UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2013
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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) |
Registrants telephone number, including area code: (337) 521-4003
Securities registered pursuant to Section 12(g) of the Act: Not Applicable
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Name of Exchange on which registered |
|
Common Stock (par value $1.00 per share) | The NASDAQ Stock Market, LLC |
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Exchange Act of 1934. Yes x No ¨
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No x
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Securities Exchange Act Rule 12b-2).
Large Accelerated Filer x | Accelerated Filer ¨ | Non-accelerated Filer ¨ | Smaller Reporting Company ¨ |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ¨ No x
As of June 30, 2013, the last business day of the Registrants most recently completed second fiscal quarter, the aggregate market value of the voting shares of common stock held by non-affiliates of the Registrant was approximately $1.5 billion. This figure is based on the closing sale price of $53.61 per share of the Registrants common stock on June 30, 2013. For purposes of this calculation, the term affiliate refers to all executive officers and directors of the Registrant and all shareholders beneficially owning more than 10% of the Registrants common stock.
Number of shares of common stock outstanding as of February 21, 2014: 29,922,661
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to Shareholders for the fiscal year ended December 31, 2013 are incorporated into Part II, Items 5 through 9B of this Form 10-K; (2) portions of the definitive proxy statement for the 2014 Annual Meeting of Shareholders to be filed within 120 days of Registrants fiscal year end (the Proxy Statement) are incorporated into Part III, Items 10 through 14 of this Form 10-K.
IBERIABANK CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I | ||||||
Item 1. |
1 | |||||
Item 1A. |
15 | |||||
Item 1B. |
32 | |||||
Item 2. |
32 | |||||
Item 3. |
32 | |||||
Item 4. |
32 | |||||
PART II | ||||||
Item 5. |
34 | |||||
Item 6. |
35 | |||||
Item 7. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
35 | ||||
Item 7A. |
35 | |||||
Item 8. |
35 | |||||
Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
36 | ||||
Item 9A. |
36 | |||||
Item 9B. |
36 | |||||
PART III | ||||||
Item 10. |
37 | |||||
Item 11. |
37 | |||||
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
37 | ||||
Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
37 | ||||
Item 14. |
37 | |||||
PART IV | ||||||
Item 15. |
38 | |||||
43 |
Item 1. | Business. |
Unless we indicate otherwise, the words we, our, us, IBKC, and Company refer to IBERIABANK Corporation and its wholly owned subsidiaries.
General
IBERIABANK Corporation, a Louisiana corporation, is a financial holding company with 267 combined offices, including 172 bank branch offices and four loan production offices in Louisiana, Arkansas, Florida, Alabama, Tennessee, and Texas, 21 title insurance offices in Arkansas and Louisiana, and mortgage representatives in 61 locations in 12 states. The Company also has nine wealth management locations in four states. As of December 31, 2013, we had consolidated assets of $13.4 billion, total deposits of $10.7 billion and shareholders equity of $1.5 billion.
Our principal executive office is located at 200 West Congress Street, Lafayette, Louisiana, and our telephone number at that office is (337) 521-4003. Our website is located at www.iberiabank.com .
We are the holding company for IBERIABANK, a Louisiana banking corporation headquartered in Lafayette, Louisiana; Lenders Title Company, an Arkansas-chartered title insurance and closing services agency headquartered in Little Rock, Arkansas (Lenders Title); IBERIA Capital Partners, LLC, a corporate finance services firm (ICP); IB Aircraft Holdings LLC, a holding company for our fractional investment in an aircraft, IBERIA Asset Management, Inc. (IAM), which provides wealth management and trust services to high net worth individuals, pension funds, corporations and trusts; and IBERIA CDE L.L.C. (CDE), which invests in purchased tax credits.
IBERIABANK offers commercial and retail banking products and services to customers throughout locations in six states. IBERIABANK provides these products and services in Louisiana, Alabama, Florida, Arkansas, Tennessee, and Texas. These products and services include a broad array of commercial, consumer, mortgage, and private banking products and services, cash management, deposit and annuity products and investment brokerage services. Certain of our non-bank subsidiaries engage in financial services-related activities, including brokerage services, sales of variable annuities, life, health, dental and accident insurance products, and wealth management services. Lenders Title offers a full line of title insurance and closing services throughout Arkansas and Louisiana. ICP provides equity research, institutional sales and trading, and corporate finance services. IB Aircraft Holdings, LLC owns a fractional share of an aircraft used by management of the Company and its subsidiaries. IAM provides wealth management and trust services for commercial and private banking clients. CDE is engaged in the purchase of tax credits.
Subsidiaries
IBERIABANK has six active, wholly-owned non-bank subsidiaries: Iberia Financial Services, LLC (IFS), IB SPE Management Inc., Acadiana Holdings, LLC, IBERIABANK Mortgage Company (IMC), Iberia Investment Fund I, LLC, and Iberia Investment Fund II, LLC. IFS manages the brokerage services offered by IBERIABANK. At December 31, 2013, IBERIABANKs equity investment in IFS was $7.1 million, and IFS had total assets of $8.7 million. IB SPE Management Inc. operates and then sells certain foreclosed assets acquired in recent Florida and Alabama acquisitions. At December 31, 2013, IBERIABANKs equity investment in IB SPE Management Inc. was $76.6 million, and IB SPE Management Inc. had total assets of $76.6 million. Acadiana Holdings, L.L.C. owns and operates a commercial office building that also serves as our headquarters and IBERIABANKs main office. At December 31, 2013, IBERIABANKs equity investment in Acadiana Holdings, L.L.C. was $9.8 million, and Acadiana Holdings, L.L.C. had total assets of $10.7 million. Iberia Investment Fund I, LLC and Iberia Investment Fund II, LLC are investment funds held for the purpose of funding new market tax credits and are disregarded entities for tax purposes. IBERIABANKs equity investment in Iberia Investment Fund I, LLC and Iberia Investment Fund II, LLC was $35.9 million and $2.0 million, respectively, at December 31, 2012. Iberia Investment Funds I, LLC and Iberia Investment Fund II, LLC has total assets of $144.2 million and $9.5 million, respectively, at December 31, 2013. IMC offers one-to-four family residential mortgage loans in Louisiana, Arkansas, Alabama, Tennessee, Mississippi, Oklahoma, Texas, Missouri, Illinois, Georgia, Florida, and Idaho. At December 31, 2013, IBERIABANKs equity investment in IMC was $70.5 million, and IMC had total assets of $173.1 million.
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Lenders Title provides a full line of title insurance and loan closing services for both residential and commercial customers in locations throughout Arkansas. Lenders Title has three active, wholly-owned subsidiaries, Asset Exchange, Inc., United Title of Louisiana, Inc. (United Title), and American Abstract and Title Company, Inc. (AAT). Asset Exchange, Inc. provides qualified intermediary services to facilitate Internal Revenue Code Section 1031 tax deferred exchanges. At December 31, 2013, Lenders Titles equity investment in Asset Exchange, Inc. was $0.3 million, and Asset Exchange, Inc. had total assets of $0.4 million. United Title and AAT provide a full line of title insurance and loan closing services for both residential and commercial customers in locations throughout Louisiana. At December 31, 2013, Lenders Titles equity investment in United Title was $7.3 million, and United Title had total assets of $9.3 million. Lenders Titles equity investment in AAT was $4.3 million and AAT had total assets of $4.5 million.
ICP, IB Aircraft Holdings, LLC, IAM, and CDE had total assets of $11.1 million, $2.2 million, $0.7 million, and less than $0.1 million, respectively, at December 31, 2013.
Competition
We face strong competition in attracting deposits, originating loans, and providing title services. Our most direct competition for deposits has historically come from other commercial banks, savings institutions and credit unions located in our market areas, including many large financial institutions that have greater financial and marketing resources available to them. In addition, during times of high interest rates, we have faced significant competition for investors funds from short-term money market securities, mutual funds and other corporate and government securities. Our ability to attract and retain customer deposits depends on our ability to generally provide a rate of return, liquidity and risk comparable to that offered by competing investment opportunities.
We experience strong competition for loan originations principally from other commercial banks, savings institutions and mortgage banking companies. We compete for loans principally through the interest rates and loan fees we charge, the efficiency and quality of services we provide borrowers and the convenient locations of our branch office network.
Employees
We had 2,510 full-time employees and 128 part-time employees as of December 31, 2013. None of these employees is represented by a collective bargaining agreement. We believe we enjoy an excellent relationship with our personnel.
Business Combinations
We continually evaluate business combination opportunities and sometimes conduct due diligence activities in connection with them. As a result, business combination discussions and, in some cases, negotiations take place, and transactions involving cash, debt or equity securities can be expected. Any future business combinations or series of business combinations that we might undertake may be material in terms of assets acquired or liabilities assumed.
Available Information
Our filings with the Securities and Exchange Commission (SEC), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments thereto, are available on our website as soon as reasonably practicable after the reports are filed with or furnished to the SEC. Copies can be obtained free of charge in the Investor Relations section of our website at www.iberiabank.com . Our SEC filings are also available through the SECs website at www.sec.gov . Copies of these filings are also available by writing the Company at the following address:
IBERIABANK Corporation
P.O. Box 52747
Lafayette, Louisiana 70505-2747
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Supervision and Regulation
The banking industry is extensively regulated under both federal and applicable state laws. The following discussion is a summary of certain statutes and regulations applicable to bank and financial holding companies and their subsidiaries and provides specific information relevant to us. Regulation of financial institutions is intended primarily for the protection of depositors, deposit insurance funds and the banking system, and generally is not intended for the protection of shareholders. Proposals are frequently introduced to change federal and state laws and regulations applicable to us. The likelihood and timing of any such changes and the impact such changes might have on us are impossible to determine with any certainty. References to applicable statutes and regulations are brief summaries, do not purport to be complete, and are qualified in their entirety by reference to such statutes and regulations.
General
We are a bank holding company and have elected to be a financial holding company with the Board of Governors of the Federal Reserve System (the FRB). We are subject to examination and supervision by the FRB pursuant to the Bank Holding Company Act of 1956, as amended (the BHCA), and are required to file reports and other information regarding our business operations and the business operations of our subsidiaries with the FRB.
Generally, the BHCA provides for umbrella regulation of financial holding companies by the FRB and functional regulation of holding company subsidiaries by applicable regulatory agencies. The BHCA, however, requires the FRB to examine any subsidiary of a bank holding company, other than a depository institution, engaged in activities permissible for a depository institution. The FRB is also granted the authority, in certain circumstances, to require reports of, and to examine and adopt rules applicable to any holding company subsidiary.
In general, the BHCA and the FRBs regulations limit the nonbanking activities permissible for bank holding companies to those activities that the FRB has determined to be so closely related to banking or managing or controlling banks to be a proper incident thereto. A bank holding company that elects to be treated as a financial holding company, however, may engage in, and acquire companies engaged in, activities that are considered financial in nature, as defined by the Gramm-Leach-Bliley Act and FRB regulations. These activities include, among other things, securities underwriting, dealing and market-making, sponsoring mutual funds and investment companies, insurance underwriting and agency activities, and merchant banking. See Financial Holding Company Status below.
Because we are a public company, we are also subject to regulation by the Securities and Exchange Commission (the SEC). The SEC has established three categories of registrants for the purpose of filing periodic and annual reports. Under these regulations, we are considered to be a large accelerated filer and, as such, must comply with SEC large accelerated reporting requirements.
As a Louisiana-chartered commercial bank and a member of the Federal Reserve System, IBERIABANK is subject to regulation, supervision and examination by the Office of Financial Institutions of the State of Louisiana, IBERIABANKs chartering authority, and the FRB, IBERIABANKs primary federal regulator. IBERIABANK is referred to herein as the Bank. IBERIABANK is also subject to regulation, supervision and examination by the Federal Deposit Insurance Corporation (the FDIC). The FDIC insures the deposits of IBERIABANK to the maximum extent permitted by law.
State and federal laws govern the activities in which IBERIABANK may engage, the investments it may make and the aggregate amount of loans that may be granted to one borrower. Various consumer and compliance laws and regulations also affect IBERIABANKs operations.
The banking industry is affected by the monetary and fiscal policies of the FRB. An important function of the FRB is to regulate the national supply of bank credit to moderate recessions and to curb inflation. Among the instruments of monetary policy used by the FRB to implement its objectives are: open-market operations in U.S. government securities, changes in the discount rate and the federal funds rate (which is the rate banks charge each other for overnight borrowings) and changes in reserve requirements on bank deposits.
In addition to federal and state banking laws and regulations, we and certain of our subsidiaries and affiliates, including those that engage in securities brokerage and insurance activities, are subject to other federal and state laws and regulations, and supervision and examination by other state and federal regulatory agencies, including the Financial Industry Regulatory Authority (FINRA), the U.S. Department of Housing and Urban Development (HUD), the SEC and various state insurance and securities regulators.
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The Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), enacted in 2010, significantly restructured financial regulation in the United States, including through the creation of a new resolution authority, mandating higher capital and liquidity requirements, requiring banks to pay increased fees to regulatory agencies, and through numerous other provisions intended to strengthen the financial services sector.
The implications of the Dodd-Frank Act for the Companys businesses will depend to a large extent on the manner in which rules adopted pursuant to the Dodd-Frank Act are implemented by the primary U.S. financial regulatory agencies as well as potential changes in market practices and structures in response to the requirements of the Dodd-Frank Act and financial reforms in other jurisdictions.
The Dodd-Frank Act established the Consumer Financial Protection Bureau, or CFPB, which has extensive regulatory and enforcement powers over consumer financial products and services, and the Financial Stability Oversight Council, which has oversight authority for monitoring and regulating systemic risk. In addition, the Dodd-Frank Act altered the authority and duties of the federal banking and securities regulatory agencies, implemented certain corporate governance requirements for all public companies including financial institutions with regard to executive compensation, proxy access by shareholders, and certain whistleblower provisions, and restricted certain proprietary trading and hedge fund and private equity activities of banks and their affiliates. The Dodd-Frank Act also required the issuance of numerous implementing regulations, many of which have not yet been issued.
In January 2013, the CFPB issued final regulations governing mainly consumer mortgage lending. One rule imposes additional requirements on lenders, including rules designed to require lenders to ensure borrowers ability to repay their mortgage. The CFPB also finalized a rule on escrow accounts for higher priced mortgage loans and a rule expanding the scope of the high-cost mortgage provision in the Truth in Lending Act. The CFPB also issued final rules implementing provisions of the Dodd-Frank Act that relate to mortgage servicing, which took effect. In addition, the CFPB issued a final appraisal rule under the Equal Credit Opportunity Act and federal agencies issued an interagency rule on appraisals for higher-priced mortgage loans. In November 2013, the CFPB issued a final rule on integrated mortgage disclosures under the Truth in Lending Act and the Real Estate Settlement Procedures Act, compliance is required by August 1, 2015. We are evaluating these integrated mortgage disclosure rules to determine their impact on us and our affiliates.
In 2013, the CFPB provided guidance on fair lending practices to indirect automobile lenders with recommendations to ensure compliance with fair lending laws.
Recently, banking regulatory agencies have increasingly used a general consumer protection statute to address unethical or otherwise bad business practices that may not necessarily fall directly under the purview of a specific banking or consumer finance law. Prior to the Dodd-Frank Act, there was little formal guidance to provide insight to the parameters for compliance with the unfair or deceptive acts or practices (UDAP) law. However, the UDAP provisions have been expanded under the Dodd-Frank Act to apply to unfair, deceptive or abusive acts or practices, which has been delegated to the CFPB for supervision.
New laws or regulations or changes to existing laws and regulations (including changes in interpretation or enforcement) could materially adversely affect our financial condition or results of operations. Many aspects of the Dodd-Frank Act are subject to further rulemaking and will take effect over several years. The overall financial impact on us and our subsidiaries or the financial services industry generally cannot be anticipated at this time.
The Volcker Rule . On December 10, 2013, the FRB and other federal agencies issued final rules to implement the so-called Volcker Rule contained in the Dodd-Frank Act, generally to become effective on July 21, 2015. The Volcker Rule prohibits an insured depository institution and its affiliates (referred to as banking entities) from: (i) engaging in proprietary trading and (ii) investing in or sponsoring certain types of funds (covered funds) subject to certain limited exceptions. These prohibitions impact the ability of U.S. banking entities to provide investment management products and services that are competitive with nonbanking firms generally and with non-U.S. banking organizations in overseas markets. The rule also effectively prohibits short-term trading strategies by any U.S. banking entity if those strategies involve instruments other than those specifically permitted for trading. The level of required compliance activity depends on the size of the banking entity and the extent of its trading, and generally applies only to banking entities with $50 billion or more in total consolidated assets, or those with $50 billion or more in worldwide trading assets and liabilities.
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The final Volcker Rule regulations do provide certain exemptions allowing banking entities to continue underwriting, market-making and hedging activities and trading certain government obligations, as well as various exemptions and exclusions from the definition of covered funds.
On January 14, 2014, the five federal agencies approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities from the investment prohibitions of the Volcker Rule. Under the interim final rule, the agencies permit the retention of an interest in or sponsorship of covered funds by banking entities if certain qualifications are met. In addition, the agencies released a non-exclusive list of issuers that meet the requirements of the interim final rule. At December 31, 2013, we did not hold any collateralized debt obligations backed by trust preferred securities for investment purposes.
The Durbin Amendment . The Durbin Amendment provisions of the Dodd-Frank Act require the FRB to establish a cap on the rate merchants pay banks for electronic clearing of debit transactions (i.e. the interchange rate). The FRB issued final rules for establishing standards, including a cap, for debit card interchange fees and prohibiting network exclusivity arrangements and routing restrictions. The final rule established standards for assessing whether debit card interchange fees received by debit card issuers were reasonable and proportional to the costs incurred by issuers for electronic debit transactions. Under the final rule, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction is the sum of 21 cents per transaction, a 1 cent fraud prevention adjustment, and 5 basis points multiplied by the value of the transaction. As a result of implementing this lower debit card interchange fee structure, our electronic banking income was negatively impacted.
On July 31, 2013, the Federal District Court in the District of Columbia (the Court) issued a ruling in a lawsuit filed by a merchant group challenging the validity of the FRBs final rule under the Durbin Amendment. The Court ruling vacated the provisions of the FRBs final rule relating to standards for debit card interchange fees and the provision dealing with network non-exclusivity, but stayed its action until further briefing on issues identified by the Court. Eventually, the Courts Ruling was appealed to the Federal Circuit Court of Appeals for the District of Columbia, where the case is currently pending. If the Court of Appeals rules in favor of the merchants, the Federal Reserve will likely be required to provide even more stringent caps on debit interchange fees, which could adversely impact all banks that issue debit cards, including us, and which could result in an industry-wide retraction of debit card products and replacement with other card products not subject to the Durbin Amendment. The FRB and a banking trade organization are submitting briefs arguing that the Court of Appeals should overrule the Court and uphold the FRBs final rule under the Durbin Amendment. Oral argument before the Court of Appeals was held on January 17, 2014, and an expedited ruling is anticipated.
Holding Company Structure
We have one Louisiana-chartered commercial bank subsidiary, one title insurance company subsidiary, one subsidiary to provide equity research, institutional sales and trading, and corporate financial services, one subsidiary to provide wealth management and trust services, and multiple subsidiaries to operate corporate assets, including our fractional ownership of an aircraft and our investment in purchased tax credits, as well as numerous other non-bank subsidiaries of these first tier subsidiaries. Exhibit 21 of this Report on Form 10-K lists all of our current subsidiaries.
IBERIABANK is subject to affiliate transaction restrictions under federal laws, which limit the transfer of funds by a subsidiary bank or its subsidiaries to its parent corporation or any non-bank subsidiary of its parent corporation, whether in the form of loans, extensions of credit, investments, or asset purchases. Furthermore, such loans and extensions of credit must be secured within specified amounts. In addition, all affiliate transactions must be conducted on terms and under circumstances that are substantially the same as such transactions with unaffiliated entities. Such extensions of credit must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and must not involve more than the normal risk of repayment or present other unfavorable features. See Affiliate Transactions below.
As a matter of policy, which has been codified by the Dodd-Frank Act, the FRB expects a bank holding company to act as a source of financial and managerial strength to each of its subsidiary banks and to commit
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resources to support each such subsidiary bank. Under this source of strength doctrine, the FRB may require a bank holding company to make capital injections into a troubled subsidiary bank. The FRB may charge the bank holding company with engaging in unsafe and unsound practices if it fails to commit resources to such a subsidiary bank or if it undertakes actions that the FRB believes might jeopardize its ability to commit resources to such subsidiary bank. A capital injection may be required at times when the holding company does not have the resources to provide it.
In addition, any loans by a holding company to a subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding companys bankruptcy, the bankruptcy trustee will assume any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank. Moreover, the bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the institutions general unsecured creditors, including the holders of its note obligations.
Louisiana law permits the Commissioner of the OFI to require a special assessment of shareholders of a Louisiana-chartered bank whose capital has become impaired to remedy an impairment in such banks capital stock. This statute also provides that the Commissioner may suspend a banks certificate of authority until the capital is restored. As the sole shareholder of IBERIABANK, we are subject to such statute.
Moreover, the claims of a receiver of an insured depository institution for administrative expenses and the claims of holders of deposit liabilities of such an institution are accorded priority over the claims of general unsecured creditors of such an institution, including the holders of the institutions note obligations, in the event of liquidation or other resolution of our institution. Claims of a receiver for administrative expenses and claims of holders of deposit liabilities of IBERIABANK, including the FDIC as the insurer of such holders, would receive priority over the holders of notes and other senior debt of IBERIABANK in the event of liquidation or other resolution and over our interests as sole shareholder of IBERIABANK.
The FRB maintains a bank holding company rating system that emphasizes risk management, introduces a framework for analyzing and rating financial factors, and provides a framework for assessing and rating the potential impact of non-depository entities of a holding company on its subsidiary depository institutions.
A composite rating is assigned based on the foregoing three components, but a fourth component is also rated, reflecting generally the assessment of depository institution subsidiaries by their principal regulators. Ratings are made on a scale of 1 to 5 (1 highest) and are not made public. The composite ratings assigned to us, like those assigned to other financial institutions, are confidential and may not be directly disclosed, except to the extent required by law.
Acquisitions . We comply with numerous laws relating to its acquisition activity. Under the BHCA, a bank holding company may not directly or indirectly acquire ownership or control of more than 5% of the voting shares or substantially all of the assets of any bank holding company or bank or merge or consolidate with another bank holding company without the prior approval of the FRB. Current Federal law authorizes interstate acquisitions of banks and bank holding companies without geographic limitation. Furthermore, a bank headquartered in one state is authorized to merge with a bank headquartered in another state, as long as neither of the states have opted out of such interstate merger authority prior to such date, and subject to any state requirement that the target bank shall have been in existence and operating for a minimum period of time, not to exceed five years; and subject to certain deposit market-share limitations. After a bank has established branches in a state through an interstate merger transaction, the bank may establish and acquire additional branches at any location in the state where a bank headquartered in that state could have established or acquired branches under applicable federal or state law.
In January 2014, we consummated the acquisition of four bank branches of Trust One Bank, a division of Synovus Bank, in the Memphis, Tennessee market. On January 12, 2014, we entered into an agreement and plan of merger agreement with Teche Holding Company, a New Iberia, Louisiana based banking holding company with $877 million in assets, pursuant to which we will acquire Teche Holding Company, and its commercial bank subsidiary, Teche Federal Bank. On February 10, 2014, we entered into an agreement an agreement and plan of merger with First Private Holdings, Inc., a bank holding company located in Dallas, Texas with $357 million in assets, pursuant to which we will acquire First Private Holdings, Inc. and its commercial bank subsidiary, First Private Bank of Texas.
Safety and Soundness Regulations . The FRB has enforcement powers over bank holding companies and their non-banking subsidiaries. The FRB has authority to prohibit activities that represent unsafe or unsound practices
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or constitute violations of law, rule, regulation, administrative order or written agreement with a federal regulator. These powers may be exercised through the issuance of cease and desist orders, civil money penalties or other formal or informal actions.
There also are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by federal law and regulatory policy that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the FDIC insurance funds in the event the depository institution is insolvent or is in danger of becoming insolvent. For example, under requirements of the FRB with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and to commit financial resources to support such institutions in circumstances where it might not do so otherwise. In addition, the cross-guarantee provisions of federal law require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by the Deposit Insurance Fund (DIF) as a result of the insolvency of commonly controlled insured depository institutions or for any assistance provided by the FDIC to commonly controlled insured depository institutions in danger of failure. The FDIC may decline to enforce the cross-guarantee provision if it determines that a waiver is in the best interests of the DIF. The FDICs claim for reimbursement under the cross guarantee provisions is superior to claims of shareholders of the insured depository institution or its holding company, but is subordinate to claims of depositors, secured creditors and nonaffiliated holders of subordinated debt of the commonly controlled insured depository institution.
Banking regulators also have broad enforcement powers over IBERIABANK, including the power to impose fines and other civil and criminal penalties, and to appoint a conservator in order to conserve the assets of any such institution for the benefit of depositors and other creditors.
Dividends . We are a legal entity separate and distinct from our subsidiaries. The majority of our revenue is from dividends paid to us by IBERIABANK. IBERIABANK is subject to federal and state laws and regulations that limit the amount of dividends it can pay. In addition, we and IBERIABANK are subject to various regulatory restrictions relating to the payment of dividends, including requirements to maintain capital at or above regulatory minimums, and to remain well-capitalized under the prompt corrective action rules. The FRB has indicated generally that it may be an unsafe or unsound practice for a bank holding company to pay dividends unless the bank holding companys net income over the preceding year is sufficient to fund the dividends and the expected rate of earnings retention is consistent with the organizations capital needs, asset quality and overall financial condition.
In addition to the limitations placed on the payment of dividends at the holding company level, there are various legal and regulatory limits on the extent to which IBERIABANK may pay dividends or otherwise supply funds to us. IBERIABANK is subject to laws and regulations of Louisiana, which place certain restrictions on the payment of dividends. Additionally, as a member of the Federal Reserve System, IBERIABANK is subject to regulations of the FRB.
We do not expect that these laws, regulations or policies will materially affect the ability of IBERIABANK to pay dividends. Additional information is provided in Note 25 to the Consolidated Financial Statements incorporated herein by reference.
FDIC Insurance. IBERIABANK pays deposit insurance premiums to the FDIC based on assessment rates established by the FDIC. These rates generally depend upon a combination of regulatory ratings and financial ratios. Regulatory ratings reflect the applicable bank regulatory agencys evaluation of the financial institutions capital, asset quality, management, earnings, liquidity and sensitivity to risk CAMELS. Assessment rates for institutions that are in the lowest risk category currently vary from seven to twenty-four basis points per $100 of insured deposits, and may be increased or decreased by the FDIC on a semi-annual basis. Such base assessment rates are subject to adjustments based upon the institutions ratio of (i) long-term unsecured debt to its domestic deposits, (ii) secured liabilities to domestic deposits and (iii) brokered deposits to domestic deposits (if greater than 10%). Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
In 2011, the FDIC adopted a final rule to revise the deposit insurance assessment system for large institutions: one for most large institutions that have more than $10 billion in assets, and another for highly complex institutions that have over $50 billion in assets and are fully owned by a parent with over $500 billion in assets. Each scorecard has a performance score and a loss-severity score that is combined to produce a total score, which is translated into an initial assessment rate. In calculating these scores, the FDIC will continue to utilize the
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banks supervisory CAMELS ratings and will introduce certain new forward-looking financial measures to assess an institutions ability to withstand asset-related stress and funding-related stress. The rule also eliminates the use of risk categories and long-term debt issuer ratings for calculating risk-based assessments for institutions having more than $10 billion in assets. The FDIC is authorized to make discretionary adjustments to the total score based upon significant risk factors that are not adequately captured in the scorecard. The total score will then translate to an initial base assessment rate.
Also in 2011, the deposit insurance assessment base changed from total domestic deposits to the average consolidated total assets of the depository institution minus its average tangible equity, pursuant to a rule issued by the FDIC as required by the Dodd-Frank Act.
In 2009, the FDIC implemented a final rule requiring insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012. Such repaid assessments were paid on December 30, 2009, along with each institutions quarterly risk-based deposit insurance assessment for the third quarter of 2009 (assuming 5% annual growth in deposits between the third quarter of 2009 and the end of 2012 and taking into account, for 2011 and 2012, the annualized three basis point increase discussed below).
A minimum ratio of deposit insurance reserves to estimated insured deposits, or designated reserve ratio (the DRR), of 1.15% is applicable prior to September 2020, and 1.35% thereafter. In late 2010, the FDIC issued a final rule setting the DRR at 2%. Because the DRR fell below 1.15% in 2008, and was expected to remain below 1.15%, the FDIC was required to establish and implement a Restoration Plan that would restore the reserve ratio to at least 1.15% within five years. In 2008, the FDIC adopted such a restoration plan (the Restoration Plan). In 2009, in light of the extraordinary challenges facing the banking industry, the FDIC amended the Restoration Plan to allow seven years for the reserve ratio to return to 1.15%. In 2009, the FDIC adopted a final rule that imposed a five basis point special assessment on each institutions assets minus Tier 1 capital (as of June 30, 2009). Such special assessment was collected in 2009. In 2009, the FDIC also passed a final rule extending the term of the Restoration Plan to eight years. Such final rule also included a provision that implements a uniform three basis point increase in assessment rates, effective January 1, 2011, to help ensure that the reserve ratio returns to at least 1.15% within the eight year period called for by the Restoration Plan. In 2010, the FDIC adopted a new restoration plan to ensure the DRR reaches 1.35% by September 2020. As part of the revised plan, the FDIC will forego the uniform three-basis point increase in assessment rates scheduled to take place in January 2011. The FDIC will, at least semi-annually, update its income and loss projections for the DIF and, if necessary, propose rules to further increase assessment rates. In addition, the FDIC announced in 2010 that it would seek public comment on whether banks with compensation plans that encourage risky behavior should be charged higher deposit assessment rates than such banks would otherwise be charged.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
In addition, the Deposit Insurance Funds Act of 1996 authorized the Financing Corporation (FICO) to impose assessments on applicable deposits in order to service the interest on FICOs bond obligations from deposit insurance fund assessments. The amount assessed on individual institutions by FICO is in addition to the amount, if any, paid for deposit insurance according to the FDICs risk-related assessment rate schedules. FICO assessment rates may be adjusted quarterly to reflect a change in assessment base. IBERIABANK recognized $0.8 million of expense related to its FICO assessments in 2013.
We cannot predict whether the FDIC will in the future further increase deposit insurance assessment levels.
Capital Requirements. The FRB has issued risk-based capital ratio and leverage ratio guidelines for bank holding companies. The risk-based capital ratio guidelines establish a systematic analytical framework that:
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makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, |
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takes off-balance sheet exposures into explicit account in assessing capital adequacy, and |
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minimizes disincentives to holding liquid, low-risk assets. |
Under the guidelines and related policies, bank holding companies must maintain capital sufficient to meet both a risk-based asset ratio test and a leverage ratio test on a consolidated basis. The risk-based ratio is determined by allocating assets and specified off-balance sheet commitments into four weighted categories, with higher
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weighting assigned to categories perceived as representing greater risk. The risk-based ratio represents capital divided by total risk weighted assets. The leverage ratio is core capital divided by total assets adjusted as specified in the guidelines. IBERIABANK is subject to substantially similar capital requirements.
Generally, under the applicable guidelines, a financial institutions capital is divided into two tiers. Institutions that must incorporate market risk exposure into their risk-based capital requirements may also have a third tier of capital in the form of restricted short-term subordinated debt. These tiers are:
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Tier 1, or core capital, includes total equity plus qualifying capital securities and minority interests, excluding unrealized gains and losses accumulated in other comprehensive income, and non-qualifying intangible and servicing assets. |
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Tier 2, or supplementary capital, includes, among other things, cumulative and limited-life preferred stock, mandatory convertible securities, qualifying subordinated debt, and the allowance for credit losses, up to 1.25% of risk-weighted assets. |
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Total capital is Tier 1 plus Tier 2 capital. |
The FRB and the other federal banking regulators require that all intangible assets (net of deferred tax), except originated or purchased mortgage-servicing rights, non-mortgage servicing assets, and purchased credit card relationships, be deducted from Tier 1 capital. However, the total amount of these items included in capital cannot exceed 100% of its Tier 1 capital.
Under the risk-based guidelines, financial institutions are required to maintain a risk-based ratio of 8%, with 4% being Tier 1 capital. The appropriate regulatory authority may set higher capital requirements when they believe an institutions circumstances warrant.
Under the leverage guidelines, financial institutions are required to maintain a leverage ratio of at least 3%. The minimum ratio is applicable only to financial institutions that meet certain specified criteria, including excellent asset quality, high liquidity, low interest rate risk exposure, and the highest regulatory rating. Financial institutions not meeting these criteria are required to maintain a minimum Tier 1 leverage ratio of 4%.
Special minimum capital requirements apply to equity investments in non-financial companies. The requirements consist of a series of deductions from Tier 1 capital that increase within a range from 8% to 25% of the adjusted carrying value of the investment.
Failure to meet applicable capital guidelines could subject the financial institution to a variety of enforcement remedies available to the federal regulatory authorities. These include limitations on the ability to pay dividends, the issuance by the regulatory authority of a capital directive to increase capital, and the termination of deposit insurance by the FDIC. In addition, the financial institution could be subject to the measures described below under Prompt Corrective Action as applicable to under-capitalized institutions.
The risk-based capital standards of the FRB and the FDIC specify that evaluations by the banking agencies of a banks capital adequacy will include an assessment of the exposure to declines in the economic value of the banks capital due to changes in interest rates. These banking agencies issued a joint policy statement on interest rate risk describing prudent methods for monitoring such risk that rely principally on internal measures of exposure and active oversight of risk management activities by senior management.
Guidelines Effective January 1, 2015 . In July 2013, the FRB released its final rules which will implement in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. The Company and IBERIABANK will become subject to the new rules on January 1, 2015. Under the final rules, minimum requirements will increase for both the quality and quantity of capital held by banking organizations. In this respect, the final rules implement strict eligibility criteria for regulatory capital instruments and improve the methodology for calculating risk-weighted assets to enhance risk sensitivity. Consistent with the international Basel framework, the rules include a new minimum ratio of Common Equity Tier I Capital to Risk-Weighted Assets of 4.5% and a Common Equity Tier I Capital conservation buffer of 2.5% of risk-weighted assets. The conservation buffer will be phased in from 2016 through 2019. The rules also, among other things, raise the minimum ratio of Tier I Capital to Risk-Weighted Assets from 4% to 6% and includes a minimum leverage ratio of 4% for all banking organizations. See Item 1A. Risk Factors.
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Leverage Requirements . The FRB has established minimum leverage ratio guidelines for bank holding companies to be considered well-capitalized. These guidelines provide for a minimum ratio of Tier 1 capital to average total assets, less goodwill and certain other intangible assets, of 3% for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. All other bank holding companies generally are required to maintain a ratio of at least 4%.
The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the FRB has indicated that it will consider a tangible Tier 1 capital leverage ratio (deducting all intangibles) and other indicators of capital strength in evaluating proposals for expansion or new activities.
Liquidity Requirements . Historically, regulation and monitoring of bank and bank holding company liquidity has been addressed as a supervisory matter without required formulaic measures. The Basel III framework requires banks and bank holding companies to measure their liquidity against specific liquidity tests that, although similar in some respects to liquidity measures historically applied by banks and regulators for management and supervisory purposes, going forward such measures will be required by regulation. One test, the liquidity coverage ratio, is designed to ensure that the banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to the entitys expected net cash outflow for a 30-day time horizon. The other test, the net stable funding ratio, is designed to promote more medium- and long-term funding of the assets and activities of banking entities over a one-year time horizon. These requirements are intended to incent banking entities to increase their holdings of U.S. Treasury securities and other sovereign debt as a component of assets and increase the use of long-term debt as a funding source.
Joint Supervisory Guidance on Stress Testing . In May 2012, the federal banking agencies issued joint supervisory guidance on stress testing. The guidance addresses stress testing in connection with overall risk management, including capital and liquidity planning. The guidance outlines general principles for stress testing, applicable to all FRB-supervised banking organizations with more than $10 billion in total consolidated assets. The guidance highlights the importance of stress testing as an ongoing risk management practice that supports a banking organizations forward-looking assessment of its risks. It outlines broad principles for a satisfactory stress testing framework and describes the manner in which stress testing should be employed as an integral component of risk management.
As a bank holding company with total consolidated assets in excess of $10 billion, the Dodd-Frank Act requires us to submit a stress test to the FRB that projects our performance in various economic scenarios provided by the FRB. The Dodd-Frank Act stress tests are forward-looking exercises conducted by the FRB and financial companies regulated by the FRB to help ensure institutions have sufficient capital to absorb losses and support operations during adverse economic conditions. We are required to make certain assumptions in modeling future performance and must support these assumptions through statistical analysis and observed market behavior where applicable. The outcome of the FRBs analysis of our projected performance (to include capital, earnings, and balance sheet changes) will be used in supervision of us and will assist the FRB in assessing our risk profile and capital adequacy. The results of our stress test could hinder our ability to pay quarterly cash dividends to shareholders as has been our practice, and could also impact the FRBs decisions regarding future acquisitions by us. We expect to file our stress test within the prescribed regulatory guidelines.
Prompt Corrective Action . The Federal Deposit Insurance Corporation Improvement Act of 1991, known as FDICIA, requires federal banking regulatory authorities to take prompt corrective action with respect to depository institutions that do not meet minimum capital requirements. For these purposes, FDICIA establishes five capital tiers: well-capitalized, adequately-capitalized, under-capitalized, significantly under-capitalized, and critically under-capitalized.
An institution is deemed to be:
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well-capitalized if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a Tier 1 leverage ratio of 5% or greater and is not subject to a regulatory order, agreement, or directive to meet and maintain a specific capital level for any capital measure; |
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adequately-capitalized if it has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater, and, generally, a Tier 1 leverage ratio of 4% or greater and the institution does not meet the definition of a well-capitalized institution; |
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under-capitalized if it does not meet one or more of the adequately-capitalized tests; |
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significantly under-capitalized if it has a total risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio that is less than 3%, or a Tier 1 leverage ratio that is less than 3%; and |
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critically under-capitalized if it has a ratio of tangible equity, as defined in the regulations, to total assets that is equal to or less than 2%. |
Throughout 2013, our regulatory capital ratios were in excess of the levels established for well-capitalized institutions.
FDICIA generally prohibits a depository institution from making any capital distribution, including payment of a cash dividend or paying any management fee to its holding company, if the depository institution would be under-capitalized after such payment. Under-capitalized institutions are subject to growth limitations and are required by the appropriate federal banking agency to submit a capital restoration plan. If any depository institution subsidiary of a holding company is required to submit a capital restoration plan, the holding company would be required to provide a limited guarantee regarding compliance with the plan as a condition of approval of such plan.
If an under-capitalized institution fails to submit an acceptable plan, it is treated as if it is significantly under-capitalized. Significantly under-capitalized institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately-capitalized, requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks.
Critically under-capitalized institutions may not, beginning 60 days after becoming critically under-capitalized, make any payment of principal or interest on their subordinated debt. In addition, critically under-capitalized institutions are subject to appointment of a receiver or conservator within 90 days of becoming so classified.
Under FDICIA, a depository institution that is not well-capitalized is generally prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market. As previously stated, IBERIABANK is well-capitalized and the FDICIA brokered deposit rule did not adversely affect their ability to accept brokered deposits. IBERIABANK had $365.0 million of such brokered deposits at December 31, 2013.
Additional information is provided in Note 19 to the Consolidated Financial Statements and in Managements Discussion and Analysis of Financial Condition and Results of Operations Capital Resources in Exhibit 13 to this Form 10-K incorporated herein by reference.
Financial Holding Company Status. A bank holding company meeting certain requirements may qualify and elect to become a financial holding company, permitting the bank holding company to engage in additional activities that are financial in nature or incidental or complementary to financial activity. The BHCA expressly lists the following activities as financial in nature:
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lending, trust and other banking activities; |
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insuring, guaranteeing or indemnifying against loss or harm, or providing and issuing annuities and acting as principal, agent or broker for these purposes, in any state; |
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providing financial, investment or advisory services; |
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issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly; |
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underwriting, dealing in or making a market in securities; |
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other activities that the FRB may determine to be so closely related to banking or managing or controlling banks as to be a proper incident to managing or controlling banks; |
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foreign activities permitted outside of the United States if the FRB has determined them to be usual in connection with banking operations abroad; |
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merchant banking through securities or insurance affiliates; and |
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insurance company portfolio investments. |
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For a bank holding company to be eligible to elect financial holding company status, the holding company must be both well capitalized and well managed under applicable regulatory standards, and all of its subsidiary banks also must be well-capitalized and well-managed and must have received at least a satisfactory rating on such institutions most recent examination under the Community Reinvestment Act of 1977 (the CRA). A financial holding company that continues to meet all of such requirements may engage directly or indirectly in activities considered financial in nature (discussed above), either de novo or by acquisition, as long as it gives the FRB after-the-fact notice of the new activities. If a financial holding company fails to continue to meet any of the prerequisites for financial holding company status after engaging in activities not permissible for bank holding companies that have not elected to be treated as financial holding companies, the company must enter into an agreement with the FRB that it will comply with all applicable capital and management requirements. If the financial holding company does not return to compliance within 180 days, or such longer period as agreed to by the FRB, the FRB may order the company to discontinue existing activities that are not generally permissible for bank holding companies or divest investments in companies engaged in such activities. In addition, if any banking subsidiary of a financial holding company receives a CRA rating of less than satisfactory, the holding company would be prohibited from engaging in any additional activities other than those permissible for bank holding companies that are not financial holding companies.
Affiliate Transactions . IBERIABANK is subject to Regulation W, which comprehensively implemented statutory restrictions on transactions between a bank and its affiliates. Regulation W combines the FRBs interpretations and exemptions relating to Sections 23A and 23B of the Federal Reserve Act. Regulation W and Section 23A place limits on the amount of loans or extensions of credit to, investments in, or certain other transactions with affiliates, and on the amount of advances to third parties collateralized by the securities or obligations of affiliates. In general, IBERIABANKs affiliates are IBERIABANK Corporation and our non-bank subsidiaries.
Regulation W and Section 23B prohibit, among other things, a bank from engaging in certain transactions with affiliates unless the transactions are on terms substantially the same, or at least as favorable to the bank, as those prevailing at the time for comparable transactions with non-affiliated companies.
IBERIABANK is also subject to certain restrictions on extensions of credit to executive officers, directors, certain principal shareholders and their related interests. Such extensions of credit must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and must not involve more than the normal risk of repayment or present other unfavorable features.
Bank Secrecy Act . The Bank Secrecy Act, as amended by the USA Patriot Act of 2001 and its related regulations require insured depository institutions, broker-dealers, and certain other financial institutions to have policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing. The statute and its regulations also provide for information sharing, subject to conditions, between federal law enforcement agencies and financial institutions, as well as among financial institutions, for counter-terrorism purposes. Federal banking regulators are required, when reviewing bank holding company acquisition and bank merger applications, to take into account the effectiveness of the anti-money laundering activities of the applicants.
Consumer Privacy and Other Consumer Protection Laws . We, like all other financial institutions, are required to maintain the privacy of our customers non-public, personal information. Such privacy requirements, as established by the Gramm-Leach-Bliley Act of 1999, direct financial institutions to:
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provide notice to our customers regarding privacy policies and practices, |
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inform our customers regarding the conditions under which their non-public personal information may be disclosed to non-affiliated third parties, and |
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give our customers an option to prevent disclosure of such information to non-affiliated third parties. |
Under the Fair and Accurate Credit Transactions Act of 2003, our customers may also opt out of information sharing between and among us and our affiliates. We are also subject, in connection with our lending and leasing activities, to numerous federal and state laws aimed at protecting consumers, including the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Equal Credit Opportunity Act, the Truth in Lending Act, and the Fair Credit Reporting Act.
Incentive Compensation . Guidelines adopted by the federal banking agencies prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal stockholder.
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In 2010, the FRB issued guidance on incentive compensation policies (the Incentive Compensation Guidance) intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The Incentive Compensation Guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organizations incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organizations ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organizations board of directors. Any deficiencies in compensation practices that are identified may be incorporated into the organizations supervisory ratings, which can affect its ability to make acquisitions or perform other actions. The Incentive Compensation Guidance provides that enforcement actions may be taken against a banking organization if its incentive compensation arrangements or related risk-management control or governance processes pose a risk to the organizations safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
The Dodd-Frank Act requires the federal bank regulatory agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities having at least $1 billion in total assets that encourage inappropriate risks by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity.
The scope and content of regulatory policies on incentive compensation have not been finalized. It cannot be determined at this time whether compliance with such future policies will adversely affect our and our subsidiaries ability to hire, retain and motivate their key employees.
Sarbanes-Oxley Act of 2002 . The Sarbanes-Oxley Act of 2002, or the SOX Act, implements a broad range of corporate governance, accounting and disclosure requirements for public companies, and also for their directors and officers. SEC rules adopted to implement the SOX Act requirements require our chief executive and chief financial officer to certify certain financial and other information included in our quarterly and annual reports. The rules also require these officers to certify that they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our financial reporting and disclosure controls and procedures; that they have made certain disclosures to the auditors and to the Audit Committee of the board of directors about our controls and procedures; and that they have included information in their quarterly and annual filings about their evaluation and whether there have been significant changes to the controls and procedures or other factors which would significantly impact these controls subsequent to their evaluation. Section 404 of the SOX Act requires management to undertake an assessment of the adequacy and effectiveness of our internal controls over financial reporting and requires our auditors to attest to and report on the effectiveness of these controls. See Item 9A. Controls and Procedures hereof for our evaluation of disclosure controls and procedures. The certifications required by Sections 302 and 906 of the SOX Act also accompany this Report on Form 10-K.
Other Regulatory Matters . We and our subsidiaries and affiliates are subject to numerous examinations by federal and state banking regulators, as well as the SEC, FINRA, NASDAQ Stock Market, and various state insurance and securities regulators.
Corporate Governance . Information with respect to our corporate governance is available on our web site, www.iberiabank.com, and includes:
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Corporate Governance Guidelines |
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Nominating and Corporate Governance Committee Charter |
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Compensation Committee Charter |
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Audit Committee Charter |
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Board Risk Committee Charter |
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Codes of Ethics for directors, officers, and other employees |
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Code of Ethics for the Chief Executive Officer and Senior Financial Officers |
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Chief Executive Officer and Chief Financial Officer Certifications |
We intend to disclose any waiver of or substantial amendment to the Codes of Ethics applicable to directors and executive officers on our web site at www.iberiabank.com .
Federal Taxation
We and our subsidiaries are subject to the generally applicable corporate tax provisions of the Internal Revenue Code (the Code), and IBERIABANK is subject to certain additional provisions of the Code that apply to financial institutions. We and our subsidiaries file a consolidated federal income tax return on the basis of a fiscal year ending on December 31.
Retained earnings at December 31, 2013 and 2012 included approximately $21.9 million accumulated prior to January 1, 1987 for which no provision for federal income taxes has been made. If this portion of retained earnings is used in the future for any purpose other than to absorb bad debts, it will be added to future taxable income.
The deferred tax liability at December 31, 2013 includes $402.8 million of future deductible temporary differences. Included is $223.9 million related to book deductions for the bad debt reserve that have not been deducted for tax purposes.
State Taxation
Louisiana does not permit the filing of consolidated income tax returns. We are subject to the Louisiana Corporation Income Tax based on our separate Louisiana taxable income, as well as a corporate franchise tax. IBERIABANK is not subject to the Louisiana income or franchise taxes. However, IBERIABANK is subject to the Louisiana Shares Tax which is imposed on the assessed value of our stock. The formula for deriving the assessed value is to calculate 15% of the sum of (a) 20% of our capitalized earnings, plus (b) 80% of our taxable shareholders equity, and to subtract from that figure 50% of our real and personal property assessment. Various items may also be subtracted in calculating a companys capitalized earnings. The portion of the Louisiana shares tax expense calculated on our shareholders equity is included in noninterest expense, and the portion calculated on our capitalized earnings is included in income tax expense.
With respect to other states in which we operate, Arkansas generally imposes income tax on financial institutions computed at a rate of 6.5% of net earnings. For the purpose of the 6.5% income tax, net earnings are defined as the net income of the financial institution computed in the manner prescribed for computing the net taxable income for federal corporate income tax purposes, less (i) interest income from obligations of the United States, of any county, municipal or public corporation authority, special district or political subdivision, plus (ii) any deduction for state income taxes.
Florida generally imposes income tax on financial institutions computed at a rate of 5.5% of net earnings. For the purpose of the 5.5% income tax, net earnings are defined as the net income of the financial institution computed in the manner prescribed for computing the net taxable income for federal corporate income tax purposes, less certain modifications defined by Florida law.
Alabama generally imposes income tax on financial institutions computed at a rate of 6.5% of net earnings. For the purpose of the 6.5% income tax, net earnings are defined as the net income of the financial institution computed in the manner prescribed for computing the net taxable income for federal corporate income tax purposes, less certain modifications defined by Alabama law.
Tennessee generally imposes income tax on financial institutions computed at a rate of 6.5% of net earnings. For the purpose of the 6.5% income tax, net earnings are defined as the net income of the financial institution computed in the manner prescribed for computing the net taxable income for federal corporate income tax purposes, less certain modifications defined by Tennessee law.
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Item 1A. | Risk Factors. |
There are risks, many beyond our control, which could cause our results to differ significantly from managements expectations. Some of these risk factors are described below. Any factor described in this report could, by itself or together with one or more other factors, adversely affect our business, results of operations and/or financial condition. Additional risks and uncertainties not currently known to us or that we currently consider to not be material also may materially and adversely affect us. In assessing these risks, you should also refer to other information disclosed in our SEC filings, including the financial statements and notes thereto.
Risks Associated with IBERIABANK Corporation
A return to recessionary conditions could result in increases in our level of non-performing loans and/or reduce demand for our products and services, which would lead to lower revenue, higher loan losses and lower earnings.
Following a national home price peak in mid-2006, falling home prices and sharply reduced sales volumes, along with the collapse of the United States subprime mortgage industry in early 2007, significantly contributed to a recession that officially lasted until June 2009, although the effects continued thereafter. Dramatic declines in real estate values and high levels of foreclosures resulted in significant asset write-downs by financial institutions, which have caused many financial institutions to seek additional capital, to merge with other institutions and, in some cases, to fail.
Although the general economic environment has shown some improvement, there can be no assurance that improvement will continue. A return of recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability. Declines in real estate values and sales volumes and high unemployment levels may result in a variety of consequences, including the following:
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increases in loan delinquencies; |
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increases in nonperforming and classified assets; |
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decreases in demand for our products and services; and |
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decreases in the value of collateral securing our loans, especially real estate, which could result in lower recovery amounts on these loans, as well as reduce customers borrowing power and our ability to originate future loans. |
These negative events may cause us to incur losses and may adversely affect our capital, liquidity, earnings and financial condition.
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Disruptions in the global financial markets could adversely affect our results of operations and financial condition.
Since mid-2007, global financial markets have suffered substantial disruptions, illiquidity and volatility. These circumstances resulted in significant government assistance to a number of major financial institutions. These events significantly diminished overall confidence in the financial markets and in financial institutions and increased the uncertainty we face in managing our business. If future disruptions in the financial markets or the global or our regional economic environment arise, they could have an adverse effect on our results of operations and financial condition, including our liquidity position, and may affect our ability to access capital.
The Governments responses to economic conditions may adversely affect our financial performance.
The Federal Reserve Board, or the FRB, in an attempt to help the overall economy, has, among other things, kept interest rates low through its targeted federal funds rate and the purchase of long-term treasury and mortgage-backed securities. In January 2014, the FRB announced that it would slow monthly purchases of these securities by an additional $10 billion, to $65 billion per month. If the FRB slows such purchases at too fast a rate and increases the federal funds rate, overall interest rates will likely rise, which may negatively impact the housing markets and the U.S. economic recovery. In addition, deflationary pressures, while possibly lowering our operating costs, could have a significant negative effect on our borrowers, especially our business borrowers, and the values of collateral securing loans, which could negatively affect our financial performance.
The Dodd-Frank Act and related rules and regulations may adversely affect our business, financial condition and results of operations.
The Dodd-Frank Act contains a variety of far-reaching changes and reforms for the financial services industry and directed federal regulatory agencies to study the effects of, and to issue implementing regulations for, these reforms. Many of the provisions of the Dodd-Frank Act could have a direct effect on our performance and, in some cases, impact our ability to conduct business. Examples of these provisions include, but are not limited to:
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Creates of the Financial Stability Oversight Counsel that may recommend to the FRB increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity; |
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Applies of the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies, such as IBERIABANK Corporation; |
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Changes to the assessment base used by the FDIC to assess insurance premiums from insured depository institutions and increases to the minimum reserve ratio for the DIF, from 1.15% to not less than 1.35%, with provisions to require institutions with total consolidated assets of $10 billion or more, like us, to bear a greater portion of the costs associated with the increasing the DIFs reserve ratio; |
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Repeals of the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts; |
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Establishes of the Consumer Financial Protection Bureau, or CFPB, with broad authority to implement and enforce consumer protection regulations, including the authority to prohibit unfair, deceptive, and abusive practices. For bank holding companies with $10 billion or more in assets, like IBERIABANK Corporation, the CFPB has the power to examine and enforce compliance with consumer protection laws. |
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Implements of risk retention rules for loans (excluding qualified residential mortgages) that are sold by a bank; and |
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Amends of the Electronic Fund Transfer Act to, among other things, authorize the FRB to issue rules limiting debit-card interchange fees (referred to as the Durbin Amendment). |
Many of these provisions have already been the subject of proposed and final rulemakings. Many other provisions, however, remain subject to regulatory rulemaking and implementation, the effects of which are not yet known. The provisions of the Dodd-Frank Act and any rules adopted to implement those provisions, as well as any additional legislative or regulatory changes, may impact the profitability of our business activities, may require that we change certain of our business practices, may materially affect our business model or affect retention of key personnel, may require us to raise additional capital and could expose us to additional costs (including increased compliance costs). These and other changes may also require us to invest significant management attention and resources to make any necessary changes and may adversely affect our ability to conduct our business as previously conducted or our financial condition and results of operations.
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In July, 2013, the U.S. District Court for the District of Columbia (the Court) issued an order granting summary judgment to plaintiffs in a case challenging certain provisions of the FRBs regulation concerning the Durbin Amendment. The Court held that two aspects of the FRBs regulation the debit interchange fee and network exclusivity provisions are contrary to the Durbin Amendments provisions and therefore the FRB regulations maximum permissible debit card interchange fees are too high. The Court vacated the FRB regulation, but stayed its ruling to provide the FRB an opportunity to replace the invalidated portions. The FRB has decided to appeal this decision. If this decision is ultimately upheld and/or the FRB re-issues amended rules for purposes of implementing the Durbin Amendment in a manner consistent with this decision, the amount of debt card interchange fees that would be permitted to charge likely would be reduced, thereby negatively affecting our financial performance. See Part II Item 7 (Managements Discussion and Analysis of Financial Condition and Results of Operation) for further information regarding our debit card interchange revenue.
We are required to submit a stress test under the Dodd Frank Act the results of which could significantly impact our ability to approve declare and pay dividends to shareholders, acquire other financial institutions and/or execute our growth strategy.
The Dodd Frank Act requires us to submit a stress test to the FRB that projects the Companys performance under various economic scenarios provided by the FRB. We are required to make certain assumptions in modeling future performance and must support these assumptions through statistical analysis and observed market behavior where applicable. The outcome of the FRBs analysis of the Companys projected performance (to include capital, earnings, and balance sheet changes) could hinder our ability to pay cash dividends to shareholders as has been the Companys practice. The results of the stress test could also impact the FRBs future decision making regarding future acquisitions by the Company.
Our ability to achieve expense reduction and earnings enhancement initiatives may be adversely affected by external factors not within our control.
We are continuing to implement a number of expense reduction and revenue enhancing initiatives that, fully implemented, are currently expected to result in estimated annual incremental run-rate benefits of approximately $24.5 million on a pre-tax basis. While many of the elements necessary to achieve these initiatives are within our control, others such as interest rates and prevailing economic conditions, which influence expenses and revenues, depend on external factors not within our control, and there can be no assurance that external factors will not materially adversely affect our ability to fully implement and accomplish these initiatives.
Changes in interest rates and other factors beyond our control may adversely affect our earnings and financial condition, and we may incur losses if we are unable to successfully manage interest rate risk.
Our profitability depends to a large extent on IBERIABANKs net interest income, which is the difference between income on interest-earning assets, such as loans and investment securities, and expense on interest-bearing liabilities, such as deposits and borrowings. We are unable to predict changes in market interest rates, which are affected by many factors beyond our control, including inflation, recession, unemployment, money supply, domestic and international events and changes in the United States and other financial markets. Our net interest income may be reduced if more interest-earning assets than interest-bearing liabilities reprice or mature during a period when interest rates are declining, or more interest-bearing liabilities than interest-earning assets reprice or mature during a period when interest rates are rising.
Changes in the difference between short- and long-term interest rates may also harm our business. For example, short-term deposits may be used to fund longer-term loans. When differences between short-term and long-term interest rates shrink or disappear, as is likely in the current low interest rate policy environment, the spread between rates paid on deposits and received on loans could narrow significantly, decreasing our net interest income.
If market interest rates rise rapidly, interest rate adjustment caps may limit increases in interest rates on adjustable rate loans, thereby reducing our net interest income.
We attempt to manage our risk from changes in market interest rates by adjusting the rates, maturity, repricing, and balances of the different types of interest-earning assets and interest-bearing liabilities, but interest rate risk management techniques are not exact. As of December 31, 2013, our interest rate risk model indicated we are fairly balanced over a 12-month time frame. A 100 basis instantaneous and parallel upward shift in interest rates at December 31, 2013, was estimated to increase net interest income over 12 months by approximately 3.3%.
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Similarly, a 100 basis point decrease in interest rates was expected to decrease net interest income by 2.6%. At December 31, 2013, approximately 50% of our total loan portfolio had fixed interest rates. Eliminating fixed rate loans that mature within a one-year time frame reduces this percentage to 23%. Approximately 74% of our time deposit base will re-price within 12 months from December 31, 2013.
The required accounting treatment of troubled loans we acquired through acquisitions could result in higher net interest margins and interest income in current periods and lower net interest margins and interest income in future periods.
Under U.S. GAAP, we are required to record troubled loans acquired through acquisitions at fair value, which may underestimate the actual performance of such loans. As a result, if these loans outperform our original fair value estimates, the difference between our original estimate and the actual performance of the loan (the discount) is accreted into net interest income. Thus, our net interest margins may initially appear higher. We expect the yields on our loans to decline as our acquired loan portfolio pays down or matures, and we expect downward pressure on our interest income to the extent that the runoff on our acquired loan portfolio is not replaced with comparable high-yielding loans. This could result in higher net interest margins and interest income in current periods and lower net interest rate margins and lower interest income in future periods.
We obtain a significant portion of our noninterest revenue through service charges on core deposit accounts. Regulations impacting service charges, changes in customer behavior, and increased competition could reduce our fee income.
A significant portion of our noninterest revenue is derived from service charge income. The largest component of this service charge income is overdraft-related fees. Management anticipates that changes in banking regulations, and in particular the FRBs rules pertaining to certain overdraft payments on consumer accounts and the FDICs Overdraft Payment Programs and Consumer Protection Final Overdraft Payment Supervisory Guidance, will have an adverse impact on our service charge income. Additionally, changes in customer behavior, as well as increased competition from other financial institutions, may result in declines in deposit accounts or in overdraft frequency resulting in a decline in service charge income. A reduction in deposit account fee income could have a material adverse effect on our earnings.
We earn a significant portion of our noninterest revenue through sales of residential mortgages in the secondary market. We are exposed to counterparty credit, market, repurchase and other risks associated with these activities.
Our noninterest revenue attributable to mortgage banking activities has grown significantly in recent years. The Company is exposed to counterparty credit risk in the normal course of these sales activities as well as market risk when engaging in this activity that is greatly impacted by the amount of liquidity in the secondary markets and changes in interest rates. Additionally, the Company retains repurchase risk associated with sales of these loans that is related to the Companys residential mortgage loan underwriting and closing practices. Increases in claims under these repurchase or make-whole demands could have a material impact on our ability to continue participating in these types of activities as well as materially impact our financial condition, results of operations, and cash flows.
We may be required to pay significantly higher FDIC deposit insurance premiums or special assessments if the number of bank failures increases, or the cost of resolving failed banks increases, which could adversely affect our earnings.
Market developments have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits. As a result, we may be required to pay significantly higher premiums or additional special assessments that could adversely affect our earnings. We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are additional bank or financial institution failures, we may be required to pay even higher FDIC premiums. These announced increases and any future increases or required prepayments in FDIC insurance premiums may materially adversely affect our results of operations.
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The FRBs repeal of prohibitions against payment of interest on demand deposits may increase competition for such deposits and ultimately increase interest expense.
A major portion of our net income comes from our interest rate spread, which is the difference between the interest rates paid by us on amounts used to fund assets and the interest rates and fees we receive on our interest-earning assets. Our interest-earning assets include outstanding loans extended to our customers and securities held in our investment portfolio. We fund assets using deposits and other borrowings. As of December 31, 2013 we maintained approximately 24% of our deposits as non-interest-bearing.
In July 2011, the FRB issued final rules to repeal Regulation Q, which had prohibited the payment of interest on demand deposits by institutions that are member banks of the Federal Reserve System. Banks and thrifts are now permitted to offer interest-bearing demand deposit accounts to commercial customers, which were previously forbidden. The repeal of Regulation Q may cause increased competition from other financial institutions for these deposits. If we decide to pay interest on demand accounts, we would expect our interest expense to increase. Although Regulation Q has been effective for over two years, the impact may not have been realized yet because of the current low interest rate policy environment.
As with other regulated financial institutions, we may become subject to more stringent regulatory capital requirements that limit our operations and potential growth, and which may result in regulatory action.
IBERIABANK Corporation and IBERIABANK are subject to the comprehensive, consolidated supervision and regulation of the FRB, including risk-based and leverage capital requirements. We must maintain certain risk-based and leverage capital ratios as required by our banking regulators, which can change depending on general economic conditions and IBERIABANK Corporations particular condition, risk profile, growth plans, and regulatory capital adequacy guidelines. If at any time we fail to meet minimum established capital guidelines and/or other regulatory requirements, our financial condition would be materially and adversely affected.
In July 2013, U.S. banking regulatory agencies, including the FRB, approved a final rule to implement the revised capital adequacy standards of the Basel Committee, or Basel III, and to address relevant provisions of the Dodd-Frank Act. We will become subject to the new rule on January 1, 2015, and certain provisions of the new rule will be phased in from that date to January 1, 2019.
The final rule:
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Permits banking organizations that had less than $15 billion in total consolidated assets as of December 31, 2009, to include as Tier 1 capital trust preferred securities and cumulative perpetual preferred stock that were issued and included as Tier 1 capital prior to May 19, 2010, subject to a limit of 25% of Tier 1 capital elements, excluding any non-qualifying capital instruments and after all regulatory capital deductions and adjustments have been applied to Tier 1 capital, |
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Permits banking organizations that achieve $15 billion or more in total assets after December 31, 2009 to phase-out of Tier 1 capital and include these securities as Tier 2 capital; |
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Establishes new qualifying criteria for regulatory capital, including new limitations on the inclusion of deferred tax assets and mortgage servicing rights; |
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Establishes new qualifying criteria for regulatory capital, including new limitations on the inclusion of deferred tax assets and mortgage servicing rights; |
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Requires a minimum of ratio of common equity Tier 1, or CET1, capital to risk-weighted assets of 4.5%; |
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Increases the minimum Tier 1 capital to risk-weighted assets ratio requirements from 4% to 6%; |
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Retains the minimum total capital to risk-weighted assets ratio requirement of 8%; |
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Establishes a minimum leverage ratio requirement of 4%; |
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Retains the existing regulatory capital framework for 1-4 family residential mortgage exposures; |
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Implements a new capital conservation buffer requirement for a banking organization to maintain a CET1 capital ratio more than 2.5% above the minimum CET1 capital, Tier 1 capital and total risk-based capital ratios in order to avoid limitations on capital distributions, including dividend payments, and certain discretionary bonus payments to executive officers. The capital conservation buffer requirement will be phased in beginning on January 1, 2016 at 0.625%, and will be fully phased in at 2.50% by January 1, 2019. A banking organization with a buffer of less than the required amount would be subject to increasingly stringent limitations on such distributions and payments as the buffer approaches zero. The new rule also generally prohibits a banking organization from making such distributions or payments during any quarter if its eligible retained income is negative and its capital conservation buffer ratio was 2.5% or less at the end of the previous quarter. The eligible retained income of a banking organization is defined as its net income for the four calendar quarters preceding the current calendar quarter, based on the organizations quarterly regulatory reports, net of any distributions and associated tax effects not already reflected in net income; |
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Increases capital requirements for past-due loans, high volatility commercial real estate exposures, and certain short-term commitments and securitization exposures; |
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Expands the recognition of collateral and guarantors in determining risk-weighted assets; and |
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Removes references to credit ratings consistent with the Dodd-Frank Act and establishes due diligence requirements for securitization exposures. |
We continue to evaluate the provisions of the final rule and their expected impact on us. Management believes that at December 31, 2013, IBERIABANK Corporation and IBERIABANK would have met all new capital adequacy requirements on a fully phased-in basis if such requirements were then effective. However, there can be no assurances that the Basel III capital rules will not be revised before the effective date and expiration of the phase-in periods. Satisfying such new capital standards could materially impact us relative to our peers. The final impact of the new capital and liquidity standards on us cannot be determined at this time and depend on a number of factors, including the treatment and implementation by U.S. banking regulators. These new requirements, however, and any other new regulations, could result in lower returns, result in regulatory actions if we were unable to comply with such requirements, and adversely affect our ability to pay dividends or repurchase shares, or to raise capital, including in ways that may adversely affect our financial condition or results of operations. Compliance with current or new capital requirements, including leverage ratios, may limit operations that require the intensive use of capital and could adversely affect our ability to expand or maintain present business levels.
Our recent growth and financial performance will be negatively impacted if we are unable to execute our growth strategy.
Our stated strategy is to grow organically and supplement that growth with select acquisitions. Our success depends primarily on generating loans and deposits of acceptable risk and expense. There can be no assurance that we will be successful in continuing our organic, or internal, growth strategy. Our ability to identify appropriate markets for expansion, recruit and retain qualified personnel, and fund growth at a reasonable cost, depends upon prevailing economic conditions, maintenance of sufficient capital, competitive factors, changes in banking laws, and other factors.
Supplementing our internal growth through acquisitions is an important part of our strategic focus. Since 1995, approximately 65% of our asset growth has been through acquisitions, or external growth. Our acquisition efforts focus on select markets and targeted entities. We operate in markets we consider to be contiguous, or natural extensions, to our current markets. As consolidation of the banking industry continues, the competition for suitable acquisition candidates may increase. We compete with other banking organizations for acquisition opportunities, and many of these competitors have greater financial resources than we do and may be able to pay more for an acquisition than we are able or willing to pay. We also may need additional debt or equity financing in the future to fund acquisitions. We may not be able to obtain additional financing or, if available, it may not be in amounts and on terms acceptable to us. Our issuance of additional equity securities would dilute existing shareholders interest in us and may have a dilutive effect on our earnings per share. If we are unable to locate suitable acquisition candidates willing to combine with us on terms acceptable to us, or we are otherwise unable to obtain additional debt or equity financing necessary for us to continue making acquisitions, we would be required to find other methods to grow our business, and we may not grow at the same rate we have grown in the past, or at all.
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We cannot be certain as to our ability to manage increased levels of assets and liabilities without increased expenses and higher levels of nonperforming assets. We may be required to make additional investments in equipment and personnel to manage higher asset levels and loan balances, which may adversely affect earnings, shareholder returns, and our efficiency ratio. Increases in operating expenses or nonperforming assets may decrease our earnings and the value of our common stock.
In addition to the normal operating challenges inherent in managing a larger financial institution, each of our acquisitions and potential future acquisitions is subject to appropriate regulatory approval. Our regulators may require that we demonstrate that we have appropriately integrated our prior acquisitions, or any future acquisitions we may do, before permitting us to engage in any future material acquisitions.
FDIC-assisted or other acquisition opportunities may not become available, and increased competition could make it more difficult for us to bid on failed bank and other transactions on terms we consider to be acceptable.
A part of our business strategy is to pursue acquisitions, which may include failing banks that are placed into FDIC receivership. The availability of acquisition candidates that meet our strategic objectives can fluctuate, and the FDIC mat not place banks into receivership that meet our strategic objectives. Different from non-FDIC assisted transactions, failed bank transactions typically include loss share arrangements with the FDIC that limit our downside risk on the purchased loan portfolio and, apart from our assumption of deposit liabilities, we have significant discretion as to the non-deposit liabilities that we assume. The terms of loss sharing arrangements may change, making FDIC-assisted transactions less attractive to us. In addition, assets purchased from the FDIC are marked to their fair value and in many cases there is little or no addition to goodwill arising from an FDIC-assisted transaction. In 2013, the number of FDIC failed bank resolutions decreased significantly over the previous year, and consequently, the bidding process for failing banks has become more competitive. The increased competition for such banks has made it more difficult for us to bid on terms we consider acceptable.
Like most banking organizations, our business is highly susceptible to credit risk.
As a lender, we are is exposed to the risk that our customers will be unable to repay their loans according to their terms and that the collateral securing the payment of their loans (if any) may not be sufficient to satisfy defaulted loan obligations. Credit losses could have a material adverse effect on our operating results.
As of December 31, 2013, our total loan portfolio was approximately $9.5 billion, or 71% of total assets. At that date, the major components of our loan portfolio included 72% of commercial loans, both real estate and business, 6% of mortgage loans comprised primarily of residential 1-4 family mortgage loans, and 22% of consumer loans. Our credit risk with respect to our consumer installment and commercial loan portfolios relates principally to the general creditworthiness of individuals and businesses within our local market areas. Our credit risk with respect to our residential and commercial real estate mortgage and construction loan portfolios relates principally to the general creditworthiness of individuals and businesses and the value of real estate serving as security for the repayment of the loans. A related risk in connection with loans secured by commercial real estate is the effect of unknown or unexpected environmental contamination, which could make the real estate effectively unmarketable or otherwise significantly reduce its value as security, or could expose us to remediation liabilities as the lender.
Our loan portfolio has and will continue to be affected by the on-going correction in real estate markets, including reduced levels of home sales and declines in the performance of loans.
Although real estate market fundamentals have generally improved, there continues to be a slowdown in housing in some of our market areas, reflecting declining prices and excess inventories. We expect the home builder market to continue to be volatile and anticipate continuing pressure on the home builder segment. In addition, many banking institutions, including us, have experienced declines in the performance of other loans, including construction, land development and land loans and commercial loans. We make credit and reserve decisions based on the current conditions of borrowers or projects combined with our expectations for the future. If the slowdown in the housing markets continues, we could experience higher charge-offs and delinquencies beyond that which is provided in the allowance for loan losses. As such, our earnings could be adversely affected through higher than anticipated provisions for loan losses.
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Our allowance for credit losses may not be sufficient to cover actual credit losses, which could adversely affect our earnings.
We maintain an allowance for credit losses in an attempt to cover losses inherent in our loan portfolio. Additional loan losses will likely occur in the future and may occur at a rate greater than we have experienced to date.
The determination of the allowance for credit losses, which represents managements estimate of probable losses inherent in our credit portfolio, involves a high degree of judgment and complexity. Our policy is to establish reserves for estimated losses on delinquent and other problem loans when it is determined that losses are expected to be incurred on such loans. Managements determination of the adequacy of the allowance is based on various factors, including an evaluation of the portfolio, past loss experience, current economic conditions, the volume and type of lending conducted by us, composition of the portfolio, the amount of our classified assets, seasoning of the loan portfolio, the status of past due principal and interest payments and other relevant factors. Changes in these estimates may have a significant impact on our financial statements. If our assumptions and judgments prove to be incorrect, our current allowance may not be sufficient and adjustments may be necessary to allow for different economic conditions or adverse developments in our loan portfolio. Federal and state regulators also periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs, based on judgments different than those of our management. Any increase in our allowance for credit losses would have an adverse effect on our operating results and financial condition.
Commercial and commercial real estate loans generally are viewed as having more risk of default than residential real estate loans or other loans or investments. These types of loans also typically are larger than residential real estate loans and other consumer loans. Because the loan portfolio contains a significant number of commercial and commercial real estate loans with relatively large balances, the deterioration of a material amount of these loans may cause a significant increase in nonperforming assets. An increase in nonperforming loans could result in a loss of earnings, an increase in the provision for credit losses or an increase in loan charge-offs, which would have an adverse impact on our results of operations and financial condition.
We or our subsidiaries were unable to borrow funds through access to capital markets, we may not be able to meet the cash flow requirements of our depositors and borrowers, or the operating cash needs to fund corporate expansion and other corporate activities.
Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost. IBERIABANKs liquidity primarily is used to make loans and leases and to repay deposit liabilities as they become due or are demanded by customers. Liquidity policies and limits are established by our board of directors. Management and the Investment Committee regularly monitor the overall liquidity position of IBERIABANK and IBERIABANK Corporation to ensure that various alternative strategies exist to cover unanticipated events that could affect liquidity. Management and the Investment Committee also establish policies and monitor guidelines to diversify IBERIABANKs funding sources to avoid concentrations in any one market source. Funding sources include Federal funds purchased, securities sold under repurchase agreements, non-core deposits, and short- and long-term debt. IBERIABANK is also a member of the Federal Home Loan Bank, or FHLB System, which provides funding through advances to members that are collateralized with mortgage-related assets.
We maintain a portfolio of securities that can be used as a secondary source of liquidity. There are other sources of liquidity available to us should they be needed. These sources include sales or securitizations of loans, our ability to acquire additional national market, non-core deposits, additional collateralized borrowings such as FHLB advances, the issuance and sale of debt securities, and the issuance and sale of preferred or common securities in public or private offerings. IBERIABANK also can borrow from the FRBs discount window.
Amounts available under our existing credit facilities as of December 31, 2013, consist of $2.2 billion in FHLB notes and $155.0 million in the form of federal funds and other lines of credit.
If we were unable to access any of these funding sources when needed, we might be unable to meet customers needs, which could adversely impact our financial condition, results of operations, cash flows, and level of regulatory-qualifying capital. For further discussion, see Note 16 to the consolidated financial statements in this Report.
Additionally, the Company is frequently the recipient of dividends from its subsidiaries, including IBERIABANK, and relies on these dividends as a source of cash flow. The amount of future dividends from IBERIABANK is dependent upon its performance and could be impacted by future unanticipated regulatory limitations. Such events could impact the Companys ability to issue future dividends and ultimate solvency if other sources of cash flows were not available.
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If our investment in the common stock of the Federal Home Loan Bank of Dallas is classified as other-than-temporarily impaired or as permanently impaired, our earnings and stockholders equity could decrease.
We hold FHLB stock to qualify for membership in the Federal Home Loan Bank System and to be eligible to borrow funds under the FHLB advance program. The aggregate cost and fair value of our FHLB common stock as of December 31, 2013 was $24.4 million based on its par value. There is no market for FHLB common stock.
Published reports indicate that certain member banks of the Federal Home Loan Bank System may be subject to accounting rules and asset quality risks that could result in materially lower regulatory capital levels. In an extreme situation, it is possible that the capital of a FHLB could be substantially diminished or reduced to zero. Consequently, we believe that there is a risk that our investment in FHLB common stock could be impaired at some time in the future, and if this occurs, it would cause our earnings and stockholders equity to decrease by the after-tax amount of the impairment charge.
Declines in the value of certain investment securities could require write-downs, which would reduce our earnings.
Our securities portfolio includes securities that are subject to declines in value due to negative perceptions about the health of the financial sector in general and the lack of liquidity for securities that are real estate related. A prolonged decline in the value of these or other securities could result in an other-than-temporary impairment write-down, which would reduce our earnings. Additionally, while accumulated other comprehensive income (AOCI) is not currently deducted from regulatory capital under the existing regulatory capital framework, the new Basel III rules require that AOCI be included in the computation of capital and related ratios. Currently, we are of a size that enables us to opt-out of including AOCI in the computation of regulatory capital beginning with our Call report for the quarter ending March 31, 2015. To the extent that we do not opt-out, our regulatory capital and related ratios could be subject to market value adjustments of our securities portfolio and any other current or future measurements that GAAP requires or could require be recognized in including AOCI in the capital and related ratio computations.
We face risks related to our operational, technological and organizational infrastructure.
Our ability to grow and compete is dependent on our ability to build or acquire the necessary operational and technological infrastructure and to manage the cost of such expanded infrastructure. Similar to other large corporations, in our case, operational risk can manifest itself in many ways, such as errors related to failed or inadequate processes, faulty or disabled computer systems, fraud by employees or outside persons and exposure to external events. As discussed below, we are dependent on our operational infrastructure to help manage these risks. In addition, we are heavily dependent on the strength and capability of our technology systems, which we use both to interface with our customers and to manage our internal financial and other systems. Our ability to develop and deliver new products that meet the needs of our existing customers and attract new ones depends on the functionality of our technology systems. Additionally, our ability to run its business in compliance with applicable laws and regulations is dependent on these infrastructures.
We continuously monitor our operational and technological capabilities and make modifications and improvements when we believe it will be cost effective to do so. In some instances, we may build and maintain these capabilities internally. We also outsource some of these functions to third parties who may experience errors or disruptions that could adversely impact us and over which we may have limited control. We also face risk from the integration of new infrastructure platforms and/or new third party providers of such platforms into our existing businesses.
A failure in our operational systems or infrastructure, or those of third parties, could impair our liquidity, disrupt our businesses, result in the unauthorized disclosure of confidential information, damage our reputation and cause financial losses.
Our businesses are dependent on their ability to process and monitor, on a daily basis, a large number of transactions, many of which are highly complex, across numerous and diverse markets. These transactions, as well as the information technology services we provide to clients, often must adhere to client-specific guidelines, as well as legal and regulatory standards. Due to the breadth of our client base and our geographical reach, developing and maintaining our operational systems and infrastructure is challenging, particularly as a result of rapidly evolving legal and regulatory requirements and technological shifts. Our financial, accounting, data processing or other operating systems and facilities may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, such as a spike in transaction volume, cyber attack or other unforeseen catastrophic events, which may adversely affect our ability to process these transactions or provide the impaired services.
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In addition, our operations rely on the secure processing, storage and transmission of confidential and other information on our computer systems and networks. Although we take protective measures to maintain the confidentiality, integrity and availability of our and our clients information across all geographic and product lines, and endeavor to modify these protective measures as circumstances warrant, the nature of the threats continues to evolve. As a result, our computer systems, software and networks may be vulnerable to unauthorized access, loss or destruction of data (including confidential client information), account takeovers, unavailability of service, computer viruses or other malicious code, cyber attacks and other events that could have an adverse security impact. Despite the defensive measures we take to manage our internal technological and operational infrastructure, these threats may originate externally from third parties such as foreign governments, organized crime and other hackers, and outsource or infrastructure-support providers and application developers, or may originate internally from within our organization. Given the increasingly high volume of our transactions, certain errors may be repeated or compounded before they can be discovered and rectified.
We also face the risk of operational disruption, failure, termination or capacity constraints of any of the third parties that facilitate our business activities, including exchanges, clearing agents, clearing houses or other financial intermediaries. Such parties could also be the source of an attack on, or breach of, our operational systems, data or infrastructure. In addition, as interconnectivity with our clients grows, we increasingly face the risk of operational failure with respect to our clients systems.
If one or more of these cyber incidents occurs, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, as well as our clients or other third parties operations, which could result in damage to our reputation, substantial costs, regulatory penalties and/or client dissatisfaction or loss. Potential costs of a cyber incident may include, but would not be limited to, remediation costs, increased protection costs, lost revenue from the unauthorized use of proprietary information or the loss of current and/or future customers, and litigation.
We maintain an insurance policy which we believe provides sufficient coverage at a manageable expense for an institution of our size and scope with similar technological systems. However, no assurance can be given that this policy would be sufficient to cover all potential financial losses, damages, penalties, including lost revenues, should we experience any one or more of our or a third partys systems failing or experiencing attack.
We assume certain additional risks associated with credit card lending and debit cards.
Primary risks associated with credit card lending include: (i) credit risk borrower may hold several credit cards from different issuers, pay only minimum monthly payments and become overextended; (ii) transaction risk credit card operations are highly automated, have a large transaction volume, are vulnerable to unauthorized access and require strong operational controls; (iii) liquidity risk credit card obligations require available sources to fund unusual commitments; (iv) strategic risk each new credit card product and service must be properly evaluated before it is offered; (v) reputation risk poorly underwritten or performing credit card receivables can affect a banks reputation as an underwriter; (vi) re-pricing risk arises from differences between the timing of interest rate changes and the timing of cash flows; and (vii) compliance risk consumer laws and regulators, including fair lending and other anti-discrimination laws, rules and regulations affect all aspects of credit card lending.
Across the industry, bad debt and fraud losses in credit and debit cards have risen when compared to historical levels. Reasons for increased losses include changes in underwriting standards, mass marketing of cards in a saturated market, consumer bankruptcies and economic factors, as well as evolving schemes to illegally use cards despite risk management practices employed by us and the card industry. We believe that we have established an effective collection process and other internal controls to minimize such losses.
The loss of certain key personnel could negatively affect our operations.
Although we have employed a significant number of additional executive officers and other key personnel, our success continues to depend in large part on the retention of a limited number of key executive management, lending and other banking personnel. We could undergo a difficult transition period if it were to lose the services of any of these individuals. Our success also depends on the experience of our banking facilities managers and lending officers and on their relationships with the customers and communities they serve. The loss of these key
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persons could negatively impact the affected banking operations. The unexpected loss of key senior managers, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial condition, or operating results.
Competition may decrease our growth or profits.
We compete for loans, deposits, title business and investment dollars with other banks and other financial institutions and enterprises, such as securities firms, insurance companies, savings associations, credit unions, mortgage brokers, private lenders and title companies, many of which have substantially greater resources than we do. Credit unions have federal tax exemptions that may allow them to offer lower rates on loans and higher rates on deposits than taxpaying financial institutions such as commercial banks. In addition, non-depository institution competitors are generally not subject to the extensive regulation applicable to institutions, like IBERIABANK, that offer federally insured deposits. Other institutions may have other competitive advantages in particular markets or may be willing to accept lower profit margins on certain products. These differences in resources, regulation, competitive advantages, and business strategy may decrease our net interest margin, may increase our operating costs, and may make it harder for us to compete profitably.
Reputational risk and social factors may impact our results.
Our ability to originate and maintain accounts is highly dependent upon consumer and other external perceptions of our business practices and/or our financial health. Adverse perceptions regarding our business practices and/or our financial health could damage our reputation in both the customer and funding markets, leading to difficulties in generating and maintaining accounts as well as in financing them. Adverse developments with respect to the consumer or other external perceptions regarding the practices of our competitors, or our industry as a whole, may also adversely impact our reputation. In addition, adverse reputational impacts on third parties with whom we have important relationships may also adversely impact our reputation. Adverse impacts on our reputation, or the reputation of our industry, may also result in greater regulatory and/or legislative scrutiny, which may lead to laws or regulations that may change or constrain the manner in which we engage with our customers and the products we offer. Adverse reputational impacts or events may also increase our litigation risk. We carefully monitor internal and external developments for areas of potential reputational risk and have established governance structures to assist in evaluating such risks in our business practices and decisions.
We may be subject to increased litigation which could result in legal liability and damage to our reputation.
IBERIABANK Corporation and IBERIABANK have been named from time to time as defendants in class actions and other litigation relating to our businesses and activities. Litigation may include claims for substantial compensatory or punitive damages or claims for indeterminate amounts of damages. We and our subsidiaries are also involved from time to time in other reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding our business. These matters also could result in adverse judgments, settlements, fines, penalties, injunctions or other relief.
In addition, in recent years, a number of judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, collectively termed lender liability. Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or shareholders.
Substantial legal liability or significant regulatory action against us, including our subsidiaries, could materially adversely affect our business, financial condition or results of operations, or cause significant harm to our reputation. Additional information relating to litigation is discussed in Note 21 (Commitments and Contingencies) to the consolidated financial statements, and in Part I, Item 3 (Legal Proceedings) of this Report.
Changes in government regulations and legislation could limit our future performance and growth.
The banking industry is heavily regulated. We are subject to examination, supervision and comprehensive regulation by various federal and state agencies. Our compliance is costly and restricts certain of our activities. Banking regulations are primarily intended to protect the federal deposit insurance fund and depositors, not shareholders. The burdens imposed by federal and state regulations put banks at a competitive disadvantage compared to less regulated competitors, such as finance companies, mortgage banking companies and leasing companies. Changes in the laws, regulations and regulatory practices affecting the banking industry may increase our costs of doing business or otherwise adversely affect us and create competitive advantages for others.
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Regulations affecting banks and financial services companies undergo continuous change, and we cannot predict the ultimate effect of these changes, which could have a material adverse effect on our profitability or financial condition. Federal economic and monetary policies may also negatively impact our ability to attract deposits and other funding sources, make loans and investments, and achieve satisfactory interest spreads.
The geographic concentration of our markets makes our business highly susceptible to local economic conditions.
Unlike larger organizations that are more geographically diversified, our offices are primarily concentrated in selected markets in Louisiana, Alabama, Arkansas, Florida, Tennessee and Texas. As a result of this geographic concentration, our financial results depend largely upon economic conditions in these market areas. Deterioration in economic conditions in the markets we serve could result in one or more of the following:
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an increase in loan delinquencies; |
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an increase in problem assets and foreclosures; |
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a decrease in the demand for our products and services; and |
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a decrease in the value of collateral for loans, especially real estate, in turn reducing customers borrowing power, the value of assets associated with problem loans and collateral coverage. |
Hurricanes or other adverse weather events could negatively affect our local economies or disrupt our operations, which would have an adverse effect on our business or results of operations.
Like other coastal areas, some of our markets are susceptible to hurricanes and tropical storms. Such weather events can disrupt our operations, result in damage to our properties and negatively affect the local economies in which we operate. We cannot predict whether or to what extent damage that may be caused by future hurricanes or other weather events will affect our operations or the economies in our market areas, but such weather events could result in a decline in loan originations, a decline in the value or destruction of properties securing our loans and an increase in payment delinquencies, foreclosures and loan losses. Our business or results of operations may be adversely affected by these and other negative effects of hurricanes or other significant weather events.
The implementation of the Biggert-Waters Flood Insurance Reform Act of 2012 could negatively impact our customers ability to repay loans and maintain deposit balances and have significant, negative impacts on real estate values in certain geographies in which the Company operates. These events could adversely affect our financial condition, liquidity, and/or results of operations.
The Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters), became law in 2012 and intended to reform and modernize the National Flood Insurance Program by reducing federal insurance subsidies for certain property in flood-prone areas. The increases in flood insurance premiums proposed by Biggert-Waters were to take effect in the latter part of 2013, but subsequent legislative action has delayed certain flood insurance premium increases.
Flood insurance premium increases could significantly slow economic activity in our market areas in which flood insurance policies are issued, as well as impair property owners ability to continue to own, and in the case of businesses, operate their facilities. To the extent these borrowers are impacted by Biggert-Waters, their ability to service loans owed to us, and the value of collateral could be adversely impacted. In addition, a decrease in the volume of sales transactions for properties located in these areas, as well as reduced deposit levels maintained by these customers, could result.
If there is no repeal or amendment of Biggert-Waters, potential outcomes could include, but not be limited to: lower loan growth, increased past due loans, increased non-performing assets, higher net charge offs, and/or reduced deposit levels. These events, either collectively or individually, could negatively affect our financial condition, liquidity, and/or results of operations.
We face substantial competition and are subject to certain regulatory constraints not applicable to some of our competitors.
We face substantial competition for deposit, and for credit, title and trust relationships, and other financial services and products in the communities we serve. Competing providers include other banks, thrifts and trust
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companies, insurance companies, mortgage banking operations, credit unions, finance companies, title companies, money market funds and other financial and nonfinancial companies which may offer products functionally equivalent to those offered by us. Competing providers may have greater financial resources than we do and offer services within and outside the market areas we serve. In addition to this challenge of attracting and retaining customers for traditional banking services, our competitors include securities dealers, brokers, mortgage bankers, investment advisors and finance and insurance companies who seek to offer one-stop financial services to their customers that may include services that financial institutions have not been able or allowed to offer to their customers in the past. The increasingly competitive environment is primarily a result of changes in regulation, changes in technology and product delivery systems and the accelerating pace of consolidation among financial service providers. If we are unable to adjust both to increased competition for traditional banking services and changing customer needs and preferences, our financial performance could be adversely affected.
Some of our competitors, including credit unions, are not subject to certain regulatory constraints, such as the Community Reinvestment Act, which, among other things, requires us to implement procedures to make and monitor loans throughout the communities we serve. Complying with these regulatory requirements increases the costs associated with our lending activities, including underwriting expenses, and reduces potential operating profits.
We face substantial competition and are subject to certain regulatory constraints not applicable to some of our competitors.
We face substantial competition for deposit, credit, title and trust relationships and other financial services and products in the communities we serve. Competing providers include other banks, thrifts and trust companies, insurance companies, mortgage banking operations, credit unions, finance companies, title companies, money market funds and other financial and nonfinancial companies which may offer products functionally equivalent to those offered by us. Competing providers may have greater financial resources than we do and offer services within and outside the market areas we serve. In addition to this challenge of attracting and retaining customers for traditional banking services, our competitors include securities dealers, brokers, mortgage bankers, investment advisors and finance and insurance companies who seek to offer one-stop financial services to their customers that may include services that financial institutions have not been able or allowed to offer to their customers in the past. The increasingly competitive environment is primarily a result of changes in regulation, changes in technology and product delivery systems and the accelerating pace of consolidation among financial service providers. If we are unable to adjust both to increased competition for traditional banking services and changing customer needs and preferences, our financial performance could be adversely affected.
Some of our competitors, including credit unions, are not subject to certain regulatory constraints, such as the Community Reinvestment Act, which, among other things, requires us to implement procedures to make and monitor loans throughout the communities we serve. Complying with these regulatory requirements increases the costs associated with our lending activities, including underwriting expenses, and reduces potential operating profits.
We are exposed to intangible asset risk which could negatively impact our financial results.
In accordance with GAAP, we record assets acquired and liabilities assumed at their fair value, and, as such, acquisitions typically result in recording goodwill. We perform a goodwill evaluation at least annually to test for goodwill impairment. As part of its testing, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines the fair value of a reporting unit is less than its carrying amount using these qualitative factors, the Company then compares the fair value of goodwill with its carrying amount, and then measures impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill. Adverse conditions in our business climate, including a significant decline in future operating cash flows, a significant change in our stock price or market capitalization, or a deviation from our expected growth rate and performance may significantly affect the fair value of our goodwill and may trigger additional impairment losses, which could be materially adverse to our operating results and financial position.
We completed such an evaluation for the Company during the fourth quarter of 2013 and concluded that an impairment charge was not necessary for the year ended December 31, 2013. We cannot provide assurance, however, that we will not be required to take an impairment charge in the future. Any impairment charge has an adverse effect on our shareholders equity and financial results and could cause a decline in our stock price.
Our reported financial results depend on our managements selection of accounting methods and certain assumptions and estimates, and there may be changes in accounting policies or accounting standards that could adversely affect our financial condition and results of operations .
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Our accounting policies and assumptions are fundamental to our reported financial condition and results of operations. Our management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with generally accepted accounting principles and reflect managements judgment of the most appropriate manner to report our financial condition and results. Our management must also exercise judgment in selecting assumptions and estimates inherent in deriving certain financial statement line items. In some cases, management must select the accounting policy, method, assumption and/or estimate to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in our reporting materially different results than would have been reported under a different alternative.
From time to time the Financial Accounting Standards Board and the SEC change the financial accounting and reporting standards that govern the form and content of our external financial statements. Recently, FASB has proposed new accounting standards related to fair value accounting and accounting for leases that could materially change our financial statements in the future. In addition, accounting standard setters and those who interpret the accounting standards (such as the FASB, SEC, banking regulators and our independent registered auditors) may change or even reverse their previous interpretations or positions on how these standards should be applied. Changes in financial accounting and reporting standards and changes in current interpretations may be beyond our control, can be hard to predict and could materially impact how we report our financial results and condition. In certain cases, we could be required to apply a new or revised standard retroactively or apply an existing standard differently (also retroactively) which may result in it restating prior period financial statements in material amounts.
Risks Related to FDIC-assisted Transactions and Other Bank Acquisitions
The success of FDIC-assisted transactions and other bank acquisitions will depend on a number of uncertain factors.
The success of our FDIC-assisted transactions and other bank acquisitions depends on a number of factors, including, without limitation:
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our ability to integrate the branches acquired into IBERIABANKs current operations; |
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our ability to limit the outflow of deposits held by our new customers in the acquired branches and to successfully retain and manage interest-earning assets (i.e., loans) acquired; |
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our ability to attract new deposits and to generate new interest-earning assets in the geographic areas previously served by the acquired branches; |
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our ability to effectively compete in new markets in which we did not previously have a presence; |
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our success in deploying the cash received in these transactions into assets bearing sufficiently high yields without incurring unacceptable credit or interest rate risk; |
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our ability to control the incremental non-interest expense from the acquired branches in a manner that enables us to maintain a favorable overall efficiency ratio; |
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our ability to retain and attract the appropriate personnel to staff the acquired branches; and |
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our ability to earn acceptable levels of interest and non-interest income, including fee income, from the acquired branches. |
In any acquisition involving a financial institution, particularly one involving the transfer of a large number of bank branches, there may be business and service changes and disruptions that result in the loss of customers or cause customers to close their accounts and move their business to competing financial institutions. Integration of such acquired branches is an operation of substantial size and expense, and may be impacted by general market and economic conditions or government actions affecting the financial industry generally. Integration efforts also are likely to divert our managements attention and resources. No assurance can be given that we will be able to integrate these acquired branches successfully, and the integration process could result in the loss of key employees, the disruption of ongoing business, or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of FDIC-assisted transactions and other bank acquisitions. We may also encounter unexpected difficulties or costs during the integration that could adversely affect our earnings and financial condition, perhaps materially. Additionally, no assurance can be given that the operation of acquired branches will not adversely affect our existing profitability, that we will be able to achieve results in the future similar to those achieved by our existing banking business, that we will be able to compete effectively in the market areas currently served by the acquired branches, or that we will be able to manage any growth resulting from FDIC-assisted transactions and/or bank acquisitions effectively.
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Our ability to grow acquired branches following these transactions depends in part on our ability to retain certain key branch personnel we expect to hire and/or retain in connection with these transactions. We believe that the ties these employees have in the local banking markets previously served by their acquired branches are vital to our ability to maintain our relationships with existing customers and to generate new business in these markets. Our failure to hire or retain these employees could adversely affect the success of these transactions and our future growth.
Our indemnification assets are highly dependent upon the resolution of covered assets within the coverage period (as outlined in the loss share agreements with the FDIC) and could become impaired if events outside of our control prohibit us from collecting from the FDIC.
Our loss share agreements represent $162 million on our consolidated balance sheet as of December 31, 2013 and of this amount, $38 million is collectible from the FDIC and $10 million is collectible from transactions on other real estate owned. For certain covered assets, loss share coverage expires in the next 12 20 months. To the extent that loss share coverage ends prior to triggering events on covered assets that would enable the Company to collect these amounts from the FDIC or OREO transactions, future impairments would be required.
The Company is subject to the interpretations of the loss share agreement by the FDIC to include the timing and amount of loss that may be claimed on a particular covered asset. To the extent the FDIC develops new or different interpretations of the loss share agreements, our indemnification assets could become impaired or the Company may be required to remit claims previously received back to the FDIC.
Failure to comply with the terms and conditions of our loss share agreements with the FDIC may result in significant losses.
Our failure to comply with the terms and conditions of our loss share agreements or to service properly the loans and OREO under the requirements of the loss share agreements may cause undervalued loans or pools of loans to lose eligibility for loss share payments from the FDIC. This could result in material losses that are not currently anticipated.
We are subject to the interpretations of the loss share agreement by the FDIC to include the timing and amount of loss that may be claimed on a particular covered asset. To the extent the FDIC develops new or different interpretations of the terms and conditions loss share agreements, our indemnification assets could become impaired or we could be required to remit payments for claims previously received back to the FDIC.
Changes in national and local economic conditions could lead to changes in the expectations of the amount and timing of losses and higher loan charge-offs in connection with acquisition transactions. Some or all of such losses and charge-offs in FDIC assisted transactions may not be supported by the related loss sharing agreements with the FDIC.
We have acquired significant loan portfolios through FDIC-assisted transactions and other bank acquisitions. Although these loan portfolios were initially accounted for at fair value, there is no assurance that the loans we acquired will not become impaired in the future, which may result in additional charge-offs to this portfolio. The fluctuations in national, regional and local economic conditions, including those related to local residential, commercial real estate and construction markets, may increase the level of charge-offs that we make to our loan portfolio, and, consequently, reduce our net income, and may also increase the level of charge-offs on our loan portfolio that we have acquired in our acquisitions and correspondingly reduce our net income. These fluctuations are not predictable, cannot be controlled and may have a material adverse impact on our operations and financial condition even if other favorable events occur.
Although in our FDIC-assisted transactions we have entered into loss sharing agreements with the FDIC which provide that a significant portion of losses related to specified loan portfolios that we have acquired in connection with the FDIC-assisted transactions will be borne by the FDIC, we are not fully protected for all losses resulting from charge-offs with respect to those specified loan portfolios. The loss sharing agreements have limited terms; therefore, any charge-off of related losses we experience after the term of the loss sharing agreements will not be reimbursed by the FDIC and will negatively impact our net income. Additionally, the terms of the agreements require us to remit to the FDIC recoveries on prior loss claims which could impact our net income. The loss sharing agreements also impose standard requirements on us which must be satisfied in order to retain loss share protections.
Deposit and loan run-off rates could exceed the rates we have projected in connection with our planning for the FDIC-assisted transactions and other bank acquisitions and the integration of the acquired branches.
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Deposit run-off could be higher than our assumptions. As part of acquisition transactions, it is necessary for us to convert customer loan and deposit data from the failed banks data processing systems to our data processing system. Delays or errors in the conversion process could adversely affect customer relationships, increase run-off of deposit and loan customers and result in unexpected charges and costs. Similarly, run-off could increase if we are not able to service in a cost-effective manner particular loan or deposit products with special features previously offered by the failed or target banks. Any increase in run-off rates could adversely affect our ability to stimulate growth in such acquired branches, our liquidity, and our results of operations.
Risks About Our Common Stock
We cannot guarantee that we will pay dividends to shareholders in the future.
Cash available to pay dividends to our shareholders is derived primarily, if not entirely, from dividends paid to us from IBERIABANK. The ability of IBERIABANK to pay dividends to us, as well as our ability to pay dividends to its shareholders, are limited by regulatory and legal restrictions and the need to maintain sufficient consolidated capital. We may also decide to limit the payment of dividends even when we have the legal ability to pay them in order to retain earnings for use in our business. Further, any lenders making loans to us may impose financial covenants that may be more restrictive than regulatory requirements with respect to the payment of dividends. For instance, we are prohibited from paying dividends on our common stock if the required payments on our subordinated debentures have not been made. There can be no assurance of whether or when we may pay dividends in the future.
The trading history of our common stock is characterized by modest trading volume. The value of your investment may be subject to sudden decreases due to the volatility of the price of our common stock.
Our common stock trades on NASDAQ Global Select Market. During 2013, the average daily trading volume of our common stock was approximately 158,200 shares. We cannot predict the extent to which investor interest in us will lead to a more active trading market in our common stock or how much more liquid that market might become. A public trading market having the desired characteristics of depth, liquidity and orderliness depends upon the presence in the marketplace of willing buyers and sellers of our common stock at any given time, which presence is dependent upon the individual decisions of investors, over which we have no control.
The market price of our common stock may be highly volatile and subject to wide fluctuations in response to numerous factors, including, but not limited to, the factors discussed in other risk factors and the following:
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actual or anticipated fluctuations in operating results; |
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changes in interest rates; |
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changes in the legal or regulatory environment in which we operate; |
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press releases, announcements or publicity relating to us or our competitors or relating to trends in our industry; |
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changes in expectations as to our future financial performance, including financial estimates or recommendations by securities analysts and investors; |
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future sales of our common stock; |
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changes in economic conditions in our marketplace, general conditions in the U.S. economy, financial markets or the banking industry; and |
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other developments affecting our competitors or us. |
These factors may adversely affect the trading price of our common stock, regardless of our actual operating performance, and could prevent our shareholders from selling common stock at or above the public offering price. In addition, the stock markets, from time to time, experience extreme price and volume fluctuations that may be unrelated or disproportionate to the operating performance of companies. These broad fluctuations may adversely affect the market price of our common stock, regardless of our trading performance.
In the past, shareholders often have brought securities class action litigation against a company following periods of volatility in the market price of their securities. We may be the target of similar litigation in the future, which could result in substantial costs and divert managements attention and resources.
Sales of a significant number of shares of our common stock in the public markets, or the perception of such sales, could depress the market price of our common stock.
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Sales of a substantial number of shares of our common stock in the public markets and the availability of those shares for sale could adversely affect the market price of our common stock. In addition, future issuances of equity securities, including pursuant to the exercise of outstanding stock options, could dilute the interests of our existing shareholders, and could cause the market price of our common stock to decline. We may issue such additional equity or convertible securities to raise additional capital. The issuance of any additional shares of common or preferred stock or convertible securities could be substantially dilutive to holders of our common stock. Moreover, to the extent that we issue restricted stock units, phantom shares, stock appreciation rights, options or warrants to purchase our common stock in the future and those stock appreciation rights, options or warrants are exercised or as the restricted stock units vest, our shareholders may experience further dilution. Holders of our shares of common stock have no preemptive rights that entitle holders to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution to our shareholders. We cannot predict the effect that future sales of our common stock would have on the market price of our common stock.
We may issue debt and equity securities or securities convertible into equity securities, any of which may be senior to our common stock as to distributions and in liquidation, which could negatively affect the value of our common stock.
In the future, we may attempt to increase our capital resources by entering into debt or debt-like financing that is unsecured or secured by all or up to all of our assets, or by issuing additional debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, preferred stock or securities convertible into or exchangeable for equity securities. In the event of our liquidation, our lenders and holders of our debt and preferred securities would receive a distribution of our available assets before distributions to the holders of our common stock. Because our decision to incur debt and issue securities in our future offerings will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings and debt financings. Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future.
Our management has broad discretion over the use of proceeds from equity offerings.
Our management has significant flexibility in applying the proceeds that we receive from equity offerings. Although we have indicated our intent to use the proceeds from recent offerings for general corporate purposes, including future acquisitions, our working capital needs, and our investments in our subsidiaries, our management retains significant discretion with respect to uses of proceeds. The proceeds of our offerings may be used in a manner that does not generate a favorable return for us. We may use the proceeds to fund future acquisitions of other businesses. In addition, if we use the funds to acquire other businesses, there can be no assurance that any business we acquire would be successfully integrated into our operations or otherwise perform as expected.
We may issue additional securities, which could dilute your ownership percentage.
In many situations, our board of directors has the authority, without any vote of our shareholders, to issue shares of our authorized but unissued stock, including shares authorized and unissued under our stock option plans. In the future, we may issue additional securities, through public or private offerings, to raise additional capital or finance acquisitions. Moreover, to the extent we issue restricted stock units, stock appreciation rights, options or warrants to purchase our common stock in the future and those stock appreciation rights, options or warrants are exercised or as the restricted stock units vest, our shareholders may experience further dilution. Any such issuance would dilute the ownership of current holders of our common stock.
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Item 1B. | Unresolved Staff Comments. |
None.
Item 2. | Properties. |
As of December 31, 2013, we operated 267 combined offices, including 172 bank branch offices and four loan production offices in Louisiana, Arkansas, Alabama, Florida, Texas, and Tennessee, 21 title insurance offices in Arkansas and Louisiana, mortgage representatives in 61 locations in twelve states, and nine wealth management locations in four states. Office locations are either owned or leased. For offices in premises leased by us or our subsidiaries, rent expense totaled $11.4 million in 2013. During 2013, we and our subsidiaries received $1.5 million in rental income for space leased to others. At December 31, 2013, there were no significant encumbrances on the offices, equipment and other operational facilities owned by us and our subsidiaries.
Additional information on our premises is provided in Note 10 to the Consolidated Financial Statements incorporated herein by reference.
Item 3. | Legal Proceedings. |
The nature of the business of IBKCs banking and other subsidiaries ordinarily results in a certain amount of claims, litigation, investigations and legal and administrative cases and proceedings, all of which are considered incidental to the normal conduct of business. Some of these claims are against entities or assets of which IBKC is a successor or acquired in business acquisitions, and certain of these claims will be covered by loss sharing agreements with the FDIC. For additional information, see Note 8 to the consolidated financial statements. IBKC believes it has meritorious defenses to the claims asserted against it in its currently outstanding legal proceedings and, with respect to such legal proceedings, intends to continue to defend itself vigorously, litigating or settling cases according to managements judgment as to what is in the best interest of IBKC and its shareholders.
IBKC assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that IBKC will incur a loss and the amount of the loss can be reasonably estimated, IBKC records a liability in its consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of loss is not estimable, IBKC does not accrue legal reserves. While the outcome of legal proceedings is inherently uncertain, based on information currently available, advice of counsel and available insurance coverage, IBKCs management believes that it has established adequate legal reserves. Any liabilities arising from pending legal proceedings are not expected to have a material adverse effect on IBKCs consolidated financial position, consolidated results of operations or consolidated cash flows. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to IBKCs consolidated financial position, consolidated results of operations or consolidated cash flows.
Item 4. | Mine Safety Disclosures |
Not applicable.
Executive Officers of the Registrant
Set forth below is information with respect to the executive officers of IBERIABANK Corporation and principal occupations and positions held for periods including the last five years.
DARYL G. BYRD, age 59, has served as our President since 1999 and as Chief Executive Officer since 2000. He also serves as President and Chief Executive Officer of IBERIABANK.
ANTHONY J. RESTEL, age 44, has served as Senior Executive Vice President and Chief Financial Officer since 2005. Mr. Restel was hired as Vice President and Treasurer in 2001 and previously served as Chief Credit Officer of IBERIABANK.
MICHAEL J. BROWN, age 50, has served as Senior Executive Vice President since 2001. In September 2009, Mr. Brown was appointed Vice-Chairman and Chief Operating Officer. Mr. Brown is responsible for management of all of our banking markets.
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JEFFERSON G. PARKER, age 61, serves as our Vice-Chairman and Managing Director of Brokerage, Trust, and Wealth Management. He has served as our Vice-Chairman since September 2009. Before his employment with the Company, Mr. Parker was a member of our Board of Directors since 2001. Prior to joining IBERIABANK, he served as President of Howard Weil, Inc., an energy research and investment banking boutique serving institutional investors.
JOHN R. DAVIS, age 53, has served as Senior Executive Vice President Mergers and Acquisitions and Investor Relations since 2001. He also serves as Director of Financial Strategy and Mortgage.
ELIZABETH A. ARDOIN, age 45, joined the Company in 2002 as Senior Vice President and Director of Communications. In 2005, she was promoted to Executive Vice President continuing to serve in the same capacity for the organization. She has been Senior Executive Vice President, Director of Communications, Facilities and Human Resources since February 2013. Ms. Ardoin also serves as a director of the New Orleans Branch of the Federal Reserve Bank of Atlanta.
GEORGE J. BECKER III, age 73, has served as Executive Vice President, Director of Organizational Development since February 2005. In 2007, he began his second tenure as Director of Corporate Operations. In 2013, he was appointed Director of Vendor Operations.
BARRY F. BERTHELOT, age 64, joined the Company in 2010 as Executive Vice President and Director of Organizational Development. Prior to joining IBERIABANK, he served as President of the Acadiana market for JP Morgan Chase.
J. RANDOLPH BRYAN, age 46, has served as Executive Vice President and Chief Risk Officer since July 2012. Mr. Bryan previously served as Director of Strategic Initiatives and M&A prior to becoming Chief Risk Officer. Prior to joining the Company, Mr. Bryan served as Chief Operating Officer for First Southern Bancorp in Boca Raton, Florida. Prior to his experience at First Southern Bancorp, the majority of Mr. Bryans banking career was spent at Capital One/Hibernia National Bank, where he held a number of different leadership roles over a 13-year period, including responsibility for Capital Ones Banking Sales Arena, which included marketing and delivery channel management, national direct banking, customer experience, corporate communications, and public relations.
ROBERT M. KOTTLER, age 55, has served as Executive Vice President and Director of Retail and Small Business since his appointment in 2011. Prior to joining the Company, Mr. Kottler previously worked for Capital One Bank as Executive Vice President for Small Business Banking, and prior to its merger with Capital One Financial Corporation in 2005, served Hibernia Corporation as its Senior Executive Vice President and Chief Sales Support Officer.
H. SPURGEON MACKIE, JR., age 63, has served as Executive Vice President and Chief Credit Officer since 2013. Mr. Mackie previously served as Executive Credit Officer since his appointment in 2011. Prior to joining the Company, Mr. Mackie, Jr. previously served as Executive Director of the Community Foundation of Gaston County, Inc. Prior to that role, he worked for First Union/Wachovia in numerous capacities for 32 years, including Area President, Chief Credit Officer for Interstate Banking, and Chief Risk Officer for the General Bank, among others.
ROBERT B. WORLEY, JR., age 54, has served as Executive Vice President, General Counsel and Corporate Counsel since his appointment in 2011. Before joining the Company, Mr. Worley practiced law in New Orleans with the Jones Walker law firm, where he was a partner, and had served as the Chairman of the firms Professional Employment Committee, was a partner in the firm and also served on the firms Board of Directors. Before that, Mr. Worley was a shareholder (partner) in the Kullman firm, a law firm in New Orleans. He has practiced law for 28 years.
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Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Stock Performance Graph
The following graph and table, which were prepared by SNL Financial LC (SNL), compares the cumulative total return on our Common Stock over a measurement period beginning December 31, 2008 with (i) the cumulative total return on the stocks included in the National Association of Securities Dealers, Inc. Automated Quotation (NASDAQ) Composite Index and (ii) the cumulative total return on the stocks included in the SNL > $10 Billion Bank Index. All of these cumulative returns are computed assuming the quarterly reinvestment of dividends paid during the applicable period.
Period Ending | ||||||||||||||||||||||||
Index |
12/31/08 | 12/31/09 | 12/31/10 | 12/31/11 | 12/31/12 | 12/31/13 | ||||||||||||||||||
IBERIABANK Corporation |
100.00 | 115.45 | 130.05 | 111.28 | 113.94 | 149.48 | ||||||||||||||||||
NASDAQ Composite |
100.00 | 145.36 | 171.74 | 170.38 | 200.63 | 281.22 | ||||||||||||||||||
SNL Bank > $10B |
100.00 | 99.84 | 111.96 | 85.22 | 116.09 | 158.42 |
The stock performance graph assumes $100.00 was invested December 31, 2008. The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Additional information required herein is incorporated by reference to Managements Discussion and Analysis of Financial Condition and Results of Operations and Corporate Information Data in Exhibit 13 hereto.
Share Repurchases
Share repurchases may be made from time to time, on the open market or in privately negotiated transactions, at the discretion of the management of the Company, after the Board of Directors authorizes a repurchase program. The approved share repurchase program does not obligate the Company to repurchase any dollar amount or number of shares, and the program may be extended, modified, suspended, or discontinued at any time. Stock repurchases generally are affected through open market purchases, and may be made through unsolicited negotiated transactions. The timing of these repurchases will depend on market conditions and other requirements.
34
In August of 2011, the Board of Directors authorized the repurchase of up to 900,000 shares of common stock, and in October authorized the repurchase of an additional 900,000 shares of common stock.
There were no stock repurchases in 2013. 46,692 shares remain available for purchase pursuant to publically announced plans.
Restrictions on Dividends
Holders of the Companys common stock are only entitled to receive such dividends as the Board of Directors may declare out of funds legally available for such payments. Furthermore, holders of the common stock are subject to priority dividend rights of any holders of preferred stock then outstanding. At December 31, 2013, no shares of preferred stock were issued and outstanding.
In addition, the terms of the Companys outstanding junior subordinated debt securities prohibit it from declaring or paying any dividends or distributions on outstanding capital stock, or purchasing, acquiring, or making a liquidation payment on such stock, if the Company has elected to defer interest payments on such debt.
For additional information, see Notes 16 and 25 of the Notes to the Consolidated Financial Statements.
Item 6. | Selected Financial Data. |
The information required herein is incorporated by reference to Selected Consolidated Financial and Other Data in Exhibit 13 hereto.
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
The information required herein is incorporated by reference to Managements Discussion and Analysis of Financial Condition and Results of Operations in Exhibit 13 hereto.
Item 7A. | Quantitative and Qualitative Disclosures about Market Risk. |
The information required herein is incorporated by reference to Managements Discussion and Analysis of Financial Condition and Results of Operations in Exhibit 13 hereto.
Item 8. | Financial Statements and Supplementary Data. |
The information required herein is incorporated by reference to IBERIABANK Corporation and Subsidiaries Consolidated Financial Statements in Exhibit 13 hereto.
35
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
None.
Item 9A. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the Exchange Act), we performed an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2013. The evaluation 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 our disclosure controls and procedures were effective as of the period covered by this Report in alerting them in a timely manner to material information required to be disclosed by us in reports that we file or submit under the Exchange Act.
In addition, we reviewed our financial reporting internal controls. There were no significant changes in our internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Managements Annual Report on Internal Control over Financial Reporting, and the attestation report of the independent registered public accounting firm, are included in Exhibit 13 and are incorporated by reference herein.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting was designed under the supervision of the CEO and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements in accordance with U.S. GAAP.
Management assessed the effectiveness of internal control over financial reporting as of December 31, 2013. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal ControlIntegrated Framework . Based on our assessment, we believe that, as of December 31, 2013, our internal control over financial reporting was effective based on those criteria.
The effectiveness of our internal control over financial reporting as of December 31, 2013 was audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report appearing in Exhibit 13 to this report.
Item 9B. | Other Information. |
None.
36
Item 10. | Directors, Executive Officers and Corporate Governance. |
Information concerning the Registrants executive officers is contained in Part I of this Form 10-K. Other information required herein, including information on directors, the audit committee, and the audit committee financial expert is incorporated by reference to the Proxy Statement.
Item 11. | Executive Compensation. |
The information required herein is incorporated by reference to the Proxy Statement.
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
The information required herein is incorporated by reference to the Proxy Statement.
Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
The information required herein is incorporated by reference to the Proxy Statement.
Item 14. | Principal Accounting Fees and Services. |
The information required herein is incorporated by reference to the Proxy Statement.
37
Item 15. | Exhibits and Financial Statement Schedules. |
(a) Documents Filed as Part of this Report.
(1) | The following financial statements are incorporated by reference from Item 8 hereof (see Exhibit No. 13): |
Consolidated Balance Sheets as of December 31, 2013 and 2012
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2013, 2012, and 2011
Consolidated Statements of Shareholders Equity for the Years Ended December 31, 2013, 2012, and 2011
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012, and 2011
Notes to Consolidated Financial Statements
(2) | All schedules for which provision is made in the applicable accounting regulation of the SEC are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements and related notes thereto. |
(3) | The following exhibits are filed as part of this Form 10-K, and this list includes the Exhibit Index. |
Exhibit Index
Exhibit No. 2.1 |
Agreement and Plan of Merger, dated as of February 10, 2014, by and between the Registrant and First Private Holdings, Inc. incorporated herein by reference to Exhibit 2.1 to the Registrants Current Report on Form 8-K, dated February 10, 2014. | |
Exhibit No. 2.2 |
Agreement and Plan of Merger, dated as of January 12, 2014, between the Registrant and Teche Holding Company incorporated herein by reference to Exhibit 2.1 to the Registrants Current Report on Form 8-K, dated January 12, 2014. | |
Exhibit No. 2.3 |
Purchase and Assumption Agreement dated as of August 21, 2009, by and among the Federal Deposit Insurance Corporation, Receiver of CapitalSouth Bank, IBERIABANK, and the Federal Deposit Insurance Corporation incorporated herein by reference to Exhibit 2.1 to the Registrants Current Report on Form 8-K dated August 21, 2009. | |
Exhibit No. 2.4 |
Purchase and Assumption Agreement dated as of November 13, 2009, by and among the Federal Deposit Insurance Corporation, Receiver of Orion Bank, IBERIABANK, and the Federal Deposit Insurance Corporation incorporated herein by reference to Exhibit 2.1 to the Registrants Current Report on Form 8-K dated November 13, 2009. | |
Exhibit No. 2.5 |
Purchase and Assumption Agreement dated as of November 13, 2009, by and among the Federal Deposit Insurance Corporation, Receiver of Century Bank, A Federal Savings Bank, IBERIABANK, and the Federal Deposit Insurance Corporation incorporated herein by reference to Exhibit 2.2 to the Registrants Current Report on Form 8-K dated November 13, 2009. | |
Exhibit No. 3.1 |
Articles of Incorporation, as amended incorporated herein by reference to Exhibit 3.1 to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2009. | |
Exhibit No. 3.2 |
Bylaws of the Company, as amended incorporated herein by reference to Exhibit 3.1 to Registrants Current Report on Form 8-K dated August 7, 2012. | |
Exhibit No. 4.1 |
Stock Certificate incorporated herein by reference to Registration Statement on Form S-8 (File No. 33-93210). | |
Exhibit No. 4.2 |
Junior Subordinated Indenture between the Registrant and Wilmington Trust Company, dated September 20, 2004 incorporated herein by reference to Exhibit 4 to Registrants Current Report on Form 8-K dated September 20, 2004. | |
Exhibit No. 4.3 |
Junior Subordinated Indenture between the Registrant and Wilmington Trust Company, dated October 31, 2006 incorporated herein by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K dated October 31, 2006. | |
Exhibit No. 4.4 |
Junior Subordinated Indenture between the Registrant and Wilmington Trust Company, dated June 21, 2007 incorporated herein by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K dated June 21, 2007. | |
Exhibit No. 4.5 |
Junior Subordinated Indenture between the Registrant and U.S. Bank National Association, dated November 9, 2007 incorporated herein by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K dated November 9, 2007. |
38
Exhibit No. 4.6 |
Junior Subordinated Indenture between the Registrant and U.S. Bank National Association, dated November 9, 2007 incorporated herein by reference to Exhibit 4.2 to the Registrants Current Report on Form 8-K dated November 9, 2007. | |
Exhibit No. 4.7 |
Subordinated Capital Note, Series 2008-1, dated as of July 21, 2008, between IBERIABANK and SunTrust Bank- incorporated herein by reference to Exhibit 4.1 to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2008. | |
Exhibit No. 4.8 |
Indenture, dated as of March 28, 2008, between IBERIABANK Corporation and Wells Fargo Bank, National Association, as trustee, with respect to IBERIABANK Statutory Trust VIII incorporated herein by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K dated March 28, 2008. | |
Exhibit No. 10.1 |
Retirement Savings Plan incorporated herein by reference to Exhibit 10.1 to the Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 2005. | |
Exhibit No. 10.2 |
Employment Agreement with Daryl G. Byrd, as amended and restated incorporated herein by reference to Exhibit 10.4 to the Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 2001. | |
Exhibit No. 10.3 |
Indemnification Agreements with Daryl G. Byrd and Michael J. Brown incorporated herein by reference to Exhibit 10.5 to the Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 1999. | |
Exhibit No. 10.4 |
Severance Agreements with Michael J. Brown and John R. Davis incorporated herein by reference to Exhibit 10.6 to the Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 2000. | |
Exhibit No. 10.5 |
Severance Agreement with George J. Becker, III incorporated herein by reference to Exhibit 10.7 to the Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 2000. | |
Exhibit No. 10.6 |
Severance Agreement with Anthony J. Restel incorporated herein by reference to Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2005. | |
Exhibit No. 10.7 |
1996 Stock Option Plan incorporated herein by reference to Exhibit 10.1 to Registration Statement on Form S-8 (File No. 333-28859). | |
Exhibit No. 10.8 |
1999 Stock Option Plan incorporated herein by reference to the Registrants definitive proxy statement dated March 19, 1999. | |
Exhibit No. 10.9 |
Recognition and Retention Plan incorporated herein by reference to the Registrants definitive proxy statement dated April 16, 1996. | |
Exhibit No. 10.10 |
Supplemental Stock Option Plan incorporated herein by reference to Exhibit 10.10 to the Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 1999. | |
Exhibit No. 10.11 |
2001 Incentive Compensation Plan, as amended incorporated herein by reference to the Registrants definitive proxy statement dated April 2, 2003. | |
Exhibit No. 10.12 |
2005 Stock Incentive Plan, as amended incorporated herein by reference to Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2009. | |
Exhibit No. 10.13 |
Purchase Agreement, dated as of June 17, 2003, among IBERIABANK Corporation, IBERIABANK Statutory Trust II and Trapeza CDO III, LLC incorporated herein by reference to Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2003. | |
Exhibit No. 10.14 |
Placement Agreement among the Registrant, IBERIABANK Statutory Trust III and SunTrust Capital Markets, Inc., dated as of September 20, 2004 incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated September 20, 2004. | |
Exhibit No. 10.15 |
Guarantee Agreement between the Registrant and Wilmington Trust Company, dated as of September 20, 2004 incorporated herein by reference to Exhibit 10.7 to the Registrants Current Report on Form 8-K dated September 20, 2004. | |
Exhibit No. 10.16 |
Form of Restricted Stock Award Agreement under the ISB Supplemental Stock Option Plan incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated August 15, 2005. | |
Exhibit No. 10.17 |
Form of Acknowledgement regarding acceleration of unvested stock options granted by the Registrant incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated December 30, 2005. | |
Exhibit No. 10.18 |
Form of Restricted Stock Agreement under the IBERIABANK Corporation 2001 Incentive Compensation Plan incorporated herein by reference to Exhibit 10.18 to the Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 2005. | |
Exhibit No. 10.19 |
Form of Incentive Stock Option Agreement under the IBERIABANK Corporation 2001 Incentive Compensation Plan incorporated herein by reference to Exhibit 10.19 to the Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 2005. |
39
Exhibit No. 10.20 |
Form of Restricted Stock Agreement under the IBERIABANK Corporation 2005 Stock Incentive Plan incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated May 17, 2006. | |
Exhibit No. 10.21 |
Form of Stock Option Agreement under the IBERIABANK Corporation 2005 Stock Incentive Plan incorporated herein by reference to Exhibit 10.2 to the Registrants Current Report on Form 8-K dated May 17, 2006. | |
Exhibit No. 10.22 |
Amended and Restated Trust Agreement, dated as of October 31, 2006, among the Registrant, as depositor, Wilmington Trust Company, as Delaware trustee, Wilmington Trust Company, as property trustee, and the administrators named therein incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated October 31, 2006. | |
Exhibit No. 10.23 |
Guarantee Agreement, dated as of October 31, 2006, between the Registrant and Wilmington Trust Company incorporated herein by reference to Exhibit 10.2 to the Registrants Current Report on Form 8-K dated October 31, 2006. | |
Exhibit No. 10.24 |
Amended and Restated Trust Agreement, dated as of June 21, 2007, among the Registrant, as sponsor, Wilmington Trust Company, as Delaware trustee, Wilmington Trust Company, as institutional trustee, and the administrators named therein incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated June 21, 2007. | |
Exhibit No. 10.25 |
Guarantee Agreement, dated as of June 21, 2007, between the Registrant and Wilmington Trust Company incorporated herein by reference to Exhibit 10.2 to the Registrants Current Report on Form 8-K dated June 21, 2007. | |
Exhibit No. 10.26 |
Amended and Restated Trust Agreement, dated as of November 9, 2007, among the Registrant, as sponsor, U.S. Bank National Association, as institutional trustee and the administrators named therein incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated November 9, 2007. | |
Exhibit No. 10.27 |
Guarantee Agreement, dated as of November 9, 2007, between the Registrant and U.S. Bank National Association incorporated herein by reference to Exhibit 10.2 to the Registrants Current Report on Form 8-K dated November 9, 2007. | |
Exhibit No. 10.28 |
Amended and Restated Trust Agreement, dated as of November 9, 2007, among the Registrant, as sponsor, U.S. Bank National Association, as institutional trustee and the administrators named therein incorporated herein by reference to Exhibit 10.3 to the Registrants Current Report on Form 8-K dated November 9, 2007. | |
Exhibit No. 10.29 |
Guarantee Agreement, dated as of November 9, 2007, between the Registrant and U.S. Bank National Association incorporated herein by reference to Exhibit 10.4 to the Registrants Current Report on Form 8-K dated November 9, 2007. | |
Exhibit No. 10.30 |
IBERIABANK Corporation Deferred Compensation Plan incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated December 17, 2007. | |
Exhibit No. 10.31 |
Form of Phantom Stock Award Agreement incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated November 17, 2008. | |
Exhibit No. 10.32 |
Form of Restricted Stock Agreement under the IBERIABANK Corporation 2008 Stock Incentive Plan incorporated herein by reference to Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2008. | |
Exhibit No 10.33 |
Form of Stock Option Agreement under the IBERIABANK Corporation 2008 Stock Incentive Plan incorporated herein by reference to Exhibit 10.2 to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2008. | |
Exhibit No. 10.34 |
Subordinated Capital Note Purchase/ Loan Agreement dated as of July 21, 2008, by and between IBERIABANK and SunTrust Bank incorporated herein by reference to Exhibit 10.3 to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2008. | |
Exhibit No. 10.35 |
IBERIABANK Corporation 2008 Stock Incentive Plan incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated April 29, 2008. | |
Exhibit No. 10.36 |
Amended and Restated Declaration of Trust, dated as of March 28, 2008, among IBERIABANK Corporation, as sponsor, Wells Fargo Bank, National Association, as institutional trustee, and the administrators named therein, with respect to IBERIABANK Statutory Trust VIII- incorporated herein by reference to the Registrants Current Report on Form 8-K dated March 28, 2008. | |
Exhibit No. 10.42 |
Guarantee Agreement, dated as of March 28, 2008, between IBERIABANK Corporation, as guarantor, and Wells Fargo Bank, National Association, as trustee, with respect to IBERIABANK Statutory Trust VIII incorporated herein by reference to the Registrants Current Report on Form 8-K dated March 28, 2008. | |
Exhibit No. 10.37 |
Change in Control Severance Agreement with James B. Gburek dated September 21, 2009 incorporated herein by reference to Exhibit 10.5 to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2009. |
40
Exhibit No. 10.38 |
IBERIABANK Corporation 2009 Phantom Stock Plan incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated September 29, 2009. | |
Exhibit No. 10.39 |
Form of IBERIABANK Corporation Phantom Stock Unit Agreement incorporated herein by reference to Exhibit 10.2 to the Registrants Current Report on Form 8-K dated September 29, 2009. | |
Exhibit No. 10.40 |
Form of Termination of Letter Agreement, executed by each of Messrs. Daryl G. Byrd, Anthony J. Restel, Michael J. Brown, and John R. Davis, dated March 31, 2009 incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated March 31, 2009, as amended. | |
Exhibit No. 10.41 |
Employment Letter with Jefferson G. Parker dated September 17, 2009 incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated September 17, 2009. | |
Exhibit No. 10.42 |
Change in Control Severance Agreement with Jefferson G. Parker dated September 17, 2009 incorporated herein by reference to Exhibit 10.2 to the Registrants Current Report on Form 8-K dated September 17, 2009. | |
Exhibit No. 10.43 |
2010 Stock Incentive Plan, as amended incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated January 18, 2010. | |
Exhibit No. 10.44 |
Form of Restricted Stock Agreement under the IBERIABANK Corporation 2010 Stock Incentive Plan incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated May 4, 2010. | |
Exhibit No. 10.45 |
Form of Stock Option Agreement under the IBERIABANK Corporation 2010 Stock Incentive Plan incorporated herein by reference to Exhibit 10.2 to the Registrants Current Report on Form 8-K dated May 4, 2010. | |
Exhibit No. 10.46 |
IBERIABANK Corporation Amended and Restated 2010 Stock Incentive Plan incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated May 6, 2011. | |
Exhibit No. 10.47 |
Form of IBERIABANK Corporation Restricted Stock Agreement under the IBERIABANK Corporation 2010 Stock Incentive Plan incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated May 6, 2013. | |
Exhibit No. 10.48 |
Change in Control Severance Agreement with Michael S. Price dated June 18, 2012 incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated June 18, 2012. | |
Exhibit No. 10.49 |
IBERIABANK Corporation 2014 Phantom Stock Plan incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated February 17, 2014 | |
Exhibit No. 10.50 |
Form of IBERIABANK Corporation Phantom Stock Unit Agreement incorporated herein by reference to Exhibit 10.2 to the Registrants Current Report on Form 8-K dated February 17, 2014. | |
Exhibit No. 10.51 |
Form of IBERIABANK Corporation Performance Unit Agreement (Performance Cash). | |
Exhibit No. 10.52 |
Form of IBERIABANK Corporation Restricted Share Unit Agreement (Performance Shares). | |
Exhibit No. 10.53 |
Form of IBERIABANK Corporation Restricted Stock Agreement. | |
Exhibit No. 10.54 |
Form of IBERIABANK Corporation Stock Option Agreement. | |
Exhibit No. 12 |
Statements: Computations of Ratios. | |
Exhibit No. 13 |
Annual Report to Shareholders Portions of Annual Report to Shareholders for the year ended December 31, 2013, which are expressly incorporated herein by reference. | |
Exhibit No. 21 |
Subsidiaries of the Registrant. | |
Exhibit No. 23.1 |
Consent of Ernst & Young LLP | |
Exhibit No. 31.1 |
Certification of principal executive officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a). | |
Exhibit No. 31.2 |
Certification of principal financial officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a). | |
Exhibit No. 32.1 |
Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
Exhibit No. 32.2 |
Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
Exhibit No. 99.1 |
Purchase and Assumption Agreement dated as of July 23, 2010, by and among the Federal Deposit Insurance Corporation, Receiver of Sterling Bank, Lantana, Florida, IBERIABANK, and the Federal Deposit Insurance Corporation incorporated herein by reference to Exhibit 99.2 to the Registrants Current Report on Form 8-K/A dated August 2, 2010. | |
Exhibit No. 99.2 |
Corporate Governance Guidelines, as amended incorporated herein by reference to Exhibit 99.1 to the Registrants Current Report on Form 8-K dated January 27, 2012. | |
Exhibit No. 101.INS |
XBRL Instance Document. | |
Exhibit No. 101.SCH |
XBRL Taxonomy Extension Schema. |
41
Exhibit No. 101.CAL |
XBRL Taxonomy Extension Calculation Linkbase. | |
Exhibit No. 101.DEF |
XBRL Taxonomy Extension Definition Linkbase. | |
Exhibit No. 101.LAB |
XBRL Taxonomy Extension Label Linkbase. | |
Exhibit No. 101.PRE |
XBRL Taxonomy Extension Presentation Linkbase. |
42
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
IBERIABANK CORPORATION | ||||
Date: February 28, 2014 |
By: |
/s/ Daryl G. Byrd |
||
President/CEO and Director |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name |
Title |
Date |
||
/s/ Daryl G. Byrd |
President, Chief Executive Officer and Director |
February 28, 2014 | ||
Daryl G. Byrd | ||||
/s/ John R. Davis |
Senior Executive Vice President-Mergers and Acquisitions and Investor Relations, Director of Financial Strategy and Mortgage |
February 28, 2014 | ||
John R. Davis | ||||
/s/ Anthony J. Restel |
Senior Executive Vice President and Chief Financial Officer |
February 28, 2014 | ||
Anthony J. Restel | ||||
/s/ M. Scott Price |
Senior Vice President, Corporate Controller and Chief Accounting Officer |
February 28, 2014 | ||
M. Scott Price | ||||
/s/ Elaine D. Abell |
Director | February 28, 2014 | ||
Elaine D. Abell | ||||
/s/ Harry V. Barton, Jr. |
Director and Audit Committee Chairman |
February 28, 2014 | ||
Harry V. Barton, Jr. | ||||
/s/ Ernest P. Breaux, Jr. |
Director |
February 28, 2014 | ||
Ernest P. Breaux, Jr. | ||||
/s/ John N. Casbon |
Director |
February 28, 2014 | ||
John N. Casbon | ||||
/s/ Angus R. Cooper, II |
Director |
February 28, 2014 | ||
Angus R. Cooper, II | ||||
/s/ William H. Fenstermaker |
Chairman of the Board |
February 28, 2014 | ||
William H. Fenstermaker | ||||
/s/ John E. Koerner, III |
Director and Audit Committee Member |
February 28, 2014 | ||
John E. Koerner, III | ||||
/s/ O. Miles Pollard, Jr. |
Director and Audit Committee Member |
February 28, 2014 | ||
O. Miles Pollard, Jr. | ||||
/s/ E. Stewart Shea III |
Director |
February 28, 2014 | ||
E. Stewart Shea III | ||||
/s/ David H. Welch |
Director |
February 28, 2014 | ||
David H. Welch |
43
Exhibit 10.51
IBERIABANK CORPORATION
PERFORMANCE UNIT AGREEMENT
(Performance Cash)
This Performance Unit Agreement (Agreement) is entered into as of , 20 (the Grant Date), between IBERIABANK Corporation (IBKC or the Company) and (the Award Recipient).
WHEREAS, under the Stock Incentive Plan (the Plan), the Compensation Committee of the IBKC Board of Directors (the Committee) may, among other things, award performance units representing shares of common stock of IBKC (the Common Stock) payable in cash that vest based upon the level of achievement of one or more performance measures and satisfaction of a service condition (the Performance Units) to key employees of IBKC or one of its subsidiaries (collectively, the Company).
NOW, THEREFORE, in consideration of the premises, it is agreed as follows:
1. Conditional Award of Performance Units
Upon the terms and conditions of the Plan and this Agreement, the Company hereby awards to the Award Recipient a total of Performance Units (the Target Award) that vest based upon satisfaction of the conditions set forth herein. Each Performance Unit represents the right to receive the value of one share of Common Stock, payable in cash, subject to the terms and conditions set forth in this Agreement and the Plan.
2. Award Restrictions and Vesting Conditions
2.1 The Performance Units shall vest and the restrictions herein shall lapse as follows:
(a) The Award Recipient shall be entitled to vest in the Performance Units based on the Companys level of achievement of the performance measures set forth on Appendix A hereto.
(b) Following the end of the applicable fiscal year set forth in Appendix A, but prior to March 1 st of the following fiscal year, the Committee shall evaluate the Companys level of achievement of each of the performance measures referenced in Appendix A against the predetermined goals established for each measure. Based on that evaluation, the Committee shall determine the percentage of the Target Award that will be eligible to vest, which will be between 0% and 100% of the Target Award (such amount referred to herein as the Actual Award). The Award Recipient will be eligible to vest in 100% of the Actual Award as set forth in Section 2.1(c). The Performance Units representing the difference between the Target Award and the Actual Award shall be immediately forfeited.
(c) If the conditions set forth in Section 2.1(a) and (b) are satisfied, the Award Recipient will vest in the Actual Award in accordance with the following schedule, provided that on the applicable vesting date the Award Recipient remains in the Continued Services of the Company.
Vesting Date |
Percentage
of Actual Award Vesting |
|||
March 1 st following 1 st aniversary of Grant Date |
33.3 | % | ||
March 1 st following 2 nd aniversary of Grant Date |
33.3 | % | ||
March 1 st following 3 rd aniversary of Grant Date |
33.4 | % |
Provided, however, that on each vesting date if a fraction of a unit would vest, a whole unit shall vest in lieu thereof and on the last vesting date the number of Performance Units that vest will be the total number of Performance Units awarded less the total number of Performance Units previously vested.
2.2 Subject to Section 4.2, any Performance Units that do not vest in accordance with Section 2.1 shall be immediately forfeited.
3. Reinvestment of Dividend Equivalents
3.1 IBKC shall establish a Performance Unit Account with respect to each Award Recipient. Credits to the Performance Unit Account shall be made to reflect the grant of Performance Units.
3.2 From and after the Grant Date of a Performance Unit until the payout of the value of the Performance Units, the Award Recipient shall receive a Dividend Equivalent for each unvested Performance Unit.
3.3. Dividend Equivalents will be deemed to be reinvested in additional Performance Units that will vest or be forfeited on the same date as the underlying Performance Units. The number of Performance Units acquired with a Dividend Equivalent shall be determined by dividing the aggregate of Dividend Equivalents paid on the unvested Performance Units by the closing price of a share of Common Stock on the dividend payment date.
3.4 For purposes of this Agreement, Dividend Equivalent means, with respect to Performance Units credited to a particular Award Recipient, a dollar amount equal to the cash dividend that the Award Recipient would have been entitled to receive if the Award Recipient had been the owner, on the record date for a dividend paid on the Common Stock, of a number of shares of Common Stock equal to the number of Performance Units then properly credited to the Performance Unit Account of the Award Recipient.
4. Additional Restrictions on Performance Units
4.1 The Performance Units shall not entitle the Award Recipient to any incidents of ownership (including, without limitation, dividend and voting rights) in any Shares. Neither the Performance Units nor the right to receive reinvestment of Dividends Equivalents thereon or to enjoy any other rights or interests thereunder or hereunder may be sold, assigned, donated, transferred, exchanged, pledged, hypothecated, or otherwise encumbered prior to vesting, whether voluntarily or involuntarily.
4.2 (a) Unless otherwise determined by the Committee, the Award Recipient shall forfeit his or her unvested Performance Units upon the termination of his or her Continuous Service to the Company, for any reason, except as provided below in the case of death or Disability.
(b) If the Award Recipients Continuous Service to the Company terminates as a result of death or Disability (such termination date being the Date of Termination), then, (i) if such Date of Termination occurs prior to the Committees determination of the Actual Award in accordance with Section 2.1(b), then the Award Recipient shall not forfeit the Performance Award, and such award shall remain outstanding until the Committee determines the Actual Award, and (ii) on the later of the first vesting date for the Performance Units reflected in Section 2.1(c) or the Date of Termination, all restrictions on the Performance Units covered by the Actual Award shall lapse and such Performance Units shall vest.
4.3 In the event of a Change in Control of IBKC, all restrictions on any unvested Performance Units shall lapse as of the Change in Control. Payout of the vested Performance Units following the Change in Control shall be made to the Award Recipient no later than 30 days following the Change in Control. Notwithstanding the foregoing, if the Change in Control does not qualify as a change in control event under Section 409A of the Code, and any regulations or guidance promulgated thereunder, then payment shall be made at the time specified in Section 5.1.
5. Payout of Performance Units
5.1 Except as otherwise provided in Section 4.2, payout of the vested Performance Units shall be made no later than 30 days following the applicable vesting date, and the Award Recipient will receive a lump sum cash payment, less any applicable tax withholding, equal to the number of vested Performance Units, including any additional vested Performance Units earned as a result of the reinvestment of Dividend Equivalents as set forth in Section 3, multiplied by the Fair Market Value of a share of Common Stock on such vesting date.
6. Tax Matters
6.1 At the time that all or any portion of the Performance Units vest and payout of the Performance Units is made, the Award Recipient must deliver to IBKC the amount of income tax withholding required by law. IBKC shall have the right to withhold from any payments under the Plan, or to collect as a condition of payment, any taxes required by law to be withheld. By accepting this Award Agreement, the Award Recipient agrees that he or she is solely responsible for the satisfaction of any taxes that may arise (including taxes arising under Sections 409A or 4999 of the Code) and that IBKC shall not have any obligation whatsoever to pay such taxes.
6.2 The Award Recipient understands that the Award Recipient (and not the Company) shall be responsible for the Award Recipients own tax liability that may arise as a result of the transactions contemplated by this Agreement.
6.3 It is intended that the payments and benefits provided under this Agreement will comply with the requirements of Section 409A of the Code and the regulations promulgated thereunder (Section 409A) or an exemption therefrom. The Agreement shall be interpreted, construed, administered, and governed in a manner that effects such intent. No acceleration of the vesting and payout of any Performance Units shall be permitted unless permitted under Section 409A.
7. Additional Conditions
Anything in this Agreement to the contrary notwithstanding, if at any time IBKC further determines, in its sole discretion, that the listing, registration or qualification (or any updating of any document) of the Shares of Common Stock underlying the Performance Units is necessary on any securities exchange or under any federal or state securities or blue sky law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with the payout of the Performance Units pursuant hereto, such payout shall not be made unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to IBKC.
8. No Contract of Employment Intended
Nothing in this Agreement shall confer upon the Award Recipient any right to continue in the employment of the Company or to interfere in any way with the right of the Company to terminate the Award Recipients employment relationship with the Company at any time.
9. Binding Effect
This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators and successors.
10. Inconsistent Provisions
The Performance Units covered hereby are subject to the provisions of the Plan. If any provision of this Agreement conflicts with a provision of the Plan, the Plan provision shall control.
11. Treatment upon Death
The Award Recipient may elect to designate a beneficiary to receive the Performance Units that vest in the event of his or her death. In the absence of such a designation, upon the Award Recipients death, any such interest will be transferred as provided in the Award Recipients will or according to the applicable laws of descent and distribution.
12. Notices
Any notice or communication required or permitted by any provision of this Agreement to be given to the Award Recipient shall be in writing or by electronic means as set forth in Section 17 and, if in writing, shall be delivered personally or sent by certified mail, return receipt requested, addressed to the Award Recipient at the last address that the Company had for the Award Recipient on its records. Each party may, from time to time, by notice to the other party hereto, specify a new address for delivery of notices relating to this Agreement. Any such notice shall be deemed to be given as of the date such notice is personally delivered or properly mailed, or electronically delivered.
13. Modifications
This Agreement may be modified or amended at any time, provided that Award Recipient must consent in writing or by electronic means to any modification that adversely alters or impairs any rights or obligations under this Agreement.
14. Headings
Section and other headings contained in this Agreement are for reference purposes only and are not intended to describe, interpret, define or limit the scope or intent of this Agreement or any provision hereof.
15. Severability
Every provision of this Agreement and of the Plan is intended to be severable. If any term hereof is illegal or invalid for any reason, such illegality or invalidity shall not affect the validity or legality of the remaining terms of this Agreement.
16. Governing Law
The laws of the State of Louisiana shall govern the validity of this Agreement, the construction of its terms, and the interpretation of the rights and duties of the parties hereto.
17. Electronic Delivery; Acceptance of Agreement
17.1 IBKC may, in its sole discretion, deliver any documents related to the Award Recipients current or future participation in the Plan by electronic means or request the Award Recipients consent to participate in the Plan by electronic means. By accepting the terms of this Agreement, the Award Recipient hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by IBKC or a third party designated by IBKC.
17.2 The Award Recipient must expressly accept the terms and conditions of this Agreement by electronically accepting this Agreement in a timely manner. If the Award Recipient does not accept the terms of this Agreement, this Performance Unit award is subject to cancellation.
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By clicking the Accept button, the Award Recipient represents that he or she is familiar with the terms and provisions of the Plan, and hereby accepts this Agreement subject to all of the terms and provisions thereof. The Award Recipient has reviewed the Plan and this Agreement in their entirety and fully understands all provisions of this Agreement. The Award Recipient agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Plan or this Agreement.
PLEASE PRINT AND KEEP A COPY FOR YOUR RECORDS
Exhibit 10.52
IBERIABANK CORPORATION
RESTRICTED SHARE UNIT AGREEMENT
(Performance Shares)
This Restricted Share Unit Agreement (Agreement) is entered into as of , 20 (the Grant Date), between IBERIABANK Corporation (IBKC or the Company) and (the Award Recipient).
WHEREAS, under the Stock Incentive Plan (the Plan), the Compensation Committee of the IBKC Board of Directors (the Committee) may, among other things, award restricted share units payable in Shares of common stock of IBKC (the Common Stock) that vest based upon the level of achievement of one or more performance measures (RSUs) to key employees of IBKC or one of its subsidiaries (collectively, the Company).
NOW, THEREFORE, in consideration of the premises, it is agreed as follows:
1. Conditional Award of RSUs
Upon the terms and conditions of the Plan and this Agreement, the Company hereby awards to the Award Recipient a total of RSUs (the Target Award) that vest based upon satisfaction of the conditions set forth herein. Each RSU represents the right to receive one share of Common Stock, subject to the terms and conditions set forth in this Agreement and the Plan.
2. Award Restrictions and Vesting Conditions
2.1 The RSUs shall vest and the restrictions herein shall lapse at the time specified in Section 2.3 based upon the Award Recipients continued employment and the Committees assessment of the Companys level of achievement of the performance criteria set forth on Appendix A hereto.
2.2 Following the end of the applicable period from January 1, 20 through December 31, 20 (the Performance Period), but prior to March 1st of the year following the end of the Performance Period, the Committee shall evaluate the Companys level of achievement of each of the performance measures against the predetermined goals established for each measure. Based on that evaluation, the Committee shall determine the percentage of the Target Award that will vest, which will be between 0% and 200% of the Target Award (such amount referred to herein as the Vested RSUs). Any remaining unvested RSUs shall be immediately forfeited.
2.3 Payout of the Vested RSUs shall be made effective on March 1 st of the year following the end of the Performance Period (the Payment Date) as set forth in Section 5.
3. Reinvestment of Dividend Equivalents
3.1 IBKC shall establish a RSU Account with respect to each Award Recipient. Credits to the RSU Account shall be made to reflect the grant of RSUs.
3.2 From and after the Grant Date of a RSU until the issuance of a share of Common Stock in respect thereto, the Award Recipient shall receive a Dividend Equivalent for each unvested RSU.
3.3. Dividend Equivalents will be deemed to be reinvested in additional RSUs that will vest or be forfeited on the same date and at the same percentage as the underlying RSUs. The number of RSUs acquired with a Dividend Equivalent shall be determined by dividing the aggregate of Dividend Equivalents paid on the unvested RSUs by the closing price of a share of Common Stock on the dividend payment date.
3.4 For purposes of this Agreement, Dividend Equivalent means, with respect to RSUs credited to a particular Award Recipient, a dollar amount equal to the cash dividend that the Award Recipient would have been entitled to receive if the Award Recipient had been the owner, on the record date for a dividend paid on the Common Stock, of a number of shares of Common Stock equal to the number of RSUs then properly credited to the RSU Account of the Award Recipient.
4. Additional Restrictions on RSUs
4.1 The RSUs are not actual shares of Common Stock and do not entitle the Award Recipient to any incidents of ownership (including, without limitation, dividend and voting rights) in any shares of Common Stock until such shares of Common Stock are issued. In addition to the conditions and restrictions provided in the Plan, neither the RSUs, the right to accrue dividend equivalents thereon or to enjoy any other rights or interests thereunder or hereunder may be sold, assigned, donated, transferred, exchanged, pledged, hypothecated, or otherwise encumbered prior to vesting, whether voluntarily or involuntarily.
4.2 (a) Unless otherwise determined by the Committee, the Award Recipient shall forfeit his or her unvested RSUs upon the termination of his or her Continuous Service to the Company during the Performance Period for any reason, except as provided below in the case of death or Disability.
(b) If the Award Recipient dies during the Performance Period while employed by the Company, the Award Recipient shall forfeit as of the date of death a percentage of the Target Award determined by multiplying the Target Award by a fraction, the numerator of which is the number of full months following the date of death to the end of the Performance Period and the denominator of which is thirty-six (36). Any percentage of the Target Award that is not forfeited shall vest and the shares of Common Stock applicable to such vested RSUs, including any additional RSUs earned as a result of the reinvestment of dividend equivalents as set forth in Section 3, shall be issued as soon as practicable thereafter, but no later than 60 days following the date of death.
(c) If the Award Recipients Continuous Service to the Company terminates as a result of Disability (such termination date being the Date of Termination), the Award Recipient shall forfeit as of the Date of Termination a percentage of the Target Award determined by multiplying the Target Award by a fraction, the numerator of which is the number of full months following the Date of Termination to the end of the Performance Period and the denominator of which is thirty-six (36). The Committee shall determine the number of RSUs forfeited from the Target Award and the amount to be paid to the Award Recipient shall be determined by the Committee in accordance with Section 2 based on the level of achievement of the performance measures, and shall be paid out at the time set forth in Section 2.3.
4.3 In the event of a Change in Control of IBKC, all restrictions on the RSUs representing the Target Award shall lapse as of the Change in Control. Payout of the vested RSUs following the Change in Control shall be made to the Award Recipient no later than 30 days following the Change in Control. Notwithstanding the foregoing, if the Change in Control does not qualify as a change in control event under Section 409A of the Code, and any regulations or guidance promulgated thereunder, then payment shall be made at the time specified in Section 2.3.
5. Issuance of Shares of Common Stock
Effective on the Payment Date, but no later than 30 days thereafter, or such earlier date as set forth in Section 4.2, IBKC shall issue the Shares of Common Stock underlying the Vested RSUs, including any additional RSUs earned as a result of the reinvestment of Dividend Equivalents as set forth in Section 3, either through book entry issuances or delivery of a stock certificate, in the name of the Award Recipient or his or her nominee, subject to the other terms and conditions hereof, including those governing any withholdings of Shares under Section 6 below. Provided that on the Payment Date, if a fraction of a share would vest, the fraction of a share shall be rounded to the nearest whole share, which share shall vest in lieu thereof. Upon receipt of any such Shares, the Award Recipient is free to hold or dispose of such Shares, subject to (i) applicable securities laws and (ii) IBKCs policy statement on insider trading then in effect.
6. Tax Matters
6.1 IBKC shall have the right to withhold from any payments or stock issuances under the Plan, or to collect as a condition of payment, any taxes required by law to be withheld. By accepting this Award Agreement, the Award Recipient agrees that he or she is solely responsible for the satisfaction of any taxes that may arise (including taxes arising under Sections 409A or 4999 of the Code) and that IBKC shall not have any obligation whatsoever to pay such taxes.
6.2 At the time that all or any portion of the RSUs vest and the Shares of Common Stock are issued, the Award Recipient must deliver to IBKC the amount of income tax withholding required by law. In accordance with the terms of the Plan, the Award Recipient may
satisfy the tax withholding obligation by electing (the Election) to have IBKC withhold from the Shares the Award Recipient otherwise would receive Shares of Common Stock having a value equal to the minimum amount required to be withheld. The value of the Shares to be withheld shall be based on the Fair Market Value of the Common Stock on the date that the amount of tax to be withheld shall be determined (the Tax Date). Each Election must be made prior to the Tax Date. The Committee may disapprove of any Election, may suspend or terminate the right to make Elections, or may provide with respect to any Award that the right to make Elections shall not apply to such Award, except that if the Award Recipient is an Executive Officer or is otherwise subject to Section 16 of the Securities Exchange Act of 1934, the Award Recipients right to handle the payment of withholding taxes may not be revoked by the Committee.
6.3 The Award Recipient understands that the Award Recipient (and not the Company) shall be responsible for the Award Recipients own tax liability that may arise as a result of the transactions contemplated by this Agreement.
6.4 It is intended that the payments and benefits provided under this Agreement will comply with the requirements of Section 409A of the Code and the regulations promulgated thereunder (Section 409A) or an exemption therefrom. The Agreement shall be interpreted, construed, administered, and governed in a manner that effects such intent. No acceleration of the vesting of any RSUs shall be permitted unless permitted under Section 409A.
7. Additional Conditions
Anything in this Agreement to the contrary notwithstanding, if at any time IBKC further determines, in its sole discretion, that the listing, registration or qualification (or any updating of any document) of the Shares of Common Stock issued or issuable pursuant hereto is necessary on any securities exchange or under any federal or state securities or blue sky law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance of Shares of Common Stock pursuant hereto, or the removal or any restrictions imposed on such Shares, such Shares of Common Stock shall not be issued, in whole or in part, or the restrictions thereon removed, unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to IBKC.
8. No Contract of Employment Intended
Nothing in this Agreement shall confer upon the Award Recipient any right to continue in the employment of the Company or to interfere in any way with the right of the Company to terminate the Award Recipients employment relationship with the Company at any time.
9. Binding Effect
This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators and successors.
10. Inconsistent Provisions
The RSUs covered hereby are subject to the provisions of the Plan. If any provision of this Agreement conflicts with a provision of the Plan, the Plan provision shall control.
11. Treatment upon Death
The Award Recipient may elect to designate a beneficiary to receive the RSUs that vest in the event of his or her death. In the absence of such a designation, upon the Award Recipients death, any such interest will be transferred as provided in the Award Recipients will or according to the applicable laws of descent and distribution.
12. Notices
Any notice or communication required or permitted by any provision of this Agreement to be given to the Award Recipient shall be in writing or by electronic means as set forth in Section 17 and, if in writing, shall be delivered personally or sent by certified mail, return receipt requested, addressed to the Award Recipient at the last address that the Company had for the Award Recipient on its records. Each party may, from time to time, by notice to the other party hereto, specify a new address for delivery of notices relating to this Agreement. Any such notice shall be deemed to be given as of the date such notice is personally delivered or properly mailed, or electronically delivered.
13. Modifications
This Agreement may be modified or amended at any time, provided that Award Recipient must consent in writing or by electronic means to any modification that adversely alters or impairs any rights or obligations under this Agreement.
14. Headings
Section and other headings contained in this Agreement are for reference purposes only and are not intended to describe, interpret, define or limit the scope or intent of this Agreement or any provision hereof.
15. Severability
Every provision of this Agreement and of the Plan is intended to be severable. If any term hereof is illegal or invalid for any reason, such illegality or invalidity shall not affect the validity or legality of the remaining terms of this Agreement.
16. Governing Law
The laws of the State of Louisiana shall govern the validity of this Agreement, the construction of its terms, and the interpretation of the rights and duties of the parties hereto.
17. Electronic Delivery; Acceptance of Agreement
17.1 IBKC may, in its sole discretion, deliver any documents related to the Award Recipients current or future participation in the Plan by electronic means or request the Award Recipients consent to participate in the Plan by electronic means. By accepting the terms of this Agreement, the Award Recipient hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by IBKC or a third party designated by IBKC.
17.2 The Award Recipient must expressly accept the terms and conditions of this Agreement by electronically accepting this Agreement in a timely manner. If the Award Recipient does not accept the terms of this Agreement, this RSU award is subject to cancellation.
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By clicking the Accept button, the Award Recipient represents that he or she is familiar with the terms and provisions of the Plan, and hereby accepts this Agreement subject to all of the terms and provisions thereof. The Award Recipient has reviewed the Plan and this Agreement in their entirety and fully understands all provisions of this Agreement. The Award Recipient agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Plan or this Agreement.
PLEASE PRINT AND KEEP A COPY FOR YOUR RECORDS
Exhibit 10.53
IBERIABANK CORPORATION
RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement (Agreement) is entered into as of , 20 , between IBERIABANK Corporation (IBKC or (the Company) and (the Award Recipient).
WHEREAS, under the Stock Incentive Plan (the Plan), the Compensation Committee of the IBKC Board of Directors (the Committee) may, among other things, award shares of common stock of IBKC (the Common Stock) in the form of restricted stock (Restricted Stock) to a key employee or Director of IBKC or one of its subsidiaries (collectively, the Company);
NOW, THEREFORE, in consideration of the premises, it is agreed as follows:
1. Conditional Award of Restricted Stock
Pursuant to the terms of the Plan, the Award Recipient is hereby awarded, subject to the other terms, conditions, and restrictions contained herein, shares of Restricted Stock.
2. Award Restrictions
2.1 The shares of Restricted Stock and the right to vote them and to receive dividends thereon may not be sold, assigned, transferred, exchanged, pledged, hypothecated or otherwise encumbered until such time as the shares vest and the restrictions imposed thereon lapse, as provided below.
2.2 The shares of Restricted Stock issued to the Award Recipient will vest and the restrictions imposed thereon will lapse as follows:
Anniversary of Date of
Agreement |
Percentage of Restricted
Stock Vesting |
|
Provided that on each vesting date if a fraction of a share would vest, the fraction of a share shall be rounded to the nearest whole, which share shall vest in lieu thereof and on the last date the number of shares that vest will be the total number of shares awarded less the total number of shares previously vested; and provided further that on the applicable vesting date the Award Recipient is in the employ of or serving as a member of the Board of IBKC. The period during which the restrictions imposed on the shares of Restricted Stock by the Plan and this Agreement are in effect is referred to herein as the Restricted Period. During the Restricted Period, the Award Recipient shall be entitled to all rights of a shareholder of IBKC, including the right to vote such shares of Restricted Stock and to receive dividends thereon.
2.3 All restrictions on the Restricted Stock issued to the Award Recipient shall immediately lapse and the shares shall vest (a) if the Award Recipient dies while he is employed by or serving on the Board of the Company, or (b) if the Award Recipients Continuous Service to the Company terminates as a result of Disability, or (c) if service on the Board terminates due to ineligibility for re-election to serve on the Board because of having reached the mandatory retirement age. Unless otherwise determined by the Committee, the Award Recipient shall forfeit his or her unvested Restricted Stock upon the termination of his or her Continuous Service to the Company, for any reason, other than as provided in the foregoing sentence.
3. Registration of Stock Ownership
3.1 The shares of Restricted Stock shall be registered in the name of the Award Recipient by book entry. A stock power endorsed in blank by the Award Recipient shall be deposited with IBKC. The restrictions on transfer and forfeiture terms of the Restricted Stock under the Plan and the Agreement shall be reflected in the books of IBKCs transfer agent and noted on the written information statement required to be provided to the Award Recipient under Louisiana law.
3.2 Upon the lapse of restrictions on any shares of Restricted Stock issued to the Award Recipient, IBKC shall issue the Shares of Common Stock representing such vested shares of Restricted Stock, without any restrictive legend, either through book entry issuances or delivery of a stock certificate, in the name of the Award Recipient or his or her nominee, subject to the other terms and conditions hereof, including those governing any withholdings of Shares under Section 5 below. Upon receipt of any such Shares, the Award Recipient is free to hold or dispose of such Shares, subject to (i) applicable securities laws and (ii) IBKCs policy statement on insider trading then in effect.
4. Dividends
Any dividends paid on the shares of Restricted Stock granted to the Award Recipient shall be paid to the Award Recipient as soon as practicable following the date such dividends are declared and paid to the Companys shareholders.
5. Withholding Taxes
5.1 IBKC shall have the right to withhold from any payments or stock issuances under the Plan, or to collect as a condition of payment, any taxes required by law to be withheld. By signing this Award Agreement, the Award Recipient agrees that he or she is solely responsible for the satisfaction of any taxes that may arise (including taxes arising under Sections 409A or 4999 of the Code) and that IBKC shall not have any obligation whatsoever to pay such taxes.
5.2 Unless an Award Recipient timely makes the election described in Section 5.3, at the time that all or any portion of the Restricted Stock vests the Award Recipient must deliver to IBKC the amount of income tax withholding required by law. In accordance with the terms of the Plan, the Award Recipient may satisfy the tax withholding obligation by electing (the Election) to have IBKC withhold from the Shares the Award Recipient otherwise would receive Shares of Common Stock having a value equal to the minimum amount required to be withheld. The value of the shares to be withheld shall be based on the Fair Market Value of the Common Stock on the date that the amount of tax to be withheld shall be determined (the Tax Date). Each Election must be made prior to the Tax Date. The Committee may disapprove of any Election, may suspend or terminate the right to make Elections, or may provide with respect to any Restricted Stock that the right to make Elections shall not apply to such Restricted Stock, except that if the Award Recipient is an Executive Officer or is otherwise subject to Section 16 of the Securities Exchange Act of 1934, the Award Recipients right to handle the payment of withholding taxes may not be revoked by the Committee.
5.3 The Award Recipient understands that the Award Recipient (and not the Company) shall be responsible for the Award Recipients own tax liability that may arise as a result of the transactions contemplated by this Agreement. The Award Recipient understands that Section 83 of the Internal Revenue Code of 1986, as amended (the Code), taxes as ordinary income the Fair Market Value of the Restricted Stock as of the date any restrictions on the shares lapse. The Award Recipient understands that the Award Recipient may elect to be taxed at the time the Restricted Stock is granted rather than upon vesting by filing an election under Section 83(b) of the Code with the I.R.S. within thirty days from the date of grant. The form for making this election is available from the Director of Human Resources of IBKC upon the request of the Award Recipient.
6. Additional Conditions
Anything in this Agreement to the contrary notwithstanding, if at any time IBKC further determines, in its sole discretion, that the listing, registration or qualification (or any updating of any document) of the Shares of Common Stock issued or issuable pursuant hereto is necessary on any securities exchange or under any federal or state securities or blue sky law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance of Shares of Common Stock pursuant hereto, or the removal or any restrictions imposed on such Shares, such Shares of Common Stock shall not be issued, in whole or in part, or the restrictions thereon removed, unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to IBKC.
7. No Contract of Employment Intended
Nothing in this Agreement shall confer upon the Award Recipient any right to continue in the employment of the Company or to interfere in any way with the right of the Company to terminate the Award Recipients employment relationship with the Company at any time.
8. Binding Effect
This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators and successors.
9. Inconsistent Provisions
The shares of Restricted Stock covered hereby are subject to the provisions of the Plan. If any provision of this Agreement conflicts with a provision of the Plan, the Plan provision shall control.
10. Treatment upon Death
The Award Recipient may elect to designate a beneficiary to receive the shares of Restricted Stock that vest in the event of his or her death. In the absence of such a designation, upon the Award Recipients death, any such interest will be transferred as provided in the Award Recipients will or according to the applicable laws of descent and distribution.
11. Notices
Any notice or communication required or permitted by any provision of this Agreement to be given to the Award Recipient shall be in writing or by electronic means as set forth in Section 17 and, if in writing, shall be delivered personally or sent by certified mail, return receipt requested, addressed to the Award Recipient at the last address that the Company had for the Award Recipient on its records. Each party may, from time to time, by notice to the other party hereto, specify a new address for delivery of notices relating to this Agreement. Any such notice shall be deemed to be given as of the date such notice is personally delivered or properly mailed, or electronically delivered to the Award Recipient.
12. Modifications
This Agreement may be modified or amended at any time, provided that Award Recipient must consent in writing or by electronic means to any modification that adversely alters or impairs any rights or obligations under this Agreement.
13. Headings
Section and other headings contained in this Agreement are for reference purposes only and are not intended to describe, interpret, define or limit the scope or intent of this Agreement or any provision hereof.
14. Severability
Every provision of this Agreement and of the Plan is intended to be severable. If any term hereof is illegal or invalid for any reason, such illegality or invalidity shall not affect the validity or legality of the remaining terms of this Agreement.
15. Governing Law
The laws of the State of Louisiana shall govern the validity of this Agreement, the construction of its terms, and the interpretation of the rights and duties of the parties hereto.
16. Restrictions on Transfer
This Agreement may not be sold, pledged, or otherwise transferred without the prior written consent of the Committee.
17. Electronic Delivery; Acceptance of Agreement
17.1 IBKC may, in its sole discretion, deliver any documents related to the Award Recipients current or future participation in the Plan by electronic means or request the Award Recipients consent to participate in the Plan by electronic means. By accepting the terms of this Agreement, the Award Recipient hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by IBKC or a third party designated by IBKC.
17.2 The Award Recipient must expressly accept the terms and conditions of this Agreement by electronically accepting this Agreement in a timely manner. If the Award Recipient does not accept the terms of this Agreement, this Restricted Stock Award is subject to cancellation.
* * * * * * * * * * * * *
By clicking the Accept button, the Award Recipient represents that he or she is familiar with the terms and provisions of the Plan, and hereby accepts this Agreement subject to all of the terms and provisions thereof. The Award Recipient has reviewed the Plan and this Agreement in their entirety and fully understands all provisions of this Agreement. The Award Recipient agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Plan or this Agreement.
PLEASE PRINT AND KEEP A COPY FOR YOUR RECORDS
Exhibit 10.54
IBERIABANK CORPORATION
STOCK OPTION AGREEMENT
This Stock Option Agreement (the Agreement) is entered into by and between IBERIABANK Corporation (IBKC or the Company) and (the Optionee), in accordance with the terms of the IBERIABANK Corporation Stock Incentive Plan (the Plan). Capitalized terms shall have the same meaning as set forth in the Plan, unless the context clearly indicates otherwise.
1. Grant of Option
1.1 IBKC hereby grants to the Optionee effective (the Date of Grant), the option to purchase up to Shares of Common Stock (the Option) at an exercise price of per share (the Exercise Price). The Option shall vest, become exercisable and expire as provided in Section 2 below.
1.2 The Option is intended to be treated as an incentive stock option (an ISO) under Section 422 of the Internal Revenue Code of 1986, as amended (the Code), unless designated above as a nonqualified stock option (a NQ Stock Option). If the Option is designated as an ISO and is not eligible for such treatment, the ineligible portion shall be treated as a NQ Stock Option.
2. Time of Exercise
2.1 Subject to the provisions of the Plan and this Agreement, the Optionee shall be entitled to exercise the Option as follows:
Anniversary of Date of
Grant |
Percentage of Total
Shares Of Common Stock Subject to Option Which May be Exercised |
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2.2 The Option shall expire and may not be exercised later than ten years following the Date of Grant.
2.3 Notwithstanding the foregoing, the Option shall become accelerated and immediately exercisable in the event of the Optionees termination of employment as a result of death or Disability and in the event of a Change in Control as provided in Section 13(c) of the Plan.
2.4 The Option shall be exercised in the manner set forth in the Plan. The exercise price may be paid in cash, check, Shares or through a cashless exercise program through a broker, all on the terms provided in the Plan.
3. Conditions for Exercise of Option
3.1 During the Optionees lifetime, the Option may be exercised only by the Optionee or by the Optionees guardian or legal representative. The Option must be exercised while the Optionee is employed by IBKC, or in the event of a termination of employment, for such period following termination under certain circumstances, as may be provided in Section 6 of the Plan. Notwithstanding the foregoing, no Option may be exercised more than ten years following the Date of Grant.
3.2 In the event the Optionee is discharged from the employ of IBKC or a subsidiary company for Cause, as defined in the Plan, the Optionee shall forfeit the right to exercise any portion of this Option, which shall be immediately null and void.
4. Additional Conditions
Anything in this Agreement to the contrary notwithstanding, if at any time IBKC further determines, in its sole discretion, that the listing, registration or qualification (or any updating of any such document) of the shares of Common Stock issuable pursuant to the exercise of an Option is necessary on any securities exchange or under any federal or state securities or blue sky law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with the issuance of shares of Common Stock pursuant thereto, or the removal of any restrictions imposed on such shares, such shares of Common Stock shall not be issued, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to IBKC.
5. Taxes
5.1 IBKC may make such provisions as it may deem appropriate for the withholding of any federal, state and local taxes that it determines are required to be withheld on the exercise of the Option. By accepting this Option award, the Optionee agrees that he or she is solely responsible for the satisfaction of any taxes that may arise (including taxes arising under Sections 409A or 4999 of the Code) and that IBKC shall not have any obligation whatsoever to pay such taxes.
5.2 The Optionee may, but is not required to, satisfy his or her withholding tax obligation in whole or in part by electing (the Election) to have IBKC withhold, from the Shares he or she otherwise would receive upon exercise of the Option, Shares of Common Stock having a value equal to the minimum amount required to be withheld. The value of the Shares to be withheld shall be based on the Fair Market Value of the Common Stock on the date that the amount of tax to be withheld shall be determined (the Tax Date). Each Election must be made prior to the Tax Date. The Committee may disapprove of any Election or may suspend or terminate the right to make Elections, except that, notwithstanding the terms of the Plan, if the Optionee is an Executive Officer or is otherwise subject to Section 16 of the Securities Exchange
Act of 1934, as amended, the right to make an Election may not be disapproved, terminated or suspended. In the absence of any other arrangement, an Optionee who is an Executive Officer will be deemed to have elected to have Shares withheld to satisfy withholding taxes as provided herein.
6. Conditions for ISO Treatment
6.1 The Optionee understands that, to the extent this Option is intended to qualify as an ISO, in order to obtain the benefits of an ISO, no sale or other disposition may be made of Shares for which ISO treatment is desired within one (1) year following the date of exercise of the Option or within two (2) years from the Date of Grant. The Optionee understands and agrees that the Company shall not be liable or responsible for any additional tax liability the Optionee incurs in the event that the Internal Revenue Service for any reason determines that this Option does not qualify as an ISO within the meaning of the Code.
6.2 If the Optionee disposes of the Shares of Common Stock prior to the expiration of either two (2) years from the Date of Grant or one (1) year from the date the Shares are transferred to the Optionee pursuant to the exercise of the Option (a Disqualifying Disposition), the Optionee shall notify the Company in writing within thirty (30) days after such disposition of the date and terms of such disposition. The Optionee also agrees to provide the Company with any information concerning any such dispositions as the Company requires for tax purposes.
7. Binding Effect
This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators and successors.
8. Inconsistent Provisions
The Option granted hereby is subject to the provisions of the Plan. If any provision of this Agreement conflicts with a provision of the Plan, the Plan provision shall control.
9. Adjustments to Option
Appropriate adjustments shall be made to the number and class of Shares of Common Stock subject to the Option and to the exercise price in accordance with Section 13 of the Plan.
10. Termination of Option
The Committee, in its sole discretion, may terminate the Option. However, no termination may adversely affect the rights of the Optionee to the extent that the Option is currently vested on the date of such termination.
11. Treatment upon Death
The Optionee may elect to designate a beneficiary to exercise the Option following the Optionees death, but in the absence of such a designation, this right will devolve to whomever acquires the Option under the applicable laws of descent or distribution.
12. Notices
Any notice or communication required or permitted by any provision of this Agreement to be given to Optionee shall be in writing or by electronic means as set forth in Section 17 and, if in writing, shall be delivered personally or sent by certified mail, return receipt requested, addressed to the Optionee at the last address that the Company had for the Optionee on its records. Each party may, from time to time, by notice to the other party hereto, specify a new address for delivery of notices relating to this Option. Any such notice shall be deemed to be given as of the date such notice is personally delivered or properly mailed or electronically delivered to the Optionee.
13. Modifications
This Agreement may be modified or amended at any time, provided that the Optionee must consent in writing or by electronic means to any modification that adversely alters or impairs any vested rights or obligations under this Option.
14. Headings
Section and other headings contained in this Option Agreement are for reference purposes only and are not intended to describe, interpret, define or limit the scope or intent of this Option or any provision hereof.
15. Severability
Every provision of this Option and of the Plan is intended to be severable. If any term hereof is illegal or invalid for any reason, such illegality or invalidity shall not affect the validity or legality of the remaining terms of this Award Agreement.
16. Governing Law
The laws of the State of Louisiana shall govern the validity of this Award Agreement, the construction of its terms, and the interpretation of the rights and duties of the parties hereto.
17. Electronic Delivery; Acceptance of Agreement
17.1 IBKC may, in its sole discretion, deliver any documents related to the Optionees current or future participation in the Plan by electronic means or request the Optionees consent to participate in the Plan by electronic means. By accepting the terms of this Agreement, the Optionee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by IBKC or a third party designated by IBKC.
17.2 The Optionee must expressly accept the terms and conditions of this Agreement by electronically accepting this Agreement in a timely manner. If the Optionee does not accept the terms of this Agreement, this Option Award is subject to cancellation.
* * * * * * * * * * * * *
By clicking the Accept button, the Optionee represents that he or she is familiar with the terms and provisions of the Plan, and hereby accepts this Agreement subject to all of the terms and provisions thereof. The Optionee has reviewed the Plan and this Agreement in their entirety and fully understands all provisions of this Agreement. The Optionee agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Plan or this Agreement.
PLEASE PRINT AND KEEP A COPY FOR YOUR RECORDS
EXHIBIT 12
STATEMENTS: COMPUTATION OF RATIOS
The following is a computation of Non-GAAP financial ratios:
Years Ended December 31, | ||||||||||||||||||||
(dollars in thousands) |
2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net Interest Income |
$ | 390,244 | $ | 381,750 | $ | 338,258 | $ | 281,627 | $ | 172,785 | ||||||||||
Effect of Tax Benefit on Interest Income |
9,452 | 9,659 | 8,178 | 7,778 | 6,282 | |||||||||||||||
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Net Interest Income (TE) (1) |
399,696 | 391,409 | 346,436 | 289,405 | 179,067 | |||||||||||||||
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Non-interest Income |
168,958 | 175,997 | 131,859 | 133,890 | 344,537 | |||||||||||||||
Effect of Tax Benefit on Noninterest Income |
1,964 | 1,981 | 1,775 | 1,669 | 1,558 | |||||||||||||||
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Non-interest Income (TE) (1) |
170,922 | 177,978 | 133,634 | 135,559 | 346,095 | |||||||||||||||
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Total Revenues (TE) (1) |
$ | 570,618 | $ | 569,387 | $ | 480,070 | $ | 424,964 | $ | 525,162 | ||||||||||
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Total Non-interest Expense |
$ | 473,085 | $ | 432,185 | $ | 373,731 | $ | 304,249 | $ | 223,260 | ||||||||||
Less Intangible Amortization Expense |
(4,720 | ) | (5,150 | ) | (5,121 | ) | (4,935 | ) | (2,893 | ) | ||||||||||
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Tangible Operating Expense (2) |
$ | 468,365 | $ | 427,035 | $ | 368,610 | $ | 299,314 | $ | 220,367 | ||||||||||
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Net income |
$ | 65,103 | $ | 76,395 | $ | 53,538 | $ | 48,826 | $ | 158,354 | ||||||||||
Effect of Intangible Amortization, net of tax |
3,068 | 3,348 | 3,328 | 3,208 | 1,880 | |||||||||||||||
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Cash earnings |
$ | 68,171 | $ | 79,743 | $ | 56,866 | $ | 52,034 | $ | 160,234 | ||||||||||
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Net Income per Common Share- Diluted |
$ | 2.20 | $ | 2.59 | $ | 1.87 | $ | 1.88 | $ | 8.41 | ||||||||||
Effect of Intangible Amortization per diluted share, net of tax |
0.10 | 0.11 | 0.11 | 0.13 | 0.11 | |||||||||||||||
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Cash Earnings per Share- Diluted |
$ | 2.30 | $ | 2.70 | $ | 1.98 | $ | 2.01 | $ | 8.52 | ||||||||||
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Return on Average Common Equity |
4.26 | % | 5.05 | % | 3.77 | % | 3.91 | % | 20.08 | % | ||||||||||
Effect of Intangibles (2) |
1.94 | 2.16 | 1.53 | 1.36 | 10.58 | |||||||||||||||
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Return on Average Tangible Common Equity (2) |
6.20 | % | 7.21 | % | 5.30 | % | 5.27 | % | 30.66 | % | ||||||||||
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Efficiency Ratio |
84.6 | % | 77.5 | % | 79.5 | % | 73.2 | % | 43.2 | % | ||||||||||
Effect of Tax Benefit Related to Tax Exempt Income |
(1.7 | ) | (1.6 | ) | (1.7 | ) | (1.6 | ) | (0.7 | ) | ||||||||||
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Efficiency Ratio (TE) (1) |
82.9 | % | 75.9 | % | 77.8 | % | 71.6 | 42.5 | % | |||||||||||
Effect of Amortization of Intangibles |
(0.8 | ) | (1.0 | ) | (1.1 | ) | (1.2 | ) | (0.5 | ) | ||||||||||
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Tangible Efficiency Ratio (TE) (1) (2) |
82.1 | % | 74.9 | % | 76.7 | % | 70.4 | % | 42.0 | % | ||||||||||
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(1) |
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%. |
(2) |
Tangible calculations eliminate the effect of goodwill and acquisition related intangible assets and the corresponding amortization expense on a tax-effected basis where applicable. |
STATEMENTS: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years Ended December 31, | ||||||||||||||||||||
(dollars in thousands) |
2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net income |
$ | 65,103 | $ | 76,395 | $ | 53,538 | $ | 48,826 | $ | 158,354 | ||||||||||
Income tax expense |
15,869 | 28,496 | 16,981 | 19,991 | 90,338 | |||||||||||||||
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Income before income tax expense |
$ | 80,972 | $ | 104,891 | $ | 70,519 | $ | 68,817 | $ | 248,692 | ||||||||||
Fixed charges |
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Interest on short-term and other borrowings |
$ | 11,107 | $ | 14,086 | $ | 11,515 | $ | 18,987 | $ | 21,919 | ||||||||||
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Fixed charges excluding interest on deposits |
11,107 | 14,086 | 11,515 | 18,987 | 21,919 | |||||||||||||||
Interest on deposits |
35,846 | 49,364 | 70,554 | 95,757 | 75,683 | |||||||||||||||
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Fixed charges including interest on deposits |
$ | 46,953 | $ | 63,450 | $ | 82,069 | $ | 114,744 | $ | 97,602 | ||||||||||
Preferred stock dividends |
| | | | 3,350 | |||||||||||||||
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Fixed charges including preferred stock dividends |
$ | 46,953 | $ | 63,450 | $ | 82,069 | $ | 114,744 | $ | 100,952 | ||||||||||
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Earnings for ratio computations (1) |
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Excluding interest on deposits |
$ | 92,079 | $ | 118,977 | $ | 82,034 | $ | 87,804 | $ | 270,611 | ||||||||||
Including interest on deposits |
$ | 127,925 | $ | 168,341 | $ | 152,588 | $ | 183,561 | $ | 346,294 | ||||||||||
Ratio of earnings to fixed charges (2) |
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Excluding interest on deposits |
8.29 | 8.45 | 7.12 | 4.62 | 12.35 | |||||||||||||||
Including interest on deposits |
2.72 | 2.65 | 1.86 | 1.60 | 3.55 | |||||||||||||||
Ratio of earnings to fixed charges and preferred dividends (2) |
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Excluding interest on deposits |
8.29 | 8.45 | 7.12 | 4.62 | 10.71 | |||||||||||||||
Including interest on deposits |
2.72 | 2.65 | 1.86 | 1.60 | 3.43 |
(1) |
Earnings are the sum of income before income tax expense and fixed charges. |
(2) |
For the purposes of calculating the ratio of earning to fixed charges, fixed charges are the sum of interest and debt expenses, excluding interest on deposits, and, in the second alternative, fixed charges are the sum of interest and debt expenses including interest on deposits. |
Exhibit 13
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to assist readers in understanding the consolidated financial condition and results of operations of IBERIABANK Corporation and its wholly owned subsidiaries (collectively, the Company) as of December 31, 2013. This discussion should be read in conjunction with the audited consolidated financial statements, accompanying footnotes and supplemental financial data, as well as other sections of this Annual Report on Form 10-K included herein. The emphasis of this discussion will be amounts for the years ended 2013, 2012 and 2011. Financial information for prior years will also be presented when appropriate. Certain amounts in prior year presentations have been reclassified to conform to the current year presentation, except as otherwise noted.
To the extent that statements in this Report 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 use of the words may, plan, believe, expect, intend, will, should, continue, potential, anticipate, estimate, predict, project or similar expressions, or the negative of these terms or other comparable terminology, including statements related to the expected timing of the closing of proposed mergers, the expected returns and other benefits of the proposed mergers to shareholders, expected improvement in operating efficiency resulting from the mergers, estimated expense reductions, the impact on and timing of the recovery of the impact on tangible book value, and the effect of the mergers on the Companys capital ratios. The Companys actual strategies and results in future periods may differ materially from those currently expected due to various risks and uncertainties.
Actual results could differ materially because of factors such as the level of market volatility, our ability to execute our growth strategy, including the availability of future bank acquisition opportunities, unanticipated losses related to the integration of, and refinements to purchase accounting adjustments for, acquired businesses and assets and assumed liabilities in these transactions, adjustments of fair values of acquired assets and assumed liabilities and of deferred taxes in acquisitions, actual results deviating from the Companys current estimates and assumptions of timing and amounts of cash flows, credit risk of our customers, effects of the on-going correction in residential real estate prices and reduced levels of home sales, our ability to satisfy new capital and liquidity standards such as those imposed by the Dodd-Frank Act and those adopted by the Basel Committee and federal banking regulators, sufficiency of our allowance for loan losses, changes in interest rates, access to funding sources, reliance on the services of executive management, competition for loans, deposits and investment dollars, reputational risk and social factors, changes in government regulations and legislation, increases in FDIC insurance assessments, geographic concentration of our markets and economic conditions in these markets, rapid changes in the financial services industry, dependence on our operational, technological, and organizational systems or infrastructure and those of third-party providers of those services, hurricanes and other adverse weather events, the modest trading volume of our common stock, and valuation of intangible assets. Those and other factors that may cause actual results to differ materially from these forward-looking statements are discussed in the Companys Annual Report on Form 10-K and other filings with the Securities and Exchange Commission (the SEC), available at the SECs website, http://www.sec.gov , and the Companys website, http://www.iberiabank.com , under the heading Investor Information. All information in this discussion is as of the date of this Report. The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Companys expectations.
Included in this discussion and analysis are descriptions of the composition, performance, and credit quality of the Companys loan portfolio. The Company has three descriptions of loans that are used to categorize the portfolio into its distinct risks and rewards to the consolidated financial statements. Acquired loans refer to all loans acquired in a business combination. Because of the loss protection provided by the Federal Deposit Insurance Corporation (the FDIC), the risks of the loans and foreclosed real estate acquired in the CapitalSouth Bank (CSB), Orion Bank (Orion), Century Bank (Century), and Sterling Bank (Sterling) acquisitions, excluding consumer loans acquired from Sterling, are significantly different from those assets not similarly covered by loss share agreements. Accordingly, the Company reports loans subject to the loss share agreements as covered loans and loans that are not subject to the loss share agreements as non-covered loans. The subset of acquired loans that is not subject to loss share agreements are referred to as non-covered acquired loans. Loans that are neither subject to loss share agreements nor acquired in a business combination are referred to as legacy loans or organic loans.
EXECUTIVE OVERVIEW
The Company offers commercial and retail banking products and services to customers in locations in six states through its subsidiary, IBERIABANK. The Company also operates mortgage production offices in 12 states through IBERIABANKs subsidiary, IBERIABANK Mortgage Company (IMC), and offers a full line of title insurance and closing services throughout Arkansas and Louisiana through Lenders Title Company (LTC) and its subsidiaries. IBERIA Capital Partners L.L.C. (ICP) provides equity research, institutional sales and trading, and corporate finance services. IB Aircraft Holdings, LLC owns a fractional share of an aircraft used by management of the Company and its subsidiaries. IBERIA Asset Management, Inc. (IAM) provides wealth management and trust services for commercial and private banking clients. IBERIA CDE, L.L.C. (CDE) is engaged in the purchase of tax credits. Selected financial and other data for the past five years is shown in the following tables.
TABLE 1SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA (1)
Years Ended December 31, | ||||||||||||||||||||
(Dollars in thousands, except per share data) | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Balance Sheet Data |
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Total assets |
$ | 13,365,550 | $ | 13,129,678 | $ | 11,757,928 | $ | 10,026,766 | $ | 9,695,955 | ||||||||||
Cash and cash equivalents |
391,396 | 970,977 | 573,296 | 337,778 | 175,397 | |||||||||||||||
Loans |
9,492,019 | 8,498,580 | 7,388,037 | 6,035,332 | 5,784,365 | |||||||||||||||
Investment securities |
2,090,906 | 1,950,066 | 1,997,969 | 2,019,814 | 1,580,837 | |||||||||||||||
Goodwill and other intangible assets |
423,934 | 428,654 | 401,743 | 263,925 | 260,144 | |||||||||||||||
Deposits |
10,737,000 | 10,748,277 | 9,289,013 | 7,915,106 | 7,556,148 | |||||||||||||||
Borrowings |
961,043 | 726,422 | 848,276 | 652,579 | 1,009,215 | |||||||||||||||
Shareholders equity |
1,530,979 | 1,529,868 | 1,482,661 | 1,303,457 | 961,318 | |||||||||||||||
Book value per share (2) |
51.40 | 51.88 | 50.48 | 48.50 | 46.38 | |||||||||||||||
Tangible book value per share (2) (4) |
37.17 | 37.34 | 36.80 | 38.68 | 33.88 | |||||||||||||||
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Years Ended December 31, | ||||||||||||||||||||
(Dollars in thousands, except per share data) | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Income Statement Data |
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Interest income |
$ | 437,197 | $ | 445,200 | $ | 420,327 | $ | 396,371 | $ | 270,387 | ||||||||||
Interest expense |
46,953 | 63,450 | 82,069 | 114,744 | 97,602 | |||||||||||||||
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Net interest income |
390,244 | 381,750 | 338,258 | 281,627 | 172,785 | |||||||||||||||
Provision for loan losses |
5,145 | 20,671 | 25,867 | 42,451 | 45,370 | |||||||||||||||
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Net interest income after provision for loan losses |
385,099 | 361,079 | 312,391 | 239,176 | 127,415 | |||||||||||||||
Non-interest income |
168,958 | 175,997 | 131,859 | 133,890 | 344,537 | |||||||||||||||
Non-interest expense |
473,085 | 432,185 | 373,731 | 304,249 | 223,260 | |||||||||||||||
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Income before income taxes |
80,972 | 104,891 | 70,519 | 68,817 | 248,692 | |||||||||||||||
Income taxes |
15,869 | 28,496 | 16,981 | 19,991 | 90,338 | |||||||||||||||
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Net income |
65,103 | 76,395 | 53,538 | 48,826 | 158,354 | |||||||||||||||
Earnings per share basic |
$ | 2.20 | $ | 2.59 | $ | 1.88 | $ | 1.90 | $ | 8.49 | ||||||||||
Earnings per share diluted |
2.20 | 2.59 | 1.87 | 1.88 | 8.41 | |||||||||||||||
Cash earnings per share diluted |
2.30 | 2.70 | 1.98 | 2.01 | 8.52 | |||||||||||||||
Cash dividends per share |
1.36 | 1.36 | 1.36 | 1.36 | 1.36 | |||||||||||||||
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As of and For the Years Ended December 31, | ||||||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
Key Ratios (3) |
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Return on average assets |
0.50 | % | 0.63 | % | 0.49 | % | 0.47 | % | 2.48 | % | ||||||||||
Return on average common equity |
4.26 | 5.05 | 3.77 | 3.91 | 20.08 | |||||||||||||||
Return on average tangible common equity (4) |
6.20 | 7.21 | 5.30 | 5.27 | 30.66 | |||||||||||||||
Equity to assets at end of period |
11.45 | 11.65 | 12.61 | 13.00 | 9.91 | |||||||||||||||
Earning assets to interest-bearing liabilities |
132.74 | 127.62 | 121.74 | 119.27 | 118.34 | |||||||||||||||
Interest rate spread (5) |
3.26 | 3.43 | 3.34 | 2.84 | 2.78 | |||||||||||||||
Net interest margin (TE) (5) (6) |
3.38 | 3.58 | 3.51 | 3.05 | 3.09 | |||||||||||||||
Non-interest expense to average assets |
3.64 | 3.57 | 3.43 | 2.95 | 3.49 | |||||||||||||||
Efficiency ratio (7) |
84.60 | 77.49 | 79.50 | 73.22 | 43.16 | |||||||||||||||
Tangible efficiency ratio (TE) (Non-GAAP) (6) (7) |
82.08 | 74.91 | 76.71 | 70.43 | 41.96 | |||||||||||||||
Common stock dividend payout ratio |
62.11 | 52.50 | 73.61 | 74.75 | 16.13 | |||||||||||||||
Asset Quality Data |
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Nonperforming assets to total assets at end of period (8) |
0.61 | % | 0.69 | % | 0.86 | % | 0.91 | % | 0.91 | % | ||||||||||
Allowance for credit losses to nonperforming loans at end of period (8) |
175.26 | 150.57 | 132.98 | 122.59 | 124.14 | |||||||||||||||
Allowance for credit losses to total loans at end of period |
0.95 | 1.10 | 1.40 | 1.40 | 1.36 | |||||||||||||||
Consolidated Capital Ratios |
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Tier 1 leverage capital ratio |
9.70 | % | 9.70 | % | 10.45 | % | 11.24 | % | 9.99 | % | ||||||||||
Tier 1 risk-based capital ratio |
11.57 | 12.92 | 14.94 | 18.48 | 13.34 | |||||||||||||||
Total risk-based capital ratio |
12.82 | 14.19 | 16.20 | 19.74 | 14.71 | |||||||||||||||
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(1) |
2009 Balance Sheet, Income Statement, and Asset Quality Data, as well as Key Ratios and Consolidated Capital Ratios, are impacted by the Companys acquisitions of CSB on August 21, 2009 and Orion and Century on November 13, 2009. The same data for 2010 is impacted by the Companys acquisition of Sterling on July 23, 2010. 2011 data is impacted by the Companys acquisitions of OMNI Bancshares, Inc. (OMNI) and Cameron Bancshares, Inc. (Cameron) on May 31, 2011 and Florida Trust Company (FTC) on June 14, 2011. 2012 data is impacted by the Companys acquisition of Florida Gulf Bancorp, Inc. (Florida Gulf) on July 31, 2012. |
(2) |
Shares used for book value purposes are net of shares held in treasury at the end of the period. |
(3) |
With the exception of end-of-period ratios, all ratios are based on average daily balances during the respective periods. |
(4) |
Tangible calculations eliminate the effect of goodwill and acquisition-related intangible assets and the corresponding amortization expense on a tax-effected basis where applicable. |
(5) |
Interest rate spread represents the difference between the weighted average yield on earning assets and the weighted average cost of interest-bearing liabilities. Net interest margin represents net interest income as a percentage of average net earning assets. |
(6) |
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%. |
(7) |
The efficiency ratio represents noninterest expense as a percentage of total revenues. Total revenues are the sum of net interest income and noninterest income. |
(8) |
Nonperforming loans consist of nonaccruing loans and loans 90 days or more past due. Nonperforming assets consist of nonperforming loans and repossessed assets. |
The Companys focus is that of a high performing institution. Management believes that improvement in core earnings drives shareholder value, and the Company has adopted a mission statement that is designed to provide guidance for our management, associates and Board of Directors regarding the sense of purpose and direction of the Company. In 2013, the Company reviewed its long-term financial and strategic goals in light of changes affecting the banking industry, including evolving economic conditions, a change in regulatory environment, and interest rate fluctuations. The Company strives to improve long-term shareholder returns by setting challenging financial goals and executing these goals in consideration of the current and anticipated operating and regulatory environment. We are shareholder- and client-focused, expect high performance from our associates, believe in a strong sense of community and strive to make the Company a great place to work.
During 2013, the Company continued to execute its business model successfully, as evidenced by solid organic loan growth during the year, despite the challenges of the current operating environment, which include regulatory developments, increased competition, enhanced regulatory scrutiny and continued interest rate pressure. The Company also continued to develop its non-interest revenue streams, particularly from its wealth management and mortgage production subsidiaries. In 2013, the Company also focused on improving its short- and long-term profitability through a number of cost saving initiatives implemented throughout the year. As a result of its efforts throughout 2013, the Company believes it remains well positioned for future growth opportunities, as evidenced by the strength in its liquidity, core funding, and capitalization levels. During 2013, operating results were significantly impacted by three events.
First, the adoption of a new accounting standard, ASU No. 2012-06, reduced the remaining period over which the Companys indemnification assets will be amortized. As a result of the shortened amortization period, and based on current cash flow expectations and other assumptions, the Companys indemnification asset amortization increased amortization expense for the year ended December 31, 2013 by $23.3 million compared to the methodology in place prior to adoption of ASU 2012-06.
Second, the Company concluded that certain previously expected losses are probable of not being collected from the FDIC. Based on improving economic trends, their impact on the amount and timing of expected future cash flows, and delays in the foreclosure process, these projected losses are no longer anticipated to occur or will occur beyond the reimbursable periods of the loss share agreements with the FDIC. As a result, the Company impaired the indemnification assets by $31.8 million through a charge of that amount to earnings.
Third, as part of its ongoing business strategy that includes a periodic review of its branch network to maximize shareholder return, the Company closed or consolidated 14 branches during 2013, four during the first quarter of 2013 and ten during the third quarter of 2013. As part of these branch closures, the Company incurred various disposal costs during the year ended December 31, 2013, including personnel termination costs, contract termination costs, and fixed asset disposals. Total expenses for these closures were $6.9 million.
In 2013, the Company continued to experience growth in both income statement and balance sheet metrics. These areas of growth were driven by investments in markets and business lines. For the year, net interest income grew $8.5 million while non-interest income decreased $7.0 million. Non-covered loans grew by $1.4 billion, or 18.5%, during 2013 to $8.8 billion at December 31, 2013, while covered loans decreased by $373.0 million. The mix of deposits continued a shift to non-interest-bearing, which represented 24.0% of total deposits as of December 31, 2013, up from 18.3% at December 31, 2012. In 2013, the Companys liquidity, both on balance sheet and off balance sheet, continued to be favorable, exhibited by liquidity ratios that exceeded peer levels. The Company had cash of $391.4 million at December 31, 2013, and the Company has funding availability from the Federal Home Loan Bank (the FHLB) and correspondent bank lines to continue to meet cash flow needs. Additionally, its capital ratios were considerably in excess of well capitalized from a regulatory perspective and above peer levels, and its primary risk measures remained favorable. All of these factors allowed the Company to maintain its strategic positioning within the challenging banking environment and provided a strong base from which to continue to grow its balance sheet and remain positioned to provide currently anticipated increases in shareholder value in 2014.
During 2012, the Companys mortgage origination and title businesses delivered record years and helped to drive non-interest income growth over 2011. These two businesses continue to contribute to profitability in 2013, as mortgage sales volume decreased less than 3% from the twelve-month period of 2012. Title income was $20.5 million, down only 2.2% when compared to 2012. Additionally, the Companys investment in the trust and wealth management businesses continue to pay off, as brokerage commissions increased 21.5% over 2012. Overall, non-interest income decreased $7.0 million to $169.0 million for the year, a 4.0% decrease, and was driven by a decrease in total mortgage income of $13.9 million. The decrease in mortgage income was a result of the fair value adjustments on the Companys mortgage loan derivatives, and not a result of a significant reduction in originations and sales. Derivative adjustments were $14.3 million lower than in 2012.
In 2013, non-interest expense increased 9.5% from 2012. On a basis consistent with generally accepted accounting principles (GAAP), non-interest expenses for the year ended December 31, 2013 were $473.1 million, $40.9 million higher than 2012. The largest component of the increase was a $31.8 million impairment of the Companys FDIC loss share receivables during the first quarter of 2013, noted above. In addition to the impairment, the $6.9 million in branch closure costs also noted above contributed to the increase in non-interest expenses from the prior year. Non-interest expense, excluding the impairment and other non-operating items (non-GAAP, see table 3 below) totaled $428.5 million in 2013, an increase of $10.4 million versus the prior year. The increase in operating non-interest expense was a result of higher employee-related expenses as the Company continues growing its business lines. On a GAAP basis, non-interest expense increased due to the factors contributing to the increase in non-GAAP non-interest expense, but was offset by a reduction in merger-related expenses of $4.3 million.
The provision for loan losses decreased $15.5 million during 2013 compared to 2012, due primarily to an improvement in asset quality in the legacy portfolio over the past 12 months, but also from a reversal of provision to account for expected losses in the non-covered acquired loan portfolio.
All of these factors led net income available to common shareholders for the year ended December 31, 2013 to decrease $11.3 million to $2.20 per diluted share. Operating earnings (non-GAAP) for 2013 increased $10.9 million to $92.5 million, or $3.12 on a per share basis, a $0.38 increase per share.
Acquisition Activity
Over the past 14 years, the Companys growth has included growth from targeted acquisitions the Company determined would provide additional value to existing shareholders and be a strong strategic fit with the Company.
During 2012, the Company completed the acquisition of Florida Gulf Bancorp, Inc., the holding company of Florida Gulf Bank, headquartered in Fort Myers, Florida. The acquisition expanded the Companys presence in southwest Florida. In addition to the Florida Gulf acquisition, the Company has been an active acquirer over the previous ten years. From 2003 through 2012, the Company completed the following acquisitions, presented with selected assets and liabilities acquired and intangible assets created for each acquisition:
TABLE 2SUMMARY OF ACQUISITION ACTIVITY FROM 2003 TO 2012
Acquisition |
Acquisition
Date |
Total
Assets Acquired |
Total
Loans Acquired |
Total
Deposits Acquired |
Goodwill |
Other
Intangible Assets |
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Acadiana Bancshares, Inc. |
2003 | $ | 308.1 | $ | 189.6 | $ | 210.0 | $ | 24.1 | $ | 4.4 | |||||||||||||
Alliance Bank of Baton Rouge |
2004 | 71.7 | 53.1 | 61.8 | 5.2 | 1.2 | ||||||||||||||||||
American Horizons Bancorp, Inc. |
2005 | 243.8 | 194.7 | 192.7 | 28.1 | 5.0 | ||||||||||||||||||
Pocahontas Bancorp, Inc. |
2007 | 700.2 | 409.9 | 582.4 | 42.0 | 7.0 | ||||||||||||||||||
Pulaski Investment Corporation |
2007 | 477.2 | 367.7 | 422.6 | 92.4 | 10.9 | ||||||||||||||||||
United Title of Louisiana, Inc. |
2007 | 0.4 | | | 4.2 | 1.2 | ||||||||||||||||||
Kingdom Capital Management, Inc. |
2008 | 0.7 | | | 0.6 | | ||||||||||||||||||
American Abstract and Title Company |
2008 | 5.1 | | | 5.0 | |||||||||||||||||||
ANB Financial, N.A. |
2008 | 239.9 | 1.9 | 189.7 | | 1.9 | ||||||||||||||||||
CapitalSouth Bank |
2009 | 610.7 | 363.1 | 517.9 | | 0.4 | ||||||||||||||||||
Orion Bank |
2009 | 2,377.3 | 961.1 | 1,883.1 | | 10.4 | ||||||||||||||||||
Century Bank, FSB |
2009 | 812.0 | 417.6 | 615.8 | | 2.2 | ||||||||||||||||||
Sterling Bank |
2010 | 314.2 | 151.3 | 287.0 | 7.1 | 1.6 | ||||||||||||||||||
OMNI BANCSHARES, Inc. |
2011 | 745.3 | 441.4 | 635.6 | 63.8 | 0.8 | ||||||||||||||||||
Cameron Bancshares, Inc. |
2011 | 761.6 | 382.1 | 567.3 | 71.4 | 5.2 | ||||||||||||||||||
Florida Trust Company |
2011 | 1.4 | | | 0.1 | 1.3 | ||||||||||||||||||
Florida Gulf Bancorp, Inc. |
2012 | 339.7 | 215.8 | 286.0 | 32.4 | | ||||||||||||||||||
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Total Acquisitions, 2003-2012 |
$ | 8,009.3 | $ | 4,149.3 | $ | 6,451.9 | $ | 376.4 | $ | 53.5 | ||||||||||||||
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In addition to the Companys completed acquisitions in prior years, during the third quarter of 2013, the Company announced the signing of a definitive agreement to acquire the Memphis, Tennessee operations of Trust One Bank, a division of Synovus Bank. The acquisition was completed in the first quarter of 2014, and will expand the Companys presence in the Memphis market in 2014.
During the first quarter of 2014, the Company also announced the signing of a definitive agreement to acquire Teche Holding Company (Teche), the holding company for New Iberia, Louisiana-based Teche Federal Bank. The acquisition has been approved by the Board of Directors of each company and is expected to close in the second quarter of 2014. Completion of the acquisition is subject to customary closing conditions, including the receipt of required regulatory approvals and the approval of Teches shareholders. The proposed transaction would expand the Companys presence in the Acadiana region of Louisiana through the acquisition of 20 branches in the area.
Also during the first quarter of 2014, the Company announced the signing of a definitive agreement to acquire First Private Holdings, Inc. (First Private), the holding company of First Private Bank of Texas, a Dallas, Texas-based bank with two bank branches. Similar to the Teche acquisition, the transaction has also been approved by the Board of Directors of each company and is expected to close in the second quarter of 2014, and is also subject to customary closing conditions. The proposed transaction would expand the Companys presence into the Dallas, Texas market.
The Company believes these acquisitions, as well as a continued focus on high quality organic growth, improvements in efficiency, and development of fee-based businesses, will allow the Company to achieve its long-term objectives into 2014 and continue to improve long-term shareholder value.
FINANCIAL OVERVIEW
The Companys net income available to common shareholders for the year ended December 31, 2013 totaled $65.1 million, or $2.20 per diluted share, compared to $76.4 million, or $2.59 per diluted share, for 2012. On an operating basis (non-GAAP), per share earnings were $3.12 per share, up $0.38 from the $2.74 in operating earnings per share in 2012. Primary drivers of the increase in operating earnings over the prior year include the earnings from the net assets acquired from Florida Gulf, organic earning asset growth, and a decrease in income tax expense. Key components of the Companys 2013 performance are summarized below.
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Net interest income increased $8.5 million, or 2.2%, in 2013 when compared to 2012. This increase was attributable to a $16.5 million, or 26.0%, decrease in interest expense, but was offset partially by an $8.0 million decrease in interest income. Interest income was positively affected by a $903.0 million increase in average earning assets, due to both the full-year inclusion of Florida Gulf earning assets in the current year and the organic growth in loans since December 31, 2012. The increase in income due to growth in the Companys earning asset base was offset by a 38 basis point decline in the yield earned on these assets, primarily the result of a 46 basis point decrease in net loan yield. The net loan yield was negatively impacted by a 173 basis point decrease in the covered loan yield, driven by additional amortization on the loss share receivables. Compared to 2012, the Companys net interest margin ratio on a tax-equivalent basis decreased to 3.38% from 3.58% due to changes in the volume and mix of the Companys assets and liabilities, the increased amortization of the loss share receivables, and rate decreases driven by federal funds, Treasury, and other Company borrowing rate decreases during 2013. |
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Non-interest income totaled $169.0 million for 2013, a decrease of 4.0% when compared to 2012. The decrease was primarily driven by a decrease in the valuation of the Companys mortgage-related derivatives, and a lower margin on the sales of mortgage loans, both of which negatively impacted mortgage income. However, the Company had a $2.9 million increase in broker commissions, as well as an increase of $2.0 million in service charges that partially offset the mortgage income decrease between the two periods. |
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Non-interest expense increased $40.9 million from 2012 and was attributable primarily to the non-recurring items noted previously. Excluding these expenses, non-interest expenses increased primarily as a result of higher salary and employee benefit costs of $11.2 million and increased occupancy and equipment and other branch expenses resulting from the Companys expanded footprint. These increases were offset by decreases in numerous other non-interest expenses, including professional services, marketing and business development, OREO, travel, and credit-related expenses. |
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During 2013, the Company incurred costs associated with previously announced branch closures that affected the Companys net income and per-share earnings. The Company incurred these costs to improve its long-term operating efficiency, risk-adjusted profitability, and long-term growth prospects. The total cost of these initiatives, $6.9 million, affected total non-interest expense and is discussed in further detail in the Non-interest expense section below. On a per-share basis, the branch closure costs, which include fixed asset write-downs, accelerated depreciation, and severance expenses, affected diluted earnings per share for the year ended December 31, 2013 by $0.15. |
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The Company recorded a provision for loan losses of $5.1 million in 2013, $15.5 million below the provision recorded in 2012. The provision in 2013 was impacted by loan growth during the period, but was tempered by an overall improvement in the Companys asset quality, especially in its non-covered, non-acquired portfolio. The improvement in asset quality from December 31, 2012 has offset the need for a higher allowance for loan losses as a result of loan growth in 2013. As of December 31, 2013, the allowance for loan losses as a percent of total loans was 1.51%, compared to 2.96% at December 31, 2012, and was 52.5% of nonperforming loans at December 31, 2013, compared to 46.1% at the end of 2012. |
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The Company paid a quarterly cash dividend of $0.34 per common share in each quarter of 2013, resulting in dividends of $1.36 for the year-to-date period. These amounts were consistent with the dividends paid in 2012. |
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Total assets at December 31, 2013 were $13.4 billion, up $235.9 million, or 1.8%, from December 31, 2012. Non-covered loan growth of $1.4 billion across many of the Companys markets and $140.8 million in additional investment securities drove the increase in total assets. Offsetting these increases were decreases in cash held (which was used primarily to fund earning asset growth), covered assets, and the receivables associated with the indemnification agreements with the FDIC. Due to the impairment and amortization of the FDIC loss share receivable, as well as cash receipts from the FDIC, the balances decreased $260.8 million, or 61.6%, since December 31, 2012, and covered loans decreased $373.0 million since the end of 2012. |
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Total loans at December 31, 2013 were $9.5 billion, an increase of $993.4 million, or 11.7%, from $8.5 billion at December 31, 2012. As noted above, loan growth during 2013 was driven by an 18.5% increase in non-covered loans. Covered loans decreased 34.1% from December 31, 2012, as covered loans were paid down or charged-off and submitted for reimbursement. |
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Total customer deposits decreased $11.3 million, or less than 1%, to $10.7 billion at December 31, 2013. Non-interest-bearing deposits increased $608.3 million, or 30.9%, but that growth was offset by a decrease of $619.6 million in interest-bearing deposits. The decrease in the Companys interest-bearing deposits was primarily the result of a $443.6 million, or 20.6%, decrease in time deposits from December 31, 2012, the result of the Companys effort to prudently align the deposit base with liquidity needs. Interest-bearing demand deposits decreased $176.0 million, or 2.7%. Although deposit competition remained intense, the Company was able to generate growth across many of its deposit products. Organic deposit growth was driven by growth in the Companys Birmingham, Alabama, Baton Rouge, Louisiana, and Houston, Texas markets. |
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Shareholders equity increased $1.1 million, or less than 1% from year-end 2012. The increase was driven by net income of $65.1 million, but was offset by $40.4 million in dividends paid and a $41.0 million decrease in other comprehensive income, a result of the change in the unrealized gain in the Companys available for sale investment portfolio due to the decrease in interest rates at the end of the fourth quarter of 2013. |
The discussion and analysis below contains financial information determined by methods other than in accordance with GAAP. The Companys management uses these non-GAAP financial measures in their analysis of the Companys performance. These measures typically adjust GAAP performance measures to exclude the effects of the amortization of intangibles and include the tax benefit associated with revenue items that are tax-exempt, as well as adjust income available to common shareholders for certain significant activities or transactions that, in managements opinion, are infrequent in nature. Since the presentation of these GAAP performance measures and their impact differ between companies, management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results and metrics of the Companys core businesses. These non-GAAP disclosures should not be viewed as a substitute for operating results and metrics determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of GAAP to non-GAAP disclosures are included in the table below.
TABLE 3RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
2013 | 2012 | 2011 | ||||||||||||||||||||||||||||||||||
(Dollars in thousands, except per share amounts) |
Pre-tax | After-tax |
Per
share (1) |
Pre-tax | After-tax |
Per
share (1) |
Pre-tax | After-tax |
Per
share (1) |
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Net income (GAAP) |
$ | 80,972 | $ | 65,103 | $ | 2.20 | $ | 104,891 | $ | 76,395 | $ | 2.59 | $ | 70,519 | $ | 53,538 | $ | 1.87 | ||||||||||||||||||
Merger-related expenses |
783 | 509 | 0.02 | 5,123 | 3,330 | 0.10 | 15,975 | 10,383 | 0.36 | |||||||||||||||||||||||||||
Severance expenses |
2,538 | 1,649 | 0.05 | 2,355 | 1,530 | 0.05 | 2,332 | 1,516 | 0.05 | |||||||||||||||||||||||||||
Impairment of long-lived assets |
37,183 | 24,169 | 0.81 | 2,902 | 1,886 | 0.05 | | | | |||||||||||||||||||||||||||
Provision for FDIC clawback liability |
797 | 518 | 0.02 | | | | | | | |||||||||||||||||||||||||||
Debt prepayment |
2,307 | 1,500 | 0.05 | | | | | | | |||||||||||||||||||||||||||
Occupancy expenses and branch closure expenses |
1,275 | 829 | 0.03 | 836 | 544 | 0.02 | | | | |||||||||||||||||||||||||||
Termination of debit card rewards program |
139 | 90 | 0.00 | | | | | | | |||||||||||||||||||||||||||
Professional expenses and litigation settlement |
(480 | ) | (312 | ) | (0.01 | ) | 2,795 | 1,816 | 0.06 | 3,090 | 2,009 | 0.07 | ||||||||||||||||||||||||
Other noninterest income |
| | | (2,196 | ) | (1,427 | ) | (0.05 | ) | | | | ||||||||||||||||||||||||
(Gain) loss on sale of investments, net |
(2,334 | ) | (1,517 | ) | (0.05 | ) | (3,775 | ) | (2,453 | ) | (0.08 | ) | (3,475 | ) | (2,259 | ) | (0.08 | ) | ||||||||||||||||||
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Operating earnings (non-GAAP) |
123,180 | 92,538 | 3.12 | 112,931 | 81,621 | 2.74 | 88,441 | 65,187 | 2.27 | |||||||||||||||||||||||||||
Covered and acquired (reversal of) provision for loan losses |
(786 | ) | (511 | ) | (0.02 | ) | 16,867 | 10,964 | 0.37 | 5,893 | 3,830 | 0.13 | ||||||||||||||||||||||||
Other provision for loan losses |
5,932 | 3,856 | 0.13 | 3,804 | 2,472 | 0.08 | 19,974 | 12,983 | 0.45 | |||||||||||||||||||||||||||
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Pre-provision operating earnings (non-GAAP) |
$ | 128,326 | $ | 95,883 | $ | 3.23 | $ | 133,602 | $ | 95,057 | $ | 3.19 | $ | 114,308 | $ | 82,000 | $ | 2.86 | ||||||||||||||||||
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(1) | Per share amounts may not appear to foot due to rounding. |
(Dollars in thousands) | 2013 | 2012 | 2011 | |||||||||
Net interest income (GAAP) |
$ | 390,244 | $ | 381,750 | $ | 338,258 | ||||||
Add: Effect of tax benefit on interest income |
9,452 | 9,659 | 8,178 | |||||||||
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Net interest income (TE) (Non-GAAP) |
$ | 399,696 | $ | 391,409 | $ | 346,436 | ||||||
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Non-interest income (GAAP) |
$ | 168,958 | $ | 175,997 | $ | 131,859 | ||||||
Add: Effect of tax benefit on non-interest income |
1,964 | 1,981 | 1,775 | |||||||||
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Non-interest income (TE) (Non-GAAP) |
$ | 170,922 | $ | 177,978 | $ | 133,634 | ||||||
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Non-interest expense (GAAP) |
$ | 473,085 | $ | 432,185 | $ | 373,731 | ||||||
Less: Intangible amortization expense |
4,720 | 5,150 | 5,121 | |||||||||
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Tangible non-interest expense (Non-GAAP) |
$ | 468,365 | $ | 427,035 | $ | 368,610 | ||||||
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Net income (GAAP) |
$ | 65,103 | $ | 76,395 | $ | 53,538 | ||||||
Add: Effect of intangible amortization, net of tax |
3,068 | 3,348 | 3,328 | |||||||||
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Cash earnings (Non-GAAP) |
$ | 68,171 | $ | 79,743 | $ | 56,866 | ||||||
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Total assets (GAAP) |
$ | 13,365,550 | $ | 13,129,678 | $ | 11,757,928 | ||||||
Less: Intangible assets |
425,442 | 429,584 | 401,889 | |||||||||
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Total intangible assets (Non-GAAP) |
$ | 12,940,108 | $ | 12,700,094 | $ | 11,356,039 | ||||||
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Average assets (Non-GAAP) |
$ | 13,003,988 | $ | 12,096,972 | $ | 10,890,190 | ||||||
Less: Average intangible assets |
427,485 | 407,672 | 348,927 | |||||||||
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Total average tangible assets (Non-GAAP) |
$ | 12,576,503 | $ | 11,689,300 | $ | 10,541,263 | ||||||
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Total shareholders equity (GAAP) |
$ | 1,530,979 | $ | 1,529,868 | $ | 1,482,661 | ||||||
Less: intangible assets |
425,442 | 429,584 | 401,889 | |||||||||
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Total tangible shareholders equity (Non-GAAP) |
$ | 1,105,537 | $ | 1,100,284 | $ | 1,080,772 | ||||||
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Average shareholders equity (Non-GAAP) |
$ | 1,527,193 | $ | 1,513,517 | $ | 1,422,256 | ||||||
Less: Average intangible assets |
427,485 | 407,672 | 348,927 | |||||||||
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Average tangible shareholders equity (Non-GAAP) |
$ | 1,099,708 | $ | 1,105,845 | $ | 1,073,329 | ||||||
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Net income per common share diluted |
$ | 2.20 | $ | 2.59 | $ | 1.87 | ||||||
Add: Effect of intangible amortization, net of tax |
0.10 | 0.11 | 0.11 | |||||||||
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Cash earnings per share diluted (Non-GAAP) |
$ | 2.30 | $ | 2.70 | $ | 1.98 | ||||||
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Return on average common equity |
4.26 | % | 5.05 | % | 3.77 | % | ||||||
Add: Effect of intangibles |
1.94 | 2.16 | 1.53 | |||||||||
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Return on average tangible common equity (Non-GAAP) |
6.20 | % | 7.21 | % | 5.30 | % | ||||||
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Efficiency ratio |
84.6 | % | 77.5 | % | 79.5 | % | ||||||
Less: Effect of tax benefit related to tax-exempt income |
(1.7 | ) | (1.6 | ) | (1.7 | ) | ||||||
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Efficiency ratio (TE) (Non-GAAP) |
82.9 | 75.9 | 77.8 | |||||||||
Less: Effect of amortization of intangibles |
(0.8 | ) | (1.0 | ) | (1.1 | ) | ||||||
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Tangible efficiency ratio (TE) (Non-GAAP) |
82.1 | % | 74.9 | % | 76.7 | % | ||||||
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APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In preparing financial reports, management is required to apply significant judgment to various accounting, reporting and disclosure matters. Management must use assumptions and estimates to apply these principles where actual measurement is not possible or practical. The accounting principles and methods used by the Company conform with accounting principles generally accepted in the United States and general bank accounting practices. Estimates and assumptions most significant to the Company relate primarily to the calculation of the allowance for credit losses, the accounting for acquired loans and the related FDIC loss share receivable on covered loans, and the valuation of goodwill, intangible assets and other purchase accounting adjustments. These significant estimates and assumptions are summarized in the following discussion and are further analyzed in the footnotes to the consolidated financial statements.
Allowance for Credit Losses
The determination of the allowance for credit losses has two components, the allowance for legacy credit losses and the allowance for acquired credit losses. The allowance for acquired credit losses is calculated as described in the Accounting for Acquired Loans and Related FDIC Loss Share Receivable section below. The allowance for legacy credit losses, which represents managements estimate of probable losses inherent in the Companys legacy loan portfolio, involves a high degree of judgment and complexity. The Companys policy is to establish reserves through provisions for credit losses on the consolidated statements of comprehensive income for estimated losses on delinquent and other problem loans when it is determined that losses are expected to be incurred on such loans. Managements determination of the appropriateness of the allowance is based on various factors requiring judgments and estimates, including managements evaluation of the credit quality of the portfolio (determined through the assignment of risk ratings and assessments of past due status), past loss experience, current economic conditions, the volume and type of lending conducted by the Company, composition of the portfolio, the amount of the Companys classified assets, seasoning of the loan portfolio, the status of past due principal and interest payments, and other relevant factors. Two areas in which management exercises judgment are the assessment of risk ratings on the Companys commercial loan portfolio and the application of qualitative adjustments to the quantitative measurements across all portfolios. A one risk rating, instantaneous shift downwards (degradation) would increase the allowance for credit losses by $66.9 million. Similarly, a 10% change in the qualitative adjustments estimated by management would result in a $4.0 million change in the allowance for credit losses. Other changes in estimates may also have a significant impact on the consolidated financial statements. For further discussion of the allowance for credit losses, see the Asset Quality and Allowance for Credit Losses sections of this analysis and Note 1 and Note 7 of the footnotes to the consolidated financial statements.
Accounting for Acquired Loans, the Allowance for Acquired Credit Losses, and Related FDIC Loss Share Receivable
The Company accounts for its acquisitions under ASC Topic No. 805, Business Combinations , which requires the use of the purchase method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No allowance for credit losses related to the acquired loans is recorded on the acquisition date, as the fair value of the loans acquired incorporates assumptions regarding credit risk. Loans acquired are recorded on the acquisition date at fair value in accordance with the fair value methodology prescribed in ASC Topic No. 820, Fair Value Measurement, exclusive of the shared-loss agreements with the FDIC. These fair value estimates associated with acquired loans include estimates related to market interest rates and undiscounted projections of future cash flows that incorporate expectations of prepayments and the amount and timing of principal, interest and other cash flows, as well as any shortfalls thereof.
Over the life of the acquired loans, the Company continues to estimate the amount and timing of cash flows expected to be collected on individual loans or on pools of loans sharing common risk characteristics. These expected cash flow estimates are updated for new information on a quarterly basis. The Company performs a detailed credit review on a semi-annual basis. On a quarterly basis, the Company evaluates whether the present value of estimated future cash flows of its loans, determined using effective interest rates, have decreased and if so, recognizes provisions for credit losses in its consolidated statement of comprehensive income. For any increases in cash flows expected to be collected, the Company adjusts the amount of accretable yield recognized on a prospective basis over the respective loans or pools remaining life.
Because the FDIC reimburses the Company for losses on certain loans acquired in 2009 and 2010, indemnification assets were recorded at fair value as of the acquisition dates. The initial values of the indemnification assets were based on estimated cash flows to be received over the expected life of the acquired assets, not to exceed the term of the indemnification agreements. The loss sharing term of the Companys commercial and single family residential indemnification agreements are five years and ten years, respectively, from the date of acquisition.
Because the indemnification assets are measured on the same basis as the indemnified loans, subject to contractual and collectability limitations, the indemnification assets are impacted by changes in expected cash flows on covered assets. Increases in credit losses expected to occur within the loss share term are recorded as current period increases to the allowance for credit losses and increase the amount collectible from the FDIC by the applicable loss share percentage. Decreases in credit losses expected to occur within the loss share term reduce the amount collectible from the FDIC and increase the amount collectible from customers in the form of prospective accretion. Increases in the portion of indemnification asset collectible from customers are amortized to income. Periodic amortization represents the amount that is expected to result in symmetrical recognition of pool-level accretion and amortization over the shorter of 1) the life of the loans or 2) the life of the shared loss agreement.
The Company assesses the indemnification assets for collectability at the acquisition level based on three sources: 1) the FDIC, 2) OREO transactions, and 3) customers. Amounts collectible from the FDIC through loss reimbursements are comprised of losses currently expected within the loss share term. For certain covered assets, loss share coverage expires in the next 12 20 months. At December 31, 2013, the indemnification asset includes $17.9 million and $9.4 million related to these assets that are expected to be collected from the FDIC and OREO transactions, respectively. A current period impairment would be recorded to the extent that events or circumstances indicate that losses previously expected to occur within the loss share term are expected to occur subsequent to loss share termination. Amounts collectible through expected gains on the sale of OREO are written-up or impaired each period based on the best available information. Amounts collectible from customers in the form of accretion are deemed collectible to the extent that net acquisition-level yield, which primarily consists of accretion and indemnification asset amortization, is expected to remain positive over the life of the shared loss agreement. Impairment of amounts collectible from customers would be recorded as a current period charge to income, to the extent required to maintain the zero net yield floor.
Loss assumptions used to measure the basis of the indemnified loans are consistent with the loss assumptions used to measure the indemnification assets.
A claim receivable is established within Other assets on the Companys consolidated balance sheet when a loss is incurred and the indemnification asset is reduced when cash is received from the FDIC.
If expected loss severities for all acquired loans were to increase by 10%, the Company would recognize a gross expense to the provision for credit losses of $4.7 million, which would be offset by a decrease of $2.2 million in the FDIC loss share receivable. Similarly, if expected loss severities for all acquired loans were to decrease by 10%, the Company would recognize a gross decrease to the provision for credit losses of $2.3 million, which would be offset by an increase of $1.8 million in the FDIC loss share receivable.
For further discussion of the Companys acquisition and loan accounting, see Note 1 and Note 6 of the footnotes to the consolidated financial statements.
Valuation of Goodwill, Intangible Assets and Other Purchase Accounting Adjustments
The Company accounts for acquisitions in accordance with ASC Topic No. 805, which requires the use of the purchase method of accounting. For purchase acquisitions, the Company is required to record the assets acquired, including identified intangible assets, and liabilities assumed, at their fair value, which in many instances involves estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques. The determination of the useful lives of intangible assets is subjective, as is the appropriate amortization period for such intangible assets. In addition, purchase acquisitions typically result in recording goodwill.
The Company performs a goodwill evaluation at least annually. As part of its testing, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the results of the qualitative assessment indicate impairment, the Company determines the fair value of a reporting unit relative to its carrying amount to determine whether quantitative factors of impairment are present. When the Company determines that the fair value of the reporting unit is below its carrying amount, the Company determines the fair value of the reporting units assets and liabilities, considering deferred taxes, and then measures impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill. Based on managements assessment of the qualitative factors in its goodwill impairment tests, the Company concluded that the fair value of the Companys reporting unit was more likely than not above its carrying amount and accordingly did not recognize impairment in its tests of goodwill at October 1, 2013 or 2012. For additional information on goodwill and intangible assets, see Note 1 and Note 11 of the footnotes to the consolidated financial statements.
FINANCIAL CONDITION
EARNING ASSETS
Interest income associated with earning assets is the Companys primary source of income. Earning assets are composed of interest-earning or dividend-earning assets, including loans, securities, short-term investments and loans held for sale. Earning assets averaged $11.7 billion during 2013, a $903.0 million, or 8.3%, increase when compared to 2012. The increase from the prior year was primarily the result of the Companys loan growth during the past twelve months. The following discussion highlights the Companys major categories of earning assets.
The year-end mix of earning assets is shown in the following chart.
Loans and Leases
The Companys total loan portfolio increased $993.4 million, or 11.7%, to $9.5 billion at December 31, 2013, compared to $8.5 billion at December 31, 2012. The increase was driven by non-covered loan growth of $1.4 billion during the year, but was offset by a $373.0 million, or 34.1%, decrease in covered loans. By loan type, the increase was primarily from commercial loan growth of $694.2 million and consumer loan growth of $190.0 million during 2013, 11.3% and 10.3% higher, respectively, than at the end of 2012.
The major categories of loans outstanding at December 31, 2013 and 2012 are presented in the following tables, segregated into covered loans and non-covered loans, including non-covered loans acquired from OMNI, Cameron, and Florida Gulf. The carrying amount of the covered loans and loans acquired from OMNI, Cameron, and Florida Gulf consisted of loans accounted for in accordance with ASC Topic 310-30 (i.e., loans impaired at the time of acquisition) and loans subject to ASC Topic 310-30 by analogy only (i.e., loans performing at the time of acquisition) as detailed in the following table.
TABLE 4SUMMARY OF LOANS
December 31, 2013 | ||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Commercial | Mortgage | Consumer and Other | Total | ||||||||||||||||||||||||||||||||
Real Estate | Business |
1-4
Family |
Construction |
Indirect
automobile |
Home
Equity |
Credit
Card |
Other | |||||||||||||||||||||||||||||
Covered loans |
||||||||||||||||||||||||||||||||||||
Impaired (1) |
$ | 14,904 | $ | | $ | 28,223 | $ | | $ | | $ | 21,768 | $ | | $ | 1,182 | $ | 66,077 | ||||||||||||||||||
Performing (1) |
372,428 | 37,025 | 125,802 | | | 115,354 | 679 | 2,428 | 653,716 | |||||||||||||||||||||||||||
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Total covered loans |
387,332 | 37,025 | 154,025 | | | 137,122 | 679 | 3,610 | 719,793 | |||||||||||||||||||||||||||
Non-covered loans |
||||||||||||||||||||||||||||||||||||
Acquired |
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Impaired (1) |
12,240 | 30 | 126 | | 25 | 1,204 | | 158 | 13,783 | |||||||||||||||||||||||||||
Performing (1) |
332,829 | 53,007 | 18,009 | | 1,828 | 52,239 | | 12,210 | 470,122 | |||||||||||||||||||||||||||
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345,069 | 53,037 | 18,135 | | 1,853 | 53,443 | | 12,368 | 483,905 | ||||||||||||||||||||||||||||
Legacy loans |
3,134,904 | 2,906,051 | 404,922 | 9,450 | 373,383 | 1,101,227 | 63,642 | 294,742 | 8,288,321 | |||||||||||||||||||||||||||
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Total non-covered loans |
3,479,973 | 2,959,088 | 423,057 | 9,450 | 375,236 | 1,154,670 | 63,642 | 307,110 | 8,772,226 | |||||||||||||||||||||||||||
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Total |
$ | 3,867,305 | $ | 2,996,113 | $ | 577,082 | $ | 9,450 | $ | 375,236 | $ | 1,291,792 | $ | 64,321 | $ | 310,720 | $ | 9,492,019 | ||||||||||||||||||
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December 31, 2012 | ||||||||||||||||||||||||||||||||||||
Commercial | Mortgage | Consumer and Other | Total | |||||||||||||||||||||||||||||||||
Real Estate | Business |
1-4
Family |
Construction |
Indirect
automobile |
Home
Equity |
Credit
Card |
Other | |||||||||||||||||||||||||||||
Covered loans |
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Impaired (1) |
$ | 167,742 | $ | 2,757 | $ | 20,232 | $ | | $ | | $ | 22,094 | $ | | $ | 820 | $ | 213,645 | ||||||||||||||||||
Performing (1) |
473,101 | 84,294 | 166,932 | | | 152,118 | 906 | 1,760 | 879,111 | |||||||||||||||||||||||||||
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Total covered loans |
640,843 | 87,051 | 187,164 | | | 174,212 | 906 | 2,580 | 1,092,756 | |||||||||||||||||||||||||||
Non-covered loans |
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Acquired |
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Impaired (1) |
55,363 | 3,470 | 330 | | 68 | 4,649 | | 318 | 64,198 | |||||||||||||||||||||||||||
Performing (1) |
390,017 | 79,763 | 32,427 | | 4,951 | 71,626 | | 15,337 | 594,121 | |||||||||||||||||||||||||||
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445,380 | 83,233 | 32,757 | | 5,019 | 76,275 | | 15,655 | 658,319 | ||||||||||||||||||||||||||||
Legacy loans |
2,545,320 | 2,367,434 | 251,262 | 6,021 | 322,966 | 1,000,638 | 51,722 | 202,142 | 6,747,505 | |||||||||||||||||||||||||||
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Total non-covered loans |
2,990,700 | 2,450,667 | 284,019 | 6,021 | 327,985 | 1,076,913 | 51,722 | 217,797 | 7,405,824 | |||||||||||||||||||||||||||
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Total |
$ | 3,631,543 | $ | 2,537,718 | $ | 471,183 | $ | 6,021 | $ | 327,985 | $ | 1,251,125 | $ | 52,628 | $ | 220,377 | $ | 8,498,580 | ||||||||||||||||||
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(1) |
Loans in these categories were acquired with evidence of credit deterioration since origination. Accordingly, assumed credit losses at the purchase date were included in the balance acquired. |
Loan Portfolio Components
The Companys year-end loan portfolio is segregated into various components and markets in the following charts.
The Companys loan to deposit ratio at December 31, 2013 and 2012 was 88.4% and 79.1%, respectively. The percentage of fixed rate loans to total loans decreased slightly from 50.7% at the end of 2012 to 50.3% at December 31, 2013. The table below sets forth the composition of the Companys loan portfolio as of December 31 for the years indicated, followed by a discussion of activity by major loan type.
TABLE 5TOTAL LOANS BY LOAN TYPE
(Dollars in thousands) | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||
Commercial loans: |
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Real estate |
$ | 3,867,305 | 41 | % | $ | 3,631,543 | 43 | % | $ | 3,363,891 | 46 | % | $ | 2,647,107 | 44 | % | $ | 2,500,433 | 43 | % | ||||||||||||||||||||
Business |
2,996,113 | 31 | 2,537,718 | 30 | 2,005,234 | 27 | 1,515,856 | 25 | 1,217,326 | 21 | ||||||||||||||||||||||||||||||
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6,863,418 | 72 | 6,169,261 | 73 | 5,369,125 | 73 | 4,162,963 | 69 | 3,717,759 | 64 | |||||||||||||||||||||||||||||||
Mortgage loans: |
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Residential 1-4 family |
577,082 | 6 | 471,183 | 5 | 522,357 | 7 | 616,550 | 10 | 975,395 | 17 | ||||||||||||||||||||||||||||||
Construction/owner-occupied |
9,450 | | 6,021 | | 16,143 | | 14,822 | | 32,857 | 1 | ||||||||||||||||||||||||||||||
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586,532 | 6 | 477,204 | 5 | 538,500 | 7 | 631,372 | 10 | 1,008,252 | 18 | |||||||||||||||||||||||||||||||
Consumer loans: |
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Home equity |
1,291,792 | 14 | 1,251,125 | 15 | 1,019,110 | 14 | 834,840 | 14 | 649,821 | 11 | ||||||||||||||||||||||||||||||
Indirect automobile |
375,236 | 4 | 327,985 | 4 | 261,896 | 3 | 255,322 | 4 | 259,339 | 4 | ||||||||||||||||||||||||||||||
Other |
375,041 | 4 | 273,005 | 3 | 199,406 | 3 | 150,835 | 3 | 149,194 | 3 | ||||||||||||||||||||||||||||||
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2,042,069 | 22 | 1,852,115 | 22 | 1,480,412 | 20 | 1,240,997 | 21 | 1,058,354 | 18 | |||||||||||||||||||||||||||||||
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$ | 9,492,019 | 100 | % | $ | 8,498,580 | 100 | % | $ | 7,388,037 | 100 | % | $ | 6,035,332 | 100 | % | $ | 5,784,365 | 100 | % | |||||||||||||||||||||
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Commercial Loans
Commercial real estate and commercial business loans generally have shorter repayment periods and more frequent repricing opportunities than consumer and mortgage loans. Total commercial loans increased $694.2 million, or 11.3%, during 2013, with $997.7 million in non-covered loan growth and a decrease in covered commercial loans of $303.5 million, or 41.7%. The Company continued to attract and retain commercial customers in 2013 as commercial loans were 72% of the total loan portfolio at December 31, 2013. Unfunded commitments on commercial loans were $2.7 billion at December 31, 2013, an increase of $882.5 million when compared to the prior year.
The Companys investment in commercial real estate loans increased by $235.8 million during 2013, as growth was driven by an increase in non-covered commercial real estate loans of $489.3 million, or 16.4%. At December 31, 2013, commercial real estate loans totaled $3.9 billion, or 40.7% of the total loan portfolio, compared to 42.7% at December 31, 2012. The Companys underwriting standards generally provide for loan terms of three to five years, with amortization schedules of generally no more than twenty years. Low loan-to-value ratios are maintained and usually limited to no more than 80% at the time of origination. In addition, the Company obtains personal guarantees of the principals as additional security for most commercial real estate loans.
As of December 31, 2013, commercial business loans totaled $3.0 billion, or 31.6% of the Companys total loan portfolio. This represents a $458.4 million, or 18.1%, increase from December 31, 2012, and was the result of the Companys focused efforts to grow its small business loan portfolio. The Company originates commercial business loans on a secured and, to a lesser extent, unsecured basis. The Companys commercial business loans may be term loans or revolving lines of credit. Term loans are generally structured with terms of no more than three to five years, with amortization schedules of generally no more than seven years. Commercial business term loans are generally secured by equipment, machinery or other corporate assets. The Company also provides for revolving lines of credit generally structured as advances upon perfected security interests in accounts receivable and inventory. Revolving lines of credit generally have annual maturities. The Company obtains personal guarantees of the principals as additional security for most commercial business loans.
Non-covered commercial loans increased $997.7 million, or 18.3%, during 2013, with the Houston, Texas, Birmingham, Alabama, and Baton Rouge, Louisiana markets experiencing the largest growth in their commercial loan portfolios. On a market basis, growth in the non-covered portfolio was driven by the Companys Houston, Texas market, which grew its commercial loan portfolio $452.2 million, or 52.7%, since the end of 2012. Birmingham, Alabamas commercial loans grew $103.1 million, or 32.7%, while the Huntsville, Alabama market contributed loan growth of $53.3 million since December 31, 2012. In the Companys more mature markets, commercial loan growth was strongest in Baton Rouge, Louisiana, as that markets commercial loans grew $79.6 million, or 15.3%, during 2013.
TABLE 6COMMERCIAL LOANS BY STATE
(Dollars in thousands) | Louisiana | Florida | Alabama | Texas | Arkansas | Other | Total | |||||||||||||||||||||
2013 |
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Covered |
$ | | $ | 363,372 | $ | 60,985 | $ | | $ | | $ | | $ | 424,357 | ||||||||||||||
Non-Covered |
3,035,998 | 335,858 | 795,759 | 1,310,352 | 634,071 | 327,023 | 6,439,061 | |||||||||||||||||||||
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$ | 3,035,998 | $ | 699,230 | $ | 856,744 | $ | 1,310,352 | $ | 634,071 | $ | 327,023 | $ | 6,863,418 | |||||||||||||||
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2012 |
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Covered |
$ | | $ | 632,468 | $ | 95,426 | $ | | $ | | $ | | $ | 727,894 | ||||||||||||||
Non-Covered |
2,909,465 | 223,361 | 597,515 | 858,165 | 572,172 | 280,689 | 5,441,367 | |||||||||||||||||||||
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$ | 2,909,465 | $ | 855,829 | $ | 692,941 | $ | 858,165 | $ | 572,172 | $ | 280,689 | $ | 6,169,261 | |||||||||||||||
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Mortgage Loans
Residential 1-4 family loans comprise most of the Companys mortgage loans. The vast majority of the Companys residential 1-4 family mortgage loan portfolio is secured by properties located in its market areas and originated under terms and documentation that permit their sale in the secondary market. Larger mortgage loans of current and prospective private banking clients are generally retained to enhance relationships, but also tend to be more profitable due to the expected shorter durations and relatively lower servicing costs associated with loans of this size. The Company does not originate or hold high loan-to-value, negative amortization, option ARM, or other exotic mortgage loans in its portfolio. Beginning in the third quarter of 2012, the Company began to invest in loans that would be considered subprime (e.g., loans with a FICO score of less than 620) in order to ensure compliance with relevant regulations. The
Company expects to continue to invest in subprime loans through additional secondary market purchases, as well as direct originations, in 2014, albeit up to a limited amount. The total amount of subprime loans purchased or originated in 2013 was $46.8 million, of which $19.0 million is either directly or indirectly guaranteed by a United States Government Agency. At December 31, 2013, the Company had $116.6 million in subprime mortgage loans.
The Company continues to sell the majority of conforming mortgage loan originations in the secondary market on a servicing-released basis and recognize the associated fee income in earnings rather than assume the interest rate risk associated with these longer term assets. Upon the sale, the Company retains servicing on a limited portion of these loans. Total residential mortgage loans increased $109.3 million, or 22.9% compared to December 31, 2012, and was the result of the subprime loans the Company purchased from the secondary market during 2013. Offsetting these purchases were decreases in the Companys covered mortgage loans of $33.1 million and $14.6 million in acquired mortgage loans as existing loans were paid down and most of the new mortgage loan originations were sold.
Consumer and Credit Card Loans
The Company offers consumer loans in order to provide a full range of retail financial services to its customers. The Company originates substantially all of its consumer loans in its primary market areas. At December 31, 2013, $2.0 billion, or 21.5%, of the total loan portfolio was comprised of consumer loans, compared to $1.9 billion, or 21.8%, at the end of 2012. Total consumer loans increased $190.0 million from December 31, 2012, with 53.7% of the growth ($102.0 million) from personal loans (including credit card loans), with the remaining growth split between indirect automobile loans ($47.3 million) and home equity loans and lines of credit ($40.7 million).
Consistent with 2012, home equity loans comprised the largest component of the Companys consumer loan portfolio at December 31, 2013. The balance of home equity loans increased $40.7 million during the year to $1.3 billion at December 31, 2013. Non-covered home equity loans increased $77.8 million during 2013 as a result of the Companys continued focus on expanding its total consumer portfolio through its additional investment in its consumer business, as well as increased activity from its existing clients. The Companys sales and marketing efforts in 2013 have also contributed to the growth in non-covered home equity loans since December 31, 2012. Unfunded commitments related to home equity loans and lines were $514.3 million at December 31, 2013, an increase of $173.1 million versus the prior year. The Company has approximately $450.4 million of loans with junior liens where the Company does not hold or service the respective loan holding senior lien. The Company believes it has addressed the risks associated with these loans in its allowance for credit losses.
Indirect automobile loans comprised the second largest component of the Companys consumer loan portfolio. Independent automobile dealerships originate these loans based upon the Companys credit decisioning. The Company relies on the dealerships, in part, for loan qualifying information. To that extent, there is risk inherent in the Companys indirect automobile loan portfolio associated with fraud or negligence by the automobile dealership. To limit this risk, an emphasis is placed on established dealerships that have demonstrated reputable behavior, both within the communities the Company serves and through long-term relationships with the Company itself. Indirect automobile loans increased 14.4% during 2013, from $328.0 million at December 31, 2012 to $375.2 million, or 4.0% of the total loan portfolio. The organic growth in the Companys indirect automobile portfolio can be attributed to a couple of primary factors. In 2012, the Company began to sign new dealers after limiting new business during the previous years due to a weakened economy. In addition, the Company has adjusted its interest rates on these loans to be more aligned with its competitors, which has provided the Company an opportunity to recapture some market share.
The Companys credit card loans totaled $64.3 million at December 31, 2013, a 22.2% increase from the end of 2012. The increase in credit card loans was the result of an increase in usage by customers at the end of the quarter. Year-to-date average credit card balances have increased from $48.0 million in 2012 to $55.4 million in 2013, a 15.6% increase.
The remainder of the consumer loan portfolio at December 31, 2013 consisted of direct automobile loans and other personal loans, and comprised 3.3% of the overall loan portfolio. At the end of 2013, the Companys direct automobile loans totaled $92.8 million, a $32.5 million increase over December 31, 2012, and the Companys other personal consumer loans were $217.9 million, a 36.1% increase from December 31, 2012, primarily a result of installment loans and personal lines of credit. Additional information on the Companys consumer loan portfolio is presented in the following tables. For the purposes of Table 8, unscoreable consumer loans have been included with loans with FICO scores below 660. FICO scores reflect information available as of the dates indicated.
TABLE 7CONSUMER LOANS BY STATE
(Dollars in thousands) | Louisiana | Florida | Alabama | Texas | Arkansas | Other | Total | |||||||||||||||||||||
2013 |
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Covered |
$ | | $ | 132,174 | $ | 9,237 | $ | | $ | | $ | | $ | 141,411 | ||||||||||||||
Non-Covered |
836,814 | 101,041 | 197,104 | 65,574 | 205,585 | 494,540 | 1,900,658 | |||||||||||||||||||||
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$ | 836,814 | $ | 233,215 | $ | 206,341 | $ | 65,574 | $ | 205,585 | $ | 494,540 | $ | 2,042,069 | |||||||||||||||
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2012 |
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Covered |
$ | | $ | 166,869 | $ | 10,829 | $ | | $ | | $ | | $ | 177,698 | ||||||||||||||
Non-Covered |
767,453 | 71,014 | 164,000 | 48,396 | 183,256 | 440,298 | 1,674,417 | |||||||||||||||||||||
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$ | 767,453 | $ | 237,883 | $ | 174,829 | $ | 48,396 | $ | 183,256 | $ | 440,298 | $ | 1,852,115 | |||||||||||||||
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TABLE 8CONSUMER LOANS BY FICO SCORE
(Dollars in thousands) | Below 660 | 660-720 | Above 720 | Discount | Total | |||||||||||||||
2013 |
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Covered |
$ | 68,333 | $ | 35,628 | $ | 76,500 | $ | (39,050 | ) | $ | 141,411 | |||||||||
Non-Covered |
345,143 | 484,927 | 1,077,692 | (7,104 | ) | 1,900,658 | ||||||||||||||
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$ | 413,476 | $ | 520,555 | $ | 1,154,192 | $ | (46,154 | ) | $ | 2,042,069 | ||||||||||
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2012 |
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Covered |
$ | 103,029 | $ | 41,966 | $ | 93,314 | $ | (60,611 | ) | $ | 177,698 | |||||||||
Non-Covered |
376,682 | 372,046 | 936,992 | (11,303 | ) | 1,674,417 | ||||||||||||||
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$ | 479,711 | $ | 414,012 | $ | 1,030,306 | $ | (71,914 | ) | $ | 1,852,115 | ||||||||||
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Loan Maturities
The following table sets forth the scheduled contractual maturities of the Companys total loan portfolio at December 31, 2013, unadjusted for scheduled principal reductions, prepayments or repricing opportunities. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdraft loans are reported as due in one year or less. The average life of a loan may be substantially less than the contractual terms because of prepayments. As a result, scheduled contractual amortization of loans is not reflective of the expected term of the Companys loan portfolio. Of the loans with maturities greater than one year, approximately 77.1% of the balance of these loans bears a fixed rate of interest.
TABLE 9LOAN MATURITIES BY LOAN TYPE
(Dollars in thousands) |
One Year
or Less |
One Through
Five Years |
After
Five Years |
Total | ||||||||||||
Commercial real estate |
$ | 1,599,616 | $ | 1,472,582 | $ | 795,107 | $ | 3,867,305 | ||||||||
Commercial other |
1,292,747 | 1,245,910 | 457,456 | 2,996,113 | ||||||||||||
Mortgage residential 1-4 family |
143,337 | 88,130 | 345,615 | 577,082 | ||||||||||||
Mortgage construction |
554 | | 8,896 | 9,450 | ||||||||||||
Consumer |
915,999 | 462,610 | 663,460 | 2,042,069 | ||||||||||||
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Total loans |
$ | 3,952,253 | $ | 3,269,232 | $ | 2,270,534 | $ | 9,492,019 | ||||||||
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Mortgage Loans Held for Sale
Loans held for sale decreased $139.0 million, or 52.0%, to $128.4 million at December 31, 2013. The decrease in the balance during 2013 was a result of an increase in sales activity during the current year and an overall slowdown of origination and refinance activities. In 2013, the Company originated $2.1 billion in mortgage loans, offset by sales of $2.3 billion.
Loans held for sale have primarily been fixed-rate single-family residential mortgage loans under contracts to be sold in the secondary market. In most cases, loans in this category are sold within thirty days of closing. Buyers generally have recourse to return a purchased loan to the Company under limited circumstances. Recourse conditions may include fraud in the origination, breach of representations or warranties, and documentation deficiencies. At December 31, 2013, the Company had $5.6 million in loans that have recourse conditions for which buyers have notified the Company of potential recourse action. The Company has recorded a reserve of $2.4 million for potential repurchases at December 31, 2013. However, an insignificant number of loans have been returned to the Company.
Asset Quality
The Companys loan portfolio has gradually transitioned from that of a thrift to resemble portfolios held by commercial banks. This transition brings the potential for increased risks in the form of potentially higher levels of charge-offs and nonperforming assets, and increased rewards in the form of potentially increased levels of shareholder returns. As the risks within the loan portfolio have evolved, management has responded by tightening underwriting guidelines and procedures, implementing more conservative loan charge-off and nonaccrual guidelines, revising loan policies and developing an internal loan review function. As a result of managements enhancements to underwriting loan risk/return dynamics, the credit quality of the loan portfolio has remained favorable when compared to peers. Management believes that it has demonstrated proficiency in managing credit risk through timely identification of significant problem loans, prompt corrective action, and transparent disclosure. Overall asset quality improved during 2013, primarily as a result of decreases in the number and amount of past due loans and nonperforming assets. Consistent with prior years, the assets and liabilities purchased and assumed through the Companys four failed bank acquisitions continue to have a disproportionate impact on overall asset quality. The Company continues to closely monitor the risk-adjusted level of return within the loan portfolio.
Written underwriting standards established by the Board of Directors and management govern the lending activities of the Company. The commercial credit department, in conjunction with senior lending personnel, underwrites all commercial business and commercial real estate loans. The Company provides centralized underwriting of all residential mortgage, construction and consumer loans. Established loan origination procedures require appropriate documentation, including financial data and credit reports. For loans secured by real property, the Company generally requires property appraisals, title insurance or a title opinion, hazard insurance, and flood insurance, where appropriate.
Loan payment performance is monitored and late charges are assessed on past due accounts. A centralized department administers delinquent loans. Every effort is made to minimize any potential loss, including instituting legal proceedings as necessary. Commercial loans are periodically reviewed through a loan review process to provide an independent assessment of a loans risks. All other loans are also subject to loan reviews through a periodic sampling process. The Company exercises significant judgment in determining the risk classification of its commercial loans.
The Company utilizes an asset risk classification system in accordance with guidelines established by the FRB as part of its efforts to monitor commercial asset quality. In connection with their examinations of insured institutions, both federal and state examiners also
have the authority to identify problem assets and, if appropriate, reclassify them. There are three classifications for problem assets: substandard, doubtful and loss, all of which are considered adverse classifications. Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the Company will sustain some loss if the weaknesses are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full questionable, and there is a high probability of loss based on currently existing facts, conditions and values. An asset classified as loss is considered not collectable and of such little value that continuance as an asset of the Company is not warranted. Commercial loans with adverse classifications are reviewed by the Board Risk Committee of the Board of Directors periodically. Loans are placed on nonaccrual status when they are 90 days or more past due unless, in the judgment of management, the probability of timely collection of interest is deemed to be sufficient to warrant further accrual. When a loan is placed on nonaccrual status, the accrual of interest income ceases and accrued but unpaid interest attributable to the current year is reversed against interest income. Accrued interest receivable attributable to the prior year is recorded as a charge-off to the allowance for credit losses.
Real estate acquired by the Company through foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned (OREO), and is recorded at the lesser of the related loan balance (the pro-rata carrying value for acquired loans) or estimated fair value less estimated costs to sell.
Under generally accepted accounting principles, certain loan modifications or restructurings are designated as troubled debt restructurings (TDRs). In general, the modification or restructuring of a debt constitutes a TDR if the Company, for economic or legal reasons related to the borrowers financial difficulties, grants a concession to the borrower that the Company would not otherwise consider under current market conditions.
Nonperforming Assets
The Company defines nonperforming assets as nonaccrual loans, accruing loans more than 90 days past due, OREO and foreclosed property. Management continually monitors loans and transfers loans to nonaccrual status when warranted.
Loans acquired through failed bank acquisitions, referred to as covered loans, are covered by loss sharing agreements with the FDIC, whereby the FDIC reimburses the Company for the majority of the losses incurred during the loss share claim period. Acquisition date fair values of loans covered by loss sharing agreements were determined without regard to the loss sharing agreements. In addition to covered loans, the Company also accounts for other loans acquired with deteriorated credit quality, as well as all loans acquired with significant discounts that did not exhibit deteriorated credit quality at acquisition, in accordance with ASC 310-30. Collectively, all loans accounted for under ASC 310-30 are referred to as purchased impaired loans. Application of ASC 310-30 results in significant accounting differences, compared to loans originated or acquired by the Company that are not accounted for under ASC 310-30. At acquisition, purchased impaired loans were individually evaluated and assigned to loan pools based on common risk characteristics, which included loan performance at the time of acquisition, loan type based on regulatory reporting guidelines, and/or the nature of collateral. The acquisition date fair values of each pool were estimated based on the expected cash flows of the underlying loans. Certain loan level information, including outstanding principal balance, maturity, term to re-price (if a variable rate loan), and interest rate were used to estimate the expected cash flows for each loan pool. ASC 310-30 does not permit carry over or recognition of an allowance for credit losses at acquisition. Credit quality deterioration, also referred to as credit losses, evident at acquisition with individual loans was reflected in the acquisition date fair value through the reduction of cash flows expected to be received over the life of loans. A provision for credit losses is recognized and an allowance for credit losses is recorded subsequent to acquisition to the extent that re-estimated expected losses exceed losses estimated at acquisition. Purchased impaired loans were considered to be performing as of the acquisition date regardless of their past due status based on their contractual terms. In accordance with regulatory reporting guidelines, purchased impaired loans that are contractually past due are reported as past due and accruing based on the number of days past due.
Due to the significant difference in accounting for covered loans and the related FDIC loss sharing agreements, as well as non-covered acquired loans accounted for as purchased impaired loans, and given the significant amount of acquired impaired loans that are past due but still accruing, the Company believes inclusion of these loans in certain asset quality ratios that reflect nonperforming assets in the numerator or denominator (or both) results in significant distortion to these ratios. In addition, because loan level charge-offs related to purchased impaired loans are not recognized in the financial statements until the cumulative amounts exceed the original loss projections on a pool basis, the net charge-off ratio for acquired loans is not consistent with the net charge-off ratio for other loan portfolios. The inclusion of these loans in certain asset quality ratios could result in a lack of comparability across quarters or years, and could impact comparability with other portfolios that were not impacted by purchased impaired loan accounting. The Company believes that the presentation of certain asset quality measures excluding either covered loans or all purchased impaired loans, as indicated below, and related amounts from both the numerator and denominator provides better perspective into underlying trends related to the quality of its loan portfolio. Accordingly, the asset quality measures in the tables below present asset quality information excluding either covered loans or all purchased impaired loans, as indicated within each table, and related amounts.
Nonperforming assets excluding acquired loans decreased $2.6 million, or 3.5%, compared to December 31, 2012. A $1.9 million increase in OREO was offset by a $4.2 million decrease in nonaccrual loans and a $0.3 million decrease in accruing loans 90 days or more past due. Including TDRs that are in compliance with their modified terms, total nonperforming assets and TDRs decreased $3.6 million over the past twelve months.
The following table sets forth the composition of the Companys non-covered nonperforming assets, including accruing loans past due 90 or more days and TDRs, as of December 31, 2013 and 2012.
TABLE 10NONPERFORMING ASSETS AND TROUBLED DEBT RESTRUCTURINGS
(EXCLUDING ACQUIRED LOANS)
(Dollars in thousands) | 2013 | 2012 | Increase (Decrease) | |||||||||||||
Nonaccrual loans: |
||||||||||||||||
Commercial and business banking |
$ | 24,471 | $ | 32,313 | $ | (7,842 | ) | (24.3 | )% | |||||||
Mortgage |
10,237 | 8,367 | 1,870 | 22.4 | ||||||||||||
Consumer and credit card |
8,979 | 7,237 | 1,742 | 24.1 | ||||||||||||
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Total nonaccrual loans |
43,687 | 47,917 | (4,230 | ) | (8.8 | ) | ||||||||||
Accruing loans 90 days or more past due |
1,075 | 1,371 | (296 | ) | (21.6 | ) | ||||||||||
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Total nonperforming loans (1) |
44,762 | 49,288 | (4,526 | ) | (9.2 | ) | ||||||||||
OREO and foreclosed property (2) |
28,272 | 26,380 | 1,892 | 7.2 | ||||||||||||
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Total nonperforming assets (1) |
73,034 | 75,668 | (2,634 | ) | (3.5 | ) | ||||||||||
Troubled debt restructuring in compliance with modified terms (3) |
1,376 | 2,354 | (978 | ) | (41.5 | ) | ||||||||||
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Total nonperforming assets and troubled debt restructurings (1) |
$ | 74,410 | $ | 78,022 | $ | (3,612 | ) | (4.6 | )% | |||||||
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Nonperforming loans to total loans (1) (4) |
0.54 | % | 0.73 | % | ||||||||||||
Nonperforming assets to total assets (1) (4) |
0.61 | 0.69 | ||||||||||||||
Nonperforming assets and troubled debt restructurings to total assets (1) (4) |
0.62 | 0.71 | ||||||||||||||
Allowance for credit losses to nonperforming loans (4) (5) |
175.26 | 150.57 | ||||||||||||||
Allowance for credit losses to total loans (4) (5) |
0.95 | 1.10 |
(1) |
Nonperforming loans and assets include accruing loans 90 days or more past due. |
(2) |
OREO and foreclosed property at December 31, 2013 and 2012 include $9,206,000 and $9,199,000, respectively, of former bank properties held for development or resale. |
(3) |
Troubled debt restructurings in compliance with modified terms for December 31, 2013 and 2012 do not include $18,501,000 and $15,356,000 in troubled debt restructurings included in total nonaccrual loans above. |
(4) |
Total loans, total nonperforming loans, and total assets exclude loans and assets covered by FDIC loss share agreements and acquired loans discussed below. |
(5) |
The allowance for credit losses excludes the portion of the allowance related to covered loans and acquired non-covered loans discussed below. |
(Dollars in thousands) | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Nonaccrual loans: |
||||||||||||||||||||
Commercial and business banking |
$ | 24,471 | $ | 32,313 | $ | 42,655 | $ | 35,457 | $ | 31,029 | ||||||||||
Mortgage |
10,237 | 8,367 | 4,910 | 5,917 | 3,314 | |||||||||||||||
Consumer and credit card |
8,979 | 7,237 | 6,889 | 8,122 | 5,504 | |||||||||||||||
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Total nonaccrual loans |
43,687 | 47,917 | 54,454 | 49,496 | 39,847 | |||||||||||||||
Accruing loans 90 days or more past due |
1,075 | 1,371 | 1,841 | 1,455 | 4,960 | |||||||||||||||
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Total nonperforming loans |
44,762 | 49,288 | 56,295 | 50,951 | 44,807 | |||||||||||||||
OREO and foreclosed property |
28,272 | 26,380 | 21,382 | 18,496 | 15,281 | |||||||||||||||
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Total nonperforming assets |
73,034 | 75,668 | 77,677 | 69,447 | 60,088 | |||||||||||||||
Troubled debt restructuring in compliance with modified terms |
1,376 | 2,354 | 55 | 14,968 | | |||||||||||||||
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Total nonperforming assets and troubled debt restructurings |
$ | 74,410 | $ | 78,022 | $ | 77,732 | $ | 84,415 | $ | 60,088 | ||||||||||
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Nonperforming loans to total loans |
0.54 | % | 0.73 | % | 1.05 | % | 1.14 | % | 1.09 | % | ||||||||||
Nonperforming assets to total assets |
0.61 | % | 0.69 | % | 0.86 | % | 0.91 | % | 0.91 | % | ||||||||||
Nonperforming assets and troubled debt restructurings to total assets |
0.62 | % | 0.71 | % | 0.86 | % | 1.10 | % | 0.91 | % | ||||||||||
Allowance for credit losses to nonperforming loans |
175.26 | % | 150.57 | % | 132.98 | % | 122.59 | % | 124.14 | % | ||||||||||
Allowance for credit losses to total loans |
0.95 | % | 1.10 | % | 1.40 | % | 1.40 | % | 1.36 | % |
Nonperforming loans were 0.54% of total legacy loans at December 31, 2013, 19 basis points lower than at December 31, 2012. If covered loans and acquired loans accounted for in pools that meet nonperforming criteria are included, nonperforming loans were 2.87% of total loans at December 31, 2013 and 6.42% at December 31, 2012. The allowance for credit losses as a percentage of nonperforming loans was 175.3% at December 31, 2013 and 150.6% at December 31, 2012. Including covered loans and pooled loans, the allowance as a percentage of total loans was 1.51% at December 31, 2013 and 2.96% at December 31, 2012.
Nonperforming assets as a percentage of total assets have remained at relatively low levels. Total nonperforming assets were 0.61% of non-covered, non-acquired assets at December 31, 2013, eight basis points below December 31, 2012. Consistent with the overall improvement in asset quality, the Companys reserve for credit losses as a percentage of loans, excluding reserves for acquired loans, decreased 15 basis points from 2012 to 0.95% at December 31, 2013.
Loans defined as TDRs not included in nonperforming assets decreased to $1.4 million at the end of 2013. Total legacy TDRs totaled $19.9 million at December 31, 2013, $2.2 million, or 12.2%, higher than at December 31, 2012. One shared national credit totaling $10.4 million and three other credits totaling $2.5 million were added to TDRs during 2013, but these additions were offset by loan payments and charge-offs during the current year.
The Company had gross charge-offs on non-acquired loans of $10.7 million during the year ended December 31, 2013. Offsetting these charge-offs were recoveries of $6.8 million. As a result, net charge-offs on non-covered loans during 2013 were $3.9 million, or 0.04% of average loans, as compared to net charge-offs of $4.5 million, or 0.07%, for 2012.
At December 31, 2013, excluding loans covered by the FDIC loss share agreements (see Covered Loans below), the Company had $147.7 million of assets classified as substandard, $1.2 million of assets classified as doubtful, and no assets classified as loss (before the application of loan discounts to acquired loans). Accordingly, the aggregate of the Companys classified assets was 1.11% of total assets, 1.57% of total loans, and 1.70% of non-covered loans. At December 31, 2012, classified assets totaled $231.6 million, or 1.98% of total assets, 2.72% of total loans, and 3.13% of non-covered loans. The decrease in classified assets is consistent with the overall improvement in asset quality since December 31, 2012. As with non-classified assets, a reserve for credit losses has been recorded for all substandard loans at December 31, 2013 according to the Companys allowance policy.
In addition to the problem loans described above, excluding covered loans, there were $67.1 million of loans classified as special mention at December 31, 2013, which in managements opinion were subject to potential future rating downgrades. Special mention
loans are defined as loans where known information about possible credit problems of the borrowers cause management to have some doubt as to the ability of these borrowers to comply with the present loan repayment terms, which may result in future disclosure of these loans as nonperforming. Special mention loans decreased $55.0 million, or 45.1%, from December 31, 2012, which is consistent with the general improvement in the Companys asset quality.
Past Due Loans
Past due status is based on the contractual terms of loans. The majority of the Companys non-covered portfolio exhibited an improvement in past due status from the end of the previous year.
At December 31, 2013, total past due loans excluding covered loans were 1.25% of total loans, a decrease of 46 basis points from December 31, 2012. Including covered loans, loans past due 30 days or more were 3.24% of total loans before discount adjustments at December 31, 2013 and 6.76% at December 31, 2012. Past due non-covered loans (including nonaccrual loans) decreased $18.6 million, or 14.6%, from December 31, 2012, and can be attributed to lower levels of nonaccrual loans and loans past due more than 90 days. Additional information on non-covered past due loans is presented in the following table.
TABLE 11PAST DUE NON-COVERED LOAN SEGREGATION
December 31, 2013 | ||||||||||||||||||||||||
Non-acquired | Acquired | Total | ||||||||||||||||||||||
(Dollars in thousands) | Amount |
% of
Outstanding Balance |
Amount |
% of
Outstanding Balance |
Amount |
% of
Outstanding Balance |
||||||||||||||||||
Accruing loans: |
||||||||||||||||||||||||
30-59 days past due |
$ | 13,426 | 0.16 | % | $ | 3,251 | 0.67 | % | $ | 16,677 | 0.19 | % | ||||||||||||
60-89 days past due |
7,965 | 0.10 | 2,580 | 0.53 | 10,545 | 0.12 | ||||||||||||||||||
90-119 days past due |
108 | 0.00 | 103 | 0.02 | 211 | 0.00 | ||||||||||||||||||
120 days past due or more |
967 | 0.01 | 437 | 0.09 | 1,404 | 0.02 | ||||||||||||||||||
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|
|
|||||||||||||
22,466 | 0.27 | 6,371 | 1.32 | 28,837 | 0.33 | |||||||||||||||||||
Nonaccrual loans (1) |
43,687 | 0.53 | 36,725 | 7.59 | 80,412 | 0.92 | ||||||||||||||||||
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|
|||||||||||||
$ | 66,153 | 0.80 | % | $ | 43,096 | 8.91 | % | $ | 109,249 | 1.25 | % | |||||||||||||
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|
December 31, 2012 | ||||||||||||||||||||||||
Non-acquired | Acquired | Total | ||||||||||||||||||||||
(Dollars in thousands) | Amount |
% of
Outstanding Balance |
Amount |
% of
Outstanding Balance |
Amount |
% of
Outstanding Balance |
||||||||||||||||||
Accruing loans: |
||||||||||||||||||||||||
30-59 days past due |
$ | 10,345 | 0.15 | % | $ | 10,502 | 1.42 | % | $ | 20,847 | 0.28 | % | ||||||||||||
60-89 days past due |
2,447 | 0.04 | 2,499 | 0.34 | 4,946 | 0.07 | ||||||||||||||||||
90-119 days past due |
489 | 0.01 | 82 | 0.01 | 571 | 0.01 | ||||||||||||||||||
120 days past due or more |
883 | 0.01 | 323 | 0.04 | 1,206 | 0.02 | ||||||||||||||||||
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|||||||||||||
14,164 | 0.21 | 13,406 | 1.81 | 27,570 | 0.37 | |||||||||||||||||||
Nonaccrual loans (1) |
47,917 | 0.71 | 52,376 | 7.06 | 100,293 | 1.34 | ||||||||||||||||||
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|||||||||||||
$ | 62,081 | 0.92 | % | $ | 65,782 | 8.87 | % | $ | 127,863 | 1.71 | % | |||||||||||||
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(1) |
For acquired loans, balance represents the outstanding balance of loans that would otherwise meet the Companys definition of nonaccrual loans. |
The $18.6 million decrease in non-covered past due loans was the result of a $19.9 million decrease in nonaccrual loans, partially offset by a $1.3 million increase in accruing loans past due. Commercial nonaccrual loans decreased $23.0 million, or 29.2%, while mortgage nonaccrual loans increased $1.3 million and consumer nonaccrual loans increased $1.8 million, or 14.9%, since December 31, 2012. The
increase in mortgage and consumer nonaccrual loans was a result of the placement of past due consumer loans on nonaccrual status during 2013 in response to their continued past due status. The movement of these loans to nonaccrual status in the current year helped to drive the decrease in accruing consumer loans past due to $6.5 million at December 31, 2013, from $9.2 million at December 31, 2012, a 28.9% decrease.
In the non-covered commercial loan portfolio, total accruing loans past due increased $3.5 million, or 22.3%, from December 31, 2012. Two credits totaling $5.3 million were past due less than 90 days at December 31, 2013 and led to the increase over the end of 2012. Total non-covered mortgage loans past due increased $0.4 million during 2013, with 64.6% due less than 90 days and 36.5% past due less than 60 days. At December 31, 2012, those percentages were 69.4% and 25.3%, respectively. Management is continually monitoring the past due status of these mortgage loans for indicators of overall asset quality issues.
Covered Loans
The loans and foreclosed real estate that were acquired in the CSB, Orion, Century, and Sterling acquisitions in 2009 and 2010 are covered by loss share agreements between the FDIC and IBERIABANK, which afford IBERIABANK loss protection. As a result of the loss protection provided by the FDIC, the risk of loss on the acquired loans and foreclosed real estate can be significantly different from those assets not covered under the loss share agreements.
As described above, covered assets were recorded at their acquisition date fair values.
Although covered loans are not included in the Companys nonperforming assets, in accordance with bank regulatory reporting standards, both acquired loans considered impaired at the time of acquisition and those performing at the time of acquisition that meet the Companys definition of a nonperforming loan at each balance sheet date are discussed below. Included in the discussion are all covered loans that are contractually past due based on the number of days past due. Certain measures of the asset quality of covered loans are discussed below. Loan balances are reported before consideration of applied loan discounts, as these discounts were recorded based on the estimated cash flow of the total loan pool and not on a specific loan basis. The loss share agreements with the FDIC limit the Companys exposure to loss during the loss claim period to no more than 20% of incurred losses for all covered loans and as little as 5% of incurred losses for certain loans. Therefore, balances discussed below are for general comparative purposes only and do not represent the Companys risk of loss on covered assets.
TABLE 12PAST DUE COVERED LOAN SEGREGATION
December 31, 2013 | December 31, 2012 | |||||||||||||||
(Dollars in thousands) | Amount |
% of
Outstanding Balance |
Amount |
% of
Outstanding Balance |
||||||||||||
Accruing loans: |
||||||||||||||||
30-59 days past due |
$ | 8,474 | 1.01 | % | $ | 14,799 | 1.16 | % | ||||||||
60-89 days past due |
5,222 | 0.62 | 7,303 | 0.57 | ||||||||||||
90-119 days past due |
579 | 0.07 | 2,376 | 0.18 | ||||||||||||
120 days past due or more |
| | 252 | 0.02 | ||||||||||||
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|
|||||||||
Total accruing loans |
14,275 | 1.70 | 24,730 | 1.93 | ||||||||||||
Nonaccrual loans (1) |
190,016 | 22.68 | 440,575 | 34.40 | ||||||||||||
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|
|||||||||
Total past due loans |
$ | 204,291 | 24.38 | % | $ | 465,305 | 36.33 | % | ||||||||
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|
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|
|
(1) |
For covered loans, balance represents the outstanding balance of loans that would otherwise meet the Companys definition of nonaccrual loans. |
Total covered loans past due at December 31, 2013 totaled $204.3 million before discounts, a decrease of $261.0 million, or 56.1%, from December 31, 2012. The decrease is consistent with not only the overall decrease in the covered loan portfolio, but also with the steady improvement in asset quality in the covered loan portfolio over time. Past due loans at the end of 2013 included $190.0 million in loans that would otherwise meet the Companys definition of nonaccrual loans and $14.3 million in accruing loans past due greater than 30 days. Of the $14.3 million in accruing loans past due, $13.7 million, or 95.9%, were past due less than 90 days. The indemnification agreements on covered assets include a provision for recapture of a portion of interest if the interest is included in total losses on the covered asset.
Of the $261.0 million decrease in covered loans past due, loans past due 30 to 89 days decreased $8.4 million, or 38.0%, while nonperforming loans (defined as accruing loans greater than 90 days past due and loans that meet the definition of nonaccrual loans) decreased $252.6 million, or 57.0%. These decreases were primarily a result of loan payments during the current year.
Of the $781.6 million in covered assets at December 31, 2013, $455.0 million will lose loss share coverage within the next 12 months. The following table provides additional information on the covered assets losing loss share coverage within the next 12 months. When the coverage period ends, these assets will be included in asset quality information presented in Table 11 above as part of the non-covered acquired loans.
TABLE 13COVERED ASSETS BY LOSS SHARE COVERAGE PERIOD
Covered Assets | ||||||||
Non-Single Family Residential
Loans (Losing Loss Share Coverage within the next 12 months) |
Single Family Residential Loans
(Losing Loss Share Coverage 10 years from Acquisition) |
|||||||
(Dollars in thousands) | ||||||||
Loans, net |
$ | 405,945 | $ | 313,848 | ||||
Other real estate owned |
49,068 | 12,734 | ||||||
Allowance for loan losses |
(53,552 | ) | (17,623 | ) | ||||
Nonaccrual loans |
$ | 114,014 | $ | 76,002 | ||||
Foreclosed assets |
1,328 | | ||||||
Other real estate owned |
47,740 | 12,734 | ||||||
Accruing loans more than 90 days past due |
| 579 | ||||||
|
|
|
|
|||||
Nonperforming assets |
163,082 | 89,315 | ||||||
Total past due loans |
$ | 124,139 | $ | 80,153 | ||||
Nonperforming assets/assets |
35.84 | % | 27.35 | % | ||||
NPAs/(Loans + OREO) |
35.84 | % | 27.35 | % | ||||
(Past Dues & Nonaccruals)/Loans |
30.58 | % | 25.54 | % | ||||
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Allowance for Credit Losses
The allowance for credit losses represents managements best estimate of probable credit losses inherent at the balance sheet date. Determination of the allowance for credit losses involves a high degree of complexity and requires significant judgment. Several factors are taken into consideration in the determination of the overall allowance for credit losses, including a qualitative component. These factors include, but are not limited to, the overall risk profiles of the loan portfolios, net charge-off experience, the extent of impaired loans, the level of nonaccrual loans, the level of 90 days past due loans and the overall percentage level of the allowance. The Company also considers overall asset quality trends, changes in lending and risk management practices and procedures, trends in the nature and volume of the loan portfolio, including the existence and effect of any portfolio concentrations, changes in experience and depth of lending staff, the Companys legal, regulatory and competitive environment, national and regional economic trends, and data availability and applicability that might impact the portfolio. See the Application of Critical Accounting Policies and Estimates section for more information.
Change in Methodology
During the three months ended June 30, 2013, the Company modified its methodology for estimating its allowance for credit losses on its non-covered, non-acquired loan portfolio to incorporate practices, processes, and methodologies consistent with the guidance provided in the FRBs inter-agency policy statement 2006 SR 06-17. The methodology was modified to segregate the reserve for unfunded lending commitments (RULC), previously included in the Companys allowance for credit losses, into a separate liability on the Companys consolidated balance sheet, and to enhance the previous methodology around loss migration.
As part of the modification, the Company implemented a transition matrix-based model that calculates current incurred loss estimates derived from Company-specific history of risk rating changes and net charge-offs across multiple loan pools in its portfolio to improve its estimates of credit losses by:
| Providing a greater degree of segmentation of the Companys non-covered, non-acquired loan portfolio within its existing homogeneous pools with distinct risk characteristics; |
| Improving the application of the Companys specific historical loss rates to effectively generate estimated incurred loss rates for these various pools of the loan portfolio; and |
| Facilitating future loan portfolio stress testing. |
Additionally, the following changes were made from the Companys previous methodology utilized through the three months ended March 31, 2013:
| Segregation of the RULC, which was previously included in the Companys allowance for loan losses, and |
| Elimination of the use of published available expected default frequencies (EDFs) adjusted for the Companys experience in estimating losses in the Companys commercial real estate and business loan portfolios. |
As a result of the change in methodology, at December 31, 2013, the Companys allowance for loan losses was $10.4 million lower than it would have been under the previous methodology. However, offsetting the decrease was an $11.1 million increase in the Companys RULC, included in other liabilities in its consolidated balance sheet. The Companys allowance for credit losses, therefore, was $0.7 million higher than what it would have been under the previous methodology at December 31, 2013.
Certain inherent, but unconfirmed, losses are probable within the loan portfolio. The Companys current methodology for determining the level of losses is based on historical loss rates, current credit grades, specific allocation and other qualitative adjustments. In a stable or deteriorating credit environment, heavy reliance on historical loss rates and the credit grade rating process results in model-derived required reserves that tend to slightly lag behind portfolio deterioration. Similar lags can occur in an improving credit environment whereby required reserves can lag slightly behind portfolio improvement. Given these model limitations, qualitative adjustment factors may be incremental or decremental to the quantitative model results.
The manner in which the allowance for credit losses is determined is based on the accounting method applied to the underlying loans. The Company delineates between loans accounted for under the contractual yield method, primarily legacy loans, and loans accounted for as purchased impaired loans, primarily acquired loans.
Legacy Loans
Legacy loans represent loans accounted for under the contractual yield method. The Companys legacy loans include loans originated by the Company and acquired loans that are not accounted for as acquired credit impaired loans. See the Application of Critical Accounting Policies and Estimates section for more information.
Acquired Loans
Acquired loans, which include covered loans and certain non-covered loans, represent loans acquired by the Company that are accounted for in accordance with ASC 310-30. See the discussion above, as well as the Application of Critical Accounting Policies and Estimates for more information.
Loans acquired in business combinations were recorded at their acquisition date fair values, which were based on expected cash flows and included estimates of expected future credit losses. Under current accounting principles, information regarding the Companys estimates of loan fair values may be adjusted for a period of up to one year as the Company continues to refine its estimate of expected future cash flows in the acquired portfolio. Within a one-year period, if the Company discovers that it has materially underestimated the credit losses expected in the loan portfolio based on information available at the acquisition date, it will retroactively reduce or eliminate the gain and/or increase goodwill recorded on the acquisition. If the Company determines that losses arose after the acquisition date, the additional losses will be reflected as a provision for credit losses.
At December 31, 2013, the Company had an allowance for credit losses of $71.2 million to reserve for probable losses currently in the covered loan portfolio and $4.6 million to reserve for probable losses currently in the acquired loan portfolio that have arisen after the losses estimated at the respective acquisition dates. Based on facts and circumstances available, management of the Company believes that the allowance for credit losses was appropriate at December 31, 2013 to cover probable losses in the Companys loan portfolio. However, future adjustments to the allowance may be necessary, and the results of operations could be adversely affected, if circumstances differ substantially from the assumptions used by management in determining the allowance for credit losses.
The following tables set forth the activity in the Companys allowance for credit losses for the periods indicated.
TABLE 14SUMMARY OF ACTIVITY IN THE ALLOWANCE FOR CREDIT LOSSES
(Dollars in thousands) | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Balance at beginning of period |
$ | 251,603 | $ | 193,761 | $ | 136,100 | $ | 55,768 | $ | 40,872 | ||||||||||
Transfer of balance to OREO |
(28,126 | ) | (27,169 | ) | (17,143 | ) | | | ||||||||||||
Transfer of balance to the reserve for unfunded commitments |
(9,828 | ) | | | | | ||||||||||||||
Provision charged to operations |
5,145 | 20,671 | 25,867 | 42,451 | 45,370 | |||||||||||||||
(Reversal of) Provision recorded through the FDIC loss share receivable |
(56,085 | ) | 84,085 | 57,121 | 64,922 | 147 | ||||||||||||||
Charge-offs: |
||||||||||||||||||||
Commercial and business banking |
19,220 | 16,747 | 9,200 | 23,634 | 25,204 | |||||||||||||||
Mortgage |
518 | 2,376 | 244 | 1,068 | 311 | |||||||||||||||
Consumer |
6,743 | 5,937 | 6,715 | 9,156 | 7,752 | |||||||||||||||
|
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|
|
|
|||||||||||
26,481 | 25,060 | 16,159 | 33,858 | 33,267 | ||||||||||||||||
Recoveries: |
||||||||||||||||||||
Commercial and business banking |
3,745 | 3,293 | 5,516 | 4,863 | 1,016 | |||||||||||||||
Mortgage |
765 | 38 | 170 | 77 | 67 | |||||||||||||||
Consumer |
2,336 | 1,984 | 2,289 | 1,877 | 1,563 | |||||||||||||||
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|||||||||||
6,846 | 5,315 | 7,975 | 6,817 | 2,646 | ||||||||||||||||
|
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|
|
|
|||||||||||
Net charge-offs |
19,635 | 19,745 | 8,184 | 27,041 | 30,621 | |||||||||||||||
|
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|
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|
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|
|
|
|||||||||||
Allowance for loan losses |
143,074 | 251,603 | 193,761 | 136,100 | 55,768 | |||||||||||||||
|
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|
|
|
|
|
|
|
|||||||||||
Transfer of balance from the allowance for loan losses |
9,828 | | | | | |||||||||||||||
Provision for unfunded lending commitments |
1,319 | | | | | |||||||||||||||
|
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|
|
|
|
|
|
|
|
|||||||||||
Balance at end of period |
$ | 154,221 | $ | 251,603 | $ | 193,761 | $ | 136,100 | $ | 55,768 | ||||||||||
|
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|
|||||||||||
Allowance for loan losses to nonperforming assets (1) (2) |
133.5 | % | 88.3 | % | 96.4 | % | 89.9 | % | 92.6 | % | ||||||||||
Allowance for loan losses to total loans at end of period (2) |
0.82 | 1.12 | 1.24 | 1.40 | 0.96 | |||||||||||||||
Net charge-offs to average loans (3) |
0.05 | 0.07 | 0.13 | 0.47 | 0.73 | |||||||||||||||
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(1) |
Nonperforming assets include accruing loans 90 days or more past due. |
(2) |
The allowance for loan losses in the calculation does not include either the allowance attributable to covered assets or covered loans. |
(3) |
Net charge-offs exclude charge-offs and recoveries on covered loans and average loans exclude covered loans. |
TABLE 15SUMMARY OF ACTIVITY BY LOAN TYPE
December 31, 2013 | December 31, 2012 | |||||||||||||||||||||||||||||||
Non-covered loans | Non-covered loans | |||||||||||||||||||||||||||||||
(Dollars in thousands) |
Covered
Loans |
Legacy
Loans |
Acquired
Loans |
Total |
Covered
Loans |
Legacy
Loans |
Acquired
Loans |
Total | ||||||||||||||||||||||||
Allowance for loan losses |
||||||||||||||||||||||||||||||||
Balance at beginning of period |
$ | 168,576 | $ | 74,211 | $ | 8,816 | $ | 251,603 | $ | 118,900 | $ | 74,861 | $ | | $ | 193,761 | ||||||||||||||||
(Reversal of) Provision for loan losses before benefit attributable to FDIC loss share agreements |
(54,610 | ) | 6,828 | (3,158 | ) | (50,940 | ) | 91,153 | 3,804 | 9,799 | 104,756 | |||||||||||||||||||||
Benefit attributable to FDIC loss share agreements |
56,085 | | | 56,085 | (84,085 | ) | | | (84,085 | ) | ||||||||||||||||||||||
|
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|
|
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|
|
|
|
|
|||||||||||||||||
Net (reversal of) provision for loan losses |
1,475 | 6,828 | (3,158 | ) | 5,145 | 7,068 | 3,804 | 9,799 | 20,671 | |||||||||||||||||||||||
(Decrease) Increase in FDIC loss share receivable |
(56,085 | ) | | | (56,085 | ) | 84,085 | | | 84,085 | ||||||||||||||||||||||
Transfer of balance to OREO |
(27,041 | ) | | (1,085 | ) | (28,126 | ) | (26,343 | ) | | (826 | ) | (27,169 | ) | ||||||||||||||||||
Transfer of balance to the RUFC |
| (9,828 | ) | | (9,828 | ) | | | | | ||||||||||||||||||||||
Loan charge-offs |
(15,764 | ) | (10,686 | ) | (31 | ) | (26,481 | ) | (15,153 | ) | (9,728 | ) | (179 | ) | (25,060 | ) | ||||||||||||||||
Recoveries |
14 | 6,817 | 15 | 6,846 | 19 | 5,274 | 22 | 5,315 | ||||||||||||||||||||||||
|
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|
|
|
|
|
|||||||||||||||||
Balance at end of period |
71,175 | 67,342 | 4,557 | 143,074 | 168,576 | 74,211 | 8,816 | 251,603 | ||||||||||||||||||||||||
Reserve for unfunded lending commitments |
||||||||||||||||||||||||||||||||
Transfer of balance from the allowance for loan losses |
| 9,828 | | 9,828 | | | | | ||||||||||||||||||||||||
Provision for unfunded lending commitments |
| 1,319 | | 1,319 | | | | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at end of period |
| 11,147 | | 11,147 | | | | | ||||||||||||||||||||||||
|
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|
|||||||||||||||||
Allowance for credit losses |
$ | 71,175 | $ | 78,489 | $ | 4,557 | $ | 154,221 | $ | 168,576 | $ | 74,211 | $ | 8,816 | $ | 251,603 | ||||||||||||||||
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The following table presents the allocation of the allowance for credit losses and the percentage of the total amount of loans in each loan category listed as of the year indicated.
TABLE 16ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||||||||||||||||||
Reserve
% |
% of
Loans |
Reserve
% |
% of
Loans |
Reserve
% |
% of
Loans |
Reserve
% |
% of
Loans |
Reserve
% |
% of
Loans |
|||||||||||||||||||||||||||||||
Commercial |
69 | % | 72 | % | 71 | % | 73 | % | 73 | % | 73 | % | 59 | % | 69 | % | 78 | % | 64 | % | ||||||||||||||||||||
Mortgage |
10 | 6 | 10 | 5 | 11 | 7 | 22 | 10 | 3 | 18 | ||||||||||||||||||||||||||||||
Consumer |
21 | 22 | 19 | 22 | 16 | 20 | 19 | 21 | 19 | 18 | ||||||||||||||||||||||||||||||
Unallocated |
| | | | | | | | | |||||||||||||||||||||||||||||||
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|
|||||||||||||||||||||
Total allowance for credit losses |
100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||||||
|
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The allowance for credit losses was $154.2 million at December 31, 2013, or 1.62% of total loans, $97.4 million lower than at December 31, 2012. The allowance as a percentage of loans was 134 basis points below the 2.96% at December 31, 2012.
The decrease in the allowance was primarily related to a decrease in reserves on the covered and non-acquired loan portfolios. The allowance for credit losses on the covered portion of the loan portfolio decreased $97.4 million primarily due to a change in expected cash flows on certain of the acquired loan pools during 2013. The reserve was adjusted during 2013 to cover the expected losses in these pools. On a gross basis, the Company was able to reverse $56.1 million to account for these estimated cash flow changes. The reserve was also reduced by $28.1 million when loan collateral was moved to OREO during 2013.
For the non-covered portfolio, the allowance on the legacy portfolio declined $6.9 million, or 9.3%, since December 31, 2012, as $9.8 million was transferred to the reserve for unfunded lending commitments. Legacy asset quality improved over the prior year as evidenced by continued lower levels of net charge-offs and past due loans, which offset the additional allowance needed to reserve for legacy loan growth over the past twelve months. The non-covered allowance for credit losses, however, includes a reserve of $4.6 million for losses probable in those portfolios at December 31, 2013 above estimated expected credit losses at acquisition.
At December 31, 2013 and 2012, excluding the acquired loan portfolios, the allowance for loan losses covered nonperforming loans 1.5 times. Including acquired non-covered loans, the allowance for loan losses covered 65.8% of total past due and nonaccrual loans at December 31, 2013, an increase compared to the December 31, 2012 coverage of 64.9%.
FDIC Loss Share Receivable
As part of the FDIC-assisted acquisitions in 2009 and 2010, the Company recorded a $1.0 billion receivable from the FDIC, which represents the fair value of the expected reimbursable losses covered by the loss share agreements as of the acquisition dates. The FDIC loss share receivable decreased $260.8 million, or 61.6%, during 2013 as the Company recorded a valuation allowance of $31.8 million, reduced the balance $56.1 million to offset the allowance for credit loss adjustment recorded, and claimed reimbursements from the FDIC totaling $52.6 million resulting from loan charge-offs, OREO sales, and OREO write-downs, included in other assets discussed below. The loss share receivable also decreased $97.8 million as a result of amortization during the year. See Note 8 to the consolidated financial statements for discussion of the reimbursable loss periods of the loss share agreements.
The following table sets forth the activity in the FDIC loss share receivable asset for the periods indicated.
TABLE 17FDIC LOSS SHARE RECEIVABLE ACTIVITY
For the Year Ended December 31, | ||||||||
(Dollars in thousands) | 2013 | 2012 | ||||||
Balance at beginning of period |
$ | 423,069 | $ | 591,844 | ||||
Change due to (reversal of) credit loss provision recorded on FDIC covered loans |
(56,085 | ) | 84,085 | |||||
Amortization |
(97,849 | ) | (118,100 | ) | ||||
Submission of reimbursable losses to the FDIC |
(52,586 | ) | (123,986 | ) | ||||
Impairment |
(31,813 | ) | | |||||
Changes due to a change in cash flow assumptions on OREO and other changes |
(22,424 | ) | (10,774 | ) | ||||
|
|
|
|
|||||
Balance at end of period |
$ | 162,312 | $ | 423,069 | ||||
|
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Based on improving economic trends, their impact on the amount and timing of expected future cash flows, and delays in the foreclosure process, the Company concluded that certain expected losses are probable of not being collected from the FDIC or the customer because such projected losses are anticipated to occur beyond the reimbursable periods of the loss share agreements. On April 10, 2013, the Audit Committee and the Board of Directors concluded that an impairment charge was required under generally accepted accounting principles applicable to the Company and should be recognized in the consolidated financial statements for the three-month period ended March 31, 2013. Therefore, the Company recognized a valuation allowance against the indemnification assets in the amount of $31.8 million through a charge to net income.
Of the FDIC loss share receivables balance of $162.3 million, approximately $38.1 million is expected to be collected from the FDIC, $114.7 million, which represents improvements in cash flows expected to be collected from customers, is expected to be amortized over time, and $9.5 million is expected to be collected in conjunction with OREO transactions. For certain covered assets, loss share coverage expires in the next 12 20 months. At December 31, 2013, the FDIC loss share receivables included $17.9 million and $9.4 million
related to these assets that is expected to be collected from the FDIC and OREO transactions, respectively. To the extent that loss share coverage ends prior to triggering events on covered assets that would enable the Company to collect these amounts from the FDIC or OREO transactions, future impairments would be required.
The Company may owe consideration previously received under indemnification agreements to the FDIC under the clawback provisions in three of these agreements. The clawback provisions generally stipulate that in the event of not meeting certain thresholds of loss, the Company is required to pay the FDIC a percentage as defined in the respective agreements. Cumulative losses to date under two of these agreements have exceeded the calculated loss amounts, which would result in clawback if not incurred. However, the sum of the historical and remaining projected losses under the remaining agreement is in excess of the clawback amount stated in that agreement. For the third agreement, the Company has recorded a $0.8 million liability at December 31, 2013 to reserve for the amount of consideration due to the FDIC based on cumulative losses to date. However, the future performance of the remaining covered assets (namely improvements in the forms of recoveries and/or reduced losses) for each of the three agreements beyond each agreements respective collection period could require the Company to be subject to the clawback provisions for that agreement.
Refer to the Other Assets discussion below for additional amounts due from the FDIC related to loss share agreements.
Investment Securities
Investment securities increased by $140.8 million, or 7.2%, to $2.1 billion at December 31, 2013. The increase from December 31, 2012 was due to the use of available funds in 2013 to purchase available for sale investments in an effort to improve the yield on total earning assets. These additional investments were offset partially by the sales and maturities of investment securities during the current year. As a result of these purchases, investment securities increased to 15.6% of total assets at December 31, 2013, from 14.9% at December 31, 2012. Investment securities were 17.7% of average earnings assets in the current year and 18.1% in 2012. By intent, available for sale securities increased $191.8 million, or 11.0%, and held to maturity investments decreased $51.0 million, or 24.8%. The following table shows the carrying values of securities by category as of December 31 for the years indicated.
TABLE 18CARRYING VALUE OF SECURITIES
(Dollars in thousands) | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||
Securities available for sale: |
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U.S. Government-sponsored enterprise obligations |
$ | 395,561 | 19 | % | $ | 285,724 | 15 | % | $ | 342,488 | 17 | % | $ | 422,800 | 21 | % | $ | 241,168 | 15 | % | ||||||||||||||||||||
Obligations of state and political subdivisions |
107,479 | 5 | 127,075 | 7 | 143,805 | 7 | 40,169 | 2 | 50,460 | 3 | ||||||||||||||||||||||||||||||
Mortgage-backed securities |
1,432,278 | 68 | 1,330,656 | 68 | 1,317,374 | 66 | 1,263,869 | 63 | 1,020,939 | 65 | ||||||||||||||||||||||||||||||
Other securities |
1,479 | | 1,549 | | 1,538 | | 2,956 | | 7,909 | | ||||||||||||||||||||||||||||||
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1,936,797 | 92 | 1,745,004 | 90 | 1,805,205 | 90 | 1,729,794 | 86 | 1,320,476 | 83 | |||||||||||||||||||||||||||||||
Securities held to maturity: |
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U.S. Government-sponsored enterprise obligations |
34,478 | 2 | 69,949 | 4 | 85,172 | 4 | 180,479 | 9 | 155,713 | 10 | ||||||||||||||||||||||||||||||
Obligations of state and political subdivisions |
84,290 | 4 | 88,909 | 4 | 81,053 | 4 | 75,768 | 4 | 65,540 | 4 | ||||||||||||||||||||||||||||||
Mortgage-backed securities |
35,341 | 2 | 46,204 | 2 | 26,539 | 2 | 33,773 | 1 | 39,108 | 3 | ||||||||||||||||||||||||||||||
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154,109 | 8 | 205,062 | 10 | 192,764 | 10 | 290,020 | 14 | 260,361 | 17 | |||||||||||||||||||||||||||||||
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$ | 2,090,906 | 100 | % | $ | 1,950,066 | 100 | % | $ | 1,997,969 | 100 | % | $ | 2,019,814 | 100 | % | $ | 1,580,837 | 100 | % | |||||||||||||||||||||
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All of the Companys mortgage-backed securities are agency securities. The Company does not hold any Fannie Mae or Freddie Mac preferred stock, corporate equity, collateralized debt obligations, collateralized loan obligations, or structured investment vehicles, nor does it hold any private label collateralized mortgage obligations, sub-prime, Alt-A, or second lien elements in its investment portfolio. At December 31, 2013, the Companys investment portfolio did not contain any securities that are directly backed by subprime or Alt-A mortgages.
The following table summarizes activity in the Companys investment securities portfolio during 2013 and 2012. There were no transfers of securities between investment categories during the current period.
TABLE 19INVESTMENT PORTFOLIO ACTIVITY
(Dollars in thousands) |
Available for
Sale |
Held to
Maturity |
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2013 | 2012 | 2013 | 2012 | |||||||||||||
Balance at beginning of period |
$ | 1,745,004 | $ | 1,805,205 | $ | 205,062 | $ | 192,764 | ||||||||
Purchases |
1,026,290 | 935,164 | 5,901 | 57,075 | ||||||||||||
Acquisitions |
| 56,841 | | | ||||||||||||
Sales, net of gains |
(42,400 | ) | (150,483 | ) | | | ||||||||||
Principal maturities, prepayments and calls, net of gains |
(709,977 | ) | (880,425 | ) | (55,649 | ) | (43,500 | ) | ||||||||
Amortization of premiums and accretion of discounts |
(17,748 | ) | (19,736 | ) | (1,205 | ) | (1,277 | ) | ||||||||
Change in market value |
(64,372 | ) | (1,562 | ) | | | ||||||||||
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Balance at end of period |
$ | 1,936,797 | $ | 1,745,004 | $ | 154,109 | $ | 205,062 | ||||||||
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Funds generated as a result of sales and prepayments are used to fund loan growth and purchase other securities. The Company continues to monitor market conditions and take advantage of market opportunities with appropriate risk and return elements.
The Company assesses the nature of the losses in its investment portfolio periodically to determine if there are losses that are deemed other-than-temporary. In its analysis of these securities, management considers numerous factors to determine whether there are instances where the amortized cost basis of the debt securities would not be fully recoverable, including, but not limited to:
| The length of time and extent to which the fair value of the securities was less than their amortized cost, |
| Whether adverse conditions were present in the operations, geographic area, or industry of the issuer, |
| The payment structure of the security, including scheduled interest and principal payments, including the issuers failures to make scheduled payments, if any, and the likelihood of failure to make scheduled payments in the future, |
| Changes to the rating of the security by a rating agency, and |
| Subsequent recoveries or additional declines in fair value after the balance sheet date. |
Management believes it has considered these factors, as well as all relevant information available, when determining the expected future cash flows of the securities in question. Based on its analysis, the Company recorded an other-than-temporary impairment charge of $0.5 million during 2011 on one unrated municipal revenue bond. During that year, management assessed the operating environment of the bond issuer as adverse and thus concluded the other-than-temporary impairment charge was warranted. The specific impairment was related to the loss of the contracted revenue source required for bond repayment. The total impairment recorded was 50% of the par value of the bond and provided a fair value of the bonds that was consistent with current market pricing. Because adverse conditions were noted in the operations of the bond issuer, the Company recorded the other-than-temporary impairment, but noted no further deterioration in the operating environment of the bond issuer. No other declines in the market value of the Companys investment securities are deemed to be other-than-temporary at December 31, 2013 and 2012.
Note 5 to the consolidated financial statements provides further information on the Companys investment securities.
Short-term Investments
Short-term investments result from excess funds invested overnight in interest-bearing deposit accounts at the FHLB of Dallas and Atlanta. These balances fluctuate daily depending on the funding needs of the Company and earn interest at the current FHLB discount rate. The balance in interest-bearing deposits at other institutions of $152.7 million at December 31, 2013 decreased $570.0 million, or 78.9%, from December 31, 2012. The primary cause of the decrease was the Companys use of available cash to purchase higher-yielding investment securities, fund loan growth, and pay down its long-term debt, all in an attempt to improve its net interest margin. The Companys cash activity is further discussed in the Liquidity section below.
Other Assets
The following table details the changes in other asset balances for the periods indicated.
TABLE 20OTHER ASSETS COMPOSITION
(Dollars in thousands) | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Other Earning Assets |
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FHLB and FRB stock |
$ | 53,773 | $ | 46,216 | $ | 60,155 | $ | 57,280 | $ | 61,716 | ||||||||||
Fed funds sold and financing transactions |
| 4,875 | | 9,038 | 261,421 | |||||||||||||||
Other interest-earning assets (1) |
3,412 | 3,412 | 3,412 | 3,358 | 3,358 | |||||||||||||||
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Total other earning assets |
57,185 | 54,503 | 63,567 | 69,676 | 326,495 | |||||||||||||||
Non-Earning Assets |
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Premises and equipment |
287,510 | 303,523 | 285,607 | 208,403 | 137,426 | |||||||||||||||
Bank-owned life insurance |
104,203 | 100,556 | 96,876 | 72,536 | 70,813 | |||||||||||||||
Goodwill |
401,872 | 401,872 | 369,811 | 234,228 | 227,080 | |||||||||||||||
Core deposit intangibles |
14,622 | 19,122 | 24,021 | 22,975 | 26,342 | |||||||||||||||
Title plant and other intangible assets |
7,439 | 7,660 | 7,911 | 6,722 | 6,722 | |||||||||||||||
Accrued interest receivable |
32,143 | 32,183 | 36,006 | 34,250 | 32,869 | |||||||||||||||
Other real estate owned |
99,173 | 121,536 | 125,046 | 69,218 | 74,092 | |||||||||||||||
Derivative market value |
30,076 | 42,119 | 33,026 | 37,320 | 32,697 | |||||||||||||||
Receivable due from the FDIC |
2,609 | 3,259 | 11,363 | 42,494 | 6,817 | |||||||||||||||
Investment in tax credit entities |
132,487 | 137,508 | 120,247 | 114,751 | 107,044 | |||||||||||||||
Other |
74,230 | 47,273 | 74,049 | 46,594 | 65,992 | |||||||||||||||
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Total non-earning assets |
1,186,364 | 1,216,611 | 1,183,963 | 889,491 | 787,894 | |||||||||||||||
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Total other assets |
$ | 1,243,549 | $ | 1,271,114 | $ | 1,247,530 | $ | 959,167 | $ | 1,114,389 | ||||||||||
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(1) |
Other interest-earning assets are composed primarily of trust preferred common securities. |
The $7.6 million increase in FHLB and FRB stock was the result of net stock purchases during 2013.
Fed funds sold and financing transactions represent short-term excess liquidity, and the balance varies based on the daily requirements of short-term liquidity needed by the Company and its subsidiaries for loan growth and other operating activities. The Company had $4.9 million in financing transactions outstanding at the end of 2012. There were no fed funds sold or financing transactions at December 31, 2013. The balance of other interest-earning assets did not change from the end of 2012.
Premises and equipment decreased $16.0 million as a result of the movement of closed branches during 2013 to OREO, as well as current year depreciation taken on the assets in service.
Bank-owned life insurance increased $3.6 million as a result of the income earned on policies during the year.
Core deposit intangibles decreased $4.5 million due to amortization expense during the current period.
Other real estate includes all real estate, other than bank premises used in bank operations, which is owned or controlled by the Company, including real estate acquired in settlement of loans and former bank premises no longer used. The $22.4 million decrease in OREO from December 31, 2012 was a result of the sale of OREO properties, primarily during the fourth quarter of 2013. Covered OREO properties at December 31, 2013 were $15.4 million, or 20.0%, lower than at the end of 2012. Covered OREO properties were $61.8 million and $77.2 million at December 31, 2013 and 2012, respectively. Non-covered OREO decreased $6.9 million, or 15.6%, and was primarily a result of the sale of OREO properties during the year.
The decrease in the market value of the Companys derivatives was primarily the result of the change in value of existing derivatives from December 31, 2012, and not a result of a decrease in derivative activity. The value of the derivatives at December 31, 2013 was affected by a decline in interest rates at the end of the fourth quarter.
The receivable due from the FDIC from claims associated with the loss share agreements decreased $0.7 million in 2013 compared to 2012. The balance at December 31, 2013 was a result of the timing of repayment from the FDIC of losses submitted and timing of losses incurred. The Companys submission of losses has remained steady as the Company continues to manage the covered assets to ultimate disposition in a manner that is of least loss to the FDIC. The balance due from the FDIC includes the reimbursable portion of incurred losses, net of recoveries (as those terms are defined in the respective loss share agreements) and reimbursable expenses, which were approximately $2.8 million and $3.3 million at December 31, 2013 and 2012, respectively.
Investments in tax credit entities decreased $5.0 million as a result of the amortization of the tax credits as they are recognized in the Companys income tax provision calculation. Amortization of the Companys tax credits offset the additional investment of $2.2 million in tax credit entities in 2013.
The $27.0 million increase in other assets since December 31, 2012 was primarily the result of a $14.7 million increase in the Companys current income tax receivable as a result of additional estimated income tax payments recorded during the current year. Also affecting other assets was a $9.5 million increase in the deferred tax asset to account for future tax deductions on current period expenses and a $2.9 million increase in deferred compensation assets held that are related to current year employee compensation deferrals. Offsetting these increases were decreases in prepaid assets and other current receivables since December 31, 2012.
There was no significant change in the Companys title plant balance since December 31, 2012.
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 acquisitions and the development of client relationships is a continuing focus of the Company. Short-term and long-term borrowings have become an important funding source as the Company has grown. Other funding sources include subordinated debt and shareholders equity. Refer to the Liquidity section below for further discussion of the Companys sources and uses of funding sources. The following discussion highlights the major changes in the mix of deposits and other funding sources during 2013.
Deposits
The Companys ability to attract and retain customer deposits is critical to the Companys continued success. During 2013, total deposits decreased $11.3 million, or 0.1%, totaling $10.7 billion at December 31, 2013. On average, however, total deposits increased $1.0 billion, or 10.4%, from 2012. Total non-interest-bearing deposits increased $608.3 million and interest-bearing deposits decreased $619.6 million, or 7.1%, from December 31, 2012. Increases in the Companys core deposit products were offset by a continued decline in total time deposits, as some higher-priced certificates of deposit (CDs) matured and were not renewed due to continued rate reductions.
The following table and chart set forth the composition of the Companys deposits for the periods indicated.
TABLE 21DEPOSIT COMPOSITION BY PRODUCT
(Dollars in thousands) | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||
Non-interest-bearing deposits |
$ | 2,575,939 | 24 | % | $ | 1,967,662 | 18 | % | $ | 1,485,058 | 16 | % | $ | 878,768 | 11 | % | $ | 874,885 | 11 | % | ||||||||||||||||||||
NOW accounts |
2,283,491 | 22 | 2,523,252 | 24 | 1,876,797 | 20 | 1,281,825 | 16 | 1,351,609 | 18 | ||||||||||||||||||||||||||||||
Money market accounts |
3,779,581 | 35 | 3,738,480 | 35 | 3,049,151 | 33 | 2,660,702 | 34 | 1,954,155 | 26 | ||||||||||||||||||||||||||||||
Savings accounts |
387,397 | 3 | 364,703 | 3 | 332,351 | 3 | 249,412 | 3 | 298,910 | 4 | ||||||||||||||||||||||||||||||
Certificates of deposit |
1,710,592 | 16 | 2,154,180 | 20 | 2,545,656 | 28 | 2,844,399 | 36 | 3,076,589 | 41 | ||||||||||||||||||||||||||||||
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$ | 10,737,000 | 100 | % | $ | 10,748,277 | 100 | % | $ | 9,289,013 | 100 | % | $ | 7,915,106 | 100 | % | $ | 7,556,148 | 100 | % | |||||||||||||||||||||
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From a product perspective, interest-bearing deposits decreased $619.6 million. Time deposit decreases of $443.6 million represented 71.6% of the total interest-bearing deposit decrease from December 31, 2012. Also affecting interest-bearing deposits was a transition of deposits in 2013 from interest-bearing NOW accounts earning less than three basis points into non-interest-bearing transaction accounts. Certificates of deposit in denominations of $100,000 and over decreased $240.2 million, or 20.9%, to $906.3 million at December 31, 2013. The decrease was seen in many of the Companys markets, including the New Orleans and Lafayette, Louisiana markets, as well as multiple Florida markets, where higher-priced certificates of deposit matured and were either not renewed or renewed at lower interest rates. Despite the overall decrease in time deposits during the year, during the fourth quarter of 2013, 79% of maturing time deposits were renewed with an average 38 basis point rate reduction. The following table details large-denomination certificates of deposit by remaining maturity dates at December 31 of the years indicated.
TABLE 22REMAINING MATURITIES OF CDS $100,000 AND OVER
(Dollars in thousands) | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||
3 months or less |
$ | 256,931 | 28 | % | $ | 265,558 | 23 | % | $ | 316,771 | 23 | % | $ | 361,761 | 24 | % | $ | 442,853 | 27 | % | ||||||||||||||||||||
3 12 months |
452,005 | 50 | 572,734 | 50 | 731,996 | 53 | 764,771 | 51 | 752,056 | 47 | ||||||||||||||||||||||||||||||
12 36 months |
157,430 | 17 | 227,072 | 20 | 213,865 | 16 | 305,257 | 20 | 383,897 | 24 | ||||||||||||||||||||||||||||||
More than 36 months |
39,976 | 5 | 81,151 | 7 | 114,999 | 8 | 82,245 | 5 | 29,516 | 2 | ||||||||||||||||||||||||||||||
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$ | 906,342 | 100 | % | $ | 1,146,515 | 100 | % | $ | 1,377,631 | 100 | % | $ | 1,514,034 | 100 | % | $ | 1,608,322 | 100 | % | |||||||||||||||||||||
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Non-interest-bearing deposits continue to provide the Company with a good source of available funds for continued earning asset growth. Non-interest-bearing deposits as a percentage of total deposits have steadily risen over the past 24 months, from 16.0% at December 31, 2012 to 24.0% at December 31, 2013. During the third quarter of 2013, the Company transitioned approximately $246 million in deposits from interest-bearing NOW accounts earning less than three basis points into non-interest-bearing transaction accounts, accounting for approximately 40% of the total non-interest-bearing deposit growth from 2012.
From a market perspective, total deposit growth was seen primarily in the Houston, Texas, Baton Rouge, Louisiana, and Birmingham, Alabama markets. Houstons customer deposits increased $382.4 million, or 71.0%, during 2013. Total deposits in the Baton Rouge market increased $9.1 million, or 1.6%, since the end of 2012, while the Birmingham market had total customer deposit growth of $60.0 million, or 16.3%. Total deposit growth was offset, however, by time deposit runoff in multiple Louisiana markets, including New Orleans and Lafayette, as well as various Alabama and Florida markets, most notably Mobile, Alabama and Sarasota, Florida.
Short-term Borrowings
The Company may obtain advances from the FHLB of Dallas based upon its ownership of FHLB stock and certain pledges of its real estate loans and investment securities, provided certain standards related to the Companys creditworthiness have been met. These advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. 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.
The Company also enters into repurchase agreements to facilitate customer transactions that are accounted for as secured borrowings. These transactions typically involve the receipt of deposits from customers that the Company collateralizes with its investment portfolio and have rates ranging from 0.09% to 0.80%. The following table details the average and ending balances of repurchase transactions as of and for the years ending December 31:
TABLE 23REPURCHASE TRANSACTIONS
(Dollars in thousands) | 2013 | 2012 | ||||||
Average balance |
$ | 290,209 | $ | 243,248 | ||||
Ending balance |
305,344 | 303,045 | ||||||
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Total short-term borrowings increased $377.3 million, or 124.5%, from December 31, 2012, to $680.3 million at the end of 2013. The increase was primarily the result of $375.0 million in short-term FHLB advances outstanding at December 31, 2013, whereas there were no outstanding short-term FHLB advances at the end of 2012. The Company borrowed these funds at the end of 2013 in order to manage its liquidity as it funded loan growth in the fourth quarter of 2013. On an average basis, short-term borrowings increased $19.2 million, or 6.7%, from 2012 to 2013. The increase in the average outstanding balance was largely due to the advances outstanding at the end of 2013, as managements decision has typically been to use available cash to reduce higher-cost funding sources.
Total short-term borrowings were 5.7% of total liabilities and 70.8% of total borrowings at December 31, 2013 compared to 2.6% and 41.7%, respectively, at December 31, 2012. On an average basis, short-term borrowings were 2.6% of total liabilities and 48.9% of total borrowings in the current year, compared to 2.7% and 39.7%, respectively, during 2012.
The weighted average rate paid on short-term borrowings was 0.16% during 2013, down six basis points compared to 0.22% for 2012. For additional information on the Companys short-term borrowings, see Note 15 of the consolidated financial statements.
Long-term Debt
The Companys long-term borrowings decreased $142.7 million, or 33.7%, to $280.7 million at December 31, 2013, compared to $423.4 million at December 31, 2012. The decrease in borrowings from December 31, 2012 was a result of the scheduled repayment of a portion of the Companys long-term FHLB advances during 2013, as well as the redemption of $90.0 million in advances acquired in previous acquisitions. The early redemption resulted in additional expense of $2.3 million in the current year based on the prepayment penalty on the advances. As a result of the redemptions and repayment, the Company expects to reduce future interest expense by $0.7 million in total over the first two quarters of 2014. The Companys efforts to reduce the balance of these higher-priced long-term borrowings has lead to a $2.8 million reduction in interest expense on the long-term debt in 2013 when compared to the same period of 2012, despite the 24 basis point increase in the average rate paid on the debt.
On average, long-term debt decreased to $316.8 million in 2013, 26.5% lower than for the year ended December 31, 2012. Average long-term debt was 2.8% of total liabilities during the current year, lower than the average during 2012 of 4.1%. On a period-end basis, long-term debt was 2.4% of total liabilities at December 31, 2013, also a decrease from 3.6% at December 31, 2012.
Long-term borrowings at December 31, 2013 included $92.2 million in fixed-rate advances from the FHLB of Dallas and Atlanta that cannot be paid off without incurring substantial prepayment penalties. The remaining debt consisted of $111.9 million of the Companys junior subordinated deferrable interest debentures and $76.6 million in notes payable on investments in new market tax credit entities. The debentures are issued to statutory trusts that were funded by the issuance of floating rate capital securities of the trusts and qualify as Tier 1 Capital for regulatory purposes. Interest is payable quarterly and may be deferred at any time at the election of the Company for up to 20 consecutive quarterly periods. During any deferral period, the Company is subject to certain restrictions, including being prohibited from declaring dividends to its common shareholders. The securities are redeemable by the Company in whole or in part after five years, or earlier under certain circumstances.
The following table summarizes each outstanding issue of junior subordinated debt. For additional information, see Note 16 of the consolidated financial statements.
TABLE 24JUNIOR SUBORDINATED DEBT COMPOSITION
(Dollars in thousands)
Date Issued |
Term |
Callable After (3) |
Interest Rate (4) |
2013 | 2012 | |||||||||
July 2001 (1) |
30 years | 10 years | LIBOR plus 3.300% | $ | 8,248 | $ | 8,248 | |||||||
November 2002 |
30 years | 5 Years | LIBOR plus 3.250% | 10,310 | 10,310 | |||||||||
March 2003 (2) |
30 years | 5 Years | LIBOR plus 3.150% | 6,186 | 6,186 | |||||||||
June 2003 |
30 years | 5 Years | LIBOR plus 3.150% | 10,310 | 10,310 | |||||||||
March 2004 (1) |
30 years | 10 years | LIBOR plus 2.790% | 7,732 | 7,732 | |||||||||
September 2004 |
30 years | 5 Years | LIBOR plus 2.000% | 10,310 | 10,310 | |||||||||
October 2006 |
30 years | 5 Years | LIBOR plus 1.600% | 15,464 | 15,464 | |||||||||
June 2007 |
30 years | 5 Years | LIBOR plus 1.435% | 10,310 | 10,310 | |||||||||
November 2007 |
30 years | 5 Years | LIBOR plus 2.750% | 12,372 | 12,372 | |||||||||
November 2007 |
30 years | 5 Years | LIBOR plus 2.540% | 13,403 | 13,403 | |||||||||
March 2008 |
30 years | 5 Years | LIBOR plus 3.500% | 7,217 | 7,217 | |||||||||
|
|
|
|
|||||||||||
$ | 111,862 | $ | 111,862 | |||||||||||
|
|
|
|
(1) |
Obtained via the OMNI acquisition. |
(2) |
Obtained via the American Horizons acquisition. |
(3) |
Subject to regulatory requirements. |
(4) |
The interest rate on the Companys junior subordinated debt is indexed to LIBOR and is based on the 3-month LIBOR rate. |
At December 31, 2013 and 2012, the 3-month LIBOR rate was 0.25% and 0.31%, respectively.
Shareholders Equity
Shareholders equity provides a source of permanent funding, allows for future growth, and provides the Company with a cushion to withstand unforeseen adverse developments. At December 31, 2013, shareholders equity totaled $1.5 billion, an increase of $1.1 million, or 0.1%, compared to December 31, 2012. The following table details the changes in shareholders equity during the twelve months ended December 31, 2013 and 2012.
TABLE 25CHANGES IN SHAREHOLDERS EQUITY
(Dollars in thousands) |
2013 | 2012 | ||||||
Balance, beginning of period |
$ | 1,529,868 | $ | 1,482,661 | ||||
Net income |
65,103 | 76,395 | ||||||
Other comprehensive (loss) income |
(40,968 | ) | 20 | |||||
Common stock issued |
| 39,203 | ||||||
Treasury stock repurchased |
| (40,433 | ) | |||||
Reissuance of treasury stock under management incentive plans, net of shares surrendered |
6,707 | 2,222 | ||||||
Cash dividends declared |
(40,434 | ) | (40,107 | ) | ||||
Share-based compensation cost |
10,703 | 9,907 | ||||||
|
|
|
|
|||||
Balance, end of period |
$ | 1,530,979 | $ | 1,529,868 | ||||
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|
|
|
During the year ended December 31, 2013, the growth in shareholders equity was tempered as a result of a $41.8 million decrease in the unrealized gain on the available for sale investment portfolio resulting from interest rate changes toward the end of the period. Net income of $65.1 million for 2013 was offset by dividend payments to common shareholders of $40.4 million, or $1.36 per common share, during the year.
CAPITAL RESOURCES
Federal regulations impose minimum regulatory capital requirements on all institutions with deposits insured by the Federal Deposit Insurance Corporation. The FRB imposes similar capital regulations on bank holding companies. Compliance with bank and bank holding company regulatory capital requirements, which include leverage and risk-based capital guidelines, are monitored by the Company on an ongoing basis. Under the risk-based capital method, a risk weight is assigned to balance sheet and off-balance sheet items based on regulatory guidelines. At December 31, 2013, the Company exceeded all required regulatory capital ratios.
At December 31, 2013 and 2012, the Companys regulatory capital ratios and those of IBERIABANK were also in excess of the levels established for well-capitalized institutions, as shown in the following table and chart.
TABLE 26REGULATORY CAPITAL RATIOS
(Dollars in thousands) |
Well-
Capitalized |
December 31, 2013 | December 31, 2012 | |||||||||||||||||||
Ratio |
Entity | Minimums | Actual | Excess Capital (1) | Actual | Excess Capital (1) | ||||||||||||||||
Tier 1 Leverage |
Consolidated | 5.00 | % | 9.70 | % | $ | 597,186 | 9.70 | % | $ | 574,140 | |||||||||||
IBERIABANK | 5.00 | 8.46 | 437,629 | 8.57 | 433,657 | |||||||||||||||||
Tier 1 risk-based capital |
Consolidated | 6.00 | 11.57 | 592,882 | 12.92 | 634,956 | ||||||||||||||||
IBERIABANK | 6.00 | 10.08 | 432,915 | 11.41 | 493,695 | |||||||||||||||||
Total risk-based capital |
Consolidated | 10.00 | 12.82 | 300,274 | 14.19 | 384,518 | ||||||||||||||||
IBERIABANK | 10.00 | 11.33 | 141,292 | 12.68 | 244,337 |
(1) |
Excess capital is defined as the dollar amount of the Companys capital above minimum capital required to remain well capitalized under current guidelines but does not represent the Companys view of optimum capital levels. |
The decrease in capital ratios from December 31, 2012 was primarily the result of the deployment of excess liquidity that carried a 0% risk weighting into loans and other investments that carried a higher risk rating, namely loans and investment securities. Also affecting capital ratios at December 31, 2013 was a decrease in covered assets throughout 2013, which typically are assigned a lower risk rating.
Regulatory Developments
In July 2013, the U.S. banking regulatory agencies, including the FRB, approved a final rule to implement the revised capital adequacy standards of the Basel Committee on Banking Supervision or Basel III, and to address relevant provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). The Company and IBERIABANK will become subject to the new rules on January 1, 2015, and certain provisions of the new rules will be phased in from that date to January 1, 2019.
The final rules:
|
Permit banking organizations that had less than $15 billion in total consolidated assets as of December 31, 2009, to include as Tier 1 capital trust preferred securities and cumulative perpetual preferred stock that were issued and included as Tier 1 capital prior to May 19, 2010, subject to a limit of 25% of Tier 1 capital elements, excluding any non-qualifying capital instruments and after all regulatory capital deductions and adjustments have been applied to Tier 1 capital, |
|
Establish new qualifying criteria for regulatory capital, including new limitations on the inclusion of deferred tax assets and mortgage servicing rights, |
|
Require a minimum of ratio of common equity Tier 1, or CET1, capital to risk-weighted assets of 4.5%, |
|
Increase the minimum Tier 1 capital to risk-weighted assets ratio requirements from 4% to 6%, |
|
Retain the minimum total capital to risk-weighted assets ratio requirement of 8%, |
|
Establish a minimum leverage ratio requirement of 4%, |
|
Retain the existing regulatory capital framework for 1-4 family residential mortgage exposures, |
|
Implement a new capital conservation buffer requirement for a banking organization to maintain a CET1 capital ratio more than 2.5% above the minimum CET1 capital, Tier 1 capital and total risk-based capital ratios in order to avoid limitations on capital distributions, including dividend payments, and certain discretionary bonus payments to executive officers. The capital conservation buffer requirement will be phased in beginning on January 1, 2016 at 0.625%, and will be fully phased in at |
2.50% by January 1, 2019. A banking organization with a buffer of less than the required amount would be subject to increasingly stringent limitations on such distributions and payments as the buffer approaches zero. The new rule also generally prohibits a banking organization from making such distributions or payments during any quarter if its eligible retained income is negative and its capital conservation buffer ratio was 2.5% or less at the end of the previous quarter. The eligible retained income of a banking organization is defined as its net income for the four calendar quarters preceding the current calendar quarter, based on the organizations quarterly regulatory reports, net of any distributions and associated tax effects not already reflected in net income, |
|
Increase capital requirements for past-due loans, high volatility commercial real estate exposures, and certain short-term commitments and securitization exposures, |
|
Expand the recognition of collateral and guarantors in determining risk-weighted assets, and |
|
Remove references to credit ratings consistent with the Dodd-Frank Act and establishes due diligence requirements for securitization exposures. |
Management continues to evaluate the provisions of the final rules and their expected impact on the Company and IBERIABANK. Management believes that at December 31, 2013, the Company and IBERIABANK would have met all new capital adequacy requirements on a fully phased-in basis if such requirements were then effective. There can be no assurances that the Basel III capital rules will not be revised before the effective date and expiration of the phase-in periods.
RESULTS OF OPERATIONS
The Company reported income available to common shareholders of $65.1 million, $76.4 million, and $53.5 million for the years ended December 31, 2013, 2012, and 2011, respectively. Earnings per share (EPS) on a diluted basis were $2.20 for 2013, $2.59 for 2012, and $1.87 for 2011.
In 2013, net interest income increased $8.5 million, or 2.2%, over 2012, as interest expense decreased $16.5 million, or 26.0%, and interest income decreased $8.0 million, or 1.8%. Net interest income increased as a result of the decrease in the cost of interest-bearing liabilities, which was partially offset by decreases in earning asset yields. The decrease in yields on earning assets, however, was offset partially by additional customer loan volume in 2013. Income available to common shareholders was also positively impacted by a $15.5 million decrease in the provision for loan losses, but was negatively impacted by a $40.9 million increase in non-interest expenses, the drivers of which are discussed below in the Non-interest Expense section of the discussion.
The decrease in income before income taxes lowered income tax expense $12.6 million in 2013 when compared to 2012. Income tax expense in 2013 was also impacted by a reduction of $0.3 million in expense as a result of the Companys true-up of its tax liability from the previous year with its filed income tax return. Cash earnings, defined as net income before the net-of-tax amortization of acquisition intangibles, were $68.2 million, $79.7 million, and $56.9 million for the years ended December 31, 2013, 2012, and 2011, respectively.
The following discussion provides additional information on the Companys operating results for the years ended December 31, 2013, 2012, and 2011, segregated by major income statement caption.
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 opportunities. The Companys net interest spread, which is the difference between the yields earned on average earning assets and the rates paid on average interest-bearing liabilities, was 3.26%, 3.43%, and 3.34% during the years ended December 31, 2013, 2012, and 2011, respectively. 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 3.38%, 3.58% and 3.51%, respectively, for the same periods. Net interest spread and net interest margin were affected in 2013 by additional amortization of the Companys FDIC loss share receivable due to the adoption of ASU No. 2012-06 in the current year.
Net interest income increased $8.5 million to $390.2 million in 2013 when compared to 2012. The improvement in net interest income was the result of a $903.0 million increase in average earning assets as well as a decrease in the average cost of interest-bearing liabilities of 22 basis points. These improvements were offset by a 4.8% increase in the average balance of interest-bearing liabilities and a 38 basis point decrease in earning asset yield. The average balance sheet growth over the past twelve months is primarily a result of growth in both earning assets and deposits.
Average loans made up 75.5% and 72.4% of average earning assets in 2013 and 2012, respectively. Average loans increased $1.0 billion, or 13.0%, from 2012 to 2013 as a result of loan growth in the non-covered loan portfolio. Investment securities made up 17.7% of average earning assets during the current year, compared to 18.1% during the same period of 2012. Over the past year, management
has focused efforts to reduce its lower-yielding excess liquidity (defined as fed funds sold and interest-bearing cash) by investing in higher-yielding loans and investment securities, as well as paying down its short-term and long-term debt in efforts to improve net interest income. Other significant components of earning assets during 2013 included the FDIC loss share receivable (2.3% of average earning assets) and excess liquidity (2.8% of average earning assets). During 2012, the FDIC loss share receivable was 4.5% of average earning assets, with excess liquidity accounting for 3.0% of average earning assets.
Average interest-bearing deposits made up 93.2% of average interest-bearing liabilities during 2013, up from 91.8% during the twelve months of 2012. Average short-term and long-term borrowings made up 3.3% and 3.5% of average interest-bearing liabilities, respectively, in 2013, respectively, compared to 3.3% and 4.9% during 2012.
The following tables set forth, for the periods indicated, information regarding (i) the total dollar amount of interest income from earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (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 is included in non-earning assets. TE yields are calculated using a marginal tax rate of 35%.
TABLE 27AVERAGE BALANCES, NET INTEREST INCOME AND INTEREST YIELDS / RATES
2013 | 2012 | 2011 | ||||||||||||||||||||||||||||||||||
(Dollars in thousands) |
Average
Balance |
Interest
Income/ Expense |
Yield/
Rate |
Average
Balance |
Interest
Income/ Expense |
Yield/
Rate |
Average
Balance |
Interest
Income/ Expense |
Yield/
Rate |
|||||||||||||||||||||||||||
Earning Assets: |
||||||||||||||||||||||||||||||||||||
Loans receivable: |
||||||||||||||||||||||||||||||||||||
Commercial loans (TE) |
$ | 6,386,364 | $ | 350,451 | 5.50 | % | $ | 5,703,163 | $ | 373,497 | 6.54 | % | $ | 4,787,680 | $ | 306,089 | 6.41 | % | ||||||||||||||||||
Mortgage loans |
520,872 | 30,598 | 5.87 | % | 442,088 | 33,247 | 7.52 | % | 550,361 | 38,379 | 6.97 | % | ||||||||||||||||||||||||
Consumer and other loans |
1,954,766 | 107,887 | 5.52 | % | 1,700,427 | 107,192 | 6.30 | % | 1,399,953 | 91,704 | 6.55 | % | ||||||||||||||||||||||||
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|||||||||||||||||||
Total loans |
8,862,002 | 488,936 | 5.53 | % | 7,845,678 | 513,936 | 6.54 | % | 6,737,994 | 436,172 | 6.49 | % | ||||||||||||||||||||||||
Loans held for sale |
144,961 | 5,108 | 3.52 | % | 162,053 | 5,318 | 3.28 | % | 81,304 | 3,479 | 4.28 | % | ||||||||||||||||||||||||
Investment securities (TE) |
2,081,523 | 38,230 | 2.01 | % | 1,959,754 | 41,265 | 2.31 | % | 2,036,071 | 50,716 | 2.65 | % | ||||||||||||||||||||||||
FDIC loss share receivable |
266,856 | (97,849 | ) | -36.16 | % | 485,270 | (118,100 | ) | -23.94 | % | 648,248 | (72,086 | ) | -10.97 | % | |||||||||||||||||||||
Other earning assets |
380,050 | 2,772 | 0.73 | % | 379,660 | 2,781 | 0.73 | % | 277,152 | 2,046 | 0.74 | % | ||||||||||||||||||||||||
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|
|||||||||||||||||||
Total earning assets |
11,735,392 | 437,197 | 3.78 | % | 10,832,415 | 445,200 | 4.16 | % | 9,780,769 | 420,327 | 4.35 | % | ||||||||||||||||||||||||
Allowance for loan losses |
(184,217 | ) | (184,127 | ) | (155,851 | ) | ||||||||||||||||||||||||||||||
Nonearning assets |
1,452,813 | 1,448,684 | 1,265,272 | |||||||||||||||||||||||||||||||||
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|
|
|
|||||||||||||||||||||||||||||||
Total assets |
$ | 13,003,988 | $ | 12,096,972 | $ | 10,890,190 | ||||||||||||||||||||||||||||||
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|
|||||||||||||||||||||||||||||||
Interest-bearing liabilities |
||||||||||||||||||||||||||||||||||||
Deposits: |
||||||||||||||||||||||||||||||||||||
NOW accounts |
$ | 2,337,831 | 7,557 | 0.32 | % | $ | 2,035,544 | 7,475 | 0.37 | % | $ | 1,554,368 | 7,579 | 0.49 | % | |||||||||||||||||||||
Savings and money market accounts |
4,207,343 | 11,685 | 0.28 | % | 3,661,697 | 17,034 | 0.47 | % | 3,186,508 | 21,991 | 0.69 | % | ||||||||||||||||||||||||
Certificates of deposit |
1,964,702 | 16,604 | 0.85 | % | 2,302,081 | 24,855 | 1.08 | % | 2,699,279 | 40,984 | 1.52 | % | ||||||||||||||||||||||||
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|||||||||||||||||||
Total interest-bearing deposits |
8,509,876 | 35,846 | 0.42 | % | 7,999,322 | 49,364 | 0.62 | % | 7,440,155 | 70,554 | 0.95 | % | ||||||||||||||||||||||||
Short-term borrowings |
303,352 | 490 | 0.16 | % | 284,201 | 650 | 0.22 | % | 220,146 | 577 | 0.26 | % | ||||||||||||||||||||||||
Long-term debt |
316,775 | 10,617 | 3.31 | % | 431,133 | 13,436 | 3.07 | % | 440,077 | 10,938 | 2.45 | % | ||||||||||||||||||||||||
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Total interest-bearing liabilities |
9,130,003 | 46,953 | 0.51 | % | 8,714,656 | 63,450 | 0.73 | % | 8,100,378 | 82,069 | 1.01 | % | ||||||||||||||||||||||||
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Non-interest-bearing demand deposits |
2,216,959 | 1,718,849 | 1,205,697 | |||||||||||||||||||||||||||||||||
Non-interest-bearing liabilities |
129,833 | 149,950 | 161,859 | |||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||
Total liabilities |
11,476,795 | 10,583,455 | 9,467,934 | |||||||||||||||||||||||||||||||||
Shareholders equity |
1,527,193 | 1,513,517 | 1,422,256 | |||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||
Total liabiities and shareholders equity |
$ | 13,003,988 | $ | 12,096,972 | $ | 10,890,190 | ||||||||||||||||||||||||||||||
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|
|||||||||||||||||||||||||||||||
Net earning assets |
$ | 2,605,389 | $ | 2,117,759 | $ | 1,680,391 | ||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||
Net interest spread |
$ | 390,244 | 3.26 | % | $ | 381,750 | 3.43 | % | $ | 338,258 | 3.34 | % | ||||||||||||||||||||||||
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|||||||||||||||||||||||||
Net interest income (TE) /
|
$ | 399,696 | 3.38 | % | $ | 391,409 | 3.58 | % | $ | 346,436 | 3.51 | % | ||||||||||||||||||||||||
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The following table sets forth information regarding average loan balances and average yields, segregated into the covered and non-covered portfolio, for the periods indicated. Information on the Companys covered loan portfolio is presented both with and without the yield on the FDIC loss share receivable.
TABLE 28AVERAGE LOAN BALANCE AND YIELDS
Year Ended December 31, | ||||||||||||||||||||||||
2013 | 2012 | 2011 | ||||||||||||||||||||||
(Dollars in thousands) |
Average
Balance |
Average
Yield |
Average
Balance |
Average
Yield |
Average
Balance |
Average
Yield |
||||||||||||||||||
Non-covered loans (TE) (1) |
$ | 7,958,562 | 4.41 | % | $ | 6,651,484 | 4.63 | % | $ | 5,286,597 | 4.93 | % | ||||||||||||
Covered loans (TE) (1) |
903,440 | 15.34 | 1,194,194 | 17.22 | 1,451,397 | 12.16 | ||||||||||||||||||
FDIC loss share receivable |
266,856 | (36.16 | ) | 485,270 | (23.94 | ) | 648,248 | (10.97 | ) | |||||||||||||||
|
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|
|||||||||||||
1,170,296 | 3.59 | 1,679,464 | 5.32 | 2,099,645 | 5.02 | |||||||||||||||||||
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|||||||||||||
$ | 9,128,858 | 4.31 | % | $ | 8,330,948 | 4.77 | % | $ | 7,386,242 | 4.96 | % | |||||||||||||
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(1) |
Taxable equivalent yields are calculated using a marginal tax rate of 35%. |
The following table displays the dollar amount of changes in interest income and interest expense for major components of earning assets and interest-bearing liabilities. The table distinguishes between (i) changes attributable to volume (changes in average volume between periods times the average yield/rate for the two periods), (ii) changes attributable to rate (changes in average rate between periods times the average volume for the two periods), and (iii) total increase (decrease). Changes attributable to both volume and rate are allocated ratably between the volume and rate categories.
TABLE 29SUMMARY OF CHANGES IN NET INTEREST INCOME
2013/2012 | 2012/2011 | |||||||||||||||||||||||
Change Attributable To | Change Attributable To | |||||||||||||||||||||||
(Dollars in thousands) | Volume | Rate |
Net Increase
(Decrease) |
Volume | Rate |
Net Increase
(Decrease) |
||||||||||||||||||
Earning assets: |
||||||||||||||||||||||||
Loans receivable: |
||||||||||||||||||||||||
Commercial loans (TE) |
$ | 41,070 | $ | (64,116 | ) | $ | (23,046 | ) | $ | 60,138 | $ | 7,270 | $ | 67,408 | ||||||||||
Mortgage loans |
5,344 | (7,993 | ) | (2,649 | ) | (7,983 | ) | 2,851 | (5,132 | ) | ||||||||||||||
Consumer and other loans |
13,828 | (13,133 | ) | 695 | 18,386 | (2,898 | ) | 15,488 | ||||||||||||||||
Loans held for sale |
(585 | ) | 375 | (210 | ) | 2,803 | (964 | ) | 1,839 | |||||||||||||||
Investment securities (TE) |
1,926 | (4,961 | ) | (3,035 | ) | (1,136 | ) | (8,315 | ) | (9,451 | ) | |||||||||||||
FDIC loss share receivable |
66,141 | (45,890 | ) | 20,251 | 21,881 | (67,895 | ) | (46,014 | ) | |||||||||||||||
Other earning assets |
(392 | ) | 383 | (9 | ) | 181 | 554 | 735 | ||||||||||||||||
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|||||||||||||
Net change in income on earning assets |
127,332 | (135,335 | ) | (8,003 | ) | 94,270 | (69,397 | ) | 24,873 | |||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||
Deposits: |
||||||||||||||||||||||||
NOW accounts |
1,037 | (955 | ) | 82 | 2,024 | (2,128 | ) | (104 | ) | |||||||||||||||
Savings and money market accounts |
1,875 | (7,224 | ) | (5,349 | ) | 2,771 | (7,728 | ) | (4,957 | ) | ||||||||||||||
Certificates of deposit |
(3,324 | ) | (4,927 | ) | (8,251 | ) | (5,443 | ) | (10,686 | ) | (16,129 | ) | ||||||||||||
Borrowings |
(3,756 | ) | 777 | (2,979 | ) | (95 | ) | 2,666 | 2,571 | |||||||||||||||
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Net change in expense on interest-bearing liabilities |
(4,168 | ) | (12,329 | ) | (16,497 | ) | (743 | ) | (17,876 | ) | (18,619 | ) | ||||||||||||
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Change in net interest spread |
$ | 131,500 | $ | (123,006 | ) | $ | 8,494 | $ | 95,013 | $ | (51,521 | ) | $ | 43,492 | ||||||||||
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Interest income includes income earned on interest-earning assets as well as applicable loan fees earned. Interest income that would have been earned on nonaccrual loans had they been on accrual status is not included in the data reported above.
The decrease in yield on total earning assets between 2013 and 2012 was driven by lower yields on the Companys loan and investment security portfolios, as well as a higher amortization of the Companys FDIC loss share receivable (that results in a negative yield for this asset).
For the year ended December 31, 2013, the decrease in the rates earned on the Companys assets drove the $8.0 million decrease in interest income, but average balance increases in the largest components of earning assets partially offset these rate decreases. Average loan balances increased $1.0 billion, or 13.0%, over 2012 and can be attributed to the non-covered loan growth since December 31, 2012. Covered loan yields decreased 173 basis points during the current year. Interest income growth was also slowed in the current year by a decrease in the yield on the Companys non-covered loan portfolio of 22 basis points to 4.41%. The total yield of the loan portfolio when including the loss share receivable was 4.31%, 46 basis points lower than in 2012, and offset the income earned on loan volume increases over the prior year. As expected cash flow on the covered loan and OREO portfolios increases, the carrying value of the FDIC loss share receivable decreases, with the difference recorded as an adjustment to earnings.
Interest income growth was also slowed by a 30 basis point decrease in the yield on investment securities. Average year-to-date investment securities increased $121.8 million between 2012 and 2013, partially offsetting the effect the yield decline had on interest income. Despite the decrease in yield, investment securities yielded 2.01% during 2013, well above the yield on interest-bearing cash and fed funds sold of 0.26% for the same period.
Driven by a decrease of 22 basis points in the rate paid on interest-bearing liabilities during the current year, interest expense decreased $16.5 million, or 26.0%, from 2012. Despite an increase of $510.6 million in average interest-bearing deposits (a result of both acquired Florida Gulf deposits and organic deposit growth), interest expense on deposits decreased 27.4%, or $13.5 million, from 2012, as the average rate paid on these deposits decreased to 0.42% for the twelve months of 2013, a 22 basis point decline. Higher-yielding time deposits across many markets either matured or were repriced during 2013, driving the expense and rate decreases. Interest expense on the Companys short-term and long-term borrowings also decreased from 2012, as a six basis point decrease in the rate paid on short-term borrowings, as well as a $114.4 million decrease in average long-term borrowings, offset a 24 basis point increase in the rate paid on that long-term debt.
Provision for Loan Losses
Management of the Company assesses the allowance for credit losses monthly and will make provisions for credit losses as deemed appropriate in order to maintain the appropriateness of the allowance for credit losses. Increases in the allowance for credit losses are achieved through provisions for credit losses that are charged against income. Adjustments to the allowance may also result from credit quality changes associated with acquired loans.
On a consolidated basis, the Company recorded a provision for loan losses of $5.1 million for the year ended December 31, 2013, a $15.5 million, or 75.1%, decrease from the provision recorded for the same period of 2012. The Company also recorded a provision for unfunded lending commitments of $1.3 million during the current year, included in Credit and other loan related expense in the Companys consolidated statement of comprehensive income. As a result, the Companys total provision for credit losses was $6.5 million in 2013, $14.2 million, or 68.7%, below the provision recorded in 2012. The Companys total provision for 2013 included a reversal of provision for changes in expected cash flows on the acquired loan portfolios (covered and non-covered) of $1.7 million and a $6.8 million provision recorded on non-acquired loans, based primarily on loan growth. The total provision was limited in 2013 by an improvement in legacy portfolio asset quality over the past 12 months, as multi-year net charge-off trends in this portfolio continue to show signs of improvement.
Non-covered loans past due totaled $109.2 million at December 31, 2013, a decrease of $18.6 million from December 31, 2012. Past due loans, including nonaccrual loans, were 1.25% of total loans (before acquired loan discount adjustments) at the end of 2013, a 46 basis point decrease from December 31, 2012. Excluding the acquired loans, loans past due were 0.80% of total loans at December 31, 2013, an improvement of 12 basis points from December 31, 2012.
Excluding loan pool closures, net charge-offs on the consolidated portfolio were $3.9 million year-to-date, for a net charge-off percentage of 0.04%, 21 basis points below the 0.25% in 2012. The net charge-offs in 2013 were a result of $10.8 million in charge-offs and $6.9 million in recoveries.
The Company believes the allowance was appropriate at December 31, 2013, and 2012 to cover probable losses in the loan portfolio. The allowance for loan losses as a percentage of outstanding loans, net of unearned income, decreased 145 basis points from 2.96% at December 31, 2012 to 1.51% at December 31, 2013.
Excluding acquired loans, the Companys allowance for the non-covered portfolio was 0.81% of non-covered loans at December 31, 2013 and 1.10% at December 31, 2012. On the same basis, the Companys allowance at December 31, 2013 was 150.4% of total nonperforming loans, compared to 150.6% of nonperforming loans at the end of 2012.
Non-interest Income
The Companys operating results for the year ended December 31, 2013 included non-interest income of $169.0 million compared to $176.0 million and $131.9 million for the same periods of 2012 and 2011, respectively. The decrease in non-interest income from 2012 was primarily a result of a decrease in mortgage income from a slowdown in origination activity and a decrease in the value of the Companys mortgage related derivatives. Non-interest income growth has been a management focus in response to a challenging interest rate environment. As a result, the Company has continued to increase its investments in its wealth management, trust, and brokerage businesses in order to improve its non-interest income. Non-interest income as a percentage of total gross revenue (defined as total interest and non-interest income) in 2013 was 27.9% compared to 28.3% of total gross revenue in the prior year. Excluding mortgage income, other non-interest income for the year ended December 31, 2013 increased to 17.3% of total gross revenue from 15.8% for the same period of 2012.
The following table illustrates the primary components of non-interest income for the periods indicated.
TABLE 30NON-INTEREST INCOME
(Dollars in thousands) | 2013 | 2012 |
Percent
Increase (Decrease) |
2011 |
Percent
Increase (Decrease) |
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Service charges on deposit accounts |
$ | 28,871 | $ | 26,852 | 7.5 | % | $ | 25,915 | 3.6 | % | ||||||||||
Mortgage income |
64,197 | 78,053 | (17.8 | ) | 45,177 | 72.8 | ||||||||||||||
Title revenue |
20,526 | 20,987 | (2.2 | ) | 18,048 | 16.3 | ||||||||||||||
ATM/debit card fee income |
9,510 | 8,978 | 5.9 | 11,008 | (18.4 | ) | ||||||||||||||
Income from bank-owned life insurance |
3,647 | 3,680 | (0.9 | ) | 3,296 | 11.6 | ||||||||||||||
Gain on sale of investments, net (1) |
2,334 | 3,775 | (38.2 | ) | 3,475 | 8.6 | ||||||||||||||
Broker commission income |
16,333 | 13,446 | 21.5 | 10,224 | 31.5 | |||||||||||||||
Gain on sale of assets |
251 | 42 | 502.9 | 943 | (95.6 | ) | ||||||||||||||
Trust income |
5,536 | 4,330 | 27.8 | 2,465 | 75.7 | |||||||||||||||
Credit card income |
6,298 | 4,833 | 30.3 | 3,830 | 26.2 | |||||||||||||||
Other income |
11,455 | 11,021 | 3.9 | 7,478 | 47.4 | |||||||||||||||
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Total noninterest income |
$ | 168,958 | $ | 175,997 | (4.0 | )% | $ | 131,859 | 33.5 | % | ||||||||||
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(1) |
Gain on sale of investments includes gains on calls of held to maturity securities of $57,000, $35,000, and $53,000 for the years ended December 31, 2013, 2012, and 2011, respectively. |
Service charges on deposit accounts increased $2.0 million in 2013 over the prior year and $0.9 million between 2011 and 2012 due primarily to an increase in service charge fees and NSF charges. Customers increased as a result of the Florida Gulf acquisition and new branch openings over the past 12 months.
In 2013, IMC sales volume has been steady, but lower margins and the change in value of the Companys mortgage derivatives offset production and sales activity and resulted in a $13.9 million decrease in mortgage loan income from the twelve months ended December 31, 2012. Sales proceeds decreased $67.8 million, or 2.8%, but derivative income was $14.3 million lower than the year ended December 31, 2012. Between 2011 and 2012, sales proceeds increased $751.3 million, or 45.9%. In addition to the volume increase, a higher margin on the sales of mortgage loans led to higher income in 2012 over 2011.
Title income decreased $0.4 million, or only 2.2%, from 2012, a result of a slightly slower fourth quarter than in 2012, but increased $2.9 million between 2011 and 2012, and was the result of a favorable mortgage business environment, fueled by low mortgage interest rates.
In 2013, ATM/debit card fee income increased $0.5 million from 2012, primarily due to an increase in interchange fee income from increases in transaction volume from an expanded cardholder base and in usage by customers. ATM/debit card fee income decreased $2.0 million in 2012 from 2011 primarily due to a decrease in interchange fee income. Card income was negatively impacted in 2012 by the reordering of the posting sequence for electronic debit transactions associated with the settlement of the Companys class action lawsuit and the implementation of Durbin amendment provisions of the Dodd-Frank Act. Offsetting these negative factors were increases in transaction volume from the expanded cardholder base and in usage by customers.
On July 31, 2013, the U.S. District Court for the District of Columbia issued an Order vacating portions of the FRBs Debit Card Interchange Fee and Routing regulations related to the calculation of transaction fees and network processing non-exclusivity. The Order
would require the FRB to revise its Debit Card Interchange Fee regulations, which serve to limit the fees that issuers can charge for debit card interchange transactions, as well as its regulations relating to routing of debit card interchange transactions. The regulations will remain in effect until resolution of an appeal of the District Courts opinion to the Court of Appeals for the D.C. Circuit. The financial impact of the Courts ruling on the Company cannot be determined at this time.
Income earned from bank owned life insurance remained flat in 2013 when compared to 2012, but increased $0.4 million between 2011 and 2012, consistent with market performance and current yields. There have been no significant investments in bank owned life insurance over the past 12 months.
On a year-to-date basis, gains on investment security sales decreased $1.4 million from 2012, primarily due to changes in sales volume. Gains were recorded on the sale of $42.4 million in available-for-sale securities and the call of $55.6 million of held-to-maturity investments in 2013, compared to the sale or call of $194.0 million in securities during the twelve months of 2012. The volume of sales also contributed to the change from 2011 to 2012, as sales volume increased 52.9% between years.
The Companys wealth management subsidiaries had successful revenue growth during 2013, as total broker commissions increased $2.9 million compared to 2012, a result of the Companys expanded client base and service offering. The Companys other wealth management income, which includes research income, syndicate deals, and investment banking management and underwriting fees, increased $2.7 million, or 105.8%, over 2012, while sales and trade commissions increased $0.2 million, or 1.5%. From 2011 to 2012, sales and trade commissions increased 348.3%, while other wealth management income increased 8.4%.
The Companys trust and credit card income were both positively impacted by the Companys increased customer base and growth of the businesses over 2012. Trust income increased $1.2 million in 2013, while credit card income increased $1.5 million from the same twelve-month period of 2012.
Other non-interest income increased $0.4 million for the twelve months ended December 31, 2013 when compared to the corresponding period of 2012, and $3.5 million between 2011 and 2012. The primary driver of the increase was higher commission income earned on the Companys customer derivatives. Total commission income increased $1.9 million in 2013 over the corresponding 2012 period. Other non-interest income growth in 2013 was tempered in part by a non-operating gain of $2.2 million recorded in 2012 on the redemption of a business investment acquired from OMNI. In addition to the gain, income between 2011 and 2012 was also positively affected by additional earnings on the Companys deferred compensation assets and earnings on the Companys investment in new market tax credits. Deferred compensation earnings increased $0.7 million during 2012, while income from new market tax credits increased $0.5 million, or 18.2%, from 2011.
Non-interest Expense
The Companys results for 2013 included non-interest expenses of $473.1 million, $40.9 million higher than non-interest expenses of $432.2 million for 2012. Ongoing attention to expense control is part of the Companys corporate culture. However, the Companys continued focus on growth through new branches, acquisitions, product expansion, and operational investments have caused related increases in several components of non-interest expense. The Company currently operates 267 combined offices, a decrease of ten offices from December 31, 2012 after adjusting for closed or consolidated branches and offices.
In the current year, the most significant driver of the increase in non-interest expense over 2012 were three non-operating expenses: a $4.9 million impairment recorded on the Companys branches that closed during the first three quarters of 2013, the $31.8 million impairment of the Companys indemnification assets and the $2.3 million prepayment penalty recorded in the first quarter of 2013 to repay $90.0 million in long-term FHLB advances acquired in prior periods. Excluding these and other non-operating expenses, including lease terminations, severance, and merger-related expenses, non-interest expense would have increased $10.4 million, or 2.5%, an increase more representative of the Companys growth over the past 12 months. For the year, the Companys efficiency ratio was 84.6%, but excluding non-operating income and expenses, the Companys operating efficiency ratio would have been 77.0%, compared to 75.8% in 2012.
The following table illustrates the primary components of non-interest expense for the periods indicated.
TABLE 31NON-INTEREST EXPENSE
(Dollars in thousands) | 2013 | 2012 |
Percent
Increase (Decrease) |
2011 |
Percent
Increase (Decrease) |
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Salaries and employee benefits |
$ | 244,981 | $ | 233,777 | 4.8 | % | $ | 193,773 | 20.6 | % | ||||||||||
Net occupancy and equipment |
58,037 | 54,672 | 6.2 | 49,600 | 10.2 | |||||||||||||||
Franchise and shares tax |
3,757 | 3,809 | (1.4 | ) | 4,243 | (10.2 | ) | |||||||||||||
Communication and delivery |
12,024 | 12,671 | (5.1 | ) | 11,510 | 10.1 | ||||||||||||||
Marketing and business development |
10,143 | 12,546 | (19.1 | ) | 9,754 | 28.6 | ||||||||||||||
Data processing |
17,853 | 15,590 | 14.5 | 14,531 | 7.3 | |||||||||||||||
Printing, stationery and supplies |
2,555 | 3,298 | (22.5 | ) | 3,298 | | ||||||||||||||
Amortization of acquisition intangibles |
4,720 | 5,150 | (8.3 | ) | 5,121 | 0.6 | ||||||||||||||
Professional services |
18,217 | 21,095 | (13.6 | ) | 15,085 | 39.8 | ||||||||||||||
Costs of OREO, net |
1,943 | 6,352 | (69.4 | ) | 10,029 | (36.7 | ) | |||||||||||||
Credit and other loan related expense |
15,931 | 18,095 | (12.0 | ) | 15,348 | 17.9 | ||||||||||||||
Insurance |
11,272 | 10,771 | 4.7 | 10,022 | 7.5 | |||||||||||||||
Travel and entertainment |
8,126 | 9,563 | (15.0 | ) | 7,615 | 25.6 | ||||||||||||||
Impairment of long-lived assets |
37,893 | 2,902 | 1,205.6 | | | |||||||||||||||
Prepayment penalty on FHLB debt |
2,307 | | | | | |||||||||||||||
Other expenses |
23,326 | 21,894 | 6.5 | 23,802 | (8.0 | ) | ||||||||||||||
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$ | 473,085 | $ | 432,185 | 9.5 | % | $ | 373,731 | 15.6 | % | |||||||||||
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Salaries and employee benefits increased $11.2 million in 2013 when compared to 2012, primarily the result of increased staffing due to the growth of the Company, specifically the full year-to-date impact of additional Florida Gulf personnel, as well as back office support functions. The Company had 2,576 full-time equivalent employees at the end of 2013. During 2013, the Company increased revenue-producing positions both at IBERIABANK and at its mortgage origination subsidiary. Expenses for 2012 include the full year impact of additional OMNI and Cameron personnel, as well as personnel from Florida Gulf and the Companys new branches for a portion of the year. Full-time equivalent employees increased to almost 2,700 at the end of 2012, a 4.5% increase from the end of 2011, driving the $40.0 million increase.
For 2013, total salaries and other employee compensation increased $5.9 million, or 3.9%, over 2012, while payroll taxes, medical and hospitalization expenses, and other employee benefits increased $1.0 million, $1.6 million, and $0.5 million, respectively. The increase in compensation is a result of the increase in headcount due to the growth of the Company, but is also a result of seven additional months of compensation expense from Florida Gulf employees in 2013. Total employee compensation in the current year also included $3.5 million of additional share-based incentive compensation due to additional restricted stock, phantom stock, and option grants over the past 12 months. The increase in share-based compensation was also a result of the increase in share price over the past 12 months, as the $13.73 share price change from the end of 2012 increased the value of outstanding phantom stock awards. Employee compensation also includes severance and retention payments, which increased $0.1 million, or 4.4%, on a year-to-date basis. The increase in these severance expenses was primarily a result of severance paid to employees affected by branch closures. The increase in medical and hospitalization expenses was partially from an increase in headcount and partially from higher claims processed in the current year.
Net occupancy and equipment expenses were up $3.4 million from 2012, primarily due to increased depreciation expense as a result of additional branches opened and the Florida Gulf branches, but also include $1.0 million in accelerated depreciation on the branches that were closed in 2013. Occupancy and equipment expenses also include repairs and maintenance on branches, utilities, rentals and property taxes. Repairs and maintenance expenses increased $2.7 million in the current year and accounts for a significant portion of the total increase over 2012. These increases were offset by a decrease in net rental expense, as the Company lowered the cost of equipment rental $1.9 million, or 43.5%, between 2012 and 2013.
Between 2011 and 2012, occupancy and equipment expenses increased $5.1 million, or 10.2%. Depreciation expense increased $4.9 million, or 36.1%, and was the result of additional branches opened and the Florida Gulf branches, but also included accelerated depreciation on the Companys ten branches that closed in 2012. Equipment rental (mostly ATMs), building rent, and property taxes increased $1.5 million, $0.8 million, and $0.8 million, respectively, and accounted for most of the remaining increase over 2011.
Despite the growth of the Company over the past 12 months, professional services expense in 2013 was $2.9 million lower than in 2012. The continued expansion of the size and breadth of the Companys operations has typically required additional expenditures for legal services, consulting engagements, exam and supervisory review, and audit services. However, in the current year, legal expenses have decreased $1.7 million, or 35.2%, driven by lower settlement and litigation expenses and a reduction in merger-related legal expenses of $0.3 million. Consulting expenses decreased $0.5 million in the current year, as the Company engaged consultants in 2012 to address risk mitigation and improve the operational efficiency of the Company. The Companys efforts to improve various Company and business-line specific processes drove the consulting expenses in both 2013 and 2012. The Company has seen the benefits of these improvements in 2013 and expects to see additional improvements in future periods. Other merger-related professional expenses decreased $0.7 million from 2012, as the Company incurred higher costs of conversion, audit, and consulting expenses from the FGB acquisition than those spent to date on the announced Trust One asset acquisition.
Due to the growth of the Company, professional services expense in 2012 was $6.0 million higher than in 2011. The continued expansion of the size and breadth of Companys operations required additional expenditures for legal, consulting, exam, and audit services. More specifically, legal expenses increased $1.8 million in 2012 and included expenses around general matters, litigation, and compliance efforts.
For the year ended December 31, 2013, net costs of OREO properties decreased $4.4 million from the corresponding 2012 period, a result of both $1.0 million in additional gains on sales and a decrease in write-downs taken on OREO properties of $1.6 million, or 24.9%. With a lower average OREO balance during 2013, property taxes paid on OREO decreased $0.7 million, or 45.9%. In addition, insurance and maintenance expenses decreased 33.2%, or $0.9 million, between 2012 and 2013, and legal, appraisal, and other OREO expenses decreased $0.7 million, or 47.9%. Net costs of OREO properties decreased $3.7 million in 2012 from 2011, as write-downs taken on OREO properties decreased $0.8 million, or 11.6%, the gains on the sale of properties increased $3.5 million, and property taxes paid on held properties decreased $0.2 million, or 12.9%. Offsetting these changes were additional insurance and other expenses on these properties, driven primarily by the additional properties in the portfolio during 2012. The increased expenses were offset partially by an increase in the income earned on the properties during 2012.
Credit and loan related expenses decreased $2.2 million between 2012 and 2013 as a result of the general improvement in asset quality between periods. Credit and loan related expenses in 2013 also include the provision recorded on the Companys unfunded lending commitments of $1.3 million. Excluding this provision, credit and loan-related expenses would have decreased $3.5 million, or 19.3%. Total expenses incurred for appraisal, inspection, underwriting, certification, and collections have decreased as the number of problem credits has decreased.
Insurance expenses increased $0.5 million between 2012 and 2013, primarily as a result of higher deposit insurance in the current period. The increase in deposit insurance was a result of an increase in the assessment base used by the FDIC to calculate deposit insurance, and not the result of a significant change in assessment rate on deposits due to a change in bank soundness. Despite the increased Company footprint, property, casualty, and other non-deposit insurance expenses have increased only $0.1 million, or 7.1%, from 2012. From 2011 to 2012, insurance expenses increased $0.7 million, also a result of additional deposit insurance from the previous year. As the Companys deposit base grew 12.4% on average, the Companys assessment of deposit insurance from the FDIC increased.
Travel and entertainment expenses decreased $1.4 million from 2012, primarily a result of the steady decrease in transportation and lodging costs as the Company leverages technology to limit the amount of business travel required to conduct its business, despite the expansion of its branch network and number of locations, as well as general increases in mileage, lodging, and flight costs. In 2012, travel and entertainment expenses increased $1.9 million from 2011. Travel costs had increased steadily as the Company expanded its branch network and number of locations.
Other non-interest expenses in 2013 were up $1.4 million over the twelve months of 2012, primarily the result of a $0.8 million increase in debit card expenses. As part of that increase, the Company incurred $0.1 million in 2013 as part of the cancellation of the Companys debit card rewards program. Also affecting 2013 results was an increase in expenses from the Companys investments in new market tax credits, as passive losses increased $2.7 million during the current year. The Company also incurred a provision for clawback of its FDIC indemnification asset based on its estimate of amounts potentially owed to the FDIC of $0.8 million in 2013. Offsetting these increases were decreases in fees from the Companys equity-linked CD product, a result of lower investments in the product in 2013, deposit and other losses, and mortgage loan repurchase charges.
Income Taxes
For the years ended December 31, 2013, 2012, and 2011, the Company recorded income tax expense of $15.9 million, $28.5 million, and $17.0 million, respectively, which resulted in an effective income tax rate of 19.6% in 2013, 27.2% in 2012, and 24.1% in 2011. Ordinarily, the difference between the effective tax rate and the statutory federal and state tax rates primarily relates to variances in items that are non-taxable or non-deductible, which for the Company primarily includes the effect of tax-exempt income, the non-deductibility of a portion of the amortization recorded on acquisition intangibles, and various tax credits. In the current year, the Companys income tax rate was also positively affected by the impairment of the FDIC loss share receivable, the prepayment penalty recorded on the repayment of FHLB debt, and the impairment recorded on closing branches discussed further in the Executive Overview discussion above. As a result of these charges, the Companys income before taxes, and by extension its taxable income, was lower than in previous periods. The tax benefit of these infrequent items, $14.1 million, partially offset the income tax expense recorded on the Companys pre-tax income at its annualized effective tax rate excluding these charges. IBERIABANKs effective federal tax rate excluding these charges was 30.3% for 2013, compared to 31.0% for 2012. On a consolidated basis, the effective tax rate excluding these charges was 24.7% in 2013 and 27.4% in 2012.
The consolidated effective tax rate in 2013 has decreased when compared to 2012. The difference in the effective tax rates for the periods presented is primarily the result of the relative tax-exempt interest income levels during the respective periods for each of the Companys subsidiaries. The tax rate for the current year is lower than in 2012 as a result of the effect of the change in IBERIABANKs effective tax rate discussed above. The Companys consolidated effective tax rates were also positively impacted by the Companys ICP subsidiary, as well as the holding company, as these entities had income tax benefits during the periods from net losses. The effective tax rate on these entities is higher than IBERIABANKs effective tax rate (which is affected by the various tax credits).
LIQUIDITY AND OTHER OFF-BALANCE SHEET ACTIVITIES
Liquidity refers to the Companys ability to generate sufficient cash flows to support its operations and to meet its obligations, including the withdrawal of deposits by customers, commitments to originate loans, and its ability to repay its borrowings and other liabilities. Liquidity risk is the risk to earnings or capital resulting from the Companys inability to fulfill its obligations as they become due. Liquidity risk also develops from the Companys failure to timely recognize or address changes in market conditions that affect the ability to liquidate assets in a timely manner or to obtain adequate funding to continue to operate on a profitable basis.
The primary sources of funds for the Company are deposits and borrowings. Other sources of funds include repayments and maturities of loans and investment securities, securities sold under agreements to repurchase, and, to a lesser extent, off-balance sheet borrowing needs. Certificates of deposit scheduled to mature in one year or less at December 31, 2013 totaled $1.3 billion. Based on past experience, management believes that a significant portion of maturing deposits will remain with the Company. Additionally, the majority of the investment security portfolio is classified as available-for-sale, which provides the ability to liquidate unencumbered securities as needed. Of the $2.1 billion in the investment securities portfolio, $554.3 million is unencumbered and $1.5 billion has been pledged to support repurchase transactions, public funds deposits and certain long-term borrowings. Due to the relatively short implied duration of the investment security portfolio, the Company has historically experienced significant cash inflows on a regular basis , which are highly dependent on prepayment speeds and could change materially. See Notes 15 and 16 to the consolidated financial statements for additional discussion related to the Companys funding requirements.
Scheduled cash flows from the amortization and maturities of loans and securities are relatively predictable sources of funds. Conversely, deposit flows, prepayments of loan and investment securities, and draws on customer letters and lines of credit are greatly influenced by general interest rates, economic conditions, competition, and customer demand. The FHLB of Dallas provides an additional source of liquidity to make funds available for general requirements and also to assist with the variability of less predictable funding sources. At December 31, 2013, the Company had $467.2 million of outstanding FHLB advances, $375.0 million of which was short-term and $92.2 million was long-term. Additional FHLB advances available at December 31, 2013 amounted to $2.2 billion. At December 31, 2013, IBERIABANK also had a $25.0 million one-year line of credit available with an unaffiliated bank. The Company and IBERIABANK also have various funding arrangements with commercial banks providing up to $130.0 million in the form of federal funds and other lines of credit. At December 31, 2013, there were no balances outstanding on these lines and all of the funding was available to the Company.
Liquidity management is both a daily and long-term function of business management. The Company manages its liquidity with the objective of maintaining sufficient funds to respond to the predicted needs of depositors and borrowers and to take advantage of investments in earning assets and other earnings enhancement opportunities. Excess liquidity is generally invested in short-term investments such as overnight deposits. On a longer-term basis, the Company maintains a strategy of investing in various lending and investment security products. The Company uses its sources of funds primarily to fund loan commitments and meet its ongoing commitments associated with its operations. Based on its available cash at December 31, 2013 and current deposit modeling, the Company believes it has adequate liquidity to fund ongoing operations. The Company has adequate availability of funds from deposits, borrowings, repayments and maturities of loans and investment securities to provide the Company additional working capital if needed.
Net cash outflows totaled $579.6 million during 2013, a decrease of $977.3 million from net cash inflows of $397.7 million during the year ended December 31, 2012. The decrease in cash was in part an action by management to deploy excess liquidity at the end of 2012 and invest in higher yielding earnings assets and manage its balance sheet in an effort to maximize shareholder return.
The following table summarizes the Companys cash flows for the years ended December 31 for the periods indicated.
TABLE 32CASH FLOW ACTIVITY BY TYPE
(Dollars in thousands) | 2013 | 2012 | 2011 | |||||||||
Cash flow provided by (used in) operations |
$ | 309,783 | $ | (12,188 | ) | $ | 15,758 | |||||
Cash flow (used in) provided by investing activities |
(1,080,607 | ) | (527,676 | ) | 25,732 | |||||||
Cash flow provided by financing activities |
191,243 | 937,545 | 194,028 | |||||||||
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Net (decrease) increase in cash and cash equivalents |
$ | (579,581 | ) | $ | 397,681 | $ | 235,518 | |||||
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The Company had operating cash inflow of $309.8 million for the year ended December 31, 2013, $322.0 million more than cash used in operations for the same period of 2012. Operating cash flow in the current year was positively impacted by a $248.1 million increase in the net proceeds received from activity related to mortgage loans held for sale and a decrease in non-cash operating expenses, including amortization and impairment charges, but was negatively impacted by a decrease in net income and cash used to purchase other assets.
Cash flow from investing activities decreased $552.9 million in 2013 when compared to 2012, primarily driven by a $307.8 million decrease in net cash flow from investment security activity as a result of increased security purchases and lower sales and maturities. Cash used to fund loan growth increased $160.0 million, which had a negative impact on cash flow. Investing cash activity in 2013 was also negatively affected by a decrease of $89.5 million in reimbursements from the FDIC.
Net cash provided by financing activities decreased $746.3 million during 2013 when compared to 2012, primarily due to a decrease in cash from customer deposits that results in a $1.2 billion difference in net deposit cash flow between the two periods. Net cash received from short-term borrowings and long-term debt in 2013 was $394.6 million higher than during the twelve months of 2012.
The Companys operating cash flow in 2012 was $27.9 million less than 2011. Operating cash flow in 2012 was negatively impacted by an increase in mortgage loan origination activity.
Cash flow from investing activities decreased $553.4 million during 2012 when compared to 2011. Funding loan growth and a decrease in net cash flow from investment securities drove the decrease. Net cash flow from investment security activity decreased $267.7 million in 2012 as a result of a higher level of security purchases. Cash flow used to fund loan growth increased $309.9 million and also had a negative impact on cash flow in 2012. Positively affecting cash flow in 2011 was the acquisition of $79.3 million in cash as part of the OMNI and Cameron acquisitions, $46.9 million higher than the net cash acquired from Florida Gulf in 2012.
Net financing cash flows increased $743.5 million during 2012 when compared to 2011, primarily due to an increase in cash from customer deposits that resulted in a $1.0 billion difference in net deposit cash flow between the two periods.
In the normal course of business, the Company is a party to a number of activities that contain credit, market and operational risk that are not reflected in whole or in part in the Companys consolidated financial statements. Such activities include traditional off-balance sheet credit-related financial instruments, commitments under operating leases, and long-term debt. The Company provides customers with off-balance sheet credit support through loan commitments, lines of credit, and standby letters of credit. Many of the unused commitments are expected to expire unused or be only partially used; therefore, the total amount of unused commitments does not necessarily represent future cash requirements. Based on its available liquidity and available borrowing capacity, the Company anticipates it will continue to have sufficient funds to meet its current commitments. At December 31, 2013, the Companys approved loan commitments outstanding totaled $221.6 million. At the same date, commitments under unused lines of credit, including credit card lines, amounted to $3.3 billion. Included in these totals are commercial commitments amounting to $2.7 billion as shown in the following table.
TABLE 33COMMERCIAL COMMITMENT EXPIRATION PER PERIOD
(Dollars in thousands) |
Less than 1
year |
13 Years | 35 Years | Over 5 Years | Total | |||||||||||||||
Unused commercial lines of credit |
$ | 1,212,029 | $ | 744,879 | $ | 617,837 | $ | 113,682 | $ | 2,688,427 | ||||||||||
Unfunded loan commitments |
221,627 | | | | 221,627 | |||||||||||||||
Standby letters of credit |
76,194 | 19,180 | 9,345 | 307 | 105,026 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 1,509,850 | $ | 764,059 | $ | 627,182 | $ | 113,989 | $ | 3,015,080 | |||||||||||
|
|
|
|
|
|
|
|
|
|
The Company has entered into a number of long-term arrangements to support the ongoing activities of the Company. The required payments under such leasing and other debt commitments at December 31, 2013 are shown in the following table.
TABLE 34CONTRACTUAL OBLIGATIONS AND OTHER DEBT COMMITMENTS
(Dollars in thousands) | 2014 | 2015 | 2016 | 2017 | 2018 |
2019 and
After |
Total | |||||||||||||||||||||
Operating leases |
$ | 11,357 | $ | 10,404 | $ | 8,925 | $ | 7,242 | $ | 6,411 | $ | 36,985 | $ | 81,324 | ||||||||||||||
Certificates of deposit |
1,264,077 | 214,924 | 126,102 | 36,563 | 39,330 | 29,596 | 1,710,592 | |||||||||||||||||||||
Short-term borrowings |
680,344 | | | | | | 680,344 | |||||||||||||||||||||
Long-term debt |
10,344 | 1,220 | 28,863 | 50,567 | 7,900 | 181,805 | 280,699 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 1,966,122 | $ | 226,548 | $ | 163,890 | $ | 94,372 | $ | 53,641 | $ | 248,386 | $ | 2,752,959 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSET/LIABILITY MANAGEMENT, MARKET RISK AND COUNTERPARTY CREDIT RISK
The principal objective of the Companys asset and liability management function is to evaluate the interest rate risk included in certain balance sheet accounts, determine the appropriate level of risk given the Companys business focus, operating environment, capital and liquidity requirements and performance objectives, establish prudent asset concentration guidelines and manage the risk consistent with Board approved guidelines. Through such management, the Company seeks to reduce the vulnerability of its operations to changes in interest rates. The Companys actions in this regard are taken under the guidance of the Senior Management Planning Committee. The Senior Management Planning Committee normally meets monthly to review, among other things, the sensitivity of the Companys assets and liabilities to interest rate changes, local and national market conditions and interest rates. In connection therewith, the Senior Management Planning Committee generally reviews the Companys liquidity, cash flow needs, maturities of investments, deposits, borrowings and capital position.
The objective of interest rate risk management is to control the effects that interest rate fluctuations have on net interest income and on the net present value of the Companys earning assets and interest-bearing liabilities. Management and the Board are responsible for managing interest rate risk and employing risk management policies that monitor and limit this exposure. Interest rate risk is measured using net interest income simulation and asset/liability net present value sensitivity analyses. The Company uses financial modeling to measure the impact of changes in interest rates on the net interest margin and predict market risk. Estimates are based upon numerous assumptions including the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows and others. These analyses provide a range of potential impacts on net interest income and portfolio equity caused by interest rate movements.
Included in the modeling are instantaneous parallel rate shift scenarios, which are utilized to establish exposure limits. These scenarios are known as rate shocks because all rates are modeled to change instantaneously by the indicated shock amount, rather than a gradual rate shift over a period of time that has traditionally been more realistic.
The Companys interest rate risk model indicated that the Company was asset sensitive in terms of interest rate sensitivity. Based on the Companys interest rate risk model at December 31, 2013, the table below illustrates the impact of an immediate and sustained 100 and 200 basis point increase or decrease in interest rates on net interest income.
TABLE 35CHANGE IN NET INTEREST INCOME FROM INTEREST RATE CHANGES
Shift in Interest Rates (in bps) |
% Change in Projected
Net Interest Income |
|
+ 200 |
7.0% | |
+ 100 |
3.3% | |
- 100 |
(2.6)% | |
- 200 |
(5.8)% | |
|
|
The influence of using the forward curve as of December 31, 2013 as a basis for projecting the interest rate environment would approximate a 1.0% increase in net interest income. The computations of interest rate risk shown above do not necessarily include certain actions that management may undertake to manage this risk in response to anticipated changes in interest rates and other factors.
The interest rate environment is primarily a function of the monetary policy of the FRB. The principal tools of the FRB for implementing monetary policy are open market operations, or the purchases and sales of U.S. Treasury and federal agency securities. The FRBs objective for open market operations has varied over the years, but the focus has gradually shifted toward attaining a specified level of the federal funds rate to achieve the long-run goals of price stability and sustainable economic growth. The federal funds rate is the basis for overnight funding and drives the short end of the yield curve. Longer maturities are influenced by FRB purchases and sales and also expectations of monetary policy going forward. In response to growing concerns about the banking industry and customer liquidity, the federal funds rate decreased seven times to a new all-time low of 0.25% at the end of 2008. The federal funds rate has remained at 0.25% throughout 2013 and will remain at that rate through at least late 2014. The Companys commercial loan portfolio is also impacted by fluctuations in the level of the London Interbank Borrowing Offered Rate (LIBOR), as a large portion of this portfolio reprices based on this index. The decrease in the federal funds, LIBOR, and U.S. Treasury rates have resulted in compressed net interest margin for the Company, as assets have repriced more quickly than the Companys liabilities. Although management believes that the Company is not significantly affected by changes in interest rates over an extended period of time, any continued flattening of the yield curve will exert downward pressure on the net interest margin and net interest income. The table below presents the Companys anticipated repricing of loans and investment securities over the next four quarters.
TABLE 36REPRICING OF CERTAIN EARNING ASSETS
(Dollars in thousands) | 1Q 2014 | 2Q 2014 | 3Q 2014 | 4Q 2014 |
Total less than
one year |
|||||||||||||||
Investment securities |
$ | 79,077 | $ | 75,464 | $ | 78,590 | $ | 54,690 | $ | 287,821 | ||||||||||
Covered loans |
283,288 | 93,649 | 82,397 | 72,029 | 531,363 | |||||||||||||||
Non-covered loans: |
||||||||||||||||||||
Fixed rate loans |
304,932 | 268,382 | 250,726 | 237,786 | 1,061,826 | |||||||||||||||
Variable rate loans |
4,181,141 | 44,690 | 18,232 | 25,304 | 4,269,367 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total non-covered loans |
4,486,073 | 313,072 | 268,958 | 263,090 | 5,331,193 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total loans |
4,769,361 | 406,721 | 351,355 | 335,119 | 5,862,556 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 4,848,438 | $ | 482,185 | $ | 429,945 | $ | 389,809 | $ | 6,150,377 | |||||||||||
|
|
|
|
|
|
|
|
|
|
Note: Amounts exclude the repricing of assets and liabilities from prior periods, as well as nonaccrual loans and market value adjustments.
As part of its asset/liability management strategy, the Company has emphasized the origination of commercial and consumer loans, which typically have shorter terms than residential mortgage loans and/or adjustable or variable rates of interest. The majority of fixed-rate, long-term residential loans are sold in the secondary market to avoid assumption of the interest rate risk associated with longer
duration assets in the current low rate environment. As of December 31, 2013, $4.7 billion, or 49.7%, of the Companys total loan portfolio had adjustable interest rates. IBERIABANK had no significant concentration to any single borrower or industry segment at December 31, 2013.
The Companys strategy with respect to liabilities in recent periods has been to emphasize transaction accounts, particularly non-interest or low interest-bearing transaction accounts, which are significantly less sensitive to changes in interest rates. At December 31, 2013, 84.1% of the Companys deposits were in transaction and limited-transaction accounts, compared to 80.0% at December 31, 2012. Non-interest-bearing transaction accounts were 24.0% of total deposits at December 31, 2013, compared to 18.3% of total deposits at December 31, 2012.
Much of the liquidity increase experienced in the past several years has been due to a significant increase in non-interest-bearing demand deposits. The behavior of non-interest-bearing deposits and other types of demand deposits is one of the most important assumptions used in determining the interest rate and liquidity risk positions. A loss of these deposits in the future would reduce the asset sensitivity of the Companys balance sheet as interest-bearing funds would most likely be increased to offset the loss of this favorable funding source.
The table below presents the Companys anticipated repricing of liabilities over the next four quarters.
TABLE 37REPRICING OF LIABILITIES
(Dollars in thousands) | 1Q 2014 | 2Q 2014 | 3Q 2014 | 4Q 2014 |
Total less than
one year |
|||||||||||||||
Time deposits |
$ | 445,388 | $ | 368,962 | $ | 257,773 | $ | 191,954 | $ | 1,264,077 | ||||||||||
Short-term borrowings |
680,344 | | | | 680,344 | |||||||||||||||
Long-term debt |
120,349 | 5,565 | 13,040 | 410 | 139,364 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 1,246,081 | $ | 374,527 | $ | 270,813 | $ | 192,364 | $ | 2,083,785 | |||||||||||
|
|
|
|
|
|
|
|
|
|
As part of an overall interest rate risk management strategy, derivative instruments may also be used as an efficient way to modify the repricing or maturity characteristics of on-balance sheet assets and liabilities. Management may from time to time engage in interest rate swaps to effectively manage interest rate risk. The interest rate swaps of the Company were executed to modify net interest sensitivity to levels deemed appropriate.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data presented herein have been prepared in accordance with generally accepted accounting principles, which generally require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation. Unlike most industrial companies, the majority of the Companys assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on the Companys performance than does the effect of inflation. Although fluctuations in interest rates are neither completely predictable nor controllable, the Company regularly monitors its interest rate position and oversees its financial risk management by establishing policies and operating limits. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates. Although not as critical to the banking industry as to other industries, inflationary factors may have some impact on the Companys growth, earnings, total assets and capital levels. Management does not expect inflation to be a significant factor in 2014.
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Board of Directors of
IBERIABANK Corporation
The management of IBERIABANK Corporation (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting. The Companys internal control system was designed to provide reasonable assurance to the Companys management and board of directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
The Companys management assessed the effectiveness of the Companys internal control over financial reporting as of December 31, 2013. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal ControlIntegrated Framework (1992 Framework). Based on our assessment, management believes that, as of December 31, 2013, the Companys internal control over financial reporting is effective based on those criteria.
The Companys independent registered public accounting firm has also issued an attestation report on the effectiveness of the Companys internal control over financial reporting as of December 31, 2013.
/s/ Daryl G. Byrd | /s/ Anthony J. Restel | |||
Daryl G. Byrd | Anthony J. Restel | |||
President and Chief Executive Officer | Senior Executive Vice President and Chief Financial Officer |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
IBERIABANK Corporation
We have audited IBERIABANK Corporations internal control over financial reporting as of December 31, 2013, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) (the COSO criteria). IBERIABANK Corporations management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed 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. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, IBERIABANK Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the COSO criteria .
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of IBERIABANK Corporation as of December 31, 2013 and 2012, and the related consolidated statements of comprehensive income, shareholders equity, and cash flows for each of the three years in the period ended December 31, 2013 and our report dated February 28, 2014, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
New Orleans, Louisiana
February 28, 2014
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
IBERIABANK Corporation
We have audited the accompanying consolidated balance sheets of IBERIABANK Corporation as of December 31, 2013 and 2012, and the related consolidated statements of comprehensive income, shareholders equity, and cash flows for each of the three years in the period ended December 31, 2013. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of IBERIABANK Corporation at December 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2013 in conformity with U.S. generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, IBERIABANK Corporation changed its method for amortizing indemnification assets as a result of the adoption of the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards Update No. 2012-06, Business Combinations (Topic 825): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), IBERIABANK Corporations internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) and our report dated February 28, 2014, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
New Orleans, Louisiana
February 28, 2014
IBERIABANK CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2013 and 2012
(Dollars in thousands, except share data) | 2013 | 2012 | ||||||
Assets |
||||||||
Cash and due from banks |
$ | 238,672 | $ | 248,214 | ||||
Interest-bearing deposits in banks |
152,724 | 722,763 | ||||||
|
|
|
|
|||||
Total cash and cash equivalents |
391,396 | 970,977 | ||||||
Securities available for sale, at fair value |
1,936,797 | 1,745,004 | ||||||
Securities held to maturity, fair values of $152,566 and $211,498, respectively |
154,109 | 205,062 | ||||||
Mortgage loans held for sale ($97,273 and $0 recorded at fair value) |
128,442 | 267,475 | ||||||
Loans covered by loss share agreements |
719,793 | 1,092,756 | ||||||
Non-covered loans, net of unearned income |
8,772,226 | 7,405,824 | ||||||
|
|
|
|
|||||
Total loans, net of unearned income |
9,492,019 | 8,498,580 | ||||||
Allowance for credit losses |
(143,074 | ) | (251,603 | ) | ||||
|
|
|
|
|||||
Loans, net |
9,348,945 | 8,246,977 | ||||||
FDIC loss share receivables |
162,312 | 423,069 | ||||||
Premises and equipment, net |
287,510 | 303,523 | ||||||
Goodwill |
401,872 | 401,872 | ||||||
Other assets |
554,167 | 565,719 | ||||||
|
|
|
|
|||||
Total Assets |
$ | 13,365,550 | $ | 13,129,678 | ||||
|
|
|
|
|||||
Liabilities |
||||||||
Deposits: |
||||||||
Non-interest-bearing |
$ | 2,575,939 | $ | 1,967,662 | ||||
Interest-bearing |
8,161,061 | 8,780,615 | ||||||
|
|
|
|
|||||
Total deposits |
10,737,000 | 10,748,277 | ||||||
Short-term borrowings |
680,344 | 303,045 | ||||||
Long-term debt |
280,699 | 423,377 | ||||||
Other liabilities |
136,528 | 125,111 | ||||||
|
|
|
|
|||||
Total Liabilities |
11,834,571 | 11,599,810 | ||||||
Shareholders Equity |
||||||||
Preferred stock, $1 par value - 5,000,000 shares authorized |
| | ||||||
Common stock, $1 par value - 50,000,000 shares authorized; 31,917,385 shares issued |
31,917 | 31,917 | ||||||
Additional paid-in capital |
1,178,284 | 1,176,180 | ||||||
Retained earnings |
436,141 | 411,472 | ||||||
Accumulated other comprehensive income (loss) |
(16,491 | ) | 24,477 | |||||
Treasury stock at cost - 2,130,841 and 2,427,640 shares, respectively |
(98,872 | ) | (114,178 | ) | ||||
|
|
|
|
|||||
Total Shareholders Equity |
1,530,979 | 1,529,868 | ||||||
Total Liabilities and Shareholders Equity |
$ | 13,365,550 | $ | 13,129,678 | ||||
|
|
|
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
60
IBERIABANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2013, 2012, and 2011
(Dollars in thousands, except per share data) |
2013 | 2012 | 2011 | |||||||||
Interest and Dividend Income |
||||||||||||
Loans, including fees |
$ | 488,936 | $ | 513,936 | $ | 436,172 | ||||||
Mortgage loans held for sale, including fees |
5,108 | 5,318 | 3,479 | |||||||||
Investment securities: |
||||||||||||
Taxable interest |
31,562 | 33,890 | 44,760 | |||||||||
Tax-exempt interest |
6,668 | 7,375 | 5,956 | |||||||||
Amortization of FDIC loss share receivable |
(97,849 | ) | (118,100 | ) | (72,086 | ) | ||||||
Other |
2,772 | 2,781 | 2,046 | |||||||||
|
|
|
|
|
|
|||||||
Total interest and dividend income |
437,197 | 445,200 | 420,327 | |||||||||
Interest Expense |
||||||||||||
Deposits: |
||||||||||||
NOW and MMDA |
18,933 | 23,936 | 28,914 | |||||||||
Savings |
309 | 573 | 656 | |||||||||
Time deposits |
16,604 | 24,855 | 40,984 | |||||||||
Short-term borrowings |
490 | 650 | 577 | |||||||||
Long-term debt |
10,617 | 13,436 | 10,938 | |||||||||
|
|
|
|
|
|
|||||||
Total interest expense |
46,953 | 63,450 | 82,069 | |||||||||
|
|
|
|
|
|
|||||||
Net interest income |
390,244 | 381,750 | 338,258 | |||||||||
Provision for loan losses |
5,145 | 20,671 | 25,867 | |||||||||
|
|
|
|
|
|
|||||||
Net interest income after provision for loan losses |
385,099 | 361,079 | 312,391 | |||||||||
Non-interest Income |
||||||||||||
Service charges on deposit accounts |
28,871 | 26,852 | 25,915 | |||||||||
Mortgage income |
64,197 | 78,053 | 45,177 | |||||||||
Title revenue |
20,526 | 20,987 | 18,048 | |||||||||
ATM/debit card fee income |
9,510 | 8,978 | 11,008 | |||||||||
Income from bank owned life insurance |
3,647 | 3,680 | 3,296 | |||||||||
Gain on sale of assets |
251 | 42 | 943 | |||||||||
Gain on sale of available for sale investments |
2,277 | 3,739 | 3,422 | |||||||||
Derivative losses reclassified from other comprehensive income |
(391 | ) | (1,618 | ) | (1,723 | ) | ||||||
Broker commissions |
16,333 | 13,446 | 10,224 | |||||||||
Other income |
23,737 | 21,838 | 15,549 | |||||||||
|
|
|
|
|
|
|||||||
Total Non-interest income |
168,958 | 175,997 | 131,859 | |||||||||
Non-interest Expense |
||||||||||||
Salaries and employee benefits |
244,981 | 233,777 | 193,773 | |||||||||
Net occupancy and equipment |
58,037 | 54,672 | 49,600 | |||||||||
Impairment of FDIC loss share receivables and other long-lived assets |
37,893 | 2,902 | | |||||||||
Franchise and shares tax |
3,757 | 3,809 | 4,243 | |||||||||
Communication and delivery |
12,024 | 12,671 | 11,510 | |||||||||
Marketing and business development |
10,143 | 12,546 | 9,754 | |||||||||
Data processing |
17,853 | 15,590 | 14,531 | |||||||||
Printing, stationery and supplies |
2,555 | 3,298 | 3,298 | |||||||||
Amortization of acquisition intangibles |
4,720 | 5,150 | 5,121 | |||||||||
Professional services |
18,217 | 21,095 | 15,085 | |||||||||
Costs of OREO property, net |
1,943 | 6,352 | 10,029 | |||||||||
Credit and other loan related expense |
15,931 | 18,095 | 15,348 | |||||||||
Insurance |
11,272 | 10,771 | 10,022 | |||||||||
Travel and entertainment |
8,126 | 9,563 | 7,615 | |||||||||
Other expenses |
25,633 | 21,894 | 23,802 | |||||||||
|
|
|
|
|
|
|||||||
Total Non-interest expense |
473,085 | 432,185 | 373,731 | |||||||||
|
|
|
|
|
|
|||||||
Income before income tax expense |
80,972 | 104,891 | 70,519 | |||||||||
Income tax expense |
15,869 | 28,496 | 16,981 | |||||||||
|
|
|
|
|
|
|||||||
Net Income |
65,103 | 76,395 | 53,538 | |||||||||
Income Available to Common Shareholders - Basic |
$ | 65,103 | $ | 76,395 | $ | 53,538 | ||||||
Earnings Allocated to Unvested Restricted Stock |
(1,209 | ) | (1,437 | ) | (967 | ) | ||||||
|
|
|
|
|
|
|||||||
Earnings Available to Common Shareholders - Diluted |
63,894 | 74,958 | 52,571 | |||||||||
Earnings per common share - Basic |
$ | 2.20 | $ | 2.59 | $ | 1.88 | ||||||
Earnings per common share - Diluted |
2.20 | 2.59 | 1.87 | |||||||||
Cash dividends declared per common share |
1.36 | 1.36 | 1.36 | |||||||||
Other comprehensive income |
||||||||||||
Unrealized gains on securities: |
||||||||||||
Unrealized holding (losses) gains arising during the period |
$ | (62,095 | ) | $ | 2,174 | $ | 36,328 | |||||
Other than temporary impairment realized in net income |
| | (509 | ) | ||||||||
Less: reclassification adjustment for gains included in net income |
(2,277 | ) | (3,739 | ) | (3,422 | ) | ||||||
|
|
|
|
|
|
|||||||
Unrealized (loss) gain on securities, before tax |
(64,372 | ) | (1,565 | ) | 32,397 | |||||||
Fair value of derivative instruments designated as cash flow hedges: |
||||||||||||
Change in fair value of derivative instruments designated as cash flow hedges during the period |
953 | (22 | ) | (19,078 | ) | |||||||
Less: reclassification adjustment for losses included in net income |
391 | 1,618 | 1,723 | |||||||||
|
|
|
|
|
|
|||||||
Fair value of derivative instruments designated as cash flow hedges, before tax |
1,344 | 1,596 | (17,355 | ) | ||||||||
|
|
|
|
|
|
|||||||
Other comprehensive (loss) income, before tax |
(63,028 | ) | 31 | 15,042 | ||||||||
Income tax (benefit) expense related to items of other comprehensive (loss) income |
(22,060 | ) | 11 | 5,265 | ||||||||
|
|
|
|
|
|
|||||||
Other comprehensive (loss) income, net of tax |
(40,968 | ) | 20 | 9,777 | ||||||||
Comprehensive income |
$ | 24,135 | $ | 76,415 | $ | 63,315 | ||||||
|
|
|
|
|
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
61
IBERIABANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders Equity
Years Ended December 31, 2013, 2012, and 2011
(Dollars in thousands, except share and
|
Common Stock |
Additional
Paid-In Capital |
Retained
Earnings |
Accumulated
Other Comprehensive Income (Loss) |
Treasury Stock |
Total | ||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
Balance, December 31, 2010 |
28,079,841 | $ | 28,080 | $ | 956,864 | $ | 361,055 | $ | 14,680 | 1,205,228 | $ | (57,222 | ) | $ | 1,303,457 | |||||||||||||||||
Net income |
| | | 53,538 | | | | 53,538 | ||||||||||||||||||||||||
Other comprehensive income |
| | | | 9,777 | | | 9,777 | ||||||||||||||||||||||||
Cash dividends declared, $1.36 per share |
| | | (39,409 | ) | | | | (39,409 | ) | ||||||||||||||||||||||
Reissuance of treasury stock under incentive plans, net of shares surrendered in payment, including tax benefit |
| (2,596 | ) | | | (316,063 | ) | 9,026 | 6,430 | |||||||||||||||||||||||
Common stock issued for acquisitions |
3,083,229 | 3,083 | 178,057 | | | | | 181,140 | ||||||||||||||||||||||||
Common stock issued for recognition and retention plans |
| | (5,559 | ) | | | | 5,559 | | |||||||||||||||||||||||
Share-based compensation cost |
| | 9,114 | | | | | 9,114 | ||||||||||||||||||||||||
Treasury stock acquired at cost |
| | | | | 900,000 | (41,386 | ) | (41,386 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance, December 31, 2011 |
31,163,070 | $ | 31,163 | $ | 1,135,880 | $ | 375,184 | $ | 24,457 | 1,789,165 | $ | (84,023 | ) | 1,482,661 | ||||||||||||||||||
Net income |
| | | 76,395 | | | | 76,395 | ||||||||||||||||||||||||
Other comprehensive income |
| | | | 20 | | | 20 | ||||||||||||||||||||||||
Cash dividends declared, $1.36 per share |
| | | (40,107 | ) | | | | (40,107 | ) | ||||||||||||||||||||||
Reissuance of treasury stock under incentive plans, net of shares surrendered in payment, including tax benefit |
| | (354 | ) | | | (214,833 | ) | 2,576 | 2,222 | ||||||||||||||||||||||
Common stock issued for acquisitions |
754,315 | 754 | 38,449 | 39,203 | ||||||||||||||||||||||||||||
Common stock issued for recognition and retention plans |
| | (7,702 | ) | | | | 7,702 | | |||||||||||||||||||||||
Share-based compensation cost |
| | 9,907 | | | | | 9,907 | ||||||||||||||||||||||||
Treasury stock acquired at cost |
| | | | | 853,308 | (40,433 | ) | (40,433 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance, December 31, 2012 |
31,917,385 | $ | 31,917 | $ | 1,176,180 | $ | 411,472 | $ | 24,477 | 2,427,640 | $ | (114,178 | ) | $ | 1,529,868 | |||||||||||||||||
Net income |
| | | 65,103 | | | | 65,103 | ||||||||||||||||||||||||
Other comprehensive loss |
| | | | (40,968 | ) | | | (40,968 | ) | ||||||||||||||||||||||
Cash dividends declared, $1.36 per share |
| | | (40,434 | ) | | | | (40,434 | ) | ||||||||||||||||||||||
Reissuance of treasury stock under incentive plans, net of shares surrendered in payment, including tax benefit |
| | (607 | ) | | | (296,799 | ) | 7,314 | 6,707 | ||||||||||||||||||||||
Common stock issued for recognition and retention plans |
| | (7,992 | ) | | | | 7,992 | | |||||||||||||||||||||||
Share-based compensation cost |
| | 10,703 | | | | | 10,703 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance, December 31, 2013 |
31,917,385 | $ | 31,917 | $ | 1,178,284 | $ | 436,141 | $ | (16,491 | ) | 2,130,841 | $ | (98,872 | ) | $ | 1,530,979 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
62
IBERIABANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 2013, 2012, and 2011
(Dollars in thousands) | 2013 | 2012 | 2011 | |||||||||
Cash Flows from Operating Activities |
||||||||||||
Net income |
$ | 65,103 | $ | 76,395 | $ | 53,538 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
25,388 | 21,685 | 16,772 | |||||||||
Amortization of purchase accounting adjustments, net |
(5,965 | ) | (47,383 | ) | (30,653 | ) | ||||||
Provision for loan losses |
5,145 | 20,671 | 25,867 | |||||||||
Share-based equity compensation expense |
10,703 | 9,907 | 9,114 | |||||||||
Gain on sale of assets |
(251 | ) | (42 | ) | (943 | ) | ||||||
Gain on sale of available for sale investments |
(2,277 | ) | (3,739 | ) | (3,422 | ) | ||||||
Gain on sale of OREO |
(6,022 | ) | (4,985 | ) | (1,476 | ) | ||||||
Loss on abandonment of fixed assets |
4,941 | 2,743 | | |||||||||
Loss on impaired securities |
| | 509 | |||||||||
Impairment of FDIC loss share receivables |
31,813 | | | |||||||||
Amortization of premium/discount on investments |
18,953 | 21,013 | 18,233 | |||||||||
Derivative (gains) losses on swaps |
(209 | ) | 1 | 2 | ||||||||
Benefit for deferred income taxes |
(35,943 | ) | (7,527 | ) | (11,750 | ) | ||||||
Originations of mortgage loans held for sale |
(2,116,460 | ) | (2,432,367 | ) | (1,659,226 | ) | ||||||
Proceeds from sales of mortgage loans held for sale |
2,320,885 | 2,388,716 | 1,637,458 | |||||||||
Gain on sale of mortgage loans held for sale, net |
(65,393 | ) | (70,811 | ) | (43,955 | ) | ||||||
Tax benefit associated with share-based payment arrangements |
(886 | ) | (1,221 | ) | (1,454 | ) | ||||||
(Increase) decrease in other assets |
(17,534 | ) | 7,437 | 5,572 | ||||||||
Other operating activities, net |
77,792 | 7,319 | 1,572 | |||||||||
|
|
|
|
|
|
|||||||
Net Cash Provided by (Used in) Operating Activities |
309,783 | (12,188 | ) | 15,758 | ||||||||
Cash Flows from Investing Activities |
||||||||||||
Proceeds from sales of securities available for sale |
44,677 | 154,222 | 130,305 | |||||||||
Proceeds from maturities, prepayments and calls of securities available for sale |
709,977 | 880,425 | 626,004 | |||||||||
Purchases of securities available for sale |
(1,026,290 | ) | (935,164 | ) | (499,899 | ) | ||||||
Proceeds from maturities, prepayments and calls of securities held to maturity |
55,706 | 43,535 | 120,075 | |||||||||
Purchases of securities held to maturity |
(5,901 | ) | (57,075 | ) | (22,803 | ) | ||||||
FDIC reimbursement of recoverable covered asset losses |
68,233 | 157,694 | 139,852 | |||||||||
Increase in loans receivable, net |
(1,030,545 | ) | (870,577 | ) | (560,635 | ) | ||||||
Proceeds from sale of premises and equipment |
8,714 | 1,274 | 3,227 | |||||||||
Purchases of premises and equipment |
(16,941 | ) | (32,825 | ) | (44,055 | ) | ||||||
Proceeds from disposition of real estate owned |
116,612 | 109,067 | 61,713 | |||||||||
Investment in new market tax credit entities |
(2,213 | ) | (21,368 | ) | (9,425 | ) | ||||||
Cash received in excess of cash paid for acquisition |
| 32,425 | 79,288 | |||||||||
Other investing activities, net |
(2,636 | ) | 10,691 | 2,085 | ||||||||
|
|
|
|
|
|
|||||||
Net Cash (Used in) Provided by Investing Activities |
(1,080,607 | ) | (527,676 | ) | 25,732 | |||||||
Cash Flows from Financing Activities |
||||||||||||
(Decrease) increase in deposits, net of deposits acquired |
(10,689 | ) | 1,174,829 | 174,809 | ||||||||
Net change in short-term borrowings, net of borrowings acquired |
377,299 | (102,320 | ) | 136,786 | ||||||||
Proceeds from long-term debt |
2,867 | 24,086 | 3,176 | |||||||||
Repayments of long-term debt |
(144,609 | ) | (80,770 | ) | (47,227 | ) | ||||||
Dividends paid to shareholders |
(40,332 | ) | (40,069 | ) | (38,558 | ) | ||||||
Proceeds from sale of treasury stock for stock options exercised |
8,101 | 2,813 | 6,807 | |||||||||
Payments to repurchase common stock |
(2,280 | ) | (42,245 | ) | (43,219 | ) | ||||||
Tax benefit associated with share-based payment arrangements |
886 | 1,221 | 1,454 | |||||||||
|
|
|
|
|
|
|||||||
Net Cash Provided by Financing Activities |
191,243 | 937,545 | 194,028 | |||||||||
Net (Decrease) Increase In Cash and Cash Equivalents |
(579,581 | ) | 397,681 | 235,518 | ||||||||
Cash and Cash Equivalents at Beginning of Period |
970,977 | 573,296 | 337,778 | |||||||||
|
|
|
|
|
|
|||||||
Cash and Cash Equivalents at End of Period |
$ | 391,396 | $ | 970,977 | $ | 573,296 | ||||||
|
|
|
|
|
|
|||||||
Supplemental Schedule of Noncash Activities |
||||||||||||
Acquisition of real estate in settlement of loans |
$ | 93,040 | $ | 99,134 | $ | 104,855 | ||||||
Common stock issued in acquisition |
$ | | $ | 39,203 | $ | 181,140 | ||||||
Transfers of property into Other Real Estate |
$ | 93,040 | $ | 106,427 | $ | 104,855 | ||||||
Exercise of stock options with payment in company stock |
$ | | $ | 16 | $ | | ||||||
Supplemental Disclosures |
||||||||||||
Cash paid for: |
||||||||||||
Interest on deposits and borrowings |
$ | 47,466 | $ | 63,984 | $ | 84,452 | ||||||
Income taxes, net |
$ | 29,063 | $ | 15,957 | $ | 41,594 |
The accompanying Notes are an integral part of these Consolidated Financial Statements.
63
IBERIABANK CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, IBERIABANK, Lenders Title Company (LTC), IBERIA Capital Partners L.L.C. (ICP), IB Aircraft Holdings, LLC, IBERIA Asset Management, Inc. (IAM), and IBERIA CDE, L.L.C. (CDE). All significant intercompany balances and transactions have been eliminated in consolidation. All normal, recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the financial statements have been included. Certain amounts reported in prior periods have been reclassified to conform to the current period presentation.
NATURE OF OPERATIONS
The Company offers commercial and retail banking products and services to customers throughout locations in six states through IBERIABANK. The Company also operates mortgage production offices in twelve states through IBERIABANK Mortgage Company (IMC), and offers a full line of title insurance and closing services throughout Arkansas and Louisiana through LTC and its subsidiaries. ICP provides equity research, institutional sales and trading, and corporate finance services. IB Aircraft Holdings, LLC owns a fractional share of an aircraft used by management of the Company and its subsidiaries. IAM provides wealth management and trust services for commercial and private banking clients. CDE is engaged in the purchase of tax credits.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are susceptible to significant change in the near term are the allowance for credit losses, valuation of and accounting for loans covered by loss sharing arrangements with the FDIC and the related loss share receivables, valuation of and accounting for acquired loans, and valuation of goodwill, intangible assets and other purchase accounting adjustments.
CONCENTRATION OF CREDIT RISKS
Most of the Companys business activity is with customers located within the States of Louisiana, Florida, Arkansas, Alabama, Texas, and Tennessee. The Companys lending activity is concentrated in its market areas in those states. The Company has emphasized originations of commercial loans and private banking loans, defined as loans to larger consumer clients. Repayments on loans are expected to come from cash flows of the borrower and/or guarantor. Losses on secured loans are limited by the value of the collateral upon default of the borrowers. The Company does not have any significant concentrations to any one industry or customer. Refer to Note 5 for the Companys credit risks in its investment securities portfolio.
CASH AND CASH EQUIVALENTS
For purposes of presentation in the consolidated statements of cash flows, cash and cash equivalents are defined as cash, interest-bearing deposits and non-interest-bearing demand deposits at other financial institutions with original maturities less than three months. IBERIABANK may be required to maintain average balances on hand or with the Federal Reserve Bank to meet regulatory reserve and clearing requirements. At December 31, 2013 and 2012, the required reserve balances were $6,709,000 and $2,555,000, respectively. IBERIABANK had enough cash deposited with the Federal Reserve at December 31, 2013 and 2012 to cover the required reserve balance.
INVESTMENT SECURITIES
Debt securities that management has the ability and intent to hold to maturity are classified as held to maturity and carried at cost, adjusted for amortization of premiums and accretion of discounts using methods approximating the interest method. Securities not classified as held to maturity or trading, including equity securities with readily determinable fair values, are classified as available for sale and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Declines in the value of individual held to maturity and available for sale securities below their cost that are other than temporary are included in earnings as realized losses. In estimating other than temporary impairment losses, management considers 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, 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, and 4) for debt securities, the recovery of contractual principal and interest. Gains or losses on securities sold are recorded on the trade date, using the specific identification method.
LOANS HELD FOR SALE
Loans held for sale primarily consist of fixed rate single-family residential mortgage loans originated and under contract to be sold in the secondary market. The Company has elected the fair value option for the majority of mortgage loans held for sale (See Note 23). Any other loans held for sale are carried at the lower of cost or estimated fair value. For mortgage loans for which the Company has elected the fair value option, gains and losses are included in mortgage income. For any other loans held for sale, net unrealized losses, if any, are recognized through a valuation allowance that is recorded as a charge to income. See Note 24 for further discussion of the determination of fair value for loans held for sale. In most cases, loans in this category are sold within thirty days and are generally sold with the mortgage servicing rights released. 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. During 2013 and 2012, an insignificant number of loans were returned to the Company.
64
LOANS (EXCLUDING ACQUIRED LOANS)
The Company grants mortgage, commercial and consumer loans to customers. Except for loans acquired, loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the unpaid principal balances, less the allowance for credit losses and net deferred loan origination fees and unearned discounts.
Interest income on loans is accrued over the term of the loans based on the principal balance outstanding. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield, using the effective interest method.
The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Mortgage, credit card and other personal loans are typically charged down to net collateral value, less cost to sell, no later than 180 days past due. Past due status is based on the contractual terms of loans. In all cases, loans are placed on nonaccrual status or charged off at an earlier date if collection of principal or interest is considered doubtful.
The Companys covered loan portfolio and non-covered loan portfolio, which is delineated between a) non-covered loans, excluding acquired loans and b) acquired loans, are disaggregated into portfolio segments for purposes of determining the allowance for credit losses. The Companys portfolio segments include commercial real estate, commercial business, mortgage, and consumer. The Company further disaggregates each commercial real estate, mortgage, and consumer portfolio segment into classes for purposes of monitoring and assessing credit quality based on certain risk characteristics. Classes within each commercial real estate portfolio segment include commercial real estate construction, commercial land, owner-occupied commercial, and commercial real estate other. Classes within each mortgage portfolio segment include mortgage prime and mortgage subprime, as well as junior and senior lien mortgages. Classes within each consumer portfolio segment include indirect auto, credit card, home equity, and consumer other. Each commercial business portfolio segment, including loans to the energy industry, is also considered a class.
Credit Quality
The Company utilizes an asset risk classification system in accordance with guidelines established by the Federal Reserve Board as part of its efforts to monitor commercial asset quality. Special mention loans are defined as loans where known information about possible credit problems of the borrower cause management to have some doubt as to the ability of these borrowers to comply with the present loan repayment terms and which may result in future disclosure of these loans as nonperforming. For assets with identified credit issues, the Company has two primary classifications for problem assets: substandard and doubtful. Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full satisfaction of the loan balance outstanding questionable, which makes probability of loss based on currently existing facts, conditions and values higher. Loans classified as Pass do not meet the criteria set forth for special mention, substandard, or doubtful classification and are not considered criticized. Asset risk classifications are periodically reviewed and changed if, in the opinion of management, the risk profile of the customer has changed since the last review of the loan relationship.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Impairment losses are measured on a loan by loan basis for commercial and certain consumer loans based on either the present value of expected future cash flows discounted at the loans effective interest rate, the loans observable market price, or the fair value of the collateral if the loan is collateral dependent.
In general, all interest accrued but not collected for loans that are placed on nonaccrual status or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis method or cost-recovery method, until the loans qualify for a return to accrual status. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Troubled Debt Restructurings
During the course of its lending operations, the Company periodically grants concessions to its customers in an attempt to protect as much of its investment as possible and minimize risk of loss. These concessions may include restructuring the terms of a customer loan to alleviate the burden of the customers near-term cash requirements. In order to be considered a troubled debt restructuring (TDR), the Company must conclude that the restructuring constitutes a concession and the customer is experiencing financial difficulties. The Company defines a concession to the customer as a modification of existing terms for economic or legal reasons that it would otherwise not consider. The concession is either granted through an agreement with the customer or is imposed by a court or law. Concessions include modifying original loan terms to reduce or defer cash payments required as part of the loan agreement, including but not limited to:
|
a reduction of the stated interest rate for the remaining original life of the debt, |
|
extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk characteristics, |
|
reduction of the face amount or maturity amount of the debt as stated in the agreement, or |
|
reduction of accrued interest receivable on the debt. |
65
In its determination of whether the customer is experiencing financial difficulties, the Company considers numerous indicators, including, but not limited to:
|
whether the customer is currently in default on its existing loan, or is in an economic position where it is probable the customer will be in default on its loan in the foreseeable future without a modification, |
|
whether the customer has declared or is in the process of declaring bankruptcy, |
|
whether there is substantial doubt about the customers ability to continue as a going concern, |
|
whether, based on its projections of the customers current capabilities, the Company believes the customers future cash flows will be insufficient to service the debt, including interest, in accordance with the contractual terms of the existing agreement for the foreseeable future, and |
|
whether, without modification, the customer cannot obtain sufficient funds from other sources at an effective interest rate equal to the current market rate for similar debt for a nontroubled debtor. |
If the Company concludes that both a concession has been granted and the concession was granted to a customer experiencing financial difficulties, the Company identifies the loan as a TDR. For purposes of the determination of an allowance for credit losses for TDRs, the Company considers a loss probable on the loan, which is reviewed for specific impairment in accordance with the Companys allowance for loan loss methodology. If it is determined that losses are probable on such TDRs, either because of delinquency or other credit quality indicator, the Company establishes specific reserves for these loans. For additional information on the Companys allowance for credit losses, see Note 7 to these consolidated financial statements.
ACQUIRED LOANS AND RELATED FDIC LOSS SHARE RECEIVABLE
The Company accounts for its acquisitions under the purchase method, where all identifiable assets acquired, including loans, are recorded at fair value. The fair value of the loans acquired incorporates assumptions regarding credit risk, and as a result credit discounts are included in the determination of fair value. Therefore, an allowance for credit losses is not recorded at the acquisition date.
Loans acquired are recorded at fair value in accordance with the fair value methodology consistent with the exit price concept and exclusive of the shared-loss agreements with the FDIC from certain of the Companys acquisitions in 2010 and 2009. The fair value estimates associated with the loans include estimates related to discount rates, expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows. At the time of acquisition, the Company estimates the fair value of the acquired loan portfolio by segregating the acquired portfolio into loan pools with similar characteristics, which include:
|
whether the loan is performing according to contractual terms at the time of acquisition, |
|
the loan type based on regulatory reporting guidelines, namely whether the loan was a mortgage, consumer, or commercial loan |
|
the nature of collateral, |
|
the interest rate type, whether fixed or variable rate, and |
|
the loan payment type, primarily whether the loan is amortizing or interest-only. |
From these pools, the Company uses certain loan information, including outstanding principal balance, estimated expected losses, weighted average maturity, weighted average term to re-price (if a variable rate loan), weighted average margin, and weighted average interest rate to estimate the expected cash flow for each loan pool.
Acquired loans are evaluated at acquisition and classified as purchase impaired or purchased non-impaired. Purchased impaired loans reflect credit deterioration since origination to the extent that it is probable at the time of acquisition that the Company will be unable to collect all contractually required payments. For purchased impaired loans, expected cash flows at the acquisition date in excess of the fair value of loans are recorded as interest income over the life of the loans using a level yield method if the timing and amount of future cash flows is reasonably estimable.
Subsequent to acquisition, the Company performs cash flow re-estimations at least quarterly for each purchased impaired loan and/or loan pool. Increases in estimated cash flows above those expected at acquisition are recognized on a prospective basis as interest income over the remaining life of the pool. Decreases in expected cash flows subsequent to acquisition result in recognition of a provision for credit loss.
Acquired loans are placed on nonaccrual status when the Company cannot reasonably estimate cash flows on a loan or loan pool.
Pursuant to an AICPA letter dated December 18, 2009, the AICPA summarized the SEC staffs view regarding the accounting in subsequent periods for discount accretion associated with loan receivables acquired in a business combination or asset purchase. Regarding the accounting for such loan receivables that, in the absence of further standard setting, the AICPA understands the SEC staff would not object to an accounting policy based on contractual cash flows (ASC Topic 310-20 approach) or an accounting policy based on expected cash flows (ASC 310-30 approach). The Company believes analogizing to ASC Topic 310-30 is the more appropriate option to follow in accounting for the fair value discount. However, in cases where a loan is acquired at a premium or slight discount, the Company believes that the contractual yield approach outlined in ASC Topic 310-20 is the more appropriate approach to apply.
FDIC LOSS SHARE RECEIVABLE
Because the FDIC reimburses the Company for losses on certain loans acquired in 2009 and 2010, indemnification assets were recorded at fair value as of the acquisition dates. The initial values of the indemnification assets were based on estimated cash flows to be received over the expected life of the acquired assets, not to exceed the term of the indemnification agreements. The loss sharing terms of the Companys commercial and single family residential indemnification agreements are five years and ten years, respectively, from the date of acquisition.
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Because the indemnification assets are measured on the same basis as the indemnified loans, subject to contractual and collectability limitations, the indemnification assets are impacted by changes in expected cash flows on covered assets. Increases in credit losses expected to occur within the loss share term are recorded as current period increases to the allowance for credit losses and increase the amount collectible from the FDIC by the applicable loss share percentage. Decreases in credit losses expected to occur within loss share term reduce the amount collectible from the FDIC and increase the amount collectible from customers in the form of prospective accretion on loans. Increases in the portion of indemnification asset collectible from customers are amortized to income. Periodic amortization represents the amount that is expected to result in symmetrical recognition of pool-level accretion and amortization over the shorter of 1) the life of the loan or 2) the life of the shared loss agreement.
The Company assesses the indemnification assets for collectability at the acquisition level based on three sources: 1) the FDIC, 2) OREO transactions, and 3) customers. Amounts collectible from the FDIC through loss reimbursements are comprised of losses currently expected within the loss share term. A current period impairment would be recorded to the extent that events or circumstances indicate that losses previously expected to occur within the loss share term are expected to occur subsequent to loss share termination. Amounts collectible through expected gains on the sale of OREO are written-up or impaired each period based on the best available information. Amounts collectible from customers in the form of accretion are deemed collectible to the extent that net acquisition-level yield, which primarily consists of accretion and indemnification asset amortization, are expected to remain positive over the life of the shared loss agreement. Impairment of amounts collectible from customers would be recorded as a current period charge to income, to the extent required to maintain the zero net yield floor.
Loss assumptions used to measure the basis of the indemnified loans are consistent with the loss assumptions used to measure the indemnification assets.
A claim receivable is established within other assets when a loss is incurred and the indemnification asset is reduced when cash is received from the FDIC.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses represents managements best estimate of probable credit losses inherent in the loan portfolios and off-balance sheet lending commitments at the balance-sheet date. The allowance for credit losses is maintained at a level the Company considers appropriate and is based on quarterly assessments and evaluations of the collectability and historical loss experience, including both industry and Company specific considerations. While management uses the best information available to establish the allowance for credit losses, future adjustments may be necessary if economic conditions differ substantially from the assumptions used in determining the allowance or, if required by regulators, based upon information available to them at the time of their examinations, or if mandated by revisions to, new interpretations of, or issuance of new accounting standards. See Note 7 for an analysis of the Companys allowance for credit losses by portfolio and portfolio segment, and credit quality information by class. The entire amount of the allowance for credit losses is available to absorb losses on any category or lending-related commitment for non-acquired loans. The allowance related to acquired loans represents managements best estimate of cumulative impairment as described further in Acquired Loans.
The Companys strategy for credit risk management includes a combination of conservative exposure limits, which are significantly below legal lending limits and conservative underwriting, documentation and collection standards. The strategy emphasizes geographic, industry, and customer diversification within the Companys operating footprint, regular credit examinations, and regular management reviews of large credit exposures and loans experiencing credit quality deterioration.
In the current year, the Company changed its methodology for determining the allowance for credit losses on its non-acquired, non-covered loans. See Note 7 for a discussion of changes in the calculation of its allowance for credit losses.
Allowance for credit losses discussion below includes discussion specific to loans accounted for under the contractual yield method, referred to as contractual loans, and loans accounted for as acquired credit impaired loans.
Contractual Loans (Excluding Acquired Credit Impaired Loans)
Contractual loans represent loans accounted for under the contractual yield method. The Companys contractual loans include loans originated by the Company and acquired loans that are not accounted for as acquired credit impaired loans, typically referred to as legacy loans. Credit losses on contractual loans are charged and recoveries are credited to the allowance for credit losses. Provisions for loan losses are based on the Companys review of historical industry and Company specific loss experience, and factors that management determines should be considered in estimating probable credit losses.
Loans identified as impaired are subject to individual quarterly review for probable loss. The Company considers the current value of collateral, credit quality of any guarantees, the guarantors liquidity and willingness to cooperate, and other factors when evaluating whether an individual loan is impaired. Other factors may include the industry and geographic location of the borrower, size and financial condition of the borrower, cash flow and leverage of the borrower, and evaluation of the borrowers management. When individual loans are impaired, allowances are estimated based on managements assessment of the borrowers ability to repay the loan given the availability of collateral and other sources of cash flow, including evaluation of available legal options. Allowances for individually impaired loans are estimated based on the present value of expected future cash flows discounted at the loans effective interest rate, fair value of the underlying collateral or readily observable secondary market values. Collectability of principal and interest is evaluated in assessing the need for a loss accrual.
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The Company also estimates reserves for collective impairment that reflect an estimated measurement of losses related to loans not subject to individual review as of the balance sheet date. Such loans are grouped in homogenous pools or segments, which are consistent with the segments and classes described above. Embedded loss rates are derived from migration analyses, which track net charge-off experience sustained on loans according to their risk grade, and may be adjusted for Company-specific and/or industry factors. Loss rates are reviewed quarterly and adjusted as management deems necessary based on changing borrower and/or collateral conditions and actual collections and charge-off experience.
Based on observations made through a qualitative review, management may apply qualitative adjustments to the quantitatively determined loss estimates at a pool and/or portfolio segment level as deemed appropriate. Primary qualitative and environmental factors that may not be directly reflected in quantitative estimates include:
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asset quality trends, |
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changes in lending and risk management practices and procedures |
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trends in the nature and volume of the loan portfolio, including the existence and effect of any portfolio concentrations |
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changes in experience and depth of lending staff |
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legal, regulatory and competitive environment |
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national and regional economic trends |
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data availability and applicability |
Changes in these factors are considered in determining the directional consistency of changes in the allowance for credit losses. The impact of these factors on the Companys qualitative assessment of the allowance for credit losses can change from period to period based on managements assessment of the extent to which these factors are already reflected in historic loss rates. The uncertainty inherent in the estimation process is also considered in evaluating the allowance for credit losses.
The process used for estimating the allowance for credit losses on the loan portfolio is generally consistent with the process used to estimate the reserve for off-balance sheet lending commitments.
Acquired Credit Impaired Loans
Acquired loans represent loans acquired by the Company, which are accounted for in accordance with ASC 310-30. Credit losses incurred subsequent to acquisition are charged to the allowance for credit losses. Recoveries are credited to the allowance for credit losses to the extent the losses were incurred subsequent to acquisition. Recoveries related to credit losses incurred prior to acquisition are reflected as prospective adjustments to yield, which are accreted to income over the remaining life of the associated pool of loans. Provisions for credit losses are based on the Companys determination of the timing and amount of expected cash flows. Provisions for credit losses associated with loans covered by loss share agreements with the FDIC are partially offset by increases in the FDIC loss share receivable.
The allowance for credit losses related to acquired loans is based on managements re-estimation of expected cash flows for each loan pool. An allowance for credit losses is established to the extent that the expected cash flows of a loan pool have decreased since acquisition.
OFF-BALANCE SHEET CREDIT RELATED FINANCIAL INSTRUMENTS
The Company accounts for its guarantees in accordance with the provisions of ASC Topic 460 . In the ordinary course of business, the Company has entered into commitments to extend credit, including commitments under commercial construction arrangements, commercial and home equity lines of credit, credit card arrangements, commercial letters of credit and standby letters of credit. Such financial instruments are recorded when they are funded.
DERIVATIVE FINANCIAL INSTRUMENTS
ASC Topic 815 requires that all derivatives be recognized as assets or liabilities in the balance sheet at fair value. The Company may enter into derivative contracts to manage exposure to interest rate risk or to meet the financing and/or investing needs of its customers.
In the course of its business operations, the Company is exposed to certain risks, including interest rate, liquidity, and credit risk. The Company manages its risks through the use of derivative financial instruments, primarily through management of exposure due to the receipt or payment of future cash amounts based on interest rates. The Companys derivative financial instruments manage the differences in the timing, amount, and duration of expected cash receipts and payments.
The primary types of derivatives used by the Company include interest rate swap agreements, forward sales contracts, interest rate lock commitments, and written and purchased options.
Hedging Activities
As part of its activities to manage interest rate risk due to interest rate movements from time to time, the Company engages in interest rate swap transactions to manage exposure to interest rate risk through modification of the Companys net interest sensitivity to levels deemed to be appropriate. The Company utilizes these interest rate swap agreements to convert a portion of its variable-rate debt to a fixed rate (cash flow hedge). Interest rate swaps are contracts in which a series of interest rate flows are exchanged over a prescribed period. The notional amount on which the interest payments are based is not exchanged.
Because the Company designates the swap agreements used to manage interest rate risk as hedging instruments, which manage exposure to variable cash flows of forecasted transactions, the effective portion of a derivative gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings or when the hedge is terminated. The ineffective portion of the gain or loss is reported in earnings immediately.
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In applying hedge accounting for derivatives, the Company establishes a method for assessing the effectiveness of the hedging derivative and a measurement approach for determining the ineffective aspect of the hedge upon the inception of the hedge. These methods are consistent with the Companys approach to managing risk. At December 31, 2013, there were no hedging relationships designated for hedge accounting purposes.
Other Derivative Instruments
Interest rate swap agreements
In addition to using derivative instruments as an interest rate risk management tool, the Company also enters into derivative instruments to help its commercial customers manage their exposure to interest rate fluctuations. To mitigate the interest rate risk associated with these customer contracts, the Company enters into offsetting derivative contract positions. The Company manages its credit risk, or potential risk of default by its commercial customers, through credit limit approval and monitoring procedures.
For interest rate swap agreements that are not designated as hedging instruments, changes in the fair value of the derivatives are recognized in earnings immediately.
Rate lock commitments
The Company enters into commitments to originate loans intended for sale whereby the interest rate on the prospective loan is determined prior to funding (rate lock commitments). A rate lock is given to a borrower, subject to conditional performance obligations, for a specified period of time that typically does not exceed 60 days. Simultaneously with the issuance of the rate lock to the borrower, a rate lock is received from an investor for a best efforts or mandatory delivery of the loan. Under the terms of the best efforts delivery lock, the investor commits to purchase the loan at a specified price, provided the loan is funded and delivered prior to a specified date and provided that the credit and loan characteristics meet pre-established criteria for such loans. Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. Accordingly, such commitments are recorded at fair value as derivative assets or liabilities, with changes in fair value recorded in mortgage income.
Forward sales contracts
The Company uses forward sales commitments to protect the value of the mortgage loan pipeline and mortgage loans held for sale from changes in interest rates and pricing between the origination and sale of these loans, as changes in interest rates have the potential to cause a decline in value of the mortgage loans included in the held for sale portfolio. These commitments are considered to be derivatives and are recorded at fair value as derivative assets or liabilities, with changes in fair value recorded in mortgage income.
Equity-indexed certificates of deposit
IBERIABANK offers its customers a certificate of deposit that provides the purchaser a guaranteed return of principal at maturity plus potential return, which allows IBERIABANK to identify a known cost of funds. The rate of return is based on the performance of a basket of publically traded stocks that represent a variety of industry segments. Because it is based on an equity index, the rate of return represents an embedded derivative that is not clearly and closely related to the host instrument and is to be accounted for separately. Accordingly, the certificate of deposit is separated into two components: a zero coupon certificate of deposit (the host instrument) and a written option purchased by the depositor (an embedded derivative). The discount on the zero coupon deposit is amortized over the life of the deposit, and the written option is carried at fair value on the Companys consolidated balance sheet, with changes in fair value recorded through earnings. IBERIABANK offsets the risks of the written option by purchasing an option with terms that mirror the written option and that is also carried at fair value on the Companys consolidated balance sheet.
PREMISES AND EQUIPMENT
Land is carried at cost. Buildings, furniture, fixtures, and equipment are carried at cost, less accumulated depreciation computed on a straight line basis over the estimated useful lives of 10 to 40 years for buildings and 3 to 15 years for furniture, fixtures and equipment. Capitalized leasehold improvements are amortized over the length of the initial lease agreement or their useful life, whichever is shorter.
OTHER REAL ESTATE
Other real estate includes all real estate, other than bank premises used in bank operations, owned or controlled by the Company, including real estate acquired in settlement of loans. Properties are recorded at the balance of the loan (which is the pro-rata carrying value of loans accounted for in accordance with ASC 310-30) or at estimated fair value less estimated selling costs, whichever is less, at the date acquired. Subsequent to foreclosure, management periodically performs valuations and the assets are carried at the lower of cost or fair value less estimated selling costs. Revenue and expenses from operations, gain or loss on sale and changes in the valuation allowance are included in net expenses from foreclosed assets.
For further discussion of the Companys other real estate owned, see Note 12 to the consolidated financial statements.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Goodwill is accounted for in accordance with ASC Topic 350, and accordingly is not amortized but is evaluated at least annually for impairment. As part of its testing, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the results of the qualitative assessment indicate impairment, the Company determines the fair value of a reporting unit relative to its carrying amount to determine whether quantitative indicators of impairment are present. When the Company determines that the fair value of the reporting unit is below its carrying amount, the Company determines the fair value of the reporting units assets and liabilities, considering deferred taxes, and then measures impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill.
Title Plant
The Company records its title plant assets in accordance with ASC Topic 950. Under ASC Topic 950, costs incurred to construct a title plant, including the costs incurred to obtain, organize, and summarize historical information, are capitalized until the title plant can be used to perform title searches. Purchased title plant, including a purchased undivided interest in title plant, is recorded at cost at the date of acquisition. For title plant acquired separately or as part of a company acquisition, cost is measured as the fair value of the consideration given. Capitalized costs of title plant are not depreciated or charged to income unless circumstances indicate that the carrying amount of the title plant has been impaired. Impairment identifiers include a change in legal requirements or statutory practices, identification of obsolescence, and abandonment of the title plant, among other identifiers.
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Intangible assets subject to amortization
The Companys acquired intangible assets that are subject to amortization include core deposit intangibles, amortized on a straight line or accelerated basis over a 10 year average life and a customer relationship intangible asset, amortized on an accelerated basis over a 9.5 year life.
TRANSFERS OF FINANCIAL ASSETS
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when 1) the assets have been isolated from the Company, 2) the transferee obtains the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the transferred assets, and 3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Should the transfer not meet these three criteria, the transaction is treated as a secured financing.
INCOME TAXES
The Company and all subsidiaries file a consolidated federal income tax return on a calendar year basis. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions through IBERIABANK, LTC and their subsidiaries. In lieu of Louisiana state income tax, IBERIABANK is subject to the Louisiana bank shares tax, which is included in non-interest expense or income tax expense in the Companys consolidated financial statements. With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations for years before 2010.
Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits, if applicable, in non-interest expense.
STOCK COMPENSATION PLANS
The Company issues stock options and restricted stock under various plans to directors, officers and other key employees. The Company accounts for its stock compensation plans in accordance with ASC Topics 718 and 505. Under those provisions, the Company has adopted a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured at the grant date based on the value of the award and is recognized on a straight-line basis over the service period, which is usually the vesting period, taking into account retirement eligibility. For service awards with graded vesting, the Company recognizes compensation cost on a straight-line basis. As a result, compensation expense relating to stock options and restricted stock is reflected in net income as part of Salaries and employee benefits on the consolidated statements of comprehensive income for employees and Professional services for non-employee directors. The Companys practice has been to grant options at no less than the fair market value of the stock at the grant date.
See Note 20 for additional information on the Companys share-based compensation plans.
EARNINGS PER COMMON SHARE
Basic earnings per share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares, in the form of stock options, had been issued, as well as any adjustment to income that would result from the assumed issuance. Participating common shares issued by the Company relate to unvested outstanding restricted stock awards, the earnings allocated to which are used in determining income available to common shareholders under the two-class method.
See Note 3 for additional information on the Companys calculation of earnings per share.
TREASURY STOCK
The purchase of the Companys common stock is recorded at cost. At the date of retirement or subsequent reissuance, treasury stock is reduced by the cost of such stock with differences recorded in additional paid-in capital or retained earnings, as applicable.
COMPREHENSIVE INCOME
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities and cash flow hedges, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.
FAIR VALUE MEASUREMENTS
The Company estimates fair value based on the assumptions market participants would use when selling an asset or transferring a liability and characterizes such measurements within the fair value hierarchy based on the inputs used to develop those assumptions and measure fair value. The hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
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Level 1 - Quoted prices in active markets for identical assets or liabilities. |
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Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
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Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
A description of the valuation methodologies used for instruments measured at fair value follows, as well as the classification of such instruments within the valuation hierarchy.
Investment securities
Securities are classified within Level 1 where quoted market prices are available in an active market. Inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are unavailable, fair value is estimated using quoted prices of securities with similar characteristics, at which point the securities would be classified within Level 2 of the hierarchy. Examples may include certain collateralized mortgage and debt obligations.
Mortgage loans held for sale
Excluding loans held for sale that are recorded at fair value under the fair value option, mortgage loans originated and held for sale are carried at the lower of cost or estimated fair value. When determining the fair value of loans held for sale, the Company obtains quotes or bids on these loans directly from purchasing financial institutions. Mortgage loans held for sale that were recorded at estimated fair value are included in Note 24.
Impaired loans
Loans are measured for impairment using the methods permitted by Accounting Standards Codification (ASC) Topic 310. Fair value measurements are used in determining impairment using either the loans observable market price, if available (Level 1) or the fair value of the collateral if the loan is collateral dependent (Level 2). Measuring the impairment of loans using the present value of expected future cash flows, discounted at the loans effective interest rate, is not considered a fair value measurement. Fair value of the collateral is determined by appraisals or independent valuation.
Other real estate owned (OREO)
Fair values of OREO at December 31, 2013 are determined by sales agreement or appraisal, and costs to sell are based on estimation per the terms and conditions of the sales agreement or amounts commonly used in real estate transactions. Inputs include appraisal values on the properties or recent sales activity for similar assets in the propertys market, and thus OREO measured at fair value would be classified within Level 2 of the hierarchy. The Company included property write-downs of $4,813,000, $6,409,000, and $7,250,000 in earnings for the years ended December 31, 2013, 2012, and 2011, respectively.
Derivative financial instruments
The Company enters into commitments to originate loans whereby the interest rate on the prospective loan is determined prior to funding. Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. The Company offers its customers a certificate of deposit that provides the purchaser a guaranteed return of principal at maturity plus potential return, which allows the Company to identify a known cost of funds. The rate of return is based on an equity index, and as such represents an embedded derivative. Fair value of interest rate swaps, interest rate lock commitments, forward sales contracts, and equity-linked written and purchased options are estimated using prices of financial instruments with similar characteristics, and thus are classified within Level 2 of the fair value hierarchy.
NOTE 2 RECENT ACCOUNTING PRONOUNCEMENTS
ASU No. 2012-06
During 2013, the Company adopted the provisions of ASU No. 2012-06, Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution , which clarifies the applicable guidance for subsequently measuring an indemnification asset recognized in a government-assisted acquisition of a financial institution that includes a loss-sharing agreement. The ASU addresses the diversity in practice regarding interpretation of the terms on the same basis and contractual limitations referred to by the applicable accounting guidance. Accounting principles require that an indemnification asset recognized at the acquisition date as a result of a government-assisted acquisition of a financial institution involving an indemnification agreement shall be subsequently measured on the same basis as the indemnified item. The provisions of ASU No. 2012-06 clarify that, upon subsequent remeasurement of an indemnification asset, the effect of the change in expected cash flows of the indemnification agreement shall be amortized. Any amortization of changes in value is limited to the lesser of the contractual term of the indemnification agreement or the remaining life of the indemnified assets. The ASU also clarifies that the pool level is the appropriate unit of account for determining the life of the indemnified loans. The ASU is to be applied prospectively and does not affect the guidance relating to the recognition or initial measurement of an indemnification asset.
Application of the ASUs provisions on a disaggregated basis had the effect of reducing the remaining period over which the indemnification assets will be amortized. As a result of the shortened amortization period, and based on current cash flow expectations and other assumptions, the Companys indemnification asset amortization expense for the year ended December 31, 2013 increased by $23,324,000, however the change in amortization period did not have a material impact on the Companys financial position and liquidity. Adoption of the ASU also requires the Company to assess the indemnification assets for collectability on a standalone basis. Prior to adoption, the Company assessed collectability of the indemnification asset and the covered loans on a linked basis. The transition in collectability
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assessment methodology did not have an impact on the Companys consolidated financial statements as of and for the year ended December 31, 2013. However, future changes in cash flow expectations and/or other assumptions could result in indemnification asset impairment.
ASU No. 2013-02
In 2013, the Company adopted the provisions of ASU No. 2013-06, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income , which requires the Company to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income on the Companys consolidated statements of comprehensive income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income. The ASU does not change the current requirements for reporting net income or other comprehensive income in the consolidated financial statements of the Company, but does require the Company to provide information about the amounts reclassified out of accumulated other comprehensive income by component.
The adoption of the ASU affects the format and presentation of the Companys consolidated financial statements and the footnotes to the consolidated financial statements, but does not represent a departure from accounting principles previously applied and thus the adoption did not have an effect on the Companys operating results, financial position, or liquidity. The information required to be presented or disclosed by this ASU is incorporated in the Companys statements of comprehensive income and Note 18 in these consolidated financial statements.
ASU No. 2011-11 and ASU No. 2013-01
During 2013, the Company adopted the provisions of ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities , which requires an entity to disclose gross and net information about certain instruments and transactions eligible for offset in the statement of financial position and instruments and certain transactions subject to an agreement similar to a master netting arrangement. The Company also adopted ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies the scope of ASU 2011-11. Because the guidance provided by the ASUs is disclosure related, adoption resulted in additional disclosures incorporated in Note 13 of these consolidated financial statements.
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NOTE 3 EARNINGS PER SHARE
Share-based payment awards that entitle holders to receive non-forfeitable dividends before vesting are considered participating securities and thus included in the calculation of basic earnings per share. These awards are included in the calculation of basic earnings per share under the two-class method. The two-class method allocates earnings for the period between common shareholders and other participating securities holders. The participating awards receiving dividends will be allocated the same amount of income as if they were outstanding shares.
The following table presents the calculation of basic and diluted earnings per share.
For the Years Ended December 31, | ||||||||||||
(Dollars in thousands, except per share data) | 2013 | 2012 | 2011 | |||||||||
Income available to common shareholders |
$ | 65,103 | $ | 76,395 | $ | 53,538 | ||||||
Distributed earnings to unvested restricted stock |
(1,206 | ) | (1,443 | ) | (988 | ) | ||||||
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Distributed earnings to common shareholders - basic |
63,897 | 74,952 | 52,550 | |||||||||
Undistributed earnings reallocated to unvested restricted stock |
(3 | ) | 6 | 21 | ||||||||
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Distributed and undistributed earnings to common shareholders - diluted |
$ | 63,894 | $ | 74,958 | $ | 52,571 | ||||||
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Weighted average shares outstanding - basic (1) |
29,605,088 | 29,454,084 | 28,500,420 | |||||||||
Weighted average shares outstanding - diluted |
29,105,098 | 28,957,696 | 28,141,300 | |||||||||
Earnings per common share - basic |
$ | 2.20 | $ | 2.59 | $ | 1.88 | ||||||
Earnings per common share - diluted |
2.20 | 2.59 | 1.87 | |||||||||
Earnings per unvested restricted stock share - basic |
2.18 | 2.61 | 2.04 | |||||||||
Earnings per unvested restricted stock share - diluted |
2.18 | 2.60 | 2.00 |
(1) | Weighted average basic shares outstanding include 553,016, 552,609, and 484,361 shares of unvested restricted stock for the years ended December 31, 2013, 2012, and 2011, respectively. |
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Additional information on the Companys basic earnings per common share is shown in the following table.
For the Years Ended December 31, | ||||||||||||
(Dollars in thousands, except per share data) | 2013 | 2012 | 2011 | |||||||||
Distributed earnings to common shareholders |
$ | 39,685 | $ | 39,349 | $ | 38,681 | ||||||
Undistributed earnings to common shareholders |
24,212 | 35,603 | 13,869 | |||||||||
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Total earnings to common shareholders |
$ | 63,897 | $ | 74,952 | $ | 52,550 | ||||||
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Distributed earnings to unvested restricted stock |
$ | 749 | $ | 758 | $ | 727 | ||||||
Undistributed earnings to unvested restricted stock |
457 | 685 | 261 | |||||||||
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Total earnings allocated to unvested restricted stock |
$ | 1,206 | $ | 1,443 | $ | 988 | ||||||
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Distributed earnings per common share |
$ | 1.37 | $ | 1.36 | $ | 1.38 | ||||||
Undistributed earnings per common share |
0.83 | 1.23 | 0.50 | |||||||||
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Total earnings per common share - basic |
$ | 2.20 | $ | 2.59 | $ | 1.88 | ||||||
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Distributed earnings per unvested restricted stock share |
$ | 1.35 | $ | 1.37 | $ | 1.50 | ||||||
Undistributed earnings per unvested restricted stock share |
0.83 | 1.24 | 0.54 | |||||||||
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Total earnings per unvested restricted stock share - basic |
$ | 2.18 | $ | 2.61 | $ | 2.04 | ||||||
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For the years ended December 31, 2013, 2012, and 2011, the calculations for basic shares outstanding exclude the weighted average shares owned by the Recognition and Retention Plan (RRP) of 642,008, 612,097, and 571,262, respectively, and are adjusted for the weighted average shares in treasury stock of 2,223,306, 1,964,825, and 1,300,222, respectively.
The effects from the assumed exercises of 483,696, 752,188, and 542,716 stock options were not included in the computation of diluted earnings per share for years ended December 31, 2013, 2012 and 2011, respectively, because such amounts would have had an antidilutive effect on earnings per common share.
NOTE 4 DISPOSITION ACTIVITY
Branch Dispositions
In 2012, the Company closed ten branches as part of its ongoing business strategy, which includes a periodic review of its branch network to maximize shareholder return. In 2013, the Company closed or consolidated an additional 14 branches. As part of these branch closures, the Company incurred various disposal costs during the years ended December 31, 2013 and 2012, including personnel termination costs, contract termination costs, and fixed asset disposals. The following table shows the costs the Company incurred that are included in its statements of comprehensive income for the years indicated. The Company estimates future exit costs, which would include additional employee termination costs, fixed asset disposals, and lease termination costs, will not be material.
74
For the Years Ended December 31, | ||||||||
(Dollars in thousands) | 2013 | 2012 | ||||||
Employee termination |
$ | 299 | $ | 477 | ||||
Accelerated depreciation |
1,033 | 576 | ||||||
Contract termination |
659 | 20 | ||||||
Impairment |
4,941 | 2,743 | ||||||
|
|
|
|
|||||
$ | 6,932 | $ | 3,816 | |||||
|
|
|
|
75
NOTE 5 INVESTMENT SECURITIES
The amortized cost and fair values of investment securities, with gross unrealized gains and losses, consist of the following:
December 31, 2013 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
(Dollars in thousands) | Cost | Gains | Losses | Value | ||||||||||||
Securities available for sale: |
||||||||||||||||
U.S. Government-sponsored enterprise obligations |
$ | 406,092 | $ | 1,382 | $ | (11,913 | ) | $ | 395,561 | |||||||
Obligations of state and political obligations |
105,300 | 2,435 | (256 | ) | 107,479 | |||||||||||
Mortgage-backed securities |
1,450,194 | 10,031 | (27,947 | ) | 1,432,278 | |||||||||||
Other securities |
1,460 | 19 | | 1,479 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities available for sale |
$ | 1,963,046 | $ | 13,867 | $ | (40,116 | ) | $ | 1,936,797 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Securities held to maturity: |
||||||||||||||||
U.S. Government-sponsored enterprise obligations |
$ | 34,478 | $ | 484 | $ | | $ | 34,962 | ||||||||
Obligations of state and political obligations |
84,290 | 1,463 | (1,624 | ) | 84,129 | |||||||||||
Mortgage-backed securities |
35,341 | 258 | (2,124 | ) | 33,475 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities held to maturity |
$ | 154,109 | $ | 2,205 | $ | (3,748 | ) | $ | 152,566 | |||||||
|
|
|
|
|
|
|
|
December 31, 2012 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
(Dollars in thousands) | Cost | Gains | Losses | Value | ||||||||||||
Securities available for sale: |
||||||||||||||||
U.S. Government-sponsored enterprise obligations |
$ | 281,746 | $ | 4,364 | $ | (386 | ) | $ | 285,724 | |||||||
Obligations of state and political obligations |
120,680 | 6,573 | (178 | ) | 127,075 | |||||||||||
Mortgage-backed securities |
1,303,030 | 29,108 | (1,482 | ) | 1,330,656 | |||||||||||
Other securities |
1,460 | 89 | | 1,549 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities available for sale |
$ | 1,706,916 | $ | 40,134 | $ | (2,046 | ) | $ | 1,745,004 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Securities held to maturity: |
||||||||||||||||
U.S. Government-sponsored enterprise obligations |
$ | 69,949 | $ | 1,244 | $ | | $ | 71,193 | ||||||||
Obligations of state and political obligations |
88,909 | 4,730 | (113 | ) | 93,526 | |||||||||||
Mortgage-backed securities |
46,204 | 728 | (153 | ) | 46,779 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities held to maturity |
$ | 205,062 | $ | 6,702 | $ | (266 | ) | $ | 211,498 | |||||||
|
|
|
|
|
|
|
|
76
At December 31, 2013, the Companys exposure to two investment security issuers individually exceeded 10% of shareholders equity:
(Dollars in thousands) | Amortized Cost | Market Value | ||||||
Federal National Mortgage Association (Fannie Mae) |
$ | 1,099,986 | $ | 1,084,466 | ||||
Federal Home Loan Mortgage Corporation (Freddie Mac) |
633,222 | 619,101 | ||||||
|
|
|
|
|||||
$ | 1,733,208 | $ | 1,703,567 | |||||
|
|
|
|
Securities with carrying values of $1.5 billion and $1.7 billion were pledged to secure public deposits and other borrowings at December 31, 2013 and 2012, respectively.
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 extent to which the estimated fair value has been less than amortized cost, 2) the financial condition and near-term prospects of the issuer, and 3) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for any anticipated recovery in estimated fair value above amortized cost. In analyzing an issuers financial condition, management considers whether the securities are issued by the federal government or its agencies and whether downgrades by bond rating agencies have occurred, as well as review of issuer financial statements and industry analysts reports.
77
Information pertaining to securities with gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is as follows:
December 31, 2013 | ||||||||||||||||||||||||
Less Than Twelve Months | Over Twelve Months | Total | ||||||||||||||||||||||
Gross | Estimated | Gross | Estimated | Gross | Estimated | |||||||||||||||||||
Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | |||||||||||||||||||
(Dollars in thousands) | Losses | Value | Losses | Value | Losses | Value | ||||||||||||||||||
Securities available for sale: |
||||||||||||||||||||||||
U.S. Government-sponsored enterprise obligations |
$ | (11,764 | ) | $ | 298,515 | $ | (149 | ) | $ | 5,515 | $ | (11,913 | ) | $ | 304,030 | |||||||||
Obligations of state and political obligations |
(30 | ) | 2,415 | (226 | ) | 1,047 | (256 | ) | 3,462 | |||||||||||||||
Mortgage-backed securities |
(23,749 | ) | 864,899 | (4,198 | ) | 81,870 | (27,947 | ) | 946,769 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total securities available for sale |
$ | (35,543 | ) | $ | 1,165,829 | $ | (4,573 | ) | $ | 88,432 | $ | (40,116 | ) | $ | 1,254,261 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Securities held to maturity: |
||||||||||||||||||||||||
Obligations of state and political obligations |
$ | (1,181 | ) | $ | 29,355 | $ | (443 | ) | $ | 6,240 | $ | (1,624 | ) | $ | 35,595 | |||||||||
Mortgage-backed securities |
(952 | ) | 12,913 | (1,172 | ) | 11,616 | (2,124 | ) | 24,529 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total securities held to maturity |
$ | (2,133 | ) | $ | 42,268 | $ | (1,615 | ) | $ | 17,856 | $ | (3,748 | ) | $ | 60,124 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012 | ||||||||||||||||||||||||
Less Than Twelve Months | Over Twelve Months | Total | ||||||||||||||||||||||
Gross | Estimated | Gross | Estimated | Gross | Estimated | |||||||||||||||||||
Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | |||||||||||||||||||
(Dollars in thousands) | Losses | Value | Losses | Value | Losses | Value | ||||||||||||||||||
Securities available for sale: |
||||||||||||||||||||||||
U.S. Government-sponsored enterprise obligations |
$ | (386 | ) | $ | 59,741 | $ | | $ | | $ | (386 | ) | $ | 59,741 | ||||||||||
Obligations of state and political obligations |
| | (178 | ) | 1,094 | (178 | ) | 1,094 | ||||||||||||||||
Mortgage-backed securities |
(1,473 | ) | 180,027 | (9 | ) | 3,919 | (1,482 | ) | 183,946 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total securities available for sale |
$ | (1,859 | ) | $ | 239,768 | $ | (187 | ) | $ | 5,013 | $ | (2,046 | ) | $ | 244,781 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Securities held to maturity: |
||||||||||||||||||||||||
Obligations of state and political obligations |
$ | (113 | ) | $ | 8,242 | $ | | $ | | $ | (113 | ) | $ | 8,242 | ||||||||||
Mortgage-backed securities |
(153 | ) | 16,262 | | | (153 | ) | 16,262 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total securities held to maturity |
$ | (266 | ) | $ | 24,504 | $ | | $ | | $ | (266 | ) | $ | 24,504 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The Company assessed the nature of the losses in its portfolio as of December, 31, 2013 and 2012 to determine if there are losses that should be deemed other-than-temporary. In its analysis of these securities, management considered numerous factors to determine whether there were instances where the amortized cost basis of the debt securities would not be fully recoverable, including, but not limited to:
|
The length of time and extent to which the estimated fair value of the securities was less than their amortized cost, |
|
Whether adverse conditions were present in the operations, geographic area, or industry of the issuer, |
|
The payment structure of the security, including scheduled interest and principal payments, including the issuers failures to make scheduled payments, if any, and the likelihood of failure to make scheduled payments in the future, |
|
Changes to the rating of the security by a rating agency, and |
|
Subsequent recoveries or additional declines in fair value after the balance sheet date. |
78
Management believes it has considered these factors, as well as all relevant information available, when determining the expected future cash flows of the securities in question. Except for the bond discussed below, in each instance, management has determined the cost basis of the securities would be fully recoverable. Management also has the intent and ability to hold debt securities until their maturity or anticipated recovery if the security is classified as available for sale. In addition, management does not believe the Company will be required to sell debt securities before the anticipated recovery of the amortized cost basis of the security.
At December 31, 2013, 207 debt securities had unrealized losses of 3.23% of the securities amortized cost basis and 2.07% of the Companys total amortized cost basis. The unrealized losses for each of the 207 securities relate to market interest rate changes. Twenty-five of the 207 securities have been in a continuous loss position for over twelve months at December 31, 2013. These 25 securities had an aggregate amortized cost basis and unrealized loss of $112,476,000 and $6,188,000, respectively. Twenty of the 25 securities were issued by either the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), or the Government National Mortgage Association (Ginnie Mae). The Fannie Mae, Freddie Mac, and Ginnie Mae securities are rated AA+ by S&P and Aaa by Moodys. Five of the securities in a continuous loss position for over twelve months were issued by political subdivisions. One of the bond issuers has a credit rating of A+ by S&P. In addition, the bond is insured by a Aaa rated insurer and as a result, the Company concluded that an other-than-temporary impairment charge was not required at December 31, 2013. The second bond in a continuous unrealized loss position for over twelve months carries an issue rating of Aa2 by Moodys, and is also insured by the same Aaa rated insurer and as a result, the Company concluded that an other-than-temporary impairment charge was not required at December 31, 2013. The third bond issuer has a credit rating of AA+ by S&P and as a result, the Company concluded that an other-than-temporary impairment charge was not required at December 31, 2013. The fourth bond issuer has a credit rating of Aaa by Moodys and AAA by S&P and as a result, the Company concluded that an other-than-temporary impairment charge was not required at December 31, 2013. The remaining security in a continuous unrealized loss position for over twelve months was issued by a political subdivision and is discussed in further detail below.
At December 31, 2012, 49 debt securities had unrealized losses of 0.85% of the securities amortized cost basis and 0.12% of the Companys total amortized cost basis. The unrealized losses for each of the 49 securities relate to market interest rate changes. Three of the 49 securities had been in a continuous loss position for over twelve months at December 31, 2012. These three securities had an aggregate amortized cost basis and unrealized loss of $5,200,000 and $187,000, respectively. Two of the three securities were issued by either the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), or the Government National Mortgage Association (Ginnie Mae). The Fannie Mae, Freddie Mac, and Ginnie Mae securities are rated AA+ by S&P and Aaa by Moodys. One of the securities in a continuous unrealized loss position for over twelve months was issued by a political subdivision and is discussed in further detail below.
Prior to 2012, management assessed the operating environment of a bond issuer as adverse and concluded that the Company had one unrated revenue municipal bond that warranted an other-than-temporary impairment charge. The specific impairment was related to the loss of the contracted revenue source required for bond repayment. The Company determined the impairment charge using observable market data for similar assets, including third party valuation of the security, as well as information from unobservable inputs, including its best estimate of the recoverability of the amortized cost of the security as outlined above. Changes to the unobservable inputs used by the Company would have resulted in a higher or lower impairment charge, but the unobservable inputs were not highly sensitive and would not result in a material difference in the impairment charge recorded for the year ended December 31, 2011. The Company recorded total impairment of 50% of the par value of the bond and provided a fair value of the bonds that was consistent with current market pricing. During 2013, the Company continued to analyze the operating environment of the bond as it did in 2012 and 2011 and noted no further deterioration in the operating environment of the bond issuer.
The following table reflects activity during the years ended December 31, 2013, 2012, and 2011 related to credit losses on the other-than-temporarily impaired investment security where a portion of the unrealized loss was recognized in other comprehensive income.
(Dollars in thousands) | 2013 | 2012 | 2011 | |||||||||
Balance at beginning of period |
$ | (1,273 | ) | $ | (1,273 | ) | $ | (764 | ) | |||
Credit losses on securities not previously considered other-than-temporarily impaired |
| | | |||||||||
Credit losses on securities for which OTTI was previously recognized |
| | (509 | ) | ||||||||
Reduction for securities sold/settled during the period |
| | | |||||||||
|
|
|
|
|
|
|||||||
Balance at end of period |
$ | (1,273 | ) | $ | (1,273 | ) | $ | (1,273 | ) | |||
|
|
|
|
|
|
As a result of the Companys analysis, no other declines in the estimated fair value of the Companys investment securities were deemed to be other-than-temporary at December 31, 2013 or 2012.
The amortized cost and estimated fair value of investment securities by maturity at December 31, 2013 are shown in the following table. Securities are classified according to their contractual maturities without consideration of principal amortization, potential prepayments or call options. Accordingly, actual maturities may differ from contractual maturities. Weighted average yields are calculated on the basis of the yield to maturity based on the amortized cost of each security.
79
Securities Available for Sale | Securities Held to Maturity | |||||||||||||||||||||||
Weighted | Estimated | Weighted | Estimated | |||||||||||||||||||||
Average | Amortized | Fair | Average | Amortized | Fair | |||||||||||||||||||
(Dollars in thousands) | Yield | Cost | Value | Yield | Cost | Value | ||||||||||||||||||
Within one year or less |
2.03 | % | $ | 17,184 | $ | 17,355 | 1.85 | % | $ | 24,548 | $ | 24,719 | ||||||||||||
One through five years |
1.36 | 231,505 | 230,338 | 3.01 | 18,026 | 18,557 | ||||||||||||||||||
After five through ten years |
2.09 | 558,892 | 552,993 | 2.74 | 24,692 | 24,971 | ||||||||||||||||||
Over ten years |
2.19 | 1,155,465 | 1,136,111 | 3.10 | 86,843 | 84,319 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
2.06 | % | $ | 1,963,046 | $ | 1,936,797 | 2.83 | % | $ | 154,109 | $ | 152,566 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of realized gains and losses from the sale of securities classified as available for sale. Gains or losses on securities sold are recorded on the trade date, using the specific identification method.
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2013 | 2012 | 2011 | |||||||||
Realized gains |
$ | 2,387 | $ | 3,754 | $ | 3,429 | ||||||
Realized losses |
(110 | ) | (15 | ) | (7 | ) | ||||||
|
|
|
|
|
|
|||||||
$ | 2,277 | $ | 3,739 | $ | 3,422 | |||||||
|
|
|
|
|
|
In addition to the gains above, the Company realized certain immaterial gains on calls of held to maturity securities.
Other Equity Securities
At December 31, 2013 and 2012, the Company included the following securities in Other assets on the consolidated balance sheets:
(Dollars in thousands) | 2013 | 2012 | ||||||
Federal Home Loan Bank (FHLB) stock |
$ | 24,369 | $ | 16,860 | ||||
Federal Reserve Bank (FRB) stock |
28,098 | 28,155 | ||||||
Other investments |
1,306 | 1,201 | ||||||
|
|
|
|
|||||
$ | 53,773 | $ | 46,216 | |||||
|
|
|
|
80
NOTE 6 LOANS RECEIVABLE
Loans receivable consist of the following, segregated into non-covered and covered loans, for the periods indicated:
December 31, 2013 | ||||||||||||
(Dollars in thousands) | Non-covered loans | Covered loans | Total | |||||||||
Commercial loans: |
||||||||||||
Real estate |
$ | 3,479,973 | $ | 387,332 | $ | 3,867,305 | ||||||
Business |
2,959,088 | 37,025 | 2,996,113 | |||||||||
|
|
|
|
|
|
|||||||
6,439,061 | 424,357 | 6,863,418 | ||||||||||
Residential mortgage loans: |
||||||||||||
Residential 1-4 family |
423,057 | 154,025 | 577,082 | |||||||||
Construction / Owner Occupied |
9,450 | | 9,450 | |||||||||
|
|
|
|
|
|
|||||||
432,507 | 154,025 | 586,532 | ||||||||||
Consumer and other loans: |
||||||||||||
Home equity |
1,154,670 | 137,122 | 1,291,792 | |||||||||
Indirect automobile |
375,236 | | 375,236 | |||||||||
Other |
370,752 | 4,289 | 375,041 | |||||||||
|
|
|
|
|
|
|||||||
1,900,658 | 141,411 | 2,042,069 | ||||||||||
|
|
|
|
|
|
|||||||
$ | 8,772,226 | $ | 719,793 | $ | 9,492,019 | |||||||
|
|
|
|
|
|
December 31, 2012 | ||||||||||||
(Dollars in thousands) | Non-covered loans | Covered loans | Total | |||||||||
Commercial loans: |
||||||||||||
Real estate |
$ | 2,990,700 | $ | 640,843 | $ | 3,631,543 | ||||||
Business |
2,450,667 | 87,051 | 2,537,718 | |||||||||
|
|
|
|
|
|
|||||||
5,441,367 | 727,894 | 6,169,261 | ||||||||||
Residential mortgage loans: |
||||||||||||
Residential 1-4 family |
284,019 | 187,164 | 471,183 | |||||||||
Construction / Owner Occupied |
6,021 | | 6,021 | |||||||||
|
|
|
|
|
|
|||||||
290,040 | 187,164 | 477,204 | ||||||||||
Consumer and other loans: |
||||||||||||
Home equity |
1,076,913 | 174,212 | 1,251,125 | |||||||||
Indirect automobile |
327,985 | | 327,985 | |||||||||
Other |
269,519 | 3,486 | 273,005 | |||||||||
|
|
|
|
|
|
|||||||
1,674,417 | 177,698 | 1,852,115 | ||||||||||
|
|
|
|
|
|
|||||||
$ | 7,405,824 | $ | 1,092,756 | $ | 8,498,580 | |||||||
|
|
|
|
|
|
81
In 2009, the Company acquired substantially all of the assets and liabilities of CapitalSouth Bank (CSB), and certain assets deposits, and other liabilities of Orion Bank (Orion) and Century Bank (Century). In 2010, the Company acquired certain assets and assumed certain deposit and other liabilities of Sterling Bank (Sterling). Substantially all of the loans and foreclosed real estate that were acquired in these transactions are covered by loss sharing agreements between the FDIC and IBERIABANK, which afford IBERIABANK loss protection. Refer to Note 8 for additional information regarding the Companys loss sharing agreements.
Because of the loss protection provided by the FDIC, the risks of the CSB, Orion, Century, and Sterling loans and foreclosed real estate are significantly different from those assets not covered under the loss share agreements. Accordingly, the Company presents loans subject to the loss share agreements as covered loans and loans that are not subject to the loss share agreements as non-covered loans.
Deferred loan origination fees were $18,634,000 and $14,040,000 and deferred loan expenses were $7,618,000 and $5,270,000 at December 31, 2013 and 2012, respectively. In addition to loans issued in the normal course of business, the Company considers overdrafts on customer deposit accounts to be loans and reclassifies these overdrafts as loans in its consolidated balance sheets. At December 31, 2013 and 2012, overdrafts of $3,065,000 and $3,231,000, respectively, have been reclassified to loans receivable.
Loans with carrying values of $2.3 billion and $1.5 billion were pledged to secure public deposits and other borrowings at December 31, 2013 and 2012, respectively.
82
Non-covered Loans
The following tables provide an analysis of the aging of non-covered loans as of December 31, 2013 and 2012. Because of the difference in accounting for acquired loans, the tables below further segregate the Companys non-covered loans receivable between acquired loans and loans originated by the Company. For purposes of the following tables, subprime mortgage loans are defined as the Companys mortgage loans that have FICO scores that are less than 620 at the time of origination or were purchased outside of a business combination.
December 31, 2013 | ||||||||||||||||||||||||||||
Non-covered loans excluding acquired loans | ||||||||||||||||||||||||||||
Total Non-covered | Recorded | |||||||||||||||||||||||||||
Past Due (1) | Loans, Net of | Investment > 90 days | ||||||||||||||||||||||||||
(Dollars in thousands) | 30-59 days | 60-89 days | > 90 days | Total | Current | Unearned Income | and Accruing | |||||||||||||||||||||
Commercial real estate construction |
$ | | $ | | $ | 1,803 | $ | 1,803 | $ | 381,292 | $ | 383,095 | $ | | ||||||||||||||
Commercial real estate - other |
6,098 | 5,630 | 7,650 | 19,378 | 2,732,431 | 2,751,809 | 2 | |||||||||||||||||||||
Commercial business |
2,117 | 423 | 15,020 | 17,560 | 2,888,491 | 2,906,051 | | |||||||||||||||||||||
Residential prime |
1,104 | 852 | 9,684 | 11,640 | 286,167 | 297,807 | 1,073 | |||||||||||||||||||||
Residential subprime |
| | 1,626 | 1,626 | 114,939 | 116,565 | | |||||||||||||||||||||
Home equity |
1,956 | 569 | 6,808 | 9,333 | 1,091,894 | 1,101,227 | | |||||||||||||||||||||
Indirect automobile |
1,427 | 293 | 1,275 | 2,995 | 370,388 | 373,383 | | |||||||||||||||||||||
Credit card |
266 | 92 | 411 | 769 | 62,873 | 63,642 | | |||||||||||||||||||||
Other |
458 | 106 | 485 | 1,049 | 293,693 | 294,742 | | |||||||||||||||||||||
|
|
|
|
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|
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|
|
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|
|
|
|||||||||||||||
$ | 13,426 | $ | 7,965 | $ | 44,762 | $ | 66,153 | $ | 8,222,168 | $ | 8,288,321 | $ | 1,075 | |||||||||||||||
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|
|
December 31, 2012 | ||||||||||||||||||||||||||||
Non-covered loans excluding acquired loans | ||||||||||||||||||||||||||||
Total Non-covered | Recorded | |||||||||||||||||||||||||||
Past Due (1) | Loans, Net of | Investment > 90 days | ||||||||||||||||||||||||||
(Dollars in thousands) | 30-59 days | 60-89 days | > 90 days | Total | Current | Unearned Income | and Accruing | |||||||||||||||||||||
Commercial real estate construction |
$ | 60 | $ | | $ | 5,479 | $ | 5,539 | $ | 288,137 | $ | 293,676 | $ | | ||||||||||||||
Commercial real estate - other |
3,590 | | 23,559 | 27,149 | 2,224,495 | 2,251,644 | 83 | |||||||||||||||||||||
Commercial business |
1,430 | 13 | 3,687 | 5,130 | 2,362,304 | 2,367,434 | 329 | |||||||||||||||||||||
Residential prime |
662 | 1,156 | 9,168 | 10,986 | 185,843 | 196,829 | 801 | |||||||||||||||||||||
Residential subprime |
| | | | 60,454 | 60,454 | | |||||||||||||||||||||
Home equity |
2,283 | 796 | 5,793 | 8,872 | 991,766 | 1,000,638 | 158 | |||||||||||||||||||||
Indirect automobile |
1,624 | 326 | 868 | 2,818 | 320,148 | 322,966 | | |||||||||||||||||||||
Credit card |
130 | 51 | 424 | 605 | 51,117 | 51,722 | | |||||||||||||||||||||
Other |
566 | 105 | 310 | 981 | 201,161 | 202,142 | | |||||||||||||||||||||
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|
|
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|
|
|
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|||||||||||||||
$ | 10,345 | $ | 2,447 | $ | 49,288 | $ | 62,080 | $ | 6,685,425 | $ | 6,747,505 | $ | 1,371 | |||||||||||||||
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|
|
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(1) |
Past due loans include loans on nonaccrual status as of the period indicated. Nonaccrual loans are presented separately in the Nonaccrual Loans section below. |
83
December 31, 2013 | ||||||||||||||||||||||||||||||||
Non-covered acquired loans | ||||||||||||||||||||||||||||||||
Total Non-covered | Recorded | |||||||||||||||||||||||||||||||
Past Due (1) | Loans, Net of | Investment > 90 days | ||||||||||||||||||||||||||||||
(Dollars in thousands) | 30-59 days | 60-89 days | > 90 days | Total | Current | Discount | Unearned Income | and Accruing | ||||||||||||||||||||||||
Commercial real estate construction |
$ | 388 | $ | | $ | 2,542 | $ | 2,930 | $ | 19,833 | $ | (2,532 | ) | $ | 20,231 | $ | 2,542 | |||||||||||||||
Commercial real estate - other |
1,798 | 1,963 | 27,967 | 31,728 | 345,286 | (52,176 | ) | 324,838 | 27,967 | |||||||||||||||||||||||
Commercial business |
544 | | 1,218 | 1,762 | 54,189 | (2,914 | ) | 53,037 | 1,218 | |||||||||||||||||||||||
Residential prime |
| | 226 | 226 | 18,796 | (887 | ) | 18,135 | 226 | |||||||||||||||||||||||
Home equity |
313 | 516 | 4,242 | 5,071 | 53,995 | (5,623 | ) | 53,443 | 4,242 | |||||||||||||||||||||||
Indirect automobile |
33 | | 95 | 128 | 1,725 | | 1,853 | 95 | ||||||||||||||||||||||||
Other |
175 | 101 | 975 | 1,251 | 12,598 | (1,481 | ) | 12,368 | 975 | |||||||||||||||||||||||
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|||||||||||||||||
$ | 3,251 | $ | 2,580 | $ | 37,265 | $ | 43,096 | $ | 506,422 | $ | (65,613 | ) | $ | 483,905 | $ | 37,265 | ||||||||||||||||
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December 31, 2012 | ||||||||||||||||||||||||||||||||
Non-covered acquired loans | ||||||||||||||||||||||||||||||||
Total Non-covered | Recorded | |||||||||||||||||||||||||||||||
Past Due (1) | Loans, Net of | Investment > 90 days | ||||||||||||||||||||||||||||||
(Dollars in thousands) | 30-59 days | 60-89 days | > 90 days | Total | Current | Discount | Unearned Income | and Accruing | ||||||||||||||||||||||||
Commercial real estate construction |
$ | 369 | $ | | $ | 4,067 | $ | 4,436 | $ | 29,098 | $ | (3,968 | ) | $ | 29,566 | $ | 4,067 | |||||||||||||||
Commercial real estate - other |
5,971 | 1,572 | 38,987 | 46,530 | 426,339 | (57,055 | ) | 415,814 | 38,987 | |||||||||||||||||||||||
Commercial business |
1,410 | 524 | 3,953 | 5,887 | 89,490 | (12,144 | ) | 83,233 | 3,953 | |||||||||||||||||||||||
Residential prime |
| | 779 | 779 | 30,663 | 1,315 | 32,757 | 779 | ||||||||||||||||||||||||
Home equity |
2,379 | 382 | 4,354 | 7,115 | 73,658 | (4,498 | ) | 76,275 | 4,354 | |||||||||||||||||||||||
Indirect automobile |
171 | 4 | 146 | 321 | 4,698 | | 5,019 | 146 | ||||||||||||||||||||||||
Other |
202 | 17 | 495 | 714 | 21,746 | (6,805 | ) | 15,655 | 495 | |||||||||||||||||||||||
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|||||||||||||||||
$ | 10,502 | $ | 2,499 | $ | 52,781 | $ | 65,782 | $ | 675,692 | $ | (83,155 | ) | $ | 658,319 | $ | 52,781 | ||||||||||||||||
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(1) |
Past due information includes loans acquired from OMNI, Cameron and Florida Gulf at the gross loan balance, prior to application of discounts. |
84
Nonaccrual Loans
The following table provides the recorded investment of non-covered loans excluding acquired loans on nonaccrual status at December 31, 2013 and 2012.
(Dollars in thousands) | 2013 | 2012 | ||||||
Commercial real estate construction |
$ | 1,803 | $ | 5,479 | ||||
Commercial real estate - other |
7,648 | 23,476 | ||||||
Commercial business |
15,020 | 3,358 | ||||||
Residential prime |
8,611 | 8,367 | ||||||
Residential subprime |
1,626 | | ||||||
Home equity |
6,808 | 5,635 | ||||||
Indirect automobile |
1,275 | 868 | ||||||
Credit card |
411 | 424 | ||||||
Other |
485 | 310 | ||||||
|
|
|
|
|||||
$ | 43,687 | $ | 47,917 | |||||
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|
|
The amount of interest income that would have been recorded in 2013, 2012 and 2011 if total nonaccrual loans had been current in accordance with their contractual terms was approximately $2,867,000, $3,193,000 and $4,113,000, respectively.
85
Covered Loans
The carrying amount of the acquired covered loans at December 31, 2013 and 2012 consisted of loans determined to be impaired at the acquisition date, which are accounted for in accordance with ASC Topic 310-30, and loans that were considered to be performing at the acquisition date, accounted for by analogy to ASC Topic 310-30, as detailed in the following tables.
December 31, 2013 | ||||||||||||
Acquired | Acquired | Total | ||||||||||
Impaired | Performing | Covered | ||||||||||
(Dollars in thousands) | Loans | Loans | Loans | |||||||||
Commercial loans: |
||||||||||||
Real estate |
$ | 14,904 | $ | 372,428 | $ | 387,332 | ||||||
Business |
| 37,025 | 37,025 | |||||||||
|
|
|
|
|
|
|||||||
14,904 | 409,453 | 424,357 | ||||||||||
Residential mortgage loans: |
||||||||||||
Residential 1-4 family |
28,223 | 125,802 | 154,025 | |||||||||
Construction / Owner Occupied |
| | | |||||||||
|
|
|
|
|
|
|||||||
28,223 | 125,802 | 154,025 | ||||||||||
Consumer and other loans: |
||||||||||||
Home equity |
21,768 | 115,354 | 137,122 | |||||||||
Indirect automobile |
| | | |||||||||
Other |
1,182 | 3,107 | 4,289 | |||||||||
|
|
|
|
|
|
|||||||
22,950 | 118,461 | 141,411 | ||||||||||
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|
|||||||
$ | 66,077 | $ | 653,716 | $ | 719,793 | |||||||
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|
|
|
|
December 31, 2012 | ||||||||||||
Acquired | Acquired | Total | ||||||||||
Impaired | Performing | Covered | ||||||||||
(Dollars in thousands) | Loans | Loans | Loans | |||||||||
Commercial loans: |
||||||||||||
Real estate |
$ | 167,742 | $ | 473,101 | $ | 640,843 | ||||||
Business |
2,757 | 84,294 | 87,051 | |||||||||
|
|
|
|
|
|
|||||||
170,499 | 557,395 | 727,894 | ||||||||||
Residential mortgage loans: |
||||||||||||
Residential 1-4 family |
20,232 | 166,932 | 187,164 | |||||||||
Construction / Owner Occupied |
| | | |||||||||
|
|
|
|
|
|
|||||||
20,232 | 166,932 | 187,164 | ||||||||||
Consumer and other loans: |
||||||||||||
Home equity |
22,094 | 152,118 | 174,212 | |||||||||
Indirect automobile |
| | | |||||||||
Other |
820 | 2,666 | 3,486 | |||||||||
|
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|
|
|
|
|||||||
22,914 | 154,784 | 177,698 | ||||||||||
|
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|
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|
|||||||
$ | 213,645 | $ | 879,111 | $ | 1,092,756 | |||||||
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|
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86
ASC 310-30 loans
The Company acquired loans (both covered and non-covered) through previous acquisitions which are subject to ASC Topic 310-30.
The following is a summary of changes in the accretable difference of acquired loans during the years ended December 31, 2013, 2012 and 2011.
2013 | ||||||||||||
Acquired | Acquired | Total | ||||||||||
Impaired | Performing | Acquired | ||||||||||
(Dollars in thousands) | Loans | Loans | Loans | |||||||||
Balance at beginning of period |
$ | 76,623 | $ | 279,770 | $ | 356,393 | ||||||
Transfers from nonaccretable difference to accretable yield |
7,849 | 42,894 | 50,743 | |||||||||
Accretion |
(16,273 | ) | (163,183 | ) | (179,456 | ) | ||||||
Changes in expected cash flows not affecting nonaccretable differences (1) |
10,150 | 117,062 | 127,212 | |||||||||
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|
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|
|
|
|||||||
Balance at end of period |
$ | 78,349 | $ | 276,543 | $ | 354,892 |
2012 | ||||||||||||
Acquired | Acquired | Total | ||||||||||
Impaired | Performing | Acquired | ||||||||||
Loans | Loans | Loans | ||||||||||
Balance at beginning of period |
$ | 83,834 | $ | 386,977 | $ | 470,811 | ||||||
Acquisition |
1,190 | 22,899 | 24,089 | |||||||||
Transfers from nonaccretable difference to accretable yield |
(11,816 | ) | (47,842 | ) | (59,658 | ) | ||||||
Accretion |
(30,417 | ) | (218,892 | ) | (249,309 | ) | ||||||
Changes in expected cash flows not affecting nonaccretable differences (1) |
33,832 | 136,628 | 170,460 | |||||||||
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|
|
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|
|||||||
Balance at end of period |
$ | 76,623 | $ | 279,770 | $ | 356,393 |
2011 | ||||||||||||
Acquired | Acquired | Total | ||||||||||
Impaired | Performing | Acquired | ||||||||||
Loans | Loans | Loans | ||||||||||
Balance at beginning of period |
$ | 82,381 | $ | 626,190 | $ | 708,571 | ||||||
Acquisition |
7,346 | 139,163 | 146,509 | |||||||||
Net transfers from (to) nonaccretable difference to (from) accretable yield |
37,687 | (216,551 | ) | (178,864 | ) | |||||||
Accretion |
(43,580 | ) | (161,825 | ) | (205,405 | ) | ||||||
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|
|||||||
Balance at end of period |
$ | 83,834 | $ | 386,977 | $ | 470,811 |
(1) | Includes changes in cash flows expected to be collected due to the impact of changes in actual or expected timing of liquidation events, loan modifications, changes in interest rates and changes in prepayment assumptions. |
Accretable difference during 2013 and 2012 decreased primarily as a result of accretion recognized, offset by changes in expected cash flows not impacting the nonaccretable difference in each respective period. Accretable difference during 2011 decreased primarily as a result of a change in expected cash flows on the Companys loans during 2011.
87
Troubled Debt Restructurings
Information about the Companys TDRs at December 31, 2013 and 2012 is presented in the following tables. The Company excludes as TDRs modifications of loans that are accounted for within a pool under ASC Topic 310-30, which include the covered loans above, as well as the loans acquired in the OMNI and Cameron acquisitions completed during 2011 and certain loans acquired from Florida Gulf in 2012. Accordingly, such modifications do not result in the removal of those loans from the pool, even if the modification of those loans would otherwise be considered a TDR. As a result, all covered loans and loans acquired from OMNI and Cameron, and certain Florida Gulf loans that would otherwise meet the criteria for classification as a TDR are excluded from the tables below.
December 31, 2013 | December 31, 2012 | |||||||||||||||||||||||||||||||
Accruing Loans | Accruing Loans | |||||||||||||||||||||||||||||||
Past Due | Past Due | |||||||||||||||||||||||||||||||
(Dollars in thousands) | Current | > 30 days | Nonaccrual TDRs | Total TDRs | Current | > 30 days | Nonaccrual TDRs | Total TDRs | ||||||||||||||||||||||||
Commercial real estate construction |
$ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||
Commercial real estate - other |
400 | | 4,452 | 4,852 | 1,057 | | 14,853 | 15,910 | ||||||||||||||||||||||||
Commercial business |
976 | | 13,791 | 14,767 | 1,204 | | 281 | 1,485 | ||||||||||||||||||||||||
Residential prime |
| | | | | | | | ||||||||||||||||||||||||
Residential subprime |
| | | | | | | | ||||||||||||||||||||||||
Home equity |
| | 258 | 258 | 93 | | 222 | 315 | ||||||||||||||||||||||||
Indirect automobile |
| | | | | | | | ||||||||||||||||||||||||
Credit card |
| | | | | | | | ||||||||||||||||||||||||
Other |
| | | | | | | | ||||||||||||||||||||||||
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$ | 1,376 | $ | | $ | 18,501 | $ | 19,877 | $ | 2,354 | $ | | $ | 15,356 | $ | 17,710 | |||||||||||||||||
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At December 31, 2013, TDRs totaling $19,877,000 included $14,562,000 of TDRs that occurred during the current year through modification of the original loan terms. Total TDRs of $17,710,000 at December 31, 2012 included $4,649,000 of TDRs that occurred during the year ended December 31, 2012. The following table provides information on how the TDRs were modified during the years ended December 31, 2013 and 2012.
(Dollars in thousands) | 2013 | 2012 | ||||||
Extended maturities |
$ | | $ | 412 | ||||
Interest rate adjustment |
| 277 | ||||||
Maturity and interest rate adjustment |
| 1,249 | ||||||
Movement to or extension of interest-rate only payments |
| 2,543 | ||||||
Forbearance |
12,975 | 168 | ||||||
Other concession(s) (1) |
1,587 | | ||||||
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|
|
|
|||||
$ | 14,562 | $ | 4,649 | |||||
|
|
|
|
(1) | Other concessions include concessions or a combination of concessions that do not consist of maturity extensions, interest rate adjustments, forbearance or covenant modifications. |
88
Information about the Companys TDRs occurring in these periods is presented in the following table.
December 31, 2013 | December 31, 2012 | |||||||||||||||||||||||
Pre-modification | Post-modification | Pre-modification | Post-modification | |||||||||||||||||||||
Outstanding | Outstanding | Outstanding | Outstanding | |||||||||||||||||||||
Number of | Recorded | Recorded | Number of | Recorded | Recorded | |||||||||||||||||||
(In thousands, except number of loans) | Loans | Investment | Investment (1) | Loans | Investment | Investment (1) | ||||||||||||||||||
Commercial real estate |
| $ | | $ | | 14 | $ | 3,852 | $ | 3,312 | ||||||||||||||
Commercial business |
9 | 14,835 | 12,429 | 4 | 1,215 | 1,188 | ||||||||||||||||||
Residential prime |
| | | | | | ||||||||||||||||||
Home Equity |
| | | 1 | 94 | 51 | ||||||||||||||||||
Indirect automobile |
| | | | | | ||||||||||||||||||
Credit card |
| | | | | | ||||||||||||||||||
Other |
| | | 1 | | | ||||||||||||||||||
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9 | $ | 14,835 | $ | 12,429 | 20 | $ | 5,161 | $ | 4,551 | |||||||||||||||
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(1) | Recorded investment includes any allowance for credit losses recorded on the TDRs at the dates indicated. |
Information detailing non-covered TDRs that subsequently defaulted during the previous twelve months is presented in the following table. The Company has defined a default as any loan with a loan payment that is currently past due greater than 30 days, or was past due greater than 30 days at any point during the previous twelve months, or since the date of modification, whichever is shorter.
December 31, 2013 | December 31, 2012 | |||||||||||||||
Number of | Recorded | Number of | Recorded | |||||||||||||
(In thousands, except number of loans) | Loans | Investment | Loans | Investment | ||||||||||||
Commercial real estate |
35 | $ | 4,452 | 44 | $ | 14,615 | ||||||||||
Commercial business |
17 | 12,808 | 9 | 1,469 | ||||||||||||
Residential prime |
| | | | ||||||||||||
Home Equity |
1 | 45 | 2 | 273 | ||||||||||||
Indirect automobile |
| | | | ||||||||||||
Credit card |
| | | | ||||||||||||
Other |
1 | | 1 | | ||||||||||||
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|||||||||
54 | $ | 17,305 | 56 | $ | 16,357 | |||||||||||
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NOTE 7 ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY
Change in Methodology
During 2013, the Company modified its methodology for estimating its allowance for credit losses on its non-covered, non-acquired loan portfolio to further incorporate practices, processes, and methodologies consistent with the guidance provided in the Interagency Policy Statement on the Allowance for Loan and Lease Losses jointly issued by the Federal Reserve Board and other federal banking agencies (SR 06-17). The methodology was modified to segregate the reserve for unfunded lending commitments (RULC), previously included in the Companys allowance for credit losses, and to enhance the previous methodology around loss migration.
89
As part of the modification, the Company implemented a transition matrix-based model that calculates current incurred loss estimates derived from Company-specific history of risk rating changes and net charge-offs across multiple loan pools in its portfolio to improve its estimates of credit losses by:
|
Providing a greater degree of segmentation of the Companys non-covered, non-acquired loan portfolio within its existing homogeneous pools with distinct risk characteristics; |
|
Improving the application of the Companys specific historical loss rates to effectively generate estimated incurred loss rates for these various pools of the loan portfolio; and |
|
Facilitating future loan portfolio stress testing. |
Additionally, the following changes were made from the Companys previous methodology utilized through the three months ended March 31, 2013:
|
Segregation of the RULC, which was previously included in the Companys allowance for loan losses, and |
|
Elimination of the use of published available expected default frequencies (EDFs) adjusted for the Companys experience in estimating losses in the Companys commercial real estate and business loan portfolios. |
Although comparison of the Companys current and previous methodologies is inherently imprecise given economic conditions and other factors, the following table presents the effect of the change in methodology on the Companys consolidated financial statements as of December 31, 2013.
(Dollars in thousands, except per share data) | Current Methodology | Previous Methodolgy (1) | Difference | Per Share Difference | ||||||||||||
Selected Data |
||||||||||||||||
Allowance for loan losses |
$ | 67,342 | $ | 77,759 | $ | (10,417 | ) | |||||||||
Reserve for unfunded lending commitments |
11,147 | | 11,147 | |||||||||||||
|
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|
|
|||||||||||
Allowance for credit losses |
$ | 78,489 | $ | 77,759 | $ | 730 | ||||||||||
|
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|
|
|||||||||||
Provision for loan losses |
$ | 6,828 | $ | 7,417 | $ | (589 | ) | $ | (0.01 | ) | ||||||
Provision for unfunded lending commitments |
1,319 | | 1,319 | 0.03 | ||||||||||||
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|
|
|
|
|
|
|||||||||
Total provision for credit losses |
$ | 8,147 | $ | 7,417 | $ | 730 | $ | 0.02 | ||||||||
|
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|
|
|
|
|
|
(1) | The RULC was previously presented as part of the allowance for loan losses. |
90
Allowance for Credit Losses Activity
A summary of changes in the allowance for credit losses for the covered loan and non-covered loan portfolios is as follows:
December 31, 2013 | ||||||||||||||||
Non-covered loans | ||||||||||||||||
(Dollars in thousands) | Excluding Acquired Loans | Acquired Loans | Covered Loans | Total | ||||||||||||
Allowance for loan losses |
||||||||||||||||
Balance at beginning of period |
$ | 74,211 | $ | 8,816 | $ | 168,576 | $ | 251,603 | ||||||||
(Reversal of) Provision for loan losses before benefit attributable to FDIC loss share agreements |
6,828 | (3,158 | ) | (54,610 | ) | (50,940 | ) | |||||||||
Adjustment attributable to FDIC loss share arrangements |
| | 56,085 | 56,085 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net (reversal of) provision for loan losses |
6,828 | (3,158 | ) | 1,475 | 5,145 | |||||||||||
Adjustment attributable to FDIC loss share arrangements |
| | (56,085 | ) | (56,085 | ) | ||||||||||
Transfer of balance to OREO |
| (1,085 | ) | (27,041 | ) | (28,126 | ) | |||||||||
Transfer of balance to the RULC |
(9,828 | ) | | | (9,828 | ) | ||||||||||
Loans charged-off |
(10,686 | ) | (31 | ) | (15,764 | ) | (26,481 | ) | ||||||||
Recoveries |
6,817 | 15 | 14 | 6,846 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | 67,342 | $ | 4,557 | $ | 71,175 | $ | 143,074 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Reserve for unfunded lending commitments |
||||||||||||||||
Balance, beginning of period |
$ | | $ | | $ | | $ | | ||||||||
Transfer of balance from the allowance for loan losses |
9,828 | | | 9,828 | ||||||||||||
Provision for unfunded lending commitments |
1,319 | | | 1,319 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | 11,147 | $ | | $ | | $ | 11,147 | ||||||||
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|
91
December 31, 2012 | ||||||||||||||||
Non-covered loans | ||||||||||||||||
Excluding Acquired Loans | Acquired Loans | Covered Loans | Total | |||||||||||||
Allowance for loan losses |
||||||||||||||||
Balance at beginning of period |
$ | 74,861 | $ | | $ | 118,900 | $ | 193,761 | ||||||||
Provision for loan losses before adjustment attributable to FDIC loss share agreements |
3,804 | 9,799 | 91,153 | 104,756 | ||||||||||||
Adjustment attributable to FDIC loss share arrangements |
| | (84,085 | ) | (84,085 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net provision for loan losses |
3,804 | 9,799 | 7,068 | 20,671 | ||||||||||||
Adjustment attributable to FDIC loss share arrangements |
| | 84,085 | 84,085 | ||||||||||||
Transfer of balance to OREO |
| (826 | ) | (26,343 | ) | (27,169 | ) | |||||||||
Loans charged-off |
(9,728 | ) | (179 | ) | (15,153 | ) | (25,060 | ) | ||||||||
Recoveries |
5,274 | 22 | 19 | 5,315 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | 74,211 | $ | 8,816 | $ | 168,576 | $ | 251,603 | ||||||||
|
|
|
|
|
|
|
|
December 31, 2011 | ||||||||||||||||
Non-covered loans | ||||||||||||||||
Excluding Acquired Loans | Acquired Loans | Covered Loans | Total | |||||||||||||
Allowance for loan losses |
||||||||||||||||
Balance at beginning of period |
$ | 62,460 | $ | | $ | 73,640 | $ | 136,100 | ||||||||
Provision for loan losses before adjustment attributable to FDIC loss share agreements |
19,974 | | 63,014 | 82,988 | ||||||||||||
Adjustment attributable to FDIC loss share arrangements |
| | (57,121 | ) | (57,121 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net provision for loan losses |
19,974 | | 5,893 | 25,867 | ||||||||||||
Adjustment attributable to FDIC loss share arrangements |
| | 57,121 | 57,121 | ||||||||||||
Transfer of balance to OREO |
| | (17,143 | ) | (17,143 | ) | ||||||||||
Loans charged-off |
(15,022 | ) | | (1,137 | ) | (16,159 | ) | |||||||||
Recoveries |
7,449 | | 526 | 7,975 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | 74,861 | $ | | $ | 118,900 | $ | 193,761 | ||||||||
|
|
|
|
|
|
|
|
92
A summary of changes in the allowance for credit losses for non-covered loans, by loan portfolio type, is as follows:
December 31, 2013 | ||||||||||||||||||||||||
Commercial | Commercial | |||||||||||||||||||||||
(Dollars in thousands) | real estate | business | Mortgage | Consumer | Unallocated | Total | ||||||||||||||||||
Allowance for loan losses |
||||||||||||||||||||||||
Balance at beginning of period |
$ | 38,264 | $ | 28,721 | $ | 2,125 | $ | 13,917 | $ | | $ | 83,027 | ||||||||||||
(Reversal of) Provision for loan losses |
(8,830 | ) | 3,543 | 860 | 8,097 | | 3,670 | |||||||||||||||||
Transfer of balance to OREO |
(319 | ) | (113 | ) | (646 | ) | (7 | ) | | (1,085 | ) | |||||||||||||
Transfer of balance to the RULC |
(2,939 | ) | (3,497 | ) | (40 | ) | (3,352 | ) | | (9,828 | ) | |||||||||||||
Loans charged off |
(2,940 | ) | (516 | ) | (518 | ) | (6,743 | ) | | (10,717 | ) | |||||||||||||
Recoveries |
3,354 | 377 | 765 | 2,336 | | 6,832 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at end of period |
$ | 26,590 | $ | 28,515 | $ | 2,546 | $ | 14,248 | | $ | 71,899 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Reserve for unfunded commitments |
||||||||||||||||||||||||
Balance at beginning of period |
$ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||
Transfer of balance from the allowance for loan losses |
2,939 | 3,497 | 40 | 3,352 | | 9,828 | ||||||||||||||||||
Provision for unfunded commitments |
150 | 1,342 | 32 | (205 | ) | | 1,319 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at end of period |
$ | 3,089 | $ | 4,839 | $ | 72 | $ | 3,147 | $ | | $ | 11,147 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Allowance on loans individually evaluated for impairment |
$ | 8 | $ | 841 | $ | 180 | $ | | $ | | $ | 1,029 | ||||||||||||
Allowance on loans collectively evaluated for impairment |
26,582 | 27,674 | 2,366 | 14,248 | | 70,870 | ||||||||||||||||||
Loans, net of unearned income: |
||||||||||||||||||||||||
Balance at end of period |
$ | 3,479,973 | $ | 2,959,088 | $ | 432,507 | $ | 1,900,658 | $ | | $ | 8,772,226 | ||||||||||||
Balance at end of period individually evaluated for impairment |
8,705 | 15,812 | 1,407 | 258 | | 26,182 | ||||||||||||||||||
Balance at end of period collectively evaluated for impairment |
3,471,268 | 2,943,276 | 431,100 | 1,900,400 | | 8,746,044 | ||||||||||||||||||
Balance at end of period acquired with deteriorated credit quality |
12,240 | 30 | 126 | 1,387 | | 13,783 |
93
December 31, 2012 | ||||||||||||||||||||||||
Commercial | Commercial | |||||||||||||||||||||||
(Dollars in thousands) | real estate | business | Mortgage | Consumer | Unallocated | Total | ||||||||||||||||||
Allowance for credit losses |
||||||||||||||||||||||||
Balance at beginning of period |
$ | 35,604 | $ | 25,705 | $ | 897 | $ | 12,655 | $ | | $ | 74,861 | ||||||||||||
(Reversal of) Provision for loan losses |
1,786 | 4,021 | 2,578 | 5,218 | | 13,603 | ||||||||||||||||||
Transfer of balance to OREO |
(292 | ) | | (525 | ) | (9 | ) | | (826 | ) | ||||||||||||||
Loans charged off |
(2,000 | ) | (1,116 | ) | (863 | ) | (5,928 | ) | | (9,907 | ) | |||||||||||||
Recoveries |
3,166 | 111 | 38 | 1,981 | | 5,296 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at end of period |
$ | 38,264 | $ | 28,721 | $ | 2,125 | $ | 13,917 | $ | | $ | 83,027 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Allowance on loans individually evaluated for impairment |
$ | 226 | $ | 449 | $ | 163 | $ | 42 | $ | | $ | 880 | ||||||||||||
Allowance on loans collectively evaluated for impairment |
38,038 | 28,272 | 1,962 | 13,875 | | 82,147 | ||||||||||||||||||
Loans, net of unearned income: |
||||||||||||||||||||||||
Balance at end of period |
$ | 2,990,700 | $ | 2,450,667 | $ | 290,040 | $ | 1,674,417 | $ | | $ | 7,405,824 | ||||||||||||
Balance at end of period individually evaluated for impairment |
28,052 | 4,401 | 1,703 | 315 | | 34,471 | ||||||||||||||||||
Balance at end of period collectively evaluated for impairment |
2,962,648 | 2,446,266 | 288,337 | 1,674,102 | | 7,371,353 | ||||||||||||||||||
Balance at end of period acquired with deteriorated credit quality |
55,856 | 3,470 | 330 | 5,035 | | 64,691 |
December 31, 2011 | ||||||||||||||||||||||||
Commercial | Commercial | |||||||||||||||||||||||
(Dollars in thousands) | real estate | business | Mortgage | Consumer | Unallocated | Total | ||||||||||||||||||
Allowance for credit losses |
||||||||||||||||||||||||
Balance at beginning of period |
$ | 31,390 | $ | 16,473 | $ | 1,265 | $ | 13,332 | $ | | $ | 62,460 | ||||||||||||
(Reversal of) Provision for loan losses |
6,809 | 9,533 | (215 | ) | 3,847 | | 19,974 | |||||||||||||||||
Transfer of balance to OREO |
||||||||||||||||||||||||
Loans charged off |
(7,656 | ) | (471 | ) | (222 | ) | (6,673 | ) | | (15,022 | ) | |||||||||||||
Recoveries |
5,061 | 170 | 69 | 2,149 | | 7,449 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at end of period |
$ | 35,604 | $ | 25,705 | $ | 897 | $ | 12,655 | $ | | $ | 74,861 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Allowance on loans individually evaluated for impairment |
$ | 1,874 | $ | 179 | $ | 133 | $ | | $ | | $ | 2,186 | ||||||||||||
Allowance on loans collectively evaluated for impairment |
33,730 | 25,526 | 764 | 12,655 | | 72,675 | ||||||||||||||||||
Loans, net of unearned income: |
||||||||||||||||||||||||
Balance at end of period |
$ | 2,591,013 | $ | 1,896,496 | $ | 283,113 | $ | 1,282,966 | $ | | $ | 6,053,588 | ||||||||||||
Balance at end of period individually evaluated for impairment |
34,541 | 6,530 | 1,009 | 231 | | 42,311 | ||||||||||||||||||
Balance at end of period collectively evaluated for impairment |
2,556,472 | 1,889,966 | 282,104 | 1,282,735 | | 6,011,277 | ||||||||||||||||||
Balance at end of period acquired with deteriorated credit quality |
4,835 | 26,531 | | 4,129 | | 35,495 |
94
A summary of changes in the allowance for credit losses for covered loans, by loan portfolio type, is as follows:
December 31, 2013 | ||||||||||||||||||||||||
Commercial | Commercial | |||||||||||||||||||||||
(Dollars in thousands) | real estate | business | Mortgage | Consumer | Unallocated | Total | ||||||||||||||||||
Allowance for loan losses |
||||||||||||||||||||||||
Balance at beginning of period |
$ | 100,871 | $ | 11,375 | $ | 22,566 | $ | 33,764 | $ | | $ | 168,576 | ||||||||||||
(Reversal of) Provision for loan losses |
1,523 | (649 | ) | 286 | 315 | | 1,475 | |||||||||||||||||
(Decrease) Increase in FDIC loss share receivable |
(28,238 | ) | (5,032 | ) | (4,896 | ) | (17,919 | ) | | (56,085 | ) | |||||||||||||
Transfer of balance to OREO |
(19,634 | ) | (314 | ) | (7,067 | ) | (26 | ) | | (27,041 | ) | |||||||||||||
Loans charged off |
(15,764 | ) | | | | | (15,764 | ) | ||||||||||||||||
Recoveries |
14 | | | | | 14 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at end of period |
$ | 38,772 | $ | 5,380 | $ | 10,889 | $ | 16,134 | $ | | $ | 71,175 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Allowance on loans individually evaluated for impairment |
$ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||
Allowance on loans collectively evaluated for impairment |
38,772 | 5,380 | 10,889 | 16,134 | | 71,175 | ||||||||||||||||||
Loans, net of unearned income: |
||||||||||||||||||||||||
Balance at end of period |
$ | 387,332 | $ | 37,025 | $ | 154,025 | $ | 141,411 | $ | | $ | 719,793 | ||||||||||||
Balance at end of period individually evaluated for impairment |
| | | | | | ||||||||||||||||||
Balance at end of period collectively evaluated for impairment |
387,332 | 37,025 | 154,025 | 141,411 | | 719,793 | ||||||||||||||||||
Balance at end of period acquired with deteriorated credit quality |
14,904 | | 28,223 | 22,950 | | 66,077 |
95
December 31, 2012 | ||||||||||||||||||||||||
Commercial | Commercial | |||||||||||||||||||||||
(Dollars in thousands) | real estate | business | Mortgage | Consumer | Unallocated | Total | ||||||||||||||||||
Allowance for credit losses |
||||||||||||||||||||||||
Balance at beginning of period |
$ | 69,175 | $ | 9,788 | $ | 21,184 | $ | 18,753 | $ | | $ | 118,900 | ||||||||||||
(Reversal of) Provision for loan losses |
4,970 | 964 | 323 | 811 | | 7,068 | ||||||||||||||||||
(Decrease) Increase in FDIC loss share receivable |
51,543 | 3,616 | 13,895 | 15,031 | | 84,085 | ||||||||||||||||||
Transfer of balance to OREO |
(11,202 | ) | (2,993 | ) | (11,323 | ) | (825 | ) | | (26,343 | ) | |||||||||||||
Loans charged off |
(13,631 | ) | | (1,513 | ) | (9 | ) | | (15,153 | ) | ||||||||||||||
Recoveries |
16 | | | 3 | | 19 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at end of period |
$ | 100,871 | $ | 11,375 | $ | 22,566 | $ | 33,764 | $ | | $ | 168,576 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Allowance on loans individually evaluated for impairment |
$ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||
Allowance on loans collectively evaluated for impairment |
100,871 | 11,375 | 22,566 | 33,764 | | 168,576 | ||||||||||||||||||
Loans, net of unearned income: |
||||||||||||||||||||||||
Balance at end of period |
$ | 640,843 | $ | 87,051 | $ | 187,164 | $ | 177,698 | $ | | $ | 1,092,756 | ||||||||||||
Balance at end of period individually evaluated for impairment |
| | | | | | ||||||||||||||||||
Balance at end of period collectively evaluated for impairment |
640,843 | 87,051 | 187,164 | 177,698 | | 1,092,756 | ||||||||||||||||||
Balance at end of period acquired with deteriorated credit quality |
167,742 | 2,757 | 20,232 | 22,914 | | 213,645 |
December 31, 2011 | ||||||||||||||||||||||||
Commercial | Commercial | |||||||||||||||||||||||
(Dollars in thousands) | real estate | business | Mortgage | Consumer | Unallocated | Total | ||||||||||||||||||
Allowance for credit losses |
||||||||||||||||||||||||
Balance at beginning of period |
$ | 26,439 | $ | 6,657 | $ | 28,343 | $ | 12,201 | $ | | $ | 73,640 | ||||||||||||
(Reversal of) Provision for loan losses |
6,762 | 392 | (2,232 | ) | 971 | | 5,893 | |||||||||||||||||
(Decrease) Increase in FDIC loss share receivable |
50,079 | 2,899 | (3,045 | ) | 7,188 | | 57,121 | |||||||||||||||||
Transfer of balance to OREO |
(13,316 | ) | (160 | ) | (1,962 | ) | (1,705 | ) | | (17,143 | ) | |||||||||||||
Loans charged off |
(1,073 | ) | | (22 | ) | (42 | ) | | (1,137 | ) | ||||||||||||||
Recoveries |
284 | | 102 | 140 | | 526 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at end of period |
$ | 69,175 | $ | 9,788 | $ | 21,184 | $ | 18,753 | $ | | $ | 118,900 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Allowance on loans individually evaluated for impairment |
$ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||
Allowance on loans collectively evaluated for impairment |
69,175 | 9,788 | 21,184 | 18,753 | | 118,900 | ||||||||||||||||||
Loans, net of unearned income: |
||||||||||||||||||||||||
Balance at end of period |
$ | 772,877 | $ | 108,738 | $ | 255,387 | $ | 197,447 | $ | | $ | 1,334,449 | ||||||||||||
Balance at end of period individually evaluated for impairment |
| | | | | | ||||||||||||||||||
Balance at end of period collectively evaluated for impairment |
772,877 | 108,738 | 255,387 | 197,447 | | 1,334,449 | ||||||||||||||||||
Balance at end of period acquired with deteriorated credit quality |
54,691 | 4,169 | 35,794 | 29,473 | | 124,127 |
Credit Quality
The Companys investment in non-covered loans by credit quality indicator is presented in the following tables. Because of the difference in accounting for acquired loans, the tables below further segregate the Companys non-covered loans receivable between acquired loans and loans that were not acquired. Loan premiums/discounts in the tables below represent the adjustment of non-covered acquired loans to fair value at the acquisition date, as adjusted for income accretion and changes in cash flow estimates in subsequent periods. Asset risk classifications for commercial loans reflect the classification as of December 31, 2013 and 2012, respectively.
Non-covered loans excluding acquired loans | ||||||||||||||||||||||||||||||||||||||||
December 31, 2013 | December 31, 2012 | |||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Pass |
Special
Mention |
Substandard | Doubtful | Total | Pass |
Special
Mention |
Substandard | Doubtful | Total | ||||||||||||||||||||||||||||||
Commercial real estate construction |
$ | 370,824 | $ | 9,309 | $ | 2,962 | $ | | $ | 383,095 | $ | 269,842 | $ | 16,767 | $ | 7,067 | $ | | $ | 293,676 | ||||||||||||||||||||
Commercial real estate - other |
2,694,161 | 27,227 | 30,308 | 113 | 2,751,809 | 2,162,989 | 40,547 | 47,710 | 398 | 2,251,644 | ||||||||||||||||||||||||||||||
Commercial business |
2,866,794 | 6,164 | 32,167 | 926 | 2,906,051 | 2,295,788 | 21,640 | 49,958 | 48 | 2,367,434 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total |
$ | 5,931,779 | $ | 42,700 | $ | 65,437 | $ | 1,039 | 6,040,955 | $ | 4,728,619 | $ | 78,954 | $ | 104,735 | $ | 446 | $ | 4,912,754 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96
Non-covered loans excluding acquired loans | ||||||||||||||||||||||||
December 31, 2013 | December 31, 2012 | |||||||||||||||||||||||
(Dollars in thousands) | Current |
30+ Days
Past Due |
Total | Current |
30+ Days
Past Due |
Total | ||||||||||||||||||
Residential prime |
$ | 286,167 | $ | 11,640 | $ | 297,807 | $ | 185,843 | $ | 10,986 | $ | 196,829 | ||||||||||||
Residential subprime |
114,939 | 1,626 | 116,565 | 60,454 | | 60,454 | ||||||||||||||||||
Home equity |
1,091,894 | 9,333 | 1,101,227 | 991,766 | 8,872 | 1,000,638 | ||||||||||||||||||
Indirect automobile |
370,388 | 2,995 | 373,383 | 320,148 | 2,818 | 322,966 | ||||||||||||||||||
Credit card |
62,873 | 769 | 63,642 | 51,117 | 605 | 51,722 | ||||||||||||||||||
Consumer - other |
293,693 | 1,049 | 294,742 | 201,161 | 981 | 202,142 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 2,219,954 | $ | 27,412 | $ | 2,247,366 | $ | 1,810,489 | $ | 24,262 | $ | 1,834,751 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Non-covered acquired loans | ||||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2013 | December 31, 2012 | |||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Pass |
Special
Mention |
Substandard | Doubtful | Discount | Total | Pass |
Special
Mention |
Substandard | Doubtful | Discount | Total | ||||||||||||||||||||||||||||||||||||
Commercial real estate construction |
$ | 21,244 | $ | | $ | 1,519 | $ | | $ | (2,532 | ) | $ | 20,231 | $ | 25,896 | $ | 2,410 | $ | 5,228 | $ | | $ | (3,968 | ) | $ | 29,566 | ||||||||||||||||||||||
Commercial real estate - other |
350,412 | 5,096 | 21,413 | 93 | (52,176 | ) | 324,838 | 359,046 | 28,185 | 85,420 | 218 | (57,055 | ) | 415,814 | ||||||||||||||||||||||||||||||||||
Commercial business |
53,533 | 517 | 1,901 | | (2,914 | ) | 53,037 | 86,201 | 2,159 | 4,808 | 2,209 | (12,144 | ) | 83,233 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Total |
$ | 425,189 | $ | 5,613 | $ | 24,833 | $ | 93 | $ | (57,622 | ) | $ | 398,106 | $ | 471,143 | $ | 32,754 | $ | 95,456 | $ | 2,427 | $ | (73,167 | ) | $ | 528,613 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-covered acquired loans | ||||||||||||||||||||||||||||||||
December 31, 2013 | December 31, 2012 | |||||||||||||||||||||||||||||||
(Dollars in thousands) | Current |
30+ Days
Past Due |
Premium
(discount) |
Total | Current |
30+ Days
Past Due |
Premium
(discount) |
Total | ||||||||||||||||||||||||
Residential prime |
$ | 18,796 | $ | 226 | $ | (887 | ) | $ | 18,135 | $ | 30,663 | $ | 779 | $ | 1,315 | $ | 32,757 | |||||||||||||||
Home equity |
53,995 | 5,071 | (5,623 | ) | 53,443 | 73,658 | 7,115 | (4,498 | ) | 76,275 | ||||||||||||||||||||||
Indirect automobile |
1,725 | 128 | | 1,853 | 4,698 | 321 | | 5,019 | ||||||||||||||||||||||||
Consumer - other |
12,598 | 1,251 | (1,481 | ) | 12,368 | 21,746 | 714 | (6,805 | ) | 15,655 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
$ | 87,114 | $ | 6,676 | $ | (7,991 | ) | $ | 85,799 | $ | 130,765 | $ | 8,929 | $ | (9,988 | ) | $ | 129,706 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality information in the table above includes loans acquired at the gross loan balance, prior to the application of premiums/discounts, at December 31, 2013 and 2012.
97
The Companys investment in covered loans by credit quality indicator is presented in the following table. Loan premiums/discounts in the tables below represent the adjustment of covered loans to fair value at the date, as adjusted for income accretion and changes in cash flow estimates in subsequent periods.
Covered loans | ||||||||||||||||||||||||||||||||||||||||
December 31, 2013 | December 31, 2012 | |||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Pass |
Special
Mention |
Substandard | Doubtful | Total | Pass |
Special
Mention |
Substandard | Doubtful | Total | ||||||||||||||||||||||||||||||
Commercial real estate construction |
$ | 42,886 | $ | 7,401 | $ | 23,891 | $ | 497 | $ | 74,675 | $ | 46,201 | $ | 9,888 | $ | 97,315 | $ | 607 | $ | 154,011 | ||||||||||||||||||||
Commercial real estate - other |
148,579 | 49,699 | 144,680 | 3,267 | 346,225 | 201,261 | 65,498 | 279,171 | 8,530 | 554,460 | ||||||||||||||||||||||||||||||
Commercial business |
30,710 | 780 | 14,556 | 984 | 47,030 | 38,552 | 8,600 | 50,018 | 451 | 97,621 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total |
$ | 222,175 | $ | 57,880 | $ | 183,127 | $ | 4,748 | $ | 467,930 | $ | 286,014 | $ | 83,986 | $ | 426,504 | $ | 9,588 | $ | 806,092 | ||||||||||||||||||||
Discount |
(43,573 | ) | (78,198 | ) | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||||||
$ | 424,357 | $ | 727,894 | |||||||||||||||||||||||||||||||||||||
|
|
|
|
Covered loans | ||||||||||||||||||||||||||||||||
December 31, 2013 | December 31, 2012 | |||||||||||||||||||||||||||||||
(Dollars in thousands) | Current |
30+ Days
Past Due |
Premium
(discount) |
Total | Current |
30+ Days
Past Due |
Premium
(discount) |
Total | ||||||||||||||||||||||||
Residential prime |
$ | 158,710 | $ | 30,814 | $ | (35,499 | ) | $ | 154,025 | $ | 183,795 | $ | 52,379 | $ | (49,010 | ) | $ | 187,164 | ||||||||||||||
Home equity |
143,236 | 35,811 | (41,925 | ) | 137,122 | 168,729 | 65,997 | (60,514 | ) | 174,212 | ||||||||||||||||||||||
Credit card |
648 | 31 | | 679 | 841 | 65 | | 906 | ||||||||||||||||||||||||
Consumer - other |
591 | 144 | 2,875 | 3,610 | 1,154 | 1,523 | (97 | ) | 2,580 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
$ | 303,185 | $ | 66,800 | $ | (74,549 | ) | $ | 295,436 | $ | 354,519 | $ | 119,964 | $ | (109,621 | ) | $ | 364,862 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
Impaired Loans
Information on the Companys investment in impaired loans is presented in the following tables as of and for the periods indicated.
December 31, 2013 | ||||||||||||||||||||
Unpaid | Average | Interest | ||||||||||||||||||
Recorded | Principal | Related | Recorded | Income | ||||||||||||||||
(Dollars in thousands) | Investment | Balance | Allowance | Investment | Recognized | |||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||
Commercial real estate |
$ | 8,567 | $ | 8,567 | $ | | $ | 10,443 | $ | 43 | ||||||||||
Commercial business |
13,256 | 13,256 | | 11,074 | 170 | |||||||||||||||
Home equity |
258 | 258 | | 281 | 1 | |||||||||||||||
With an allowance recorded: |
||||||||||||||||||||
Commercial real estate |
1,268 | 1,284 | (16 | ) | 4,414 | 8 | ||||||||||||||
Commercial business |
1,927 | 2,770 | (843 | ) | 2,892 | 100 | ||||||||||||||
Residential prime |
9,791 | 10,019 | (228 | ) | 8,096 | 98 | ||||||||||||||
Residential subprime |
1,617 | 1,626 | (9 | ) | 1,579 | | ||||||||||||||
Home equity |
6,506 | 6,550 | (44 | ) | 7,593 | 93 | ||||||||||||||
Indirect automobile |
1,267 | 1,275 | (8 | ) | 2,090 | 55 | ||||||||||||||
Credit card |
404 | 411 | (7 | ) | 418 | | ||||||||||||||
Other |
481 | 485 | (4 | ) | 765 | 19 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 45,342 | $ | 46,501 | $ | (1,159 | ) | $ | 49,645 | $ | 587 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans |
25,018 | 25,877 | (859 | ) | 28,823 | 321 | ||||||||||||||
Total mortgage loans |
11,408 | 11,645 | (237 | ) | 9,675 | 98 | ||||||||||||||
Total consumer loans |
8,916 | 8,979 | (63 | ) | 11,147 | 168 |
99
December 31, 2012 | ||||||||||||||||||||
Unpaid | Average | Interest | ||||||||||||||||||
Recorded | Principal | Related | Recorded | Income | ||||||||||||||||
(Dollars in thousands) | Investment | Balance | Allowance | Investment | Recognized | |||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||
Commercial real estate |
$ | 26,151 | $ | 26,151 | $ | | $ | 34,682 | $ | 168 | ||||||||||
Commercial business |
1,824 | 1,824 | | 2,621 | 33 | |||||||||||||||
Home equity |
| | | | | |||||||||||||||
With an allowance recorded: |
||||||||||||||||||||
Commercial real estate |
3,464 | 3,663 | (199 | ) | 3,678 | 123 | ||||||||||||||
Commercial business |
1,334 | 1,810 | (476 | ) | 1,889 | 47 | ||||||||||||||
Residential prime |
9,861 | 10,070 | (209 | ) | 7,955 | 131 | ||||||||||||||
Residential subprime |
| | | | | |||||||||||||||
Home equity |
5,860 | 5,951 | (91 | ) | 6,713 | 51 | ||||||||||||||
Indirect automobile |
865 | 868 | (3 | ) | 1,514 | 28 | ||||||||||||||
Credit card |
413 | 424 | (11 | ) | 372 | | ||||||||||||||
Other |
307 | 310 | (3 | ) | 601 | 5 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 50,079 | $ | 51,071 | $ | (992 | ) | $ | 60,025 | $ | 586 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans |
32,773 | 33,448 | (675 | ) | 42,870 | 371 | ||||||||||||||
Total mortgage loans |
9,861 | 10,070 | (209 | ) | 7,955 | 131 | ||||||||||||||
Total consumer loans |
7,445 | 7,553 | (108 | ) | 9,200 | 84 |
As of December 31, 2013 and 2012, the Company was not committed to lend additional funds to any customer whose loan was classified as impaired or as a troubled debt restructuring.
NOTE 8 LOSS SHARING AGREEMENTS AND FDIC LOSS SHARE RECEIVABLE
Loss Sharing Agreements
In 2009, the Company acquired substantially all of the assets and liabilities of CSB, and certain assets, deposits, and other liabilities of Orion and Century. In 2010, the Company acquired certain assets, deposits, and other liabilities of Sterling. Excluding consumer loans acquired from Sterling, the loans and foreclosed real estate that were acquired in these transactions are covered by loss share agreements between the FDIC and IBERIABANK, which afford IBERIABANK loss protection.
During the reimbursable loss periods, the FDIC will cover 80% of covered loan and foreclosed real estate losses up to certain thresholds for all four acquisitions, and 95% of losses that exceed contractual thresholds for CSB, Orion, and Century. The CSB reimbursable loss period ends during the third quarter of 2014 for all covered assets excluding single family residential assets and during the third quarter of 2019 for single family residential loans. The Century and Orion reimbursable loss periods end during the fourth quarter of 2014 for all covered assets excluding single family residential assets and during the fourth quarter of 2019 for single family residential assets. The Sterling reimbursable loss period ends during the third quarter of 2015 for all covered assets excluding single family residential assets and during the third quarter of 2020 for single family residential assets.
In addition, all covered assets excluding single family residential assets have a three year recovery period, which begins upon expiration of the reimbursable loss period. During the recovery periods, the Company must reimburse the FDIC for its share of any recovered losses, net of certain expenses, consistent with the covered loss reimbursement rates in effect during the recovery periods.
100
The Orion, Century, and Sterling loss share agreements include clawback provisions. The clawback provisions require the Company to make payments to the FDIC to the extent that specified cumulative loss floors are not incurred. Of the three loss share agreements that contain clawback provisions, cumulative losses under all of these agreements have exceeded the cumulative loss floors that would trigger a clawback payment. However, the sum of the historical and remaining projected losses and recoveries under one agreement is less than the clawback threshold stated in that agreement. The Company has recorded a liability of $797,000 at December 31, 2013 to reserve for the amount of consideration due to the FDIC based on projected net losses. Improvement in the performance of covered assets in excess of current expectations, particularly in regard to improvements in recoveries and/or reduced losses, through expiration of the recovery periods could result in reduced levels of cumulative losses that trigger the clawback provisions within any or all of the applicable loss share agreements.
FDIC loss share receivable
The Company recorded indemnification assets in the form of FDIC loss share receivables as of the acquisition date of each of the four banks covered by loss share agreements. At acquisition, the indemnification assets represented the fair value of the expected cash flows to be received from the FDIC under the loss share agreements. Subsequent to acquisition, the FDIC loss share receivables are updated to reflect changes in actual and expected amounts collectible adjusted for amortization. Note 1 to these consolidated financial statements provides additional information regarding the Companys FDIC loss share receivable accounting policy and basis of presentation.
The following is a summary of FDIC loss share receivables year-to-date activity:
December 31, | ||||||||
(Dollars in thousands) | 2013 | 2012 | ||||||
Balance at beginning of period |
$ | 423,069 | $ | 591,844 | ||||
Change due to (reversal of) loan loss provision recorded on FDIC covered loans |
(56,085 | ) | 84,085 | |||||
Amortization |
(97,849 | ) | (118,100 | ) | ||||
Submission of reimbursable losses to the FDIC |
(52,586 | ) | (123,986 | ) | ||||
Impairment |
(31,813 | ) | | |||||
Changes due to a change in cash flow assumptions on OREO and other changes |
(22,424 | ) | (10,774 | ) | ||||
|
|
|
|
|||||
Balance at end of period |
$ | 162,312 | $ | 423,069 | ||||
|
|
|
|
FDIC loss share receivables collectability assessment
The Company assesses the FDIC loss share receivables for collectability on a quarterly basis. Note 1 provides a description of the Companys policy for assessing the FDIC loss share receivables for collectability. Based on the collectability analysis completed for the year ended December 31, 2013, the Company concluded that the $162,312,000 FDIC loss share receivable is fully collectible as of December 31, 2013. See below for discussion of the impairment charge recognized in 2013.
Impairment of FDIC loss share receivables
Based on improving economic trends, their impact on the amount and timing of expected future cash flows, and delays in the foreclosure process, during the loss share receivable collectability assessment completed for the three-months ended March 31, 2013, the Company concluded that certain expected losses were probable of not being collected from either the FDIC or the customer because such projected losses were no longer expected to occur or were expected to occur beyond the reimbursable loss periods specified within the loss share agreements.
On April 10, 2013, the Audit Committee and the Board of Directors concluded that an impairment charge was required under generally accepted accounting principles applicable to the Company and should be recognized in the Companys consolidated financial statements during the three-month period ended March 31, 2013. Therefore, the Company recognized a valuation allowance against the indemnification assets in the amount of $31,813,000 through a charge to net income.
NOTE 9 TRANSFERS AND SERVICING OF FINANCIAL ASSETS (INCLUDING MORTGAGE BANKING ACTIVITY)
Commercial Banking Activity
Loans serviced for others, consisting primarily of commercial loan participations sold, are not included in the accompanying consolidated balance sheets. The unpaid principal balances of loans serviced for others were $345,016,000 and $257,883,000 at December 31, 2013 and 2012, respectively. Custodial escrow balances maintained in connection with the foregoing portfolio of loans serviced for others, and included in demand deposits, were immaterial at December 31, 2013 and 2012.
101
Mortgage Banking Activity
IBERIABANK through its subsidiary, IMC, originates mortgage loans for sale into the secondary market. The loans originated primarily consist of residential first mortgages that conform to standards established by the government-sponsored enterprises (GSEs), but can also consist of junior lien loans secured by residential property. These sales are primarily to private companies that are unaffiliated with the GSEs on a servicing released basis. The following table details the mortgage banking activity as of and for the years ended December 31:
(Dollars in thousands) | 2013 | 2012 | 2011 | |||||||||
Balance at beginning of period |
$ | 267,475 | $ | 153,013 | $ | 83,905 | ||||||
Balance acquired during the period |
| | 3,385 | |||||||||
Originations |
2,116,460 | 2,432,367 | 1,659,226 | |||||||||
Sales |
(2,255,493 | ) | (2,317,905 | ) | (1,593,503 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at end of period |
$ | 128,442 | $ | 267,475 | $ | 153,013 | ||||||
|
|
|
|
|
|
(Dollars in thousands) | 2013 | 2012 | 2011 | |||||||||
Fair value changes of derivatives and mortgage loans held for sale, net |
$ | (1,722 | ) | $ | 6,772 | $ | 937 | |||||
Gains on sales |
65,393 | 70,811 | 43,955 | |||||||||
Servicing and other income, net |
526 | 470 | 285 | |||||||||
|
|
|
|
|
|
|||||||
$ | 64,197 | $ | 78,053 | $ | 45,177 | |||||||
|
|
|
|
|
|
Mortgage Servicing Rights
Mortgage servicing rights are amortized over the remaining servicing life of the loans, with consideration given to prepayment assumptions. Mortgage servicing rights had the following carrying values as of the periods indicated:
December 31, 2013 | December 31, 2012 | |||||||||||||||||||||||
Gross | Accumulated | Net | Gross | Accumulated | Net | |||||||||||||||||||
(Dollars in thousands) | Carrying Amount | Amortization | Carrying Amount | Carrying Amount | Amortization | Carrying Amount | ||||||||||||||||||
Mortgage servicing rights |
$ | 2,146 | $ | (638 | ) | $ | 1,508 | $ | 1,234 | $ | (304 | ) | $ | 930 |
The related amortization expense of mortgage servicing intangible assets is as follows:
(Dollars in thousands) | Amount | |||
Aggregate amortization expense for the year ended December 31: |
||||
2011 |
$ | 115 | ||
2012 |
225 | |||
2013 |
480 | |||
Estimated amortization expense for the year ended December 31: |
||||
2014 |
$ | 473 | ||
2015 |
382 | |||
2016 |
291 | |||
2017 |
202 | |||
2018 |
123 | |||
2019 and thereafter |
37 |
102
NOTE 10 PREMISES AND EQUIPMENT
Premises and equipment at December 31, 2013 and 2012 consisted of the following:
(Dollars in thousands) | 2013 | 2012 | ||||||
Land |
$ | 77,113 | $ | 81,761 | ||||
Buildings |
217,469 | 221,022 | ||||||
Furniture, fixtures and equipment |
110,663 | 101,907 | ||||||
|
|
|
|
|||||
Total premises and equipment |
405,245 | 404,690 | ||||||
Accumulated depreciation |
(117,735 | ) | (101,167 | ) | ||||
|
|
|
|
|||||
Total premises and equipment, net |
$ | 287,510 | $ | 303,523 | ||||
|
|
|
|
Depreciation expense was $19,552,000, $18,286,000, and $13,431,000, for the years ended December 31, 2013, 2012, and 2011, respectively.
The Company actively engages in leasing office space available in buildings it owns. Leases have different terms ranging from monthly rental to six-year leases. For the year ended December 31, 2013, income from these leases averaged $122,000 per month. Total lease income for the years ended December 31, 2013, 2012, and 2011 was $1,470,000, $1,572,000, and $1,542,000, respectively. Income from leases is reported as a reduction in occupancy and equipment expense. The total allocated cost of the portion of the buildings held for lease at December 31, 2013 and 2012 was $9,549,000 and $9,992,000, respectively, with related accumulated depreciation of $2,985,000 and $2,497,000, respectively.
The Company leases certain branch and corporate offices, land and ATM facilities through non-cancelable operating leases with terms that range from one to 50 years, with renewal options thereafter. Certain of the leases have escalation clauses and renewal options ranging from monthly renewal to 50 years. Total rent expense for the years ended December 31, 2013, 2012, and 2011 totaled $11,399,000, $10,614,000, and $9,803,000, respectively.
Minimum future annual rent commitments under these agreements for the indicated periods follow:
(Dollars in thousands) | ||||
2014 |
$ | 11,357 | ||
2015 |
10,404 | |||
2016 |
8,925 | |||
2017 |
7,242 | |||
2018 |
6,411 | |||
2019 and thereafter |
36,985 | |||
|
|
|||
$ | 81,324 | |||
|
|
103
NOTE 11 GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS
Goodwill
Changes to the carrying amount of goodwill for the years ended December 31, 2013 and 2012 are provided in the following table.
(Dollars in thousands) | ||||
Balance, December 31, 2011 |
$ | 369,811 | ||
Goodwill acquired during the year |
32,420 | |||
Goodwill adjustment to correct an immaterial error |
(359 | ) | ||
|
|
|||
Balance, December 31, 2012 |
401,872 | |||
Goodwill acquired during the period |
| |||
|
|
|||
Balance, December 31, 2013 |
$ | 401,872 | ||
|
|
The goodwill acquired during the year ended December 31, 2012 was a result of the Florida Gulf acquisition.
The goodwill adjustment in 2012 was a result of the Companys revised goodwill recorded on its OMNI and Cameron acquisitions. The Company has recorded the adjustment to account for the impact of an immaterial error in accounting for its OMNI and Cameron acquisitions that resulted in a decrease in goodwill of $359,000. The Company revised its valuation of acquired deferred tax assets and property during the first quarter of 2012 as a result of information that existed at the acquisition date but was not available during the prior period. The error was identified in 2012 through the operation of the Companys internal controls over financial reporting as it related to the Companys acquisition accounting.
The Company performed the required annual goodwill impairment test as of October 1, 2013. During 2013, the Company performed a quantitative assessment to evaluate goodwill impairment and allocate goodwill to the operating segments described in Note 26 and detailed in the table below. The Companys annual impairment test did not indicate impairment in any of the Companys reporting units as of the testing date, and subsequent to that date, management is not aware of any events or changes in circumstances since the impairment test that would indicate that goodwill might be impaired.
At December 31, 2013, goodwill is allocated to the Companys reportable segments as follows:
(Dollars in thousands) | ||||
IBERIABANK |
$ | 373,905 | ||
IMC |
23,178 | |||
Lenders |
4,789 | |||
|
|
|||
$ | 401,872 | |||
|
|
Prior to 2011, the Company recognized goodwill impairment of $9,681,000 at the Companys LTC subsidiary based on a decrease in operating revenue and income, which resulted in the conclusion that the fair value of LTC may have been reduced below its carrying amount.
Title plant
The Company held title plant assets totaling $6,722,000 at both December 31, 2013 and 2012. No events or changes in circumstances occurred during 2013 or 2012 to suggest the carrying value of the title plant was not recoverable.
104
Intangible assets subject to amortization
Definite-lived intangible assets had the following carrying values as of the periods indicated:
December 31, 2013 | December 31, 2012 | |||||||||||||||||||||||
Gross | Accumulated | Net | Gross | Accumulated | Net | |||||||||||||||||||
(Dollars in thousands) | Carrying Amount | Amortization | Carrying Amount | Carrying Amount | Amortization | Carrying Amount | ||||||||||||||||||
Core deposit intangibles |
$ | 45,406 | $ | (30,784 | ) | $ | 14,622 | $ | 45,406 | $ | (26,284 | ) | $ | 19,122 | ||||||||||
Customer relationship intangible asset |
1,348 | (631 | ) | 717 | 1,348 | (410 | ) | 938 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 46,754 | $ | (31,415 | ) | $ | 15,339 | $ | 46,754 | $ | (26,694 | ) | $ | 20,060 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The related amortization expense of purchase accounting intangible assets is as follows:
(Dollars in thousands) | Amount | |||
Aggregate amortization expense for the year ended December 31: |
||||
2011 |
$ | 5,121 | ||
2012 |
5,150 | |||
2013 |
4,720 | |||
Estimated amortization expense for the year ended December 31: |
||||
2014 |
$ | 4,346 | ||
2015 |
3,546 | |||
2016 |
3,177 | |||
2017 |
1,694 | |||
2018 |
1,156 | |||
2019 and thereafter |
1,420 |
NOTE 12 OTHER REAL ESTATE OWNED
Other real estate owned, segregated into non-covered and covered properties, consists of the following for the periods indicated. For further discussion of loss share coverage periods applicable to the covered foreclosed assets, see Note 8 to these consolidated financial statements.
December 31, 2013 | December 31, 2012 | |||||||||||||||||||||||
(Dollars in thousands) | Non-covered | Covered | Total | Non-covered | Covered | Total | ||||||||||||||||||
Real estate owned acquired by foreclosure |
$ | 28,072 | $ | 60,474 | $ | 88,546 | $ | 35,080 | $ | 75,784 | $ | 110,864 | ||||||||||||
Real estate acquired for development or resale |
9,206 | | 9,206 | 9,199 | | 9,199 | ||||||||||||||||||
Other foreclosed property |
93 | 1,328 | 1,421 | 14 | 1,459 | 1,473 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 37,371 | $ | 61,802 | $ | 99,173 | $ | 44,293 | $ | 77,243 | $ | 121,536 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
105
NOTE 13 DERIVATIVE INSTRUMENTS AND OTHER HEDGING ACTIVITIES
Information pertaining to outstanding derivative instruments is as follows:
Asset Derivatives Fair Value | Liability Derivatives Fair Value | |||||||||||||||||||
(Dollars in thousands) |
Balance Sheet
Location |
December 31,
2013 |
December 31,
2012 |
Balance Sheet
Location |
December 31,
2013 |
December 31,
2012 |
||||||||||||||
Derivatives designated as hedging instruments under ASC Topic 815: |
||||||||||||||||||||
Interest rate contracts |
Other assets | $ | | $ | 499 | Other liabilities | $ | | $ | 1,843 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total derivatives designated as hedging instruments under ASC Topic 815 |
$ | | $ | 499 | $ | | $ | 1,843 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Derivatives not designated as hedging instruments under ASC Topic 815: |
||||||||||||||||||||
Interest rate contracts |
Other assets | $ | 10,621 | $ | 25,940 | Other liabilities | $ | 10,620 | $ | 25,940 | ||||||||||
Forward sales contracts |
Other assets | 1,468 | 2,774 | Other liabilities | 287 | 343 | ||||||||||||||
Written and purchased options |
Other assets | 17,987 | 12,906 | Other liabilities | 15,828 | 8,764 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total derivatives not designated as hedging instruments under ASC Topic 815 |
$ | 30,076 | $ | 41,620 | $ | 26,735 | $ | 35,047 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total derivatives |
$ | 30,076 | $ | 42,119 | $ | 26,735 | $ | 36,890 | ||||||||||||
|
|
|
|
|
|
|
|
Asset Derivatives Notional Amount | Liability Derivatives Notional Amount | |||||||||||||||
(Dollars in thousands) |
December 31,
2013 |
December 31,
2012 |
December 31,
2013 |
December 31,
2012 |
||||||||||||
Derivatives designated as hedging instruments under ASC Topic 815: |
||||||||||||||||
Interest rate contracts |
$ | | $ | 35,000 | $ | | $ | 35,000 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivatives designated as hedging instruments under ASC Topic 815 |
$ | | $ | 35,000 | $ | | $ | 35,000 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivatives not designated as hedging instruments under ASC Topic 815: |
||||||||||||||||
Interest rate contracts |
$ | 380,303 | $ | 374,536 | $ | 380,303 | $ | 374,536 | ||||||||
Forward sales contracts |
192,876 | 212,028 | 45,091 | 53,269 | ||||||||||||
Written and purchased options |
295,425 | 388,793 | 199,061 | 185,885 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivatives not designated as hedging instruments under ASC Topic 815 |
$ | 868,604 | $ | 975,357 | $ | 624,455 | $ | 613,690 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivatives |
$ | 868,604 | $ | 1,010,357 | $ | 624,455 | $ | 648,690 | ||||||||
|
|
|
|
|
|
|
|
The Company is party to collateral agreements with certain derivative counterparties. Such agreements require that the Company maintain collateral based on the fair values of individual derivative transactions. In the event of default by the Company, the counterparty would be entitled to the collateral.
At December 31, 2013 and 2012, the Company was required to post $4,976,000 and $2,650,000, respectively, in cash as collateral for its derivative transactions, which are included in interest-bearing deposits in banks on the Companys consolidated balance sheets. The Company does not anticipate additional assets will be required to be posted as collateral, nor does it believe additional assets would be required to settle its derivative instruments immediately if contingent features were triggered at December 31, 2013. The Companys master netting agreements represent written, legally enforceable bilateral agreements that (1) create a single legal obligation for all individual transactions covered by the agreement to the non-defaulting entity upon an event of default of the counterparty, including bankruptcy, insolvency, or similar proceeding, and (2) provide the non-defaulting entity the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set-off collateral promptly upon an event of default of the counterparty. As permitted by generally-accepted accounting principles, the Company does not offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against recognized fair value amounts of derivatives executed with the same counterparty under a master netting agreement. The following table reconciles the gross amounts presented in the consolidated balance sheets to the net amounts that would result in the event of offset.
106
December 31, 2013 | ||||||||||||||||
Gross Amounts | Gross Amounts Not Offset | |||||||||||||||
(Dollars in thousands) | Presented in the | in the Balance Sheet | ||||||||||||||
Derivatives subject to master netting arrangements | Balance Sheet | Derivatives | Collateral (1) | Net | ||||||||||||
Derivative assets |
||||||||||||||||
Interest rate contracts designated as hedging instruments |
$ | | $ | | $ | | $ | | ||||||||
Interest rate contracts not designated as hedging instruments |
10,621 | | | 10,621 | ||||||||||||
Written and purchased options |
15,801 | | | 15,801 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivative assets subject to master netting arrangements |
$ | 26,422 | $ | | $ | | $ | 26,422 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative liabilities |
||||||||||||||||
Interest rate contracts designated as hedging instruments |
$ | | $ | | $ | | $ | | ||||||||
Interest rate contracts not designated as hedging instruments |
10,620 | | (5,419 | ) | 5,201 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivative liabilities subject to master netting arrangements |
$ | 10,620 | $ | | $ | (5,419 | ) | $ | 5,201 | |||||||
|
|
|
|
|
|
|
|
(1) | Consists of cash collateral recorded at cost, which approximates fair value, and investment securities. |
December 31, 2012 | ||||||||||||||||
Gross Amounts | Gross Amounts Not Offset | |||||||||||||||
(Dollars in thousands) | Presented in the | in the Balance Sheet | ||||||||||||||
Derivatives subject to master netting arrangements | Balance Sheet | Derivatives | Collateral (1) | Net | ||||||||||||
Derivative assets |
||||||||||||||||
Interest rate contracts designated as hedging instruments |
$ | 499 | $ | (499 | ) | $ | | $ | | |||||||
Interest rate contracts not designated as hedging instruments |
25,940 | | | 25,940 | ||||||||||||
Written and purchased options |
8,763 | | | 8,763 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivative assets subject to master netting arrangements |
$ | 35,202 | $ | (499 | ) | $ | | $ | 34,703 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative liabilities |
||||||||||||||||
Interest rate contracts designated as hedging instruments |
$ | 1,843 | $ | (499 | ) | $ | | $ | 1,344 | |||||||
Interest rate contracts not designated as hedging instruments |
25,940 | | (13,350 | ) | 12,590 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivative liabilities subject to master netting arrangements |
$ | 27,783 | $ | (499 | ) | $ | (13,350 | ) | $ | 13,934 | ||||||
|
|
|
|
|
|
|
|
(1) | Consists of cash collateral recorded at cost, which approximates fair value, and investment securities. |
During the years ended December 31, 2013 and 2012, the Company has not reclassified into earnings any gain or loss as a result of the discontinuance of cash flow hedges because it was probable the original forecasted transaction would not occur by the end of the originally specified term.
At December 31, 2013, the fair value of derivatives that will mature within the next twelve months is $506,000. The Company does not expect to reclassify any amount from accumulated other comprehensive income into interest income over the next twelve months for derivatives that will be settled.
107
At December 31, 2013 and 2012, and for the years then ended, information pertaining to the effect of the hedging instruments on the consolidated financial statements is as follows:
Amount of
Gain (Loss) Recognized in OCI net of taxes (Effective Portion) |
Location of Gain (Loss)
Reclassified from
|
Amount of
Gain
(Loss) Reclassified from Accumulated OCI into Income (Effective Portion) |
Location of Gain (Loss)
|
Amount of
Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
||||||||||||||||||||||||
(Dollars in thousands) | As of December 31, |
For the Years Ended December 31 |
||||||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||
Derivatives in ASC Topic 815 Cash Flow Hedging Relationships |
||||||||||||||||||||||||||||
Interest rate contracts |
$ | | $ | (874 | ) | Other income (expense) | $ | (392 | ) | $ | (1,618 | ) | Other income (expense) | $ | 1 | $ | | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
$ | | $ | (874 | ) | $ | (392 | ) | $ | (1,618 | ) | $ | 1 | $ | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
Location of Gain
(Loss)
|
Amount of Gain (Loss) Recognized in Income
on Derivatives |
||||||||
2013 | 2012 | |||||||||
Derivatives Not Designated as Hedging Instruments under ASC Topic 815 |
||||||||||
Interest rate contracts |
Other income (expense) | $ | 2,991 | 872 | ||||||
Forward sales contracts |
Mortgage Income | (1,716 | ) | 2,431 | ||||||
Written and purchased options |
Mortgage Income | (3,032 | ) | 7,119 | ||||||
|
|
|
|
|||||||
$ | (1,757 | ) | $ | 10,422 | ||||||
|
|
|
|
At December 31, 2013 and 2012, additional information pertaining to outstanding interest rate swap agreements is as follows:
(Dollars in thousands) | 2013 | 2012 | ||||||
Weighted average pay rate |
3.0 | % | 3.3 | % | ||||
Weighted average receive rate |
0.2 | % | 0.3 | |||||
Weighted average maturity in years |
7.6 | 7.1 | ||||||
Unrealized gain (loss) relating to interest rate swaps |
$ | | $ | (1,344 | ) |
NOTE 14 DEPOSITS
Deposits at December 31, 2013 and 2012 are summarized as follows:
(Dollars in thousands) | 2013 | 2012 | ||||||
Negotiable order of withdrawal (NOW) |
$ | 4,859,430 | $ | 4,490,914 | ||||
Money market deposits accounts (MMDA) |
3,779,581 | 3,738,480 | ||||||
Savings deposits |
387,397 | 364,703 | ||||||
Certificates of deposit and other time deposits |
1,710,592 | 2,154,180 | ||||||
|
|
|
|
|||||
$ | 10,737,000 | $ | 10,748,277 | |||||
|
|
|
|
108
Total time deposits summarized by denomination at December 31, 2013 and 2012 are as follows:
(Dollars in thousands) | 2013 | 2012 | ||||||
Time deposits less than $100,000 |
$ | 804,250 | $ | 1,007,665 | ||||
Time deposits greater than $100,000 |
906,342 | 1,146,515 | ||||||
|
|
|
|
|||||
$ | 1,710,592 | $ | 2,154,180 | |||||
|
|
|
|
A schedule of maturities of all certificates of deposit as of December 31, 2013 is as follows:
(Dollars in thousands) Year ending December 31, |
||||
2014 |
$ | 1,264,077 | ||
2015 |
214,924 | |||
2016 |
126,102 | |||
2017 |
36,563 | |||
2018 |
39,330 | |||
2019 and thereafter |
29,596 | |||
|
|
|||
$ | 1,710,592 | |||
|
|
NOTE 15 SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 2013 and 2012 are summarized as follows:
(Dollars in thousands) | 2013 | 2012 | ||||||
Federal Home Loan Bank advances |
$ | 375,000 | $ | | ||||
Securities sold under agreements to repurchase |
305,344 | 303,045 | ||||||
|
|
|
|
|||||
$ | 680,344 | $ | 303,045 | |||||
|
|
|
|
Securities sold under agreements to repurchase, which are classified as secured borrowings, generally mature daily and are reflected at the amount of cash received in connection with the transaction. The Company may be required to provide additional collateral based on the fair value of the underlying securities.
Additional information on the Companys short-term borrowings for the years indicated is as follows:
(Dollars in thousands) | 2013 | 2012 | 2011 | |||||||||
Outstanding at December 31 |
$ | 680,344 | $ | 303,045 | $ | 395,543 | ||||||
Maximum month-end outstanding balance |
680,344 | 640,768 | 395,543 | |||||||||
Average daily outstanding balance |
303,352 | 284,201 | 220,146 | |||||||||
Average rate during the year |
0.16 | % | 0.22 | % | 0.26 | % | ||||||
Average rate at year end |
0.15 | % | 0.22 | % | 0.27 | % |
109
NOTE 16 LONG-TERM DEBT
Long-term debt at December 31, 2013 and 2012 is summarized as follows:
(Dollars in thousands) | ||||||||
2013 | 2012 | |||||||
IBERIABANK: |
||||||||
Federal Home Loan Bank notes, 2.395% to 7.04% |
$ | 92,267 | $ | 233,812 | ||||
Notes payable - Investment fund contribution, 7 to 40 year term, 0.50% to 5.00% fixed |
76,570 | 77,703 | ||||||
|
|
|
|
|||||
168,837 | 311,515 | |||||||
IBERIABANK Corporation: |
||||||||
Statutory Trust I, 3 month LIBOR (1) , plus 3.25% |
10,310 | 10,310 | ||||||
Statutory Trust II, 3 month LIBOR (1) , plus 3.15% |
10,310 | 10,310 | ||||||
Statutory Trust III, 3 month LIBOR (1) , plus 2.00% |
10,310 | 10,310 | ||||||
Statutory Trust IV, 3 month LIBOR (1) , plus 1.60% |
15,464 | 15,464 | ||||||
American Horizons Statutory Trust I, 3 month LIBOR (1) , plus 3.15% |
6,186 | 6,186 | ||||||
Statutory Trust V, 3 month LIBOR (1) , plus 1.435% |
10,310 | 10,310 | ||||||
Statutory Trust VI, 3 month LIBOR (1) , plus 2.75% |
12,372 | 12,372 | ||||||
Statutory Trust VII, 3 month LIBOR (1) , plus 2.54% |
13,403 | 13,403 | ||||||
Statutory Trust VIII, 3 month LIBOR (1) , plus 3.50% |
7,217 | 7,217 | ||||||
OMNI Trust I, 3 month LIBOR (1) , plus 3.30% |
8,248 | 8,248 | ||||||
OMNI Trust II, 3 month LIBOR (1) , plus 2.79% |
7,732 | 7,732 | ||||||
|
|
|
|
|||||
111,862 | 111,862 | |||||||
|
|
|
|
|||||
$ | 280,699 | $ | 423,377 | |||||
|
|
|
|
(1) | The interest rate on the Companys long-term debt indexed to LIBOR is based on the 3-month LIBOR rate. The 3-month LIBOR rate was 0.25% and 0.31% at December 31, 2013 and 2012, respectively. |
Outstanding FHLB advances are amortized over periods ranging from 6 to 30 years, and have a balloon feature at maturity. Advances are collateralized by a blanket pledge of eligible loans, subject to contractual adjustments which reduce the borrowing base, as well as a secondary pledge of FHLB stock and FHLB demand deposits, the amount of which can exceed the amounts borrowed based on contractually required adjustments. Total additional advances available from the FHLB at December 31, 2013 were $1,780,487,000 under the blanket floating lien and an additional $376,233,000 with a pledge of investment securities. The weighted average advance rate was 3.95% and 4.31% at December 31, 2013 and 2012, respectively.
The Company has various funding arrangements with commercial banks providing up to $155,000,000 in the form of federal funds and other lines of credit. At December 31, 2013, there were no balances outstanding on these lines and all of the funding was available to the Company.
Junior subordinated debt consists of a total of $111,862,000 in Junior Subordinated Deferrable Interest Debentures of the Company issued to statutory trusts that were funded by the issuance of floating rate capital securities of the trusts. Issuances of $10,310,000 each were completed in November 2002, June 2003, September 2004, and June 2007 and an issuance of $15,464,000 was completed in October 2006. The issue of $6,186,000 completed in March 2003 was assumed in the American Horizons acquisition. The Company issued $25,775,000 in November 2007 and $7,217,000 in March 2008 to provide funding for various business activities, primarily loan growth. Issuances of $8,248,000 and $7,732,000 were assumed in the OMNI acquisition during 2011.
110
The term of the securities is 30 years, and they are callable at par by the Company anytime after 5 years. Interest is payable quarterly and may be deferred at any time at the election of the Company for up to 20 consecutive quarterly periods. During a deferral period, the Company is subject to certain restrictions, including being prohibited from declaring and paying dividends to its common shareholders.
The debentures qualify as Tier 1 Capital and the capital note qualifies as Tier 2 capital for regulatory purposes.
Advances and long-term debt at December 31, 2013 have maturities or call dates in future years as follows:
(Dollars in thousands) | ||||
2014 |
$ | 10,344 | ||
2015 |
1,220 | |||
2016 |
28,863 | |||
2017 |
50,567 | |||
2018 |
7,900 | |||
2019 and thereafter |
181,805 | |||
|
|
|||
$ | 280,699 | |||
|
|
NOTE 17 INCOME TAXES
The provision for income tax expense consists of the following for the years ended December 31:
(Dollars in thousands) | 2013 | 2012 | 2011 | |||||||||
Current expense |
$ | 62,468 | $ | 44,125 | $ | 33,116 | ||||||
Deferred benefit |
(35,943 | ) | (7,527 | ) | (11,750 | ) | ||||||
Tax credits |
(11,690 | ) | (8,756 | ) | (6,734 | ) | ||||||
Tax benefits attributable to items charged to equity and goodwill |
1,034 | 654 | 2,349 | |||||||||
|
|
|
|
|
|
|||||||
$ | 15,869 | $ | 28,496 | $ | 16,981 | |||||||
|
|
|
|
|
|
There was a balance payable of $7,603,000 and a balance receivable of $7,830,000 for federal and state income taxes at December 31, 2013 and 2012, respectively. The provision for federal income taxes differs from the amount computed by applying the federal income tax statutory rate of 35 percent on income from operations as indicated in the following analysis for the years ended December 31:
(Dollars in thousands) | 2013 | 2012 | 2011 | |||||||||
Federal tax based on statutory rate |
$ | 28,340 | $ | 36,712 | $ | 24,682 | ||||||
Increase (decrease) resulting from: |
||||||||||||
Effect of tax-exempt income |
(7,282 | ) | (7,558 | ) | (6,633 | ) | ||||||
Interest and other nondeductible expenses |
2,007 | 1,847 | 1,487 | |||||||||
State taxes |
3,237 | 4,938 | 3,034 | |||||||||
Tax credits |
(11,690 | ) | (8,756 | ) | (6,734 | ) | ||||||
Other |
1,257 | 1,313 | 1,145 | |||||||||
|
|
|
|
|
|
|||||||
$ | 15,869 | $ | 28,496 | $ | 16,981 | |||||||
|
|
|
|
|
|
|||||||
Effective tax rate |
19.6 | % | 27.2 | % | 24.1 | % |
111
The net deferred tax asset at December 31, 2013 and net deferred tax liability at December 31, 2012 is as follows:
(Dollars in thousands) | ||||||||
2013 | 2012 | |||||||
Deferred tax asset: |
||||||||
NOL carryforward |
$ | 1,001 | $ | 1,720 | ||||
Allowance for credit losses |
85,101 | 78,817 | ||||||
Discount on purchased loans |
| 158 | ||||||
Deferred compensation |
6,315 | 5,193 | ||||||
Unrealized loss on cash flow hedges |
| 471 | ||||||
Unrealized loss on available for sale investments |
8,880 | | ||||||
Basis difference in acquired assets |
70,136 | 120,893 | ||||||
OREO |
31,943 | 18,467 | ||||||
Other |
19,509 | 20,419 | ||||||
|
|
|
|
|||||
222,885 | 246,138 | |||||||
Deferred tax liability: |
||||||||
Basis difference in acquired assets |
(130,426 | ) | (170,860 | ) | ||||
Gain on acquisition |
(17,693 | ) | (34,358 | ) | ||||
FHLB stock |
(36 | ) | (19 | ) | ||||
Premises and equipment |
(10,209 | ) | (13,050 | ) | ||||
Acquisition intangibles |
(12,113 | ) | (11,267 | ) | ||||
Deferred loan costs |
(2,915 | ) | (3,405 | ) | ||||
Unrealized gain on available for sale investments |
| (13,650 | ) | |||||
Investments acquired |
(235 | ) | (224 | ) | ||||
Swap gain |
(75 | ) | (2 | ) | ||||
Other |
(11,089 | ) | (14,300 | ) | ||||
|
|
|
|
|||||
(184,791 | ) | (261,135 | ) | |||||
|
|
|
|
|||||
$ | 38,094 | $ | (14,997 | ) | ||||
|
|
|
|
Retained earnings at December 31, 2013 and 2012 included approximately $21,864,000 accumulated prior to January 1, 1987 for which no provision for federal income taxes has been made. If this portion of retained earnings is used in the future for any purpose other than to absorb bad debts, it will be added to future taxable income.
The Company does not believe it has any unrecognized tax benefits included in its consolidated financial statements. The Company has not had any settlements in the current period with taxing authorities, nor has it recognized tax benefits as a result of a lapse of the applicable statute of limitations.
During the years ended December 31, 2013, 2012, and 2011, the Company did not recognize any interest or penalties in its consolidated financial statements, nor has it recorded an accrued liability for interest or penalty payments.
112
NOTE 18 SHAREHOLDERS EQUITY AND OTHER COMPREHENSIVE INCOME
Other Comprehensive Income
The following is a summary of the tax effects of each component of other comprehensive income for the years ended December 31 for the periods indicated:
2013 | ||||||||||||
(Dollars in thousands) |
Before
Tax |
Tax Expense
(Benefit) |
Net-of-Tax
Amount |
|||||||||
Unrealized loss on securities: |
||||||||||||
Unrealized holding losses arising during the period |
$ | (62,095 | ) | $ | 21,733 | $ | (40,362 | ) | ||||
Less: reclassification adjustment for gains included in net income |
(2,277 | ) | 797 | (1,480 | ) | |||||||
|
|
|
|
|
|
|||||||
Net unrealized losses |
(64,372 | ) | 22,530 | (41,842 | ) | |||||||
Fair value of derivative instruments designated as cash flow hedges |
||||||||||||
Change in fair value of derivative instruments designated as cash flow hedges during the period |
$ | 953 | $ | (333 | ) | $ | 620 | |||||
Less: reclassification adjustment for losses included in net income |
391 | (137 | ) | 254 | ||||||||
|
|
|
|
|
|
|||||||
Fair value of derivative instruments designated as cash flow hedges |
1,344 | (470 | ) | 874 | ||||||||
|
|
|
|
|
|
|||||||
Total other comprehensive loss |
$ | (63,028 | ) | $ | 22,060 | $ | (40,968 | ) | ||||
|
|
|
|
|
|
2012 | ||||||||||||
(Dollars in thousands) |
Before
Tax |
Tax Expense
(Benefit) |
Net-of-Tax
Amount |
|||||||||
Unrealized gain on securities: |
||||||||||||
Unrealized holding gains arising during the period |
$ | 2,174 | $ | (761 | ) | $ | 1,413 | |||||
Less: reclassification adjustment for gains included in net income |
(3,739 | ) | 1,308 | (2,431 | ) | |||||||
|
|
|
|
|
|
|||||||
Net unrealized gains |
(1,565 | ) | 547 | (1,018 | ) | |||||||
Fair value of derivative instruments designated as cash flow hedges |
||||||||||||
Change in fair value of derivative instruments designated as cash flow hedges during the period |
$ | (22 | ) | $ | 8 | $ | (14 | ) | ||||
Less: reclassification adjustment for losses included in net income |
1,618 | (566 | ) | 1,052 | ||||||||
|
|
|
|
|
|
|||||||
Fair value of derivative instruments designated as cash flow hedges |
1,596 | (558 | ) | 1,038 | ||||||||
|
|
|
|
|
|
|||||||
Total other comprehensive income |
$ | 31 | $ | (11 | ) | $ | 20 | |||||
|
|
|
|
|
|
113
2011 | ||||||||||||
(Dollars in thousands) |
Before
Tax |
Tax Expense
(Benefit) |
Net-of-Tax
Amount |
|||||||||
Unrealized gain on securities: |
||||||||||||
Unrealized holding gains arising during the period |
$ | 36,328 | $ | (12,715 | ) | $ | 23,613 | |||||
Other-than-temporary impairment realized in net income |
(509 | ) | 178 | (331 | ) | |||||||
Less: reclassification adjustment for gains included in net income |
(3,422 | ) | 1,198 | (2,224 | ) | |||||||
|
|
|
|
|
|
|||||||
Net unrealized gains |
32,397 | (11,339 | ) | 21,058 | ||||||||
Fair value of derivative instruments designated as cash flow hedges |
||||||||||||
Change in fair value of derivative instruments designated as cash flow hedges during the period |
$ | (19,078 | ) | $ | 6,677 | $ | (12,401 | ) | ||||
Less: reclassification adjustment for losses included in net income |
1,723 | (603 | ) | 1,120 | ||||||||
|
|
|
|
|
|
|||||||
Fair value of derivative instruments designated as cash flow hedges |
(17,355 | ) | 6,074 | (11,281 | ) | |||||||
|
|
|
|
|
|
|||||||
Total other comprehensive income |
$ | 15,042 | $ | (5,265 | ) | $ | 9,777 | |||||
|
|
|
|
|
|
Treasury share repurchases
Share repurchases may be made from time to time, on the open market or in privately negotiated transactions. Such repurchases are authorized by the Board of Directors through a share repurchase program and are executed at the discretion of the management of the Company. The approved share repurchase program does not obligate the Company to repurchase any dollar amount or number of shares, and the program may be extended, modified, suspended, or discontinued at any time. Stock repurchases generally are affected through open market purchases, and may be made through unsolicited negotiated transactions. The timing of these repurchases will depend on market conditions and other requirements.
In October 2011, the Board of Directors authorized the repurchase of up to 900,000 shares of common stock. Purchases are based on the settlement date of the transactions. The average price paid per share includes commissions paid. No shares were repurchased during 2013. There are 46,692 shares available for repurchase at December 31, 2013 pursuant to the publicly announced plan.
NOTE 19 CAPITAL REQUIREMENTS AND OTHER REGULATORY MATTERS
The Company and IBERIABANK are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Companys financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and IBERIABANK must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy require the Company and IBERIABANK to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Management believes, as of December 31, 2013 and 2012, that the Company and IBERIABANK met all capital adequacy requirements to which they are subject.
114
As of December 31, 2013, the most recent notification from the Federal Deposit Insurance Corporation categorized IBERIABANK as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since the notification that management believes have changed that categorization. The Companys and IBERIABANKs actual capital amounts and ratios as of December 31, 2013 and 2012 are presented in the following table.
(Dollars in thousands) | December 31, 2013 | |||||||||||||||||||||||
Minimum | Well Capitalized | Actual | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
Tier 1 Leverage |
||||||||||||||||||||||||
Consolidated |
$ | 507,760 | 4.00 | % | $ | N/A | N/A | % | $ | 1,231,886 | 9.70 | % | ||||||||||||
IBERIABANK |
505,723 | 4.00 | 632,154 | 5.00 | 1,069,783 | 8.46 | ||||||||||||||||||
Tier 1 risk-based capital |
||||||||||||||||||||||||
Consolidated |
$ | 426,002 | 4.00 | % | $ | N/A | N/A | % | $ | 1,231,886 | 11.57 | % | ||||||||||||
IBERIABANK |
424,578 | 4.00 | 636,868 | 6.00 | 1,069,783 | 10.08 | ||||||||||||||||||
Total risk-based capital |
||||||||||||||||||||||||
Consolidated |
$ | 852,005 | 8.00 | % | $ | N/A | N/A | % | $ | 1,365,280 | 12.82 | % | ||||||||||||
IBERIABANK |
849,157 | 8.00 | 1,061,446 | 10.00 | 1,202,738 | 11.33 |
December 31, 2012 | ||||||||||||||||||||||||
Minimum | Well Capitalized | Actual | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
Tier 1 Leverage |
||||||||||||||||||||||||
Consolidated |
$ | 488,803 | 4.00 | % | $ | N/A | N/A | % | $ | 1,185,144 | 9.70 | % | ||||||||||||
IBERIABANK |
486,307 | 4.00 | 607,884 | 5.00 | 1,041,540 | 8.57 | ||||||||||||||||||
Tier 1 risk-based capital |
||||||||||||||||||||||||
Consolidated |
$ | 366,792 | 4.00 | % | $ | N/A | N/A | % | $ | 1,185,144 | 12.92 | % | ||||||||||||
IBERIABANK |
365,230 | 4.00 | 547,845 | 6.00 | 1,041,540 | 11.41 | ||||||||||||||||||
Total risk-based capital |
||||||||||||||||||||||||
Consolidated |
$ | 733,583 | 8.00 | % | $ | N/A | N/A | % | $ | 1,301,498 | 14.19 | % | ||||||||||||
IBERIABANK |
730,461 | 8.00 | 913,076 | 10.00 | 1,157,412 | 12.68 |
115
NOTE 20 SHARE-BASED COMPENSATION
The Company has various types of share-based compensation plans. These plans are administered by the Compensation Committee of the Board of Directors, which selects persons eligible to receive awards and determines the number of shares and/or options subject to each award, the terms, conditions and other provisions of the awards. During the years ended December 31, 2013 and 2012, the Company did not have any equity awards that were settled in cash.
Stock option plans
The Company issues stock options under various plans to directors, officers and other key employees. The option exercise price cannot be less than the fair value of the underlying common stock as of the date of the option grant and the maximum option term cannot exceed ten years. The stock options granted were issued with vesting periods ranging from one-and-a half to seven years. At December 31, 2013, future option or restricted stock awards of 504,027 shares could be made under approved incentive compensation plans.
The following table represents the compensation expense that is included in non-interest expense and related income tax benefits in the accompanying consolidated statements of comprehensive income related to stock options for the years ended December 31 of the periods indicated:
(Dollars in thousands, except per share data) | 2013 | 2012 | 2011 | |||||||||
Compensation expense related to stock options |
$ | 2,110 | $ | 1,873 | $ | 1,343 | ||||||
Income tax benefit related to stock options |
739 | 656 | 470 | |||||||||
Impact on basic earnings per share |
0.05 | 0.04 | 0.03 | |||||||||
Impact on diluted earnings per share |
0.05 | 0.04 | 0.03 |
The Company reported $886,000, $1,221,000 and $1,454,000 of excess tax benefits as financing cash inflows during the years ended December 31, 2013, 2012, and 2011, respectively, related to the exercise and vesting of stock options. Net cash proceeds from the exercise of stock options were $8,101,000, $2,813,000 and $6,807,000 for the years ended December 31, 2013, 2012, and 2011, respectively.
116
The Company uses the Black-Scholes option pricing model to estimate the fair value of share-based awards. The following weighted-average assumptions were used for option awards outstanding during the years ended December 31 st :
2013 | 2012 | 2011 | ||||||||||
Expected dividends |
2.6 | % | 2.7 | % | 2.4 | % | ||||||
Expected volatility |
34.8 | % | 40.1 | % | 35.5 | % | ||||||
Risk-free interest rate |
1.7 | % | 0.8 | % | 1.5 | % | ||||||
Expected term (in years) |
8.6 | 5.0 | 4.0 | |||||||||
Weighted-average grant-date fair value |
$ | 15.37 | $ | 14.50 | $ | 12.83 |
The assumptions above are based on multiple factors, including historical stock option exercise patterns and post-vesting employment termination behaviors, expected future exercise patterns and the expected volatility of the Companys stock price.
At December 31, 2013, there was $3,963,000 of unrecognized compensation cost related to stock options which is expected to be recognized over a weighted-average period of 4.7 years.
The following table represents the activity related to stock options during the periods indicated.
Number of shares |
Weighted Average
Exercise Price |
Weighted
Average
|
||||||||
Outstanding options, December 31, 2010 |
1,301,539 | $ | 45.52 | |||||||
Granted |
55,121 | 55.15 | ||||||||
Issued in connection with acquisition |
41,975 | 72.35 | ||||||||
Exercised |
(264,647 | ) | 30.99 | |||||||
Forfeited or expired |
(36,368 | ) | 57.51 | |||||||
|
|
|
|
|||||||
Outstanding options, December 31, 2011 |
1,097,620 | $ | 50.14 | |||||||
Granted |
230,665 | 51.69 | ||||||||
Issued in connection with acquisition |
32,863 | 41.30 | ||||||||
Exercised |
(92,092 | ) | 30.43 | |||||||
Forfeited or expired |
(32,981 | ) | 56.79 | |||||||
|
|
|
|
|||||||
Outstanding options, December 31, 2012 |
1,236,075 | $ | 51.48 | |||||||
Granted |
75,722 | 52.36 | ||||||||
Exercised |
(200,748 | ) | 40.35 | |||||||
Forfeited or expired |
(38,220 | ) | 55.87 | |||||||
|
|
|
|
|||||||
Outstanding options, December 31, 2013 |
1,072,829 | $ | 53.47 | 4.7 Years | ||||||
|
|
|
|
|
||||||
Outstanding exercisable at December 31, 2011 |
789,952 | $ | 47.64 | |||||||
Outstanding exercisable at December 31, 2012 |
792,444 | 50.05 | ||||||||
Outstanding exercisable at December 31, 2013 |
707,934 | 53.54 | 3.1 Years |
117
The following table presents weighted average remaining life as of December 31, 2013 for options outstanding within the stated exercise prices:
Options Outstanding | Options Exercisable | |||||||||||||||||
Exercise Price Range Per Share |
Number of
Options |
Weighted Average
Exercise Price |
Weighted Average
|
Number of
Options |
Weighted Average
Exercise Price |
|||||||||||||
$26.82 to $45.58 |
72,333 | $ | 42.61 | 1.4 Years | 72,047 | $ | 42.61 | |||||||||||
$45.59 to $48.35 |
150,564 | 46.91 | 1.6 Years | 140,696 | 46.91 | |||||||||||||
$48.36 to $51.69 |
173,624 | 50.15 | 5.1 Years | 91,673 | 49.46 | |||||||||||||
$51.70 to $55.42 |
275,968 | 53.00 | 7.7 Years | 90,084 | 53.91 | |||||||||||||
$55.43 to $58.34 |
202,415 | 56.97 | 3.9 Years | 158,166 | 57.19 | |||||||||||||
$58.35 to $111.71 |
197,925 | 62.42 | 4.3 Years | 155,268 | 63.09 | |||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||
Total options |
1,072,829 | $ | 53.47 | 4.7 Years | 707,934 | $ | 53.54 | |||||||||||
|
|
|
|
|
|
|
|
|
At December 31, 2013, the aggregate intrinsic value of shares underlying outstanding stock options and underlying exercisable stock options was $10,574,000 and $7,105,000. Total intrinsic value of options exercised was $2,740,000, $1,765,000 and $6,783,000 for the years ended December 31, 2013, 2012, and 2011, respectively.
Restricted stock plans
The Company issues restricted stock under various plans for certain officers and directors. A supplemental stock benefit plan adopted in 1999 and the 2001, 2005, 2008, and 2010 Incentive Plans allow grants of restricted stock. The plans allow for the issuance of restricted stock awards that may not be sold or otherwise transferred until certain restrictions have lapsed. The holders of the restricted stock receive dividends and have the right to vote the shares. The fair value of the restricted stock shares awarded under these plans is recorded as unearned share-based compensation, a contra-equity account. The unearned compensation related to these awards is amortized to compensation expense over the vesting period (generally three to seven years). The total share-based compensation expense for these awards is determined based on the market price of the Companys common stock at the date of grant applied to the total number of shares granted and is amortized over the vesting period. As of December 31, 2013, unearned share-based compensation associated with these awards totaled $21,054,000.
The following table represents the compensation expense that was included in non-interest expense in the accompanying consolidated statements of comprehensive income related to restricted stock grants for the years ended December 31 st :
(Dollars in thousands) | 2013 | 2012 | 2011 | |||||||||
Compensation expense related to restricted stock |
$ | 8,593 | $ | 8,035 | $ | 7,258 |
The following table represents unvested restricted stock award activity for the years ended December 31:
2013 | 2012 | 2011 | ||||||||||
Balance at beginning of period |
538,202 | 512,112 | 539,195 | |||||||||
Granted |
167,095 | 176,669 | 139,509 | |||||||||
Forfeited |
(28,713 | ) | (13,164 | ) | (35,823 | ) | ||||||
Earned and issued |
(152,828 | ) | (137,415 | ) | (130,769 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at end of period |
523,756 | 538,202 | 512,112 | |||||||||
|
|
|
|
|
|
Phantom stock awards
As part of the 2008 Incentive Compensation Plan and 2009 Phantom Stock Plan, the Company issues phantom stock awards to certain key officers and employees. The award is subject to a vesting period of five to seven years and is paid out in cash upon vesting. The amount paid per vesting period is calculated as the number of vested share equivalents multiplied by the closing market price of a share of the Companys common stock on the vesting date. Share equivalents are calculated on the date of grant as the total awards dollar value divided by the closing market price of a share of the Companys common stock on the grant date. Award recipients are also entitled to a dividend equivalent on each unvested share equivalent held by the award recipient. A dividend equivalent is a dollar amount equal to the cash dividends that the participant would have been entitled to receive if the participants share equivalents were issued in shares of
118
common stock. Dividend equivalents will be deemed to be reinvested as share equivalents that will vest and be paid out on the same date as the underlying share equivalents on which the dividend equivalents were paid. The number of share equivalents acquired with a dividend equivalent is determined by dividing the aggregate of dividend equivalents paid on the unvested share equivalents by the closing price of a share of the Companys common stock on the dividend payment date.
The following table indicates compensation expense recorded for phantom stock based on the number of share equivalents vested at the end of the periods indicated and the current market price of the Companys stock at that time.
For the Year Ended December 31, | ||||||||||||
(Dollars in thousands) | 2013 | 2012 | 2011 | |||||||||
Compensation expense related to phantom stock |
$ | 4,855 | $ | 2,185 | $ | 1,368 |
The following table represents phantom stock award activity during the periods indicated.
Number of share
equivalents |
Dividend
equivalents |
Total share
equivalents |
Value of share
equivalents (1) |
|||||||||||||
Balance, December 31, 2010 |
119,194 | 3,741 | 122,935 | $ | 7,269,000 | |||||||||||
Granted |
131,099 | 6,152 | 137,251 | 6,766,000 | ||||||||||||
Forfeited share equivalents |
(5,917 | ) | (179 | ) | (6,096 | ) | 301,000 | |||||||||
Vested share equivalents |
(11,455 | ) | (772 | ) | (12,227 | ) | 622,000 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, December 31, 2011 |
232,921 | 8,942 | 241,863 | $ | 11,924,000 | |||||||||||
Granted |
119,038 | 9,152 | 128,190 | 6,297,000 | ||||||||||||
Forfeited share equivalents |
(10,949 | ) | (367 | ) | (11,316 | ) | 556,000 | |||||||||
Vested share equivalents |
(22,281 | ) | (1,692 | ) | (23,973 | ) | 1,180,000 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, December 31, 2012 |
318,729 | 16,035 | 334,764 | $ | 16,444,000 | |||||||||||
Granted |
169,662 | 11,189 | 180,851 | 11,366,000 | ||||||||||||
Forfeited share equivalents |
(18,975 | ) | (785 | ) | (19,760 | ) | 1,242,000 | |||||||||
Vested share equivalents |
(52,178 | ) | (4,088 | ) | (56,266 | ) | 2,922,000 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, December 31, 2013 |
417,238 | 22,351 | 439,589 | $ | 27,628,000 | |||||||||||
|
|
|
|
|
|
|
|
(1) | Except for share equivalents at the beginning of each period, which are based on the value at that time, and vested share payments, which are based on the cash paid at the time of vesting, the value of share equivalents is calculated based on the market price of the Companys stock at the end of the respective periods. The market price of the Companys stock was $62.85, $49.12, and $49.30 on December 31, 2013, 2012, and 2011, respectively. |
401(k) defined contribution plan
The Company has a 401(k) Profit Sharing Plan covering substantially all of its employees. Annual employer contributions to the plan are set by the Board of Directors. The Company made contributions of $1,345,000, $1,305,000, and $1,177,000 for the years ended December 31, 2013, 2012, and 2011, respectively. The Plan provides, among other things, that participants in the Plan be able to direct the investment of their account balances within the Profit Sharing Plan into alternative investment funds. Participant deferrals under the salary reduction election may be matched by the employer based on a percentage to be determined annually by the employer.
NOTE 21 COMMITMENTS AND CONTINGENCIES
Off-balance sheet commitments
The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The credit policies used for these commitments are consistent with those used for on-balance sheet instruments. The Companys exposure to
119
credit loss in the event of nonperformance by other parties represents the contractual amount of the financial instruments. At December 31, 2013, the fair value of guarantees under commercial and standby letters of credit was $1,050,000. This amount represents the unamortized fee associated with these guarantees and is included in the consolidated balance sheets of the Company. This fair value will decrease as the existing commercial and standby letters of credit approach their expiration dates.
At December 31, 2013 and 2012, the Company had the following financial instruments outstanding, whose contract amounts represent credit risk:
(Dollars in thousands) | 2013 | 2012 | ||||||
Commitments to grant loans |
$ | 221,627 | $ | 192,295 | ||||
Unfunded commitments under lines of credit |
3,326,448 | 2,372,971 | ||||||
Commercial and standby letters of credit |
105,026 | 62,207 | ||||||
Reserve for unfunded lending commitments |
11,147 | |
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to be drawn upon, the total commitment amounts generally represent future cash requirements. The Company evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral, if any, is based on managements credit evaluation of the counterparty.
Unfunded commitments under commercial lines-of-credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. Many of these types of commitments do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed. See Note 7 for additional discussion related to the Companys unfunded lending commitments.
Commercial and standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper issuance, bond financing, and similar transactions. The credit risk involved in issuing letters or credit is essentially the same as that involved in extending loan facilities to customers and as such, are collateralized when necessary, generally in the form of marketable securities and cash equivalents.
Legal proceedings
The nature of the business of the Companys banking and other subsidiaries ordinarily results in a certain amount of claims, litigation, investigations and legal and administrative cases and proceedings, all of which are considered incidental to the normal conduct of business. Some of these claims are against entities or assets of which the Company is a successor or acquired in business acquisitions, and certain of these claims will be covered by loss sharing agreements with the FDIC. The Company has asserted defenses to these litigations and, with respect to such legal proceedings, intends to continue to defend itself vigorously, litigating or settling cases according to managements judgment as to what is in the best interest of the Company and its shareholders.
The Company assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that the Company will incur a loss and the amount of the loss can be reasonably estimated, the Company records a liability in its consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of loss is not estimable, the Company does not accrue legal reserves. While the outcome of legal proceedings is inherently uncertain, based on information currently available, advice of counsel and available insurance coverage, the Companys management believes that it has established appropriate legal reserves. Any liabilities arising from pending legal proceedings are not expected to have a material adverse effect on the Companys consolidated financial position, consolidated results of operations or consolidated cash flows. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the Companys consolidated financial position, consolidated results of operations or consolidated cash flows.
As of the date of this filing, the Company believes it is reasonably possible to incur losses above amounts already accrued associated with legal proceedings between $0 and $725,000.
120
NOTE 22 RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has granted loans to executive officers and directors and their affiliates amounting to $101,000 and $750,000 at December 31, 2013 and 2012, respectively. During the years ended December 31, 2013, 2012, and 2011, total principal additions were $41,000, $252,000, and $931,000, respectively. Total principal payments were $690,000, $883,000, and $317,000 for the years ended December 31, 2013, 2012, and 2011, respectively. Unfunded commitments to executive officers and directors and their affiliates totaled $37,000 and $390,000 at December 31, 2013 and 2012, respectively. None of the related party loans were classified as nonaccrual, past due, restructured or potential problem loans at December 31, 2013 or 2012.
Deposits from related parties held by the Company through IBERIABANK at December 31, 2013 and 2012 amounted to $5,920,000 and $6,155,000, respectively.
NOTE 23 FAIR VALUE MEASUREMENTS
Fair value option
The Company may elect the fair value option, which permits the Company to choose to measure eligible financial assets and liabilities at fair value at specified election dates and recognize prospective changes in unrealized gains and losses on items for which the fair value option has been elected in earnings at each reporting date.
Beginning in 2013, the Company has elected the fair value option for certain residential mortgage loans held for sale originated on or after December 2, 2013, which allows for a more effective offset of the changes in fair values of the loans and the derivative instruments used to hedge them without the burden of complying with the requirements for hedge accounting.
The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for mortgage loans held for sale measured at fair value:
(Dollars in thousands) | December 31, 2013 | |||||||||||
Aggregate
Fair Value |
Aggregate
Unpaid Principal |
Aggregate Fair Value
Less Unpaid Principal |
||||||||||
Mortgage loans held for sale, at fair value |
$ | 97,273 | $ | 96,875 | $ | 398 |
Interest income on mortgage loans held for sale is recognized based on contractual rates and is reflected in interest income on loans held for sale in the consolidated statements of comprehensive income. Net gains (losses) resulting from the change in fair value of these loans that were recorded in mortgage income in the consolidated statement of comprehensive income for the year ended December 31, 2013 totaled $398,000. The changes in fair value are mostly offset by economic hedging activities, with an immaterial portion of these changes attributable to changes in instrument-specific credit risk.
121
Items measured at fair value on a recurring basis
The Company has segregated all financial assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to estimate the fair value at the measurement date in the tables below.
(Dollars in thousands) | December 31, 2013 | |||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
Assets |
||||||||||||||||
Available for sale securities |
$ | 15,496 | $ | 1,921,301 | $ | | $ | 1,936,797 | ||||||||
Mortgage loans held for sale |
| 97,273 | | 97,273 | ||||||||||||
Derivative instruments |
| 30,076 | | 30,076 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 15,496 | $ | 2,048,650 | $ | | $ | 2,064,146 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||||
Derivative instruments |
| 26,735 | | 26,735 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | | $ | 26,735 | $ | | $ | 26,735 | ||||||||
|
|
|
|
|
|
|
|
December 31, 2012 | ||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
Assets |
||||||||||||||||
Available for sale securities |
$ | | $ | 1,745,004 | $ | | $ | 1,745,004 | ||||||||
Derivative instruments |
| 42,119 | | 42,119 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | | $ | 1,787,123 | $ | | $ | 1,787,123 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||||
Derivative instruments |
| 36,890 | | 36,890 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | | $ | 36,890 | $ | | $ | 36,890 | ||||||||
|
|
|
|
|
|
|
|
During 2013, available for sale securities with a market value of $15,496,000 were purchased and included in the Level 1 fair value measurement category in the table above. The security was issued by Fannie Mae and was included in the Level 1 category at December 31, 2013 based on a recent trade price in the open market.
Gains and losses (realized and unrealized) included in earnings (or changes in net assets) during 2013 related to assets and liabilities measured at fair value on a recurring basis are reported in non-interest income or other comprehensive income as follows:
(Dollars in thousands) |
Noninterest
income |
Other
comprehensive income |
||||||
Total gains (losses) included in earnings (or changes in net assets) |
$ | (2,862 | ) | $ | | |||
Change in unrealized gains (losses) relating to assets still held at December 31, 2013 |
| (40,968 | ) |
122
Items measured at fair value on a non-recurring basis
The Company has segregated all financial assets and liabilities that are measured at fair value on a nonrecurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the tables below.
(Dollars in thousands) | December 31, 2013 | |||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
Assets |
||||||||||||||||
Loans |
$ | | $ | 3,070 | $ | | $ | 3,070 | ||||||||
Mortgage loans held for sale |
| 11,876 | | 11,876 | ||||||||||||
OREO |
| 14,598 | | 14,598 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | | $ | 29,544 | $ | | $ | 29,544 | ||||||||
|
|
|
|
|
|
|
|
(Dollars in thousands) | December 31, 2012 | |||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
Assets |
||||||||||||||||
Loans |
$ | | $ | 6,388 | $ | | $ | 6,388 | ||||||||
Mortgage loans held for sale |
| 32,753 | | 32,753 | ||||||||||||
OREO |
| 20,427 | | 20,427 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | | $ | 59,568 | $ | | $ | 59,568 | ||||||||
|
|
|
|
|
|
|
|
The tables above exclude the initial measurement of assets and liabilities that were acquired as part of the Florida Gulf, OMNI, Cameron, and Florida Trust Company acquisitions completed in 2012 and 2011. These assets and liabilities were recorded at their fair value upon acquisition in accordance with generally-accepted accounting principles and were not re-measured during the periods presented unless specifically required by generally accepted accounting principles. Acquisition date fair values represent either Level 2 fair value measurements (investment securities, OREO, property, equipment, and debt) or Level 3 fair value measurements (loans, deposits, and core deposit intangible asset).
In accordance with the provisions of ASC Topic 310, the Company records certain loans considered impaired at their estimated fair value. A loan is considered impaired if it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Fair value is measured at the estimated fair value of the collateral for collateral-dependent loans. Impaired non-covered loans with an outstanding balance of $4,099,000 and $7,269,000 were recorded at their fair value at December 31, 2013 and 2012, respectively. These loans include a reserve of $1,029,000 and $880,000 included in the Companys allowance for credit losses at December 31, 2013 and 2012, respectively.
During the second quarter of 2013, the Company announced plans to close ten branches during the second and third quarters of 2013 as part of its business strategy. The Company notified customers of these branches and received the required regulatory approvals to proceed with closure. The Company reviewed the carrying amount of the owned properties and concluded it exceeded the fair value of these branches at that date. As a result, the Company recorded an impairment loss in other non-interest expense of $4,941,000 in its consolidated statement of comprehensive income for the year ended December 31, 2013. After the impairment loss, the carrying value of the branches was $5,131,000 and is included in OREO (as real estate acquired for development or resale) on the Companys consolidated balance sheet at December 31, 2013.
Fair value of the branches was based on a third-party broker opinion of value using both a comparable sales and cash flow approach. The Company did not modify the third-party pricing information for unobservable inputs.
The Company did not record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis during the years ended December 31, 2013 and 2012.
123
NOTE 24 FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Companys various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. ASC Topic 825 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Refer to Note 1 to these financial statements for the methods and assumptions used to measure the fair value of investment securities and derivative instruments.
Cash and cash equivalents
The carrying amounts of cash and cash equivalents approximate their fair value.
Loans
The fair values of non-covered mortgage loans receivable are estimated based on present values using entry-value rates (the interest rate that would be charged for a similar loan to a borrower with similar risk at the indicated balance sheet date) at December 31, 2013 and 2012, weighted for varying maturity dates. Other non-covered loans receivable are valued based on present values using entry-value interest rates at December 31, 2013 and 2012 applicable to each category of loans, which would be classified within Level 3 of the hierarchy. Fair values of mortgage loans held for sale are based on commitments on hand from investors or prevailing market prices, a Level 2 measurement. Covered loans are measured using projections of expected cash flows, exclusive of the shared-loss agreements with the FDIC. Fair value of the covered loans included in the table below reflects the current fair value of these loans, which is based on an updated estimate of the projected cash flow as of the dates indicated. The fair value associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows, which also would be classified within Level 3 of the hierarchy.
Accrued Interest Receivable and Accrued Interest Payable: The carrying amount of accrued interest approximates fair value because of the short maturity of these financial instruments.
FDIC Loss Share Receivable: The fair value is determined using projected cash flows from loss sharing agreements based on expected reimbursements for losses at the applicable loss sharing percentages based on the terms of the loss share agreements. Cash flows are discounted to reflect the timing and receipt of the loss sharing reimbursements from the FDIC. The fair value of the Companys FDIC loss share receivable would be categorized within Level 3 of the hierarchy.
Deposits
The fair values of NOW accounts, money market deposits and savings accounts are the amounts payable on demand at the reporting date. Certificates of deposit were valued using a discounted cash flow model based on the weighted-average rate at December 31, 2013 and 2012 for deposits with similar remaining maturities. The fair value of the Companys deposits would therefore be categorized within Level 3 of the fair value hierarchy.
Short-term borrowings
The carrying amounts of short-term borrowings maturing within ninety days approximate their fair values.
Long-term debt
The fair values of long-term debt are estimated using discounted cash flow analyses based on the Companys current incremental borrowing rates for similar types of borrowing arrangements. The fair value of the Companys long-term debt would therefore be categorized within Level 3 of the fair value hierarchy.
Off-balance sheet items
The Company has outstanding commitments to extend credit and standby letters of credit. These off-balance sheet financial instruments are generally exercisable at the market rate prevailing at the date the underlying transaction will be completed. At December 31, 2013 and 2012, the fair value of guarantees under commercial and standby letters of credit was immaterial.
124
The estimated fair values and carrying amounts of the Companys financial instruments are as follows:
December 31, 2013 | December 31, 2012 | |||||||||||||||
(Dollars in thousands) |
Carrying
Amount |
Fair
Value |
Carrying
Amount |
Fair
Value |
||||||||||||
Financial Assets |
||||||||||||||||
Cash and cash equivalents |
$ | 391,396 | $ | 391,396 | $ | 626,517 | $ | 626,517 | ||||||||
Investment securities |
2,090,906 | 2,089,363 | 2,149,990 | 1,956,502 | ||||||||||||
Loans and loans held for sale |
9,620,461 | 9,724,432 | 8,783,011 | 8,800,563 | ||||||||||||
FDIC loss share receivable |
162,312 | 21,918 | 284,471 | 207,222 | ||||||||||||
Derivative instruments |
30,076 | 30,076 | 42,119 | 42,119 | ||||||||||||
Accrued interest receivable |
32,143 | 32,143 | 32,707 | 32,707 | ||||||||||||
Financial Liabilities |
||||||||||||||||
Deposits |
$ | 10,737,000 | $ | 10,226,573 | $ | 10,686,268 | $ | 10,594,885 | ||||||||
Short-term borrowings |
680,344 | 680,344 | 294,156 | 294,156 | ||||||||||||
Long-term debt |
280,699 | 235,503 | 323,046 | 394,490 | ||||||||||||
Derivative instruments |
26,735 | 26,735 | 36,890 | 36,890 | ||||||||||||
Accrued interest payable |
6,102 | 6,102 | 6,421 | 6,421 |
The fair value estimates presented herein are based upon pertinent information available to management as of December 31, 2013 and 2012. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.
NOTE 25 RESTRICTIONS ON DIVIDENDS, LOANS AND ADVANCES
IBERIABANK is restricted under applicable laws in the payment of dividends to an amount equal to current year earnings plus undistributed earnings for the immediately preceding year, unless prior permission is received from the Commissioner of Financial Institutions for the State of Louisiana. Dividends payable by IBERIABANK in 2014 without permission will be limited to 2014 earnings plus an additional $23,580,000.
Funds available for loans or advances by IBERIABANK to the Company amounted to $122,401,000. In addition, any dividends that may be paid by IBERIABANK to the Company would be prohibited if the effect thereof would cause IBERIABANKs capital to be reduced below applicable minimum capital requirements.
During any deferral period under the Companys junior subordinated debt, the Company would be prohibited from declaring and paying dividends to common shareholders. See Note 16 to the consolidated financial statements for additional information.
NOTE 26 BUSINESS SEGMENTS
Each of the Companys reportable operating segments is a business unit that serves the specific needs of the Companys customers based on the products and services it offers. The reportable segments are based upon those revenue-producing components for which separate financial information is produced internally and are subject to evaluation by the chief operating decision maker in deciding how to allocate resources to segments. The Company reports the results of its operations through three business segments: IBERIABANK, IMC, and Lenders.
The IBERIABANK segment represents the Companys commercial and retail banking functions including its lending, investment, and deposit activities. IBERIABANK also includes the Companys wealth management, capital markets, trust, and other corporate functions that are not specifically related to a strategic business unit. The IMC segment represents the Companys origination, funding and subsequent sale of one-to-four family residential mortgage loans. The Lenders segment represents the Companys title insurance and loan closing services. Certain expenses not directly attributable to a specific reportable segment are allocated to segments based on pre-determined means that reflect utilization.
Also within IBERIABANK are certain reconciling items in order to translate reportable segment results into consolidated results. The following tables present certain information regarding our operations by reportable segment, including a reconciliation of segment results to reported consolidated results for the periods presented. Reconciling items between segment results and reported results include:
|
Elimination of interest income and interest expense representing interest earned by IBERIABANK on interest-bearing checking accounts held by related companies, as well as the elimination of the related deposit balances at the IBERIABANK segment |
|
Elimination of investment in subsidiary balances on certain operating segments included in total and average segment assets |
|
Elimination of intercompany due to and due from balances on certain operating segments that are included in total and average segment assets. |
IBERIABANK is considered a reportable segment based on the quantitative thresholds specified within ASC Topic 280, Segment Reporting (ASC 280). The Companys IMC and Lenders segments do not meet the quantitative thresholds specified by ASC 280 and are reported because management believes information about those segments is useful to users of the financial statements. The Companys wealth management, capital markets, and trust operating segments are aggregated within the IBERIABANK reportable operating segment because they do not meet the thresholds specified by ASC 280 based on the qualitative factors presented within ASC 280.
125
(Dollars in thousands) | Year Ended December 31, 2013 | |||||||||||||||
IBERIABANK | IMC | Lenders | Consolidated | |||||||||||||
Interest income |
$ | 431,418 | $ | 5,747 | $ | 32 | $ | 437,197 | ||||||||
Interest expense |
45,150 | 1,803 | | 46,953 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income |
386,268 | 3,944 | 32 | 390,244 | ||||||||||||
Provision for loan losses |
5,123 | 22 | | 5,145 | ||||||||||||
Mortgage income |
2 | 64,195 | | 64,197 | ||||||||||||
Title income |
| | 20,526 | 20,526 | ||||||||||||
Other non-interest income |
84,243 | (10 | ) | 2 | 84,235 | |||||||||||
Core deposit intangible amortization |
4,499 | | | 4,499 | ||||||||||||
Allocated expenses |
(7,453 | ) | 5,417 | 2,036 | | |||||||||||
Other non-interest expenses |
402,170 | 49,723 | 16,693 | 468,586 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes |
66,174 | $ | 12,967 | $ | 1,831 | $ | 80,972 | |||||||||
Income tax provision (benefit) |
10,035 | 5,093 | 741 | 15,869 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | 56,139 | $ | 7,874 | $ | 1,090 | $ | 65,103 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total loans and loans held for sale |
$ | 9,472,908 | $ | 147,553 | $ | | $ | 9,620,461 | ||||||||
Total assets |
13,168,162 | 173,131 | 24,257 | 13,365,550 | ||||||||||||
Total deposits |
10,735,030 | 2,970 | (1,000 | ) | 10,737,000 | |||||||||||
Average assets |
12,795,123 | 183,513 | 25,352 | 13,003,988 |
126
(Dollars in thousands) | Year Ended December 31, 2012 | |||||||||||||||
IBERIABANK | IMC | Lenders | Consolidated | |||||||||||||
Interest income |
$ | 439,245 | $ | 5,858 | $ | 97 | $ | 445,200 | ||||||||
Interest expense |
61,349 | 2,101 | | 63,450 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income |
377,896 | 3,757 | 97 | 381,750 | ||||||||||||
Provision for loan losses |
20,550 | 121 | | 20,671 | ||||||||||||
Mortgage income |
6 | 78,047 | | 78,053 | ||||||||||||
Title income |
| | 20,987 | 20,987 | ||||||||||||
Other non-interest income |
76,967 | (10 | ) | | 76,957 | |||||||||||
Core deposit intangible amortization |
4,900 | | | 4,900 | ||||||||||||
Allocated expenses |
(3,282 | ) | 2,340 | 942 | | |||||||||||
Other non-interest expenses |
361,428 | 49,084 | 16,773 | 427,285 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes |
71,273 | 30,249 | 3,369 | 104,891 | ||||||||||||
Income tax provision (benefit) |
15,192 | 11,871 | 1,433 | 28,496 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | 56,081 | $ | 18,378 | $ | 1,936 | $ | 76,395 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total loans and loans held for sale |
$ | 8,485,363 | $ | 280,692 | $ | | $ | 8,766,055 | ||||||||
Total assets |
12,796,811 | 308,152 | 24,715 | 13,129,678 | ||||||||||||
Total deposits |
10,745,528 | 2,749 | | 10,748,277 | ||||||||||||
Average assets |
11,879,761 | 194,832 | 22,379 | 12,096,972 |
(Dollars in thousands) | Year Ended December 31, 2011 | |||||||||||||||
IBERIABANK | IMC | Lenders | Consolidated | |||||||||||||
Interest income |
$ | 416,118 | $ | 3,917 | $ | 292 | $ | 420,327 | ||||||||
Interest expense |
80,861 | 808 | 400 | 82,069 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income |
335,257 | 3,109 | (108 | ) | 338,258 | |||||||||||
Provision for loan losses |
25,706 | 161 | | 25,867 | ||||||||||||
Mortgage income |
(114 | ) | 45,291 | | 45,177 | |||||||||||
Title income |
| | 18,048 | 18,048 | ||||||||||||
Other non-interest income |
68,631 | 3 | | 68,634 | ||||||||||||
Core deposit intangible amortization |
4,961 | | | 4,961 | ||||||||||||
Allocated expenses |
(2,649 | ) | 1,747 | 902 | | |||||||||||
Other non-interest expenses |
315,406 | 36,320 | 17,044 | 368,770 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes |
60,350 | 10,175 | (6 | ) | 70,519 | |||||||||||
Income tax provision (benefit) |
12,921 | 3,993 | 67 | 16,981 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | 47,429 | $ | 6,182 | $ | (73 | ) | $ | 53,538 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Total loans and loans held for sale |
$ | 7,377,540 | $ | 163,510 | $ | | $ | 7,541,050 | ||||||||
Total assets |
11,550,594 | 181,261 | 26,073 | 11,757,928 | ||||||||||||
Total deposits |
9,287,929 | 1,079 | 5 | 9,289,013 | ||||||||||||
Average assets |
10,756,795 | 106,773 | 26,622 | 10,890,190 |
127
NOTE 27 CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements of IBERIABANK Corporation (parent company only) are shown below. The parent company has no significant operating activities.
Condensed Balance Sheets
December 31, 2013 and 2012
(Dollars in thousands) | ||||||||
2013 | 2012 | |||||||
Assets |
||||||||
Cash in bank |
$ | 98,108 | $ | 63,207 | ||||
Investment in subsidiaries |
1,487,337 | 1,506,671 | ||||||
Other assets |
80,528 | 89,966 | ||||||
|
|
|
|
|||||
$ | 1,665,973 | $ | 1,659,844 | |||||
|
|
|
|
|||||
Liabilities and Shareholders Equity |
||||||||
Liabilities |
$ | 134,994 | $ | 129,976 | ||||
Shareholders Equity |
1,530,979 | 1,529,868 | ||||||
|
|
|
|
|||||
$ | 1,665,973 | $ | 1,659,844 | |||||
|
|
|
|
Condensed Statements of Income
Years Ended December 31, 2013, 2012 and 2011
(Dollars in thousands) | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Operating income |
||||||||||||
Dividends from bank subsidiary |
$ | 49,000 | $ | 70,000 | $ | | ||||||
Dividends from non-bank subsidiaries |
1,511 | | | |||||||||
Reimbursement of management expenses |
34,474 | 94,053 | 74,664 | |||||||||
Other income |
869 | (836 | ) | (1,176 | ) | |||||||
|
|
|
|
|
|
|||||||
Total operating income |
85,854 | 163,217 | 73,488 | |||||||||
Operating expenses |
||||||||||||
Interest expense |
3,232 | 3,427 | 2,101 | |||||||||
Salaries and employee benefits expense |
29,159 | 76,527 | 63,505 | |||||||||
Other expenses |
13,676 | 47,309 | 33,546 | |||||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
46,067 | 127,263 | 99,152 | |||||||||
Income (loss) before income tax (expense) benefit and increase in equity in undistributed earnings of subsidiaries |
39,787 | 35,954 | (25,664 | ) | ||||||||
Income tax benefit |
(2,808 | ) | (11,842 | ) | (8,219 | ) | ||||||
|
|
|
|
|
|
|||||||
Income (loss) before equity in undistributed earnings of subsidiaries |
42,595 | 47,796 | (17,445 | ) | ||||||||
Equity in undistributed earnings of subsidiaries |
22,508 | 28,599 | 70,983 | |||||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 65,103 | $ | 76,395 | $ | 53,538 | ||||||
|
|
|
|
|
|
128
Condensed Statements of Cash Flows
Years Ended December 31, 2013, 2012, and 2011
(Dollars in thousands) | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Cash Flow from Operating Activities |
||||||||||||
Net income |
$ | 65,103 | $ | 76,395 | $ | 53,538 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
2,035 | 4,926 | 1,071 | |||||||||
Net income of subsidiaries |
(73,019 | ) | (98,599 | ) | (70,983 | ) | ||||||
Noncash compensation expense |
10,703 | 9,907 | 9,114 | |||||||||
Loss on sale of assets |
| 7 | | |||||||||
Derivative losses on swaps |
| 2 | | |||||||||
Tax benefit associated with share-based payment arrangements |
(886 | ) | (1,221 | ) | (1,454 | ) | ||||||
Other, net |
7,575 | (10,557 | ) | (23,278 | ) | |||||||
|
|
|
|
|
|
|||||||
Net Cash Provided by (Used in) Operating Activities |
11,511 | (19,140 | ) | (31,992 | ) | |||||||
Cash Flow from Investing Activities |
||||||||||||
Cash received in excess of cash paid in acquisition |
| 1,272 | | |||||||||
Proceeds from sale of premises and equipment |
11,751 | 5 | 10 | |||||||||
Purchases of premises and equipment |
(5,247 | ) | (4,173 | ) | (3,655 | ) | ||||||
Capital contributed to subsidiary |
| (2,000 | ) | (12,963 | ) | |||||||
Dividends received from subsidiaries |
50,511 | 70,000 | | |||||||||
Acquisition |
| | | |||||||||
|
|
|
|
|
|
|||||||
Net Cash Provided by (Used In) Investing Activities |
57,015 | 65,104 | (16,608 | ) | ||||||||
Cash Flow from Financing Activities |
||||||||||||
Proceeds from long-term debt |
| | | |||||||||
Repayments of long-term debt |
| (2,867 | ) | (13,500 | ) | |||||||
Dividends paid to shareholders |
(40,332 | ) | (40,069 | ) | (38,558 | ) | ||||||
Proceeds from sale of treasury stock for stock options exercised |
8,101 | 2,813 | 6,807 | |||||||||
Payments to repurchase common stock |
(2,280 | ) | (42,245 | ) | (43,219 | ) | ||||||
Tax benefit associated with share-based payment arrangements |
886 | 1,221 | 1,454 | |||||||||
|
|
|
|
|
|
|||||||
Net Cash Used In Financing Activities |
(33,625 | ) | (81,147 | ) | (87,016 | ) | ||||||
Net Increase (Decrease) in Cash and Cash Equivalents |
34,901 | (35,183 | ) | (135,616 | ) | |||||||
Cash and Cash Equivalents at Beginning of Period |
63,207 | 98,390 | 234,006 | |||||||||
|
|
|
|
|
|
|||||||
Cash and Cash Equivalents at End of Period |
$ | 98,108 | $ | 63,207 | $ | 98,390 | ||||||
|
|
|
|
|
|
129
NOTE 28 QUARTERLY RESULTS OF OPERATIONS AND SELECTED CASH FLOW DATA (UNAUDITED)
2013 | ||||||||||||||||
(Dollars in thousands, except per share data) | Fourth Quarter | Third Quarter | Second Quarter | First Quarter | ||||||||||||
Total interest income |
$ | 114,092 | $ | 108,512 | $ | 108,177 | $ | 106,416 | ||||||||
Total interest expense |
10,654 | 11,060 | 11,695 | 13,545 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income |
103,438 | 97,452 | 96,482 | 92,871 | ||||||||||||
Provision for (Reversal of) loan losses |
4,700 | 2,014 | 1,807 | (3,377 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income after provision for loan losses |
98,738 | 95,438 | 94,675 | 96,248 | ||||||||||||
Gain (loss) on sale of investments, net |
19 | 13 | (57 | ) | 2,359 | |||||||||||
Other noninterest income |
38,696 | 43,250 | 42,546 | 42,132 | ||||||||||||
Noninterest expense |
102,674 | 108,152 | 117,361 | 144,898 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) before income taxes |
34,779 | 30,549 | 19,803 | (4,159 | ) | |||||||||||
Income tax expense (benefit) |
9,175 | 7,357 | 4,213 | (4,876 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 25,604 | $ | 23,192 | $ | 15,590 | $ | 717 | ||||||||
Preferred stock dividends |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income available to common shareholders |
25,604 | 23,192 | 15,590 | 717 | ||||||||||||
Earnings allocated to unvested restricted stock |
(456 | ) | (425 | ) | (293 | ) | (20 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings available to common shareholders - Diluted |
$ | 25,148 | $ | 22,767 | $ | 15,297 | $ | 697 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings per share - Basic |
$ | 0.86 | $ | 0.78 | $ | 0.53 | $ | 0.02 | ||||||||
Earnings per share - Diluted |
0.86 | 0.78 | 0.53 | 0.02 | ||||||||||||
Cash dividends declared per common share |
0.34 | 0.34 | 0.34 | 0.34 |
2012 | ||||||||||||||||
Fourth Quarter | Third Quarter | Second Quarter | First Quarter | |||||||||||||
Total interest income |
$ | 114,779 | $ | 111,951 | $ | 109,283 | $ | 109,187 | ||||||||
Total interest expense |
14,789 | 15,225 | 16,111 | 17,326 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income |
99,990 | 96,726 | 93,172 | 91,861 | ||||||||||||
Provision for loan losses |
4,866 | 4,053 | 8,895 | 2,857 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income after provision for loan losses |
95,124 | 92,673 | 84,277 | 89,004 | ||||||||||||
Gain (loss) on sale of investments, net |
(4 | ) | 41 | 901 | 2,836 | |||||||||||
Other noninterest income |
50,358 | 46,512 | 40,793 | 34,560 | ||||||||||||
Noninterest expense |
113,441 | 109,848 | 109,022 | 99,873 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes |
32,037 | 29,378 | 16,949 | 26,527 | ||||||||||||
Income tax expense |
8,829 | 8,144 | 4,389 | 7,134 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 23,208 | $ | 21,234 | $ | 12,560 | $ | 19,393 | ||||||||
Preferred stock dividends |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income available to common shareholders |
23,208 | 21,234 | 12,560 | 19,393 | ||||||||||||
Earnings allocated to unvested restricted stock |
(428 | ) | (406 | ) | (240 | ) | (364 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings available to common shareholders - Diluted |
$ | 22,780 | $ | 20,828 | $ | 12,320 | $ | 19,029 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings per share - Basic |
$ | 0.79 | $ | 0.73 | $ | 0.43 | $ | 0.66 | ||||||||
Earnings per share - Diluted |
0.79 | 0.73 | 0.43 | 0.66 | ||||||||||||
Cash dividends declared per common share |
0.34 | 0.34 | 0.34 | 0.34 |
130
NOTE 29 SUBSEQUENT EVENTS
Acquisitions
Acquisition of Certain Assets and Liabilities of Trust One Bank
During the third quarter of 2013, the Company announced the signing of a definitive agreement pursuant to which IBERIABANK will acquire certain assets and assume certain liabilities of the Memphis, Tennessee operations of Trust One Bank, a division of Synovus Bank. The transaction closed on January 17, 2014.
Acquisition of Teche Holding Company
During the first quarter of 2014, the Company announced the signing of a definitive agreement to acquire Teche Holding Company (Teche), the holding company of Teche Federal Bank, a New Iberia, Louisiana-based bank with 20 branch locations servicing south Louisiana. The proposed acquisition of Teche has been approved by the Board of Directors of each company and is expected to close in the second quarter of 2014, subject to customary closing conditions, including the receipt of required regulatory approvals and the approval of Teches shareholders.
Under terms of the agreement, Teche shareholders will receive 1.162 shares of the Companys common stock for each of the Teche common stock shares outstanding, subject to certain market price adjustments provided for in the agreement. All unexercised Teche stock options, whether or not vested, will be cashed out and shares of restricted stock will become fully vested in connection with the acquisition.
Acquisition of First Private Holdings, Inc.
During the first quarter of 2014, the Company announced the signing of a definitive agreement to acquire First Private Holdings, Inc. (First Private), the holding company of First Private Bank of Texas, a Dallas, Texas-based bank with two branch locations. The acquisition has been approved by the Board of Directors of each company and is expected to close in the second quarter of 2014, subject to customary closing conditions, including the receipt of required regulatory approvals and the approval of First Privates shareholders.
Under terms of the agreement, First Private shareholders will receive 0.27 shares of the Companys common stock for each of the First Private common stock shares outstanding, subject to certain market price adjustments provided for in the agreement. All unexercised First Private options and warrants, whether or not vested, will be cashed out.
131
Corporate Information
Corporate Headquarters
IBERIABANK Corporation
200 West Congress Street
Lafayette, LA 70501
337.521.4012
Corporate Mailing Address
P.O. Box 52747
Lafayette, LA 70505-2747
Annual Meeting
IBERIABANK Corporation Annual Meeting of Shareholders will be held on Monday, May 5, 2014 at 4:00 p.m., local time, at the Inter-Continental New Orleans Hotel, located at 444 Saint Charles Avenue, New Orleans, Louisiana.
Shareholder Assistance
Shareholders requesting a change of address, records or information about the Dividend Reinvestment Plan, or lost certificates should contact:
Investor Relations
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
800.368.5948
www.invrelations@RTCO.com
For Information
Copies of the Companys Annual Report on Form 10-K including financial statements and financial statement schedules, will be furnished to Shareholders without cost by sending a written request to George J. Becker III, Secretary, IBERIABANK Corporation, 200 West Congress Street, 12th Floor, Lafayette, Louisiana 70501. This and other information regarding IBERIABANK Corporation and its subsidiaries may be accessed from our web sites. In addition, shareholders may contact:
Daryl G. Byrd, President and CEO
337.521.4003
John R. Davis, Senior Executive Vice President
337.521.4005
Internet Addresses
www.iberiabank.com
www.iberiabankmortgage.com
www.lenderstitle.com
www.utla.com
www.iberiabankcreditcards.com
Stock Information
MARKET PRICE |
DIVIDENDS
DECLARED |
|||||||||||||||
2013 |
HIGH | LOW | CLOSING | |||||||||||||
First Quarter |
$ | 52.78 | $ | 48.73 | $ | 50.02 | $ | 0.34 | ||||||||
Second Quarter |
$ | 54.27 | $ | 44.91 | $ | 53.61 | $ | 0.34 | ||||||||
Third Quarter |
$ | 59.81 | $ | 51.54 | $ | 51.91 | $ | 0.34 | ||||||||
Fourth Quarter |
$ | 63.98 | $ | 51.55 | $ | 62.85 | $ | 0.34 | ||||||||
MARKET PRICE |
DIVIDENDS
DECLARED |
|||||||||||||||
2012 |
HIGH | LOW | CLOSING | |||||||||||||
First Quarter |
$ | 55.67 | $ | 49.83 | $ | 53.47 | $ | 0.34 | ||||||||
Second Quarter |
$ | 54.03 | $ | 45.53 | $ | 50.45 | $ | 0.34 | ||||||||
Third Quarter |
$ | 51.87 | $ | 44.46 | $ | 45.80 | $ | 0.34 | ||||||||
Fourth Quarter |
$ | 50.55 | $ | 44.28 | $ | 49.12 | $ | 0.34 |
At February 24, 2014, IBERIABANK Corporation had approximately 2,386 shareholders of record.
Securities Listing
IBERIABANK Corporations common stock trades on the NASDAQ Global Select Market under the symbol IBKC. In local and national newspapers, the Company is listed under IBERIABANK.
Dividend Restrictions
The majority of the Companys revenue is from dividends declared and paid to the Company by its subsidiary, IBERIABANK, which is subject to laws and regulations that limit the amount of dividends and other distributions it can pay. In addition, the Company and IBERIABANK are required to maintain capital at or above regulatory minimums and to remain well-capitalized under prompt corrective action regulations. The declaration and payment of dividends on the Companys capital stock also is subject to contractual restrictions. See Note 16- Long-Term Debt, Note 19- Capital Requirements and Other Regulatory Matters and Note 25- Restrictions on Dividends, Loans and Advances to the Consolidated Financial Statements and Managements Discussion and Analysis of Financial Condition and Results of Operations - Long-term Debt.
Dividend Investment Plan
IBERIABANK Corporation shareholders may take advantage of our Dividend Reinvestment Plan. This program provides a convenient, economical way for shareholders to increase their holdings of the Companys common stock. The shareholder pays no brokerage commissions or service charges while participating in the plan. A nominal fee is charged at the time that an individual terminates plan participation. This plan does not currently offer participants the ability to purchase additional shares with optional cash payments.
To enroll in the IBERIABANK Corporation Dividend Reinvestment Plan, shareholders must complete an enrollment form. A summary of the plan and enrollment forms are available from the Register and Transfer Company at the address provided under Shareholder Assistance.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
IBERIABANK Corporation, a Louisiana corporation, is a bank holding company that has elected to become a financial holding company. The table below sets forth all of IBERIABANK Corporations subsidiaries as to state or jurisdiction of organization. All of the subsidiaries listed below are included in the consolidated financial statements, and no separate financial statements are submitted for any subsidiary.
Subsidiary |
State or Jurisdiction of Organization |
|
IBERIABANK |
Louisiana | |
Acadiana Holdings, L.L.C. |
Louisiana | |
CB Florida CRE Holdings, LLC |
Florida | |
CB Florida RRE Holdings, LLC |
Florida | |
CSB Alabama CRE Holdings, LLC |
Alabama | |
CSB Alabama Sunhill Villas Holding, LLC |
Alabama | |
CSB Alabama RRE Holdings, LLC |
Alabama | |
CSB Florida CRE Holdings, LLC |
Florida | |
CSB Florida Overlook Holdings, LLC |
Florida | |
CSB Florida RRE Holdings, LLC |
Florida | |
Finesco, LLC |
Louisiana | |
IB SPE Management, Inc. |
Louisiana | |
IBERIABANK Insurance Services, LLC |
Louisiana | |
IBERIABANK Mortgage Company |
Arkansas | |
Iberia Financial Services, L.L.C. |
Louisiana | |
Iberia Investment Fund I, LLC |
Louisiana | |
Iberia Investment Fund II, LLC |
Louisiana | |
Jefferson Insurance Corporation |
Louisiana | |
Laguna Vista, LLC |
Florida | |
Lee Cape, LLC |
Florida | |
North River Holdings, Inc. |
Florida | |
OB Boatman 1 LLC |
Florida | |
OB Boatman 2 LLC |
Florida | |
OB Capri LLC |
Florida | |
OB Copperhead LLC |
Florida | |
OB Creekside LLC |
Florida | |
OB Florida CRE Holdings, LLC |
Florida | |
OB Florida RRE Holdings, LLC |
Florida | |
OB FHB LLC |
Florida | |
OB Fralin LLC |
Florida | |
OB Keys LLC |
Florida | |
OB Manatee Forest LLC |
Florida | |
OB Marathon LLC |
Florida | |
OB Marco Isle LLC |
Florida | |
OB Meadows Terrace LLC |
Florida | |
OB Naples LLC |
Florida |
46
OB NP LLC |
Florida | |
OB RFB LLC |
Florida | |
OB Waterford LLC |
Florida | |
SB Florida CRE Holdings, LLC |
Florida | |
SB Florida RRE Holdings, LLC |
Florida | |
Security Mutual Financial Services, Inc. |
Alabama | |
Lenders Title Company |
Arkansas | |
Asset Exchange, Inc. |
Arkansas | |
United Title of Louisiana, Inc. |
Louisiana | |
United Title & Abstract, L.L.C. |
Louisiana | |
United Title of Alabama, Inc. |
Alabama | |
American Abstract and Title Company, Inc. |
Arkansas | |
IB Aircraft Holdings, LLC |
Louisiana | |
IBERIA Capital Partners L.L.C. |
Louisiana | |
IBERIA CDE, L.L.C. |
Louisiana | |
IBERIA Asset Management, Inc. |
Louisiana |
47
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements:
Registration Statement (Form S-8 No. 333-135359) pertaining to the IBERIABANK Corporation Retirement Savings Plan;
Registration Statement (Form S-8 No. 333-28859) pertaining to the IBERIABANK Corporation 1996 Stock Option Plan;
Registration Statement (Form S-8 No. 333-64402) pertaining to the IBERIABANK Corporation 2001 Incentive Compensation Plan;
Registration Statement (Form S-8 No. 333-117356) pertaining to the IBERIABANK Corporation Stock Purchase Warrants;
Registration Statement (Form S-8 No. 333-130273) pertaining to the IBERIABANK Corporation 2005 Stock Incentive Plan;
Registration Statement (Form S-8 No. 333-79811) pertaining to the IBERIABANK Corporation Retirement Savings Plan;
Registration Statement (Form S-8 No. 333-81315) pertaining to the IBERIABANK Corporation 1999 Stock Option Plan;
Registration Statement (Form S-8 No. 333-41970) pertaining to the IBERIABANK Corporation Supplemental Stock Option Plan;
Registration Statement (Form S-8 No. 333-148635) pertaining to the IBERIABANK Corporation Deferred Compensation Plan;
Registration Statement (Form S-8 No. 333-151754) pertaining to the IBERIABANK Corporation 2008 Incentive Compensation Plan;
Registration Statement (Form S-8 No. 333-165877) pertaining to the IBERIABANK Corporation 2010 Stock Incentive Plan;
Registration Statement (Form S-3 No. 333-179885) of IBERIABANK Corporation;
Registration Statement (Form S-8 No. 333-174717) pertaining to the IBERIABANK Corporation 2010 Stock Incentive Plan;
Registration Statement (Form S-8 No. 333-174719) pertaining to the OMNI BANCSHARES, Inc. Amended and Restated Performance and Equity Incentive Plan of IBERIABANK Corporation;
Registration Statement (Form S-8 No. 333-184943) pertaining to the IBERIABANK Corporation Deferred Compensation Plan; and
Registration Statement (Form S-8 No. 333-183220) pertaining to the Florida Gulf Bancorp, Inc. Officers and Employees Stock Option Plan of IBERIABANK Corporation
48
of our reports dated February 28, 2014, with respect to the consolidated financial statements of IBERIABANK Corporation, and the effectiveness of internal control over financial reporting of IBERIABANK Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 2013.
/s/ Ernst & Young LLP |
New Orleans, Louisiana
February 28, 2014
49
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 annual report on Form 10-K 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 (the Registrants fourth fiscal quarter in the case of an annual report) 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: February 28, 2014 |
/s/ Daryl G. Byrd |
|||
Daryl G. Byrd | ||||
President and Chief Executive Officer |
50
EXHIBIT 31.2
SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Anthony J. Restel, Senior Executive Vice President and Chief Financial Officer of IBERIABANK Corporation, certify that:
1. I have reviewed this annual report on Form 10-K 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 (the Registrants fourth fiscal quarter in the case of an annual report) 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: February 28, 2014 |
/s/ Anthony J. Restel |
|||
Anthony J. Restel | ||||
Senior Executive Vice President and Chief Financial Officer |
51
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of IBERIABANK Corporation (the Company) on Form 10-K for the fiscal year ended December 31, 2013 (the Report), I, Daryl G. Byrd, President and Chief Executive Officer of the Company, certify that:
(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 |
Date: February 28, 2014
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.
52
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of IBERIABANK Corporation (the Company) on Form 10-K for the fiscal year ended December 31, 2013 (the Report), I, Anthony J. Restel, Senior Executive Vice President and Chief Financial Officer of the Company, certify that:
(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 |
Senior Executive Vice President and Chief Financial Officer |
February 28, 2014
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.
53