LAFAYETTE, La. (
) -- It's a defiant little Southern bank determined to expand geographically and in new business lines. It has strong financial metrics, and enough cash to go on an acquisition spree, snapping up fallen peers in lucrative FDIC-supported deals.
If the story sounds familiar, it may be because the path is quite similar to the one followed by
. But the bank in question isn't
Bank of America
. And if you're located in Louisiana, Arkansas, Alabama, Florida, Tennessee or Texas, it may be taking over a bank branch near you.
Iberiabank made a name for itself in late February, when it became the first bank to return the government's TARP capital in less than three months' time. CEO Daryl Bird said the bank accepted Treasury support as a healthy bank that wanted to lend. Instead, the public rhetoric, investor perception and business restrictions related to TARP put Iberiabank "at an unacceptable competitive disadvantage," Bird said.
He appears to have been correct.
While TARP banks this year have
, curtailed lending, slashed pay and dealt with reams of souring debt, Iberiabank has grown tremendously, expanded into new markets, hired new managers, raised $173 million in private capital and kept shareholder payouts steady at 34 cents. The bank has also closed four significant deals, in FDIC-assisted transactions, giving it far more bang for the buck, with limited downside.
"We have a great deal, one that fits many of our strategic objectives, was purchased at an exceptional price ... with almost no credit risk at a bad part of the credit cycle, which we believe has a ways to go," Byrd said in describing one acquisition in May.
Essentially, the government sold Iberiabank selected items from four banks that failed in the South:
, of Birmingham, Ala.,
, of Bentonville, Ark.,
, of Naples, Fla., and
, of Sarasota, Fla. Iberiabank acquired the deposits at a relatively cheap premium, left the toxic assets with the
Federal Deposit Insurance Corp.
, and received generous loss-sharing agreements on the loan books it acquired.
Iberiabank is responsible for just the first 20% of losses on bad debt, and the FDIC will cover additional losses for the next five years on commercial debt, and the next 10 years on residential mortgage debt. Roughly 42% of Iberiabank's entire loan book is insured by the government.
From Byrd's point of view, it's all about timing -- whether for TARP repayment, stock offerings, acquisitions or other types of capital deployment.
"When everyone wanted to be in Florida and pay five times book for overvalued assets, we expanded in Louisiana and Arkansas," the CEO said last week, discussing the Orion and Century deals. "We believe this is the right time, price and risk structure to enter these Florida markets."
Management is now seeking additional opportunities for growth in key Southern cities, including Little Rock, Ark.; Baton Rouge, La.; New Orleans, Shreveport, La.; Memphis, Tenn.; Mobile, Ala; Houston, and perhaps beyond. Management's treasure hunt continues just as deals to date have begun to sprout up in the bottom line.
Iberiabank's earnings made an impressive 24% climb during the first nine months of the year, rising to $38.2 million, or $2.22 per share. Management recently followed that performance up with a surprise preannouncement that the bank had earned 30 cents per share in October alone. Byrd believes Iberiabank's acquisitions so far this year will add more than $1 per share to 2010 earnings, after taxes, and keep adding value for "the next several years."
Analysts, bolstered by such comments, believe more acquisitions are on the way, and that the stock has room to grow.
"We see little limit to the upside growth at Iberiabank," Fig Research analyst Christopher Marinac wrote in a recent report. He adds that investors shouldn't rule out another near-term deal, because management has "far greater appetite" beyond its recent buying spree.
Marinac holds a market perform rating on Iberiabank shares, but believes they could be trading at a discount of more than 25%. The bank closed at $54.55 on Friday, putting it at roughly 19 times its trailing 12-month earnings, but Marinac believes the stock could worth more than $70. Wunderlich Securities analyst Kevin Reynolds, who holds a buy rating on Iberiabank shares, also boosted his price target to $70 last week. Shares were up more than 3% on Monday, and reached a new 52-week high of $56.37 during the session.
Compared last week to some of its larger banking brethren -- along with their risk metrics, growth limitations and lack of significant dividends -- Iberiabank appears fairly cheap: BofA trades at a trailing 12-month P-E ratio of 183;
at 26.5 times;
at 26; and
at an inverse multiple, since analysts expect it to report a loss.
While Iberiabank's aggressive Southern expansion is evocative of BofA's post-S&L crisis growth, the two banks couldn't be further apart right now. While regulators are wondering whether banks considered too big to fail at the height of the crisis ought to break up, they are encouraging the consolidation of smaller lenders.
And as bigger firms work through credit issues -- and several still need to hatch plans to pay back billions in bailout funds -- Iberiabank is figuring out the best way to deploy the troves of cash it has sitting on the sidelines. Already well capitalized before recent acquisitions, Iberiabank's deals have added significant deposits and low-yielding securities to its balance sheet, socking net interest margin straight in the jaw. ("We had too much cash before," said John Davis, Iberiabank's director of financial strategy and mortgages. "Now we have even more too-much cash.")
Management is leery of boosting yields through consumer lending, given the economy. It is instead looking to wind down high-interest deposits, as well as excess Treasury and agency-backed securities, while earning money through wealth management and
until the consumer credit storm has passed. The company is also looking to deploy capital in additional FDIC-sponsored deals.
Gary Tenner, who owns the boutique research firm Tenner Investment Research, has faith in management's ability. He notes that the executive team has changed Iberiabank from a "struggling" thrift into a commercial lender over the past decade. Fig Research's Marinac, too, calls them "a unique team of professional bankers who has been plotting a transformation of this once Louisiana-centric bank holding company for many years."
"The management team is top of the class relative to peers," Tenner told
. "They recognize the opportunity that's out there in front of them, and they're ready to capitalize on it."
-- Written by Lauren Tara LaCapra in New York