's managementteam passed on pay raises as its stock price and asset quality continued tobear the brunt of energy headwinds, according to comments made during thebank's first-quarter earnings call on April 28.
Presidentand CEO Daryl Byrd said the bank has made "numerous" changes to itscompensation and corporate governance practices, highlighted in the bank'sproxy. He also announced that the management team decided against accepting apay raise because of the share price's decline due to the bank's presence inenergy markets and uncertainty around energy prices.
Managementspent much of the call providing granular detail about the bank's energyexposure and how it is compensating for the risk of prolonged low prices. Thequarter experienced the "expected, manageable and continued"deterioration of some credits in the energy portfolio, said Chief Risk OfficerJ. Randolph Bryan, even as other loan portfolios saw credit improvement.
Energy-relatedloans grew $51 million quarter over quarter, and now make up 5.1% of totalloans. Nonperforming energy loans jumped from $8 million at the end of 2015 to$46 million, or 6.3% of total energy loans. The nonperforming credits includedthree exploration and production loans; one of those loans was $2.3 million toa company that filed for bankruptcy in April, but the bank expects to take noloss on that credit and had previously placed it in nonaccrual status. About$8.6 million of the NPL increase was related to the shared national creditexam, and some was for nonaccruals in the energy service sector. About half ofthose credits are secured by real estate. The bank downgraded some credits tocriticized status, 75% of which was composed of first-lien reserve-basedE&P loans.
Thequarter also reflected management's work to align the bank's internal rating tothe regulatory standards released in March alongside the SNC exam. Bryan saidthe bank had taken most of the downgrades when the exam results came out;regulator-directed downgrades increased criticized credits by only about 1.5%of the portfolio. He said that bank would not be concerned if the next SNC examin the fall that looks a different sample population exposed the bank to"significant additional downgrade risk" as a result of the newstandards.
"Theapplication of these standards didn't change our view of the ultimate losspotential in the portfolio, and in fact when applying the methodology forassessing adequacy of collateral coverage, [we] came to the same conclusions wehad at the end of the year," he said. "In short, thechange in how the E&P shared national credits are rated is largely anoptics issue with regard to our level of criticized and classified credits, butnot a change that impacts our view of our collateral position and ultimatelycollectability of these credits."
IBERIABANKis currently going through its spring redetermination of borrowing bases. Ithas completed credits representing 36% of E&P outstanding and reported a21% decrease in the borrowing base. Another 48% is in process and 16% has notyet started; the redeterminations are expected to be done in June. Managementadded they are including anti-hoarding language to the redetermined borrowingbases.
Overall,the bank is pleased with its existing footprint and diversified franchise, Byrdsaid. IBERIABANK is in the five major markets in the south as well as in otherlarger metropolitan areas and does not feel "any pressure" to do adeal as the bank is booking "solid, organic" loan growth.
"We'vealways been opportunistic. I wouldn't say 'never' but I think right now, we'rein a great place with good solid loan growth and we're happy with the marketswe're in," he said.
Averageloan volume at the bank increased $165 million, or 1%, from the fourth quarterof 2015, with average legacy loans increasing $370 million, or 3%. For thequarter, the company reported income available to common shareholders of $40.2million, or 97 cents per share. The results compare to $44.4 million a quarterago, or $1.08 per share, and $25.1 million, or 75 cents per share, a year ago.