IBERIABANK Corporation Reports Third Quarter Results

LAFAYETTE, La., Oct. 19, 2017 /PRNewswire/ -- IBERIABANK Corporation (NASDAQ: IBKC), holding company of the 130-year-old IBERIABANK (www.iberiabank.com), reported financial results for the quarter ended September 30, 2017.  For the quarter, the Company reported income available to common shareholders of $26.0 million, or $0.49 fully diluted earnings per common share ("EPS").  On a non-GAAP basis, EPS excluding non-core revenues and non-core expenses ("Core EPS") in the third quarter of 2017 was $1.00 per common share (refer to press release supplemental tables for a reconciliation of GAAP to non-GAAP metrics).

The Company completed the acquisition of Sabadell United Bank, N.A. ("Sabadell United") from Banco de Sabadell, S.A. on July 31, 2017.  The acquisition added $4.0 billion in loans and $4.4 billion in deposits. Financial statements reflect the impact of the acquisition beginning on the acquisition date and are subject to future refinements to purchase accounting adjustments. The Company incurred approximately $33.2 million in pre-tax acquisition and conversion-related expenses, including compensation-related and branch closure expenses, during the third quarter of 2017.  Sabadell United had 25 offices serving the Miami metropolitan area and three offices in Naples, Sarasota and Tampa, Florida.

Daryl G. Byrd, President and Chief Executive Officer, commented, "We welcome the former clients and associates of Sabadell United to our Company. We believe our combined franchise is well-positioned to experience significant long-term growth in Southeast Florida and enhance our strategic progress. I'm particularly proud of the tremendous effort and teamwork on the part of our legacy associates and our newest team members to successfully complete and convert the combination in a high-quality manner."

Byrd continued, "As previously announced, third quarter results were impacted by merger and conversion-related expenses, hurricane-related and energy-related provisioning and an additional accrual for the HUD legal matter. These one-off expenses do not overshadow our excitement about the growth prospects, synergies and diversifications that we expect from the Sabadell United merger, in addition to our solid legacy business where we saw annualized legacy loan growth of 10% during the quarter."

Highlights for the third quarter of 2017 and at September 30, 2017:

• The Company's reported and cash net interest margins declined 7 and 16 basis points on a linked quarter basis, to 3.64% and 3.29%, respectively, primarily as a result of the impact of the Sabadell United acquisition, which included lower acquired loan yields and higher acquired deposit costs compared to the Company's legacy business.
• Non-interest income decreased $2.9 million, or 5.2%, on a linked quarter basis, primarily as a result of a decline in mortgage income.
• Total loan growth was $4.2 billion, or 27%, between June 30, 2017 and September 30, 2017. Consolidated loans, excluding the loans acquired from Sabadell United, grew $213.0 million, or 1.4% (5% annualized rate), on a period-end basis. Legacy loan growth was $333.5 million, or 2.5% (10% annualized rate) on a period-end basis.
• Energy-related loans (or "energy loans") increased $59.6 million and equated to 3.1% of total loans at September 30, 2017, compared to 3.5% at June 30, 2017. Classified energy-related loans decreased 22%, and non-performing energy-related assets decreased 34% during the third quarter of 2017, primarily related to one large charge-off and one large pay-down.
• Total deposits increased $4.5 billion, or 27%, between quarter-ends, and increased $98.1 million, or 0.58% (2% annualized rate), excluding acquired Sabadell United deposits.
• Net charge-offs increased $17.9 million on a linked quarter basis, primarily related to two credits, one of which was energy-related, and equated to an annualized 0.62% of average loans. The provision for loan losses increased $6.5 million, or 54%.
• The Company successfully completed the conversion of branch and operating systems associated with the Sabadell United acquisition over the weekend of October 13 - 15, 2017.

Updates previously reported in press release dated October 4, 2017:

• The Company made significant progress on the resolution of non-accruals in the energy portfolio during the third quarter of 2017. Several of the energy companies with non-accrual loans outstanding were successful in negotiating pre-packaged bankruptcies. As a result of these pre-packaged bankruptcies, $17.0 million of energy-related loan net charge-offs occurred during the third quarter of 2017. Of the $17.0 million, $7.8 million had been previously provided for in prior quarters with $9.2 million provided for during the third quarter.
• During the third quarter of 2017, the Company recorded an additional $5.7 million settlement accrual associated with the previously disclosed U.S. Department of Housing and Urban Development ("HUD") lawsuit, which negatively impacted earnings by $0.09 per share after-tax. The Company has recently negotiated a settlement amount of $11.7 million that counsel for the United States are recommending for approval by the appropriate decision makers, which remains subject to review and approval by the Department of Justice. The Company hopes to resolve this matter by the end of October 2017.
• The Company acquired Sabadell United on July 31, 2017, and incurred approximately $33.2 million, or $0.42 per share after-tax, in acquisition, conversion, branch closure and compensation-related non-core expenses during the third quarter of 2017.
• During the third quarter of 2017 the Company accrued $8.5 million, or $0.10 per share after-tax, of incremental provision for credit losses associated with Hurricanes Harvey and Irma. Both storms occurred during the third quarter. The Company incurred minimal damage and incremental expense related to its physical infrastructure as a result of these storms.

Operating Results

On a linked quarter basis, average loans increased $3.1 billion, or 20%, and the associated taxable-equivalent yield decreased 1 basis point.  Over that period, average legacy loans increased $487.8 million, or 4%, with an increase in yield of 2 basis points, while average acquired loans increased $2.6 billion, or 120%, and the acquired loan yield decreased 154 basis points, as a result of the Sabadell United acquisition. All other average earning assets, including investment securities, mortgage loans held for sale, and interest-bearing deposits in other institutions, increased a net of $785.0 million, or 16%, versus the prior quarter.

Primarily as a result of lower yields on acquired loans and an increase in the cost of interest-bearing deposits, the Company's reported and cash net interest margins decreased 7 and 16 basis points on a linked quarter basis to 3.64% and 3.29%, respectively. During the third quarter of 2017, the average yield on legacy loans was 4.29%, compared to a yield of 3.68% on Sabadell United acquired loans, and the average total costs of consolidated deposits less Sabadell United was 42 basis points compared to 56 basis points for Sabadell United acquired deposits.

Overall, taxable-equivalent net interest income increased by $33.3 million, or 18%, on a linked quarter basis. The primarily volume-driven increase in net interest income included a $3.9 billion, or 19%, increase in average earning assets and a 1 basis point increase in earning asset yield, offset by a $3.4 billion, or 26%, increase in average interest-bearing liabilities and an 8 basis point increase in associated costs.

The Company's provision for loan losses increased $6.5 million, or 54%, on a linked quarter basis to $18.5 million due primarily to hurricane and energy-related provisioning. The provision for loan losses covered net charge-offs in the third quarter of 2017 by 64% compared to 111% in the second quarter of 2017.

In the third quarter of 2017, non-interest income on a GAAP basis decreased $2.9 million, or 5%, and decreased $2.6 million, or 5%, on a non-core basis, each compared to the second quarter of 2017. The primary changes in non-interest income on a linked quarter basis were:

• Decreased mortgage income of $3.7 million, or 19%;
• Decreased title revenues of $0.5 million, or 9%;
• Decreased broker commissions of $0.5 million, or 17%;
• Loss on sale of available-for-sale securities of $0.3 million; partially offset by
• Increased deposit service charge income of $1.1 million, or 10%; and
• Increased trust fee income of $0.7 million, or 33%.

In the third quarter of 2017, the Company originated $528 million in residential mortgage loans, down $18 million, or 3%, on a linked quarter basis. Client loan refinancing opportunities accounted for approximately 22% of mortgage loan applications in the third quarter of 2017, compared to 17% on a linked quarter basis. The Company sold $509 million in mortgage loans during the third quarter of 2017, up $1 million, or less than 1%, on a linked quarter basis. Loans held for sale of $141.2 million at September 30, 2017, was consistent with the balance at June 30, 2017. The mortgage origination locked pipeline was $188 million at September 30, 2017, down $61 million, or 24%, between quarter-ends, and was down 33% compared to one year ago. At October 16, 2017, the locked mortgage pipeline was $204 million, up 9% compared to September 30, 2017.

Non-interest expense increased $55.5 million, or 38%, on a linked quarter basis and included $1.5 million related to inclusion of two months of Sabadell United expenses. During the third quarter of 2017, the Company's non-core non-interest expense included $28.5 million in merger and conversion-related expenses, $1.1 million in compensation-related expense, $5.7 million in litigation expense, $3.7 million in branch closure and other impairment expense, and $0.4 million in storm-related expense.

Excluding non-core expenses, core non-interest expense increased $22.3 million, or 16%, and was comprised of the following items on a linked-quarter basis:

• Increased salary and benefits cost of $9.6 million, or 11%, which included:
• Increased regular compensation expenses of $7.5 million, including $5.8 million for Sabadell United associates;
• Increased incentives and other benefit expenses of $1.9 million; partially offset by
• Decreased deferred compensation of $0.4 million;
• Increased provision for unfunded lending commitments of $4.1 million;
• Increased occupancy and equipment expenses of $2.6 million, primarily from the addition of South Florida locations related to the Sabadell United acquisition;
• Intangible amortization increased $2.9 million, or 174%, due to increases from the Sabadell United acquisition; and
• Insurance expense increased $1.8 million, or 40%, primarily related to FDIC insurance on Sabadell United acquired deposits.

On a linked quarter basis, the Company's revenues and non-GAAP core revenues increased $30.3 million, or 13%, and increased $30.6 million, or 13%, respectively. Over the same period, GAAP expenses increased $55.5 million, or 38%, and non-GAAP core expenses increased $22.3 million, or 16%. The efficiency ratio increased from 61.6% to 75.2%, while the non-GAAP core tangible efficiency ratio increased from 57.6% to 58.2%, on a linked quarter basis.

Loans

Total loans increased $4.2 billion, or 27%, to $19.8 billion at September 30, 2017, from $15.6 billion at June 30, 2017.  Over that period, acquired loans increased $3.9 billion, or 189%, as a result of the Sabadell United acquisition, and legacy loans increased $333.5 million, or 2% (10% annualized rate).  During the third quarter of 2017, legacy commercial loans increased $239.7 million, or 2% (including an increase in energy loans of $60.4 million, or 11%), legacy consumer loans increased $23.8 million, or 1% (including a decline in indirect automobile loans of $15.9 million, or 17%), and legacy mortgage loans increased $70.0 million, or 7%.  Excluding acquired loans from Sabadell United, period-end loan growth during the third quarter of 2017 was strongest in the Atlanta, Tampa, Baton Rouge and Palm Beach/Broward  markets.  Funded loan origination and renewal mix in the third quarter of 2017 was 35% fixed rate and 65% floating rate, and total loans outstanding (excluding non-accruals) were 41% fixed and 59% floating.  Commitments originated and/or renewed during the third quarter of 2017 were $1.7 billion (up 5% on a linked quarter basis).  Loans originated and/or renewed during the third quarter of 2017 totaled $1.1 billion (up 4% on a linked quarter basis).  At September 30, 2017, the Company's probability-weighted commercial loan pipeline was approximately $1.2 billion.

As previously announced, the Company made significant progress on the resolution of non-accruals in the energy portfolio during the third quarter of 2017. Several of the energy companies with non-accrual loans outstanding were successful in negotiating pre-packaged bankruptcies. As a result of these pre-packaged bankruptcies, $17.0 million of energy-related loan net charge-offs occurred during the third quarter of 2017. Of the $17.0 million, $7.8 million had been previously provided for in prior quarters with $9.2 million provided for during the third quarter.

Energy loans outstanding totaled $611.6 million at September 30, 2017, up $59.6 million, or 11% compared to June 30, 2017, and equated to approximately 3.1% of total loans (compared to 3.5% at June 30, 2017).  Energy-related commitments totaled $1.2 billion at September 30, 2017, up $146.8 million, or 14%, compared to June 30, 2017. E&P companies accounted for 54% of energy loans outstanding and 59% of energy loan commitments, midstream companies accounted for 21% of energy loans and 22% of energy loan commitments, and service companies accounted for 25% of energy loans and 19% of energy loan commitments.

At September 30, 2017, $62.4 million in energy-related loans were on non-accrual status (down $32.1 million, or 34%, compared to June 30, 2017), and $2.3 million in energy-related loans (excluding non-accruing loans) were past due greater than 30 days at quarter-end. Classified energy loans decreased $28 million, or 22%, and criticized energy loans decreased $26 million, or 14%, between quarter-ends. At September 30, 2017,  approximately 16% of energy loans were classified and 25% were criticized, compared to approximately 23% and 32%, respectively, at June 30, 2017.  Since December 2014, the Company has experienced $36 million in energy-related net charge-offs. Additional information regarding the Company's energy loan and energy-related commitment exposure is provided in Table 8 of this press release and in the supplemental investor presentation.

Deposits

Total deposits increased $4.5 billion, or 27%, between June 30, 2017 and September 30, 2017 primarily driven by $4.4 billion deposits acquired from Sabadell United.  Non-interest-bearing deposits increased $943.7 million, or 19%, and equated to 28% of total deposits at September 30, 2017.  Money market accounts increased $2.3 billion, or 38%, time deposits increased $729.2 million, or 38%, NOW accounts increased $458.3 million, or 15%, and savings deposits increased $45.8 million, or 6%. Excluding acquired deposits from Sabadell United, deposit growth during the third quarter of 2017 was strongest in the Dallas, Birmingham, New Orleans and Palm Beach/Broward markets.

On an average balance and linked quarter basis, non-interest-bearing deposits increased $608.5 million, or 12%, and interest-bearing deposits increased $2.0 billion, or 17%. The rate on average interest-bearing deposits in the third quarter of 2017 was 0.61%, up five basis points on a linked quarter basis, while the cost of total deposits (including non-interest bearing deposits) was 0.44%, up four basis points. The increase in the cost of interest-bearing deposits was primarily driven by the  deposits acquired from Sabadell United during the third quarter of 2017 as well as interest-rate sensitive brokered money market deposits.

Other Assets And Funding

On an average balance and linked quarter basis, the investment portfolio increased $679.9 million, or 17%, in the third quarter of 2017, to $4.7 billion.  On a period-end basis, the investment portfolio equated to $4.9 billion, or 18% of total assets at September 30, 2017, up $818.4 million, or 20%, compared to June 30, 2017.  The investment portfolio had an effective duration of 3.5 years at both September 30, 2017 and June 30, 2017.  The investment portfolio had an $18.2 million unrealized loss at September 30, 2017, an improvement from a $19.3 million unrealized loss at June 30, 2017.  The average yield on investment securities remained at 2.32% in the third quarter of 2017. The Company holds in its investment portfolio primarily government agency securities.  Municipal securities comprised 8% of total investments at September 30, 2017.

On a linked quarter basis, average short-term borrowings (including repurchase agreements) increased $1.3 billion, or 359%, and the cost of short-term borrowings increased seventy-six basis points. On a linked quarter basis, average long-term debt increased $114.1 million, or 18%, and the cost of long-term debt decreased eight basis points to 2.21%.  The cost of average interest-bearing liabilities was 0.72% in the third quarter of 2017, up eight basis points on a linked quarter basis, primarily due to the costs associated with Sabadell United acquired deposits and other liabilities.

The acquisition of Sabadell United resulted in $431.8 million of goodwill and $96.6 million of core deposit intangible assets, based on preliminary fair value estimates.

Asset Quality

Non-performing assets ("NPAs") decreased $22.5 million, or 11%, to $176.0 million at September 30, 2017.  Acquired NPAs increased $10.6 million, while legacy NPAs, which include energy and non-energy loans, decreased $33.1 million, or 19%, and equated to 0.64% of total legacy assets (down from 0.87% at June 30, 2017). Energy-related NPAs (which are included in legacy loans) decreased by $32.1 million, or 34%, and accounted for nearly all of the decline in the Company's legacy NPAs during the third quarter of 2017.  At September 30, 2017, non-energy-related NPAs decreased to 0.41% of non-energy-related assets from 0.49% at June 30, 2017.

Aggregate accruing loans past due 30 to 89 days increased $7.9 million, or 16%, and equated to 0.30% of total loans at September 30, 2017, compared to 0.33% at June 30, 2017.

Net charge-offs totaled $28.8 million in the third quarter of 2017, up $17.9 million, or 164%, compared to the second quarter of 2017.  Annualized net charge-offs equated to 0.62% of average loans in the third quarter of 2017, a 33 basis point increase on a linked quarter basis, primarily related to two credits, one of which was energy-related. The Company believes these events are not indicative of a change in asset quality trends or general deterioration in the loan portfolio.

Capital Position

At September 30, 2017, the Company reported a non-GAAP tangible common equity ratio of 8.68%, down 377 basis points compared to June 30, 2017, and the preliminary Tier 1 leverage ratio was 10.17%, down 302 basis points compared to June 30, 2017.  The Company's preliminary calculation of its total risk-based capital ratio at September 30, 2017, was 12.78%, down 396 basis points compared to June 30, 2017.

At September 30, 2017, book value per common share was $66.74, up $0.66 per share, or 1%, compared to June 30, 2017. Tangible book value per common share was $43.04, down $8.29 per share, or 16%, compared to June 30, 2017.  Based on the closing stock price of the Company's common stock of $80.15 per share on October 19, 2017, this price equated to 1.20 times September 30, 2017 book value per common share and 1.86 times September 30, 2017 tangible book value per common share.

Dividends On Capital Stock. The declaration of dividends is at the discretion of the Board of Directors. The following details the recent dividend declarations:

Common Stock.  On September 19, 2017, the Company declared a quarterly cash dividend of $0.37 per common share, a 3% increase compared to the common dividend declared in June 2017. This common dividend level equated to an annualized dividend rate of $1.48 per common share.  Based on the Company's closing common stock price on September  18, 2017, the indicated dividend yield was 1.95% per common share. The dividend is payable on October 27, 2017, to shareholders of record as of September 29, 2017.

Series B Preferred Stock.  On August 5, 2015, the Company sold 3.2 million depositary shares, each representing a 1/400th interest in a share of non-cumulative perpetual preferred stock. The Series B preferred stock has an initial coupon equal to 6.625% for a period of 10 years, and thereafter floats at a rate of LIBOR plus 426.2 basis points. The Company raised approximately $80 million in gross proceeds from the transaction.  On July 7, 2017, the Company declared a semi-annual cash dividend of $0.8281 per depositary share that was payable on August 1, 2017.

Series C Preferred Stock.  On May 9, 2016, the Company sold 2.3 million depositary shares, each representing a 1/400th interest in a share of non-cumulative perpetual preferred stock. The Series C preferred stock has an initial coupon equal to 6.60% for a period of 10 years, and thereafter floats at a rate of LIBOR plus 492 basis points. The Company raised approximately $57.5 million in gross proceeds from the transaction.  On September 19, 2017, the Company declared a quarterly cash dividend of $0.4125 per depositary share that is payable on November 1, 2017, to the shareholders of record as of the close of business on October 17, 2017.

Sale and Issuance of Common Stock.  On December 7, 2016, the Company issued and sold 3.6 million shares of common stock at a price of $81.50 per common share. After deducting underwriting discounts and commissions and other related expenses, net proceeds of the sale were approximately $279 million.  On March 7, 2017, the Company issued and sold 6.1 million shares of common stock at a price of $83.00 per common share. After deducting underwriting discounts and commissions and other related expenses, net proceeds of the sale were approximately $485 million. These issuances were used to finance the acquisition of Sabadell United. The acquisition, which closed on July 31, 2017, provided for Banco de Sabadell, S.A. to receive 2,610,304 shares of the Company's common stock ($211.0 million based on the Company's closing stock price of $80.85 on that date) and $809.2 million in cash. Banco de Sabadell, S.A. sold the 2.6 million shares received as part of acquisition proceeds early in the fourth quarter of 2017.

Common Stock Repurchase Program.  On May 4, 2016, the Board of Directors of the Company authorized the repurchase of up to 950,000 shares of the Company's common stock. The Company did not repurchase common shares under the authorized program during the third quarter of 2017. The Company has approximately 747,000 shares of common stock remaining that may be purchased under the currently authorized program.

IBERIABANK Corporation

IBERIABANK Corporation is a regional financial holding company with offices in Louisiana, Arkansas, Tennessee, Alabama, Texas, Florida, Georgia, and South Carolina, offering commercial, private banking, consumer, small business, wealth and trust management, retail brokerage, mortgage, and title insurance services.

The Company's common stock trades on the NASDAQ Global Select Market under the symbol "IBKC". The Company's Series B Preferred Stock and Series C Preferred Stock also trade on the NASDAQ Global Select Market under the symbols "IBKCP" and "IBKCO", respectively.  The Company's common stock market capitalization was approximately $4.3 billion, based on the NASDAQ Global Select Market closing stock price on October 19, 2017.

The following 12 investment firms currently provide equity research coverage on the Company:

• Bank of America Merrill Lynch
• FIG Partners, LLC
• Hovde Group, LLC
• Jefferies & Co., Inc.
• JMP Securities LLC
• Keefe, Bruyette & Woods, Inc.
• Piper Jaffray & Co.
• Raymond James & Associates, Inc.
• Robert W. Baird & Company
• Sandler O'Neill + Partners, L.P.
• Stephens, Inc.
• SunTrust Robinson-Humphrey

Conference Call

In association with this earnings release, the Company will host a live conference call to discuss the financial results for the quarter just completed. The telephone conference call will be held on Friday, October 20, 2017, beginning at 8:30 a.m. Central Time by dialing 1-888-317-6003. The confirmation code for the call is 4690812.  A replay of the call will be available until midnight Central Time on October 27, 2017 by dialing 1-877-344-7529. The confirmation code for the replay is 10112272.  The Company has prepared a PowerPoint presentation that supplements information contained in this press release.  The PowerPoint presentation may be accessed on the Company's web site, www.iberiabank.com, under "Investor Relations" and then "Financial Information" and "Presentations."

Non-GAAP Financial Measures

This press release contains financial information determined by methods other than in accordance with GAAP. The Company's management uses these non-GAAP financial measures in their analysis of the Company's performance.  Non-GAAP measures in this press release include, but are not limited to, descriptions such as core, tangible, and pre-tax pre-provision.  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 management's opinion can distort period-to-period comparisons of the Company's performance. Transactions that are typically excluded from non-GAAP performance measures include realized and unrealized gains/losses on former bank owned real estate, realized gains/losses on securities, income tax gains/losses, merger-related charges and recoveries, litigation charges and recoveries, and debt repayment penalties. Management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Company's core businesses. These non-GAAP disclosures should not be viewed as a substitute for operating results 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 presented in the supplemental tables at the end of this release.  Please refer to the supplemental tables for these reconciliations.

Caution About Forward-Looking Statements

This press release contains "forward-looking statements," which may include forecasts of our financial results and condition, expectations for our operations and businesses, and our assumptions for those forecasts and expectations. Do not place undue reliance on forward-looking statements. Due to various factors, actual results may differ materially from our forward-looking statements. Factors that could cause our actual results to differ materially from our forward-looking statements are described under "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Risk Factors" and "Regulation and Supervision" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016, and in other documents subsequently filed by the Company with the Securities and Exchange Commission, available at the SEC's website, http://www.sec.gov, and the Company's website, http://www.iberiabank.com. To the extent that statements in this press release relate to future plans, objectives, financial results or performance by 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 are generally identified by use of words such as "may," "believe," "expect," "anticipate," "intend," "will," "should," "plan," "estimate," "predict," "continue" and "potential" or the negative of these terms or other comparable terminology.

Forward-looking statements represent management's beliefs, based upon information available at the time the statements are made, with regard to the matters addressed; they are not guarantees of future performance. Forward-looking statements are subject to numerous assumptions, risks and uncertainties that change over time and could cause actual results or financial condition to differ materially from those expressed in or implied by such statements. All information is as of the date of this press release. Except to the extent required by applicable law or regulation, the Company undertakes no obligation to revise or update publicly any forward-looking statement for any reason.