Iberia's Venture Into Arkansas Not So Strange

by Gwen Moritz  on Monday, Aug. 7, 2006 12:00 am  

Why would a commercial bank in south-central Louisiana choose an underperforming thrift in northeast Arkansas as its first out-of-state acquisition?

As it happens, the $76.3 million purchase of First Community Bank of Jonesboro by IberiaBank Corp. of Lafayette, La., isn't as odd as it might seem.

Consider:

• First Community Bank — originally called Pocahontas Federal Savings & Loan Association — is a federally chartered thrift that converted from mutual ownership to a publicly traded stock corporation in 1994. IberiaBank converted from a mutual S&L with an initial public offering in 1995 (and to a commercial bank in 1997).

• IberiaBank, with $3 billion in assets, is in acquisition mode at the same time that smaller publicly traded companies like First Community's parent, Pocahontas Bancorp, are struggling with the expense of federal accounting requirements.

• The man chosen to lead First Community Bank, Robert Head, graduated from high school in what he called the "Jonesboro suburb" of Brookland, and he has been aggressively pursuing commercial lending business throughout Arkansas from his post with IberiaBank in Monroe, La., for the past three years.

Even the 500-mile geographic gulf between Lafayette and Jonesboro isn't as daunting as it seems, Head said last week. Any of the several daily Northwest Airlines flights from Lafayette to Memphis plus a car ride to Jones-boro takes a total of two hours and 15 minutes, he said.

"It's easier to get to Jonesboro than to some of our in-state markets," Head said. "Any way you look at it, it takes three hours and a half to get from Lafayette to Monroe."

Head, 59, spoke to Arkansas Business by telephone last week from New York, where he said he was "explaining our acquisition to our investors." Not all of the investors will need much guidance: Pocahontas Bancorp's largest shareholder, Jeffrey L. Gendell of Greenwich, Conn., is also one of IberiaBank's largest shareholders.

But neither Gendell nor any other institutional investor drove the merger, Head said.

Nor did another mutual acquaintance, Jonesboro real estate developer Bruce Burrow. Burrow has been a member of the Pocahontas board of directors since last September and a frequent customer of Head's at IberiaBank, but he said he didn't make the introduction.

"I wish I had thought of it," Burrow said last week.

Instead, the deal was negotiated the old-fashioned way — by a couple of old pros in the bank brokering business. Randy Dennis, president of DD&F Consulting Group of Little Rock, represented Pocahontas, and John Schramm of Howe Barnes Investments of Chicago represented IberiaBank.

Dennis said the deal had been in the works for "several months." Head said IberiaBank CEO Daryl Byrd had revealed four years ago an intention to expand into either Arkansas or Mississippi.

"And we picked Arkansas first, and that tells you how attractive we think the state is — or we know it is from the commercial standpoint and think it will be from the retail standpoint," Head said.

Other south Louisiana banks, including Whitney Bank and Hibernia Bank (now Capital One), have tended to expand eastward and westward. No other Louisiana bank has made the leap north to Arkansas.

"We noticed that, too," Head said. "If you'll notice the performance of our company versus those other banks, you'll notice that our performance is quite a bit better."

'A Good Match'

Other Arkansas bankers said they were aware that First Community was looking for a buyer, but the opportunity wasn't widely publicized. In a research brief issued the day after the deal with IberiaBank was announced on July 27, Stephens Inc. bank analyst Barry McCarver wrote that the deal "represents (IberiaBank's) preference of acquiring 'under-the-radar' banks and returning to peer performing levels rather than acquiring a more expensive bank in a highly competitive market."

Jonesboro may seem fairly competitive, with four banks chartered in the city and 11 more institutions doing business in the metropolitan statistical area. But IberiaBank describes the market as a "rational competitive environment."

McCarver described the two parties as "a good match" and wrote favorably of the IberiaBank leadership team.

"We believe (Pocahontas Bancorp) could benefit from (IberiaBank) management that has navigated through comparable waters," he wrote in his research brief.

Burrow — who said he had borrowed from so many banks that "if I cough, they all send an ambulance" — and Dennis both seem similarly impressed with IberiaBank's management.

"I really like these Iberia guys," Burrow said. "They are top-drawer bankers."

IberiaBank loaned Burrow's MBC Holdings Worldwide LLC $4.9 million in two loans for its recent purchase of the former Brandon House furniture store at 1100 S. University Ave. in Little Rock.

Robert Head was the loan officer for those and about 10 other loans to Burrow and his companies, Burrow said.

"They are just very good commercial lenders when it comes to real estate. They understand that kind of asset," he said.

(Burrow ought to talk nice. He and Pocahontas Chairman Ralph Baltz will each be paid $50,000 for each of the next two years to serve on the executive committee of the First Community advisory board.)

Said Randy Dennis: "Iberia, I like the company. You look at their performance numbers in the past, and they are just good bankers. You have some bank-builder teams out there that are just good at building banks, and I think Daryl (Byrd) and (Senior Executive Vice Presi-dent) John Davis are good at building banks."

To bring First Community Bank to "peer performing" levels will take some doing. Its net income last year was $4.27 million, for a return on assets of 0.58 percent in 2005. The national average ROA for similarly sized banks and thrifts was 1.3 percent. Wallace Fowler's fast-growing Liberty Bank of Arkansas, also chartered in Jonesboro, recorded ROA of 0.93 percent last year, while Simmons First Bank of Jonesboro's was 1.37 percent.

First Community Bank had only 9 percent of the Jonesboro MSA's deposit total as of June 2005, the most recent data available from the Federal Deposit Insurance Corp. That put it in fourth place behind Liberty Bank, Regions Bank and Simmons of Jonesboro.

On the other hand, IberiaBank didn't overpay for its new family member. The $76.3 million purchase price represents a multiple of 1.48 times the bank's book value and 2.01 times tangible book value.

(To make an extreme comparison, IberiaBank's New Orleans competitor, Whitney Bank, paid 5.7 times tangible book value last year for the Florida bank led by former Arkansans Frank Burge and Ronny Clay. But Destin Bank's ROA was nearly 1.7 percent.)

Dennis pointed out that folding Pocahontas into another publicly traded company would immediately save on accounting and audit costs, which in the Sarbanes-Oxley era can approach a half-million dollars a year even for public companies of modest size.

Pocahontas Bancorp's 2005 outside audit and audit-related fees alone topped $277,000, up 20 percent from the previous year.

McCarver called the acquisition "a nice accretive deal" for IberiaBank, but reiterated his "equal-weight" rating on IberiaBank's stock (Nasdaq: IBKC) because "we see little upside for the stock from current levels due to IBKC's valuation."

Head Man

Robert Head said he would be moving back to Arkansas for the first time since 1987, but he wouldn't say whether he would be living in Jonesboro or some other city.

Head attended Arkansas State University at Jonesboro, but both his undergraduate and graduate degrees are from the University of Arkansas at Fayetteville.

Head said he is not related to Fayetteville banker Gary Head, founding CEO of Signature Bank of Arkansas.

In answer to direct questions about the future of First Community Bank, he said:

• IberiaBank Corp. intends to maintain First Community's Jonesboro charter, and to keep it as a thrift rather than collapse it into IberiaBank's Louisiana state bank charter or convert it to an Arkansas-chartered commercial bank.

While dealing with two different regulatory agencies — Louisiana state regulators and the federal Office of Thrift Supervision — may have its drawbacks, Dennis said keeping the two charters is exceptionally smart.

"One of the best combinations is a bank and thrift together," he said. "Thrifts have the branching flexibility, and banks have no asset limitations."

If commercial lending by First Community starts to bump the bank's portfolio up to the regulatory limit for thrifts, "if you have a sister bank, you just move assets around," Dennis said.

• There is no plan to move First Community Bank's headquarters or any of its functions out of Jonesboro, although there will be some technological conversion of the bank's systems to match IberiaBank's.

• There is no plan to change the name from First Community Bank, although the brand will be marketed differently — especially through more "community involvement," Head said.

• While Stephens Inc. analyst Barry McCarver wrote that he expects consolidation of up to half of First Community Bank's 25 branches, Head said IberiaBank has "no plans to divest any of the assets that we acquired."

• Expansion is likely in Arkansas, and it will likely come through acquiring other banks. "Historically we have done very little de novo branching and wouldn't expect to do much of that in Arkansas," Head said.

• The only other IberiaBank executive known to be making the jump to First Community Bank is David A. Doherty, who is moving to Jonesboro from Lafayette to become senior credit officer. "We haven't announced any other personnel moves at this time — nor have any planned, I might add," Head said.

Click here to read about the future plans of Dwayne Powell, CEO of Pocahontas Bancorp.

 

 

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