Cross the Gulf

Daryl Byrd knows your pain.

In 1985, when he was a young banking executive in Louisiana, the price of oil collapsed and with it went the local economy that was dependent on the commodity. “We went through five very miserable years,” Byrd recalls.

Before it was through, Louisiana's economic crisis claimed one third of the banks in that state. “We learned lessons in all of that,” Byrd says.

Today, as president and chief executive officer of Lafayette, La.-based IberiaBank, Byrd is jumping into a Florida market ravaged by the real estate recession, taking advantage of the opportunity to gain market share for little risk.

“You could see this coming a mile off,” Byrd says of Florida's bust.

IberiaBank acquired Naples-based Orion Bank and Sarasota-based Century Bank with a combined $3.1 billion in assets at a discount from the Federal Deposit Insurance Corp. after regulators shut both banks down on Nov. 13. With these acquisitions, IberiaBank now has $10 billion in assets.

The challenges of working through Louisiana's economic crisis in the late 1980s taught Byrd the virtues of conservative lending and never to overpay for acquisitions. During the real estate boom, Byrd says he resisted calls to join rivals into the Florida market.

“The investment bankers would come to us and tell us: 'You've got to be in Florida',” he recalls. Instead, the bank expanded into Arkansas.

Investors are now rewarding Byrd's patience and his bold move into Florida. IberiaBank's stock jumped 21% to open at nearly $54 a share (symbol: IBKC) on the Monday following the Orion and Century acquisitions.

As part of its winning bid for both banks, IberiaBank received a 1.26% discount on $2.5 billion in deposits of Orion and Century, the first bank to get such as discount from an FDIC-assisted deal in this economic downturn. Combined with a presence in Jacksonville from an earlier acquisition, IberiaBank will rank as the 20th largest bank in the state with $3 billion in deposits. In the Naples market. it will rank fourth largest in deposits and in Sarasota it will rank fifth.

Meanwhile, the FDIC agreed to absorb most of the losses on Orion and Century's bad loans for up to 10 years, long enough to outlast the recession. With $2.5 billion in Florida loans, the state now accounts for 36% of IberiaBank's total loans.

The demographics of Florida have always been appealing, but Byrd says the price to enter the state has always been too high.

“Strategically, we believe our timing is perfect,” Byrd told analysts after the acquisition was announced. “When everyone wanted to be in Florida and paid five times book for overvalued assets, we expanded in Louisiana and Arkansas. We believe this is the right time, price and risk structure to enter these Florida markets.”

But IberiaBank isn't going to be throwing money around. Byrd expects it will take another two to three years to work through Florida's economic downturn and IberiaBank will stick with the conservative lending that has put it in such an enviable position today.

Byrd won't discuss potential future acquisitions because he doesn't want to tip his hand. He foresees a total of 1,000 banks closing in this downturn nationally, though he declined to speculate how many of those will be in Florida. “I'm going to guess that we'll have more people in those markets in a year than we have now,” he says.

Introducing IberiaBank
On a visit to Naples just days after state regulators shut down Orion, Byrd discussed the immediate challenges. “It's going to be all about people,” he says. The first thing on Byrd's agenda: “We tell the retail people Day One they all have jobs.”

That's because it's essential to have happy people on the front lines help customers feel secure. Typically, bank closures are sad events and everyone fears for their job.

“You have to be honest,” says Byrd, who has every employee of the acquired bank go through an interview process the first week. “We're not going to be able to bring everybody over,” Byrd acknowledges.

Byrd has done this before. Orion and Century are the third and fourth FDIC-assisted acquisitions for IberiaBank. The two previous were CapitalSouth Bank in Birmingham, Ala., in August, and ANB Financial of Bentonville, Ark., in May 2008 (Bentonville is the headquarters of Wal-Mart).

The next step is to select presidents for each market, including Sarasota, Naples, the Florida Keys and the East Coast of the state. No one has been named yet. “Give us a few weeks,” Byrd says.

For now, Michael Naquin, senior executive vice president, will oversee the transition of the two Gulf Coast banks. Naquin served as senior vice president for SunTrust Bank in Tampa in the late 1980s.

Byrd says bringing together the cultures of Orion and Century with IberiaBank will be overcome by the fact that IberiaBank is a financially strong company. IberiaBank reported net income of $25 million in the most recent quarter, it has maintained its dividend throughout the crisis, it repaid $90 million in government money earlier this year and raised $275 million in two stock offerings that provided it with a big capital cushion. Its problem loans are negligible.

The interview process for all employees gives them an opportunity to stay on with IberiaBank. “We think most people want a chance to be heard,” Byrd says. “Typically, these banks have a broken strategy, but we find the people are wonderful, hard working (people) who are not broken.”

Something new for the Orion employees: They won't have a flamboyant leader like Jerry Williams, the former chairman, chief executive officer and president. “It's not about ego,” Byrd says. “You'll never see my picture in an annual report.”

A soft-spoken man who earned his way through college with a tennis scholarship, Byrd says he's personally toured most of the 34 branches IberiaBank acquired. He says he has not spoken with Williams, who was last seen at the bank on Nov. 9, when federal regulators requested his dismissal.

Byrd says he's especially heartened by the opportunities to increase retail banking and wealth management. Until now, Orion has mostly been a commercial bank that served business customers in development and construction and Century was more of a residential real estate lender.

Byrd isn't fazed by the competition, especially in the area of wealth management in places like Naples and Sarasota. “The difference is we haven't given anybody here bad advice,” he quips.

IberiaBank is also eyeing making small business loans, albeit cautiously. He brushes off concerns that real estate is the bread and butter of Florida banking. “You've got a broader economy than what you give yourself credit for,” he says. Construction and development lending is a high-margin business, but too much of it can kill a bank in a downturn, Byrd says.

Byrd says the Orion and Century acquisitions won't be a drag on IberiaBank's performance next year. In fact, he says they'll add $1 per share of earnings. He's heartened by the high level of deposits in branches of both Orion and Century. Deposits per branch in Naples are twice what they are at the rest of IberiaBank's branches, he says.

Despite his enthusiasm for Florida, Byrd hasn't yet realigned all his priorities. He'll be rooting for Alabama in the SEC Championship Game in college football against the Florida Gators.

REVIEW SUMMARY
Company. IberiaBank
Banking
Key. Patience pays off.

AT A GLANCE

IberiaBank
Headquarters: Lafayette, La.
Total assets: $6.5 billion
Total deposits: $4.8 billion
Net income (quarter ending Sept. 30): $25 million
Stock symbol: IBKC
Recent stock price: $54
Annual dividend (yield): $1.36 (3.1%)
Source: Data is as of Sept. 30; does not include recent Orion Bank and Century Bank acquisitions