for the Louisiana map and to the University of Louisiana at Lafayette students for assistance in the creation of our annual report theme. Students include: Leah Bueche, Annie Caillouet, Brooke Comeaux, Christin Courtois, Nichole Credeur, Dionne Davis, Brooks Dufrene, Melissa Dupuis, Sarah Genovese, Jackie Graves, Claire Hardy, Blair Haynie, Richella Holmes, Julie Landreneau, Carrie Legrand, Alisha Mallet, April McIdoo, Erin Pate, Shasta Plauche, Monique Siener, Tricia Thriffiley, Kim-Xung Tran, and Darrell Traugott.
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
Regional Operating Officer - Region I,
Integrated Electrical Services
Cecil C. Broussard
Associate Broker, Absolute Realty, Inc.
Daryl G. Byrd
President and Chief Executive Officer,
IBERIABANK Corporation
John N. Casbon
Executive Vice President,
First American Title Insurance Company
CEO 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
Northeast Louisiana
Patrick J. Trahan
Lafayette
Corporate
Information
CORPORATE HEADQUARTERS
IBERIABANK Corporation
1101 East Admiral Doyle Drive
New Iberia, LA 70560
(337) 365-2361
CORPORATE MAILING ADDRESS
P.O. Box 12440
New Iberia, LA 70562-2440
INTERNET ADDRESS
www.iberiabank.com
ANNUAL MEETING OF SHAREHOLDERS
IBERIABANK Corporation Annual Meeting of Shareholders will be held on Wednesday,
May 1, 2002 at 10:00 a.m. at the Pan-American Life Media & Conference Center,
located at 601 Poydras Street, 11th Floor, New Orleans, LA.
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) 267-4458, Ext. 4708
John R. Davis
Senior Executive Vice President
(919) 676-7641
STOCK INFORMATION
Market Price
------------------------- Dividends
2000 High Low Closing Declared ------------------------------------------------------------- First Quarter $14.00 $11.31 $13.50 $0.16 Second Quarter $15.63 $12.75 $15.38 $0.16 Third Quarter $18.31 $14.88 $18.31 $0.17 Fourth Quarter $21.75 $17.38 $21.75 $0.17 |
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 |
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 have their stock certificate numbers and 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.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of IBERIABANK Corporation on Form S-8 (File No. 333-28859, 333-79811, 333-81315, 333-41970 and 333-64402) of our report dated February 4, 2002, on our audits of the consolidated financial statements of IBERIABANK Corporation as of December 31, 2001 and 2000, and for each of the three years in the period ended December 31, 2001, which report is incorporated by reference in this Annual Report on Form 10-K.
/s/Castaing, Hussey & Lolan, LLC -------------------------------- Castaing, Hussey & Lolan, LLC New Iberia, Louisiana March 27, 2002 |