UPDATED: IberiaBank Claims $3.6 Million Credit Fraud by Arkansas Client

by Gwen Moritz  on Wednesday, Jan. 21, 2009 2:17 pm  

IberiaBank Corp. of Lafayette, La., said Wednesday that it is writing off $3.6 million due to credit fraud by an Arkansas client.

IberiaBank, which purchased two Arkansas bank holding companies in 2006, announced the fraud in its fourth quarter earnings report on Wednesday.

In the report, the company said that at the end of 2008, it determined that "certain loans to an Arkansas client that were believed to be secured by market securities and real estate were subject to fraud ..." It said the company and its predecessor had maintained a more than 15-year relationship with the client.

IberiaBank said it believes the fraud "was an isolated event and is not indicative of any broader loan portfolio concerns." It said it will file a claim under the fidelity bond with its insurance company.

In July 2006, IberiaBank bought Pocahontas Bancorp Inc. of Jonesboro, the holding company for First Community Bank of Jonesboro, in a deal worth about $76.3 million. Later that year, it purchased Pulaski Investment Corp., the holding company for Pulaski Bank & Trust of Little Rock, in a deal worth $130 million. The two were consolidated under the First Community thrift charter but named Pulaski Bank & Trust.

Who, Where?

The identity of the Arkansas borrower whose alleged fraud caused IberiaBank to take a $3.6 million charge-off has not been publicly disclosed, but more details of the case were revealed in a Wednesday conference call with analysts and investors.

Here's what's now known:

· The client had been a customer of Pulaski Bank and a "predecessor organization" in northeast Arkansas for more than 15 years, suggesting that it was a customer of First Community Bank of Jonesboro. The client might have been a customer of any of the institutions that had been merged into First Community over the past 15 years, including the Bank of Tuckerman, Pocahontas Federal Savings & Loan Association, Peoples Bank of Imboden, Newport Federal Savings Bank and Marked Tree Bank.

· The client did not live in Jonesboro but had what CFO Anthony Restel called "a strong reputation in the community."

· The $3.6 million in credit, which had been borrowed at various times between 2001 and 2008, was secured mainly by marketable securities but also by a $600,000 interest in the client's home equity.

· The client had a satisfactory history with the bank, and when the loan became 30 days past-due in early December, the bank believed the borrower had plenty of net worth to make good on the loan.



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