Iberiabank Corp. is the holding company for Iberiabank in Lafayette, La., and Iberiabank FSB in Little Rock. As of Sept. 30, Iberiabank Corp. had more than 200 branches and loan production offices in Louisiana, Tennessee, Arkansas, Alabama, Texas and Florida.
Looking at the IRA Banking Stress Index results above, Iberiabank had an overall score of 1 as of this year's second quarter, which earns an "A" rating. To give you an idea how well Iberiabank is performing, the average stress index score for the industry is 3.1, with more than 2,200 banks now graded "F." More, a score of 1 equals the benchmark year of 1995, the index's baseline, meaning that Iberiabank's current stress level is comparable to 1995.
Of note, at the end of the second quarter, IRA rated more than 4,000 banks "A" or "A-plus," and Iberiabank ranks among them. The preliminary stress index ratings for the third quarter show Iberiabank's lead unit with an "A-plus" rating, though the score for loan defaults has risen from 0.5 in the second quarter to 2.2 in the third — still well below the industry average of 3.8 in the second quarter. The stress score for return on equity improved, however, going from 1.6 in the second quarter to just 0.2 based on third-quarter call reports gathered dynamically by the IRA Bank Monitor.
Last week Iberiabank bought several failed banks in Florida from the Federal Deposit Insurance Corp., including Orion Bank in Naples and Century Bank FSB in Sarasota. The bank units of Iberiabank held $5.7 billion of assets at June 30; thus, the $3 billion of assets bought with these two failed banks increase Iberiabank's size by almost 50%, and with significant FDIC subsidies. Iberiabank also bought CapitalSouth Bank, a full-service commercial bank with 10 branches headquartered in Birmingham, Ala., from the FDIC on Aug. 21.
Several aspects of these transactions are significant, especially in terms of what this transaction says about the marketplace for distressed assets.
First, with Orion, the FDIC accepted a 1.5% discount from Iberiabank on the deposits in Orion's 23 branches. That is, the "fair value" of these deposits was 98.5 cents on the dollar. Iberiabank agreed to buy $2.4 billion of the failed bank's assets, and the FDIC retained the remaining assets for later disposition. The agency also entered into a loss-sharing transaction with Iberiabank on about $1.9 billion of Orion Bank's assets. The loss rate on this transaction to the FDIC is 22% of total assets.
At Century, likewise, the FDIC accepted a 1.5% discount on deposits in the failed bank's 11 branches from Iberiabank, which agreed to buy $706 million of the failed bank's assets. The FDIC retained the remaining assets for later disposition. The agency and Iberiabank entered into a loss-sharing transaction on about $656 million of Century Bank's assets. The estimated loss rate on this transaction to the FDIC is 47% of total assets.
So in one fell swoop, Iberiabank, which is one of the best-managed large banks in the Southeast, based on its historical financial performance, gained 34 branches in northern Florida. The purchased assets have been written down to "fair value," and the company will share losses with the FDIC on $2.6 billion of purchased assets. Under purchase accounting, Iberiabank will capture the loss reserves of the two failed institutions, helping to push down both chargeoffs and loss provisions for the next few quarters.
The purchase of these failed banks and the possibility of future acquisitions of assets from FDIC bank resolutions make Iberiabank one of the emerging regional powerhouses in the U.S. banking industry.
