UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
Commission File Number 0-25756
IBERIABANK Corporation
(Exact name of registrant as specified in its charter)
Louisiana | 72-1280718 | |
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification Number) |
200 West Congress Street Lafayette, Louisiana |
70501 | |
(Address of principal executive office) | (Zip Code) |
(337) 521-4003
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:
The registrant had 7,667,423 shares of common stock, $1.00 par value, which were issued and outstanding as of April 30, 2005.
IBERIABANK CORPORATION AND SUBSIDIARY
Page
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Part I. |
Financial Information |
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Item 1. |
2 | |||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
8 | ||
Item 3. |
20 | |||
Item 4. |
20 | |||
Part II. |
Other Information |
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Item 1. |
21 | |||
Item 2. |
21 | |||
Item 3. |
21 | |||
Item 4. |
21 | |||
Item 5. |
21 | |||
Item 6. |
21 | |||
22 |
1
PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements |
IBERIABANK CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (unaudited)
(dollars in thousands, except share data)
March 31,
2005 |
December 31,
2004 |
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Assets |
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Cash and due from banks |
$ | 50,020 | $ | 33,927 | ||||
Interest-bearing deposits in banks |
14,059 | 19,325 | ||||||
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Total cash and cash equivalents |
64,079 | 53,252 | ||||||
Securities available for sale, at fair value |
566,921 | 526,933 | ||||||
Securities held to maturity, fair values of $33,371 and $41,061, respectively |
32,782 | 40,022 | ||||||
Mortgage loans held for sale |
10,846 | 8,109 | ||||||
Loans, net of unearned income |
1,833,997 | 1,650,626 | ||||||
Allowance for loan losses |
(25,091 | ) | (20,116 | ) | ||||
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Loans, net |
1,808,906 | 1,630,510 | ||||||
Premises and equipment, net |
47,769 | 39,557 | ||||||
Goodwill |
93,871 | 64,732 | ||||||
Other assets |
104,839 | 85,487 | ||||||
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Total Assets |
$ | 2,730,013 | $ | 2,448,602 | ||||
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Liabilities |
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Deposits: |
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Noninterest-bearing |
$ | 265,278 | $ | 218,859 | ||||
Interest-bearing |
1,766,457 | 1,554,630 | ||||||
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Total deposits |
2,031,735 | 1,773,489 | ||||||
Short-term borrowings |
169,706 | 236,453 | ||||||
Long-term debt |
239,555 | 206,089 | ||||||
Other liabilities |
23,470 | 12,409 | ||||||
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Total Liabilities |
2,464,466 | 2,228,440 | ||||||
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Shareholders Equity |
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Preferred stock, $1 par value - 5,000,000 shares authorized |
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Common stock, $1 par value - 25,000,000 shares authorized; 9,442,125 and 8,649,777 shares issued, respectively |
9,442 | 8,650 | ||||||
Additional paid-in-capital |
187,441 | 136,841 | ||||||
Retained earnings |
145,200 | 140,049 | ||||||
Unearned compensation |
(8,970 | ) | (5,581 | ) | ||||
Accumulated other comprehensive income |
(3,504 | ) | 390 | |||||
Treasury stock at cost - 1,756,207 and 1,765,320 shares, respectively |
(64,062 | ) | (60,187 | ) | ||||
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Total Shareholders Equity |
265,547 | 220,162 | ||||||
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Total Liabilities and Shareholders Equity |
$ | 2,730,013 | $ | 2,448,602 | ||||
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See Notes to Consolidated Financial Statements
2
IBERIABANK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(dollars in thousands, except per share data)
For The Three Months
Ended March 31, |
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2005
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2004
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Interest and Dividend Income |
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Loans, including fees |
$ | 24,984 | $ | 19,958 | ||
Mortgage loans held for sale, including fees |
126 | 131 | ||||
Investment securities: |
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Taxable interest |
5,349 | 4,488 | ||||
Tax-exempt interest |
627 | 646 | ||||
Other |
368 | 179 | ||||
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Total interest and dividend income |
31,454 | 25,402 | ||||
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Interest Expense |
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Deposits |
7,535 | 5,358 | ||||
Short-term borrowings |
990 | 384 | ||||
Long-term debt |
2,380 | 1,694 | ||||
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Total interest expense |
10,905 | 7,436 | ||||
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Net interest income |
20,549 | 17,966 | ||||
Provision for loan losses |
650 | 1,055 | ||||
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Net interest income after provision for loan losses |
19,899 | 16,911 | ||||
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Noninterest Income |
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Service charges on deposit accounts |
3,140 | 2,906 | ||||
ATM/debit card fee income |
608 | 432 | ||||
Income from bank owned life insurance |
456 | 377 | ||||
Gain on sale of loans, net |
558 | 862 | ||||
Gain on sale of assets |
36 | 10 | ||||
Gain on sale of investments, net |
5 | 143 | ||||
Other income |
1,278 | 826 | ||||
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Total noninterest income |
6,081 | 5,556 | ||||
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Noninterest Expense |
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Salaries and employee benefits |
8,239 | 7,113 | ||||
Occupancy and equipment |
1,889 | 1,701 | ||||
Franchise and shares tax |
772 | 700 | ||||
Communication and delivery |
776 | 654 | ||||
Marketing and business development |
512 | 451 | ||||
Data processing |
438 | 375 | ||||
Printing, stationery and supplies |
261 | 218 | ||||
Amortization of acquisition intangibles |
284 | 218 | ||||
Other expenses |
2,505 | 1,785 | ||||
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Total noninterest expense |
15,676 | 13,215 | ||||
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Income before income tax expense |
10,304 | 9,252 | ||||
Income tax expense |
3,004 | 2,761 | ||||
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Net Income |
$ | 7,300 | $ | 6,491 | ||
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Earnings per share - basic |
$ | 1.02 | $ | 0.98 | ||
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Earnings per share - diluted |
$ | 0.94 | $ | 0.90 | ||
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See Notes to Consolidated Financial Statements
3
IBERIABANK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (unaudited)
(dollars in thousands, except share and per share data)
Common
Stock |
Additional
Paid-In Capital |
Retained
Earnings |
Unearned
Compensation |
Accumulated
Other Comprehensive Income |
Treasury
Stock |
Total
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Balance, December 31, 2003 |
$ | 8,362 | $ | 114,674 | $ | 119,967 | $ | (2,668 | ) | $ | 183 | $ | (45,349 | ) | $ | 195,169 | ||||||||||
Comprehensive income: |
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Net income |
6,491 | 6,491 | ||||||||||||||||||||||||
Change in unrealized gain on securities available for sale, net of deferred taxes |
2,701 | 2,701 | ||||||||||||||||||||||||
Change in fair value of derivatives used for cash flow hedges, net of tax effect |
(686 | ) | (686 | ) | ||||||||||||||||||||||
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Total comprehensive income |
8,506 | |||||||||||||||||||||||||
Cash dividends declared, $.24 per share |
(1,653 | ) | (1,653 | ) | ||||||||||||||||||||||
Reissuance of treasury stock under stock option plan, net of shares surrendered in payment, including tax benefit, 62,858 shares |
1,025 | 927 | 1,952 | |||||||||||||||||||||||
Common stock released by ESOP trust |
567 | 112 | 679 | |||||||||||||||||||||||
Common stock earned by participants of recognition and retention plan trust, including tax benefit |
70 | 129 | 199 | |||||||||||||||||||||||
Common stock issued for recognition and retention plan |
1,283 | (1,703 | ) | 420 | | |||||||||||||||||||||
Common stock issued for acquisition |
288 | 15,208 | 15,496 | |||||||||||||||||||||||
Treasury stock acquired at cost, 52,100 shares |
(3,168 | ) | (3,168 | ) | ||||||||||||||||||||||
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Balance, March 31, 2004 |
$ | 8,650 | $ | 132,827 | $ | 124,805 | $ | (4,130 | ) | $ | 2,198 | $ | (47,170 | ) | $ | 217,180 | ||||||||||
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Balance, December 31, 2004 |
$ | 8,650 | $ | 136,841 | $ | 140,049 | $ | (5,581 | ) | $ | 390 | $ | (60,187 | ) | $ | 220,162 | ||||||||||
Comprehensive income: |
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Net income |
7,300 | 7,300 | ||||||||||||||||||||||||
Change in unrealized gain on securities available for sale, net of deferred taxes |
(4,625 | ) | (4,625 | ) | ||||||||||||||||||||||
Change in fair value of derivatives used for cash flow hedges, net of tax effect |
731 | 731 | ||||||||||||||||||||||||
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Total comprehensive income |
3,406 | |||||||||||||||||||||||||
Cash dividends declared, $.28 per share |
(2,149 | ) | (2,149 | ) | ||||||||||||||||||||||
Reissuance of treasury stock under stock option plan, net of shares surrendered in payment, including tax benefit, 36,980 shares |
577 | 394 | 971 | |||||||||||||||||||||||
Common stock released by ESOP trust |
519 | 103 | 622 | |||||||||||||||||||||||
Common stock earned by participants of recognition and retention plan trust, including tax benefit |
67 | 270 | 337 | |||||||||||||||||||||||
Common stock issued for recognition and retention plan |
2,492 | (3,762 | ) | 1,270 | | |||||||||||||||||||||
Common stock issued for acquisition |
792 | 46,945 | 47,737 | |||||||||||||||||||||||
Treasury stock acquired at cost, 91,200 shares |
(5,539 | ) | (5,539 | ) | ||||||||||||||||||||||
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Balance, March 31, 2005 |
$ | 9,442 | $ | 187,441 | $ | 145,200 | $ | (8,970 | ) | $ | (3,504 | ) | $ | (64,062 | ) | $ | 265,547 | |||||||||
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See Notes to Consolidated Financial Statements
4
IBERIABANK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(dollars in thousands)
For The Three Months
Ended March 31, |
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2005
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2004
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Cash Flows from Operating Activities |
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Net income |
$ | 7,300 | $ | 6,491 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
1,176 | 1,054 | ||||||
Provision for loan losses |
650 | 1,055 | ||||||
Noncash compensation expense |
863 | 798 | ||||||
Gain on sale of assets |
(36 | ) | (10 | ) | ||||
Gain on sale of investments |
(5 | ) | (143 | ) | ||||
Amortization of premium/discount on investments |
516 | 699 | ||||||
Net change in loans held for sale |
(2,737 | ) | (5,210 | ) | ||||
Other operating activities, net |
6,963 | 3,691 | ||||||
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Net Cash Provided by Operating Activities |
14,690 | 8,425 | ||||||
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Cash Flows from Investing Activities |
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Proceeds from sales of securities available for sale |
| 14,648 | ||||||
Proceeds from maturities, prepayments and calls of securities available for sale |
21,619 | 29,315 | ||||||
Purchases of securities available for sale |
(57,688 | ) | (101,561 | ) | ||||
Proceeds from maturities, prepayments and calls of securities held to maturity |
7,209 | 5,087 | ||||||
Decrease (increase) in loans receivable, net |
13,764 | (6,909 | ) | |||||
Proceeds from sale of premises and equipment |
354 | | ||||||
Purchases of premises and equipment |
(2,173 | ) | (3,415 | ) | ||||
Proceeds from disposition of real estate owned |
772 | 2,285 | ||||||
Cash received in excess of cash paid in acquisition |
20,736 | 4,422 | ||||||
Other investing activities, net |
(15 | ) | (118 | ) | ||||
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Net Cash Provided by (Used in) Investing Activities |
4,578 | (56,246 | ) | |||||
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Cash Flows from Financing Activities |
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Increase in deposits |
65,759 | 106,646 | ||||||
Net change in short-term borrowings |
(66,747 | ) | (41,576 | ) | ||||
Repayments of long-term debt |
(424 | ) | (107 | ) | ||||
Dividends paid to shareholders |
(1,816 | ) | (1,508 | ) | ||||
Proceeds from sale of treasury stock for stock options exercised |
332 | 1,117 | ||||||
Costs of issuance of common stock in acquisition |
(6 | ) | | |||||
Payments to repurchase common stock |
(5,539 | ) | (3,168 | ) | ||||
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Net Cash (Used in) Provided by Financing Activities |
(8,441 | ) | 61,404 | |||||
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Net Increase In Cash and Cash Equivalents |
10,827 | 13,583 | ||||||
Cash and Cash Equivalents at Beginning of Period |
53,252 | 69,571 | ||||||
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Cash and Cash Equivalents at End of Period |
$ | 64,079 | $ | 83,154 | ||||
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Supplemental Schedule of Noncash Activities |
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Acquisition of real estate in settlement of loans |
$ | 440 | $ | 193 | ||||
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Common stock issued in acquisition |
$ | 47,743 | $ | 15,496 | ||||
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Exercise of stock options with payment in company stock |
$ | 521 | $ | | ||||
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Supplemental Disclosures |
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Cash paid for: |
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Interest on deposits and borrowings |
$ | 10,963 | $ | 7,394 | ||||
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Income taxes, net |
$ | 524 | $ | 213 | ||||
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See Notes to Consolidated Financial Statements
5
IBERIABANK CORPORATION AND
Notes to Consolidated Financial Statements
(unaudited)
Note 1 Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. These interim financial statements should be read in conjunction with the audited financial statements and note disclosures for the Company previously filed with the Securities and Exchange Commission in the Companys Annual Report on Form 10-K for the year ended December 31, 2004.
The consolidated financial statements include the accounts of IBERIABANK Corporation and its wholly owned subsidiary, IBERIABANK (the Bank), as well as all of the Banks subsidiaries, Iberia Financial Services LLC, Acadiana Holdings LLC, Jefferson Insurance Corporation, Finesco LLC and IBERIABANK Insurance Services LLC. All significant intercompany balances and transactions have been eliminated in consolidation. Through the Bank, the Company offers commercial and retail products and services to customers throughout the state, including New Orleans, Baton Rouge, Shreveport, Monroe, and the Acadiana region of Louisiana.
All normal, recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the financial statements, have been included. 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. A material estimate that is susceptible to significant change in the near term is the allowance for loan losses.
Note 2 Earnings Per Share
For the three months ended March 31, 2005, basic earnings per share were based on 7,191,083 weighted average shares outstanding and diluted earnings per share were based on 7,739,962 weighted average shares outstanding. For the same period, the calculations for both basic and diluted shares outstanding exclude: (a) the weighted average unreleased shares owned by the Employee Stock Ownership Plan (ESOP) of 5,169; (b) the weighted average shares owned by the Recognition and Retention Plan Trust (RRP) of 179,162; and (c) the weighted average shares purchased in Treasury Stock of 1,793,792.
Note 3 Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (FASB) issued FAS No. 123(R), Share-Based Payment. FAS No. 123(R) revises FAS No. 123 and calls for companies to expense the fair value of employee stock options and other forms of stock-based compensation. The Company is required to adopt FAS No. 123(R) as of January 1, 2006. This requirement will represent a significant change in practice for the Company.
FAS No. 123(R) requires companies to (1) use fair value to measure stock-based compensation awards and (2) cease using the intrinsic value method of accounting, which APB No. 25 allowed and resulted in no expense for many awards of stock options for which the exercise price of the option equaled the price of the underlying stock at the grant date. Under FAS No. 123(R), the fair value of a stock-based compensation award is recognized over the employees service period.
6
On March 25, 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107). SAB 107 provides guidance regarding the valuation of share-based payment arrangements, the classification of compensation expense, non-GAAP financial measures, first-time adoption of Statement 123(R) in an interim period, capitalization of compensation cost related to share-based payment arrangements, the accounting for income tax effects of share-based payment arrangements upon adoption of Statement 123(R), the modification of employee share options prior to adoption of Statement 123(R) and disclosures in Managements Discussion and Analysis subsequent to adoption of Statement 123(R).
Note 4 Compensation Cost for Stock-based Incentives
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. The Company uses the intrinsic value method under APB Opinion 25 to account for stock options granted.
Applying FAS 123 would result in pro forma net income and earnings per share amounts as follows:
For the Three Months Ended
March 31, |
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(dollars in thousands, except per share data) |
2005
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2004
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Net Income: |
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As reported |
$ | 7,300 | $ | 6,491 | ||||
Deduct: Stock option compensation expense under the fair value method, net of related tax effect |
(367 | ) | (268 | ) | ||||
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Pro forma |
$ | 6,933 | $ | 6,223 | ||||
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Earnings per share: |
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As reported - basic |
$ | 1.02 | $ | 0.98 | ||||
diluted |
$ | 0.94 | $ | 0.90 | ||||
Pro forma - basic |
$ | 0.96 | $ | 0.94 | ||||
diluted |
$ | 0.90 | $ | 0.87 |
Note 5 Acquisition
The Company completed the acquisition of American Horizons Bancorp, Inc., the holding company for American Horizons Bank, of Monroe, Louisiana (American Horizons) on January 31, 2005. The acquisition expanded the Companys presence in North Louisiana.
The consolidated statements of income include the results of operations for American Horizons from the acquisition date. The transaction resulted in $29.2 million of goodwill and $5.0 million of core deposit intangibles. The amount allocated to the core deposit intangible was determined by an independent valuation and is amortized over the estimated useful life of ten years using the straight line method.
7
In the acquisition, shareholders of American Horizons received 792,348 shares of the Companys common stock valued at $47.7 million and cash of $653,000. The combination was accounted for as a purchase with the purchase price allocated as follows:
(dollars in thousands) |
Amount
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Cash and due from banks |
$ | 21,389 | ||
Investment securities |
11,515 | |||
Loans, net |
193,623 | |||
Premises and equipment, net |
7,238 | |||
Goodwill |
29,179 | |||
Core deposit intangibles |
5,039 | |||
Other assets |
9,331 | |||
Deposits |
(192,653 | ) | ||
Borrowings |
(34,207 | ) | ||
Other liabilities |
(2,057 | ) | ||
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Total purchase price |
$ | 48,397 | ||
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The following pro forma information for the three month periods ended March 31, 2005 and March 31, 2004 reflects the Companys estimated consolidated results of operations as if the acquisition of American Horizons occurred at January 1 of the respective periods, unadjusted for potential cost savings.
Pro Forma Combined
For the Three Months Ended |
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(dollars in thousands, except per share data) |
March 31,
2005 |
March 31,
2004 |
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Interest and noninterest income |
$ | 39,104 | $ | 35,376 | ||
Net income |
$ | 7,453 | $ | 6,861 | ||
Earnings per share basic |
$ | 1.00 | $ | 0.92 | ||
Earnings per share diluted |
$ | 0.93 | $ | 0.85 |
The Company recorded $650,000 of merger-related and restructuring costs during the first quarter of 2005 related to the American Horizons merger. Key components of merger-related and restructuring charges included lease cancellation and other branch closure costs, severance and personnel-related costs, systems integration costs, and marketing and public relations costs.
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The purpose of this discussion and analysis is to focus on significant changes in the financial condition and results of operations of the Company during the first three months of the year. This discussion and analysis highlights and supplements information contained elsewhere in this quarterly report on Form 10-Q, particularly the preceding consolidated financial statements and notes. This discussion and analysis should be read in conjunction with the Companys 2004 Annual Report on Form 10-K.
FORWARD-LOOKING STATEMENTS
To the extent that statements in this Form 10-Q relate to future plans, objectives, financial results or performance of the Company, these statements are deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, which are based on managements current information, estimates and assumptions and the current economic environment, are generally identified by the use of the words plan, believe, expect, intend, anticipate, estimate, project or similar expressions. The Companys actual strategies and results in future periods may differ materially from those currently expected due to various risks and uncertainties. Factors that may cause actual results to differ materially from these forward-looking statements include, but are not limited to, changes in market and economic conditions; changes in interest rates, deposit flows, loan demand and real estate values; competitive pressures; changes in accounting principles, policies or guidelines; changes in the Companys loan or investment portfolio; legislative or regulatory changes; changes in monetary or fiscal policies; military or terrorist activities; litigation costs and expenses; and other economic, competitive, governmental, regulatory and technological factors affecting the Companys business activities and prospects.
8
FIRST QUARTER OVERVIEW
During the first quarter of 2005, the Company earned $7.3 million, or $0.94 per share on a diluted basis. This represents a 5.3% increase over the $0.90 per diluted share, or $6.5 million, earned for the first quarter of 2004. Quarterly comparatives are influenced, in part, by the acquisition of Alliance Bank of Baton Rouge (Alliance) on February 29, 2004 and the acquisition of American Horizons on January 31, 2005 (see Note 5). The key components of the Companys performance are summarized below.
| Total assets at March 31, 2005 were $2.7 billion, up $281.4 million, or 11.5%, from $2.4 billion at December 31, 2004. Shareholders equity increased by $45.4 million, or 20.6%, from $220.2 million at December 31, 2004 to $265.5 million at March 31, 2005. |
| Total loans at March 31, 2005 were $1.8 billion, an increase of $183.4 million, or 11.1%, from $1.7 billion at December 31, 2004. The increase from year end 2004 includes the $198.5 million loan base obtained through the American Horizons acquisition, which was partially offset by a decrease in internally generated loans of $15.1 million. |
| Total customer deposits increased $258.2 million, or 14.6%, from $1.8 billion at December 31, 2004 to $2.0 billion at March 31, 2005. The increase from year end 2004 includes $192.7 million in customer deposits obtained through the American Horizons acquisition, which was enhanced by strong organic growth of $65.6 million. |
| Net interest income increased $2.6 million, or 14.4%, for the three months ended March 31, 2005, compared to the same period of 2004. This increase was largely attributable to increased volume. The corresponding net interest margin ratio on a tax-equivalent basis declined to 3.56% from 3.75% for the quarters ended March 31, 2005 and 2004, respectively, primarily due to the Companys slightly liability sensitive position and competition. |
| Noninterest income increased $525,000, or 9.4%, for the first quarter of 2005 as compared to the same period of 2004. The increase was mainly driven by increases in service charge revenues on deposit accounts, ATM/debit card fees, broker commissions and a one-time payment received as a result of the PULSE-Discover merger. These increases were partially offset by declines in gains on the sale of mortgage loans and investment securities. |
| Noninterest expense increased $2.5 million, or 18.6%, for the quarter ended March 31, 2005, as compared to the same quarter last year. This increase was primarily due to higher compensation expense as a result of additional staff related to the Alliance and American Horizons acquisitions, as well as strategic hires during 2004. Noninterest expense for the quarter ended March 31, 2005 also includes $650,000 of one-time expenses associated with the integration and conversion of American Horizons. |
| The Company provided $650,000 for possible loan losses during the first quarter of 2005, compared to $1.1 million for the first quarter of 2004. The Company has been able to reduce the provision for loan losses due to the continued strong asset quality of the loan portfolio combined with a first quarter reduction (excluding acquired loans) in the Companys loan portfolio. As of March 31, 2005, the allowance for loan losses as a percent of total loans was 1.37%, compared to 1.32% at March 31, 2004. Net charge-offs for the first quarter of 2005 were $568,000, or 0.13%, of average loans on an annualized basis, compared to $477,000, or 0.13%, a year earlier. The coverage of net charge-offs by the provision for loan losses was 1.14 times for the first quarter of 2005 and 2.21 times for the first quarter of 2004. The coverage of nonperforming assets by the allowance for loan losses was 3.20 times at the end of the first quarter of 2005, as compared to 3.27 times at December 31, 2004 and 4.06 times at March 31, 2004. |
| In March 2005, the Companys Board of Directors declared a quarterly cash dividend of $0.28 per common share, a 17% increase compared to the same quarter of 2004. |
9
FINANCIAL CONDITION
Earning Assets
Earning assets are composed of interest or dividend-bearing assets, including loans, securities, short-term investments and loans held for sale. Interest income associated with earning assets is the Companys primary source of income. Earning assets averaged $2.4 billion during the quarter ended March 31, 2005, an increase of $256.0 million, or 11.9%, from the year ended December 31, 2004. This is primarily the result of the American Horizons acquisition.
Loans and Leases The loan portfolio increased $183.4 million, or 11.1%, during the first three months of 2005. The Companys loan to deposit ratios at March 31, 2005 and December 31, 2004 were 90.3% and 93.1%, respectively. The percentage of fixed rate loans within the total loan portfolio has increased slightly from 65% at the end of 2004 to 66% as of March 31, 2005. Table 1 sets forth the composition of the Companys loan portfolio as of the dates indicated.
Table 1 Loan Portfolio Composition
March 31, 2005
|
December 31, 2004
|
|||||||||||
(dollars in thousands) |
Loans
|
Percent
|
Loans
|
Percent
|
||||||||
Residential mortgage loans: |
||||||||||||
Residential 1-4 family |
$ | 396,480 | 21.6 | % | $ | 387,079 | 23.5 | % | ||||
Construction |
28,815 | 1.6 | 33,031 | 2.0 | ||||||||
|
|
|
|
|
|
|
|
|||||
Total residential mortgage loans |
425,295 | 23.2 | 420,110 | 25.5 | ||||||||
Commercial loans: |
||||||||||||
Real estate |
531,601 | 29.0 | 419,427 | 25.4 | ||||||||
Business |
338,863 | 18.5 | 307,614 | 18.6 | ||||||||
|
|
|
|
|
|
|
|
|||||
Total commercial loans |
870,464 | 47.5 | 727,041 | 44.0 | ||||||||
Consumer loans: |
||||||||||||
Indirect automobile |
223,287 | 12.2 | 222,480 | 13.5 | ||||||||
Home equity |
236,800 | 12.9 | 213,533 | 12.9 | ||||||||
Other |
78,151 | 4.2 | 67,462 | 4.1 | ||||||||
|
|
|
|
|
|
|
|
|||||
Total consumer loans |
538,238 | 29.3 | 503,475 | 30.5 | ||||||||
|
|
|
|
|
|
|
|
|||||
Total loans receivable |
$ | 1,833,997 | 100.0 | % | $ | 1,650,626 | 100.0 | % | ||||
|
|
|
|
|
|
|
|
Total commercial loans increased $143.4 million, or 19.7%, compared to December 31, 2004. This growth was the result of the $155.2 million in commercial loans obtained via the American Horizons acquisition. Commercial real estate loans increased $112.2 million, or 26.7%, compared to December 31, 2004. Commercial business loans increased $31.2 million, or 10.2%, compared to December 31, 2004.
Total consumer loans increased $34.8 million, or 6.9%, compared to December 31, 2004. Home equity loans continued to drive consumer loan growth, increasing $23.3 million, or 10.9%, compared to December 31, 2004. The Company acquired $39.8 million in consumer loans as a result of the American Horizons acquisition.
Residential mortgage loans increased $5.2 million, or 1.2%, from December 31, 2004 to March 31, 2005. The Company continues to sell in the secondary market the majority of conforming mortgage loan originations and recognize the associated fee income rather than assume the rate risk associated with these longer term assets. Growth in residential mortgage loans is primarily related to credit extended to high net worth individuals through the private banking area. These mortgage loans traditionally have shorter durations, lower servicing costs and provide an opportunity to deepen client relationships. The Company acquired $3.5 million of mortgage loans as a result of the American Horizons acquisition.
10
Investment Securities The Companys investment securities available for sale increased $40.0 million, or 7.6%, to $566.9 million at March 31, 2005, compared to $526.9 million at December 31, 2004. The increase was primarily due to securities of $11.5 million obtained through the acquisition of American Horizons and purchases of securities totaling $57.7 million, both of which were partially offset by principal maturities, prepayments and calls totaling $21.6 million, $0.5 million from the amortization of premiums and accretion of discounts, and a $7.1 million decrease in the market value of the portfolio. Securities available for sale consist primarily of mortgage-backed securities.
The Companys investment securities held to maturity decreased $7.2 million, or 18.1%, to $32.8 million at March 31, 2005, compared to $40.0 million at December 31, 2004. This decrease was primarily due to principal maturities, prepayments and calls.
Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to 1) the length of time and the extent to which the fair value has been less than cost, 2) the financial condition and near-term prospects of the issuer, and 3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuers financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts reports. As of March 31, 2005, managements assessment concluded that no declines are deemed to be other than temporary.
Short-term Investments Short-term investments result from excess funds that fluctuate daily depending on the funding needs of the Company and are currently invested overnight in an interest-bearing deposit account at the Federal Home Loan Bank (FHLB) of Dallas, the total balance of which earns interest at the current FHLB discount rate. The balance in interest-bearing deposits at other institutions decreased $5.3 million, or 27.2%, to $14.1 million at March 31, 2005, compared to $19.3 million at December 31, 2004.
Mortgage Loans Held for Sale Loans held for sale increased $2.7 million, or 33.8%, to $10.8 million at March 31, 2005, compared to $8.1 million at December 31, 2004. Loans held for sale have primarily been fixed rate single-family residential mortgage loans under contract to be sold in the secondary market. In most cases, loans in this category are sold within thirty days. Buyers generally have recourse to return a purchased loan to the Company under limited circumstances. Recourse conditions may include early payment default, breach of representations or warranties, and documentation deficiencies.
Asset Quality and Allowance for Loan Losses
Over time, the loan portfolio has transitioned to be more representative of a commercial bank. Accordingly, there is recognition of the potential for a higher level of return for investors, but also of the potential for higher charge-off and nonperforming levels. In recognition of this, management has tightened underwriting guidelines and procedures, adopted more conservative loan charge-off and nonaccrual guidelines, rewritten the loan policy, developed an internal loan review function and significantly increased the allowance for loan losses. As a result, the credit quality of the Companys assets has improved over time. Management believes that historically it has recognized and disclosed significant problem loans quickly and taken prompt action in addressing material weaknesses in those credits. The Company will continue to monitor the risk adjusted level of return within the loan portfolio.
Nonperforming assets, defined as nonaccrual loans, accruing loans past due 90 days or more and foreclosed property, amounted to $7.8 million, or 0.29% of total assets at March 31, 2005, compared to $6.2 million, or 0.25% of total assets at December 31, 2004. The allowance for loan losses amounted to $25.1 million, or 1.37% of total loans and 332.3% of total nonperforming loans, respectively, at March 31, 2005, compared to 1.22% and 355.2%, respectively, at December 31, 2004. Table 2 sets forth the composition of the Companys nonperforming assets, including accruing loans past due 90 days or more, as of the dates indicated.
11
Table 2 Nonperforming Assets and Troubled Debt Restructurings
(dollars in thousands) |
March 31, 2005 |
December 31, 2004 |
||||||
Nonaccrual loans: |
||||||||
Commercial, financial and agricultural |
$ | 3,242 | $ | 1,936 | ||||
Mortgage |
1,070 | 735 | ||||||
Loans to individuals |
2,351 | 1,784 | ||||||
|
|
|
|
|
|
|||
Total nonaccrual loans |
6,663 | 4,455 | ||||||
Accruing loans 90 days or more past due |
887 | 1,209 | ||||||
|
|
|
|
|
|
|||
Total nonperforming loans (1) |
7,550 | 5,664 | ||||||
Foreclosed property |
297 | 492 | ||||||
|
|
|
|
|
|
|||
Total nonperforming assets (1) |
7,847 | 6,156 | ||||||
Performing troubled debt restructurings |
| | ||||||
|
|
|
|
|
|
|||
Total nonperforming assets and troubled debt restructurings (1) |
$ | 7,847 | $ | 6,156 | ||||
|
|
|
|
|
|
|||
Nonperforming loans to total loans (1) |
0.41 | % | 0.34 | % | ||||
Nonperforming assets to total assets (1) |
0.29 | % | 0.25 | % | ||||
Allowance for loan losses to nonperforming loans (1) |
332.3 | % | 355.2 | % | ||||
Allowance for loan losses to total loans |
1.37 | % | 1.22 | % |
(1) | Nonperforming loans and assets include accruing loans 90 days or more past due |
The percentage of nonperforming assets to total loans increased from 0.37% at the end of 2004 to 0.43% at March 31, 2005. Nonperforming asset balances increased by $1.7 million, or 27.5%, since the end of 2004. These increases primarily relate to nonaccrual loans obtained in the American Horizons acquisition. Nonperforming loans increased $1.9 million, or 33.3%, during the first three months of the year. Net charge-offs for the first quarter of 2005 were $568,000, or 0.13% of average loans on an annualized basis, as compared to $477,000, or 0.13%, for the same quarter last year.
In determining the amount of the allowance for loan losses, management uses information from its portfolio management process, relationship managers and ongoing loan review efforts to stratify the loan portfolio into asset risk classifications and assigns a general or specific reserve allocation. The foundation for the allowance is a detailed review of the overall loan portfolio and its performance. The portfolio is segmented into homogenous pools (i.e., commercial, business banking, consumer, mortgage, indirect, and credit card), which are analyzed based on risk factors, current and historical performance and specific loan reviews (for significant loans). Consideration is given to the specific risk within these segments, the maturity of these segments (e.g., rapid growth versus fully seasoned), the Companys strategy for each segment (e.g., growth versus maintain), and the historical loss rate for these segments both at the Company and its peers. Consideration is also given to the impact of a number of relevant external factors that influence components of the loan portfolio or the portfolio as a whole, including current and projected economic conditions.
Loan portfolios tied to acquisitions made during the year are incorporated into the Companys allowance process. If the acquisition has an impact on the level of exposure to a particular segment, industry or geographic market, this increase in exposure is factored into the allowance determination process. Generally, acquisitions have higher levels of risk of loss based on differences in credit culture, portfolio management practices and the Companys emphasis on early detection and management of deteriorating loans. The Company added $4.9 million to the allowance for loan losses as a result of the application of the Companys allowance methodology on the American Horizons loan portfolio.
General reserve estimated loss percentages are based on the current and historical loss experience of each loan category, regulatory guidelines for losses, the status of past due payments, and managements judgment of economic conditions and the related level of risk assumed. Relative to homogenous loan pools such as mortgage, consumer, indirect and credits cards, the Company has established a general reserve level using information such as actual loan losses, the seasoning of the pool, identified loan impairment, acquisitions,
12
and current and projected economic conditions. General reserves for these pools are adjusted for loans that are considered past due, based on the correlation between historical losses and the payment performance of a loan pool.
The commercial segment of the Companys loan portfolio is initially assigned a general reserve also based on performance of that portion of the loan portfolio and other general factors discussed earlier. The commercial portion of the portfolio is further segmented by collateral type, which based on experience has a direct relationship to the level of loss experienced if a problem develops. Reserves are set based on managements assessment of this risk of loss. As commercial loans deteriorate, the Company reviews each for impairment and proper loan grading. Loans on the Companys Watch List carry higher levels of reserve based largely on a higher level of loss experience for these loans. Loss experience for Watch List loans is reviewed periodically during the year.
Specific reserves are determined for commercial loans individually based on managements evaluation of loss exposure for each credit, given current payment status of the loan and the value of any underlying collateral. Loans for which specific reserves are provided are excluded from the general reserve calculations described above to prevent duplicate reserves. Additionally, an unallocated reserve for the total loan portfolio is established to address the imprecision and estimation risk inherent in the calculations of general and specific reserves, and managements evaluation of various conditions that are not directly measured by any other component of the allowance. Such components would include current economic conditions affecting key lending areas, credit quality trends, collateral values, loan volumes and concentrations, seasoning of the loan portfolio and the findings of internal credit examinations.
Based on the allowance determination process, the Company determines the current potential risk of loss that exists in the portfolio, even if not fully reflected in current credit statistics, such as nonperforming assets or nonperforming loans. To determine risk of loss, and in turn the appropriateness of the allowance, the Company extends its analysis to a number of other factors, including the level of delinquencies and delinquency trends; the level and mix of Criticized, Classified and Pass/Watch loans; reserve levels relative to nonperforming assets, nonperforming loans, and net charge-offs; the level and trend in consumer and commercial bankruptcies; and financial performance trends in specific businesses and industries to which the Company lends. In response to rapid growth and changes in the mix of the loan portfolio, the Company has increased its required allowance over time and feels that the allowance adequately reflects the current level of risk and incurred losses within the loan portfolio.
Table 3 presents the activity in the allowance for loan losses during the first three months of 2005.
Table 3 Summary of Activity in the Allowance for Loan Losses
(dollars in thousands) |
March 31, 2005
|
|||
Balance, December 31, 2004 |
$ | 20,116 | ||
Addition due to purchase transaction |
4,893 | |||
Provision charged to operations |
650 | |||
Loans charged off |
(983 | ) | ||
Recoveries |
415 | |||
|
|
|
||
Balance, end of period |
$ | 25,091 | ||
|
|
|
Other Assets
Included in this category are cash and due from banks, premises and equipment, goodwill and other assets. From December 31, 2004 to March 31, 2005, cash and due from banks increased $16.1 million, or 47.4%, premises and equipment increased $8.2 million, or 20.8%, primarily due to the addition of American Horizons and goodwill increased $29.1 million, or 45.0%, as a result of the American Horizons acquisition.
13
Funding Sources
Deposits obtained from clients in its primary market areas are the Companys principal source of funds for use in lending and other business purposes. The Company attracts local deposit accounts by offering a wide variety of accounts, competitive interest rates and convenient branch office locations and service hours. Increasing core deposits through the development of client relationships is a continuing focus of the Company. Borrowings have become an increasingly important funding source as the Company has grown. Other funding sources include short-term and long-term borrowings, subordinated debt and shareholders equity. The following discussion highlights the major changes in the mix of deposits and other funding sources during the first three months of the year.
Deposits Total end of period deposits increased $258.2 million, or 14.6%, to $2.0 billion at March 31, 2005, compared to $1.8 billion at December 31, 2004. Table 4 sets forth the composition of the Companys deposits at the dates indicated.
Table 4 Deposit Composition
March 31, 2005
|
December 31, 2004
|
|||||||||||
(dollars in thousands) |
Deposits
|
Percent
|
Deposits
|
Percent
|
||||||||
Noninterest-bearing DDA |
$ | 265,278 | 13.1 | % | $ | 218,859 | 12.3 | % | ||||
NOW accounts |
583,083 | 28.7 | 532,584 | 30.0 | ||||||||
Savings and money market accounts |
450,933 | 22.2 | 393,772 | 22.2 | ||||||||
Certificates of deposit |
732,441 | 36.0 | 628,274 | 35.5 | ||||||||
|
|
|
|
|
|
|
|
|||||
Total deposits |
$ | 2,031,735 | 100.0 | % | $ | 1,773,489 | 100.0 | % | ||||
|
|
|
|
|
|
|
|
The growth in deposits for the first three months of 2005 was spread across all customer deposit groups and includes $192.7 million of deposits assumed in the American Horizons transaction. From December 31, 2004 to March 31, 2005, noninterest-bearing checking accounts increased $46.4 million, or 21.2%, interest-bearing checking account deposits increased $50.5 million, or 9.5%, savings and money market accounts increased $57.2 million, or 14.5%, and certificate of deposit accounts increased $104.2 million, or 16.6%. Excluding the effect of the American Horizons acquisition, noninterest-bearing checking accounts would have increased $6.8 million, or 3.1%, interest-bearing checking account deposits would have increased $10.1 million, or 1.9%, savings and money market accounts would have increased $34.1 million, or 8.7% and certificate of deposit accounts would have increased $14.6 million, or 2.3%.
Short-term Borrowings Short-term borrowings decreased $66.7 million, or 28.2%, to $169.7 million at March 31, 2005, compared to $236.5 million at December 31, 2004. This decrease is the result of strong deposit growth relative to loan growth. The Companys short-term borrowings at March 31, 2005 were comprised of $92.0 million in FHLB of Dallas advances with maturities of one month or less and $77.7 million of securities sold under agreements to repurchase. The level of short-term borrowings can fluctuate significantly on a daily basis depending on funding needs and the source of funds chosen to satisfy those needs.
Long-term Borrowings Long-term borrowings increased $33.5 million, or 16.2%, to $239.6 million at March 31, 2005, compared to $206.1 million at December 31, 2004. The increase was primarily due to $27.8 million of fixed-rate advances from the FHLB and $6.4 million in junior subordinated debt obtained through the acquisition of American Horizons. At March 31, 2005, the Companys long-term borrowings were comprised of $202.2 million of fixed and variable rate advances from the FHLB of Dallas and $37.3 million in junior subordinated debt.
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 March 31, 2005, shareholders equity totaled $265.5 million, an increase of $45.4 million, or 20.6%, compared to $220.2 million at December 31, 2004. The increase in shareholders equity for the first three months of the year was the result of the issuance of $47.7 million of common stock as a result of the purchase accounting
14
transaction with American Horizons, net income of $7.3 million, $622,000 of common stock released by the Companys ESOP trust, $337,000 of common stock earned by participants in the Companys RRP trust, and $971,000 from the sale of treasury stock for stock options exercised. Such increases were partially offset by cash dividends declared on the Companys common stock of $2.1 million, repurchases of $5.5 million of the Companys common stock that were placed into treasury, and a $3.9 million decrease in other comprehensive income.
On June 25, 2004, the Company announced a new Stock Repurchase Program authorizing the repurchase of up to 175,000 common shares. On May 5, 2005, the Company announced the completion of the June 25, 2004 program and a new Stock Repurchase Program authorizing the repurchase of up to 300,000 common shares. During the quarter ended March 31, 2005, the Company repurchased a total of 91,200 shares of its Common Stock under publicly announced Stock Repurchase Programs. Table 5 details these purchases during the quarter.
Table 5 Stock Repurchases
Period |
Number
of Shares
|
Average
per Share |
Number of Shares
Purchased as Part of Publicly Announced Plans |
Maximum Number of
Shares that May Yet Be Purchased Under Plans |
|||||
January |
41,700 | $ | 60.60 | 41,700 | 74,933 | ||||
February |
49,500 | $ | 60.86 | 49,500 | 25,433 | ||||
March |
| | | 25,433 | |||||
|
|
|
|
||||||
Total |
91,200 | $ | 60.74 | 91,200 | |||||
|
|
|
|
No shares were repurchased during the quarter ended March 31, 2005, other than through publicly announced plans.
RESULTS OF OPERATIONS
Net income for the first quarter of 2005 totaled $7.3 million, compared to $6.5 million earned during the first quarter of 2004, an increase of $809,000, or 12.5%. Included in earnings are the results of operations of Alliance from the acquisition date of February 29, 2004 forward and American Horizons from the acquisition date of January 31, 2005 forward.
Net Interest Income Net interest income is the difference between interest realized on earning assets and interest paid on interest-bearing liabilities and is also the driver of core earnings. As such, it is subject to constant scrutiny by management. The rate of return and relative risk associated with earning assets are weighed to determine the appropriateness and mix of earning assets. Additionally, the need for lower cost funding sources is weighed against relationships with clients and future growth requirements.
Net interest income increased $2.6 million, or 14.4%, to $20.5 million for the three months ended March 31, 2005, compared to $18.0 million for the three months ended March 31, 2004. The increase was due to a $6.1 million, or 23.8%, increase in interest income, which was partially offset by a $3.5 million, or 46.7%, increase in interest expense. The increase in net interest income was the result of a $415.8 million, or 21.0%, increase in the average balance of earning assets, which was partially offset by a $345.9 million, or 19.6%, increase in the average balance of interest-bearing liabilities. The yield on average earnings assets and average interest-bearing liabilities increased 14 and 40 basis points during this period, respectively.
The Companys average interest rate spread, which is the difference between the yields earned on earning assets and the rates paid on interest-bearing liabilities, was 3.31% during the three months ended March 31, 2005, compared to 3.57% for the comparable period in 2004. The Companys net interest margin on a taxable equivalent (TE) basis, which is net interest income (TE) as a percentage of average earning assets, was 3.56% during the three months ended March 31, 2005, compared to 3.75%, for the comparable period in
15
2004. The declines in both net interest spread and net interest margin were primarily attributable to the increases in average yield on NOW accounts, time deposits and short-term FHLB borrowings offset, to a limited extent, by an increasing average yield on earning assets, primarily commercial loans that are tied to floating rate indices.
As of March 31, 2005, the Companys financial model indicated that an immediate and sustained 100 basis point rise in rates over the next 12 months would approximate a 0.40% increase in net interest income, while a 100 basis point decline in rates over the same period would approximate a 0.97% increase in net interest income from an unchanged rate environment. A similar 200 basis point rise in rates for the same period would approximate a 0.49% decrease in net interest income, while a 200 basis point decline in rates over the same period would approximate a 1.08% increase in net interest income from an unchanged rate environment. The impact of a flattening yield curve, as anticipated in the forward curve as of March 31, 2005, would approximate a 0.77% decrease in net interest income. Computations of interest rate risk do not necessarily include certain actions that management may undertake to manage this risk in response to anticipated changes in interest rates.
The Company will continue to monitor investment opportunities and weigh the associated risk/return. Volume increases in earning assets and improvements in the mix of earning assets and interest-bearing liabilities are expected to improve net interest income, but may negatively impact the net interest margin ratio. The Company has engaged in interest rate swap transactions, which are a form of derivative financial instrument, to modify the net interest sensitivity to levels deemed to be appropriate. Through this instrument, interest rate risk is managed by hedging with an interest rate swap contract designed to pay fixed and receive floating interest.
Table 6 presents average balance sheets, net interest income and average interest rates for the three month periods ended March 31, 2005 and 2004.
16
Table 6 - 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. Investment security market value adjustments and trade-date accounting adjustments are not considered to be earning assets and, as such, the net effect of the adjustments is included in nonearning assets. Tax equivalent (TE) yields are calculated using a marginal tax rate of 35%.
Three Months Ended March 31,
|
||||||||||||||||||||
2005
|
2004
|
|||||||||||||||||||
(dollars in thousands) |
Average
Balance |
Interest
|
Average
Yield/ Rate (1) |
Average
Balance |
Interest
|
Average
Yield/ Rate (1) |
||||||||||||||
Earning assets: |
||||||||||||||||||||
Loans receivable: |
||||||||||||||||||||
Mortgage loans |
$ | 423,943 | $ | 5,663 | 5.34 | % | $ | 385,826 | $ | 5,391 | 5.59 | % | ||||||||
Commercial loans (TE) (2) |
824,758 | 10,742 | 5.43 | 567,568 | 6,633 | 4.86 | ||||||||||||||
Consumer and other loans |
522,787 | 8,579 | 6.66 | 475,758 | 7,934 | 6.71 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total loans |
1,771,488 | 24,984 | 5.77 | 1,429,152 | 19,958 | 5.67 | ||||||||||||||
Mortgage loans held for sale |
10,360 | 126 | 4.86 | 11,493 | 131 | 4.56 | ||||||||||||||
Investment securities (TE) (2) (3) |
569,546 | 5,976 | 4.43 | 503,730 | 5,134 | 4.35 | ||||||||||||||
Other earning assets |
48,665 | 368 | 3.07 | 39,848 | 179 | 1.81 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total earning assets |
2,400,059 | 31,454 | 5.39 | 1,984,223 | 25,402 | 5.25 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Allowance for loan losses |
(23,142 | ) | (18,721 | ) | ||||||||||||||||
Nonearning assets |
249,982 | 215,896 | ||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 2,626,899 | $ | 2,181,398 | ||||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||
Deposits: |
||||||||||||||||||||
NOW accounts |
$ | 575,464 | $ | 2,099 | 1.48 | % | $ | 486,845 | $ | 1,135 | 0.94 | % | ||||||||
Savings and money market accounts |
422,106 | 958 | 0.92 | 376,099 | 698 | 0.75 | ||||||||||||||
Certificates of deposit |
696,153 | 4,478 | 2.61 | 614,838 | 3,525 | 2.31 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total interest-bearing deposits |
1,693,723 | 7,535 | 1.80 | 1,477,782 | 5,358 | 1.46 | ||||||||||||||
Short-term borrowings |
191,570 | 990 | 2.07 | 133,592 | 384 | 1.14 | ||||||||||||||
Long-term debt |
228,035 | 2,380 | 4.17 | 156,104 | 1,694 | 4.29 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total interest-bearing liabilities |
2,113,328 | 10,905 | 2.08 | 1,767,478 | 7,436 | 1.68 | ||||||||||||||
|
|
|
|
|
|
|
||||||||||||||
Noninterest-bearing demand deposits |
243,738 | 190,067 | ||||||||||||||||||
Noninterest-bearing liabilities |
17,943 | 19,142 | ||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Total liabilities |
2,375,009 | 1,976,687 | ||||||||||||||||||
Shareholders equity |
251,890 | 204,711 | ||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Total liabilities and shareholders equity |
$ | 2,626,899 | $ | 2,181,398 | ||||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Net earning assets |
$ | 286,731 | $ | 216,745 | ||||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Ratio of earning assets to interest-bearing liabilities |
113.57 | % | 112.26 | % | ||||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Net interest spread |
$ | 20,549 | 3.31 | % | $ | 17,966 | 3.57 | % | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Tax equivalent benefit |
0.13 | % | 0.14 | % | ||||||||||||||||
|
|
|
|
|||||||||||||||||
Net interest income (TE) / Net interest margin (TE) (2) |
$ | 21,336 | 3.56 | % | $ | 18,648 | 3.75 | % | ||||||||||||
|
|
|
|
|
|
|
|
(1) | Annualized. |
(2) | Fully taxable equivalent (TE) calculations include the tax benefit associated with related income sources that are tax-exempt using a marginal tax rate of 35%. |
(3) | Balances exclude unrealized gain or loss on securities available for sale and impact of trade date accounting. |
17
Provision For Loan Losses Management of the Company assesses the allowance for loan losses quarterly and will make provisions for loan losses as deemed appropriate in order to maintain the adequacy of the allowance for loan losses. Increases to the allowance for loan losses are achieved through provisions for loan losses that are charged against income. Adjustments to the allowance may also result from purchase accounting adjustments associated with loans acquired in mergers.
As a result of strong asset quality statistics combined with a first quarter reduction in the Companys loan portfolio (excluding acquired loans), the Company lowered the provision for loan losses during the quarter ended March 31, 2005 to $650,000 compared to $1.1 million for the same period in 2004. The allowance for loan losses as a percentage of outstanding loans, net of unearned income, increased from 1.22% at December 31, 2004, to 1.37% at March 31, 2005. The 15 basis point increase resulted primarily from the adoption of the Companys allowance for loan loss methodology on the American Horizons loan portfolio and associated risk reclassifications. The allowance for loan losses as a percentage of outstanding loans, net of unearned income, was 1.32% as of March 31, 2004.
Noninterest Income The Companys total noninterest income was $6.1 million for the three months ended March 31, 2005, $525,000, or 9.4%, higher than the $5.6 million earned for the same period in 2004. Table 7 illustrates the changes in each significant component of noninterest income.
Table 7 Noninterest Income
Three Months Ended
|
|||||||||
March 31,
|
Percent
(Decrease) |
||||||||
(dollars in thousands) |
2005
|
2004
|
|||||||
Service charges on deposit accounts |
$ | 3,140 | $ | 2,906 | 8.1 | % | |||
ATM/debit card fee income |
608 | 432 | 40.7 | ||||||
Income from bank owned life insurance |
456 | 377 | 21.0 | ||||||
Gain on sale of loans, net |
558 | 862 | (35.3 | ) | |||||
Gain on sale of assets |
36 | 10 | 260.0 | ||||||
Gain on sale of investments, net |
5 | 143 | (96.5 | ) | |||||
Other income |
1,278 | 826 | 54.7 | ||||||
|
|
|
|
|
|
||||
Total noninterest income |
$ | 6,081 | $ | 5,556 | 9.4 | % | |||
|
|
|
|
|
|
The primary reasons for the increase in noninterest income were a $234,000 increase in service charges on deposit accounts, a $176,000 increase in ATM/debit card fee income, a $164,000 increase in broker commissions and a $221,000 one-time payment received as a result of the conversion of the Companys ownership interest in the PULSE EFT Association (PULSE) as a result of PULSEs merger with Discover Financial Services. These increases were partially offset by a $304,000 decrease in gains on the sale of mortgage loans in the secondary market and a $138,000 decrease in gains on the sale of investment securities.
Noninterest Expense The Companys total noninterest expense was $15.7 million for the three months ended March 31, 2005, $2.5 million, or 18.6%, higher than the $13.2 million incurred for the same period in 2004. Table 8 illustrates the changes in each significant component of noninterest expense.
18
Table 8 Noninterest Expense
Three Months Ended
|
|||||||||
March 31,
|
Percent
(Decrease) |
||||||||
(dollars in thousands) |
2005
|
2004
|
|||||||
Salaries and employee benefits |
$ | 8,239 | $ | 7,113 | 15.8 | % | |||
Occupancy and equipment |
1,889 | 1,701 | 11.1 | ||||||
Franchise and shares tax |
772 | 700 | 10.3 | ||||||
Communication and delivery |
776 | 654 | 18.7 | ||||||
Marketing and business development |
512 | 451 | 13.5 | ||||||
Data processing |
438 | 375 | 16.8 | ||||||
Printing, stationery and supplies |
261 | 218 | 19.7 | ||||||
Amortization of acquisition intangibles |
284 | 218 | 30.3 | ||||||
Other expenses |
2,505 | 1,785 | 40.3 | ||||||
|
|
|
|
|
|
||||
Total noninterest expense |
$ | 15,676 | $ | 13,215 | 18.6 | % | |||
|
|
|
|
|
|
Included in other noninterest expenses is $650,000 of one-time expenses associated with the integration and conversion of American Horizons. The most significant increase in noninterest expense for the three month period ending March 31, 2005 as compared to the same period in 2004, relates to $1.1 million of additional salaries and employee benefits expense due to increased staffing associated with the Alliance and American Horizons acquisitions, as well as several strategic hires made during 2004. Other increases in non-interest expense items include $188,000 in occupancy and equipment expense associated with infrastructure expansion and improvements and $122,000 in communication and delivery expense as a result of the Companys continued growth.
Income Tax Expense Income tax expense increased $243,000, or 8.8%, for the three months ended March 31, 2005 to $3.0 million, compared to $2.8 million for the three months ended March 31, 2004. The effective tax rates for the three months ended March 31, 2005 and 2004 were 29.2% and 29.8%, respectively.
The increase in income tax expense was principally due to the increase in pre-tax earnings. The difference between the effective tax rate and the statutory tax rate primarily relates to variances in items that are either nontaxable or nondeductible, mainly the nondeductible portion of the ESOP compensation expense, nontaxable portion of interest income from municipal investments and loans and nontaxable increase in cash surrender value on bank owned life insurance policies.
LIQUIDITY AND CAPITAL RESOURCES
The Companys liquidity, represented by cash and cash equivalents, is a product of its operating, investing and financing activities. The Company manages its liquidity with the objective of maintaining sufficient funds to respond to the needs of depositors and borrowers and to take advantage of earnings enhancement opportunities. The primary sources of funds for the Company are deposits, borrowings, repayments and maturities of loans and investment securities, securities sold under agreements to repurchase, as well as funds provided from operations. Certificates of deposit scheduled to mature in one year or less at March 31, 2005 totaled $396.5 million. Based on past experience, management believes that a significant portion of maturing deposits will remain with the Company, including those obtained through acquisitions. Additionally, the majority of the investment securities portfolio is classified by the Company as available-for-sale which provides the ability to liquidate securities as needed. Due to the relatively short planned duration of the investment security portfolio, the Company continues to experience significant cash flows.
While scheduled cash flows from the amortization and maturities of loans and securities are relatively predictable sources of funds, deposit flows and prepayments of loan and investment securities are greatly influenced by general interest rates, economic conditions and competition. The FHLB of Dallas provides an additional source of liquidity to make funds available for general requirements and also to assist with the
19
variability of less predictable funding sources. At March 31, 2005, the Company had $289.1 million of outstanding advances from the FHLB of Dallas. Additional advances available from the FHLB at March 31, 2005 were $252.7 million. The Company and IBERIABANK also have various funding arrangements with commercial banks providing up to $70 million in the form of federal funds and other lines of credit. At March 31, 2005, the Company had no balance outstanding on these lines and all of the funding was available to the Company. In addition, the Company issued junior subordinated debt totaling $37.3 million, which may be included in Tier 1 capital up to 25% of the total of the Companys core capital elements, including the junior subordinated debt.
The Company has been able to generate sufficient cash through its deposits as well as borrowings and anticipates it will continue to have sufficient funds to meet its liquidity requirements. At March 31, 2005, the total approved unfunded loan commitments outstanding amounted to $17.0 million. At the same time, commitments under unused lines of credit, including credit card lines, amounted to $323.8 million.
At March 31, 2005, the Company and IBERIABANK had regulatory capital that was in excess of regulatory requirements. The Companys actual levels and current requirements as of March 31, 2005 are detailed below:
Actual Capital
|
Required Capital
|
|||||||||||
(dollars in thousands) |
Amount
|
Percent
|
Amount
|
Percent
|
||||||||
Tier 1 Leverage |
$ | 203,053 | 8.04 | % | $ | 100,987 | 4.00 | % | ||||
Tier 1 Risk-Based |
$ | 203,053 | 11.19 | % | $ | 72,583 | 4.00 | % | ||||
Total Risk-Based |
$ | 225,765 | 12.44 | % | $ | 145,167 | 8.00 | % |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Quantitative and qualitative disclosures about market risk are presented at December 31, 2004 in Item 7A of the Companys Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 16, 2005. Additional information at March 31, 2005 is included herein under Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations.
Item 4. | Controls and Procedures |
An evaluation of the effectiveness of the Companys disclosure controls and procedures as of March 31, 2005, was carried out under the supervision, and with the participation of, the Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Based on that evaluation, the CEO and CFO have concluded that the Companys disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 (the Exchange Act).
Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed by the Company under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to the Companys management, including the CEO and the CFO, as appropriate, to allow timely decisions regarding required disclosures. Disclosure controls include review of internal controls that are designed to provide reasonable assurance that transactions are properly authorized, assets are safeguarded against unauthorized or improper use and transactions are properly recorded and reported. There was no significant change in the Companys internal controls over financial reporting during the last fiscal quarter that has materially affected, or is reasonable likely to materially affect, the control over financial reporting.
Any control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are achieved. The design of a control system inherently has limitations, including the controls
20
cost relative to their benefits. Additionally, controls can be circumvented. No cost-effective control system can provide absolute assurance that all control
PART II. OTHER INFORMATION
Item 1. | Legal Proceedings |
Not Applicable
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Information regarding purchases of equity securities is included herein in Table 5 under Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. | Defaults Upon Senior Securities |
Not Applicable
Item 4. | Submission of Matters to a Vote of Security Holders |
Not Applicable
Item 5. | Other Information |
Not Applicable
Item 6. | Exhibits |
Exhibit No. 10.1 | Change in Control Severance Agreement with Anthony J. Restel, dated May 6, 2005 | |
Exhibit No. 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
Exhibit No. 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
Exhibit No. 32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
Exhibit No. 32.2 | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
21
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
IBERIABANK Corporation | ||||||||
Date: May 9, 2005 | By: |
/s/ Daryl G. Byrd |
||||||
Daryl G. Byrd |
||||||||
President and Chief Executive Officer |
||||||||
Date: May 9, 2005 | By: |
/s/ Anthony J. Restel |
||||||
Anthony J. Restel |
||||||||
Executive Vice President and Chief Financial Officer |
||||||||
Date: May 9, 2005 | By: |
/s/ Joseph B. Zanco |
||||||
Joseph B. Zanco |
||||||||
Senior Vice President and Controller and Principal Accounting Officer |
22
Exhibit 10.1
IBERIABANK CORPORATION
IBERIABANK
Change in Control Severance Agreement
THIS AGREEMENT entered into this 6th day of May, 2005 (the Effective Date), by and between ANTHONY RESTEL (the Employee), IBERIABANK (the Company), and IBERIABANK Corporation (the Holding Company).
WHEREAS, the Employee has heretofore been employed by the Company as an executive officer, and the Company and the Holding Company deem it to be in their respective best interests to enter into this Agreement as an additional incentive to the Employee to continue as an executive employee of the Company and to provide as-needed services benefiting the Holding Company; and
WHEREAS, the parties desire by this writing to set forth their understanding as to their respective rights and obligations in the event a change of control occurs with respect to the Company or the Holding Company.
NOW, THEREFORE, the undersigned parties AGREE as follows:
1 Defined Terms
When used anywhere in this Agreement, the following terms shall have the meaning set forth herein.
(a) Change in Control shall mean (i) a change in control of the Holding Company, 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 Holding Company 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, or securities of the Holding Company representing 25% or more of the combined voting power of the Holding Company 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 (the Existing Board) of the Holding Company 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
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 Company by any person other than the Holding Company.
(b) Code shall mean the Internal Revenue Code of 1986, as amended from time to time, and as interpreted through applicable rulings and regulations in effect from time to time.
(c) Code §280G Maximum shall mean the product of 2.99 and the Employees base amount within the meaning of Code §280G(b)(3).
(d) Disability shall mean termination by the Company of the Employees employment because of any physical or mental impairment which qualifies the Employee for disability benefits under the applicable long-term disability plan maintained by the Employers or, if no such plan applies, which would qualify the Employee for disability benefits under the Federal Social Security System.
(e) Good Reason shall mean (i) without the Employees express written consent: the assignment to the Employee, by the Company or the Holding Company, of any duties which are materially inconsistent with the Employees positions, duties, responsibilities and status with the Company or the Holding Company immediately prior to a Change in Control of the Corporation, or a material change or diminution in the Employees reporting responsibilities, titles or offices as an employee and as in effect immediately prior to such a Change in Control, or any removal of the Employee from or any failure to re-elect the Employee to any of such responsibilities, titles or offices, except in connection with the termination of the Employees employment for Just Cause or Disability or as a result of the Employees death or by the Employee other than for Good Reason; (ii) without the Employees express written consent, a reduction by the Company or the Holding Company in the Employees base salary as in effect on the date of the Change in Control of the Corporation or as the same may be increased from time to time thereafter or a reduction in the package of fringe benefits provided to the Employee; (iii) any purported termination of the Employees employment for Just Cause or Disability which is not effected pursuant to a Notice of Termination satisfying the requirements hereof ;(iv) the failure by the Company or the Holding Company to obtain the assumption of and agreement to perform this Agreement by any successor as contemplated in Section 6 hereto; (v) requirement that the Employee principally perform all services at location more than 30 miles from such location on the Effective date. For purposes of this Section 1(e), any good faith determination of Good Reason made by the Employee shall create a rebuttable presumption that Good Reason exists. Anything in this Agreement to the contrary notwithstanding, a termination by the Employee for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement.
(f) Just Cause shall mean, in the good faith determination of the Board, the Employees personal dishonesty, incompetence in the performance of duties, willful violation of
-2-
any law, rule, regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of this Agreement.
No act or failure to act, on the Employees part shall be considered willful unless it is done, or omitted to be done, by him in bad faith or without reasonable belief that his action or omission was in the Companys best interests. Any act, or failure to act, based upon authority given pursuant to a resolution of the Board or instructions of the Chief Executive Officer or a senior officer of the Company or the advice of counsel for the Company shall be conclusively presumed to be in good faith and in the Companys best interests. The cessation of Employees employment shall not be deemed to be for Just 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 Employee and he is given an opportunity, together with counsel, to be heard before the Board), finding that, in the Boards good faith opinion, the Employee is guilty of the conduct described in the preceding paragraph, and specifying the particulars thereof in detail.
(g) Notice of Termination shall mean any purported termination by the Company for Just Cause or Disability or by the Employee 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 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 Employees 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 Companys termination of Employees employment for Just Cause, and (iv) is given in the manner specified in this Agreement.
(h) 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 expiration date of this Agreement; except that if the Employees employment with the Company 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.
-3-
2. Trigger Events
The Employee shall be entitled to collect the severance benefits set forth in Section 3 of this Agreement in the event that (i) the Employee voluntarily terminates employment within 90 days of an event that both occurs during the Protected Period and constitutes Good Reason, (ii) the Company or its successors) in interest terminate the Employees employment for any reason other than Just Cause during the Protected Period, or (iii) the employee voluntarily terminates employment for any reason other than Just Cause within 30 days after a Change in Control.
3. Amount of Severance Benefit
(a) If the Employee becomes entitled to collect severance benefits pursuant to Section 2 hereof, the Employee shall receive from the Company a severance benefit equal to 70% of the Code §280G Maximum.
(b) The amount payable under this Section 3(a) shall be paid either (i) in one lump sum within ten days of the later of the date of the Change in Control and the Employees last date of employment with the Company, 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 Company 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.
(c) In addition, for 39 months following termination, the Company will maintain in full force and effect for the continued benefit of the Employee and his dependents each employees medical and life benefit plan (as such term is defined in the Employee Retirement Income Security Act of 1974, as amended) in which the Employee was entitled to participate immediately prior to the date of his termination, unless an essentially equivalent benefit is provided by another source. If the terms of any employee medical and life benefit plan of the Company or applicable laws do not permit continued participation by the Employee, the Company will arrange to provide to the Employee a benefit substantially similar to, and no less favorable than, the benefit he was entitled to receive under such plan at the end of the period of coverage. The right of Employee to continued coverage under the health and medical insurance plans of the Company pursuant to Section 4980B of the Code shall commence upon the expiration of such period.
(d) If the Employee 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 Employee pursuant to this Section 3, and the Company chooses not to contest the liability or have exhausted all administrative and judicial appeals contesting the liability, the Company shall pay the Employee (i) an amount equal to the excise tax for which the Employee is liable under Section 4999 of the Code, (ii) the federal, state, and local income taxes, and interest if any, for which the Employee is liable on account of the payments pursuant to item (i), and (iii) any additional excise tax under
-4-
Section 4999 of the Code and any federal, state and local income taxes for which the Employee is liable on account of payments made pursuant to items (i) and (ii).
(e) This subsection 5(e) applies if the amount of payments to the Employee under subsection 5(d) has not been determined with finality by the exhaustion of administrative and judicial appeals. In such circumstances, the Company and the Employee 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 Employees excise tax liability for purposes of paying the estimated tax. The Employee shall thereafter furnish to the Company 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 Company furnishes the Employee with a letter of the auditors or tax advisor selected by the Banks indicating a different liability or that the matter is not free from doubt under the applicable laws and regulations and that the Employee may, in such auditors or advisors 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 Employee and state that he is entitled to rely thereon. If the Company furnishes such a letter to the Employee, the position reflected in such letter shall be dispositive for purposes of this Agreement, except as provided in subsection 5(f) below.
(f) Notwithstanding anything in this Agreement to the contrary, if the Employees 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 Company pursuant to subsection 5(e), the Employee shall repay the Company 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 Employees 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 Banks pursuant to Section 5, the Company 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.
4. Funding of Grantor Trust upon Change in Control
(a) Not later than ten business days after a Change in Control, the Company shall (i) establish a grantor trust (the Trust) designed in accordance with Revenue Procedure 92-64 and having a trustee independent of the Company and the Company, (ii) deposit in said Trust an amount equal to the Code §280G Maximum, unless the Employee has previously provided a written release of any claims under this Agreement, and (iii) 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 Employee, and to follow the procedures set forth in the next paragraph as to the payment of such amounts from the Trust.
-5-
(b) During the 39-consecutive month period after a Change in Control, the Employee may provide the trustee of the Trust with a written notice requesting that the trustee pay to the Employee 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 Employee, and coincidentally shall provide the Company or its successor with notice of such payment. Upon the earlier of the Trusts 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 Company the entire balance remaining in the segregated account maintained for the benefit of the Employee. The Employee shall thereafter have no further interest in the Trust.
5. Term of the Agreement . This Agreement shall remain in effect for the period commencing on the Effective Date and ending on the earlier of (i) the date thirty-six months after the Effective Date, and (ii) the date on which the Employee terminates employment with the Company; provided that the Employees rights hereunder shall continue following the termination of this employment with the Company under any of the circumstances described in Section 2 hereof. Additionally, on each annual anniversary date from the Effective Date, the term of this Agreement shall be extended for an additional one-year period beyond the then effective expiration date, unless the Boards of Directors of the Company has notified the Employee in writing that this Agreement shall not be extended.
6. Termination or Suspension Under Federal Law .
(a) If the Employee is removed and/or permanently prohibited from participating in the conduct of the Companys affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (FDIA) (12 U.S.C. 1818(e)(4) or (g)(1)), all obligations of the Company under this Agreement shall terminate, as of the effective date of the order, but the vested rights of the parties shall not be affected.
(b) If the Company is in default (as defined in Section 3(x)(1) of FDIA), all obligations of the Company under this Agreement shall terminate as of the date of default; however, this Paragraph shall not affect the vested rights of the parties.
(c) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)) suspends and/or temporarily prohibits the Employee from participating in the conduct of the Companys affairs, the Companys obligations under this Agreement shall be suspended as of the date of such service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Company shall (i) pay the Employee all or part of the compensation withheld while its contract obligations were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended.
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7. Expense Reimbursement .
In the event that any dispute arises between the Employee and the Company or the Holding Company as to the terms or interpretation of this Agreement, whether instituted by formal legal proceedings or otherwise, including any action that the Employee takes to enforce the terms of this Agreement or to defend against any action taken by the Company or the Holding Company, they shall reimburse the Employee 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 Employees furnishing to the Company 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 Employee.
8. Successors and Assigns .
(a) This Agreement shall not be assignable by the Company, provided that this Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Company which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Company.
(b) Since the Company is contracting for the unique and personal skills of the Employee, the Employee shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Company; provided, however that nothing in this paragraph shall preclude (i) the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death, or (ii) the executors, administrators, or other legal representatives of the Employee or his estate from assigning any rights hereunder to the person or person entitled thereunto.
9. Amendments
No amendments or additions to this Agreement shall be binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided.
10. Applicable Law
Except to the extent preempted by Federal law, the laws of the State of Louisiana shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise.
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11. Severabilit y
The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.
12. Entire Agreement
This Agreement, together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto.
IN WITNESS WHEREOF , the parties have executed this Agreement on the day and year first hereinabove written.
IBERIABANK | ||||||||
/s/ Cindy Leger |
By |
/s/ Stewart Shea |
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Witness |
Stewart Shea |
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Chairman, Board Compensation Committee |
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/s/ Cindy Leger |
By |
/s/ Daryl G. Byrd |
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Witness |
Daryl G. Byrd |
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President and CEO |
||||||||
/s/ Mary Anne Smith |
/s/ Anthony J. Restel |
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Witness |
Employee |
IN CONSIDERATION of the Employees provision of valuable services for the Company and the Employees past, present, or future services for the Holding Company, IT IS AGREED by the Holding Company that it shall be jointly and severally liable for the Companys obligations under this Agreement (determined without regard for Section 6 of the Agreement).
IBERIABANK CORPORATION | ||
/s/ Stewart Shea |
||
Stewart Shea |
||
Chairman, Board Compensation Committee |
||
By |
/s/ Daryl G. Byrd |
|
Daryl G. Byrd |
||
President and CEO |
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EXHIBIT 31.1
CERTIFICATIONS
SECTION 302 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, Daryl G. Byrd, President and Chief Executive Officer of IBERIABANK Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of IBERIABANK Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 9, 2005 |
/s/ Daryl G. Byrd |
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Daryl G. Byrd |
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President and Chief Executive Officer |
EXHIBIT 31.2
SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Anthony J. Restel, Executive Vice President and Chief Financial Officer of IBERIABANK Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of IBERIABANK Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 9, 2005 |
/s/ Anthony J. Restel |
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Anthony J. Restel |
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Executive Vice President and Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of IBERIABANK Corporation (the Company) on Form 10-Q for the period ended March 31, 2005 (the Report), I, Daryl G. Byrd, President and Chief Executive Officer of the Company, certify that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.
/s/ Daryl G. Byrd |
Daryl G. Byrd |
President and Chief Executive Officer |
May 9, 2005
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The information furnished herein shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of IBERIABANK Corporation (the Company) on Form 10-Q for the period ended March 31, 2005 (the Report), I, Anthony J. Restel, Executive Vice President and Chief Financial Officer of the Company, certify that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.
/s/ Anthony J. Restel |
Anthony J. Restel |
Executive Vice President and Chief Financial Officer |
May 9, 2005
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The information furnished herein shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.