Edgar Filing: IBERIABANK CORP

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

Commission File Number 0-25756

IBERIABANK Corporation

(Exact name of registrant as specified in its charter)


Louisiana		72-1280718
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

200 West Congress Street Lafayette, Louisiana		70501
(Address of principal executive office)		(Zip Code)

(337) 521-4003

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Securities Exchange Act Rule 12b-2).

Large

Accelerated Filer ¨ Accelerated Filer x Non-accelerated Filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

At October 31, 2006, the Registrant had 9,705,231 shares of common stock, $1.00 par value, which were issued and outstanding.

IBERIABANK CORPORATION AND SUBSIDIARY

TABLE OF CONTENTS


		Page
Part I.	Financial Information

Item 1.	Financial Statements	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 4.	Controls and Procedures	26

Part II.	Other Information

Item 1.	Legal Proceedings	26

Item 1A.	Risk Factors	26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26

Item 3.	Defaults Upon Senior Securities	26

Item 4.	Submission of Matters to a Vote of Security Holders	26

Item 5.	Other Information	27

Item 6.	Exhibits	27

Signatures		28

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

IBERIABANK CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)


	(Unaudited)
	September 30, 2006			December 31, 2005
Assets
Cash and due from banks	$	58,516		$	66,697
Interest-bearing deposits in banks		12,550			60,103

Total cash and cash equivalents		71,066			126,800
Securities available for sale, at fair value		576,634			543,495
Securities held to maturity, fair values of $24,160 and $29,337, respectively		24,023			29,087
Mortgage loans held for sale		20,055			10,515
Loans, net of unearned income		2,173,484			1,918,516
Allowance for loan losses		(33,954	)		(38,082	)

Loans, net		2,139,530			1,880,434
Premises and equipment, net		68,231			55,010
Goodwill		93,167			93,167
Other assets		119,558			114,084

Total Assets	$	3,112,264		$	2,852,592

Liabilities
Deposits:
Noninterest-bearing	$	348,023		$	350,065
Interest-bearing		2,057,814			1,892,891

Total deposits		2,405,837			2,242,956
Short-term borrowings		169,327			68,849
Long-term debt		234,265			250,212
Other liabilities		22,576			27,006

Total Liabilities		2,832,005			2,589,023

Shareholders’ Equity
Preferred stock, $1 par value - 5,000,000 shares authorized		—			—
Common stock, $1 par value - 25,000,000 shares authorized; 11,801,979 shares issued		11,802			11,802
Additional paid-in-capital		198,533			190,655
Retained earnings		168,169			150,107
Unearned compensation		(13,928	)		(9,594	)
Accumulated other comprehensive income		(6,335	)		(5,629	)
Treasury stock at cost - 2,104,248 and 2,253,167 shares, respectively		(77,982	)		(73,772	)

Total Shareholders’ Equity		280,259			263,569

Total Liabilities and Shareholders’ Equity	$	3,112,264		$	2,852,592

See Notes to Consolidated Financial Statements

IBERIABANK CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(dollars in thousands, except per share data)


	For The Three Months Ended September 30,						For The Nine Months Ended September 30,
	2006			2005			2006			2005
Interest and Dividend Income
Loans, including fees	$	35,537		$	27,781		$	96,689		$	79,514
Mortgage loans held for sale, including fees		298			222			630			519
Investment securities:
Taxable interest		6,893			5,367			20,125			16,324
Tax-exempt interest		504			622			1,538			1,872
Other		413			528			2,044			1,284

Total interest and dividend income		43,645			34,520			121,026			99,513

Interest Expense
Deposits		15,236			9,789			41,218			26,005
Short-term borrowings		1,310			935			2,097			2,977
Long-term debt		3,173			2,754			8,609			7,666

Total interest expense		19,719			13,478			51,924			36,648

Net interest income		23,926			21,042			69,102			62,865
(Negative) Provision for loan losses		(2,389	)		15,164			(3,856	)		16,444

Net interest income after provision for loan losses		26,315			5,878			72,958			46,421

Noninterest Income
Service charges on deposit accounts		3,426			3,576			9,669			10,400
ATM/debit card fee income		857			633			2,516			1,933
Income from bank owned life insurance		524			510			1,548			1,471
Gain on sale of loans, net		420			864			1,206			1,971
Gain on sale of assets		62			10			89			262
Loss on sale of investments, net		(870	)		—			(2,259	)		(28	)
Trading gains and settlements on swaps		1,252			—			1,252			—
Other income		1,604			1,047			4,779			3,458

Total noninterest income		7,275			6,640			18,800			19,467

Noninterest Expense
Salaries and employee benefits		11,477			7,995			30,487			24,466
Occupancy and equipment		2,414			2,145			7,045			6,068
Franchise and shares tax		790			811			2,464			2,401
Communication and delivery		841			765			2,376			2,348
Marketing and business development		411			340			1,444			1,439
Data processing		701			445			1,918			1,316
Printing, stationery and supplies		244			219			756			725
Amortization of acquisition intangibles		276			307			849			908
Professional services		511			646			1,563			1,785
Other expenses		1,926			2,100			5,267			6,039

Total noninterest expense		19,591			15,773			54,169			47,495

Income (Loss) before income tax expense		13,999			(3,255	)		37,589			18,393
Income tax expense		4,120			(1,914	)		10,809			4,306

Net Income (Loss)	$	9,879		$	(1,341	)	$	26,780		$	14,087

Earnings (Loss) per share - basic	$	1.06		$	(0.15	)	$	2.87		$	1.54

Earnings (Loss) per share - diluted	$	0.99		$	(0.15	)	$	2.70		$	1.44

See Notes to Consolidated Financial Statements

IBERIABANK CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)

(dollars in thousands, except share and per share data)


	Common Stock		Additional Paid-In Capital		Retained Earnings			Unearned Compensation			Accumulated Other Comprehensive Income			Treasury Stock			Total
Balance, December 31, 2004	$	10,812	$	136,841	$	137,887		$	(5,581	)	$	390		$	(60,187	)	$	220,162
Comprehensive income:
Net income						14,087												14,087
Change in unrealized gain on securities available for sale, net of deferred taxes												(4,379	)					(4,379	)
Change in fair value of derivatives used for cash flow hedges, net of tax effect												794						794

Total comprehensive income																		10,502
Cash dividends declared, $0.72 per share						(6,909	)											(6,909	)
Reissuance of treasury stock under stock option plan, net of shares surrendered in payment, including tax benefit, 139,145 shares				930											1,305			2,235
Common stock released by ESOP trust				519					104									623
Common stock issued for recognition and retention plan				3,250					(4,894	)					1,644			—
Common stock issued for acquisition		990		46,945		(198	)											47,737
Share-based compensation cost				202					1,084									1,286
Treasury stock acquired at cost, 365,488 shares															(17,504	)		(17,504	)

Balance, September 30, 2005	$	11,802	$	188,687	$	144,867		$	(9,287	)	$	(3,195	)	$	(74,742	)	$	258,132

Balance, December 31, 2005	$	11,802	$	190,655	$	150,107		$	(9,594	)	$	(5,629	)	$	(73,772	)	$	263,569
Comprehensive income:
Net income						26,780												26,780
Change in unrealized loss on securities available for sale, net of deferred taxes												(154	)					(154	)
Change in fair value of derivatives used for cash flow hedges, net of tax effect												(552	)					(552	)

Total comprehensive income																		26,074
Cash dividends declared, $0.90 per share						(8,718	)											(8,718	)
Reissuance of treasury stock under stock option plan, net of shares surrendered in payment, including tax benefit, 179,019 shares				2,754											2,302			5,056
Common stock issued for recognition and retention plan				4,766					(6,286	)					1,520			—
Share-based compensation cost				358					1,952									2,310
Treasury stock acquired at cost, 138,253 shares															(8,032	)		(8,032	)

Balance, September 30, 2006	$	11,802	$	198,533	$	168,169		$	(13,928	)	$	(6,335	)	$	(77,982	)	$	280,259

See Notes to Consolidated Financial Statements

IBERIABANK CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(dollars in thousands)


	For The Nine Months Ended September 30,
	2006			2005
Cash Flows from Operating Activities
Net income	$	26,780		$	14,087

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,932			3,177
Provision for loan losses		(3,856	)		16,444
Noncash compensation expense		2,310			1,815
Gain on sale of assets		(89	)		(262	)
Loss on sale of investments		2,263			28
Amortization of premium/discount on investments		119			1,525
Net change in loans held for sale		(9,540	)		(7,472	)
Cash retained from tax benefit associated with share-based payment arrangements		(2,213	)		—
Other operating activities, net		952			(7,618	)

Net Cash Provided by Operating Activities		20,658			21,724

Cash Flows from Investing Activities
Proceeds from sales of securities available for sale		56,040			5,149
Proceeds from maturities, prepayments and calls of securities available for sale		208,193			73,066
Purchases of securities available for sale		(308,855	)		(69,089	)
Proceeds from maturities, prepayments and calls of securities held to maturity		5,027			9,931
Increase in loans receivable, net		(257,802	)		(34,424	)
Proceeds from sale of premises and equipment		703			1,050
Purchases of premises and equipment		(16,959	)		(7,718	)
Proceeds from disposition of real estate owned		769			1,794
Cash received in excess of cash paid in acquisition		—			20,736
Other investing activities, net		(1,118	)		505

Net Cash (Used in) Provided by Investing Activities		(314,002	)		1,000

Cash Flows from Financing Activities
Increase in deposits		163,387			137,056
Net change in short-term borrowings		100,478			(93,249	)
Proceeds from long-term debt		10,000			34,255
Repayments of long-term debt		(24,990	)		(14,996	)
Dividends paid to shareholders		(8,289	)		(6,266	)
Proceeds from sale of treasury stock for stock options exercised		2,843			952
Costs of issuance of common stock in acquisition		—			(6	)
Payments to repurchase common stock		(8,032	)		(17,504	)
Cash retained from tax benefit associated with share-based payment arrangements		2,213			—

Net Cash Provided by Financing Activities		237,610			40,242

Net (Decrease) Increase In Cash and Cash Equivalents		(55,734	)		62,966
Cash and Cash Equivalents at Beginning of Period		126,800			53,265

Cash and Cash Equivalents at End of Period	$	71,066		$	116,231

Supplemental Schedule of Noncash Activities
Acquisition of real estate in settlement of loans	$	1,632		$	1,428

Common stock issued in acquisition	$	—		$	47,743

Exercise of stock options with payment in company stock	$	384		$	1,516

2,359,854 shares issued in stock split, par value of shares issued	$	—		$	2,360

Supplemental Disclosures
Cash paid for:
Interest on deposits and borrowings	$	50,986		$	36,900

Income taxes, net	$	8,800		$	5,029

See Notes to Consolidated Financial Statements

IBERIABANK CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(unaudited)

Note 1 – Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. These interim financial statements should be read in conjunction with the audited financial statements and note disclosures for the Company previously filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

The consolidated financial statements include the accounts of IBERIABANK Corporation and its wholly owned subsidiary, IBERIABANK (the “Bank”), as well as all of the Bank’s subsidiaries, Iberia Financial Services LLC, Acadiana Holdings LLC, Jefferson Insurance Corporation, Finesco LLC and IBERIABANK Insurance Services LLC. All significant intercompany balances and transactions have been eliminated in consolidation. Through the Bank, the Company offers commercial and retail products and services to customers throughout the state of Louisiana, including New Orleans, Baton Rouge, Shreveport, Northeast Louisiana, LaPlace, Houma, and the Acadiana and Northshore regions of Louisiana.

All normal, recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the financial statements, have been included. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are susceptible to significant change in the near term are the allowance for loan losses, valuation of goodwill, intangible assets and other purchase accounting adjustments and share-based compensation.

Certain amounts reported in prior periods have been reclassified to conform to the current period presentation. Such reclassifications had no effect on previously reported shareholders’ equity or net income.

Note 2 – Proposed Mergers

On July 27, 2006, the Company announced the signing of a definitive merger agreement to acquire Pocahontas Bancorp, Inc. (“Pocahontas”), the holding company for First Community Bank of Jonesboro, Arkansas. The acquisition would extend the Company’s presence into Northeast Arkansas. According to the Agreement, Pocahontas shareholders will receive 0.2781 shares of IBERIABANK Corporation common stock per outstanding Pocahontas common stock share. Based on the closing price of IBERIABANK Corporation’s common stock on September 30, 2006, the transaction had an estimated total value of $79 million ($82 million assuming full conversion of stock options). At September 30, 2006, total assets of Pocahontas were approximately $740 million, including loans totaling $430 million, and total deposits were $560 million. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations, the transaction will be accounted for as a purchase and is expected to be consummated on or near January 1, 2007.

Pocahontas’ stock is traded on the NASDAQ Global Market under the symbol “PFSL”. At September 30, 2006, Pocahontas had 4,641,717 shares outstanding. Pocahontas shareholders are projected to control approximately 9% of the pro forma combined company, including the proposed merger described below.

On August 9, 2006, the Company announced the signing of a definitive merger agreement to acquire Pulaski Investment Corporation (“Pulaski”), the holding company for Pulaski Bank and Trust of Little Rock, Arkansas. The acquisition would extend the Company’s presence into central Arkansas. According to the

Agreement, Pulaski shareholders will receive a fixed exchange of 0.2274 shares of IBERIABANK Corporation common stock per outstanding Pulaski share and a floating share exchange of $13.323 of IBERIABANK Corporation common stock for each Pulaski share based on the weighted average trading price of IBERIABANK Corporation common stock over the predetermined 15-day trading period ending one day before the effective date of the merger. Pulaski shareholders will also receive cash of $55 million, or $26.6464 for each outstanding share of Pulaski common stock. Based on the closing price of IBERIABANK Corporation’s common stock on September 30, 2006, the transaction had an estimated total value of approximately $130 million. At September 30, 2006, total assets of Pulaski were approximately $500 million, including loans totaling $350 million, and total deposits were $410 million. This transaction will also be accounted for as a purchase and is expected to be consummated on or near January 1, 2007.

At September 30, 2006, Pulaski had 2,439,356 shares outstanding. Pulaski shareholders are projected to control approximately 11% of the pro forma combined company.

In connection with the proposed merger with Pulaski, the Company has raised $15 million through a trust preferred securities (junior subordinated debt) offering which closed on October 31, 2006. The trust preferred securities were issued by a newly established subsidiary of the Company, IBERIABANK Statutory Trust IV, a Delaware statutory business trust. The trust preferred securities are expected to qualify as Tier I capital for regulatory purposes and will bear an interest rate equal to three-month LIBOR plus a specified percentage. The securities are redeemable by IBERIABANK Corporation in whole or in part after five years, or earlier under certain circumstances. The Company is also currently developing other avenues for raising additional funds to finance the cash portion of the Pulaski acquisition.

Note 3 – Accounting for Certain Derivative Transactions

IBERIABANK Corporation hedging policies permit the use of interest rate swaps to manage interest rate risk or to hedge specified assets and liabilities. IBERIABANK Corporation uses derivative instruments, primarily interest rate swaps, to manage interest rate risk on certain liabilities by hedging the cash flow variability associated with certain variable rate debt by converting the debt to fixed rates.

During the third quarter of 2006, the Company revised its method of accounting for interest rate swaps associated with the junior subordinated debt. The Company had previously accounted for these swaps using hedge accounting as prescribed by SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Under hedge accounting, changes in the fair value of the swaps were recorded in Shareholders’ Equity. At the time the Company entered into the interest rate swaps, it conducted a detailed analysis of the appropriate accounting method. The Company determined that based upon SFAS No. 133 guidance available at the time, the “short-cut” method was an appropriate accounting method because the terms of the interest rate swaps and the corresponding debt matched and, as a result, the Company assumed no ineffectiveness in the hedging relationships. In light of recent technical interpretations of SFAS No. 133, the Company has determined that the swaps do not qualify for hedge accounting under the short-cut method. Accordingly, the Company revised its method of accounting for the swaps, and changes in the fair value of these swaps are now recorded as noninterest income. The Company evaluated the impact of applying the change in fair value of these swaps compared to the short-cut method used under hedge accounting and concluded that the impact was not material to prior annual and quarterly periods. Accordingly, the Company recorded a cumulative adjustment for derivative gains on swaps totaling $1.3 million during the third quarter of 2006, which is included in Trading gains and settlements on swaps in the Consolidated Statements of Income. Of this cumulative adjustment, $271,000 ($176,000 after tax), relates to the first and second quarters of 2006 and $1,021,000 ($663,000 after tax) relates to periods prior to 2006. In addition, $0.4 million in net cash swap settlements since the beginning of 2006, which were previously reported in interest expense, were reported in noninterest income in the third quarter of 2006, which is included in Trading gains and settlements on swaps in the Consolidated Statements of Income. Going forward, earnings in future periods will include the increase or decrease in fair value of these derivative instruments.

Note 4 – Stock Split

In July 2005, the Board of Directors declared a five-for-four stock split in the form of a 25% stock dividend. The dividend was paid on August 15, 2005 to shareholders of record as of August 1, 2005. All share and per share amounts have been restated to reflect the stock split.

Note 5 – Earnings Per Share

For the three months ended September 30, 2006, basic earnings per share were based on 9,337,060 weighted average shares outstanding and diluted earnings per share were based on 9,932,163 weighted average shares outstanding. For the same period, the calculations for both basic and diluted shares outstanding exclude: (a) the weighted average shares owned by the Recognition and Retention Plan Trust (“RRP”) of 339,923; and (b) the weighted average shares purchased in Treasury Stock of 2,124,996.

For the nine months ended September 30, 2006, basic earnings per share were based on 9,327,976 weighted average shares outstanding and diluted earnings per share were based on 9,918,988 weighted average shares outstanding. For the same period, the calculations for both basic and diluted shares outstanding exclude: (a) the weighted average shares owned by the Recognition and Retention Plan Trust (“RRP”) of 330,922; and (b) the weighted average shares purchased in Treasury Stock of 2,143,082.

Note 6 – Share-based Compensation

The Company has various types of share-based compensation plans. These plans are administered by the Compensation Committee of the Board of Directors, which selects persons eligible to receive awards and determines the number of shares and/or options subject to each award, the terms, conditions and other provisions of the awards. See Note 15 of the Company’s consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005 for additional information related to these share-based compensation plans.

Effective January 1, 2006, the Company adopted SFAS No. 123 (revised), Share-Based Payment (SFAS No. 123(R)) utilizing the modified prospective method. Prior to the adoption of SFAS No. 123(R), the Company accounted for stock option grants in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees” (the intrinsic value method), and accordingly, recognized no compensation expense for stock option grants for the three or nine month periods ended September 30, 2005.

As a result of adopting SFAS No. 123(R), the Company’s net income for the three and nine months ended September 30, 2006 included $75,000 and $157,000, respectively, of compensation costs and $26,000 and $55,000, respectively, of income tax benefits related to stock options granted under share-based compensation arrangements. The impact on basic and diluted earnings per share was less than $0.01 for the third quarter and $0.01 for the nine month period ended September 30, 2006.

The Company reported $189,000 and $2.2 million of excess tax benefits as financing cash inflows during the three and nine months ended September 30, 2006, respectively, related to the exercise and vesting of share-based compensation grants. Since the Company selected the modified-prospective transition method, third quarter 2005 cash flows have not been restated. Net cash proceeds from the exercise of stock options were $624,000 and $2.8 million for the three and nine months ended September 30, 2006, respectively.

The following table illustrates the effect on operating results and per share information had the Company accounted for share-based compensation in accordance with SFAS No. 123(R) for the three and nine months ended September 30, 2005:


(dollars in thousands, except per share amounts)	For the Three Months Ended September 30, 2005			For the Nine Months Ended September 30, 2005
Net Income (Loss):
As reported	$	(1,341	)	$	14,087
Deduct: Stock option compensation expense under the fair value method, net of related tax effect		(416	)		(1,181	)

Pro forma	$	(1,757	)	$	12,906

Earnings (Loss) per share:
As reported - basic	$	(0.15	)	$	1.54
diluted	$	(0.15	)	$	1.44

Pro forma - basic	$	(0.19	)	$	1.41
diluted	$	(0.19	)	$	1.32

The Company uses the Black-Scholes option pricing model to estimate the fair value of share-based awards with the following weighted-average assumptions for the indicated periods:


	For the Three Months Ended						For the Nine Months Ended
	September 30, 2006			September 30, 2005			September 30, 2006			September 30, 2005
Expected dividends		2.0	%		2.0	%		2.0	%		2.0	%
Expected volatility		24.75	%		23.00	%		24.77	%		20.11	%
Risk-free interest rate		4.8	%		4.1	%		4.7	%		4.3	%
Expected term (in years)		7.0			7.0			7.0			7.0
Weighted-average grant-date fair value	$	16.59		$	13.46		$	16.53		$	11.21

The assumptions above are based on multiple factors, including historical stock option exercise patterns and post-vesting employment termination behaviors, expected future exercise patterns and the expected volatility of the Company’s stock price.

At September 30, 2006, there was $2.1 million of unrecognized compensation cost related to stock options which is expected to be recognized over a weighted-average period of 6.8 years.

The following table represents stock option activity for the nine months ended September 30, 2006:


	Number of shares		Weighted average exercise price		Weighted average remaining contract life
Outstanding options, December 31, 2005	1,550,961		$	29.55
Granted	132,726			58.30
Exercised	(179,495	)		17.09
Forfeited or expired	(2,500	)		43.46

Outstanding options, September 30, 2006	1,501,692		$	33.56	6.3 Years

Outstanding exercisable, September 30, 2006	1,368,966		$	31.16	6.0 Years

Shares reserved for future stock option grants to employees and directors under existing plans were 475,677 at September 30, 2006. At September 30, 2006, the aggregate intrinsic value of shares underlying outstanding stock options and underlying exercisable stock options was $41.2 and $40.9 million, respectively. Total intrinsic value of options exercised was $8.6 million for the nine months ended September 30, 2006.

The share-based compensation plans described in Note 15 in the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 allow for the issuance of restricted stock awards that may not be sold or otherwise transferred until certain restrictions have lapsed. The unearned share-based compensation related to these awards is being amortized to compensation expense over the vesting period (generally three to seven years). The share-based compensation expense for these awards was determined based on the market price of the Company’s common stock at the date of grant applied to the total number of shares granted amortized over the vesting period. As of September 30, 2006, unearned share-based compensation associated with these awards totaled $13.9 million. Upon adoption of SFAS No. 123(R), the Company was required to change its policy from recognizing forfeitures as they occur to one where expense is recognized based on expectations of the awards that will vest over the requisite service period. This change had an immaterial cumulative effect on the Company’s results of operations.

The following table represents the compensation expense that was included in noninterest expense in the accompanying consolidated statements of income related to these restricted stock grants for the periods indicated below (in thousands):

The following table represents restricted stock award activity for the nine months ended September 30, 2006 and 2005, respectively:


	For the Nine Months Ended
	September 30, 2006		September 30, 2005
Balance, beginning of year	287,773		214,013
Granted	112,252		105,607
Forfeited	(4,930	)	(2,875	)
Earned and issued	(52,882	)	(36,967	)

Balance, September 30, 2006 and 2005, respectively	342,213		279,778

Note 7 – Goodwill and Other Intangible Assets

The Company accounts for goodwill and other intangible assets in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. Under these rules, goodwill and other intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. Other intangible assets are amortized over their useful lives. The Company performed its annual impairment tests as of October 1, 2006 and 2005. These tests indicated no impairment of the Company’s recorded goodwill. Management is not aware of any events or changes in circumstances since the impairment testing that would indicate that goodwill might be impaired.

There was no change in the carrying amount of goodwill for the three or nine months ended September 30, 2006.

The Company records purchase accounting intangible assets that consist of core deposit intangibles and mortgage servicing rights. The following table summarizes the Company’s purchase accounting intangible assets subject to amortization:


	September 30, 2006						September 30, 2005
(dollars in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Core deposit intangibles	$	10,282	$	3,722	$	6,560	$	10,282	$	2,574	$	7,708
Mortgage servicing rights		313		298		15		313		256		57

Total	$	10,595	$	4,020	$	6,575	$	10,595	$	2,830	$	7,765

The amortization expense related to purchase accounting intangibles for the three months ended September 30, 2006 and 2005, was $284,000 and $321,000, respectively. The amortization expense of the purchase accounting intangibles for the nine months ended September 30, 2006 and 2005 was $878,000 and $954,000, respectively.

Note 8 – Recent Accounting Pronouncements

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, an amendment of SFAS No. 133 and 140. SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and amends SFAS No. 140 to eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This Statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. Management is currently evaluating the effect of the Statement on the Company’s results of operations and financial condition.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment of SFAS No. 140. SFAS No. 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in selected situations; requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable; permits an entity to choose either the amortization or fair value measurement method for each class of separately recognized servicing assets and servicing liabilities; at its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under SFAS No. 115, provided that the available-for-sale securities are identified in some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value; and requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company anticipates that the adoption of SFAS No. 156 will not have a material impact on the Company’s financial position or results of operations.

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. The Interpretation also prescribes a recognition threshold and measurement attribute for recognition in financial statements of the recognition and measurement of a tax position taken in a tax return. FIN 48 prescribes that a company should use a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax positions that meet the more-likely-than-not threshold should be measured in order to determine the tax benefit to be recognized in the financial statements. This Statement is effective as of the beginning of the first fiscal year that begins after December 15, 2006. The Company anticipates that the adoption of FIN 48 will not have a material impact on the Company’s financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement. SFAS No. 157 provides enhanced guidance for using fair value to measure assets and liabilities. The standard also responds to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings, and applies whenever other standards require or permit assets or liabilities to be measured at fair value. Under the standard, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, SFAS No. 157 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is still evaluating the effect the standard will have on its results of operations and financial condition.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The purpose of this discussion and analysis is to focus on significant changes in the financial condition and results of operations of the Company during the nine months ended September 30, 2006. This discussion and analysis highlights and supplements information contained elsewhere in this quarterly report on Form 10-Q, particularly the preceding consolidated financial statements and notes. This discussion and analysis should be read in conjunction with the Company’s 2005 Annual Report on Form 10-K.

FORWARD-LOOKING STATEMENTS

To the extent that statements in this Form 10-Q relate to future plans, objectives, financial results or performance of the Company, these statements are deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, which are based on management’s current information, estimates and assumptions and the current economic environment, are generally identified by the use of the words “plan”, “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project” or similar expressions. The Company’s actual strategies and results in future periods may differ materially from those currently expected due to various risks and uncertainties. Factors that may cause actual results to differ materially from these forward-looking statements include, but are not limited to, the risk factors described in Item 1A of the Company’s 2005 Annual Report on Form 10-K and Part II, Item 1A of this Quarterly Report on Form 10-Q.

THIRD QUARTER OVERVIEW

During the third quarter of 2006, the Company earned $9.9 million, or $0.99 per share on a diluted basis. This represents an $11.2 million increase over the $1.3 million net loss reported in the third quarter of 2005. The net loss of $0.15 per diluted share in the third quarter of 2005 was primarily the result of a large loan loss provision taken as a result of the estimated losses from Hurricanes Katrina and Rita. Net income for the nine months ended September 30, 2006 totaled $26.8 million, up 90.1%, compared to the $14.1 million earned during the first nine months of 2005. Year-to-date comparatives are influenced, in part, by the acquisition of American Horizons Bancorp, Inc., the holding company for American Horizons Bank, of Monroe, Louisiana (“American Horizons”) on January 31, 2005. The key components of the Company’s performance are summarized below.

•

Total assets at September 30, 2006 were $3.1 billion, up $259.7 million, or 9.1%, from $2.9 billion at December 31, 2005. Shareholders’ equity increased by $16.7 million, or 6.3%, from $263.6 million at December 31, 2005 to $280.3 million at September 30, 2006.

•

Total loans at September 30, 2006 were $2.2 billion, an increase of $255.0 million, or 13.3%, from $1.9 billion at December 31, 2005. Commercial loans continue to drive this increase with year-to-date growth of over $200 million.

•

Total customer deposits increased $162.9 million, or 7.3%, from $2.2 billion at December 31, 2005 to $2.4 billion at September 30, 2006. This growth has been split between NOW accounts, savings and money market accounts and certificates of deposit.

•

Net interest income increased $2.9 million, or 13.7%, for the three months ended September 30, 2006, compared to the same period of 2005. For the nine months ended September 30, 2006, net interest income increased $6.2 million, or 9.9%, compared to the same period of 2005. These increases were largely attributable to increased volume. Net interest income also benefited from $1.4 million of interest income recorded during the third quarter of 2006 as a result of the acceleration of a discount recorded on an impaired credit originated by American Horizons. The corresponding net interest margin ratios on a tax-equivalent basis were 3.54% and 3.47% for the quarters ended September 30, 2006 and 2005, respectively. The accelerated discount increased the third quarter 2006 tax-equivalent net interest margin by 20 basis points.

•

Noninterest income increased $635,000, or 9.6%, for the third quarter of 2006 as compared to the same period of 2005. The increase was primarily driven by the inclusion of derivative gains on swaps and net cash settlements on derivative transactions. The Company also realized a 35% increase in ATM/debit card income and an 81% increase in broker dealer commissions compared to the third quarter of 2005. These increases were offset partially by a $0.9 million loss on the sale of $16 million in investment securities and a $444,000 reduction in gains on the sales of loans during the quarter. For the nine months ended September 30, 2006, noninterest income decreased $667,000, or 3.4%, compared to the same period of 2005.

•

Noninterest expense increased $3.8 million, or 24.2%, for the quarter ended September 30, 2006, as compared to the same quarter last year. This increase was primarily due to higher compensation as a result of strategic hiring over the past twelve months and an increased bonus accrual during the third quarter of 2006. For the nine months ended September 30, 2006, noninterest expense increased $6.7 million, or 14.1%, compared to the same period of 2005.

•

The Company’s credit quality remained exceptional during the third quarter of 2006. As a result of improvements in Hurricane Katrina-related credits and improving credit quality statistics, the Company recorded a negative provision for possible loan losses of $2.4 million during the third quarter of 2006, compared to a provision of $15.2 million for the third quarter of 2005. The $15.2 million provision for the third quarter of 2005 resulted primarily from the potential losses related to Hurricanes Katrina and Rita. Of the initial reserve for credits potentially impacted by Hurricane Katrina, approximately $9 million remains in the allowance for loan losses as of September 30, 2006. A total of $3.9 million in negative provision for possible loan losses was recorded for the first nine months of 2006, compared to a provision of $16.4 million for the same period of 2005. As of September 30, 2006, the allowance for loan losses as a percent of total loans was 1.56%, compared to 2.03% at September 30, 2005. Net charge-offs for the third quarter of 2006 were $76,000, or 0.01%, of average loans on an annualized basis, compared to $1.8 million, or 0.39%, a year earlier. The coverage of nonperforming assets by the allowance for loan losses was 5.70 times at the end of the third quarter of 2006, as compared to 6.31 times at December 31, 2005 and 7.00 times at September 30, 2005.

•

During the third quarter of 2006, the Company opened three full service branch offices in Slidell, Prairieville and Monroe, Louisiana. The Company has opened a total of nine new branch offices under the Company’s branch expansion initiative. The estimated net after-tax cost of the branch expansion initiative was $0.05 per diluted share in the third quarter of 2006.

•

In September 2006, the Company’s Board of Directors declared a quarterly cash dividend of $0.32 per common share, a 23% increase compared to the same quarter of 2005.

FINANCIAL CONDITION

Earning Assets

Earning assets are composed of interest or dividend-bearing assets, including loans, securities, short-term investments and loans held for sale. Interest income associated with earning assets is the Company’s primary source of income. Earning assets averaged $2.8 billion during the quarter ended September 30, 2006, an increase of $296.0 million, or 11.9%, from the year ended December 31, 2005. For the nine months ended September 30, 2006, average earning assets amounted to $2.7 billion, an increase of $252.0 million, or 10.2%, from the same period of 2005, and an increase of $234.8 million, or 9.5%, from the year ended December 31, 2005. Commercial loan growth was the primary driver of the quarterly and year-to-date increases.

Loans and Leases – The loan portfolio increased $255.0 million, or 13.3%, during the first nine months of 2006. Loan growth was primarily driven by commercial loans and private banking mortgages.

The Company’s loan to deposit ratios at September 30, 2006 and December 31, 2005 were 90.3% and 85.5%, respectively. The percentage of fixed rate loans within the total loan portfolio has increased slightly from 70% at the end of 2005 to 72% as of September 30, 2006. The following table sets forth the composition of the Company’s loan portfolio as of the dates indicated:


(dollars in thousands)	September 30, 2006		December 31, 2005		Increase/(Decrease)
(dollars in thousands)	September 30, 2006		December 31, 2005		Amount			Percent
Residential mortgage loans:
Residential 1-4 family	$	472,499	$	430,111	$	42,388		9.9	%
Construction		38,336		30,611		7,725		25.2

Total residential mortgage loans		510,835		460,722		50,113		10.9
Commercial loans:
Real estate		680,300		545,868		134,432		24.6
Business		443,743		376,966		66,777		17.7

Total commercial loans		1,124,043		922,834		201,209		21.8
Consumer loans:
Indirect automobile		227,315		229,646		(2,331	)	(1.0	)
Home equity		233,304		230,363		2,941		1.3
Other		77,987		74,951		3,036		4.1

Total consumer loans		538,606		534,960		3,646		0.7

Total loans receivable	$	2,173,484	$	1,918,516	$	254,968		13.3	%

The Company remains focused on growing the commercial loan portfolio as evidenced by the increase in commercial loans during 2006 and over the past five years. The Company continues to add depth to its commercial lending team with the intention of growing this segment of the portfolio further.

The Company continues to sell the majority of conforming mortgage loan originations in the secondary market and recognize the associated fee income rather than assume the rate risk associated with these longer term assets. The Company retains certain residential mortgage loans to high net worth individuals made through the private banking area. These mortgage loans traditionally have shorter durations, lower servicing costs and provide an opportunity to deepen client relationships.

The consumer loan portfolio was relatively unchanged during the third quarter because rising interest rates have prompted consumers to pay down home equity lines or refinance these lines into longer-term, fixed rate financing. The pay downs were largely offset by consumer loan originations during the period.

Investment Securities – The following table summarizes activity in the Company’s investment securities portfolio during the first nine months of 2006:


(dollars in thousands)	Available for Sale			Held to Maturity
Balance, December 31, 2005	$	543,495		$	29,087
Purchases		298,991			—
Sales		(57,340	)		—
Principal maturities, prepayments and calls		(208,193	)		(5,027	)
Amortization of premiums and accretion of discounts		(82	)		(37	)
Decrease in market value		(237	)		—

Balance, September 30, 2006	$	576,634		$	24,023

Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to 1) the length of time and the extent to which the fair value has been less than cost, 2) the financial condition and near-term prospects of the issuer, and 3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and insight provided by industry analysts’ reports. As of September 30, 2006, management’s assessment concluded that no declines are deemed to be other than temporary.

Short-term Investments – Short-term investments result from excess funds that fluctuate daily depending on the funding needs of the Company and are currently invested overnight in an interest-bearing deposit account at the Federal Home Loan Bank (“FHLB”) of Dallas, the total balance of which earns interest at the current FHLB discount rate. The balance in interest-bearing deposits at other institutions decreased $47.6 million, or 79.1%, to $12.6 million at September 30, 2006, compared to $60.1 million at December 31, 2005.

Mortgage Loans Held for Sale – Loans held for sale increased $9.5 million, or 90.7%, to $20.1 million at September 30, 2006, compared to $10.5 million at December 31, 2005. Loans held for sale have primarily been fixed rate single-family residential mortgage loans under contract to be sold in the secondary market. In most cases, loans in this category are sold within thirty days. Buyers generally have recourse to return a purchased loan to the Company under limited circumstances. Recourse conditions may include early payment default, breach of representations or warranties, and documentation deficiencies.

Asset Quality and Allowance for Loan Losses

The Company determines its allowance for loan losses in accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan-an Amendment of FASB Statements No. 5 and 15 and SFAS No. 5, Accounting for Contingencies. For a detailed description of the Company’s process for determining the amount of the allowance for loan losses, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

Due to the devastation caused by Hurricanes Katrina and Rita in August and September 2005, the Company performed an extensive review of the loan portfolios impacted by these storms. As a result of this review, the Company recorded a hurricane-related loan loss provision of $14.4 million in the third quarter of 2005. Since establishing the Katrina/Rita provision, the Company has continued to update its assessment based on additional information received from borrowers, insurance carriers, government agencies and others. During the second quarter of 2006, the Company determined a significant portion of the reserve for loans associated with Hurricane Rita was no longer required. As a result of this determination and continued exceptional asset quality of the loan portfolio not affected by the hurricanes, the Company recorded a $1.9 million negative loan loss provision in the second quarter of 2006. During the third quarter of 2006, the Company recorded a $2.4 million negative loan loss provision as a result of improvements in Hurricane Katrina-related credits and the Company’s favorable asset quality position. Also due to the improvements in Katrina-related credits, a portion of the Katrina reserve has been reallocated to the Company’s general

loan loss reserve during the year. Due to significant uncertainties in the New Orleans market, including open concerns about insurance, flood maps, how much of the City of New Orleans will be rebuilt, and the City’s vulnerability through the current hurricane season, the allowance for loan losses includes approximately $9 million associated with Hurricane Katrina-related credits as of September 30, 2006.

Actual default and loss rates may differ materially from levels assumed by the Company.

The following table presents the activity in the allowance for loan losses during the first nine months of 2006:


(dollars in thousands)	Amount
Balance, December 31, 2005	$	38,082
(Negative) provision charged to operations		(3,856	)
Loans charged off		(2,031	)
Recoveries		1,759

Balance, September 30, 2006	$	33,954

Nonperforming assets, defined as nonaccrual loans, accruing loans past due 90 days or more and foreclosed property, amounted to $6.0 million, or 0.19% of total assets at September 30, 2006, compared to $6.0 million, or 0.21% of total assets at December 31, 2005. The allowance for loan losses amounted to $34.0 million, or 1.56% of total loans and 710.8% of total nonperforming loans at September 30, 2006, compared to 1.98% and 659.3%, respectively, at December 31, 2005. The following table sets forth the composition of the Company’s nonperforming assets, including accruing loans past due 90 days or more, as of the dates indicated:


(dollars in thousands)	September 30, 2006			December 31, 2005
Nonaccrual loans:
Commercial, financial and agricultural	$	971		$	2,377
Mortgage		508			384
Loans to individuals		1,425			2,012

Total nonaccrual loans		2,904			4,773
Accruing loans 90 days or more past due		1,873			1,003

Total nonperforming loans ⁽¹⁾		4,777			5,776
Foreclosed property		1,177			257

Total nonperforming assets ⁽¹⁾		5,954			6,033
Performing troubled debt restructurings		—			—

Total nonperforming assets and troubled debt restructurings ⁽¹⁾	$	5,954		$	6,033

Nonperforming loans to total loans ⁽¹⁾		0.22	%		0.30	%
Nonperforming assets to total assets ⁽¹⁾		0.19	%		0.21	%
Allowance for loan losses to nonperforming loans ⁽¹⁾		710.8	%		659.3	%
Allowance for loan losses to total loans		1.56	%		1.98	%

⁽¹⁾	Nonperforming loans and assets include accruing loans 90 days or more past due.

The percentage of nonperforming assets to total loans decreased slightly from 0.31% at the end of 2005 to 0.27% at September 30, 2006, primarily due to a $587,000, or 29.2%, decrease in nonaccrual loans to individuals and $1.4 million, or 59.2%, decrease in commercial nonaccrual loans. Nonperforming asset balances decreased by $79,000, or 1.3%, since the end of 2005. Decreases in nonaccrual loans were partially offset by a $920,000, or 358% increase in foreclosed property. Net charge-offs for the third quarter of 2006 were $76,000, or 0.01% of average loans on an annualized basis, as compared to $1.8 million, or 0.39% for the same quarter last year.

Other Assets

The following table details the changes in other asset balances during the first nine months of 2006:


(dollars in thousands)	September 30, 2006		December 31, 2005		Increase/(Decrease)
(dollars in thousands)	September 30, 2006		December 31, 2005		Amount			Percent
Cash and due from banks	$	58,516	$	66,697	$	(8,181	)	(12.3	)%
Premises and equipment		68,231		55,010		13,221		24.0
Goodwill		93,167		93,167		—		—
Bank-owned life insurance		46,168		44,620		1,548		3.5
Other		73,390		69,464		3,926		5.7

Total other assets	$	339,472	$	328,958	$	10,514		3.2	%

The $8.2 million decrease in cash and due from banks is the result of loan fundings. Loan growth has exceeded deposit growth by $92.1 million year to date.

The $13.2 million increase in premises and equipment is primarily the result of land, building and equipment purchases associated with the Company’s branch expansion initiative.

The $3.9 million increase in other assets is primarily a result of an increase of $1.6 million in FHLB stock, as well as a $1.4 million increase in the fair market value of derivative contracts.

Funding Sources

Deposits obtained from clients in its primary market areas are the Company’s principal source of funds for use in lending and other business purposes. The Company attracts local deposit accounts by offering a wide variety of accounts, competitive interest rates and convenient branch office locations and service hours. Increasing core deposits through the development of client relationships is a continuing focus of the Company. Borrowings have become an increasingly important funding source as the Company has grown. Other funding sources include subordinated debt and shareholders’ equity. The following discussion highlights the major changes in the mix of deposits and other funding sources during the first nine months of the year.

Deposits – Total end of period deposits increased $162.9 million, or 7.3%, to $2.4 billion at September 30, 2006, compared to $2.2 billion at December 31, 2005. The following table sets forth the composition of the Company’s deposits at the dates indicated:


(dollars in thousands)	September 30, 2006		December 31, 2005		Increase/(Decrease)
(dollars in thousands)	September 30, 2006		December 31, 2005		Amount			Percent
Noninterest-bearing DDA	$	348,023	$	350,065	$	(2,042	)	(0.6	)%
NOW accounts		632,273		575,379		56,894		9.9
Savings and money market accounts		613,938		554,731		59,207		10.7
Certificates of deposit		811,603		762,781		48,822		6.4

Total deposits	$	2,405,837	$	2,242,956	$	162,881		7.3	%

The Company has experienced strong deposit growth over the past year primarily as a result of several factors, including increased economic activity in the region due to the recovery from Hurricanes Katrina and Rita, higher deposit rates and new branch locations.

Short-term Borrowings – Short-term borrowings increased $100.5 million, or 145.9%, to $169.3 million at September 30, 2006, compared to $68.8 million at December 31, 2005. This resulted from loan growth exceeding deposit growth. The Company’s short-term borrowings at September 30, 2006 were comprised of $80.5 million in FHLB of Dallas advances with maturities of one month or less and $88.8 million of securities sold under agreements to repurchase. The average rates paid on short-term borrowings were 3.66% and 2.74% for the quarters ended September 30, 2006 and 2005, respectively.

Long-term Borrowings – Long-term borrowings decreased $15.9 million, or 6.4%, to $234.3 million at September 30, 2006, compared to $250.2 million at December 31, 2005. At September 30, 2006, the Company’s long-term borrowings were comprised of $197.0 million of fixed and variable rate advances from the FHLB of Dallas and $37.2 million in junior subordinated debt. The average rates paid on long-term borrowings were 5.22% and 4.18% for the quarters ended September 30, 2006 and 2005, respectively.

Shareholders’ Equity – Shareholders’ equity provides a source of permanent funding, allows for future growth and provides the Company with a cushion to withstand unforeseen adverse developments. At September 30, 2006, shareholders’ equity totaled $280.3 million, an increase of $16.7 million, or 6.3%, compared to $263.6 million at December 31, 2005. The following table details the changes in shareholders’ equity during the first nine months of 2006:


(dollars in thousands)	Amount
Balance, December 31, 2005	$	263,569
Net income		26,780
Share-based compensation cost		2,310
Sale of treasury stock for stock options exercised		5,056
Cash dividends declared		(8,718	)
Repurchases of common stock placed into treasury		(8,032	)
Decrease in other comprehensive income		(706	)

Balance, September 30, 2006	$	280,259

Stock repurchases generally are effected through open market purchases, and may be made through unsolicited negotiated transactions. The Company did not repurchase any shares of its Common Stock during the quarter ended September 30, 2006. Approximately 17,000 shares may still be purchased under the currently authorized plan.

RESULTS OF OPERATIONS

Net income for the third quarter of 2006 totaled $9.9 million, compared to a net loss of $1.3 million during the third quarter of 2005, an increase of $11.2 million. For the nine months ended September 30, 2006, the Company reported net income of $26.8 million, compared to $14.1 million earned during the same period of 2005, an increase of $12.7 million, or 90.1%.

Net Interest Income – Net interest income is the difference between interest realized on earning assets and interest paid on interest-bearing liabilities and is also the driver of core earnings. As such, it is subject to constant scrutiny by management. The rate of return and relative risk associated with earning assets are weighed to determine the appropriateness and mix of earning assets.

Net interest income increased $2.9 million, or 13.7%, to $23.9 million for the three months ended September 30, 2006, compared to $21.0 million for the three months ended September 30, 2005. The increase was due to a $9.1 million, or 26.4%, increase in interest income, which was partially offset by a $6.2 million, or 46.3%, increase in interest expense. The increase in net interest income was the result of a $278.8 million, or 11.2%, increase in the average balance of earning assets, which was partially offset by a $226.5 million, or 10.4%, increase in the average balance of interest-bearing liabilities. The yield on average earnings assets increased 74 basis points during this period from 5.61% to 6.35%, while the rate on average interest-bearing liabilities increased 79 basis points over the same period from 2.46% to 3.25%. Net interest income was aided by $1.4 million in additional interest income due to the accelerated accretion of a discount recorded on an impaired loan in accordance with AICPA Statement of Position 03-3, Accounting for Certain Loans and Debt Securities Acquired in a Transfer (SOP 03-3). The loan, which was acquired via the American Horizons merger, was refinanced by another financial institution during the third quarter of 2006. Prior to the refinancing of the loan, the Company was accreting the discount into interest income over the remaining life of the loan using the interest method.

For the nine months ended September 30, 2006, net interest income increased $6.2 million, or 9.9%, to $69.1 million, compared to $62.9 million for the first nine months of 2005. The increase was due to a $21.5 million, or 21.6%, increase in interest income, which was partially offset by a $15.3 million, or 41.7%, increase in interest expense. The increase in net interest income was the result of a $252.0 million, or 10.2%, increase in the average balance of earning assets, which was partially offset by a $184.3 million, or 8.6%, increase in the average balance of interest-bearing liabilities. The yield on average earnings assets increased 54 basis points during this period, while the rate on average interest-bearing liabilities increased 69 basis points over the same period.

The Company’s average interest rate spread, which is the difference between the yields earned on earning assets and the rates paid on interest-bearing liabilities, was 3.10% during the three months ended September 30, 2006, compared to 3.15% for the comparable period in 2005. For the nine months ended September 30, 2006 and 2005, the average interest rate spread was 3.09% and 3.24%, respectively. The Company’s net interest margin on a taxable equivalent (TE) basis, which is net interest income (TE) as a percentage of average earning assets, was 3.54% and 3.47%, for the three months ended September 30, 2006 and 2005, respectively. For the nine months ended September 30, 2006 and 2005, the net interest margin on a taxable equivalent (TE) basis was 3.50% and 3.52%, respectively. The declines in net interest spread and net interest margin for the year are primarily attributable to the increases in average yield on NOW accounts and CDs, offset, to a limited extent, by an increasing average yield on earning assets, primarily commercial and consumer loans that are tied to floating rate indices. The accelerated accretion discussed above increased the tax-equivalent net interest margin by 20 and 7 basis points for the three and nine months ended September 30, 2006, respectively. The change in accounting for certain derivative instruments discussed in Note 3 decreased the tax equivalent net interest margin by 5 and 2 basis points for the three and nine months ended September 30, 2006, respectively

As of September 30, 2006, the Company’s interest rate risk model indicated that the Company remained essentially neutral in terms of interest rate sensitivity. However, management believes competitive deposit pricing pressures may make the Company slightly more liability sensitive than indicated by the model. Based on the Company’s interest rate risk model, the table below illustrates the impact of an immediate and sustained 100 and 200 basis point increase or decrease in interest rates on net interest income:


Shift in Interest Rates (in bps)		% Change in Projected Net Interest Income
+200		(1.8)%
+100		(0.9)
-100		1.9
-200		0.6

The impact of a flattening yield curve, as anticipated in the forward curve as of September 30, 2006, would approximate a 2.0% decrease in net interest income. The computations of interest rate risk shown above do not necessarily include certain actions that management may undertake to manage this risk in response to anticipated changes in interest rates.

The Company continues to monitor investment opportunities and weigh the associated risk/return. Volume increases in earning assets and improvements in the mix of earning assets and interest-bearing liabilities are expected to improve net interest income, but may negatively impact the net interest margin ratio.

As part of its activities to manage interest rate risk, the Company has engaged in interest rate swap transactions, which are a form of derivative financial instrument, to modify the net interest sensitivity to levels deemed to be appropriate. At September 30, 2006, the Company had interest rate swaps in the notional amount of approximately $128.7 million. In addition to using derivative instruments as an interest rate risk management tool, the Company also enters into derivative instruments to help its commercial customers manage their exposure to interest rate fluctuations. To mitigate the interest rate risk associated with these customer contracts, the Company enters into offsetting derivative contract positions. The Company manages its credit risk, or potential risk of default by its commercial customers, through credit limit approval and monitoring procedures. Both the derivative contracts entered into with its customers and the offsetting derivative positions are recorded at their estimated fair value. At September 30, 2006, the Company had $36.9 million notional amount of interest rate contracts with corporate customers and $36.9 million notional amount of offsetting interest rate contracts with other financial institutions to mitigate the Company’s rate exposure on its corporate customers’ contracts.

The following table presents average balance sheets, net interest income and average interest rates for the three and nine month periods ended September 30, 2006 and 2005.

Average Balances, Net Interest Income and Interest Yields / Rates

The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income of the Company from earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rate; (iii) net interest income; (iv) net interest spread; and (v) net interest margin. Information is based on average daily balances during the indicated periods. Investment security market value adjustments and trade-date accounting adjustments are not considered to be earning assets and, as such, the net effect of the adjustments is included in nonearning assets. Tax equivalent (TE) yields are calculated using a marginal tax rate of 35%.


	Three Months Ended September 30,														Nine Months Ended September 30,
	2006							2005							2006							2005
*(dollars in thousands)*	Average Balance			Interest		Average Yield/ Rate ⁽¹⁾		Average Balance			Interest		Average Yield/ Rate ⁽¹⁾		Average Balance			Interest		Average Yield/ Rate ⁽¹⁾		Average Balance			Interest		Average Yield/ Rate ⁽¹⁾
Earning assets:
Loans receivable:
Mortgage loans	$	497,266		$	6,997	5.63	%	$	443,644		$	5,973	5.39	%	$	477,181		$	19,751	5.52	%	$	433,568		$	17,391	5.35	%
Commercial loans (TE) ⁽²⁾		1,055,086			18,716	7.17	%		862,834			12,323	5.81	%		995,131			48,557	6.67	%		850,346			34,959	5.64	%
Consumer and other loans		536,998			9,824	7.26	%		548,473			9,485	6.86	%		531,936			28,381	7.13	%		537,325			27,164	6.76	%

Total loans		2,089,350			35,537	6.83	%		1,854,951			27,781	6.02	%		2,004,248			96,689	6.52	%		1,821,239			79,514	5.90	%
Mortgage loans held for sale		17,166			298	6.94	%		15,621			222	5.68	%		12,836			630	6.55	%		12,825			519	5.40	%
Investment securities (TE) ⁽²⁾⁽³⁾		634,941			7,397	4.82	%		571,725			5,989	4.42	%		638,253			21,663	4.70	%		578,080			18,196	4.43	%
Other earning assets		32,093			413	5.10	%		52,421			528	3.99	%		56,970			2,044	4.80	%		48,213			1,284	3.56	%

Total earning assets		2,773,550			43,645	6.35	%		2,494,718			34,520	5.61	%		2,712,307			121,026	6.05	%		2,460,357			99,513	5.51	%

Allowance for loan losses		(35,642	)						(25,184	)						(37,470	)						(24,484	)
Nonearning assets		284,499							268,824							286,495							260,856

Total assets	$	3,022,407						$	2,738,358						$	2,961,332						$	2,696,729

Interest-bearing liabilities:
Deposits:
NOW accounts	$	626,580		$	4,204	2.66	%	$	542,518		$	2,410	1.76	%	$	625,418		$	11,312	2.42	%	$	559,124		$	6,701	1.60	%
Savings and money market accounts		590,385			3,177	2.14	%		501,449			1,820	1.44	%		581,712			8,186	1.88	%		465,805			4,190	1.20	%
Certificates of deposit		801,504			7,855	3.89	%		734,369			5,559	3.00	%		791,809			21,720	3.67	%		720,692			15,114	2.80	%

Total interest-bearing deposits		2,018,469			15,236	2.99	%		1,778,336			9,789	2.18	%		1,998,939			41,218	2.76	%		1,745,621			26,005	1.99	%
Short-term borrowings		140,043			1,310	3.66	%		133,688			935	2.74	%		95,935			2,097	2.88	%		165,522			2,977	2.37	%
Long-term debt		238,058			3,173	5.22	%		258,090			2,754	4.18	%		242,884			8,609	4.67	%		242,364			7,666	4.17	%

Total interest-bearing liabilities		2,396,570			19,719	3.25	%		2,170,114			13,478	2.46	%		2,337,758			51,924	2.96	%		2,153,507			36,648	2.27	%

Noninterest-bearing demand deposits		334,453							286,959							334,106							266,059
Noninterest-bearing liabilities		17,240							14,693							18,955							15,343

Total liabilities		2,748,263							2,471,766							2,690,819							2,434,909
Shareholders’ equity		274,144							266,592							270,513							261,820

Total liabilities and shareholders’ equity	$	3,022,407						$	2,738,358						$	2,961,332						$	2,696,729

Net earning assets	$	376,980						$	324,604						$	374,549						$	306,850

Ratio of earning assets to interest-bearing liabilities		115.73	%						114.96	%						116.02	%						114.25	%

Net Interest Spread				$	23,926	3.10	%				$	21,042	3.15	%				$	69,102	3.09	%				$	62,865	3.24	%

Tax-equivalent Benefit						0.13	%						0.13	%						0.13	%						0.13	%

Net Interest Income (TE) / Net Interest Margin (TE) ⁽¹⁾				$	24,810	3.54	%				$	21,870	3.47	%				$	71,677	3.50	%				$	65,286	3.52	%

⁽¹⁾	Annualized.

⁽²⁾	Fully taxable equivalent (TE) calculations include the tax benefit associated with related income sources that are tax-exempt using a marginal tax rate of 35%.

⁽³⁾	Balances exclude unrealized gain or loss on securities available for sale and impact of trade date accounting.

Provision For Loan Losses – Management of the Company assesses the allowance for loan losses quarterly and will make provisions for loan losses as deemed appropriate in order to maintain the adequacy of the allowance for loan losses. Increases to the allowance for loan losses are achieved through provisions for loan losses that are charged against income. Adjustments to the allowance may also result from purchase accounting adjustments associated with loans acquired in mergers.

As a result of reduced risk associated with borrowers impacted by Hurricane Katrina and strong asset quality statistics, the Company recorded a negative provision for loan losses of $2.4 million during the quarter ended September 30, 2006, compared to a provision of $15.2 million for the same period in 2005. For the nine months ended September 30, 2006, the provision for loan losses was a negative $3.9 million compared to $16.4 million for the first nine months of 2005. The allowance for loan losses as a percentage of outstanding loans, net of unearned income, decreased from 1.98% at December 31, 2005, to 1.56% at September 30, 2006. The allowance for loan losses as a percentage of outstanding loans, net of unearned income, was 2.03% as of September 30, 2005.

Noninterest Income – The Company’s total noninterest income was $7.3 million for the three months ended September 30, 2006, $635,000, or 9.6%, higher than the $6.7 million earned for the same period in 2005. For the nine months ended September 30, 2006, total noninterest income decreased $667,000, or 3.4%, from $19.5 million to $18.8 million compared to the nine months ended September 30, 2005. The following table illustrates the changes in each significant component of noninterest income:


	Three Months Ended September 30,					Percent Increase (Decrease)		Nine Months Ended September 30,						Percent Increase (Decrease)
(dollars in thousands)	2006			2005		Percent Increase (Decrease)		2006			2005			Percent Increase (Decrease)
Service charges on deposit accounts	$	3,426		$	3,576	(4.2	)%	$	9,669		$	10,400		(7.0	)%
ATM/debit card fee income		857			633	35.4			2,516			1,933		30.2
Income from bank owned life insurance		524			510	2.7			1,548			1,471		5.2
Gain on sale of loans, net		420			864	(51.4	)		1,206			1,971		(38.8	)
Gain (loss) on sale of assets		62			10	520.0			89			262		(66.0	)
Loss on sale of investments, net		(870	)		—	—			(2,259	)		(28	)	(7,967.9	)
Trading gains and settlements on swaps		1,252			—	—			1,252			—		—
Other income		1,604			1,047	53.2			4,779			3,458		38.2

Total noninterest income	$	7,275		$	6,640	9.6	%	$	18,800		$	19,467		(3.4	)%

Service charges on deposit accounts decreased $150,000 for the third quarter and $731,000 for the first nine months of 2006 primarily due to customer migration to lower fee accounts and reduced overdraft and account analysis fees.

ATM/debit card fee income increased $224,000 for the third quarter and $583,000 for the first nine months of 2006 resulting from increased usage and an expanded cardholder base.

Gain on sale of loans decreased $444,000 for the third quarter and $765,000 for the first nine months of 2006. The third quarter of 2005 included the sale of $3.7 million of nonperforming loans to a third party resulting in an aggregate gain of $290,000. The remaining decrease in 2006 results from reduced demand for new mortgage loans and refinancings and associated sales of these loans into the secondary market.

Gain on sale of assets increased $52,000 for the third quarter and decreased $173,000 for the first nine months of 2006. 2005 asset sale gains included the sale of a branch in the New Orleans market during the second quarter.

Loss on sale of investments increased $0.9 million for the third quarter and $2.2 million for the first nine months of 2006. The quarterly loss resulted from the sale of $16 million in investment securities in September 2006. The investment securities sold had a weighted average yield of 3.89%. Subsequent to this sale, investment securities with approximately similar durations were purchased yielding an average of 5.49%. A similar sale was completed in the second quarter of 2006, as the Company recorded a $1.4 million loss on the sale of $42.0 million in securities.

During the third quarter of 2006, the Company revised its method of accounting for interest rate swaps associated with junior subordinated debt. The Company had previously accounted for these swaps using hedge accounting as prescribed by SFAS No. 133. In light of recent technical interpretations of SFAS 133, the Company has determined that the swaps do not qualify for hedge accounting under the short-cut method. Accordingly, the Company revised its method of accounting for the swaps and changes in the fair value of these swaps are now recorded as noninterest income. Accordingly, the Company recorded a cumulative adjustment for derivative gains on swaps totaling $1.3 million during the third quarter, which was partially offset by a decline in the fair value of the swaps during the third quarter. In addition, $0.4 million in net cash swap settlements since the beginning of 2006, which was previously reported in interest expense, is reported in noninterest income in the third quarter of 2006. The effect of this change decreased the tax-equivalent net interest margin by five basis points in the third quarter of 2006 and two basis points for the nine months ended September 30, 2006.

Other noninterest income increased $557,000 for the third quarter and $1.3 million for the first nine months of 2006. The increases were primarily due to rising broker dealer commissions.

Noninterest Expense - The Company’s total noninterest expense was $19.6 million for the three months ended September 30, 2006, $3.8 million, or 24.2%, higher than the $15.8 million expense incurred for the same period in 2005. Noninterest expense increased $6.7 million, or 14.1%, for the nine months ended September 30, 2006, to $54.2 million, compared to $47.5 million for the nine months ended September 30, 2005. The following table illustrates the changes in each significant component of noninterest expense:


	Three Months Ended September 30,				Percent Increase (Decrease)		Nine Months Ended September 30,				Percent Increase (Decrease)
(dollars in thousands)	2006		2005		Percent Increase (Decrease)		2006		2005		Percent Increase (Decrease)
Salaries and employee benefits	$	11,477	$	7,995	43.6	%	$	30,487	$	24,466	24.6	%
Occupancy and equipment		2,414		2,145	12.5			7,045		6,068	16.1
Franchise and shares tax		790		811	(2.6	)		2,464		2,401	2.6
Communication and delivery		841		765	9.9			2,376		2,348	1.2
Marketing and business development		411		340	20.9			1,444		1,439	0.3
Data processing		701		445	57.5			1,918		1,316	45.7
Printing, stationery and supplies		244		219	13.5			756		725	4.3
Amortization of acquisition intangibles		276		307	11.4			849		908	(6.5	)
Professional services		511		646	(20.9	)		1,563		1,785	(12.4	)
Other expenses		1,926		2,100	(8.3	)		5,267		6,039	(12.8	)

Total noninterest expense	$	19,591	$	15,773	24.2	%	$	54,169	$	47,495	14.1	%

Salaries and employee benefits increased $3.5 million for the third quarter and $6.0 million for the first nine months of 2006 due to higher compensation expense as a result of hiring associated with the Company’s branch expansion initiative and other strategic hires during 2006. The Company also increased its employee bonus accrual during the third quarter of 2006.

Occupancy and equipment increased $269,000 for the third quarter and $977,000 for the first nine months of 2006 primarily due to the branch expansion initiative. Communication and delivery also increased, in part, due to the branch expansion initiative and communication upgrades.

Data processing increased $256,000 for the third quarter and $602,000 for the first nine months of 2006 primarily due to increased computer hardware and software maintenance costs as the Company continues to expand the franchise, invest in leading edge technologies to serve the needs of customers and employees and enhance data redundancy processes.

Other noninterest expenses decreased $174,000 for the third quarter and $772,000 for the first nine months of 2006. The decrease primarily relates to $346,000 of hurricane-specific expenses recorded in 2005. However, this decrease was offset by slight increases in travel expenses as a result of merger-related work. The nine month period ended September 30, 2005 includes $650,000 of one-time expenses associated with the integration and conversion of American Horizons; hence, the decrease in 2006.

Income Tax Expense – Income tax expense increased $6.0 million for the three months ended September 30, 2006, primarily due to the net loss in the third quarter of 2005. For the nine months ended September 30, 2006, income tax expense increased $6.5 million, or 151.0%, to $10.8 million, compared to $4.3 million for the nine months ended September 30, 2005. The increase in income tax expense was principally due to the increase in pre-tax earnings.

The effective tax rates for the nine months ended September 30, 2006 and 2005 were 28.8% and 23.4%, respectively. The decrease in the Company’s effective tax rate for 2005 is attributable to the effect of the third quarter net loss.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s liquidity, represented by cash and cash equivalents, is a product of its operating, investing and financing activities. The Company manages its liquidity with the objective of maintaining sufficient funds to respond to the needs of depositors and borrowers and to take advantage of earnings enhancement opportunities. The primary sources of funds for the Company are deposits, borrowings, repayments and maturities of loans and investment securities, securities sold under agreements to repurchase, as well as funds provided from operations. Certificates of deposit scheduled to mature in one year or less at September 30, 2006 totaled $558.6 million. Based on past experience, management believes that a significant portion of maturing deposits will remain with the Company, including those obtained through acquisitions. Additionally, the majority of the investment securities portfolio is classified by the Company as available-for-sale, which provides the ability to liquidate securities as needed. Due to the relatively short planned duration of the investment security portfolio, the Company continues to experience significant cash flows.

While scheduled cash flows from the amortization and maturities of loans and securities are relatively predictable sources of funds, deposit flows and prepayments of loans and investment securities are greatly influenced by general interest rates, economic conditions and competition. The FHLB of Dallas provides an additional source of liquidity to make funds available for general requirements and also to assist with the variability of less predictable funding sources. At September 30, 2006, the Company had $274.2 million of outstanding advances from the FHLB of Dallas. Additional advances available from the FHLB at September 30, 2006 were $347.4 million. The Company and the Bank also have various funding arrangements with commercial banks providing up to $75 million in the form of federal funds and other lines of credit. At September 30, 2006, the Company had no balance outstanding on these lines and all of the funding was available to the Company. In addition, the Company issued junior subordinated debt totaling $37.2 million, which may be included in Tier 1 capital up to 25% of the total of the Company’s core capital elements, including the junior subordinated debt.

The Company has been able to generate sufficient cash through its deposits as well as borrowings and anticipates it will continue to have sufficient funds to meet its liquidity requirements. At September 30, 2006, the total approved unfunded loan commitments outstanding amounted to $27.4 million. At the same time, commitments under unused lines of credit, including credit card lines, amounted to $530.0 million.

At September 30, 2006, the Company and the Bank had regulatory capital that was in excess of regulatory requirements. The following table details the Company’s actual levels and current requirements as of September 30, 2006:


	Actual Capital				Required Capital
(dollars in thousands)	Amount		Percent		Amount		Percent
Tier 1 Leverage	$	222,972	7.63	%	$	116,907	4.00	%
Tier 1 Risk-based	$	222,972	10.16	%	$	87,810	4.00	%
Total Risk-based	$	250,493	11.41	%	$	175,620	8.00	%

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosures about market risk are presented at December 31, 2005 in Item 7A of the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 15, 2006. Additional information at September 30, 2006 is included herein under Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Item 4. Controls and Procedures

An evaluation of the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2006, was carried out under the supervision, and with the participation of, the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based on that evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”).

Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed by the Company under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to the Company’s management, including the CEO and the CFO, as appropriate, to allow timely decisions regarding required disclosures. Disclosure controls include review of internal controls that are designed to provide reasonable assurance that transactions are properly authorized, assets are safeguarded against unauthorized or improper use and transactions are properly recorded and reported. There was no significant change in the Company’s internal controls over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.

Any control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are achieved. The design of a control system inherently has limitations, including the controls’ cost relative to their benefits. Additionally, controls can be circumvented. No cost-effective control system can provide absolute assurance that all control issues and instances of fraud, if any, will be detected.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Not Applicable

Item 1A. Risk Factors

There have been no material changes in the risk factors disclosed by the Company in its Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 15, 2006.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Information regarding purchases of equity securities is included herein under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Item 3. Defaults Upon Senior Securities

Not Applicable

Item 4. Submission of Matters to a Vote of Security Holders

Not Applicable

Item 5. Other Information

Effective October 1, 2006, the Compensation Committee of the Board of Directors of the Company approved salary increases for certain executive officers of the Company as follows:


Executive Officer	Previous Annual Salary		New Annual Salary
Michael J. Brown	$	236,500	$	285,000
John R. Davis	$	236,500	$	285,000
Anthony J. Restel	$	155,000	$	195,000

Item 6. Exhibits


Exhibit No. 31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit No. 31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit No. 32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit No. 32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	IBERIABANK Corporation

Date: November 9, 2006	By:	/s/ Daryl G. Byrd
		Daryl G. Byrd
		President and Chief Executive Officer

Date: November 9, 2006	By:	/s/ Anthony J. Restel
		Anthony J. Restel
		Executive Vice President and Chief Financial Officer

Date: November 9, 2006	By:	/s/ Joseph B. Zanco
		Joseph B. Zanco
		Executive Vice President and Corporate Controller and Principal Accounting Officer

For the Nine Months Ended

September 30,

2006

September 30,
2005

Compensation expense related to restricted stock