<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 12, 1995
(December 31, 1994)
Hibernia Corporation
(Exact name of issuer as specified in its charter)
Louisiana 1-10294 72-0724532
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
organization
313 Carondelet Street, New Orleans, Louisiana 70130
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (504) 533-5332
Item 5. Other Events
As has been disclosed by the Registrant in prior filings, effective March
1, 1995, American Bank was merged into Hibernia National Bank, a subsidiary of
the Registrant, in a stock-for-stock exchange with the Registrant accounted for
by the Registrant as a pooling of interests. On May 1, 1995, STABA Bancshares,
Inc. was merged with and into the Registrant, in a stock-for-stock exchange that
was accounted for by the Registrant as a pooling of interests. Effective July
1, 1995, Progressive Bancorporation, Inc. was merged with and into the
Registrant, in a stock-for-stock exchange that was accounted for by the
registrant as a pooling of interests. On that same day, Bank of St. John was
merged into Hibernia National Bank, a subsidiary of the Registrant, in a stock-
for-stock exchange with the Registrant accounted for by the Registrant as a
pooling of interests.
The Registrant has prepared restated supplemental consolidated financial
statements reflecting the above-described transactions and is filing them as
Exhibit 99.1 to this Current Report on Form 8-K so that the Registrant may
incorporate such financial statements into any future registration statements by
reference to this Report.
Also filed as exhibits hereto are the audited financial statements of
American Bank and Bank of St. John and the audited consolidated financial
statements of STABA Bancshares, Inc. and Progressive Bancorporation, Inc.
<PAGE>
Item 7. Financial Statements and Exhibits.
(c) Exhibits
23 Consent of Ernst & Young, LLP
27 Financial Data Schedule
99.1 Supplemental Consolidated Financial
Statements of Hibernia Corporation for the
fiscal year ended December 31, 1994 (as
restated to reflect the acquisitions of
American Bank on March 1, 1995; STABA
Bancshares, Inc. on May 1, 1995; and
Progressive Bancorporation, Inc. and Bank
of St. John on July 1, 1995.)
99.2 Audited financial statements of American
Bank for the fiscal year ended December 31,
1994.
99.3 Audited consolidated financial statements
of STABA Bancshares, Inc. for the fiscal
year ended December 31, 1994.
99.4 Audited consolidated financial statements
of Progressive Bancorporation, Inc. for the
fiscal year ended December 31, 1994.
99.5 Audited financial statements of Bank of St.
John for the fiscal year ended December 31,
1994.
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Description Number
23 Consent of Ernst & Young, LLP
27 Financial Data Schedule
99.1 Supplemental Consolidated Financial Statements of Hibernia
Corporation for the fiscal year ended December 31, 1994 (as
restated to reflect the acquisitions of American Bank on March
1, 1995; STABA Bancshares, Inc. on May 1, 1995; and
Progressive Bancorporation, Inc. and Bank of St. John on July
1, 1995.)
99.2 Audited financial statements of American Bank for the fiscal
year ended December 31, 1994.
99.3 Audited consolidated financial statements of STABA Bancshares,
Inc. for the fiscal year ended December 31, 1994.
99.4 Audited consolidated financial statements of Progressive
Bancorporation, Inc. for the fiscal year ended December 31, 1994.
99.5 Audited financial statements of Bank of St. John for the
fiscal year ended December 31, 1994.
SIGNATURE
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 hereunto duly authorized.
HIBERNIA CORPORATION
(Registrant)
Date: October 12, 1995 By: /s/ RONALD E. SAMFORD, JR.
--------------------------
Ronald E. Samford, Jr.
Chief Accounting Officer
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the following Hibernia
Corporation Registration Statements
Form S-3 No. 33-26553 (dated February 21, 1989)
Form S-8 No. 2-81353 (dated February 23, 1989)
Form S-8 No. 33-26871 (dated February 23, 1989)
Form S-3 No. 33-37701 (dated January 31, 1991)
Form S-8 No. 2-96194 (dated April 8, 1991)
Form S-3 No. 33-53108 (dated December 28, 1992)
Form S-3 No. 33-5844 (dated December 28, 1992)
Form S-4 No. 33-52971 (dated May 13, 1994)
Form S-4 No. 33-51901 (dated May 13, 1994)
Form S-4 No. 33-53011 (dated June 16, 1994)
Form S-4 No. 33-52249 (dated July 8, 1994)
Form S-4 No. 33-56037 (dated November 8, 1994)
Form S-4 No. 33-56341 (dated November 11, 1994)
Form S-4 No. 33-57055 (dated December 29, 1994)
Form S-4 No. 33-57771 (dated February 28, 1995)
Form S-4 No. 33-58537 (dated June 2, 1995)
Form S-4 No. 33-58813 (dated June 2, 1995)
of our report dated January 9, 1995, except for the poolings of interests with
the 1995 Pooled Companies described in Note 2, as to which the date is
July 1, 1995, with respect to the supplemental consolidated financial statements
of Hibernia Corporation included in this Report on Form 8-K dated October 12,
1995.
s/ERNST & YOUNG LLP
New Orleans, Louisiana
October 10, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 380,895
<INT-BEARING-DEPOSITS> 6,979
<FED-FUNDS-SOLD> 198,164
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 583,614
<INVESTMENTS-CARRYING> 1,831,429
<INVESTMENTS-MARKET> 1,759,679
<LOANS> 3,620,549
<ALLOWANCE> 152,598
<TOTAL-ASSETS> 6,779,343
<DEPOSITS> 5,900,993
<SHORT-TERM> 160,218
<LIABILITIES-OTHER> 114,305
<LONG-TERM> 11,846
<COMMON> 228,772
0
0
<OTHER-SE> 363,209
<TOTAL-LIABILITIES-AND-EQUITY> 6,779,343
<INTEREST-LOAN> 290,504
<INTEREST-INVEST> 150,942
<INTEREST-OTHER> 7,279
<INTEREST-TOTAL> 448,725
<INTEREST-DEPOSIT> 157,106
<INTEREST-EXPENSE> 165,513
<INTEREST-INCOME-NET> 283,212
<LOAN-LOSSES> (18,069)
<SECURITIES-GAINS> (2,451)
<EXPENSE-OTHER> 287,046
<INCOME-PRETAX> 101,175
<INCOME-PRE-EXTRAORDINARY> 95,617
<EXTRAORDINARY> (597)
<CHANGES> 0
<NET-INCOME> 95,020
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
<YIELD-ACTUAL> 7.26
<LOANS-NON> 14,184
<LOANS-PAST> 4,016
<LOANS-TROUBLED> 6,024
<LOANS-PROBLEM> 12,000
<ALLOWANCE-OPEN> 176,971
<CHARGE-OFFS> 24,283
<RECOVERIES> 17,979
<ALLOWANCE-CLOSE> 152,598
<ALLOWANCE-DOMESTIC> 152,598
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 36,700
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Hibernia Corporation
We have audited the supplemental consolidated balance sheets of
Hibernia Corporation and Subsidiaries (formed as a result of the
consolidation of Hibernia Corporation and the 1995 Pooled
Companies, as described in Note 2) as of December 31, 1994 and 1993
and the related supplemental consolidated statements of income,
changes in shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1994. The
supplemental consolidated financial statements give retroactive
effect to the mergers of Hibernia Corporation and the 1995 Pooled
Companies during 1995, which have been accounted for using the
pooling of interests method as described in Note 2 to the
supplemental consolidated financial statements. These supplemental
financial statements are the responsibility of the management of
Hibernia Corporation. Our responsibility is to express an opinion
on these supplemental financial statements based on our audits. We
did not audit the financial statements of the 1995 Pooled
Companies, which statements reflect total assets constituting
approximately 7% of the related supplemental consolidated financial
statement totals at December 31, 1994 and 1993 and net interest
income constituting approximately 8% of the related supplemental
consolidated financial statement totals for each of the three years
in the period ended December 31, 1994. Those statements were
audited by other auditors whose reports have been furnished to us,
and our opinion, insofar as it relates to data included for the
1995 Pooled Companies, is based solely on the reports of the other
auditors.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other
auditors, the supplemental financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Hibernia Corporation and Subsidiaries at
December 31, 1994 and 1993, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1994, after giving retroactive effect to
the mergers of Hibernia Corporation and the 1995 Pooled Companies,
as described in Note 2 to the supplemental consolidated financial
statements, in conformity with generally accepted accounting
principles.
As discussed in Notes 4 and 14, in 1993 the Company changed its
method of accounting for debt securities and income taxes.
s/ERNST & YOUNG LLP
New Orleans, Louisiana
January 9, 1995, except for the
poolings of interests with the 1995 Pooled Companies
described in Note 2, as to which the date is
July 1, 1995
<PAGE>
<TABLE>
Supplemental Consolidated Balance Sheets
Hibernia Corporation and Subsidiaries
<CAPTION>
December 31 ($ in thousands) 1994 1993
<S> <C> <C>
Assets
Cash and due from banks $380,895 $290,061
Short-term investments 205,143 304,931
Securities available for sale 583,614 726,893
Securities held to maturity (estimated fair values 1994 and
1993: $1,759,679 and $2,031,427, respectively) 1,831,429 1,996,917
Loans, net of unearned income 3,620,549 3,173,270
Reserve for possible loan losses (152,598) (176,971)
Loans, net 3,467,951 2,996,299
Bank premises and equipment 117,966 111,627
Customers' acceptance liability 4,589 11,800
Other assets 187,756 214,828
Total assets $6,779,343 $6,653,356
Liabilities
Deposits:
Demand, noninterest-bearing $1,128,091 $1,100,976
Interest-bearing 4,772,902 4,620,018
Total deposits 5,900,993 5,720,994
Short-term borrowings 160,218 157,369
Liability on acceptances 4,589 11,800
Payables arising from securities transactions not yet settled - 50,875
Other liabilities 109,716 121,829
Debt 11,846 38,698
Total liabilities 6,187,362 6,101,565
Shareholders' equity
Preferred stock, no par value:
Authorized - 100,000,000 shares; issued and outstanding - none - -
Class A common stock, no par value:
Authorized - 200,000,000 shares; issued 119,152,347 and
118,459,820 at December 31, 1994 and 1993, respectively 228,772 227,443
Surplus 377,569 374,265
Retained earnings (deficit) 11,996 (63,220)
Treasury stock at cost, 300,000 shares (2,414) -
Unrealized gains (losses) on securities available for sale (23,942) 13,703
ESOP commitment - (400)
Total shareholders' equity 591,981 551,791
Total liabilities and shareholders' equity $6,779,343 $6,653,356
See notes to supplemental consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Supplemental Consolidated Income Statements
Hibernia Corporation and Subsidiaries
<CAPTION>
Year Ended December 31 ($ in thousands, except per share data) 1994 1993 1992
<S> <C> <C> <C>
Interest income
Interest and fees on loans $290,504 $265,169 $333,507
Interest on securities available for sale 43,112 48,294 57,031
Interest on securities held to maturity 107,830 104,546 84,152
Trading account interest 22 33 99
Interest on time deposits in domestic banks 182 727 890
Interest on federal funds sold and securities
purchased under agreements to resell 7,075 9,979 16,503
Total interest income 448,725 428,748 492,182
Interest expense
Interest on deposits 157,106 141,976 194,866
Interest on short-term borrowings 5,812 4,043 6,912
Interest on debt 2,595 4,407 14,722
Total interest expense 165,513 150,426 216,500
Net interest income 283,212 278,322 275,682
Provision for possible loan losses (18,069) (3,246) 71,557
Net interest income after provision for
possible loan losses 301,281 281,568 204,125
Noninterest income
Service charges on deposits 44,515 41,211 42,871
Other service, collection and exchange charges 21,067 20,495 18,863
Trust fees 12,420 13,314 12,860
Loss on sale of Texas Bank - - (2,934)
Other operating income 11,389 10,501 15,694
Securities gains (losses), net (2,451) 285 17,619
Total noninterest income 86,940 85,806 104,973
Noninterest expense
Salaries and employee benefits 125,426 114,301 113,288
Occupancy expense, net 27,060 25,973 28,413
Equipment expense 16,894 14,369 16,376
Data processing expense 21,092 18,352 19,841
Foreclosed property expense, net (7,120) 9,163 27,830
Amortization of intangibles 23,231 8,446 10,344
Provision for data processing enhancements - 11,991 -
Other operating expense 80,463 86,667 78,830
Total noninterest expense 287,046 289,262 294,922
Income before income taxes, extraordinary items and
cumulative effect of accounting changes 101,175 78,112 14,176
Income tax expense 5,558 11,266 6,734
Income before extraordinary items and
cumulative effect of accounting changes 95,617 66,846 7,442
Extraordinary loss on debt restructurings, net of tax (597) (143) (39,179)
Utilization of net operating loss carryforwards - - 6,181
Cumulative effect of change in accounting for income taxes - 3,009 -
Net income (loss) $95,020 $69,712 ($25,556)
Income (loss) per share
Income before extraordinary items and cumulative effect of
accounting changes $0.81 $0.57 $0.12
Extraordinary loss on debt restructurings, net of tax (0.01) - (0.61)
Utilization of net operating loss carryforwards - - 0.09
Cumulative effect of change in accounting for income taxes - 0.02 -
Net income (loss) per share $0.80 $0.59 ($0.40)
See notes to supplemental consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Hibernia Corporation and Subsidiaries
<CAPTION>
Unrealized
Shares of Shares of Gains(Losses)
Preferred Common Retained on Securities
(in thousands, Stock Stock Preferred Common Earnings Treasury Available ESOP
except per-share data) Outstanding Outstanding Stock Stock Surplus (Deficit) Stock for Sale Commitment Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1991 - 63,113 $ $121,177 $243,037 ($98,394)$ $ - ($720) $265,100
Net loss for 1992 - - - - - (25,556) - - - (25,556)
Issuance of preferred stock in
debt-restructuring 21,818 - 60,000 - 50,472 - - - - 110,472
Issuance of purchase warrants in
debt-restructuring - - - - 4,304 - - - - 4,304
Conversion of preferred stock
to common stock (21,818) 22,091 (60,000) 42,416 17,584 - - - - -
Issuance of common stock:
Dividend Reinvestment Plan - 14 - 26 38 - - - - 64
Employee Benefit Plan - 12 - 24 37 - - - - 61
Rights offering - 21,677 - 41,619 37,588 - - - - 79,207
Debt conversion - 10,338 - 19,848 20,079 - - - - 39,927
Cash dividends declared:
By pooled companies prior
to merger - - - - - (4,066) - - - (4,066)
Reduction of ESOP commitment - - - - - - - - 126 126
Other - - - - (90) 12 - - - (78)
Balances at December 31, 1992 - 117,245 - 225,110 373,049 (128,004) - - (594) 469,561
Net income for 1993 - - - - - 69,712 - - - 69,712
Issuance of common stock:
Dividend Reinvestment Plan - 32 - 62 167 - - - - 229
Stock Option Plan - 32 - 61 95 - - - - 156
Exercise of purchase warrants - 1,151 - 2,210 955 - - - - 3,165
Cash dividends declared:
Common ($.03 per share) - - - - - (2,508) - - - (2,508)
By pooled companies prior
to merger - - - - - (2,410) - - - (2,410)
Cumulative effect of change in
accounting for securities
available for sale - - - - - - - 13,703 - 13,703
Reduction of ESOP commitment - - - - - - - - 194 194
Other - - - - (1) (10) - - - (11)
Balances at December 31, 1993 - 118,460 - 227,443 374,265 (63,220) - 13,703 (400) 551,791
Net income for 1994 - - - - - 95,020 - - - 95,020
Issuance of common stock:
Dividend Reinvestment Plan - 226 - 433 1,340 - - - - 1,773
Stock Option Plan - 18 - 36 67 - - - - 103
Exercise of purchase warrants - 448 - 860 372 - - - - 1,232
By pooled companies prior
to merger - - - - 1,542 - - - - 1,542
Cash dividends declared:
Common ($.19 per share) - - - - - (17,353) - - - (17,353)
By pooled companies prior
to merger - - - - - (2,465) - - - (2,465)
Acquisition of treasury stock - (300) - - - - (2,414) - - (2,414)
Change in unrealized gains
(losses) on securities
available for sale - - - - - - - (37,645) - (37,645)
Reduction of ESOP commitment - - - - - - - - 400 400
Other - - - - (17) 14 - - - (3)
Balances at December 31, 1994 - 118,852 $ $228,772 $377,569 $11,996 ($2,414) ($23,942) $ - $591,981
See notes to supplemental consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
Hibernia Corporation and Subsidiaries
<CAPTION>
Year Ended December 31 ($ in thousands) 1994 1993 1992
<S> <C> <C> <C>
Operating Activities
Net income (loss) $95,020 $69,712 ($25,556)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Extraordinary loss on debt restructuring, net of tax 597 143 39,179
Provision for possible loan losses (18,069) (3,246) 71,557
Amortization of intangibles and deferred charges 23,292 8,917 10,666
Depreciation and amortization 15,159 14,582 17,776
Premium amortization, net of discount accretion 14,671 19,536 10,003
Realized investment securities (gains) losses 2,451 (285) (17,619)
Provision for data processing enhancements - 11,991 -
Gain on sale of assets (5,689) (5,272) (2,438)
Provision for losses on foreclosed and other assets 2,348 14,884 30,061
Decrease (increase) in deferred income tax assets (20,989) (7,989) 1,229
Decrease in interest receivable and other assets 2,043 3,468 45,301
Increase (decrease) in interest payable and other liabilities (11,716) 16,899 7,927
Net Cash Provided By Operating Activities 99,118 143,340 188,086
Investing Activities
Purchases of securities for held to maturity portfolio (275,622) (1,220,009) (1,309,150)
Purchases of securities for available for sale portfolio (291,230) (185,438) -
Proceeds from sales of securities from available for sale portfolio 151,831 33,275 480,660
Maturities of securities from held to maturity portfolio 430,390 540,765 516,636
Maturities of securities from available for sale portfolio 187,756 236,657 -
Net decrease (increase) in loans (703,035) (113,236) 600,354
Proceeds from sales of loans 250,333 66,074 98,767
Proceeds from sale of Texas Bank, net of $146,237 cash sold - - (88,237)
Net cash paid to acquire bank - (2,815) -
Purchases of premises, equipment and other assets (25,629) (12,974) (13,666)
Proceeds from sales of foreclosed assets 29,154 43,186 55,357
Proceeds from sales of premises, equipment and other assets 163 2,553 24,353
Net Cash (Used) Provided By Investing Activities (245,889) (611,962) 365,074
Financing Activities
Net increase (decrease) in domestic deposits 149,412 35,016 (395,745)
Net increase (decrease) in time deposits - foreign office 30,587 1,722 (311)
Net increase (decrease) in short-term borrowings 2,849 27,714 (12,430)
Proceeds from issuance of debt 584 18,562 11,518
Payments on debt (28,033) (19,474) (9,888)
Issuance of common stock 4,650 3,550 77,705
Dividends paid (19,818) (4,918) (4,066)
Acquisition of treasury stock (2,414) - -
Net Cash Provided (Used) By Financing Activities 137,817 62,172 (333,217)
Increase (Decrease) in Cash and Cash Equivalents (8,954) (406,450) 219,943
Cash and Cash Equivalents at Beginning of Year 594,992 1,001,442 781,499
Cash and Cash Equivalents at End of Year $586,038 $594,992 $1,001,442
Supplemental Disclosures
Cash paid (received) during the year for:
Interest expense $167,808 $150,044 $225,180
Income taxes $23,359 $15,805 ($9,198)
Non-cash investing and financing activities:
Loans transferred to (from) foreclosed and other assets $(977) $6,443 $37,588
See notes to supplemental consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Hibernia Corporation and Subsidiaries
Note 1
Summary of Significant Accounting Policies
Hibernia Corporation, through its wholly owned subsidiary,
Hibernia National Bank (the Bank), provides a full array of
financial products and services, including retail, commercial,
international, mortgage and private banking, treasury management
and trust. The Bank, through its wholly owned subsidiaries, also
provides retail brokerage and alternative investments, including
mutual funds and annuities.
The accounting principles followed by Hibernia Corporation and
Subsidiaries (the Company or Hibernia) and the methods of applying
those principles conform with generally accepted accounting
principles and those generally practiced.
Consolidation
The supplemental consolidated financial statements include the
accounts of Hibernia Corporation (the Parent Company) and its
wholly owned subsidiaries, Hibernia National Bank and Zachary
Taylor Life Insurance Company, for all periods presented and the
accounts of Hibernia National Bank in Texas (the Texas Bank) from
August 24, 1989, the date of acquisition, to June 30, 1992. The
consolidated financial statements include the Parent Company's
equity investment in the Texas Bank from June 30, 1992, to the date
of its sale, December 31, 1992.
The Company's previously issued consolidated financial
statements gave retroactive effect to the mergers of Hibernia
Corporation with Commercial Bancshares, Inc. (on July 1, 1994),
Bastrop National Bank (on July 1, 1994), First Bancorp of
Louisiana, Inc. (on August 1, 1994), First Continental Bancshares,
Inc. (on August 1, 1994), Pioneer Bancshares Corporation (on
December 31, 1994) and First State Bank and Trust Company (on
December 31, 1994) which have been accounted for using the pooling-
of-interests method. These supplemental consolidated financial
statements give retroactive effect to the mergers of Hibernia
Corporation with American Bank (on March 1, 1995), STABA
Bancshares, Inc. (on May 1, 1995), Progressive Bancorporation, Inc.
(on July 1, 1995), and Bank of St. John (on July 1, 1995), which
have each been accounted for using the pooling-of-interests method.
These supplemental consolidated financial statements will become
the primary historical financial statements upon issuance of
financial statements that include the date of consummation.
All significant intercompany transactions and balances have
been eliminated.
Securities
At December 31, 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115
requires the classification of securities into one of three
categories: Trading, Available for Sale, or Held to Maturity.
Management determines the appropriate classification of debt
securities at the time of purchase and re-evaluates this
classification periodically. Trading account securities are held
for resale in anticipation of short-term market movements. Debt
securities are classified as held to maturity when the Company has
the positive intent and ability to hold the securities to maturity.
Securities not classified as held to maturity or trading are
classified as available for sale.
Trading account securities are carried at market value and are
included in short-term investments. Gains and losses, both
realized and unrealized, are reflected in earnings. Held to
maturity securities are stated at amortized cost. Available for
sale securities are stated at fair value, with unrealized gains and
losses, net of tax, reported in a separate component of
shareholders' equity.
The amortized cost of debt securities classified as held to
maturity or available for sale is adjusted for amortization of
premiums and accretion of discounts to maturity or, in the case of
mortgage-backed securities, over the estimated life of the
security. Amortization, accretion and accruing interest are
included in interest income on securities using the level yield
method. Realized gains and losses, and declines in value judged to
be other than temporary, are included in net securities gains
(losses). The cost of securities sold is determined based on the
specific identification method.
Loans
Loans are stated at the principal amounts outstanding, less
unearned income and the reserve for possible loan losses. Interest
on loans and accretion of unearned income are computed by methods
which approximate a level rate of return on recorded principal.
Loan origination and commitment fees and certain direct loan
origination costs are deferred, and the net amount is amortized as
an adjustment of the related loan's yield over the life of the
loan.
Commercial loans are placed in nonaccrual status when, in
management's opinion, there is doubt concerning full collectibility
of both principal and interest. Consumer loans are placed in
nonaccrual status when any payment of principal or interest is more
than 120 days delinquent. Interest payments received on nonaccrual
loans are applied to principal if there is doubt as to the
collectibility of the principal; otherwise, these receipts are
recorded as interest income. A loan remains in nonaccrual status
until it is current as to principal and interest, and the borrower
demonstrates its ability to fulfill the contractual obligation.
Reserve for Possible Loan Losses
The reserve for possible loan losses is maintained to provide
for possible losses inherent in the loan portfolio. The reserve is
based on management's estimate of future losses; actual losses may
vary from the current estimate. The estimate is reviewed
periodically, taking into consideration the risk characteristics of
the loan portfolio, past loss experience, general economic
conditions and other factors which deserve current recognition. As
adjustments to the estimate of future losses become necessary, they
are reflected as a provision (positive or negative) for possible
loan losses in current-period earnings. Actual loan losses are
deducted from and subsequent recoveries are added to the reserve.
Foreclosed Assets
Foreclosed assets include real estate and other collateral
acquired upon the default of loans and in-substance foreclosures.
Foreclosed assets are recorded at fair value of the assets acquired
less estimated selling cost. Losses arising from the initial
reduction of the outstanding loan amount to fair value are deducted
from the reserve for possible loan losses. A valuation reserve for
foreclosed assets is maintained for subsequent valuation
adjustments on a specific-property basis. Income and expenses
associated with foreclosed assets prior to sale are included in
current earnings.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less allowances
for depreciation and amortization. Depreciation and amortization
are computed primarily using the straight-line method over the
estimated useful lives of the assets, which generally are 10 to 40
years for buildings and 3 to 15 years for equipment, and over the
shorter of the lease terms or the estimated lives of the leasehold
improvements.
Excess of Cost Over Fair Value of Net Assets Acquired
The excess of cost over the fair value of net assets acquired
(goodwill) is being amortized using the straight-line method over
the estimated periods benefited, generally 15 years.
As events or changes in circumstances warrant, the Company
evaluates the realizability of goodwill by geographic region based
on a comparison of the recorded balance of goodwill to the
applicable discounted cumulative net income before goodwill
amortization expense over the remaining amortization period of the
associated goodwill. To the extent that impairment exists, write
downs to realizable value are recorded.
Income Taxes
Effective January 1, 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes" which uses the liability method in
accounting for income taxes. Under this method deferred tax assets
and liabilities are based on differences between the financial
reporting and tax bases of assets and liabilities. The tax effect
of these differences is measured using enacted tax rates and laws
that will be in effect when the differences are expected to
reverse. Prior to the adoption of SFAS No. 109, income tax expense
was determined using the deferred method. Deferred tax expense was
based on items of income and expense that were reported in
different years in the financial statements and tax returns and was
measured at the tax rate in effect in the year the difference
originated.
The Company files a consolidated federal income tax return.
The Bank is subject to a Louisiana shareholder tax which is based
partly on income. The income portion is reported as state income
tax. In addition, certain subsidiaries of the Parent Company and
the Bank are subject to Louisiana state income tax.
Cash Flows
Cash and cash equivalents include cash and due from banks,
interest-bearing time deposits in domestic banks and federal funds
sold and securities purchased under agreements to resell.
Reclassification
Certain items included in the consolidated financial
statements for 1993 and 1992 have been reclassified to conform with
the 1994 presentation.
Note 2
Mergers
The Company completed mergers with the following six Louisiana financial
institutions in 1994: Commercial Bancshares, Inc. (Commercial), Bastrop
National Bank (Bastrop), First Bancorp of Louisiana, Inc. (First Bancorp), First
Continental Bancshares, Inc. (First Continental), Pioneer Bancshares Corporation
(Pioneer) and First State Bank and Trust Company (First State). The Company's
mergers with these institutions, which are collectively referred to as the 1994
Pooled Companies, were accounted for as poolings of interests. The Company
completed mergers with the following four Louisiana financial institutions in
1995: American Bank (American), STABA Bancshares, Inc. (STABA), Progressive
Bancorporation, Inc. (Progressive) and Bank of St. John (St. John). The
Company's mergers with these institutions, which are collectively referred to
as the 1995 Pooled Companies, were accounted for as poolings of interests.
The 1994 Pooled Companies and the 1995 Pooled Companies are collectively
referred to as the Pooled Companies.
The following table shows the merger date, Hibernia shares issued and the
exchange ratio for each merger.
<TABLE>
<CAPTION>
Merger Hibernia Exchange
date shares issued ratio
<S> <C> <C> <C>
Commercial July 1, 1994 2,367,481 8.4:1
Bastrop July 1, 1994 2,444,043 8.147:1
First Bancorp August 1, 1994 4,311,315 18.14:1
First Continental August 1, 1994 3,898,655 1.41:1
Pioneer December 31, 1994 8,370,512 30.5:1
First State December 31, 1994 3,350,000 33.5:1
American March 1, 1995 2,098,968 4.815:1
STABA May 1, 1995 2,180,133 18.33:1
Progressive July 1, 1995 2,488,249 4.0475:1
St. John July 1, 1995 3,338,700 11.129:1
</TABLE>
The following table shows the key components of the results of operations of
the previously separate entitiies for the years ended December 31, 1994, 1993
and 1992.
<TABLE>
<CAPTION>
First First First
Hibernia Commercial* Bastrop* Bancorp* Continental* Pioneer* State*
Year ended December 31, 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $260,103 - - - - - -
Extraordinary loss
on debt restructuring - - - - - - -
Net income $84,651 - - - - - -
*Results of operations for the year ended December 31, 1994 are included in Hibernia's results.
Year ended December 31, 1993
Net interest income $195,705 $6,459 $4,939 $8,248 $18,713 $16,682 $6,245
Extraordinary loss
on debt restructuring - - - - - - -
Cumulative effect
of accounting changes - $421 - - $2,622 ($261) -
Net income $47,950 $2,088 $2,050 $2,706 $3,640 $3,429 $1,981
Year ended December 31, 1992
Net interest income $197,278 $6,538 $5,179 $7,067 $18,336 $16,869 $5,807
Extraordinary gain (loss)
on debt restructuring ($56,122) $284 - - $11,345 - -
Utilization of net operating
loss carryforward - $185 - - $5,996 - -
Net income (loss) ($64,037) $2,058 $2,179 $1,945 $17,791 $2,200 $1,515
</TABLE>
<TABLE>
<CAPTION>
American STABA Progressive St. John Total
Year ended December 31, 1994
<S> <C> <C> <C> <C> <C>
Net interest income $5,206 $4,286 $7,216 $6,401 $283,212
Extraordinary loss
on debt restructuring - - ($597) - ($597)
Net income $1,920 $1,400 $4,119 $2,930 $95,020
Year ended December 31, 1993
Net interest income $4,762 $4,019 $6,630 $5,920 $278,322
Extraordinary gain
on debt restructuring - - ($143) - ($143)
Cumulative effect
of accounting changes $50 - - $177 $3,009
Net income $1,261 $1,252 $1,248 $2,107 $69,712
Year ended December 31, 1992
Net interest income $4,320 $3,556 $5,562 $5,170 $275,682
Extraordinary gain (loss)
on debt restructuring - - $5,314 - ($39,179)
Utilization of net operating
loss carryforward - - - - $6,181
Net income (loss) $1,001 $1,064 $7,127 $1,601 ($25,556)
</TABLE>
Hibernia is a party to definitive merger agreements with two additional
Louisiana financial institutions which are pending regulatory and shareholder
approval. These transactions are expected to be consumated in late 1995 or
early 1996 and are expected to be accounted for as poolings of interests.
The summary below contains information regarding institutions with which
Hibernia has entered into definitive merger agreements.
<TABLE>
<CAPTION>
($ in thousands) June 30, 1995 Estimated Consideration
Number Hibernia Value of
of Total Shares Shares
Institution Offices Assets to Be Issued to Be Issued *
<S> <C> <C> <C> <C>
FNB Bancshares, Inc. 2 $53,149 889,640 $9,341
Bunkie Bancshares, Inc. 3 109,019 1,874,760 19,685
Total 5 $162,168 2,764,400 $29,026
* Based upon an estimated market value of $10.50 per share
</TABLE>
Note 3
Short-Term Investments
The following is a summary of short-term investments:
<TABLE>
<CAPTION>
December 31
($ in thousands) 1994 1993
<S> <C> <C>
Interest-bearing time deposits in domestic banks $6,979 $11,682
Federal funds sold and securities purchased
under agreements to resell 198,164 293,249
Total short-term investments $205,143 $304,931
</TABLE>
Note 4
Securities
As discussed in Note 1, the Company adopted SFAS No. 115 effective
December 31, 1993. Prior to December 31, 1993, the Company classified
securities as held for sale securities (available for sale) and investment
securities (held to maturity) based on criteria which did not differ
significantly from that required by SFAS No. 115. Held for sale securities were
recorded at the lower of cost or fair value. A summary of securities classified
as available for sale and held to maturity is presented below.
<TABLE>
<CAPTION>
($ in thousands) December 31, 1994
Amortized Fair Unrealized Unrealized
Type Cost Value Gains Losses
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasuries $15,739 $15,471 $29 $297
U.S. Government Agencies:
Mortgage-backed securities 393,699 379,349 825 15,175
Other 148,205 139,158 36 9,083
Other 49,913 49,636 145 422
Total available for sale $607,556 $583,614 $1,035 $24,977
Held to maturity:
U.S. Treasuries $538,006 $528,927 $46 $9,125
U.S. Government Agencies:
Mortgage-backed securities 1,095,774 1,041,466 643 54,951
Other 151,236 144,268 37 7,005
States and political subdivisions 46,413 45,018 306 1,701
Total held to maturity $1,831,429 $1,759,679 $1,032 $72,782
($ in thousands) December 31, 1993
Amortized Fair Unrealized Unrealized
Type Cost Value Gains Losses
Available for sale:
U.S. Treasuries $107,384 $108,810 $1,454 $28
U.S. Government Agencies:
Mortgage-backed securities 495,836 507,142 11,376 70
Other 92,536 93,014 702 224
Other 17,434 17,927 493 -
Total available for sale $713,190 $726,893 $14,025 $322
Held to maturity:
U.S. Treasuries $594,437 $608,411 $14,227 $253
U.S. Government Agencies:
Mortgage-backed securities 1,187,509 1,203,946 20,675 4,238
Other 165,170 167,375 2,574 369
States and political subdivisions 41,824 43,718 2,059 165
Other 7,977 7,977 - -
Total held to maturity $1,996,917 $2,031,427 $39,535 $5,025
</TABLE>
Realized gains and losses from the sale of
available for sale securities are summarized below:
<TABLE>
<CAPTION>
Year Ended December 31
($ in thousands) 1994 1993 1992
<S> <C> <C> <C>
Realized gains $3,766 $383 $17,848
Realized losses (6,217) (98) (229)
Net realized
(losses) gains ($2,451) $285 $17,619
</TABLE>
Securities with carrying values of $1,575,372,000 and
$1,462,551,000 at December 31, 1994 and 1993, respectively,
were either pledged to secure public and trust deposits or
sold under repurchase agreements.
<TABLE>
<CAPTION>
December 31
($ in thousands) 1994 1993
<S> <C> <C>
Available for sale:
U.S. Treasuries $8,126 $48,522
U.S. government agencies:
Mortgage-backed securities 264,500 182,063
Agencies 33,174 27,881
Other - 1,015
Total available for sale 305,800 259,481
Held to maturity:
U.S. Treasuries 372,516 460,455
U.S. government agencies:
Mortgage-backed securities 840,314 694,526
Other 49,788 39,396
States and political subdivisions 6,954 8,693
Total held to maturity 1,269,572 1,203,070
Total carrying value of
securities pledged $1,575,372 $1,462,551
</TABLE>
The carrying amount and estimated fair value by maturity of
securities held to maturity and available for sale are shown below.
Securities are classified according to their contractual maturity
without consideration of principal amortization, potential
prepayments or call options. Accordingly, actual maturities may
differ from contractual maturities.
<TABLE>
<CAPTION>
December 31, 1994
Amortized Fair
($ in millions) Cost Value
<S> <C> <C>
Due in 1 year or less $246.5 $242.4
Due after 1 year through 5 years 468.8 456.2
Due after 5 years through 10 years 44.2 42.8
Due after 10 years 1,071.9 1,018.3
Total held to maturity $1,831.4 $1,759.7
December 31, 1994
Amortized Fair
($ in millions) Cost Value
Due in 1 year or less $51.8 $51.6
Due after 1 year through 5 years 63.2 60.5
Due after 5 years through 10 years 67.4 64.5
Due after 10 years 425.2 407.0
Total available for sale $607.6 $583.6
</TABLE>
Note 5
Loans
The following is a summary of commercial loans classified
by repayment source and consumer loans classified by type:
<TABLE>
<CAPTION>
December 31
($ in thousands) 1994 1993
<S> <C> <C>
Energy-related $94,154 $68,455
Transportation, communications
and utilities 114,791 112,625
Commercial real estate 487,431 458,751
Health care 214,686 213,813
Services 288,591 264,921
Commercial and industrial 652,211 590,017
Other commercial 97,361 82,192
Total commercial 1,949,225 1,790,774
Residential mortgage 810,308 767,835
Indirect 486,030 307,074
Student 92,741 74,526
Revolving credit 74,552 53,506
Other 207,693 179,555
Total consumer 1,671,324 1,382,496
Total loans $3,620,549 $3,173,270
</TABLE>
The following is a summary of nonperforming loans
and foreclosed assets:
<TABLE>
<CAPTION>
December 31
($ in thousands) 1994 1993
<S> <C> <C>
Nonaccrual loans $14,184 $63,760
Restructured loans 6,024 3,348
Nonperforming loans $20,208 $67,108
Foreclosed assets $16,022 $39,697
</TABLE>
Interest income in the amount of $4,886,000 for 1994,
$9,243,000 for 1993 and $18,325,000 for 1992 would have been
recorded on nonperforming loans if they had been classified as
performing. The Company recorded $3,366,000, $2,627,000 and
$1,640,000 of interest income on nonperforming loans during 1994,
1993 and 1992, respectively.
In May 1993, the Financial Accounting Standards Board (FASB)
issued SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," which the Company will adopt effective January 1, 1995.
SFAS No. 114 was amended by SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures" in
October 1994. Among other things, SFASs No. 114 and No. 118
require that an impaired loan be measured based on discounted
future cash flows, observable market price or fair value of the
collateral. As it relates to in-substance foreclosures, SFAS No.
114 requires that a creditor continue to follow loan classification
on the balance sheet unless the creditor receives physical
possession of the collateral. Accordingly, upon adoption of SFAS
No. 114, $6,875,000 of in-substance foreclosures will be
transferred from foreclosed property to nonperforming loans. The
adoption of SFASs No. 114 and No. 118 is not expected to have a
material impact on the financial condition or operating results of
the Company.
The following is a summary of activity in the reserve
for possible loan losses:
<TABLE>
<CAPTION>
Year Ended December 31
($ in thousands) 1994 1993 1992
<S> <C> <C> <C>
Balance at beginning of year $176,971 $203,955 $227,674
Loans charged off (24,283) (42,082) (97,456)
Recoveries 17,979 17,985 17,687
Net loans charged off (6,304) (24,097) (79,769)
Provision for possible loan losses (18,069) (3,246) 71,557
Added through acquisition of bank - 359 -
Reduction due to sale of Texas Bank - - (15,506)
Balance at end of year $152,598 $176,971 $203,955
</TABLE>
Note 6
Related-Party Transactions
Certain directors and officers of the Company, members of
their immediate families and entities in which they or members of
their immediate families have principal ownership interests are
customers of and have other transactions with the Company in the
ordinary course of business. Loans to these parties are made on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
third-party transactions and do not involve more than normal risks
of collectibility or present other unfavorable features.
Loans to related parties were $44,744,000 and $24,355,000 at
December 31, 1994 and 1993, respectively. The change during 1994
reflects $153,071,000 in new loans and $132,682,000 of repayments.
These amounts do not include loans made in the ordinary course of
business to other entities with which the Company has no
relationship, other than a director of the Company being a director
of the other entity, unless the director had the ability to
significantly influence the other entity.
Securities sold to related parties under repurchase agreements
amounted to $5,241,000 and $9,968,000 at December 31, 1994 and
1993, respectively. During 1993, the Company sold $22,700,000 of
mortgage loan pools to a related party at carrying value, which
approximated fair value.
The subordinated debentures totaling $879,000 at December 31,
1994 and 1993, and the unsecured notes payable totaling $1,155,000
at December 31, 1994 and 1993, were acquired through merger with
Pioneer Bancshares Corporation and are held by individuals who are
related to the former chairman of Pioneer Bancshares Corporation,
who is now an executive officer and director of Hibernia.
Note 7
<TABLE>
Bank Premises and Equipment
<CAPTION>
December 31
($ in thousands) 1994 1993
<S> <C> <C>
Land $24,958 $24,733
Bank premises 88,880 81,774
Leasehold improvements 31,722 28,403
Furniture and equipment 109,183 98,429
254,743 233,339
Less allowance for depreciation
and amortization (136,777) (121,712)
Total $117,966 $111,627
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
($ in thousands) 1994 1993 1992
Provisions for depreciation
and amortization included in:
<S> <C> <C> <C>
Occupancy expense $7,055 $6,283 $5,117
Equipment expense 9,666 8,126 9,648
Total $16,721 $14,409 $14,765
</TABLE>
Note 8
Time Deposits
Domestic certificates of deposit of $100,000 or more amounted
to $769,994,000 and $777,189,000 at December 31, 1994 and 1993,
respectively. Interest on these certificates amounted to
$34,424,000, $28,288,000 and $37,642,000 in 1994, 1993 and 1992,
respectively.
Foreign deposits, which are deposit liabilities of the Cayman
Island office of the Bank, were $34,004,000 and $3,417,000 at
December 31, 1994 and 1993, respectively. Interest expense on
foreign deposits amounted to $794,000, $149,000 and $71,000 for
1994, 1993 and 1992, respectively.
Note 9
Debt
The following is a summary of outstanding debt, all of which
was acquired through mergers.
<TABLE>
<CAPTION>
December 31
($ in thousands) 1994 1993
<S> <C> <C>
Hibernia Corporation:
Subordinated debentures to related parties,
bearing interest at 6%,
maturing in 1995 $879 $879
Unsecured notes payable to related
parties, bearing interest at 6%,
maturing in 1995 1,155 1,155
Senior secured notes payable,
bearing interest at 10.75% - 5,884
Mandatory convertible
subordinated debentures,
bearing interest at 12% - 6,000
Convertible subordinated debentures,
bearing interest at 10% - 800
Notes payable to a bank, bearing
interest at floating rates - 11,214
Note payable to an affiliated group,
bearing interest at 17% - 2,892
Employee Stock Ownership Plan,
bearing interest at prime - 400
Hibernia National Bank:
Federal Home Loan Bank advances 9,812 9,474
Total $11,846 $38,698
</TABLE>
During 1994, the Company retired debt acquired through
mergers, at or immediately following the legal mergers, except for
the Federal Home Loan Bank (FHLB) advances and the subordinate
debentures and certain unsecured notes payable to related parties.
Certain acquired debt which was retired was secured by the common
stock of various subsidiaries of the pooled companies.
The FHLB advances were obtained to fund certain mortgage loans
which totaled $4,122,000 at December 31, 1994 and secure the
advances. The advances are also secured by the Company's
investment in FHLB stock and a blanket floating lien on portions of
its residential loan portfolio which totaled $21,456,000 and
$12,672,000, respectively, at December 31, 1994. The advances
accrue interest at contractual rates of 4.6% to 6.9%, are due in
monthly installments of approximately $116,000, including interest,
and are scheduled to amortize through various dates between 1995
and 2009. However, should the loans for which the advances were
obtained repay at a faster rate than anticipated, the advances are
to be repaid at a correspondingly faster rate.
Maturities of debt for the next five years are as follows:
1995 - $4,529,000; 1996 - $995,000; 1997 - $1,009,000; 1998 -
$756,000; 1999 - $730,000 and thereafter - $3,827,000.
Note 10
<TABLE>
Other Assets and Other Liabilities
<CAPTION>
December 31
($ in thousands) 1994 1993
<S> <C> <C>
Other assets:
Accrued interest receivable $56,821 $56,723
Deferred income taxes 43,416 22,547
Goodwill 22,140 44,315
Foreclosed assets 16,022 39,697
Purchased mortgage servicing rights 4,027 4,270
Other 45,330 47,276
Total other assets $187,756 $214,828
Other liabilities:
Accrued interest payable $21,834 $24,069
Reserve for future rental
payments under sale/leaseback 20,992 21,155
Trade accounts payable and
accrued liabilities 56,362 54,334
Other 10,528 22,271
Total other liabilities $109,716 $121,829
</TABLE>
Amortization relating to goodwill totaled $22,175,000,
$5,103,000 and $5,946,000 for the years ended December 31, 1994,
1993 and 1992, respectively. Accumulated amortization at December
31, 1994 and 1993 totaled $61,700,000 and $39,525,000,
respectively.
In 1994, amortization expense included a $16,142,000 charge
for the impairment of goodwill associated with acquisitions
consummated in the mid- to late - 1980's. As the result of a new
organizational structure implemented during the third quarter of
1994, management conducted an analysis which estimated the
discounted cumulative net income for each primary geographic region
over the remaining amortization period of the associated goodwill
of approximately nine years. Purchase prices for these
acquisitions which gave rise to the recorded goodwill reflected
management's intent at the time to generate efficiencies by merging
the operations of the acquired institutions and increasing market
share from the resulting base. The analysis indicated that
projected performance of the Company's existing franchise in two
regions would not be adequate to support the remaining unamortized
goodwill resulting from previous acquisitions. The impaired
goodwill was written off in one instance, and written down to
realizable value in another. In addition, $1,449,000 of goodwill
previously recorded by one of the pooled companies was written off
during 1994.
Note 11
Per-Share Data
Income (loss) per common share data are based on the weighted
average number of shares outstanding of 118,594,923; 118,023,185
and 64,456,335 in 1994, 1993 and 1992, respectively. In accordance
with pooling-of-interests accounting, the common stock issued in
all mergers consummated in 1994 and 1995 is considered to be
outstanding as of January 1, 1992, the beginning of the earliest
period presented.
Note 12
Employee Benefit Plans
The Company maintains a defined-contribution benefit plan
under Section 401(k) of the Internal Revenue Code, the Retirement
Security Plan (RSP). Substantially all employees who have
completed one year of service are eligible to participate in the
RSP. Under the RSP, employees contribute a portion of their
regular compensation, with the Company matching a certain portion
of employee contributions. Matching contributions are charged to
employee benefits expense. At December 31, 1994, the RSP owned
1,008,000 shares of Class A Common Stock. The Company's
contributions to the RSP totaled $1,361,000 in 1994, $1,321,000 in
1993 and $881,000 in 1992.
The Company maintains incentive bonus programs for key
employees. Costs of the incentive bonus programs were $7,263,000,
$4,610,000 and $2,977,000 for the years ended December 31, 1994,
1993 and 1992, respectively.
During 1993, the Company established a plan for grant of
performance share awards under its Long-Term Incentive Plan for
certain members of management. Under this plan, if the Company
achieved certain predetermined performance goals during the
two-year period from January 1, 1993 through December 31, 1994, the
Company would award common stock to certain members of management
who contributed to that achievement. Approximately 371,100 shares
of common stock were awarded in early 1995 in accordance with the
terms of the plan as a result of the Company having met
substantially all of the goals. Compensation expense of $1,477,000
and $1,619,000 was recorded relating to the performance share
awards in 1994 and 1993, respectively.
In November 1992, the FASB issued SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." SFAS No. 112, which
became effective January 1, 1994, requires accrual-based accounting
for the cost of benefits provided to former or inactive employees
subsequent to their employment but before retirement. The adoption
of SFAS No. 112 did not have a material effect.
First Bancorp of Louisiana, Inc., which merged with the
Company on August 1, 1994, maintained an Employee Stock Ownership
Plan (ESOP). The ESOP, which remained in existence subsequent to
the merger, covers substantially all First Bancorp employees who
qualified as to age and length of service. Upon completion of five
years of service participants are fully vested in their account.
Expense relating to this ESOP of $79,000, $466,000 and $135,000 is
included in the consolidated income statements for the years ended
December 31, 1994, 1993 and 1992, respectively.
At December 31, 1993, the ESOP had a note payable to an
unaffiliated bank in the amount of $400,000, which was secured by
305,541 shares of Hibernia's common stock and guaranteed by the
Company. At December 31, 1994 and 1993, the ESOP owned 1,161,181
and 1,202,210 shares, respectively, of Hibernia common stock.
Certain of the pooled companies had adopted retention
agreements to encourage certain officers and other key employees of
the pooled companies to continue their employment through the
consummation of a merger. These agreements were executed primarily
to maintain stability within the organization and reduce the risk
of loss of key members of management prior to legal merger.
Compensation expense related to these agreements totaled
approximately $1,400,000 in 1994. At December 31, 1994, the
related liability from the 1995 poolings, totaling $ 489,000, had
not been recorded, as shareholder and regulatory approval for these
mergers had not yet been obtained. This liability was recorded and
paid during 1995.
Note 13
Stock Options
The Company's stock option plans provide incentive and
non-qualified options to various key employees and non-employee
directors to purchase shares of Class A Common Stock at no less
than the fair market value of the stock at the date of grant. All
options issued prior to 1992 became exercisable six months from the
date of grant. The remaining options granted under the 1987 Stock
Option Plan, the Long-Term Incentive Plan and the 1993 Directors'
Stock Option Plan become exercisable in the following increments:
50% after the expiration of two years from the date of grant, an
additional 25% three years from the date of grant and the remaining
25% four years from the date of grant.
Options issued to employees and directors, other than the
chief executive officer, become immediately exercisable if the
holder of the option dies while the option is outstanding. Options
granted under the 1987 Stock Option Plan generally expire 10 years
from the date granted. Options granted under the Long-Term
Incentive Plan and the 1993 Directors' Stock Option Plan do not
expire unless the holder dies, retires, becomes permanently
disabled or leaves the employ of the Company, at which time the
options expire at various times ranging from 30 to 180 days.
At December 31, 1994, shares available for grant under the
1987 Stock Option Plan, the Long-Term Incentive Plan and the 1993
Directors' Stock Option Plan amounted to 156,923; 1,125,941; and
845,000, respectively.
The table below summarizes the activity in the plans during 1992,
1993 and 1994.
<TABLE>
<CAPTION>
Incentive Non-qualified Price Range Per Share
1987 Stock Option Plan:
<S> <C> <C> <C>
Outstanding, December 31, 1991 520,431 192,006 $14.63 to $25.13
Granted 161,640 620,074 $4.19 to $5.31
Canceled (505,243) (59,701) $4.94 to $25.13
Outstanding, December 31, 1992 176,828 752,379 $4.19 to $18.80
Granted 13,913 642,152 $7.19
Canceled - (4,196) $4.94
Exercised - (31,639) $4.94
Outstanding, December 31, 1993 190,741 1,358,696 $4.19 to $18.80
Granted - 20,000 $7.88 to $8.75
Canceled - (2,978) $4.94
Exercised - (16,024) $4.94
Outstanding, December 31, 1994 190,741 1,359,694 $4.19 to $18.80
Exercisable, December 31, 1994 84,068 568,701 $4.19 to $18.80
Long-Term Incentive Plan:
Outstanding, December 31, 1992 - - -
Granted - 963,000 $5.94 to $7.75
Canceled - (58,000) $7.13 to $7.63
Outstanding, December 31, 1993 - 905,000 $5.94 to $7.75
Granted 12,598 1,676,476 $7.94 to $8.81
Canceled - (59,928) $6.88 to $7.94
Exercised - (3,000) $8.13
Outstanding, December 31, 1994 12,598 2,518,548 $5.94 to $8.81
Exercisable, December 31, 1994 - - -
1993 Directors' Stock Option Plan:
Outstanding, December 31, 1992 - - -
Granted - 75,000 $7.31
Outstanding, December 31, 1993 - 75,000 $7.31
Granted - 80,000 $7.88
Outstanding, December 31, 1994 - 155,000 $7.31 to $7.88
Exercisable, December 31, 1994 - - -
</TABLE>
Note 14
Income Taxes
As discussed in Note 1, the Company adopted SFAS No. 109 effective
January 1, 1993. As permitted by SFAS No. 109, prior-year financial statements
were not restated. The cumulative effect of the adoption of SFAS No. 109
was to increase net income by $3,009,000.
Income tax expense includes amounts currently payable and amounts deferred
to or from other years as a result of differences in the timing of recognition
of income and expense for financial reporting and federal tax purposes.
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
($ in thousands) 1994 1993 1992
<S> <C> <C> <C>
Current tax expense:
Federal income tax $23,117 $17,483 $7,455
State income tax 3,310 1,709 904
Total current tax expense 26,427 19,192 8,359
Deferred tax expense (benefit):
Federal income tax 15,717 5,581 (1,625)
Change in deferred tax valuation reserve (36,586) (13,507) -
Total deferred tax benefit (20,869) (7,926) (1,625)
Shareholders' Equity:
Cumulative effect of change in accounting
for securities available for sale - 4,796 -
Change in unrealized gains (losses) on
securities available for sale (13,176) - -
Change in deferred tax valuation reserve 13,176 (4,796) -
Total shareholders' equity - - -
Income tax expense $5,558 $11,266 $6,734
</TABLE>
The reconciliation of the federal statutory income tax rate to the
Company's effective rate can be found in the table below.
<TABLE>
<CAPTION>
Year Ended
($ in thousands) December 31, 1994
Amount Rate
<S> <C> <C>
Tax expense (benefit) based on federal statutory rate $35,411 35.0 %
Tax-exempt interest (3,244) (3.2)
Goodwill 6,706 6.6
Sale of Texas Bank - -
State income tax, net of federal benefit 2,151 2.1
Limitation on recognition of tax benefit - -
Change in deferred tax valuation reserve (36,586) (36.1)
Change in tax rate on existing temporary differences - -
Other 1,120 1.1
Income tax expense $5,558 5.5 %
Year Ended
($ in thousands) December 31, 1993
Amount Rate
Tax expense (benefit) based on federal statutory rate $27,340 35.0 %
Tax-exempt interest (3,426) (4.4)
Goodwill 1,727 2.2
Sale of Texas Bank - -
State income tax, net of federal benefit 1,103 1.4
Limitation on recognition of tax benefit - -
Change in deferred tax valuation reserve (13,507) (17.3)
Change in tax rate on existing temporary differences (2,109) (2.7)
Other 138 0.2
Income tax expense $11,266 14.4 %
Year Ended
($ in thousands) December 31, 1992
Amount Rate
Tax expense (benefit) based on federal statutory rate $4,821 34.0 %
Tax-exempt interest (4,453) (31.4)
Goodwill 1,374 9.7
Sale of Texas Bank 2,182 15.4
State income tax, net of federal benefit 559 3.9
Limitation on recognition of tax benefit 2,527 17.8
Change in deferred tax valuation reserve - -
Change in tax rate on existing temporary differences - -
Other (276) (1.9)
Income tax expense $6,734 47.5 %
</TABLE>
During 1994 and 1993, deferred income taxes were based on differences
between the basis of assets and liabilities for financial statement purposes
and tax reporting purposes, net operating loss carryforwards and alternative
minimum tax credit carryforwards. During 1992, deferred income taxes were
provided on those items that were taxable or deductible in different periods
for financial statement and federal income tax purposes. The tax effects
of the cumulative temporary differences and tax credit carryforwards which
create deferred tax assets and liabilities at December 31, 1994 and 1993, are
detailed below:
<TABLE>
<CAPTION>
($ in thousands) 1994 1993
<S> <C> <C>
Deferred tax assets:
Reserve for possible loan losses $52,048 $57,555
Unrealized loss on securities available for sale 8,380 -
Sale / leaseback 6,873 6,258
Foreclosed assets 3,203 8,399
Loan fees 2,260 2,462
Other 14,249 15,055
Alternative minimum tax credit carryforward 10,353 17,450
Regular net operating losses 268 2,096
Total deferred tax assets 97,634 109,275
Deferred tax liabilities:
Discounts on securities 507 525
Unrealized gain on securities
available for sale - 4,796
Depreciation 3,312 3,982
Purchase accounting adjustments, net 1,774 2,619
Other 3,694 6,465
Total deferred tax liabilities 9,287 18,387
Deferred tax assets net of
deferred tax liabilities 88,347 90,888
Deferred tax valuation reserve (44,931) (68,341)
Total net deferred tax asset $43,416 $22,547
</TABLE>
Management currently estimates realizability of the net
deferred tax asset based on the Company's ability to, first,
recover taxes previously paid and , second, generate taxable
income over the next 12 months. A deferred tax valuation
reserve is established to limit the net deferred tax asset to
its realizable value.
The tax effects of significant items giving rise to deferred
tax benefits in 1992 are detailed below:
<TABLE>
<CAPTION>
($ in thousands) 1992
<S> <C>
Provision for possible loan losses $2,530
Discounts on securities (90)
Foreclosed assets 1,259
Loan fees 594
Depreciation (1,154)
Sale of auto loans (3,638)
Alternative minimum tax credits (692)
Other (2,077)
Deferred tax expense (benefit) ($3,268)
</TABLE>
For federal income tax purposes, the Company has $10,353,000
in alternative minimum tax credit carryforwards at December 31,
1994, which do not expire.
During the years ended December 31, 1994, 1993 and 1992, the
Company made federal income tax payments of $23,359,000,
$15,805,000 and $8,894,000, respectively. During 1992, the Company
received $18,092,000 in income tax refunds resulting from the
carryback of a 1991 net operating loss.
The 1992 debt restructuring between the Company and bank group
discussed in Note 17 gave rise to "testing dates" under Section 382
of the Internal Revenue Code to determine if a change in ownership
of the Company had occurred. Generally, a change in ownership
occurs when the percentage of stock owned by one or more
five-percent shareholders, as defined, has increased by more than
50 percentage points over a three-year period. When a change of
this type occurs, a limitation is imposed on pre-change "built-in"
losses, as defined, net operating loss carryforwards and
alternative minimum tax credit carryforwards. Due to the issuance
of stock in connection with mergers, for purposes of Section 382,
a change in ownership of the Company occurred in 1994. However, as
of the date of the change, the Company had no pre-change "built-in"
losses. The Company's ability to utilize net operating loss
carryforwards and alternative minimum tax credit carryforwards is
not expected to be limited by this change in ownership.
Note 15
Leases
The Company leases its headquarters, operations center and
certain other bank premises and equipment under non-cancelable
operating leases which expire at various dates through 2013.
Certain of the leases have escalation clauses and renewal options
ranging from one to 30 years.
Total rental expense (none of which represents contingent
rentals) included in occupancy and equipment expense was
$10,454,000; $10,782,000 and $12,517,000 in 1994, 1993 and 1992,
respectively.
The future minimum rental commitments at December 31, 1994,
for all long-term operating leases are as follows: 1995 -
$9,124,000; 1996 - $8,368,000; 1997 - $8,014,000; 1998 -
$7,601,000; 1999 - $7,331,000 and thereafter - $57,029,000.
Note 16
<TABLE>
Other Operating Expense
<CAPTION>
Year ended December 31
($ in thousands) 1994 1993 1992
<S> <C> <C> <C>
Deposit insurance and examination fees $14,479 $16,278 $15,197
Postage 4,561 4,567 5,066
Stationery and supplies 5,171 5,123 4,871
Professional 11,046 10,329 14,752
State taxes on equity 3,310 2,745 1,872
Loan collection expense 1,777 5,051 7,411
Advertising and promotional expenses 5,732 6,374 3,487
Other 34,387 36,200 26,174
Total other operating expense $80,463 $86,667 $78,830
</TABLE>
Note 17
Recapitalization of the Company and Sale of the Texas Bank
During 1992, the Company increased shareholders' equity by
$177.8 million through the restructuring of $99.1 million in debt
and a shareholder rights offering and completed the sale of its
Texas Bank.
Debt Restructuring
On September 28, 1992, the Company completed the restructuring
of its $99.1 million debt to a group of banks. As reflected in the
following table, the existing debt was extinguished through the
issuance of securities and resulted in a non-cash extraordinary
loss for the fair value of the securities issued in excess of the
carrying value of the debt restructured.
Subsequent to the completion of a rights offering to
shareholders the bank group converted an aggregate of 21,818,182
shares of preferred stock to 22,091,443 shares of common stock.
Each bank was also issued rights to purchase additional shares of
common stock, the number to be determined by the number of shares
issued in the rights offering. The senior and subordinated debt
agreements provided that, if all shares available in the rights
offering were purchased, the banks would have the right to purchase
an aggregate of approximately 16.5 million shares. The rights
offering was fully subscribed, and the banks elected to purchase an
aggregate of 10.3 million shares through the conversion of debt and
related accrued interest.
Certain warrants issued in the restructuring have been
exercised, resulting in the issuance of approximately 448,000 and
1,151,000 shares of common stock in 1994 and 1993, respectively.
The number of shares subject to warrants outstanding and
exercisable at December 31, 1994, was approximately 213,000. The
warrants have an exercise price of $2.75 per share and expire in
September 1999.
During 1992, the former First Continental restructured its
debt with a bank resulting in a gain on extinguishment of debt of
$11,345,000 net of tax. Also during 1992, a portion of the former
Commercial's notes payable were discounted by the lending bank
resulting in a gain of $284,000 net of tax.
In May 1992, the former Progressive Bancorporation, Inc.
borrowed $2,250,000 from a group of investors affiliated with its
subsidiary bank. The loan proceeds were used to retire
Progressive's debt and accrued interest payable to the previous
lenders. The former Progressive recognized an extraordinary gain
on the retirement of the debt of approximately $5,314,000 net of
tax.
<TABLE>
COMPUTATION OF EXTRAORDINARY LOSS
<CAPTION>
($ in thousands)
<S> <C>
Securities issued:
21,818,182 shares of non-cumulative
convertible preferred stock valued at
$5.125 per share, which was the quoted
market price of Hibernia Corporation
common stock on September 28,1992 $111,818
1,812,000 common stock purchase warrants
valued at $2.375 per share, which is the
spread between the $5.125 quoted market
price of Hibernia Corporation common
stock on September 28, 1992, and the
$2.75 contractual exercise price 4,304
Senior debt, secured by all assets of the Company 26,625
Subordinated debt 12,500
Total fair value of securities issued 155,247
Less: debt restructured 99,125
Extraordinary loss on debt restructuring - Hibernia 56,122
Extraordinary gain on debt restructuring by pooled
companies prior to mergers (16,943)
Extraordinary loss on debt restructurings, net of tax $39,179
</TABLE>
Rights Offering
On November 12, 1992, the Company commenced an offering to
shareholders of record on that date to purchase 19.8 million shares
of common stock at a subscription price of $4.00 per share. The
closing market price of the Company's common stock on November 11,
1992, was $5.00 per share. The offering was fully subscribed, and
the Company issued 19.8 million shares of common stock. Certain
debtholders elected to participate in the rights offering and
purchased an additional 1.9 million shares of common stock at $4.00
per share. The Company received net proceeds from the rights
offering of $79,200,000.
Sale of the Texas Bank
On December 31, 1992, the Company sold the stock of the Texas
Bank to Comerica Incorporated. The Company received net proceeds
of $56,200,000, which is the purchase price of $58,000,000 reduced
by the dividend paid by the Texas Bank to the Parent Company in the
third quarter of 1992. The Company recorded a loss of $2,900,000
in the third quarter of 1992 in order to reduce the Parent
Company's investment in the Texas Bank to its net realizable value.
At June 30, 1992, the carrying values of the assets and
liabilities of the Texas Bank were $910.2 million and $848.2
million, respectively. The revenues and expenses of the Texas Bank
(before eliminations) shown in the table below are included in the
Consolidated Income Statements on a fully consolidated basis for
the first six months of 1992.
<TABLE>
Condensed Income Statement
Hibernia National Bank in Texas
<CAPTION>
Six Months
Ended June 30
($ in thousands) 1992
<S> <C>
Interest Income $36,132
Interest Expense 15,974
Net interest income 20,158
Provision for possible loan losses 3,125
Net interest income after provision 17,033
Noninterest income 5,316
Noninterest expense 19,939
Income before income taxes 2,410
Income tax expense 1,009
Net income $1,401
</TABLE>
Note 18
Hibernia Corporation
(Parent Company Only)
<TABLE>
BALANCE SHEETS
<CAPTION>
December 31
($ in thousands) 1994 1993
<S> <C> <C>
Investment in subsidiaries $565,391 $548,276
Other assets 48,506 69,544
Total assets $613,897 $617,820
Current liabilities $17,147 $36,805
Debt 4,769 29,224
Shareholders' equity 591,981 551,791
Total liabilities and
shareholders' equity $613,897 $617,820
</TABLE>
<TABLE>
INCOME STATEMENTS
<CAPTION>
Year Ended December 31
($ in thousands) 1994 1993 1992
<S> <C> <C> <C>
Equity in undistributed income
of subsidiaries $55,201 $74,107 $21,024
Dividends from subsidiaries 43,294 11,947 7,969
Other income 2,288 2,297 (3,429)
Total income 100,783 88,351 25,564
Interest expense 2,229 4,186 14,293
Other expense 6,785 13,507 6,263
Total expense 9,014 17,693 20,556
Income before taxes, extraordinary
items and accounting change 91,769 70,658 5,008
Income tax benefit (3,848) (371) (2,355)
Income before extraordinary items and
cumulative effect of accounting change 95,617 71,029 7,363
Extraordinary loss on debt restructurings,
net of tax (597) (143) (39,179)
Utilization of NOL carryforwards - - 6,260
Cumulative effect of accounting change - (1,174) -
Net income (loss) $95,020 $69,712 ($25,556)
</TABLE>
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31
($ in thousands) 1994 1993 1992
<S> <C> <C> <C>
Operating Activities
Net income (loss) $95,020 $69,712 ($25,556)
Non-cash adjustment for equity
in subsidiaries' undistributed
net income (55,201) (74,107) (21,024)
Extraordinary loss on
debt restructuring 597 143 39,179
Other adjustments (10,884) 7,791 13,579
Net cash provided by operating activities 29,532 3,539 6,178
Investing Activities
Investment in subsidiary - (9,181) (75,000)
Purchases of securites for
available for sale portfolio (395) - -
Proceeds from sales of securities from
available for sale portfolio 907 283 (1,103)
Sale of Texas Bank - - 56,225
Net cash provided (used) by investing activities 512 (8,898) (19,878)
Financing Activities
Issuance of debt - 13,119 6,250
Payments on debt (27,787) (13,076) (8,141)
Purchase of treasury stock (2,414) - -
Dividends paid (18,918) (3,570) (516)
Issuance of common stock 4,636 3,572 79,051
Net cash provided (used) by financing acitvities (44,483) 45 76,644
Increase (decrease) in cash (14,439) (5,314) 62,944
Cash at beginning of year 60,630 65,944 3,000
Cash at end of year $46,191 $60,630 $65,944
</TABLE>
Note 19
Financial Instruments and Derivative Financial Instruments
Generally accepted accounting principles require disclosure of
fair value information about financial instruments for which it is
practicable to estimate fair value, whether or not the financial
instruments are recognized in the financial statements. When
quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows.
The derived fair value estimates cannot be substantiated through
comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the instrument. Certain
financial instruments and all non-financial instruments are
excluded from these disclosure requirements. Further, the
disclosures do not include estimated fair values for items which
are not financial instruments but which represent significant value
to the Company, among them, core deposit intangibles, loan
servicing rights, trust operations and other fee-generating
businesses. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The carrying amount of cash and short-term investments, demand
deposits and short-term borrowings approximates the estimated fair
value of these financial instruments. The estimated fair value of
securities, interest rate swaps and other off-balance-sheet
instruments is based on quoted market prices, dealer quotes and
prices obtained from independent pricing services. The estimated
fair value of loans and interest-bearing deposits is based on
present values using applicable risk-adjusted spreads to the
appropriate yield curve to approximate current interest rates
applicable to each category of these financial instruments.
Interest rates were not adjusted for changes in credit risk of
performing commercial loans for which there are no known credit
concerns. Management segregates loans in appropriate risk
categories and believes the risk factor embedded in the interest
rates results in a fair valuation of these loans on an entry-value
basis.
Variances between the carrying amount and the estimated fair
value of loans reflect both credit risk and interest rate risk.
The company is protected against changes in credit risk by the
reserve for possible loan losses of $152,838,000.
The fair value estimates presented are based on information
available to management as of December 31, 1994 and 1993. Although
management is not aware of any factors that would significantly
affect the estimated fair value amounts, these amounts have not
been revalued for purposes of these financial statements since that
date.Therefore, current estimates of fair value may differ
significantly from the amounts presented. None of the assets or
liabilities included in the following table are held for trading
purposes.
<TABLE>
<CAPTION>
December 31
1994 1993
Carrying Fair Carrying Fair
($ in thousands) Amount Value Amount Value
<S> <C> <C> <C> <C>
Assets
Cash and short-term investments $586,038 $586,038 $594,992 $594,992
Securities available for sale 583,614 583,614 726,893 726,893
Securities held to maturity 1,831,429 1,759,679 1,996,917 2,031,427
Commercial loans 1,949,225 1,929,690 1,790,774 1,797,751
Consumer loans 1,671,324 1,643,842 1,382,496 1,394,760
Liabilities
Demand deposits 1,128,091 1,128,091 1,100,976 1,100,976
Interest-bearing deposits 4,772,902 4,756,088 4,620,018 4,605,476
Short-term borrowings 160,218 160,218 157,369 157,369
Debt 11,846 10,638 38,698 47,731
</TABLE>
The Company issues financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers and to reduce exposure to
fluctuations in interest rates. These financial instruments
include commitments to extend credit, letters of credit, standby
letters of credit and interest rate contracts and involve, to
varying degrees, elements of credit and interest rate risk in
excess of the amount recognized on the balance sheet.
Commitments to extend credit are legally binding, conditional
agreements generally having fixed expiration or termination dates
and specified interest rates and purposes. These commitments
generally require customers to maintain certain credit standards.
Collateral requirements and loan-to-value ratios are the same as
those for funded transactions and are established based on
management's credit assessment of the customer. Commitments may
expire without being drawn upon. Therefore, the total commitment
amount does not necessarily represent future requirements.
The Company issues letters of credit and financial guarantees
(standby letters of credit) whereby it agrees to honor certain
financial commitments in the event its customers are unable to
perform. The majority of the standby letters of credit consist of
performance guarantees. Management conducts regular reviews of all
outstanding standby letters of credit, and the results of these
reviews are considered in assessing the adequacy of the Company's
reserve for possible loan losses. Management does not anticipate
any material losses related to these instruments.
<TABLE>
<CAPTION>
Letters of credit
Commitments and financial
($ in thousands) to extend credit guarantees
<S> <C> <C>
December 31, 1994:
Contract Amount $903,496 $87,047
Fair Value ($8,727) ($637)
December 31, 1993:
Contract Amount $612,288 $108,060
Fair Value ($5,834) ($796)
</TABLE>
The Company maintains trading positions in a variety of
derivative financial instruments. These trading activities are
customer oriented and, when possible, matched trading positions are
established to minimize risk to the Company. However, to meet the
needs of customers, the Company also serves as the counterparty for
certain smaller transactions.
The credit exposure that results from interest-rate contracts
held for trading purposes is limited to the current fair value of
assets, which at December 31, 1994 was $1,149,000. The Company
manages the potential credit exposure through evaluation of the
counterparty credit standing, collateral agreements, and other
contract provisions. The potential credit exposure from future
market movements is estimated by using a statistical model that
takes into consideration possible changes in interest rates over
time.
The amounts disclosed in the table below represent the end of
period fair values of derivative financial instruments held or
issued for trading purposes and the average aggregate fair values
of those instruments during the year.
The table below includes an interest rate swap agreement,
which matures in 1996, with a notional amount of $74,000,000 as of
December 31, 1994 and 1993. The Company was a guarantor of this
agreement, which was executed by one of the Company's customers,
and the Company's exposure to loss is limited to the difference
between the interest payments the customer is obligated to pay and
those it is entitled to receive.
Net trading gains recognized in earnings on interest rate
contracts outstanding were immaterial for all years presented.
<TABLE>
<CAPTION>
($ in thousands) Notional Value Fair Value Average Fair Value
December 31 December 31 December 31
1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps
Assets $7,717 $7,054 $320 $596 $434 $784
Liabilities $80,327 $78,356 ($2,511) ($7,332) ($4,152) ($8,557)
Options, caps and floors held $134,100 $2,329 $829 $1 $806 $6
Options, caps and floors written $135,681 $2,646 ($878) ($1) ($843) ($7)
</TABLE>
The Company also enters into interest rate swap agreements in
order to manage interest rate exposure. Interest rate swap
agreements involve the risk of dealing with counterparties and
their ability to meet contractual terms. These counterparties must
receive appropriate credit approval before the Company enters into
a rate swap agreement. Notional principal amounts express the
volume of these transactions, although the amounts potentially
subject to credit and market risk are much smaller.
Interest rate swaps with a notional value of $15,000,000 at
December 31, 1994, 1993 and 1992 were entered into as a hedge
against longer-term deposits of the same maturity, exchanging a
fixed rate of interest for a floating rate. The differential to be
paid or received is accrued as interest rates change and is
recognized as an adjustment to interest expense on deposits. The
related amount payable to or receivable from counterparties is
included in other liabilities or other assets. These interest rate
swaps mature in November 1995. The fair values of these swap
agreements of $143,000 and $1,087,000 at December 31, 1994 and
1993, respectively, are not recognized in the consolidated
financial statements.
Note 20
Regulatory Matters and Dividend Restrictions
Under current Federal Reserve Bank (FRB) regulations, the Bank
may lend the Parent Company up to 10% of the Bank's capital and
surplus. Based on this limitation, approximately $33,536,000 was
available for loans to the Parent Company at December 31, 1994.
The payment of dividends by the Bank to the Parent Company is
restricted by various regulatory and statutory limitations. In
1995, the Bank will have available to pay dividends to the Parent
Company, without approval of the Office of the Comptroller of the
Currency, approximately $136,086,000, plus net retained profits
earned in 1995 prior to the dividend declaration date.
Banks are required to maintain noninterest-bearing balances
with the FRB to meet reserve requirements. Average noninterest-
bearing balances with the FRB were $37,258,000 in 1994 and
$47,930,000 in 1993.
Note 21
Contingencies
The Parent Company and the Bank were named defendants in a
shareholder class-action suit which alleges that, during the period
March 19, 1990 to July 30, 1991, the market value of the Company's
common stock was artificially inflated due to false and misleading
news releases and public statements and the failure to disclose
material facts. During the first quarter of 1995, the parties to
the class-action litigation entered into a settlement agreement
which is subject to final court approval. Insurance coverage and
previously established reserves will cover the costs of the
settlement.
In addition, the Company is a party to certain legal
proceedings arising from matters incidental to its business.
Management and counsel are of the opinion that these actions will
not have a material effect on the financial condition or results of
operations of the Company.
<PAGE>
EXHIBIT 99.2
ARTHUR ANDERSEN LLP
AMERICAN BANK
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1993
TOGETHER WITH AUDITORS' REPORT
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of American Bank:
We have audited the accompanying balance sheets of American Bank (a Louisiana
corporation) as of December 31, 1994 and 1993, and the related statements of
income, shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Bank as of December
31, 1994 and 1993, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 6 to the financial statements, effective January
1, 1994, the Bank changed its method of accounting for investment securities
and effective January 1, 1993 the Bank changed its method of accounting for
income taxes.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
New Orleans, Louisiana
February 22, 1995 (except with respect to the matter
discussed in Note 2, as to which the date is March 1, 1995)
<PAGE>
AMERICAN BANK
BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
(Dollars in Thousands)
ASSETS
<TABLE>
1994 1993
-------- --------
<S> <C> <C>
CASH AND DUE FROM BANKS $ 6,217 $ 4,286
FEDERAL FUNDS SOLD 7,550 13,400
INTEREST BEARING DEPOSITS IN OTHER BANKS 34 157
INVESTMENTS (fair value of $20,893 in 1993) --- 20,386
INVESTMENT SECURITIES AVAILABLE FOR SALE 2,935 ---
INVESTMENT SECURITIES HELD TO MATURITY
(fair value of $15,426 in 1994) 15,686 ---
LOANS 52,807 52,589
Less: Reserve for possible loan losses (808) (885)
-------- ---------
Net loans 51,999 51,704
BANK PREMISES AND EQUIPMENT, net 2,555 2,738
OTHER REAL ESTATE, net 394 815
ACCRUED INTEREST RECEIVABLE 583 482
OTHER ASSETS 1,016 170
-------- ---------
Total assets $88,969 $94,138
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
AMERICAN BANK
BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
(Dollars in Thousands, Except Par Value and Share Data)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
1994 1993
------- -------
DEPOSITS:
<S> <C> <C>
Non-interest bearing $14,217 $18,158
Interest bearing 64,348 68,060
------- -------
Total deposits 78,565 86,218
ACCRUED IINTEREST AND OTHER LIABILITIES 1,173 565
------- -------
Total liabilities 79,738 86,783
COMMITMENTS AND CONTINGENCIES --- ---
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 1,000,000 shares authorized,
484,000 shares issued and outstanding 484 484
Surplus 3,516 3,516
Undivided profits 5,275 3,355
Unrealized loss on securities available for sale (44) ---
------- -------
Total shareholders' equity 9,231 7,355
------- -------
Total liabilities and shareholders' equity $88,969 $94,138
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AMERICAN BANK
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(Dollars in Thousands, Except per Share Data)
<TABLE>
1994 1993
------- ------
INTEREST INCOME:
<S> <C> <C>
Interest and fees on loans $5,113 $4,705
Interest on investments-
United States Treasury and agencies 480 586
Mortgage-backed securities 1,008 1,170
Other investments 708 21
Interest on Federal funds sold 225 125
Interest on deposits with other banks 5 6
--------- --------
Total interest income 7,539 6,613
--------- --------
INTEREST ON DEPOSITS 1,865 1,851
--------- --------
NET INTEREST INCOME 5,674 4,762
PROVISION FOR POSSIBLE LOAN LOSSES (370) ---
--------- --------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 6,044 4,762
NON-INTEREST INCOME:
Service charges on deposit accounts 600 625
Other income 573 555
--------- --------
Total non-interest income 1,173 1,180
--------- --------
GAIN (LOSS) ON SALE OF SECURITIES (341) 5
--------- ---------
NON-INTEREST EXPENSE:
Salaries and employee benefits 1,510 1,559
Occupancy expense 345 285
Other operating expense 2,228 2,384
--------- ---------
Total non-interest expense 4,083 4,228
--------- ---------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 2,793 1,719
PROVISION FOR INCOME TAXES:
Current (490) (347)
Deferred (383) (161)
------ ------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 1,920 1,211
------ ------
CUMULATIVE EFFECT OF ACCOUNTING CHANGE --- 50
------ ------
NET INCOME $1,920 $1,261
====== ======
EARNINGS PER SHARE:
Income before cumulative effect of accounting change $ 3.97 $ 2.50
Cumulative effect of accounting change --- 0.10
------ ------
Net income per share $ 3.97 $ 2.60
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AMERICAN BANK
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED
DECEMBER 31, 1994 AND 1993
(Dollars in Thousands, Except per Share Data)
<TABLE>
Common Stock Unrealized Loss
--------------- on Securities Undivided
Shares Amount Surplus Available for Sale Profits
------- ------ ------- ------------------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992 484,000 $ 484 $3,516 $--- $2,142
Net income --- --- --- --- 1,261
Dividends declared --- --- --- --- (48)
($0.10 per share) ------- ----- ------ ------ -------
BALANCE, December 31, 1993 484,000 $ 484 $3,516 --- $3,355
Net income --- --- --- --- 1,920
Unrealized loss on securities
available for sale --- --- --- (44) ---
------- ----- ------ ------- -------
BALANCE, December 31, 1994 484,000 $ 484 $3,516 $(44) $5,275
======= ===== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AMERICAN BANK
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(Dollars in Thousands)
<TABLE>
1994 1993
------ -------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,920 $ 1,261
Adjustments to reconcile net income to net operating cash flows-
Depreciation 267 227
Provision for loan losses (370) ---
Provision for other real estate --- 555
Gains on sales of other real estate (48) (151)
Increase in accrued interest receivable and other assets (947) (86)
Increase (decrease) in accrued interest payable and other liabilities 225 (615)
(Gain) loss on sale of securities 341 (5)
Net accretion of discount or amortization of premium on investments 25 3
Deferred tax provision 383 161
------- --------
Net operating cash flows 1,796 1,350
======= ========
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from debenture 750 ---
Purchases of investment securities --- (8,663)
Purchases of investment securities available for sale (8,597) ---
Purchases of investment securities held to maturity (9,708) ---
Proceeds from maturities of investment securities --- 11,960
Proceeds from maturities of investment securities available for sale 3,761 ---
Proceeds from maturities of investment securities held to maturity 2,338 ---
Proceeds from sales of investment securities --- 2,500
Proceeds from sales of investment securities available for sale 12,788 ---
Net cash increase in loans (139) (11,452)
(Increase) decrease in Federal funds sold 5,850 (4,800)
Additions to bank premises and equipment (31) (256)
Proceeds from sales of other real estate 653 1,334
(Increase) decrease in interest bearing deposits with other banks 123 (80)
------- --------
Net investing cash flow 7,788 (9,457)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in non-interest bearing deposits (3,941) 4,818
(Decrease) increase in interest bearing deposits other than certificates
of deposit (3,474) 4,323
Decrease in certificates of deposit (238) (1,906)
Dividends paid --- (48)
------- --------
Net financing cash flows (7,653) 7,187
------- --------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 1,931 (920)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 4,286 5,206
------- --------
CASH AND DUE FROM BANKS AT END OF YEAR $ 6,217 $ 4,286
======== ========
CASH INTEREST EXPENSE PAID $ 1,871 $ 1,897
======== ========
CASH INCOME TAXES PAID $ 839 $ 860
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
AMERICAN BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(Dollars in Thousands, Except Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
The accounting principles and reporting policies of American Bank (the Bank)
conform with generally accepted accounting principles. The more significant
accounting policies used in preparing the financial statements are summarized
below.
Certain reclassifications have been made to the prior period financial
information in order to conform to current year presentation.
Investment Securities
- ---------------------
Effective January 1, 1994, the Bank adopted Financial Accounting Standards
Board (FASB) Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." This standard addresses the accounting and reporting
for investments in equity securities that have a readily determinable fair
value and for all investments in debt securities and requires classification
of securities as trading, available for sale or held to maturity. Management
determines the classification of its securities when they are purchased. The
Bank does not engage in trading activities related to any of its investment
securities. Securities which the Bank has the intent and ability to hold
until maturity are classified as held to maturity. These securities are
stated at cost, adjusted for amortization of premiums and accretion of
discounts. Securities which may be sold in response to interest rates,
liquidity needs or other factors are classified as available for sale.
These securities are reflected at fair value, and net unrealized gains
or losses are reflected as a separate component of shareholders' equity, net
of income tax effects. As of January 1, 1994 the unrealized gain on
available for sale securities, net of tax effects, was $129.
During 1994, the Bank sold $13,880 of securities out of its available for sale
portfolio, resulting in gross realized losses of $1,093 and gross realized
gains of $2. In addition, the Bank realized a gain of $750 on the redemption
of the First Continental Bancshares debentures, as discussed further in Note
3. No securities were sold from the Bank's held to maturity portfolio. Prior
to the adoption of FASB Statement No. 115, the Bank accounted for all
securities at cost, adjusted for amortization of premiums and accretion of
discounts. During 1993, the Bank sold $2,500 of its securities resulting in
gross realized gains of $5 and no gross realized losses. As of December 31,
1994 the Bank had $526 in securities which had matured but not yet settled.
This amount was included in other assets.
Interest earned on investment securities is included in interest income.
Amortization of premiums and accretion of discounts are computed using the
interest method. The adjusted cost of the specific security sold is used to
compute the gain or loss on the sale of an investment security. Such gains or
losses are shown separately in the statements of income.
Loans
- -----
Loans are stated at the principal balance outstanding less unearned discount
on consumer loans. Interest on loans, other than consumer loans, is
recognized as income based on the principal balance outstanding. Interest on
certain consumer loans is recognized as income over the term of the loan using
the sum-of-the-months-digits method, which approximates the interest method.
Loans are placed on non-accrual status when, in the opinion of management,
there exists sufficient uncertainty as to the collectibility of the
contractual interest. Income is recorded on a cash basis for non-accrual
loans.
Provision and Reserve for Possible Loan Losses
- ----------------------------------------------
The provision for possible loan losses charged to operating expense is
determined by management based on a review of the Bank's past loan loss
experience and an evaluation of the quality of the current loan portfolio.
The reserve for possible loan losses is based upon estimates, and ultimate
losses may vary from the current estimates. These estimates are reviewed
periodically and, as adjustments become necessary, they are reported in
earnings in the period in which they become known.
Bank Premises and Equipment
- ---------------------------
Bank premises and equipment are stated at cost, less accumulated depreciation.
Depreciation expense is computed primarily on a straight-line basis over the
estimated useful lives of the depreciable assets. Maintenance and repairs are
charged to operating expense, and gains or losses on dispositions are
reflected currently in the statements of income.
Income Taxes
- ------------
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, which was adopted by the Bank on January
1, 1993. Under this statement, deferred income taxes are provided for by the
liability method (Note 6).
Other Real Estate
- -----------------
Real estate and other assets acquired through foreclosure are stated at the
lower of the loan balance or fair value (less estimated costs to sell) of the
asset. The initial excess of the loan balance over the fair value of the
asset is charged to the reserve for possible loan losses. Subsequent declines
in value of the assets below their carrying values are reflected in earnings
in the period the decline is noted. During 1992, management established a
reserve for possible declines in value of other real estate and to provide for
estimated disposal costs. The reserve was approximately $99 and $100 at
December 31, 1994 and 1993, respectively. Revenues and expenses associated
with owning and operating other real estate and gains and losses on
disposition of such assets are recorded in income in the period incurred.
Writedowns of other real estate of $0 and $555 in 1994 and 1993, respectively,
were included in other operating expense in the accompanying financial
statements.
Earnings Per Share
- -----------------
Earnings per share is computed using the weighted average number of shares
outstanding of 484,000 shares during each of the periods.
New Financial Accounting Standards
- ----------------------------------
In December 1990 the FASB issued SFAS No. 106. This statement, which is
effective for fiscal years beginning after December 15, 1994, requires
recognition of estimated future post retirement costs over employees' periods
of service. The Bank offers no post-retirement benefits to its employees.
SFAS No. 107, issued by the FASB during 1991, requires disclosure of fair
value information for financial instruments. The Bank is not required to
adopt this statement until the year ended December 31, 1995.
In May, 1993, the FASB issued Statement No. 114, "Accounting by Creditors for
Impairment of a Loan," as amended by statement No. 118, which requires that
impaired loans that are within the scope of this statement be measured based
on the present value of expected future cash flows discounted at the loan's
effective interest rate or at the loan's market price or the fair value of the
collateral if the loan is collateral dependent. Adoption of the new standard
is required for fiscal years beginning after December 15, 1994. The standard
is to be adopted prospectively with the effect of initially applying the
standard to be reflected as an adjustment to the Bank's provision for loan
losses in the year of adoption. As of December 31, 1994, approximately $350
of loans would be impacted by the standards. The effect, if any, the new
standard may have on the Bank's financial position and results of operations
is not expected to be significant.
In November, 1992, the FASB issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," which is effective for the Bank for the year ended
December 31, 1994. This statement had no material effect on the Bank.
In October, 1994, the FASB issued Statement No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments."
The bank is required to adopt this statement for the year ended December 31,
1995.
2. MERGER PLAN:
-----------
On September 19, 1994, the Bank and Hibernia Corporation ("Hibernia") entered
into an Agreement and Plan of Merger pursuant to which the Bank would merge
with and into Hibernia. On March 1, 1995, the merger was consummated, with
each share of Bank stock converted to 4.815 shares of Hibernia Common Stock.
Total market value of the transaction was $17,437.
3. INVESTMENT SECURITIES:
---------------------
The amortized cost and estimated fair value of investment securities at
December 31, were:
<TABLE>
1994
------------------------------------------------------
Gross Estimated
Amortized Unrealized Fair
Description Cost Gains Losses Value
----------- --------- ------ ------ ---------
Available for Sale
- ------------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 1,499 $ 4 $ -- $ 1,503
U.S. Government agencies:
Mortgage-backed securities 1,502 4 (74) 1,432
------- ------ ------- -------
Total $ 3,001 $ 8 $ (74) $ 2,935
======= ====== ======= =======
</TABLE>
<TABLE>
Held to Maturity
- ----------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 5,536 $ 10 $ -- $ 5,546
U.S. Government agencies:
Mortgage-backed securities 7,228 48 (192) 7,084
Other 2,922 23 (149) 2,796
------- ------ ------- -------
Total $15,686 $ 81 $(341) $15,426
======= ====== ======= =======
</TABLE>
<TABLE>
1993
----------------------------------------------------------
Gross Estimated
Amortized Unrealized Fair
Description Cost Gains Losses Value
----------- --------- ------ ------ ---------
<S> <C> <C> <C> <C>
U.S. Treasury $ 5,009 $ 89 $ -- $ 5,098
U.S. Government agencies:
Mortgage-backed securities 7,006 317 (23) 7,300
Collateral mortgage obligations 5,948 92 (33) 6,007
Other 2,423 67 (2) 2,488
------- ------ -------- -------
Total $20,386 $ 565 $ (58) $20,893
======= ====== ======== =======
</TABLE>
The amortized cost and estimated fair value of investment securities at
December 31, 1994, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
Estimated
Amortized Fair
Available for Sale Cost Value
------------------ ---------- ----------
<S> <C> <C>
Due in 1 year or less $ 1,499 $ 1,503
Due after 1 year through 5 years --- ---
Due after 5 years through 10 years --- ---
-------- ---------
Subtotal 1,499 1,503
Mortgage-backed securities 1,502 1,432
-------- ---------
Total $ 3,001 $ 2,935
======== =========
</TABLE>
<TABLE>
Held to Maturity
----------------
<S> <C> <C>
Due in 1 year or less $ --- $ ---
Due after 1 year through 5 years 5,536 5,546
Due after 5 years through 10 years 1,260 1,148
Due after 10 years 1,662 1,648
-------- ----------
Subtotal 8,458 8,342
Mortgage-backed securities 7,228 7,084
-------- ----------
Total $ 15,686 $ 15,426
======== ==========
</TABLE>
The Bank's mortgage-backed securities consist of ownership interests in pools
of residential mortgages guaranteed by U.S. Government agencies with contract
maturities ranging from approximately 2 to 33 years; however, the underlying
mortgages are subject to significant prepayments, primarily when the
contractual interest rates exceed the current market rates on similar
mortgages. Based on current prepayment assumptions, the estimated average
remaining life of fixed rate mortgage-backed securities and collateral
mortgage obligations is approximately 5 years at December 31, 1994.
Investment securities with book values of $6,898 and $14,197 at December 31,
1994 and 1993, respectively, were pledged to secure public funds and for other
purposes.
The Bank held a $750 investment in debentures of an affiliated bank
representing 12% mandatory convertible subordinated debentures of First
Continental Bancshares, Inc. (FCB). The debentures were issued in 1986 and
were to mature in 1996 with principal payment to be made with 78 shares of FCB
common stock per thousand in debenture face value. During 1988, a reserve
equal to the cost of these debentures was recorded.
During 1994, FCB and Hibernia Corporation (Hibernia) merged. Under the terms
of the agreement, Hibernia redeemed all of the outstanding principal and
accrued interest related to FCB's outstanding debentures. The debenture
agreement required a redemption price of 105% if redeemed during the twelve-
month period ending November 15, 1994. Therefore, the Bank received $750 of
principal and accrued interest of $558 on August 1, 1994 and a premium of
approximately $38. As discussed above, the Bank had assigned no value to the
FCB debentures and related accrued interest in the accompanying financial
statements; therefore, in 1994 the Bank recognized income upon collection of
the principal, accrued interest and related premium. The accrued interest and
premium are included in interest on other investments in the statements of
income. The collection of principal is included in gain (loss) on sale of
securities in the statements of income.
4. LOANS AND RESERVE FOR POSSIBLE LOAN LOSSES:
------------------------------------------
The composition of the loan portfolio at December 31, was as follows:
<TABLE>
1994 1993
------- -------
<S> <C> <C>
Commercial and industrial $ 5,325 $ 5,686
Residential real estate 25,664 25,341
Commercial real estate 17,667 16,823
Consumer 4,113 4,679
Other 39 63
-------- --------
Gross loans 52,808 52,592
Less: Unearned discount (1) (3)
-------- --------
Total loans $52,807 $52,589
======== ========
</TABLE>
The Bank evaluates the credit risk of each customer on an individual basis
and, where deemed appropriate, collateral is obtained. Collateral varies by
individual loan customer but may include accounts receivable, inventory, real
estate, equipment, deposits, personal and government guarantees, and general
security agreements. Access to collateral is dependent upon the type of
collateral obtained. On an on-going basis, the Bank monitors its collateral
and the collateral value related to the loan balance outstanding.
Non-performing and underperforming loans at December 31, were as follows:
<TABLE>
1994 1993
-------- -------
Loans:
<S> <C> <C>
90 days or more past due, but still accruing interest $ 2 $ 51
Renegotiated loans which are not on non-accrual --- 317
Non-accrual loans 356 818
------ -------
Total non-performing and underperforming loans $ 358 $1,186
====== =======
</TABLE>
Income recognized on the cash basis for non-accrual loans in 1994 and 1993
totaled $25 and $77, respectively. If the accrual of interest on non-accrual
loans had not been suspended, the income recorded would have been
approximately $21 and $79 in 1994 and 1993, respectively.
In the opinion of management, progress has been made in its credit risk
management process, and only normal risk and loss potential remain in the loan
portfolio. Consequently, the Bank does not anticipate significant increases
in the level of non-performing assets in the foreseeable future. The current
level of non-performing assets is not anticipated to have a significant
adverse effect on the results of operations of the Bank.
The Bank's provision for possible loan losses charged to expense is determined
in accordance with the policy described in Note 1. Transactions in the
reserve for possible loan losses during 1994 and 1993 were as follows:
<TABLE>
1994 1993
-------- --------
<S> <C> <C>
Balance, beginning of year $ 885 $1,215
Provision (370) ---
Losses charged to the reserve (24) (339)
Recoveries of loans previously charged-off 317 9
-------- -------
Balance, end of year $ 808 $ 885
======== =======
</TABLE>
5. BANK PREMISES AND EQUIPMENT:
---------------------------
Bank premises and equipment, stated at cost less accumulated depreciation,
were as follows at December 31:
<TABLE>
1994 1993
-------- --------
<S> <C> <C>
Land $ 768 $ 768
Buildings 2,707 2,707
Furniture, fixtures and equipment 1,811 1,788
------- -------
5,286 5,263
Less - Accumulated depreciation (2,731) (2,525)
-------- -------
$2,555 $2,738
======== =======
</TABLE>
Depreciation included in occupancy expense totaled $267 in 1994 and $227 in
1993.
6. FEDERAL INCOME TAXES:
--------------------
Effective January 1, 1993, the Bank adopted SFAS No. 109, "Accounting for
Income Taxes." The effect of adopting this statement was to increase the
deferred tax asset by $50, which is reflected in the statements of income as
the cumulative effect of an accounting change. The net deferred tax
liability, which is included in other liabilities in the balance sheets, was
approximately $406 and $23 as of December 31, 1994 and 1993, respectively.
The components of the net deferred tax liability as of December 31, 1994 and
1993 were as follows:
<TABLE>
1994 1993
--------- --------
<S> <C> <C>
Deferred tax assets:
Reserve for possible loan losses $ --- $ 12
Other real estate 264 562
Unrealized loss on available for sale securities 22 ---
Other 26 18
----- ------
312 592
----- ------
Deferred tax liabilities:
Reserve for possible loan losses (113) ---
Bank premises and equipment (577) (576)
Investments (28) (39)
------ -------
(718) (615)
------ -------
Net deferred tax liability $(406) $ (23)
====== =======
</TABLE>
The following schedule reconciles the statutory Federal income tax rate to the
effective tax rate for the years ended December 31, 1994 and 1993:
<TABLE>
1994 1993
------- -------
<S> <C> <C>
Statutory tax rate 34.0% 34.0%
Tax exempt interest income (2.7) (2.9)
Non-deductible expenses .2 .3
Other (.2) (1.8)
------ ------
Effective tax rate 31.3% 29.6%
==== ====
</TABLE>
7. RELATED PARTY TRANSACTIONS:
--------------------------
In the ordinary course of business, the Bank makes loans to its directors,
officers and principal shareholders. These loans are made on substantially
the same terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with other customers, and do not
involve more than normal risk of collectibility or present other unfavorable
features. Loans made to directors, officers and principal shareholders,
including their family members and companies in which they have a significant
ownership interest, are summarized as follows:
<TABLE>
<S> <C>
Balance, December 31, 1993 $747
Additions and new loans 253
Repayments (634)
-----
Balance, December 31, 1994 $366
=====
</TABLE>
In addition, the Bank has a number of banking relationships with other banks
which have certain significant shareholders and directors in common. The most
significant of these relationships relates to loan participations purchased
from and sold to these banks. Participations purchased from related banks
amounted to approximately $2,241 and $1,984 and participations sold totaled
$4,490 and $2,758 at December 31, 1994 and 1993, respectively.
At December 31, 1994 and 1993, the Bank also had approximately $0 and $60,
respectively, of deposits in related banks.
Certain data processing services are performed for the Bank by a related bank.
Fees under this agreement (included in other operating expenses in the
statements of income) were $510 and $399 in 1994 and 1993, respectively.
Certain loan processing services are performed by the Bank for a related bank.
The Bank billed the related bank $273 and $284 for the years ended December
31, 1994 and 1993, respectively, effectively reducing the costs of operating
the loan processing center which are included in other operating expenses in
the financial statements.
Certain loan review, internal audit and consulting services were performed for
the Bank by related banks. Charges for these services are included in other
operating expenses in the statements of income and totaled $19 in 1993. These
services were discontinued at the end of 1993.
Certain legal services are performed for the Bank by one of the Bank's
directors. Fees paid for legal services to this director totaled $10 in 1994.
8. COMMITMENTS AND CONTINGENCIES:
-----------------------------
The Bank is involved in various litigation which is routine to the nature of
its business. Management believes that resolution of these matters will not
result in any material adverse effect on its financial position or results of
operations.
The Bank is required to maintain cash on had and non-interest bearing balances
with correspondent banks to fulfill its regulatory reserve requirements. The
average required reserve was approximately $639 and $557 in 1994 and 1993,
respectively.
In the normal course of business, there are various outstanding commitments to
extend credit which are not reflected in the financial statements. At
December 31, 1994 and 1993, outstanding commitments under standby letters of
credit were approximately $283 and $567, respectively.
Additionally, in the normal course of business, there are various other
commitments and contingent liabilities which are not reflected in the
financial statements. Loan commitments are single-purpose commitments to lend
which will be funded and reduced according to specific repayment schedules.
Most of these commitments have maturities of less than one year. Total loan
commitments outstanding at December 31, 1994 were approximately $1,817. Lines
of credit are commitments to lend up to a specified amount for a period not to
exceed one year. Amounts outstanding under lines of credit fluctuate because
they are generally used to finance short-term, seasonal working capital needs
of the borrower. Total unfunded lines of credit outstanding as of December
31, 1994 were approximately $717.
The Bank uses the same credit policies in making commitments and issuing
standby letters of credit as it does for on-balance-sheet instruments. The
Bank evaluates each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon extension
of credit is based on management's credit evaluation of the counterparty.
Collateral held varies but may include certificates of deposit, accounts
receivable, inventory, property, plant and equipment, and income-producing
properties. There are no commitments which present an unusual risk to the
Bank, and no material losses are anticipated as a result of these
transactions.
The principal source of liquidity for the Bank is core deposits. The Bank has
none of its deposits brokered or purchased in the national market. At
December 31, 1994, 11% of the Bank's interest-bearing deposits were equal to
or exceeded $100. In management's opinion, funding and liquidity at the Bank
is adequate to meet its current financial commitments.
9. EMPLOYEE BENEFIT PLANS:
----------------------
Effective January 1, 1988, the Bank adopted a defined contribution savings
plan for its employees. Under the terms of the plan, the Bank shall make a
matching contribution of no less than 40% of the first 3% of the employee's
compensation contributed. For 1994 and 1993, the Bank matched 40% of the
first 4% and 3%, respectively, of employee contributions representing
contributions of $20 and $18, respectively. In addition, the employer may
make a discretionary contribution as authorized by the Board of Directors.
The Bank made discretionary contributions of 60% of employee contributions for
1994 and 1993, resulting in contributions of $30 and $28, respectively.
The Chief Executive Officer has an employment agreement which provides for a
payment of three years' salary upon change of control of the company. In
addition, retention agreements were adopted in 1994 to encourage certain other
officers of the bank to continue their employment with the Bank in the context
of ongoing merger discussions between the Bank and certain non-affiliated
financial institutions. These agreements were executed primarily to maintain
stability within the organization and reduce the risk of loss of key members
of management before consummation of any potential merger or acquisition of
the Bank.
The retention agreements provide that if the Officers remain with the Bank
through the consummation of a merger, and certain other conditions are
satisfied, they would receive additional compensation. The aggregate
compensation under such agreements and the Chief Executive Officer's
employment agreement is approximately $236. This amount was recorded as
compensation expense upon consummation of the merger discussed in Note 2.
The Bank also adopted a severance plan for its employees which provides
additional compensation to those individuals released from employment after
the merger. Any payments made under this plan are in addition to those made
under the above mentioned retention agreements.
<PAGE>
EXHIBIT 99.3
STABA BANCSHARES, INC. AND SUBSIDIARY
FINANCIAL STATEMENTS
1994
CONTENTS
Page
Independent Auditors' Report 1
Consolidated Statements of Condition
December 31, 1994 and 1993 2 - 3
Consolidated Statements of Operations
Years ended December 31, 1994, 1993, and 1992 4 - 5
Consolidated Statements of Changes is Stockholders' Equity
Years ended December 31, 1994, 1993, and 1992 6 - 7
Consolidated Statements of Cash Flows,
Years ended December 31, 1994, 1993, and 1992 8 - 9
Notes to Consolidated Financial Statements 10 - 25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Staba Bancshares, Inc. and Subsidiary
Donaldsonville, Louisiana
We have audited the accompanying consolidated statements of condition of
Staba Bancshares, Inc. and Subsidiary as of December 31, 1994 and 1993, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Staba
Bancshares, Inc. and Subsidiary at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years ended December 31, 1994 in conformity with generally accepted
accounting principles.
/s/ Postlethwaite & Netterville
Postlethwaite & Netterville
PO BOX 1190
Donaldsonville, Louisiana 70346
January 27, 1995
<PAGE>
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 1994 AND 1993
<TABLE>
1994 1993
----------- -----------
ASSETS
------
<S> <C> <C>
Cash and due from banks $ 4,383,255 $ 3,870,539
Interest bearing deposits with banks 788,000 1,085,000
Federal funds sold 478,784 3,849,068
Investment securities:
Available for sale 17,915,332 ---
Held to maturity (market value of
$17,477,697 in 1994) 17,811,489 ---
Investment securities (market value of
$40,857,136 in 1993) --- 40,155,149
Loans, less allowance for credit losses of
$1,023,423 in 1994 and $906,576 in 1993 47,129,484 42,936,061
Properties and equipment, net 2,229,496 1,872,581
Accrued income and other assets 1,603,701 1,421,015
----------- -----------
TOTAL ASSETS $92,339,541 $95,189,413
=========== ===========
</TABLE>
<TABLE>
1994 1993
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
- -----------
<S> <C> <C>
Demand deposits $13,792,675 $13,340,460
NOW and savings deposits 32,682,247 33,716,390
Other time deposits 30,022,537 34,033,301
Time, $100,000 and over 6,808,918 6,720,500
----------- -----------
Total Deposits 83,306,377 87,810,651
Federal funds purchased 825,000 ---
Accrued expenses and other liabilities 485,260 412,199
----------- -----------
Total Liabilities 84,616,637 88,222,850
----------- -----------
</TABLE>
COMMITMENTS AND CONTINGENT LIABILITIES
- --------------------------------------
STOCKHOLDERS' EQUITY
- --------------------
<TABLE>
<S> <C> <C>
Common stock - $1.25 par value
Authorized - 800,00 shares; issued 121,600
shares; outstanding - 118,938 shares 152,000 152,000
Surplus 3,176,000 3,176,000
Retained earnings 4,930,676 3,691,727
Net unrealized losses on securities available
for sale, net of tax of $248,616 ( 482,608) ---
Treasury stock, 2,662 shares ( 53,164) ( 53,164)
Total Stockholders' Equity 7,722,904 6,966,563
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 92,339,541 $95,189,413
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<TABLE>
1994 1993 1992
---------- ---------- ----------
INTEREST INCOME
- ---------------
<S> <C> <C> <C>
Interest and fees on loans $4,135,763 $3,950,652 $3,716,323
Interest on investment securities:
Taxable 2,019,450 2,073,727 2,023,243
Exempt from federal income taxes 303,991 293,766 281,723
Interest on federal funds sold 91,097 165,495 374,428
Interest on deposits with banks 42,069 77,052 80,732
---------- ---------- ----------
Total interest income 6,592,370 6,560,692 6,476,449
INTEREST EXPENSE
- ----------------
Interest on deposits 2,339,457 2,541,659 2,920,091
---------- ---------- ----------
NET INTEREST INCOME 4,252,913 4,019,033 3,556,358
- -------------------
Provision for credit losses 180,000 270,000 363,000
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
- -----------------------------------
FOR CREDIT LOSSES 4,072,913 3,749,033 3,193,358
-----------------
---------- ---------- ----------
OTHER INCOME
- ------------
Service charges on deposit accounts 478,476 401,807 405,984
Other service charges 241,416 177,421 98,176
Net investment securities gains 23,922 90,633 ---
---------- ---------- ----------
743,814 669,861 504,160
---------- ---------- ----------
OTHER EXPENSES
- --------------
Salaries and employee benefits 1,227,931 1,120,084 998,054
Occupancy expense 161,410 162,669 162,233
Furniture and equipment expense 323,698 317,583 218,283
Other operating expense 1,111,116 1,038,708 906,608
---------- ---------- ----------
2,824,155 2,639,044 2,285,178
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<TABLE>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
INCOME BEFORE INCOME TAXES 1,992,572 1,779,850 1,412,340
- --------------------------
Applicable income taxes 593,057 527,542 348,581
---------- ---------- ----------
NET INCOME $1,399,515 $1,252,308 $1,063,759
- ---------- ========== ========== ==========
Per Common Share Data:
Net income per share of
common stock $ 11.77 $ 10.53 $ 8.94
========== ========== ==========
Cash dividends per share
of common stock $ 1.35 $ 1.35 $ 1.10
========== ========== ==========
Average shares outstanding 118,938 118,938 118,938
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<TABLE>
Net Unrealized
Losses on
Common Retained Available for
Stock Surplus Earnings Sale Securities
-------- ---------- ---------- ---------------
Balance,
<S> <C> <C> <C> <C>
December 31, 1991 $152,000 $3,176,000 $1,667,058 $ ---
Net income --- --- 1,063,759 ---
Cash dividends declared --- --- ( 130,832) ---
Unrealized gain on
marketable equity security --- --- --- ---
Realized gain on sale of
marketable equity sale --- --- --- ---
------- --------- ----------- ----------
Balance, December 31, 1992 152,000 3,176,000 2,599,985 ---
Net income --- --- 1,252,308 ---
Cash dividends declared --- --- ( 160,566) ---
------- --------- ----------- ----------
Balance, December 31, 1993 152,000 3,176,000 3,691,727 ---
Net income --- --- 1,399,515 ---
Cash dividends declared --- --- ( 160,566) ---
Net change in unrealized
loss on securities
available for sale, net
of tax of $248,616 --- --- --- ( 482,608)
-------- ---------- ----------- ----------
Balance, December 31, 1994 $152,000 $3,176,000 $4,930,676 ($482,608)
======== ========== =========== ==========
</TABLE>
<TABLE>
Unrealized/
Realized Loss
Treasury On Marketable
Stock Equity Security Total
---------- ---------------- -----------
<S> <C> <C> <C>
Balance, December 31, 1991 ($53,164) ($11,973) $4,929,921
Net income --- --- 1,063,759
Cash dividends declared --- --- ( 130,832)
Unrealized gain on marketable
equity security --- 2,245 2,245
Realized gain on sale of
marketable equity security --- 9,728 9,728
--------- --------- -----------
Balance, December 31, 1992 ($53,164) --- 5,874,821
Net income --- --- 1,252,308
Cash dividends declared --- --- ( 160,566)
--------- --------- -----------
Balance, December 31, 1993 (53,164) --- $6,966,563
Net income --- --- 1,399,515
Cash dividends declared --- --- ( 160,566)
Net change in unrealized loss
on securities available for
sale, net of tax of $248,616 --- --- ( 482,608)
-------- --------- -----------
Balance, December 31, 1994 ($53,164) $--- $7,722,904
========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana Page 1 of 2
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<TABLE>
1994 1993 1992
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------
<S> <C> <C> <C>
Net income $1,399,515 $1,252,308 $1,063,759
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 281,791 304,211 213,953
Deferred income taxes ( 47,261) ( 57,000) ( 123,000)
Provision for credit losses 180,000 270,000 363,000
Net investment securities (gains) ( 23,922) ( 90,633) ---
Net property and equipment (gains) ( 9,851) --- ---
(Increase) decrease in accrued income
and other assets 287 ( 253,902) ( 72,542)
Increase (decrease) in accrued
expenses and other liabilities 219,194 ( 93,054) 80,878
------------ ----------- -----------
Net cash provided by
operating activities 1,999,753 1,331,930 1,526,048
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------
Net (increase) decrease in interest
bearing deposits with banks 297,000 1,088,015 ( 490,015)
Net (increase) decrease in federal
funds sold 3,370,284 2,101,685 1,163,606
Proceeds from sale/maturity of investment
securities --- 13,678,840 15,810,917
Held to maturity 57,659 --- ---
Available for sale 21,658,625 --- ---
Purchase of investment securities --- (15,117,801) (29,440,673)
Held to maturity (7,718,926) --- ---
Available for sale (10,309,560) --- ---
Proceeds from sale of capital assets --- ---
Net (increase) in loans ( 4,373,423) ( 4,706,335) ( 6,259,199)
Purchase of buildings and equipment ( 628,856) ( 536,101) ( 362,219)
------------ ------------ ------------
Net cash provided by (used in)
investing activities 2,352,803 ( 3,491,697) (19,577,583)
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana Page 2 of 2
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<TABLE>
1994 1993 1992
----------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
<S> <C> <C> <C>
Net increase (decrease) in non-interest
bearing demand, savings and NOW
deposit accounts ($ 581,928) $4,006,131 $12,636,115
Net increase (decrease) in time deposits (3,922,346) (1,525,893) 5,656,899
Net increase in federal funds purchased 825,000 --- ---
Dividends paid ( 160,566) ( 160,566) ( 130,832)
----------- ------------- ------------
Net cash (used in) provided by
financing activities (3,839,840) 2,319,672 18,162,182
------------ ------------- ------------
Net increase (decrease) in cash and
due from banks 512,716 159,905 110,647
Cash and due from banks at January 1 3,870,539 3,710,634 3,599,987
----------- ----------- ------------
Cash and due from banks at December 31 $4,383,255 $3,870,539 $ 3,710,634
=========== =========== ============
</TABLE>
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:
- --------------------------------------------------
<TABLE>
Cash paid during the year for:
<S> <C> <C> <C>
Interest $2,337,993 $2,562,897 $2,955,834
Income taxes $ 596,745 $ 891,878 $ 383,398
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana Page 1 of 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The Company's wholly owned subsidiary, State Bank and Trust Company, operates
and extends credit primarily in and around Ascension Parish of Louisiana.
Consolidation
- -------------
The consolidated financial statements include the accounts of Staba Bancshares,
Inc. (Company) and its wholly owned subsidiary, State Bank and Trust Company
(Bank), Significant intercompany transactions and amounts have been eliminated.
Investment Securities
- ---------------------
For the year ended December 31, 1994 the Bank adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." This statement addresses the accounting and reporting
for investments in equity securities that have readily determinable fair values
and for all investments in debt securities. Those investments are to be
classified and accounted for as follows:
Securities to Be Held to Maturity. Bond, notes and debentures for which
the Bank has the positive intent and ability to hold to maturity are
reported at cost, adjusted for amortization of premiums and accretion of
discounts which are recognized in interest income using the interest
method over the period to maturity.
Securities Available for Sale. Securities available for sale consist of
bonds, notes and debentures that are available to meet the Bank's
operating needs. These securities are reported at fair value as
determined by quoted market prices.
Unrealized holdings gains and losses, net of tax, on securities available for
sale are reported as a net amount in a separate component of stockholders'
equity until realized.
Realized gains and losses on the sale of securities available for sale are
determined using the specific-identification method.
Allowances for Credit Losses
- ----------------------------
The allowance is maintained at a level adequate to absorb probable losses.
Management determines the adequacy of the allowance based upon reviews of
individual credits, recent loss experience, current economic conditions, the
risk characteristics of the various categories of loans and other pertinent
factors. Credits deemed uncollectible are charged to the allowance. Provisions
for credit losses and recoveries on loans previously charged off are added to
the allowance.
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana Page 2 of 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------
Properties and Equipment
- ------------------------
Properties and equipment are stated at cost less accumulated depreciation. The
provision for depreciation is computed principally by the straight-line and
accelerated methods over the estimated useful lives of the assets.
Interest Income on Loans
- ------------------------
Interest on loans is accrued and credited to income based on the principal
amount outstanding. The accrual of interest on loans is discontinued when,
in the opinion of management, there is an indication that the borrower may be
unable to meet payments as they become due. Upon such discontinuance, all
unpaid accrued interest is reversed.
Pension Cost
- ------------
Pension costs are charged to salaries and employee benefits expense.
Other real estate
- -----------------
Assets acquired through the default of loans are recorded at the lower of the
outstanding loan amounts plus accrued interest or fair market value of the
assets acquired. Reductions from outstanding loan amounts to fair market
value are charged against the reserve for possible loan losses. Subsequent
valuations are charged to operating expense.
Income taxes
- ------------
Effective January 1, 1993, the Bank adopted the method of accounting for income
taxes promulgated by SFAS 109. The Bank had previously accounted for income
taxes under the method promulgated by Statement of Financial Accounting
Standards No. 96 (SFAS 96). Under both SFAS 109 and SFAS 96, the deferred tax
asset/liability is determined under the liability method, based on the
differences between the financial statements and tax bases of assets and
liabilities as measured by the enacted statutory tax rates, and deferred tax
expense is the result of changes in the net liability for deferred taxes. The
principal types of differences between assets and liabilities for financial
statement and tax return purposes are accumulated depreciation, provision for
loan losses, write downs of other real estate, and accretion of discount on
investment securities.
Net Income Per Share of Common Stock
- ------------------------------------
Net income per share of common stock is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
period, after giving retroactive effect to stock dividends.
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana Page 3 of 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------
Off Balance Sheet Financial Instruments
- ---------------------------------------
In the ordinary course of business, the Bank has entered into off balance sheet
financial instruments consisting of commitments to extend credit and standby
letters of credit. Such financial instruments are recorded in the financial
statements when they become payable.
Cash and cash equivalents
- -------------------------
For purposes of presentation in the Statements of Cash Flows, cash and cash
equivalents are defined as those amounts included in the balance sheet caption
"Cash and Due from Banks."
Reclassifcations
- -----------------
The classification of certain items or 1993 and 1992 have been reclassified to
be consistent with current presentation.
Accounting Pronouncements Issued But Not Yet Adopted
- ----------------------------------------------------
The Financial Accounting Standards Board issued Financial Accounting Standards
No. 114 (SFAS 114) "Accounting by Creditors for Impairment of a Loan," which
establishes a new accounting principle for the measurement of impaired loans.
Additionally, SFAS 114 requires consideration of the collectibility of both
contractual principal and interest of all loans when assessing the need for
reserve for loan loss. The Bank is not required to adopt SFAS 114 until the
fiscal year beginning after December 15, 1994, with earlier application
encouraged. The adoption of SFAS 114 is not expected to have a significant
impact on the financial statements.
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana Page 4 of 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INTEREST BEARING DEPOSITS WITH BANKS
------------------------------------
Interest bearing deposits with banks consist of the following time deposits:
<TABLE>
1994 1993
- -------------------------------------------------- -------------------------------------------------
Date of Maturity Rate Amount Date of Maturity Rate Amount
- ---------------- ------ --------- ---------------- ------ ----------
<S> <C> <C> <C> <C> <C>
1/30/95 5.00% $ 99,000 3/21/94 3.70% $ 99,000
2/06/95 5.50 99,000 5/31/94 3.60 99,000
2/06/95 5.20 99,000 6/06/94 3.90 99,000
3/13/95 5.25 99,000 3/14/94 3.65 99,000
3/20/95 5.45 99,000 3/21/94 3.65 99,000
3/22/95 5.66 99,000 1/31/94 3.90 99,000
5/26/95 4.25 95,000 2/07/94 3.70 99,000
5/31/95 6.10 99,000 6/06/94 3.67 99,000
-------- 5/31/94 3.25 95,000
2/07/94 3.85 99,000
$788,000 2/07/94 3.80 99,000
======== ----------
$1,085,000
==========
</TABLE>
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana Page 5 of 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENT SECURITIES
---------------------
The carrying amounts of investment securities are as shown in the balance
sheets of the Bank and their approximate fair market values were as follows:
<TABLE>
December 31, 1994
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Securities available for sale
U.S. Government and agency
securities $18,212,821 $20,157 $753,745 $17,479,233
Obligations of state and
political subdivisions 433,734 2,365 --- 436,099
------------ ------- --------- -----------
$18,646,555 $22,522 $753,745 $17,915,332
============ ======= ========= ===========
</TABLE>
<TABLE>
December 31, 1994
--------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Securities available for sale
U.S. Government and agency
securities $13,181,636 $25,075 $344,140 $12,862,571
Obligations of state and
political subdivisions 4,629,853 74,221 88,948 4,615,126
----------- ------- -------- -----------
$17,811,489 $99,296 $433,088 $17,477,697
=========== ======= ======== ===========
</TABLE>
The amortized cost and approximate fair values of investment securities are
as follows for December 31, 1993:
<TABLE>
December 31, 1994
-------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Securities available for sale
U.S. Government and agency
securities $35,459,391 $517,523 $144,422 $35,832,492
Obligations of state and
political subdivisions 4,695,758 328,886 --- 5,024,644
----------- -------- -------- -----------
$40,155,149 $846,409 $144,422 $40,857,136
=========== ======== ======== ===========
</TABLE>
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana Page 6 of 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENT SECURITIES (continued)
---------------------
Because SFAS 115 was not effective for the year ended December 31, 1993, al
securities are presented together in one classification.
On December 31, 1994 and 1993, securities with carrying amounts of $19,313,669
and $21,442,066 and an approximate market value of $18,937,762 and $22,211,194,
respectively were pledged to secure public deposits and for other purposes as
required or permitted by law.
Gross realized gains and gross realized losses on sales of securities for the
year ended December 31, 1994 were:
<TABLE>
1994
--------------
<S> <C>
Securities available for Sale
- -----------------------------
Gross realized gains:
U.S. government agency securities $71,143
Obligation of state and political
subdivisions ---
-------
$71,141
=======
Gross realized losses:
U.S. government and agency securities $48,141
=======
</TABLE>
Additionally, two investment securities were called in 1994. These securities
had amortized costs of $30,000 and $25,000 and realized gains of $450 and $500,
respectively. One investment security with an amortized cost of $250,030 was
sold in 1994 for liquidity purposes. The realized loss on the sale of this
security was $30.
Gross realized gains and gross realized losses on sales of investment
securities for the year ended December 31:
<TABLE>
1993
-----------
<S> <C>
Gross realized gains:
U.S. government and agency securities $89,723
Obligations of state and political
subdivisions 1,000
-------
$90,723
=======
Gross realized losses:
U.S. Government and agency securities $ 90
=======
</TABLE>
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana Page 7 of 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENT SECURITIES (continued)
---------------------
The scheduled maturities of securities to be held to maturity and securities
available for sale at December 31, 1994 were as follows:
<TABLE>
Securities to be Held
To Maturity Securities Available for Sale
--------------------------------------- -----------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $ 1,700,730 $ 1,662,500 $ 2,720,045 $ 2,692,684
Due from one to five years 10,963,902 10,815,831 4,471,622 4,361,740
Due from five to ten years 2,831,152 2,787,686 --- ---
Due after ten years 94,915 98,967 --- ---
----------- ----------- ----------- -----------
15,590,699 15,364,984 7,191,667 7,054,424
2,220,790 2,112,713 11,454,888 10,860,908
----------- ----------- ----------- -----------
Mortgage backed securities $17,811,489 $17,477,697 $18,646,555 $17,915,332
=========== =========== =========== ===========
</TABLE>
4. LOANS
-----
The components of loans in the consolidated statements of condition were
as follows:
<TABLE>
(In Thousands)
December 31,
-------------------------------------
1994 1993
------------ ----------
<S> <C> <C>
Commercial and industrial $ 3,893 $ 4,807
Real estate - residential 25,014 23,297
Real estate - non-residential 6,783 4,975
Agricultural loans 820 878
Loans to individuals for personal
expenditures 10,433 9,501
All others 1,209 385
------- -------
48,152 43,843
Allowance for credit losses ( 1,023) ( 907)
-------- --------
Loans, net $47,129 $42,936
======== ========
</TABLE>
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana Page 8 of 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LOANS (continued)
-----
Loans on which the accrual of interest has been discontinued or reduced
amounted to $17,782 and $114,802 at December 31, 1994 and 1993, respectively.
If interest on those loans had been accrued, such income would have
approximated $1,093, $5,769 and $21,298 at December 31, 1994, 1993, and
1992, respectively. Interest income on those loans, which is recorded only
when received, amounted to $-0-, $3,118, and $4,731 for December 31, 1994,
1993, and 1992, respectively.
5. ALLOWANCE FOR CREDIT LOSSES
---------------------------
An analysis of the changes in the allowance for credit losses follows:
<TABLE>
1994 1993 1992
--------- ---------- ---------
<S> <C> <C> <C>
Balance at January 1 $ 906,576 $ 808,886 $ 554,767
Credits charged off ( 104,809) ( 228,710) ( 164,790)
Recoveries 41,656 56,400 55,909
Provision for credit losses 180,000 270,000 363,000
---------- --------- ----------
Balance at December 31 $1,023,423 $ 906,576 $ 808,886
========== ========= ==========
</TABLE>
Real estate and other assets acquired through foreclosure included in accrued
income and other assets was $30,500 and $99,662 at December 31, 1994 and 1993,
respectively.
6. PROPERTIES AND EQUIPMENT
------------------------
Components of properties and equipment included in the consolidated statements
of condition at December 31, 1994 and 1993 were as follows:
<TABLE>
December 31,
---------------------------------
1994 1993
---------- ----------
<S> <C> <C>
Land $ 286,146 $ 311,146
Buildings 2,021,266 1,511,486
Equipment 2,021,067 1,861,456
----------- -----------
Total Cost 4,328,479 3,684,088
Accumulated depreciation (2,098,983) (1,811,507)
----------- -----------
Net Book Value $2,229,496 $1,872,581
=========== ===========
</TABLE>
Depreciation expense amounted to $299,791, $304,211, and $213,953 for 1994,
1993, and 1992, respectively.
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana Page 9 of 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. RETIREMENT PLAN
---------------
The State Bank and Trust Company has a non-contributory employees pension plan
covering substantially all full-time employees who meet certain age and
longevity requirements. Past service costs are amortized over 10 years.
There was no pension expense for 1994, 1993, and 1992.
The Bank makes annual contributions to the plan equal to the maximum deductible
contribution calculated. A comparison of accumulated plan benefits and plan
net assets for the Banks' plan as of the latest valuation date is presented
below:
<TABLE>
January 1,
1994
----------
<S> <C>
Actuarial present value of accumulated plan
benefits:
Vested $421,003
Non-vested 81,607
--------
$502,610
========
Market value of net assets available for benefits $914,758
========
</TABLE>
The weighted average assumed rate of return used in determining the actuarial
present value of accumulated plan benefits was 7.5% for 1994, 1993, and 1992.
The Bank has elected not to adopt the Statement of Financial Accounting
Standard #87 as it applies to defined benefit pension plan reporting.
The effects on the financial statements are considered immaterial.
8. INCOME TAXES
------------
The Company's effective tax rate is different from the federal statutory rate
of 34% due to the following analysis:
<TABLE>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
U.S. Federal income tax rate 34.0% 34.0% 34.0%
Adjustment in rate resulting from:
Tax exempt municipal bond income (4.6) (5.5) (6.8)
Other .4 1.1 (2.5)
----- ----- -----
29.8% 29.6% 24.7%
===== ===== =====
</TABLE>
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana Page 10 of 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES (continued)
------------
Effective January 1, 1993 the Company adopted SFAS No. 109, under which
deferred income taxes are provided on the tax effect of changes in temporary
differences. Deferred tax assets are subject to a valuation allowance if their
realization is less than fifty percent probable. Deferred tax
assets / liabilities are comprised of the following:
<TABLE>
1994 1993
---------- ----------
<S> <C> <C>
Accelerated depreciation $ 69,115 $ 72,983
Municipal bond discount accretion 8,151 8,100
--------- ---------
Gross deferred tax liability 77,266 81,083
--------- ---------
Unrealized holding loss 248,616 ---
Allowance for credit loss 304,527 261,083
--------- ---------
Gross deferred tax asset 553,143 261,083
--------- ---------
Net deferred tax asset $ 475,877 $ 180,000
========= =========
The elements of income tax expense are as follows:
</TABLE>
<TABLE>
1994 1993 1992
---------- ----------- ---------
<S> <C> <C> <C>
Currently payable $ 640,318 $ 584,542 $ 471,581
Deferred tax expense (asset) ( 47,261) ( 57,000) ( 123,000)
----------- ----------- ----------
$ 593,057 $ 527,542 $ 348,581
=========== =========== ==========
</TABLE>
9. RELATED PARTY TRANSACTIONS
--------------------------
The Bank has entered into transactions with its directors, significant
shareholders and their affiliates (related parties). Such transactions
were made in the ordinary course of business on substantially the same terms
and conditions, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with other
customers, and did not, in the opinion of management, involve more than normal
credit risk or present other unfavorable features.
An analysis of activity during 1994 and 1993 with respect to loans to officers
and directors of the Bank is as follows:
<TABLE>
1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
Balance, January 1 $2,500,380 $2,724,640 $2,868,017
New loans 2,863,655 1,526,546 2,472,653
Repayments 2,767,101 1,750,806 2,616,030
---------- ---------- ----------
Balance, December 31 $2,596,934 $2,500,380 $2,724,640
=========== ========== ==========
</TABLE>
Deposits of directors, significant shareholders and their affiliates, and
officers totaled $768,770 for 1994.
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana Page 11 of 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------
The Bank's consolidated financial statements do not reflect various
commitments and contingent liabilities which arise in the normal
course of business and which involve elements of credit risk,interest
rate risk and liquidity risk. These commitments and contingent liabilities
are commitments to extend credit, commercial letters of credit and standby
letters of credit. A summary of the Bank's commitments and contingent
liabilities at December 31, 1994, is as follows:
Notional
Amount
--------
Commitments to extend credit $5,885,993
==========
Standby letters of credit $ 692,183
==========
Commitments to extend credit and standby letters of credit include exposure
to some credit loss in the event of nonperformance of the customer.
The Bank's credit policies and procedures for credit commitments and financial
guarantees are the same as those for extension of credit that are recorded on
the consolidated statements of condition. Because these instruments have fixed
maturity dates, and because many of them expire without being drawn upon, they
do not generally present any significant liquidity risk to the Bank. The Bank
has not been required to perform on any financial guarantees during the past
two years. The Bank has not incurred any losses on its commitments in either
1994 or 1993.
11. CONCENTRATIONS OF CREDIT
------------------------
Substantially, all of the Bank's loans, commitments and standby letters of
credit have been granted to customers in the Bank's market area. Substantially,
all such customers are depositors of the Bank. Investments in state and
municipal securities involve governmental entities within Louisiana. The
concentrations of credit by type of loan are set forth in Note 4. The
distribution of commitments to extend credit approximates the distribution of
loans outstanding. Standby letters of credit were granted primarily to
commercial borrowers. The Bank, as a matter of policy, does not extend credit
to any single borrower or group of related borrowers in excess of $1,644,000.
At December 31, 1994, the Bank had cash in excess of the insured amount of
$213,961. Cash recorded on the balance sheet is reduced by outstanding checks.
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana Page 12 of 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. RETAINED EARNINGS
-----------------
The Bank, as a state bank, is subject to the dividend restrictions set forth by
the Commissioner of Financial Institutions. Under such restrictions, the Bank
may not, without the prior approval of the Commissioner, declare dividends in
excess of the sum of the current year's retained net profits (as defined) plus
the retained net profits (as defined) from the prior year. The dividends, as
of December 31, 1994, that the Bank could declare, without the approval of the
Commissioner, amounted to $2,301,619. The Bank is also required to maintain
minimum amounts of capital to total "risk weighted" assets, as defined by the
banking regulators. At December 31, 1994 the Bank is required to have minimum
Tier I and Total capital ratios of 4.00% and 8.00%, respectively. The Bank's
actual ratios at the date were 12.71% and 13.21%, respectively.
13. SUBSEQUENT EVENT
----------------
On November 4, 1994 an Agreement and Plan of Merger between Hibernia Corporation
and Staba was negotiated. Under the agreement, Staba will merge with and into
Hibernia, and the outstanding shares of common stock of Staba will be converted
into shares of Class A Common Stock of Hibernia valued at $18 million. At
December 31, 1994, both banks were compiling the necessary information
to complete the S-4 Registration statement. The effective date of the merger
has not yet been determined.
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana Page 13 of 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Staba Bancshares, Inc. (Parent Company Only) Financial Statements
-----------------------------------------------------------------
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
ASSETS
--------
<TABLE>
1994 1993
----------- ----------
<S> <C> <C>
Cash in subsidiary bank $ 14,557 $ 24,571
Dividends receivable from State Bank and
Trust Company 200,000 160,566
Investment in subsidiary - State Bank and
Trust Company 7,668,913 6,941,992
--------- ----------
TOTAL ASSETS $7,883,470 $7,127,129
========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
<TABLE>
LIABILITIES
- -----------
<S> <C> <C>
Dividends payable $ 160,566 $ 160,566
--------- ----------
STOCKHOLDERS' EQUITY
- --------------------
Common stock - $1.25 par value
Authorized - 800,000 shares; issued
212,600 shares; outstanding - 118,938 shares 152,000 152,000
Surplus 3,176,000 3,176,000
Retained earnings 4,930,676 3,691,727
Net unrealized losses on securities available
for sale,
net of tax of $248,616 ( 482,608) ---
Treasury stock, 2,622 shares ( 53,164) ( 53,164)
---------- -----------
Total stockholders' equity 7,722,904 6,966,563
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,883,470 $7,127,129
========== ==========
</TABLE>
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana Page 14 of 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Staba Bancshares, Inc. (Parent Company Only) Financial Statements
(continued)
-----------------------------------------------------------------
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
1994 1993 1992
---------- ---------- -----------
INCOME
- ------
<S> <C> <C> <C>
Dividends from subsidiary:
State Bank and Trust Company $ 200,000 $ 160,566 $ 130,832
EXPENSE
- -------
Amortization and fees 10,014 350 1,077
---------- ----------- -----------
INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME 189,986 160,216 129,755
- --------------------------------------------
Equity in undistributed income of
subsidiary 1,209,529 1,092,092 934,004
---------- ----------- -----------
NET INCOME $1,399,515 $1,252,308 $1,063,759
- ---------- ========== =========== ===========
</TABLE>
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana Page 15 of 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
1994 1993 1992
----------- ---------- ---------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $1,399,515 $1,252,308 $1,063,759
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed current income from Bank
subsidiary (1,209,529) (1,092,092) ( 934,004)
(Increase) in dividends receivable ( 39,434) --- ---
------------ ------------ -----------
Net cash provided by operating
activities 150,552 160,216 129,755
------------ ------------ -----------
Cash flows from financing activities:
Dividends paid ( 160,566) ( 160,566) ( 130,832)
------------ ------------ -----------
Net cash used by financing activities ( 160,566) ( 160,566) ( 130,832)
------------ ------------ -----------
Decrease in cash and cash equivalents ( 10,014) ( 350) ( 1,077)
Cash and cash equivalents at January 1 24,571 24,921 25,998
------------ ------------ -----------
Cash and cash equivalents at December 31 $ 14,557 $ 24,571 $ 24,921
============ ============ ===========
</TABLE>
STABA BANCSHARES, INC. AND SUBSIDIARY
Donaldsonville, Louisiana Page 16 of 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
15. State Bank and Trust Statements of Financial Condition
------------------------------------------------------
ASSETS
------
<TABLE>
1994 1993
----------- -----------
<S> <C> <C>
Cash and due from banks $ 4,383,255 $ 3,870,539
Interest bearing deposits in banks 788,000 1,085,000
Federal funds sold 478,784 3,849,068
Investment securities:
Available for sale 17,915,332 ---
Held to maturity (market value of $17,477,697
in 1994) 17,811,489 ---
Investment securities (market value of $40,857,136 in 1993) --- 40,155,149
Loans, less allowance for credit losses of $1,023,423 in 1994
and $906,576 in 1993 47,129,484 42,936,061
Properties and Equipment 2,229,496 1,872,581
Accrued income and other assets 1,564,267 1,421,015
----------- -----------
TOTAL ASSETS $92,300,107 $95,189,413
=========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS EQUITY
-----------------------------------
<TABLE>
LIABILITIES
- -----------
<S> <C> <C>
Deposits
Demand $13,807,234 $13,365,031
NOW and savings deposits 32,682,247 33,716,390
Other time deposits 30,022,537 34,033,301
Time, $100,000 and over 6,808,918 6,720,500
----------- -----------
Total deposits 83,320,936 87,835,222
Federal funds purchased 825,000 ---
Accrued expenses and other liabilities 485,260 412,199
----------- ------------
Total liabilities 84,631,196 88,247,421
----------- ------------
</TABLE>
COMMITMENTS AND CONTINGENT LIABILITIES
<TABLE>
STOCKHOLDER'S EQUITY
- --------------------
<S> <C> <C>
Common stock - $5.00 par value
Authorized - 120,000 shares; issued and
outstanding - 30,400 shares 152,000 152,000
Surplus 3,176,000 3,176,000
Retained earning 4,823,519 3,613,992
Net unrealized losses on securities available for sale,
net of tax of $248,616 ( 482,608) ---
------------ -----------
Total stockholder's equity 7,668,911 6,941,992
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $92,300,107 $95,189,413
============ ===========
</TABLE>
<PAGE>
EXHIBIT 99.4
ARTHUR ANDERSEN LLP
PROGRESSIVE BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1993
TOGETHER WITH AUDITORS' REPORT
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of Progressive Bancorporation, Inc.:
We have audited the accompanying consolidated balance sheets of
Progressive Bancorporation, Inc. (a Louisiana corporation) and
subsidiary as of December 31, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31,
1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Progressive Bancorporation, Inc. and subsidiary as of December 31,
1994 and 1993 and the results of their operations and cash flows
for each of the three years in the period ended December 31, 1994,
in conformity with generally accepted accounting principles.
As discussed in Note 1, effective January 1, 1994 the Company
changed its method of accounting for investment securities.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
New Orleans, Louisiana,
February 10, 1995
<PAGE>
<TABLE>
PROGRESSIVE BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
(Dollars in Thousands)
<CAPTION>
ASSETS
<S> <C> <C>
1994 1993
--------- ---------
CASH AND DUE FROM BANKS (Note 11) $ 9,342 $ 4,098
INVESTMENT SECURITIES (Note 3):
Investment securities (market value of $54,947 in 1993) - 52,995
Investment securities available for sale 22,881 -
Investment securities held to maturity (market value of $24,371 in 1994) 25,656 -
--------- ---------
Total investment securities 48,537 52,995
LOANS (Notes 4 and 11) 79,773 73,032
Less: Reserve for possible loan losses (Note 4) (1,216) (1,856)
--------- ---------
Net loans 78,557 71,176
BANK PREMISES AND EQUIPMENT (Notes 5 and 10) 2,856 2,594
OTHER REAL ESTATE 302 319
ACCRUED INTEREST RECEIVABLE 912 869
GOODWILL 493 612
OTHER ASSETS 694 246
--------- ---------
Total assets $141,693 $132,909
========= =========
<FN>
<F1>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<TABLE>
PROGRESSIVE BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
(Dollars in Thousands, Except Share Data)
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
1994 1993
-------- --------
DEPOSITS (Note 11):
Non-interest bearing $ 21,729 $ 18,202
Interest bearing 100,032 95,464
-------- ---------
Total deposits 121,761 113,666
REPURCHASE AGREEMENTS - 1,000
OTHER BORROWED MONEY (Note 6) 6,196 5,612
ACCRUED TAXES, INTEREST AND EXPENSES 1,095 1,206
DEFERRED TAX LIABILITY (Note 7) 12 2,231
NOTE PAYABLE (Note 8) 2,735 -
NOTE PAYABLE TO AFFILIATED GROUP (Note 8) - 1,003
LIABILITY FOR STOCK SUBJECT TO TRANSFER (Note 8) - 1,889
--------- --------
Total liabilities 131,799 126,607
--------- --------
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS' EQUITY (Note 9):
Preferred stock, $1.00 par value, 1,000,000 shares authorized, 129,644 shares
issued and outstanding at December 31, 1994 and 1993; total liquidation
preference $12.50 per share plus cumulative unpaid dividends of $1,756 and
$1,594 at December 31, 1994 and 1993, respectively 130 130
Common stock, $.10 par value, 2,000,000 shares authorized, 617,670 and
627,670 shares issued and outstanding after deduction of treasury stock at
December 31, 1994 and 1993, respectively 65 65
Paid-in capital 2,016 2,016
Unrealized loss on investment securities available for sale (525) -
Accumulated earnings 8,233 4,114
Less: Treasury stock (33,642 and 23,642 shares at December 31, 1994
and 1993, respectively) (25) (23)
---------- ----------
Total shareholders' equity 9,894 6,302
---------- ----------
Total liabilities and shareholders' equity $141,693 $132,909
========== ==========
<FN>
<F1>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROGRESSIVE BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands, except share data)
<S> <C> <C> <C>
1994 1993 1992
-------- -------- --------
INTEREST INCOME:
Interest and fees on loans $ 7,858 $ 7,691 $ 7,305
Interest on securities-
U.S. Treasury and agencies 2,744 2,948 3,165
State and municipal 762 596 17
Interest on other investments 637 21 19
Interest on deposits with banks 125 87 188
-------- -------- --------
Total interest income 12,126 11,343 10,694
-------- -------- --------
INTEREST EXPENSE:
Interest on deposits 3,914 3,905 4,514
Interest on Federal funds purchased and repurchase agreements 16 24 -
Interest on notes payable and other borrowings 632 784 618
-------- -------- --------
Total interest expense 4,562 4,713 5,132
-------- -------- --------
NET INCOME 7,564 6,630 5,562
PROVISION FOR POSSIBLE LOAN LOSSES (Note 4) (648) 168 101
--------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE
LOAN LOSSES 8,212 6,462 5,461
--------- -------- --------
OTHER OPERATING INCOME:
Service charges on deposit accounts 931 933 861
Net securities gains (losses) (124) 63 114
Other income 549 466 306
--------- -------- --------
Total other operating income 1,356 1,462 1,281
--------- -------- --------
NON-INTEREST EXPENSE:
Salaries and benefits 2,582 2,228 1,894
Occupancy expense 603 469 419
Data processing fees to an affiliate (Note 10) - 265 243
FDIC assessments 265 256 237
Writedowns of Other Real Estate and other assets 67 339 518
Other operating expenses 1,780 1,668 1,359
Subsidiary earnings attributable to stock subject to transfer (Note 8) 151 386 209
-------- -------- --------
Total non-interest expense 5,448 5,611 4,879
-------- -------- --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 4,120 2,313 1,863
-------- -------- --------
PROVISION (BENEFIT) FOR INCOME TAXES (Note 7):
Current 908 778 117
Deferred (1,504) 144 (67)
--------- -------- --------
(596) 922 50
--------- -------- --------
NET INCOME BEFORE EXTRAORDINARY ITEM 4,716 1,391 1,813
EXTRAORDINARY ITEMS:
Extraordinary gain-forgiveness of debt (net of current and deferred
tax provisions of $156 and $2,225, respectively) - - 5,314
Extraordinary loss-early extinguishment of debt (net of deferred
tax benefit of $458 and $73 at December 31, 1994 and 1993,
respectively (597) (143) -
--------- --------- --------
NET INCOME 4,119 1,248 7,127
UNPAID DIVIDENDS ON PREFERRED STOCK (Note 9) (162) (164) (179)
--------- --------- --------
NET INCOME APPLICABLE TO COMMON STOCK $ 3,957 $ 1,084 $ 6,948
========= ========= ========
EARNINGS PER COMMON SHARE BEFORE EXTRAORDINARY ITEM $ 7.33 $ 1.94 $ 2.51
EXTRAORDINARY ITEM (.96) (.23) 8.16
--------- --------- --------
EARNINGS PER COMMON SHARE (Note 9) $ 6.37 $ 1.71 $ 10.67
========= ========= ========
<FN>
<F1>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROGRESSIVE BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)
FOR THE YEARS ENDING DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands except share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred Stock Common Stock Treasury Stock Unrealized Losses on Accumulated
----------------- -------------- ---------------- Paid-in Available for Sale Earnings
Shares Amount Shares Amount Shares Amount Capital Securities (Deficit)
------- ------- ------ ------ ------ ------ ------- -------------------- -----------
BALANCE, December 31, 1991 142,954 $143 651,312 $65 - $ - $2,016 $ - $(4,250)
NET INCOME-1992 - - - - - - - - 7,127
------- ----- ------- --- ----- ----- ------ ----- --------
BALANCE, December 31, 1992 142,954 143 651,312 65 - - 2,016 - 2,877
PURCHASE OF PREFERRED
STOCK (13,310) (13) - - - - - - (11)
PURCHASE OF TREASURY STOCK - - - - (23,642) (23) - - -
NET INCOME-1993 - - - - - - - - 1,248
------- ------ -------- ----- -------- ----- ----- ----- --------
BALANCE, December 31, 1993 129,644 130 651,312 65 (23,642) (23) 2,016 - 4,114
PURCHASE OF TREASURY STOCK - - - - (10,000) (2) - - -
UNREALIZED LOSSES ON
INVESTMENT SECURITIES - - - - - - - (525) -
NET INCOME-1994 - - - - - - - - 4,119
------- ---- ------- ---- -------- ------ ------ ------ --------
BALANCE, December 31, 1994 129,644 $130 651,312 $65 (33,642) $(25) $2,016 $(525) $ 8,233
======= ==== ======= ==== ========= ====== ======= ======= ========
<FN>
<F1>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROGRESSIVE BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands)
<S> <C> <C> <C>
1994 1993 1992
-------- -------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,119 $ 1,248 $ 7,127
Adjustments to reconcile net income to cash provided by operating
activities-
Writedowns of other real estate 67 332 398
Depreciation 326 220 209
Provision for loan losses (648) 168 101
Amortization of goodwill 118 118 118
Amortization of premium on investments, net of accretion of
discount on investments (31) 55 108
Extraordinary gain on forgiveness of debt - - (5,314)
Extraordinary loss on extinguishment of debt 597 143 -
Gain on sales of other real estate (146) (109) (48)
Net securities (gains) losses 124 (63) (114)
Subsidiary earnings attributable to stock subject to transfer 151 386 209
Accretion of discount on note payable 62 186 91
(Increase) decrease in other assets and accrued interest receivable (491) 108 125
Increase (decrease) in accrued liabilities (111) (150) 143
Deferred tax provision (benefit) (1,504) 144 (67)
------- ----- ------
Net cash provided by operating activities 2,633 2,786 3,086
------- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from debentures 750 - -
Proceeds from sales of investment securities 13,944 4,659 6,202
Proceeds from maturities on investment securities 10,936 10,529 11,986
Purchase of investment securities (22,083) (18,074) (24,463)
Net increase in loans (6,827) (2,337) (11,918)
Proceeds from sales of other real estate 352 244 500
Additions to bank premises and equipment (634) (393) (148)
Decrease in interest bearing deposits at banks - 49 89
-------- -------- --------
Net cash used in investing activities (3,562) (5,323) (17,752)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in non-interest bearing demand deposits 3,527 (1,083) 4,626
Net increase (decrease) in interest bearing deposits other than
certificates of deposit (688) (411) 5,263
Net increase (decrease) in certificates of deposit 5,256 (9) (1,277)
Increase (decrease) in repurchase agreements (1,000) (35) 1,035
Net proceeds on debt restructure 3,900 - 579
Payments on notes (3,285) (446) -
Payment on liability for stock subject to transfer (2,119) - -
Increase in other borrowed money 584 1,678 3,934
Purchase of preferred stock - (24) -
Purchase of treasury stock (2) (23) -
-------- -------- --------
Net cash provided by (used in) financing activities 6,173 (353) 14,160
-------- -------- --------
NET INCREASE (DECREASE) IN CASH 5,244 (2,890) (506)
CASH AT BEGINNING OF YEAR 4,098 6,988 7,494
-------- -------- --------
CASH AT END OF YEAR $ 9,342 $ 4,098 $6,988
========= ======== ========
SUPPLEMENTAL DISCLOSURE:
- -----------------------
Income taxes paid $ 1,299 $ 1,140 $ 4
========= ======== ========
Cash interest expenses paid $ 4,586 $ 4,673 $5,218
========= ======== ========
NON-CASH TRANSACTIONS:
- ---------------------
Loans transferred to other real estate $ 258 $ - $ 225
========= ======== ========
Loans made to facilitate sales of other real estate $ - $ 272 $ 373
========= ======== ========
<FN>
<F1>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
PROGRESSIVE BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, except share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Basis of Presentation
- ---------------------
Progressive Bancorporation, Inc. (the Company) is a bank holding
company whose only subsidiary is Progressive Bank and Trust Company
(Progressive or the Bank).
The Company was incorporated under Louisiana law on July 5, 1983
and acquired 100% of the shares of Progressive Bancshares
Corporation, the former holding company of the Bank, effective
March 8, 1984.
Certain reclassifications have been made to the prior period
financial information in order to conform to current year
presentation.
The accounting principles and reporting policies of the Company
conform with generally accepted accounting principles. The
following is a description of the more significant of these
policies.
Consolidation
- -------------
The consolidated financial statements include the accounts of the
Company and its 100% owned subsidiary, Progressive Bank and Trust
Company. Intercompany accounts and transactions are eliminated in
consolidation.
Investment Securities
- ---------------------
Effective January 1, 1994, the Company adopted Financial Accounting
Standards Board (FASB) Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." This standard
addresses the accounting and reporting for investments in equity
securities that have a readily determinable fair value and for all
investments in debt securities and requires classification of
securities as trading, available for sale or held to maturity.
Management determines the classification of its securities when
they are purchased. The Company does not engage in trading
activities related to any of its investment securities. Securities
which the Company has the intent and ability to hold until maturity
are classified as held to maturity. These securities are stated at
cost, adjusted for amortization of premiums and accretion of
discounts. Securities which may be sold in response to interest
rates, liquidity needs or other factors are classified as available
for sale. These securities are reflected at fair value, and net
unrealized gains or losses are reflected as a separate component of
shareholders" equity, net of income tax effects. As of January 1,
1994 the unrealized gain on available for sale securities, net of
tax effects, was $695.
During 1994, the Bank sold $14,839 of securities out of its
available for sale portfolio, resulting in gross realized losses of
$909 and gross realized gains of $35. In addition, the Company
realized a gain of $750 on the redemption of FCB debentures, as
discussed further in Note 3. No securities were sold from the
Bank's held to maturity portfolio. Prior to the adoption of FASB
Statement No. 115, the Company accounted for all securities at
cost, adjusted for amortization of premiums and accretion of
discounts. During 1993, the Bank sold $4,596 of its securities
resulting in gross realized gains of $78 and gross realized losses
of $15. During 1992, the Bank sold $6,088 of its securities
resulting in gross realized gains of $114 and no realized losses.
Interest earned on investment securities is included in interest
income. Amortization of premiums and accretion of discounts are
computed using the interest method. The adjusted cost of the
specific security sold is used to compute the gain or loss on the
sale of an investment security. Such gains or losses are shown
separately as a component of other income in the consolidated
statements of income.
Loans
- -----
Loans are stated at the principal balance outstanding less unearned
discount on consumer loans. Interest on loans, other than consumer
loans, is recognized as income based on the principal balance
outstanding. Interest on certain consumer loans is recognized as
income over the term of the loan using the sum-of-the-months-digits
method, which approximates the interest method. Loans are placed
on non-accrual status when, in the opinion of management, there
exists sufficient uncertainty as to the collectibililty of the
contractual principal. Income is recorded on a cash basis for non-
accrual loans.
Provision and Reserve for Possible Loan Losses
- ----------------------------------------------
The provision for possible loan losses charged to operating expense
is determined by management based on a review of Progressive's past
loan loss experience and an evaluation of the quality of the
current loan portfolio. The reserve for possible loan losses is
based upon estimates, and ultimate losses may vary from current
estimates. These estimates are reviewed periodically and, as
adjustments become necessary, they are reported in earnings in the
periods in which they become known.
Premises and Equipment
- ----------------------
Bank premises and equipment are stated at cost, less accumulated
depreciation. Depreciation expense is computed primarily on a
straight-line basis over the estimated useful lives of the
depreciable assets (Note 5). Maintenance and repairs are charged
to operating expense, and gains or losses on dispositions are
reflected currently in the consolidated statements of income.
Income Taxes
- ------------
Income taxes are accounted for in accordance with Statement of
Financial Accounting Standards No. 109, which was adopted by the
Company on January 1, 1993. Under this statement, deferred income
taxes are provided for by the liability method (Note 7).
Other Real Estate
- -----------------
The cost basis of foreclosed real estate and other assets is
established at the lower of the loan balance or estimated fair
value less estimated selling costs at the time of foreclosure. Any
excess of the loan balance over the fair value less estimated
selling costs at foreclosure is charged to the reserve for possible
loan losses. The other real estate portfolio is evaluated
periodically and subsequent declines in the fair value of the
assets below the initial cost basis are reflected in earnings in
the period the decline is noted. Cost basis is periodically
adjusted for each asset as its fair value changes; however, the
carrying value of each asset never exceeds the initial cost basis.
Expenses associated with owning and operating other real estate and
gains and losses on disposition of such assets are recorded in
earnings in the period incurred.
Goodwill
- --------
The excess of cost over fair value of tangible assets acquired in
purchase transactions, identified as goodwill, is being amortized
to other operating expense on a straight-line basis over 15 years.
New Financial Accounting Standards
- ----------------------------------
Statement of Financial Accounting Standards No. 107, issued by the
FASB during 1991, requires disclosure of fair value information for
financial instruments. The Company is required to adopt this
statement for the year ended December 31, 1995.
In November, 1992, the FASB issued Statement No. 112, "Employers'
Accounting for Postemployment Benefits," which is effective for the
Company for the year ended December 31, 1994. This statement had
no material impact on the Company.
In May, 1993, the FASB issued Statement No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by Statement No.
118, which requires that impaired loans that are within the scope
of this statement be measured based on the present value of
expected future cash flows discounted at the loan's effective
interest rate or at the loan's market price or the fair value of
the collateral if the loan is collateral dependent. Adoption of the
new standard is required for fiscal years beginning after December
15, 1994. The standard is to be adopted prospectively with the
effect of initially applying the standard to be reflected as an
adjustment to the Bank's provision for loan losses in the year of
adoption. As of December 31, 1994, $231 of loans would be impacted
by the standards. The effect, if any, the new standard may have on
the Bank's financial position and results of operations is not
expected to be significant.
In October, 1994, the FASB issued Statement No. 119, "Disclosure
about Derivative Financial Instruments and Fair Value of Financial
Instruments." The Company is required to adopt this statement for
the year ended December 31, 1995.
Regulatory Matters
- ------------------
Certain normal restrictions exist regarding the ability of the Bank
to transfer funds to the Company as loans, advances or dividends.
The Bank's capital ratios exceeded regulatory requirements as of
December 31, 1994.
2. MERGER PLAN:
-----------
On December 1, 1994, the Company and Hibernia Corporation
("Hibernia") entered into an Agreement and Plan of Merger (the
"Agreement") pursuant to which the Company would merge with and
into Hibernia and each outstanding share of the Company's preferred
stock would be converted into the right to receive cash in the
amount of $12.50 per share plus all accumulated and unpaid
dividends (totalling $1,756 as of December 31, 1994) and each
outstanding share of the Company's Common Stock would be converted
into the number of shares of Hibernia Class A Common Stock that
equals the exchange rate as determined on the closing date. The
exchange rate is based on 2,500,000 shares of Hibernia Class A
Common Stock being exchanged for all outstanding shares of the
Company's common stock.
The merger is subject, among other things, to receipt of regulatory
and shareholder approvals, and is currently expected to be
completed during the second quarter of 1995.
3. INVESTMENT SECURITIES:
---------------------
The amortized cost and estimated fair value of investment
securities at December 31, were:
<TABLE>
<CAPTION>
1994
----------------
Gross Unrealized
Amortized ---------------- Estimated
Description Cost Gains Losses Fair Value
----------- --------- ----- ------ ----------
Available for Sale
- ------------------
<S> <C> <C> <C> <C>
U. S. Treasury $ 1,000 $ 10 $ - $ 1,010
U. S. government agencies:
Mortgage-backed securities 6,581 21 (296) 6,306
Collateral mortgage obligations 7,984 19 (279) 7,724
Other 1,832 - (43) 1,789
State and municipal obligations, net 5,509 16 (240) 5,285
Other 767 - - 767
-------- ------- -------- --------
Totals $ 23,673 $ 66 $ (858) $ 22,881
======== ======= ======== ========
Held to Maturity
- ----------------
U. S. Treasury $ 395 $ - $ (19) $ 376
U. S. government agencies:
Mortgage-backed securities 10,170 26 (462) 9,734
Collateral mortgage obligations 2,013 - (177) 1,836
Other 3,584 - (131) 3,453
State and municipal obligations, net 9,494 - (522) 8,972
-------- ------- -------- --------
Totals $ 25,656 $ 26 $(1,311) $ 24,371
======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
1993
----------------
Gross Unrealized
Amortized ---------------- Estimated
Description Cost Gains Losses Fair Value
----------- --------- ----- ------ ----------
<S> <C> <C> <C> <C>
U. S. Treasury $ 4,996 $ 200 $ - $ 5,196
U. S. government agencies:
Mortgage-backed securities 17,657 561 (58) 18,160
Collateral mortgage obligations 14,859 311 (82) 15,088
Other 2,512 67 - 2,579
State and municipal obligations, net 12,265 981 (28) 13,218
Other 706 - - 706
-------- ------- -------- --------
Totals $ 52,995 $ 2,120 $ (168) $ 54,947
======== ======= ======== ========
</TABLE>
Amortized cost and estimated fair value of debt securities at
December 31, 1994, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
Amortized Estimated
Cost Fair Value
--------- ----------
Available for Sale
- ------------------
<S> <C> <C>
Due in 1 year or less $ 1,000 $ 1,010
Due after 1 year through 5 years 1,693 1,662
Due after 5 years through 10 years 3,534 3,416
Due after 10 years 2,881 2,763
-------- --------
Subtotal 9,108 8,851
Mortgage-backed securities, including
collateral mortgage obligations 14,565 14,030
-------- --------
Total $ 23,673 $ 22,881
======== ========
Held to Maturity
- ----------------
<S> <C> <C>
Due in 1 year or less $ - $ -
Due after 1 year through 5 years 1,994 1,943
Due after 5 years through 10 years 1,190 1,110
Due after 10 years 10,289 9,748
-------- --------
Subtotal 13,473 12,801
Mortgage-backed securities, including
collateral mortgage obligations 12,183 11,570
-------- --------
Total $ 25,656 $ 24,371
======== ========
</TABLE>
The Bank's mortgage-backed securities consist of ownership
interests in pools of residential mortgages guaranteed by a U. S.
government agency with contract maturities ranging from 2 to 29
years; however, the underlying mortgages are subject to significant
prepayments, primarily when the contractual interest rates exceed
the current market rate on similar mortgages. Based on current
prepayment assumptions, the estimated average remaining life of
fixed rate mortgage-backed securities and collateral mortgage
obligations is approximately 5 years at December 31, 1994.
Investment securities with book values of $11,940 and $12,457 at
December 31, 1994 and 1993, respectively, were pledged to secure
public funds and for other purposes.
Progressive held a $750 investment in debentures of an affiliated
bank representing 12% mandatory convertible subordinated debentures
of First Continental Bancshares, Inc. (FCB). The debentures were
issued in 1986 and were to mature in 1996 with principal payment to
be made with 78 shares of FCB common stock per thousand in
debenture face value. During 1988, a reserve equal to the cost of
these debentures was recorded. During 1994, FCB and Hibernia
Corporation (Hibernia) merged. Under the terms of the agreement,
Hibernia redeemed all of the outstanding principal and accrued
interest related to FCB's outstanding debentures. The debenture
agreement required a redemption price of 105% if redeemed during
the twelve-month period ending November 15, 1994. Therefore, the
Bank received $750 of principal and accrued interest of $558 on
August 1, 1994 and a premium of approximately $38. As discussed
above, the Bank had assigned no value to the FCB debentures and
related accrued interest in the accompanying financial statements;
therefore, the Bank recognized income upon collection of the
principal, accrued interest and related premium. The accrued
interest and premium are included in interest on other investments.
The collection of principal is included in net securities gains
(losses).
4. LOANS AND RESERVE FOR POSSIBLE LOAN LOSSES:
------------------------------------------
The composition of the loan portfolio at December 31, was as
follows:
<TABLE>
1994 1993
------ -----
<s > <C> <C>
Commercial, financial and agricultural not
secured by real estate $13,123 $11,103
Real estate-construction 1,420 999
Real estate-mortgage 51,097 47,258
Consumer 14,656 14,212
-------- --------
Gross loans 80,296 73,572
Less: Unearned income (523) (540)
-------- --------
Total loans $79,773 $73,032
======== ========
</TABLE>
The Bank grants commercial, real estate and consumer loans to
customers located primarily in Terrebonne Parish and the
surrounding area. Although the Bank's portfolio consists of
business loans extending across many industry types, as well as
loans to individuals, a substantial portion of its debtors' ability
to honor their contracts is dependent upon the marine
transportation, agricultural and petro-chemical business economic
sectors.
The Bank evaluates the credit risk of each customer on an
individual basis and, where deemed appropriate, collateral is
obtained. Collateral varies by individual loan customer but may
include accounts receivable, inventory, real estate, equipment,
deposits, personal and government guarantees, and general security
agreements. Access to collateral is dependent upon the type of
collateral obtained. On an on-going basis, the Bank monitors its
collateral and the collateral value related to the loan balance
outstanding.
Nonperforming and under performing loans at December 31, were as
follows:
<TABLE>
1994 1993
------ ------
Loans:
<S> <C> <C>
90 days or more past due, but still accruing interest $ 4 $ 11
Non-accrual loans 231 75
------ -------
Total nonperforming and under performing loans $ 235 $ 86
====== =======
</TABLE>
There was no income recognized on the cash basis for non-accrual
loans in 1994, 1993 and 1992, respectively. If the accrual of
interest on non-accrual loans had not been suspended, the income
recorded would have been approximately $11, $3, and $9 in 1994,
1993 and 1992, respectively. There were no material renegotiated
loans outstanding during 1994 or 1993.
In the opinion of management, progress has been made in its credit
risk management process, and only normal risk and loss potential
remain in the loan portfolio. Consequently, the Company does not
anticipate significant increases in the level of nonperforming
assets in the foreseeable future. The current level of
nonperforming assets is not anticipated to have a significant,
adverse effect on the results of operations of the Company.
Progressive's provision for possible loan losses charged to expense
is determined in accordance with the policy described in Note 1.
Transactions in the reserve for possible loan losses for 1994, 1993
and 1992 were as follows:
<TABLE>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Balance, beginning of year $1,856 $1,588 $1,553
Provision for possible loan losses (648) 168 101
Losses charged to the reserve (95) (84) (232)
Recoveries of loans previously charged-off 103 184 166
------- ------- -------
Balance, end of year $1,216 $1,856 $1,588
======= ======= =======
</TABLE>
5. BANK PREMISES AND EQUIPMENT
---------------------------
Bank premises and equipment, stated at cost less accumulated
depreciation, were as follows at December 31, 1994 and 1993:
<TABLE>
Estimated
Useful Lives 1994 1993
------------ ------ ------
<S> <C> <C>
Land - $ 808 $ 808
Buildings 10-25 years 2,962 2,729
Furniture, fixtures and equipment 3-10 years 1,279 2,358
------- ------
5,049 5,895
Less-accumulated depreciation (2,193) (3,301)
------- -------
$2,856 $2,594
</TABLE>
Depreciation included in occupancy expenses totalled $326, $220 and
$209 in 1994, 1993 and 1992, respectively. During the year, the
Company wrote off certain fully depreciated assets which were no
longer in use.
6. OTHER BORROWED MONEY:
--------------------
Other borrowed money consists of borrowings from the Federal Home
Loan Bank with maturities ranging from 2-15 years. The rates on
these borrowings range from 4.6%-6.9% and are offset by mortgage
loans of similar duration with higher interest rates. The Company
collateralizes its other borrowings with a blanket floating lien on
portions of its residential loan portfolio, which had a value of
$12,672 at December 31, 1994.
7. FEDERAL INCOME TAX:
------------------
On January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
The adoption of this statement did not have a material effect on
the Company's financial statements and is included in deferred tax
provision in the 1993 statement of income.
As of December 31, deferred income taxes consisted of the
following:
<TABLE>
Tax Effect of
Temporary Differences
----------------------
1994 1993
------- ------
DEFERRED ASSETS:
<S> <C> <C>
Reserve for loan losses $ - $ 101
Other real estate 311 372
Unrealized loss on available for sale securities 270 -
Other 32 33
------- --------
Subtotal 613 506
------- --------
DEFERRED LIABILITIES:
Basis difference in investment in Bank - (1,883)
Bank premises and equipment (474) (469)
Note payable discount - (279)
Reserve for loan losses (119) -
Other (32) (7)
-------- -------
Subtotal (625) (2,638)
-------- -------
VALUATION ALLOWANCE - (99)
-------- --------
NET DEFERRED LIABILITY $ (12) $(2,231)
======== ========
</TABLE>
As of December 31, 1993, deferred taxes had been provided on the
difference between the book basis and the tax basis of the
Company's investment in the stock of the Bank. As a result of the
exercise of its option to repurchase the right to 19.5% ownership
of the Bank (see Note 8), whereby the Company will continue to own
100% of the Bank, and the merger agreement with Hibernia, the
Company has determined that such deferred taxes are no longer
required. Such amount has been recorded as a reduction of the
deferred tax provision in 1994.
Under SFAS No. 109, a valuation allowance must be established
against deferred tax assets if, based on all available evidence, it
is more likely than not that some or all of the assets will not be
realized. In 1993, the Company provided a valuation allowance to
the extent that a loss would have been generated for tax purposes
upon the transfer of 19.5% of its share of the Bank's stock (Note
8) due to the uncertainty regarding its ultimate realization. The
valuation allowance was reversed in 1994 as part of the tax benefit
on the extraordinary loss on early extinguishment of debt.
Total tax expense on income before taxes for 1994, 1993, and 1992
resulted in effective tax rates that differed from the Federal
statutory income tax rate. A reconciliation follows:
<TABLE>
Consolidated
-----------------------
1994 1993 1992
------ ----- -----
<S> <C> <C> <C>
Statutory Federal income tax rate 34.0% 34.0% 34.0%
Non-taxable income on investments and loans (5.7) (8.2) (0.9)
Amortization of purchase accounting adjustments 1.0 1.8 2.5
Reversal of basis differences (44.0) - -
Recognition of net operating loss carryforwards - - (37.1)
Alternative minimum taxes receivable - - (1.3)
Change in valuation allowance - 4.3 -
Other items .2 8.0 5.5
------- ----- ----
Effective tax rate (14.5%) 39.9% 2.7%
======= ===== ====
</TABLE>
As of December 31, 1994, the Company has no operating loss
carryforward available to offset future taxable income for
financial statement or tax purposes.
The Company and its bank subsidiary have a tax sharing arrangement
whereby Progressive's income taxes are determined as if it were a
separate taxpayer. Any such taxes are payable by Progressive to
the Company if the Company is required to pay current taxes.
8. NOTES PAYABLE:
-------------
On May 18, 1992, the Company borrowed $2,250 from a group of
investors affiliated with the Bank (affiliated group). The note
bore interest at 17% with interest at 12% payable quarterly and
simple interest in excess of 12% due on April 30, 1997 along with
all principal outstanding. The loan proceeds were used to retire
the Company's debt, along with all accrued interest payable to the
previous lenders. The Company recognized an extraordinary gain on
the retirement of this debt of approximately $5,314, net of tax
effect, which is reflected in the accompanying consolidated
statements of income. At the earlier of April 30, 1997 or the
repayment of all principal and interest on the note, the affiliated
group had the right to effect the transfer of 435 shares,
representing 19.5% of the total number of issued and outstanding
shares of common stock of the Bank, from the Company to the
affiliated group. Until April 30, 1994, the Company had the option
to purchase the affiliated group's right to the stock at book
value. For financial statement purposes, the book value of the
19.5% interest in the outstanding common stock of the Bank at May
18, 1992 was calculated based on the Company's investment in the
Bank at that date and amounted to $1,294. The note payable to the
affiliated group was reduced by this amount as a discount which was
being accreted over the term of the note at 10.3% compounded
quarterly, or approximately 48% per year. The original discount
amount plus 19.5% of the undistributed earnings of the Bank from
May 18, 1992 was reflected in the consolidated balance sheet as
liability for stock subject to transfer. This amount was
equivalent to 19.5% of the book value of the Company's investment
in the Bank.
During 1993, the Company prepaid $446 of principal on this note,
resulting in accelerated accretion of the discount related to this
prepaid principal. On April 26, 1994, the Company retired this
note by paying the affiliated group approximately $1,800 in
principal and $300 in interest accrued through that date. As a
result of the early debt retirement, the Company recognized an
extraordinary loss of $597, net of tax effect, in April, 1994.
In connection with the affiliated debt retirement, the Company
exercised its option to purchase, for 19.5% of the book value of
the Bank's stockholders' equity as of March 31, 1994, the
affiliated group's right to receive 19.5% of the Company's
investment in the Bank's stock upon retirement of the debt. The
consideration paid to the affiliated group on April 26, 1994
amounted to approximately $2,100. This amount eliminated the
Company's liability for stock subject to transfer account balance
during April, 1994.
The Company obtained a loan from Hibernia National Bank amounting
to $3,904 to facilitate the retirement of the affiliated debt and
the exercise of its option to purchase the affiliated group's right
to receive 19.5% of the Company's investment in the Bank's stock.
The terms of the loan from Hibernia National Bank require quarterly
payments of principal and interest, with principal payments based
on a seven-year amortization and interest accruing at the Citibank
Prime Rate plus .60%. The loan is unsecured and matures on April
26, 1999. As of December 31, 1994, the Company owed $2,735 on the
loan to facilitate this debt extinguishment. Principal repayments
on this obligation are required as follows:
Year Amount Due
---- ----------
1995 $ 93
1996 558
1997 558
1998 558
1999 968
------
$2,735
======
9. SHAREHOLDERS' EQUITY:
--------------------
Consolidated net income per common share is calculated based upon
weighted average common shares outstanding of 621,560 for the year
ended December 31, 1994, 632,878 for the year ending December 31,
1993 and 651,312 for the year ending December 31, 1992, with the
consolidated net income adjusted to reflect unpaid annual dividends
on cumulative preferred stock of $162 (at $1.25 per share) in 1994,
$164 (at $1.25 per share) in 1993, and $179 (at $1.25 per share) in
1992.
During 1993, the Company purchased and retired 13,310 shares of
preferred stock outstanding. The shares (face value of $13) and
all accumulated dividends in arrears related to the shares ($146
through the dates of purchase) were retired for $24. During 1994
and 1993, the Company purchased 10,000 and 23,642 shares of
outstanding common stock for $.10 per share and $1.00 per share,
respectively. The total costs of these purchases are reflected as
treasury stock in the consolidated balance sheets.
During 1993, the Bank declared a 1-for-100 reverse stock split,
which had the effect of reducing the number of outstanding shares
and increasing the par value of the Bank's common stock. The
purpose of the reverse stock split was to cash out small minority
interest owners of the Bank. All share amounts at Note 14 were
restated to reflect this reverse stock split. The reverse stock
split had no effect on the consolidated financial statements.
10. RELATED PARTY TRANSACTIONS:
-------------------------
Progressive has a number of banking relationships with other banks
which have certain significant shareholders and directors in
common. The most significant of these relationships relates to
loan participations purchased from and sold to these banks.
Participations purchased amounted to $2,947 and $2,337 and
participations sold totalled $3,775 and $3,716 at December 31, 1994
and 1993, respectively, related to these banks.
In September 1987, Progressive entered into an agreement with an
affiliated bank for data processing services. Fees paid under this
agreement were $265 and $243 in 1993 and 1992, respectively. This
agreement was terminated at the end of 1993. In 1994 Progressive
contracted with an outside third party to perform certain data
processing services and other such services were performed in-
house.
In 1993 and 1992 certain loan review, internal audit and consulting
services were performed for the Bank by a related bank. Charges
for these services are included in other operating expenses and
totalled approximately $43 and $40 in 1993 and 1992, respectively.
These services were discontinued at the end of 1993.
The Company sold land and buildings utilized as the main office and
operations center to the Bank in 1985 for $2,100 based on
appraisals obtained. These fixed assets had a net book value at
the time of sale of $1,527 and the Company recognized a gain of
$573. Due to the related party nature of this transaction, this
gain has not been recognized in the consolidated or parent company
financial statements, with the excess of sales price over book
basis being eliminated in consolidation. As of December 31, 1994,
$375 of net excess basis remains on the Bank's financial
statements.
In the ordinary course of business, Progressive makes loans to its
directors, principal shareholders and officers. These loans are
made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other customers, and do not involve more than
normal risk of collectibility or present other unfavorable
features. An analysis of loans outstanding during 1994 to
directors, principal shareholders and officers, including their
family members and companies in which they have a significant
ownership interest, follows:
Balance Balance
------- -------
12/31/93 Additions Repayments 12/31/94
--------- ----------
$4,196 $2,945 $3,294 $3,847
11. COMMITMENTS AND CONTINGENCIES:
-----------------------------
The Company is involved in various litigation which is routine to
the nature of its business. Management believes that resolution of
these matters will not result in any material adverse effect on the
financial statements.
Progressive is required to maintain cash on hand and non-interest
bearing balances with correspondent banks to fulfill its regulatory
reserve requirements. The average required reserve was
approximately $544 and $637 in 1994 and 1993, respectively.
In the normal course of business, there are various outstanding
commitments to extend credit which are not reflected in the
consolidated financial statements. At December 31, 1994 and 1993
outstanding commitments under standby letters of credit were
approximately $520 and $378, respectively.
Additionally, in the normal course of business, there are various
other commitments and contingent liabilities which are not
reflected in the financial statements. Loan commitments are
single-purpose commitments to lend which will be funded and reduced
according to specified repayment schedules. Most of these
commitments have maturities of less than one year. Total loan
commitments outstanding at December 31, 1994 were approximately
$2,458. Lines of credit are commitments to lend up to a specified
amount for a period not to exceed one year. Amounts outstanding
under lines of credit fluctuate because they are generally used to
finance short-term, seasonal working capital needs of the borrower.
Total unfunded lines of credit outstanding as of December 31, 1994
were approximately $6,805. The Bank also offers credit cards to
its customers; unfunded lines of credit outstanding under credit
card agreements were approximately $2,263 at December 31, 1994.
The Bank uses the same credit policies in making commitments and
issuing standby letters of credit as it does for on-balance-sheet
instruments. The Bank evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Bank upon extension of credit is based on
management's credit evaluation of the counterparty. Collateral
held varies but may include certificates of deposit, accounts
receivable, inventory, property, plant and equipment, and income-
producing properties. There are no commitments which present an
unusual risk to the Bank, and no material losses are anticipated as
a result of these transactions.
The principal source of liquidity for Progressive is core deposits.
Progressive has none of its deposits brokered or purchased in the
national market. At December 31, 1994, 30% of Progressive's
interest-bearing deposits were equal to or exceeded $100. In
management's opinion, funding and liquidity at Progressive is
adequate to meet its current financial commitments.
12. EMPLOYEE BENEFIT PLANS:
----------------------
Effective January 1, 1988, the Company adopted a defined
contribution savings plan for its employees. Under the terms of
the plan, the Company makes a matching contribution of no less than
40% of the first 3% of the employee's compensation contributed.
For both 1994 and 1993, the employer made discretionary
contributions as authorized by the Board of Directors of 200% of
the first 4% and 3%, respectively, of the employees' compensation
contributed, resulting in contributions of $119 and $76,
respectively. The Company offers no postretirement benefits to its
employees.
The Chief Executive Officer has an employment agreement which
provides for a payment of three years' salary upon change of
control of the Company. In addition, retention agreements were
adopted in 1994 to encourage certain other officers of the Bank to
continue their employment with the Bank in the context of ongoing
merger discussions between the Company and certain non-affiliated
financial institutions. These agreements were executed primarily
to maintain stability within the organization and reduce the risk
of loss of key members of management before consummation of any
potential merger or acquisition of the Company. The retention
agreements, including the Chief Executive's employment agreement,
provide that if the Officers and Executive Officers remain with the
Bank through the consummation of a merger, and certain other
conditions are satisfied, they would receive additional
compensation aggregating approximately $862. This amount will be
recorded as compensation expense upon consummation of the merger
discussed in Note 2.
13. PARENT COMPANY ONLY FINANCIAL INFORMATION:
-----------------------------------------
Condensed financial statements of Progressive Bancorporation, Inc.,
parent company only, follow:
PROGRESSIVE BANCORPORATION, INC.
CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
(Dollars in Thousands)
<TABLE>
1994 1993
------ -------
ASSETS:
<S> <C> <C>
Cash and temporary investments held at subsidiary bank $ 289 $ 1,136
Investment securities 395 -
Investment in subsidiary bank 11,306 9,706
Goodwill 493 612
Other assets 188 124
------- --------
Total assets $12,671 $ 11,578
======= ========
LIABILITIES:
Deferred tax liability $ - $ 2,261
Notes payable 2,735 1,003
Liability for stock subject to transfer - 1,889
Other liabilities 42 123
Total liabilities 2,777 5,276
------- --------
SHAREHOLDERS' EQUITY:
Preferred stock 130 130
Common stock 65 65
Paid-in capital 2,016 2,016
Retained earnings 8,233 4,114
Unrealized loss on available for sale securities (525) -
Treasury stock (25) (23)
-------- ---------
Total shareholders' equity 9,894 6,302
-------- ---------
Total liabilities and shareholders' equity $12,671 $ 11,578
======== =========
</TABLE>
PROGRESSIVE BANCORPORATION, INC.
CONDENSED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands)
<TABLE>
1994 1993 1992
------- ------- --------
REVENUES:
<S> <C> <C> <C>
Other income $ 29 $ 34 $ 28
------- ------- -------
29 34 28
------- ------- -------
EXPENSES:
Interest and other expenses 519 659 534
Amortization of purchase accounting adjustments 127 122 122
Stock subject to transfer expense 151 386 209
-------- ------- -------
797 1,167 865
-------- ------- -------
LOSS BEFORE TAXES, DIVIDENDS, EQUITY IN
UNDISTRIBUTED INCOME OF SUBSIDIARY BANK AND
EXTRAORDINARY ITEM (768) (1,133) (837)
BENEFIT FOR INCOME TAXES 2,021 82 1,169
DIVIDENDS FROM SUBSIDIARY BANK 1,339 446 -
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY
BANK 2,124 1,996 1,481
-------- ------- -------
NET INCOME BEFORE EXTRAORDINARY ITEM 4,716 1,391 1,813
EXTRAORDINARY ITEMS:
Debt forgiveness - - 5,314
Debt extinguishment (597) (143) -
--------- ------- ------
NET INCOME $ 4,119 $ 1,248 $ 7,127
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
PROGRESSIVE BANCORPORATION, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands)
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,119 $ 1,248 $ 7,127
Adjustments to reconcile net income to cash provided by
operating activities:
Amortization of purchase accounting adjustments 127 122 122
Accretion of note payable discount 62 186 91
Equity in subsidiary Bank's net income (3,463) (2,442) (1,481)
Extraordinary gain on forgiveness of debt - - (5,314)
Extraordinary loss on early extinguishment of debt 597 143 -
Decrease in other assets (72) - (20)
Increase (decrease) in liability for stock subject to transfer (1,889) 386 269
Increase (decrease) in other liabilities (1,885) 66 230
-------- ------- -------
Net cash provided by (used in) operating activities (2,404) (423) 1,024
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities (395) - -
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of notes payable (3,285) (446) -
Net proceeds on debt restructure 3,900 - 579
Purchase of preferred stock - (24) -
Purchase of treasury stock (2) (23) -
Dividends from subsidiary bank 1,339 446 -
-------- ------- -------
Net cash provided by (used in) financing activities 1,952 (47) 579
--------- ------- -------
NET INCREASE (DECREASE) IN CASH (847) (470) 1,603
CASH AT BEGINNING OF YEAR 1,136 1,606 3
-------- ------- -------
CASH AT END OF YEAR $ 289 $ 1,136 $ 1,606
======= ======== =======
CASH INTEREST EXPENSES PAID $ 293 $ 268 $ 135
======= ======== =======
CASH INCOME TAXES PAID $ 1,299 $ 259 $ 4
======= ======== =======
</TABLE>
14. BANK ONLY FINANCIAL INFORMATION:
-------------------------------
The condensed balance sheets and statements of income of Progressive Bank and
Trust follow:
<TABLE>
<CAPTION>
PROGRESSIVE BANK AND TRUST COMPANY
CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
(Dollars in Thousands)
ASSETS
1994 1993
-------- -------
<S> <C> <C>
CASH AND DUE FROM BANKS $ 9,342 $ 4,098
INVESTMENTS, at cost - 52,995
INVESTMENTS, available for sale 22,881 -
INVESTMENTS, held to maturity 25,261 -
LOANS 79,773 73,032
Less-Reserve for possible loan losses (1,216) (1,856)
--------- ---------
Net loans 78,557 71,176
BANK PREMISES AND EQUIPMENT 3,231 2,989
OTHER REAL ESTATE 302 319
ACCRUED INTEREST RECEIVABLE 908 869
OTHER ASSETS 510 122
--------- ----------
Total assets $ 140,992 $ 132,568
========= ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
DEPOSITS:
Non-interest bearing $ 21,729 $ 18,202
Interest bearing 100,321 96,600
--------- ---------
Total deposits 122,050 114,802
REPURCHASE AGREEMENTS - 1,000
OTHER BORROWED MONEY 6,196 5,612
ACCRUED TAXES, INTEREST AND EXPENSES 1,066 1,056
--------- ---------
Total liabilities 129,312 122,470
SHAREHOLDER'S EQUITY:
Common stock, $500 par value at December 31, 1994 and 1993,
2,232 shares issued and outstanding at December 31, 1994 and 1993 1,116 1,116
Paid-in capital 3,883 3,883
Unrealized loss on available for sale securities (525) -
Retained earnings 7,206 5,099
---------- ---------
Total shareholder's equity 11,680 10,098
---------- ---------
Total liabilities and shareholder's equity $ 140,992 $ 132,568
========== =========
</TABLE>
<TABLE>
<CAPTION>
PROGRESSIVE BANK AND TRUST COMPANY
CONDENSED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(Dollars in Thousands)
1994 1993
--------- --------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 7,858 $ 7,691
Interest on securities-
U. S. Treasury and agencies 2,732 2,969
State and municipal 762 596
Interest on other investments 637 -
Interest on deposits with banks 125 87
-------- --------
Total interest income 12,114 11,343
-------- --------
INTEREST EXPENSE:
Interest on deposits 3,931 3,939
Interest on Federal funds purchased and repurchase agreements 16 24
Interest on other borrowings 335 339
-------- --------
Total interest expense 4,282 4,302
-------- --------
NET INTEREST INCOME 7,832 7,041
PROVISION FOR POSSIBLE LOAN LOSSES (648) 168
--------- --------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 8,480 6,873
--------- --------
OTHER OPERATING INCOME:
Service charges on deposit accounts 931 933
Net securities gains (losses) (124) 63
Other income 547 466
--------- --------
Total other operating income 1,354 1,462
--------- --------
NON-INTEREST EXPENSE:
Salaries and benefits 2,582 2,228
Occupancy expense 620 486
Data processing fees to an affiliate - 265
Other operating expenses 1,761 1,927
-------- --------
Total non-interest expense 4,963 4,906
-------- --------
INCOME BEFORE INCOME TAXES 4,871 3,429
-------- --------
PROVISION FOR INCOME TAXES:
Current 1,125 977
Deferred 300 27
-------- --------
1,425 1,004
-------- --------
NET INCOME $ 3,446 $ 2,425
======== ========
</TABLE>
<PAGE>
ARTHUR ANDERSEN LLP
BANK OF ST. JOHN
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1993
TOGETHER WITH AUDITORS' REPORT
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of Bank of St. John:
We have audited the accompanying balance sheets of Bank of St. John
(a Louisiana corporation) as of December 31, 1994 and 1993, and the
related statements of income, shareholders' equity and cash flows
for the years then ended. These financial statements are the
responsibility of the Bank's management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Bank of
St. John as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
As discussed in Notes 1 and 6 to the financial statements,
effective January 1, 1994, the Bank changed its method of
accounting for investment securities and effective January 1, 1993,
the Bank changed its method of accounting for income taxes.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
New Orleans, Louisiana
March 29, 1995
<PAGE>
BANK OF ST. JOHN
BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
(Dollars in Thousands)
ASSETS
<TABLE>
1994 1993
-------- -------
<S> <C> <C>
CASH AND DUE FROM BANKS $ 13,628 $ 5,689
FEDERAL FUNDS SOLD 4,700 2,300
INTEREST BEARING DEPOSITS IN OTHER BANKS 25 149
INVESTMENTS (Market value of $35,826 in 1993) - 34,865
INVESTMENT SECURITIES AVAILABLE FOR SALE,
at fair value 23,347 -
INVESTMENT SECURITIES HELD TO MATURITY,
(market value of $11,499 in 1994) 11,888 -
LOANS 66,917 60,995
Less: Reserve for possible loan losses (954) (788)
________ ________
Net loans 65,963 60,207
BANK PREMISES AND EQUIPMENT, net 1,506 1,454
OTHER REAL ESTATE, net 126 378
ACCRUED INTEREST RECEIVABLE 852 700
OTHER ASSETS 1,677 767
________ ________
Total assets $123,712 $106,509
======== ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
BANK OF ST. JOHN
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(Dollars in Thousands, Except Share Data)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
1994 1993
-------- --------
DEPOSITS:
<S> <C> <C>
Non-interest bearing $ 15,270 $ 15,094
Interest bearing 95,329 79,746
________ ________
Total deposits 110,599 94,840
ACCRUED INTEREST AND OTHER LIABILITIES 1,289 1,069
________ ________
Total liabilities 111,888 95,909
________ ________
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY:
Common stock, $2.50 par value, 400,000
shares authorized, 300,000 shares
issued and outstanding 750 750
Surplus 2,250 2,250
Undivided profits 9,630 7,600
Unrealized loss on investment securities
available for sale (806) -
________ ________
Total shareholders' equity 11,824 10,600
________ ________
Total liabilities and
shareholders' equity $123,712 $106,509
======== ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
BANK OF ST. JOHN
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(Dollars in Thousands, Except Per Share Data)
<TABLE>
1994 1993
-------- --------
INTEREST INCOME:
<S> <C> <C>
Interest and fees on loans $ 6,163 $ 5,276
Interest on investments-
United States Treasury securities 626 660
United States Government agency and
mortgage-backed securities 1,640 2,211
Obligations of states and political
subdivisions 170 64
Interest on deposits with other banks 5 7
Interest on Federal funds sold and
other investments 772 96
________ ________
Total interest income 9,376 8,314
________ ________
INTEREST EXPENSE:
Interest on deposits 2,495 2,386
Other interest expense 7 8
________ ________
Total interest expense 2,502 2,394
________ ________
NET INTEREST INCOME 6,874 5,920
PROVISION FOR POSSIBLE LOAN LOSSES - (50)
________ ________
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 6,874 5,870
________ ________
NON-INTEREST INCOME 1,063 1,123
________ ________
GAIN ON SALE OF SECURITIES 653 34
________ ________
NON-INTEREST EXPENSE:
Salaries and employee benefits 1,390 1,306
Occupancy expense 439 405
Other operating expense 2,453 2,443
________ ________
Total non-interest expense 4,282 4,154
________ ________
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 4,308 2,873
________ ________
PROVISION FOR INCOME TAXES:
Current 1,295 563
Deferred 83 380
________ ________
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 2,930 1,930
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - 177
________ ________
NET INCOME $ 2,930 $ 2,107
======== ========
EARNINGS PER SHARE:
Income before cumulative effect of
accounting change $ 9.77 $ 6.43
Cumulative effect of accounting change - .59
________ ________
Net income per share $ 9.77 $ 7.02
======== ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
BANK OF ST. JOHN
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Unrealized
Loss On
Investment
Common Stock Securities
---------------- Undivided Available
Shares Amount Surplus Profits For Sale
------ ------ ------- --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992 300,000 $750 $2,250 $6,093 $ -
NET INCOME - - - 2,107 -
DIVIDENDS DECLARED ($2.00 per share) - - - (600) -
_______ ____ ______ ______ _______
BALANCE, December 31, 1993 300,000 750 2,250 7,600 -
NET INCOME - - - 2,930 -
DIVIDENDS DECLARED ($3.00 per share) - - - (900) -
UNREALIZED LOSS ON SECURITIES
AVAILABLE FOR SALE - - - - (806)
________ ____ ______ _______ _______
BALANCE, December 31, 1994 300,000 $750 $2,250 $9,630 $ (806)
======== ==== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
BANK OF ST. JOHN
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,930 $ 2,107
Adjustments to reconcile net income to net operating cash flows-
Writedowns of other real estate and other assets 38 325
Depreciation 255 208
Net accretion of discount or amortization of premium on investments 29 26
Provision for possible loan losses - 50
Gain on sales of other real estate (37) (76)
Gain on sales and calls of securities (653) (34)
Increase in accrued interest receivable and other assets (145) (339)
Increase (decrease) in accrued interest payable and other liabilities,
net of change in dividends payable 220 (92)
Deferred tax provision 83 380
_________ ________
Net operating cash flows 2,720 2,555
________ ________
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from debentures 750 -
Proceeds from maturities of investment securities - 15,764
Proceeds from maturities of investment securities available for sale 4,501 -
Proceeds from maturities of investment securities held to maturity 7,598 -
Purchases of investment securities - (9,029)
Purchases of investment securities available for sale (17,597) -
Purchases of investment securities held to maturity (3,193) -
Proceeds from calls and sales of investment securities - 3,500
Proceeds from calls and sales of investment securities available for sale 5,974 -
Net cash increase in loans (5,867) (14,553)
Additions to bank premises and equipment (355) (556)
(Increase) decrease in Federal funds sold (2,400) 4,500
Proceeds from sales of other real estate and other assets 450 1,479
(Increase) decrease in interest bearing deposits with other banks 124 (44)
________ ________
Net investing cash flows (10,015) 1,061
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in non-interest bearing deposits 176 (88)
Increase in interest bearing deposits other than certificates of deposit 9,055 609
Increase (decrease) in certificates of deposit 6,528 (3,226)
Dividends paid (525) (225)
________ ________
Net financing cash flows 15,234 (2,930)
NET INCREASE IN CASH AND DUE FROM BANKS 7,939 686
________ ________
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 5,689 5,003
________ ________
CASH AND DUE FROM BANKS AT END OF YEAR $ 13,628 $ 5,689
________ ________
CASH INTEREST EXPENSE PAID $ 2,371 $ 2,407
________ ________
INCOME TAXES PAID $ 1,050 $ 851
________ ________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
BANK OF ST. JOHN
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
The accounting principles and reporting policies of Bank of St.
John (the Bank) conform with generally accepted accounting
principles. The more significant accounting policies used in
preparing the financial statements are summarized below.
Certain reclassifications have been made to the prior period
financial information in order to conform to current year
presentation.
Investment Securities
- ---------------------
Effective January 1, 1994, the Bank adopted Financial Accounting
Standards Board (FASB) Statement No. 115 Accounting for Certain
Investments in Debt and Equity Securities. This standard
addresses the accounting and reporting for investments in equity
securities that have a readily determinable fair value and for all
investments in debt securities and requires classification of
securities as trading, available for sale or held to maturity.
Management determines the classification of its securities when
they are purchased. The Bank does not engage in trading activities
related to any of its investment securities. Securities which the
Bank has the intent and ability to hold until maturity are
classified as held to maturity. These securities are stated at
cost, adjusted for amortization of premiums and accretion of
discounts. Securities which may be sold in response to interest
rates, liquidity needs or other factors are classified as available
for sale. These securities are reflected at fair value, and net
unrealized gains or losses are reflected as a separate component of
shareholders' equity, net of income tax effects. As of January 1,
1994 the unrealized gain on available for sale securities, net of
tax effects, was $299.
During 1994, the Bank sold $6,071 of securities out of its
available for sale portfolio, resulting in gross realized losses of
$98 and gross realized gains of $1. In addition, the Bank realized
a gain of $750 on the redemption of the First Continental
Bancshares debentures, as discussed further in Note 3. No
securities were sold from the Bank's held to maturity portfolio.
Prior to the adoption of FASB Statement No. 115, the Bank accounted
for all securities at cost, adjusted for amortization of premiums
and accretion of discounts. During 1993, $2,000 of the Bank's
securities were called resulting in gross realized gains of $32 and
no gross realized losses. During 1993, the Bank sold $1,500 of its
securities resulting in gross realized gains of $2 and no gross
realized losses.
On December 31, 1994, $1,000 of the Bank's securities matured.
Settlement did not occur until 1995. This amount is included in
other assets on the Bank's balance sheet as of December 31, 1994.
Interest earned on investment securities is included in interest
income. Amortization of premiums and accretion of discounts are
computed using the interest method. The adjusted cost of the
specific security sold is used to compute the gain or loss on the
sale of an investment security. Such gains or losses are shown
separately in the statements of income.
Loans
- -----
Loans are stated at the principal balance outstanding less unearned
discount on consumer loans. Interest on loans, other than consumer
loans, is recognized as income based on the principal balance
outstanding.
Interest on certain consumer loans is recognized as income over the
term of the loan using the sum-of-the-months' digits method, which
approximates the interest method. Loans are placed on non-accrual
status when, in the opinion of management, there exists sufficient
uncertainty as to the collectibility of the contractual interest.
Income is recorded on a cash basis for non-accrual loans.
Provision and Reserve for Possible Loan Losses
- ----------------------------------------------
The provision for possible loan losses charged to operating expense
is determined by management based on a review of the Bank's past
loan loss experience and an evaluation of the quality of the
current loan portfolio. The reserve for possible loan losses is
based upon estimates, and ultimate losses may vary from the current
estimates. These estimates are reviewed periodically and, as
adjustments become necessary, they are reported in earnings in the
period in which they become known.
Bank Premises and Equipment
- ---------------------------
Bank premises and equipment are stated at cost, less accumulated
depreciation. Depreciation expense is computed primarily on a
straight-line basis over the estimated useful lives of the
depreciable assets. Maintenance and repairs are charged to
operating expense, and gains or losses on dispositions are
reflected currently in the statements of income.
Income Taxes
- ------------
Income taxes are accounted for in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, which was adopted
by the Bank on January 1, 1993. Under this statement, deferred
income taxes are provided for by the liability method (Note 6).
Other Real Estate
- -----------------
Real estate and other assets acquired through foreclosure are
stated at the lower of the loan balance or fair value (less
estimated costs to sell) of the asset. The initial excess of the
loan balance over the fair value of the asset is charged to the
reserve for possible loan losses. Subsequent declines in fair
value of the assets below their carrying value are reflected in
earnings in the period the decline is noted. During 1991,
management established a reserve for possible declines in value of
other real estate and to provide for estimated disposal costs. The
reserve was approximately $49 and $89 at December 31, 1994 and
1993, respectively. Revenues and expenses associated with owning
and operating other real estate and gains and losses on disposition
of such assets are recorded in income in the period incurred.
Writedowns of other real estate and other assets of $38 and $325 in
1994 and 1993, respectively, were included in other operating
expense in the accompanying financial statements.
Earnings Per Share
- ------------------
Earnings per share is computed using the weighted average number of
shares outstanding of 300,000 shares during each of the periods.
New Financial Accounting Standards
- ----------------------------------
In December 1990 the FASB issued SFAS No. 106, "Employers
Accounting for Postretirement Benefits Other Than Pensions". This
statement, which is effective for fiscal years beginning after
December 15, 1994, requires recognition of estimated future
postretirement costs over employees' periods of service. The Bank
offers no postretirement benefits to its employees.
SFAS No. 107, issued by the FASB during 1991, requires disclosure
of fair value information for financial instruments. The Bank is
not required to adopt this statement until the year ended December
31, 1995.
In November 1992, the FASB issued SFAS No. 112, Employers
Accounting for Postemployment Benefits, which is effective for the
Bank for the year ended December 31, 1994. This statement had no
material impact on the Bank.
In May, 1993, the FASB issued Statement No. 114, Accounting by
Creditors for Impairment of a Loan, as amended by Statement No.
118, which requires that impaired loans that are within the scope
of this statement be measured based on the present value of
expected future cash flows discounted at the loan's effective
interest rate or at the loan's market price or the fair value of
the collateral if the loan is collateral dependent. Adoption of
the new standard is required for fiscal years beginning after
December 15, 1994. The standard is to be adopted prospectively
with the effect of initially applying the standard to be reflected
as an adjustment to the Bank's provision for loan losses in the
year of adoption. As of December 31, 1994, $175 of loans would be
impacted by the standards. The effect, if any, the new standards
may have on the Bank's financial position and results of operations
is not expected to be significant.
In October, 1994, the FASB issued Statement No. 119, Disclosure
about Derivative Financial Instruments and Fair Value of Financial
Instruments. The Bank is required to adopt this statement for the
year ended December 31, 1995.
2. MERGER PLAN:
-----------
On January 25, 1995, the Bank and Hibernia Corporation (Hibernia)
entered into an Agreement and Plan of Merger, pursuant to which the
Bank would merge with and into Hibernia and each outstanding share
would be converted into shares of Hibernia Class A Common Stock
(Hibernia Stock). Should the average market price of Hibernia
Stock, defined as the mean of the high and low per share price for
the five business days prior to closing, fall between $7.25 and
$7.75, Hibernia shares totalling $25,875,000 divided by the average
market price would be exchanged for the 300,000 shares issued and
outstanding of Bank of St. John Common Stock (Bank Stock). Should
the Hibernia Stock price at the closing date fall below $7.25,
3,568,966 shares of Hibernia Stock would be exchanged for the
300,000 shares of the Bank Stock, and should the Hibernia Stock
price at the closing date exceed $7.75, 3,338,710 shares of
Hibernia Stock would be exchanged for the Bank Stock.
The merger is subject, among other things, to receipt of regulatory
and shareholder approvals, and is currently expected to be
completed during the second quarter of 1995.
3. INVESTMENT SECURITIES:
---------------------
The amortized cost and estimated fair value of investment
securities at December 31, were:
<TABLE>
<CAPTION>
Available for Sale 1994
- ------------------ --------------- Estimated
Gross Unrealized
Amortized ---------------- Fair
Description Cost Gains Losses Value
------------- --------- ------ ------ ----------
<S> <C> <C> <C> <C>
U. S. Treasury $ 10,106 $ - $ (296) $ 9,810
U. S. Government agencies:
Collateral mortgage obligations 11,577 1 (813) 10,765
Other 2,885 6 (119) 2,772
_________ ________ ________ ________
$ 24,568 $ 7 $1,228) $ 23,347
========= ======= ======= =========
</TABLE>
<TABLE>
<CAPTION>
Held to Maturity 1994
- ---------------- ---------------- Estimated
Gross Unrealized
Amortized ---------------- Fair
Description Cost Gains Losses Value
------------ ---------- ----- ------ ---------
<S> <C> <C> <C> <C>
U. S. Government agencies:
Mortgage-backed securities $ 8,083 $ 64 $ (151) $ 7,996
State and municipal obligations,
tax-free 3,587 3 (309) 3,281
State and municipal obligations,
taxable 218 4 - 222
_________ _________ ________ _________
Total $ 11,888 $ 71 $ (460) $ 11,499
========= ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
1993
----------------
Gross Unrealized
Amortized ---------------- Market
Description Cost Gains Losses Value
----------- ---------- ----- ------ ------
<S> <C> <C> <C> <C>
U. S. Treasury $ 10,010 $ 228 $ - $ 10,238
U. S. Government agencies:
Mortgage-backed securities 9,510 461 (3) 9,968
Collateral mortgage obligations 9,702 142 (24) 9,820
Other 4,008 125 (6) 4,127
State and municipal obligations, net 1,635 40 (2) 1,673
_________ ________ ________ _________
Total $34,865 996 $(35) $35,826
========= ======== ======== =========
</TABLE>
The amortized cost and estimated fair value of debt securities at
December 31, 1994, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
Amortized Estimated
Available for Sale Cost Fair Value
- ------------------ ---------- ----------
<S> <C> <C>
Due in 1 year or less $ 750 $ 750
Due after 1 year through 5 years 9,356 9,060
_________ _________
Subtotal 10,106 9,810
Mortgage-backed securities, including
collateral mortgage obligations 14,462 13,537
_________ _________
Total $24,568 $23,347
========= =========
</TABLE>
<TABLE>
Amortized Estimated
Held to Maturity Cost Fair Value
- ---------------- --------- ----------
<S> <C> <C>
Due after 1 year through 5 years $ 1 $ 1
Due after 5 years through 10 years 1,750 1,631
Due after 10 years 2,054 1,871
_________ _________
Subtotal 3,805 3,503
Mortgage-backed securities 8,083 7,996
_________ _________
Total $ 11,888 $ 11,499
========= =========
</TABLE>
The Bank's mortgage-backed securities and collateral mortgage
obligations consist of ownership interests in pools of residential
mortgages guaranteed by a U. S. Government agency with contract
maturities ranging from 1 to 33 years; however, the underlying
mortgages are subject to significant prepayments, primarily
when the contractual interest rates exceed the current market rate
on similar mortgages. Based on current prepayment assumptions, the
estimated average remaining life of fixed rate mortgage-backed
securities and collateral mortgage obligations is approximately 5.4
years at December 31, 1994.
Investment securities with book values of $26,985 and $14,795 at
December 31, 1994 and 1993, respectively, were pledged to secure
public funds and for other purposes.
The Bank held a $750 investment in debentures of an affiliated bank
consisting of 12% mandatory convertible subordinated debentures of
First Continental Bancshares, Inc. (FCB). The debentures were
issued in 1986 and were to mature in 1996 with principal payment to
be made with 78 shares of FCB common stock per thousand in
debenture face value. During 1988 and 1989, a reserve equal to the
cost of these debentures was recorded. During 1994, FCB and
Hibernia merged. Under the terms of the agreement, Hibernia
redeemed all of the outstanding principal and accrued interest
related to FCB's outstanding debentures. The debenture agreement
required a redemption price of 105% if redeemed during the twelve-
month period ending November 15, 1994. Therefore, the Bank
received $750 of principal and accrued interest of $558 on
August 2, 1994 and a premium of approximately $38. As discussed
above, the Bank had assigned no value to the FCB debentures and
related accrued interest in the accompanying financial statements;
therefore, the Bank recognized income upon collection of the
principal, accrued interest and related premium. The accrued
interest and premium are included in interest on other investments.
The collection of principal is included in gain on sale of
securities.
4. LOANS AND RESERVE FOR POSSIBLE LOAN LOSSES:
------------------------------------------
The composition of the loan portfolio at December 31, was as
follows:
<TABLE>
1994 1993
-------- --------
<S> <C> <C>
Commercial and industrial $ 4,851 $ 4,588
Residential real estate 27,793 21,030
Commercial real estate 21,190 20,950
Consumer 13,058 14,434
Other loans 43 63
_________ _________
Gross loans 66,935 61,065
Less: Unearned discount (18) (70)
Total loans $66,917 $60,995
</TABLE>
The Bank evaluates the credit risk of each customer on an
individual basis and, where deemed appropriate, collateral is
obtained. Collateral varies by individual loan customer but may
include accounts receivable, inventory, real estate, equipment,
deposits, personal and government guarantees, and general security
agreements. Access to collateral is dependent upon the type of
collateral obtained. On an on-going basis, the Bank monitors its
collateral and the collateral value related to the loan balance
outstanding.
Non-performing and under performing loans at December 31 were as
follows:
<TABLE>
1994 1993
------- ------
Loans:
<S> <C> <C>
90 days or more past due, but still
accruing interest $ 33 $ 21
Non-accrual loans 175 183
______ ______
Total non-performing and under
performing loans $ 208 $ 204
====== ======
</TABLE>
Income recognized on the cash basis for non-accrual loans in 1994
and 1993 totaled $27 and $20, respectively. If the accrual of
interest on non-accrual loans had not been suspended, the income
recorded would have been approximately $22 and $17 in 1994 and
1993, respectively.
In the opinion of management, progress has been made in its credit
risk management process, and only normal risk and loss potential
remain in the loan portfolio. Consequently, the Bank does not
anticipate significant increases in the level of non-performing
assets in the foreseeable future. The current level of
non-performing assets is not anticipated to have a significant
adverse effect on the results of operations of the Bank.
The Bank's provision for possible loan losses charged to expense is
determined in accordance with the policy described in Note 1.
Transactions in the reserve for possible loan losses during 1994
and 1993 were as follows:
<TABLE>
1994 1993
------ ------
<S> <C> <C>
Balance, beginning of year $ 788 $ 825
Provision for possible loan losses - 50
Losses charged to the reserve (136) (120)
Recoveries of loans previously charged-off 302 33
______ ______
Balance, end of year $ 954 $ 788
====== ======
</TABLE>
5. BANK PREMISES AND EQUIPMENT:
---------------------------
Bank premises and equipment, stated at cost less accumulated
depreciation, were as follows at December 31:
<TABLE>
1994 1993
------ ------
<S> <C> <C>
Land $ 159 $ 159
Buildings 1,767 1,627
Furniture, fixtures and equipment 2,435 2,530
______ ______
4,361 4,316
Less-Accumulated depreciation (2,855) (2,862)
______ ______
$1,506 $1,454
====== ======
</TABLE>
Depreciation included in non-interest expense totaled $255 in 1994
and $208 in 1993.
6. FEDERAL INCOME TAXES:
--------------------
Effective January 1, 1993, the Bank adopted SFAS No. 109,
"Accounting for Income Taxes." The effect of adopting this
statement was to increase the deferred tax asset by $177, which is
reflected in the statements of income as the cumulative effect of
an accounting change. Net deferred tax assets, which are included
in other assets in the balance sheets, were approximately $492 and
$160 as of December 31, 1994 and 1993, respectively. The
components of the net deferred tax asset as of December 31, 1994
were as follows:
<TABLE>
1994 1993
------- ------
Deferred tax assets:
<S> <C> <C>
Unrealized loss on available for
sale securities $ 415 $ -
Other real estate 204 278
Other 16 -
______ ______
Total deferred assets 635 278
______ ______
Deferred tax liabilities:
Reserve for possible loan losses (34) (27)
Bank premises and equipment (64) (39)
Investments (45) (52)
______ ______
Total deferred liabilities (143) (118)
Net deferred tax asset $ 492 $ 160
====== =====
</TABLE>
Under SFAS No. 109, a valuation allowance must be established
against deferred tax assets if, based on all available evidence, it
is more likely than not that some or all of the assets will not be
realized. Based on income taxes paid during the available
carryback period, a valuation allowance is not required as of
December 31, 1994.
The following schedule reconciles the statutory Federal income tax
rate to the effective tax rate for the years ended December 31,
1994 and 1993:
<TABLE>
1994 1993
----- -----
<S> <C> <C>
Statutory tax rate 34.0% 34.0%
Tax exempt interest income (2.1) (1.6)
Non-deductible expenses - 0.1
Other 0.1 0.3
______ ______
Effective tax rate 32.0% 32.8%
====== ======
</TABLE>
7. RELATED PARTY TRANSACTIONS:
--------------------------
In the ordinary course of business, the Bank makes loans to its
directors, officers and principal shareholders. These loans are
made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other customers, and do not involve more than
normal risk of collectibility or present other unfavorable
features. Loans made to directors, officers and principal
shareholders, including their family members and companies in which
they have a significant ownership interest, are summarized as
follows:
Balance, December 31, 1993 $1,522
New loans 35
Repayments (235)
______
Balance, December 31, 1994 $1,322
______
______
In addition, the Bank has a number of banking relationships with
other banks which have certain significant shareholders and
directors in common. The most significant of these relationships
relates to loan participations purchased from and sold to these
banks. Participations purchased from related banks amounted to
approximately $3,918 and $3,372 and participations sold totaled
$1,963 and $1,784 at December 31, 1994 and 1993, respectively.
At December 31, 1994 and 1993, the Bank also had approximately $0
and $52, respectively, of deposits in related banks.
Certain loan review, internal audit and consulting services were
performed for the Bank by related banks. Charges for these
services are included in other operating expenses and totaled $58
in 1993. These services were discontinued at the end of 1993.
Certain loan processing services are performed for the Bank by a
related bank. Charges for these services are included in other
operating expenses and totaled $273 and $284 in 1994 and 1993,
respectively.
Certain data processing services are performed by the Bank for
related banks. The Bank billed the related banks $510 and $645 for
the years ended December 31, 1994 and 1993 respectively,
effectively reducing the costs of operating the data processing
center which are included in other operating expenses in the
financial statements.
8. COMMITMENTS AND CONTINGENCIES:
-----------------------------
The Bank is involved in various litigation which is routine to the
nature of its business. Management believes that resolution of
these matters will not result in any material adverse effect on the
financial statements.
The Bank is required to maintain cash on hand and non-interest
bearing balances with correspondent banks to fulfill its regulatory
reserve requirements. The average required reserve was
approximately $730 and $727 in 1994 and 1993, respectively.
In the normal course of business, there are various outstanding
commitments to extend credit which are not reflected in the
financial statements. At December 31, 1994 and 1993, outstanding
commitments under standby letters of credit were approximately $51
and $62, respectively.
Additionally, in the normal course of business, there are various
other commitments and contingent liabilities which are not
reflected in the financial statements. Loan commitments are
single-purpose commitments to lend which will be funded and reduced
according to specified repayment schedules. Most of these
commitments have maturities of less than one year. Total loan
commitments outstanding at December 31, 1994 were approximately
$293. Lines of credit are commitments to lend up to a specified
amount for a period not to exceed one year. Amounts outstanding
under lines of credit fluctuate because they are generally used to
finance short-term, seasonal working capital needs of the borrower.
Total unfunded lines of credit outstanding as of December 31, 1994
were approximately $2,872.
The Bank uses the same credit policies in making commitments and
issuing standby letters of credit as it does for on balance sheet
instruments. The Bank evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral
held varies but may include certificates of deposit, accounts
receivable, inventory, property, plant and equipment, and income-
producing properties. There are no commitments which present an
unusual risk to the Bank, and no material losses are anticipated as
a result of these transactions.
The principal source of liquidity for the Bank is core deposits.
The Bank has none of its deposits brokered or purchased in the
national market. At December 31, 1994, 18% of the Bank's interest-
bearing deposits were equal to or exceeded $100. In management's
opinion, funding and liquidity at the Bank is adequate to meet its
current financial commitments.
9. EMPLOYEE BENEFIT PLANS:
----------------------
Effective January 1, 1988, the Bank adopted a defined contribution
savings plan for its employees. Under the terms of the plan, the
Bank shall make a matching contribution of no less than 40% of the
first 3% of the employee's compensation contributed. For 1994 and
1993, the Bank matched 40% of the first 4%, of employee
contributions representing contributions of $20 and $17,
respectively. In addition, the employer may make a discretionary
contribution as authorized by the Board of Directors. The Bank
made discretionary contributions of 60% the employee contributions
for 1994 and 1993 resulting in contributions of $30 and $25,
respectively.
The Chief Executive Officer has an employment agreement which
provides for a payment of three years' salary upon change of
control of the Bank. In addition, retention agreements were
adopted in 1994 to encourage certain other officers of the Bank to
continue their employment with the Bank in the context of ongoing
merger discussions between the Bank and certain non-affiliated
financial institutions. These agreements were executed primarily
to maintain stability within the organization and reduce the risk
of loss of key members of management before consummation of any
potential merger or acquisition of the Bank.
The retention agreements provide that if the Officers remain with
the Bank through the consummation of a merger, and certain other
conditions are satisfied, they would receive additional
compensation. The aggregate compensation under such agreements and
the Chief Executive Officer's employment agreement is approximately
$503. This amount will be recorded as compensation expense upon
consummation of the merger discussed in Note 2.
The Bank has also adopted a severance plan for its employees which
will provide additional compensation to those individuals released
from employment after the merger. Any payments made under this
plan will be in addition to those made under the above-mentioned
retention agreements.
