Flush with $200 million of fresh capital, Iberiabank Corp. in Lafayette, La., is shopping for distressed banks.
A deal for a failed Arkansas bank earlier this year whetted the $5.4 billion-asset company's appetite, and it is eyeing acquisitions of troubled banks in its markets or in neighboring states, said Daryl Byrd, its chief executive officer and president.
Mr. Byrd did not rule out conventional acquisitions, but said he prefers Federal Deposit Insurance Corp.-assisted deals because they generally do not include loans. Iberiabank is still working through some asset-quality problems inherited from a bank it bought last year, and Mr. Byrd said it would rather just take on branches and deposits and build the loan portfolio from there.
"What we think we can do well is grow the commercial banking organically, [after] buying the retail clients and retail distribution system," he said in an interview Tuesday.
On Dec. 5 Iberiabank was awarded $90 million from the Treasury Department's Troubled Asset Relief Program, and on Tuesday it completed a $110 million secondary stock offering.
It took Iberiabank just three days to sell out the stock offering.
John Davis, Iberiabank's senior executive vice president of mergers and acquisitions, said the infusion from the government "provided investors additional confidence. They already had the seal of approval from Treasury."
Mr. Byrd said that roughly half the proceeds would be used on acquisitions and the other half would be put toward lending in its markets, particularly its home state, where loan demand remains high as the rebuilding from Hurricane Katrina and Hurricane Rita in 2005 continues.
He also said that the funds raised in the stock sale could allow Iberiabank to repay the Treasury sooner than it might have otherwise.
Banking companies that receive the capital injections pay the Treasury 5% interest for the first five years and 9% after that. With total risk-based capital of nearly 16% now, up from about 11.07% at Sept. 30, Iberiabank could return the Treasury money before three years is up, Mr. Byrd said.
Mr. Byrd also said that banks whose funds raised from the private sector exceed the amount they got from the Treasury by Dec. 31, 2009, will get back half of the warrants issued to the Treasury.
For Iberiabank that amounts to roughly 138,000 warrants.
Iberiabank has made six acquisitions in the last five years.
Last year it moved into Arkansas with deals for two banks there and in April it added another in the state when it bought the failed ANB Financial in Bentonville. In that deal it got $200 million in deposits and nine branches, paying a premium of just 1.01%.
Some 171 banks are considered "troubled" by regulators and industry watchers say a number of them are in the Southeast.
Iberiabank has 87 branches in Louisiana, Arkansas, and the Memphis area, as well as 29 title insurance offices, and mortgage representatives in eight states.
Mr. Byrd said it would look to bulk up in its existing markets and add branch networks in new ones, including Mississippi.
"I can see a series of transactions over the next 12 months where they acquire two or three FDIC-type deals" for distressed banks, said Matt Olney, an analyst with Stephens Inc. "It's just a matter of being patient and looking for the right deals."
Bryce W. Rowe, a senior equity analyst at Robert W. Baird & Co., said with the added capital, Iberiabank could pack on as much as $3 billion of assets.
Bain Slack of KBW Inc.'s Keefe, Bruyette & Woods Inc. said two states where he does not expect Iberiabank to wind up are Texas and Florida.
"They always said they are not chasing demographics, so if it were a spot that looked to be heavily banked, they may not be interested," he said. "Unless the right deal came along, they prefer markets that tend to have less competition and more modest growth."
And should Iberiabank not find deals that fit its strategic plan, Mr. Slack said it made the right choice in raising additional funds that could be used to repay the Treasury funds.
"We are in an environment where there is no such thing as too much capital," he said. "Strategically they didn't want to raise Tarp funds unless they had the flexibility to pay it off. This gives them that."
