<PAGE>
HIBERNIA CORPORATION
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1998 Commission File Number 1-10294
--------------- -------
HIBERNIA CORPORATION
(Exact name of registrant as specified in its charter)
Louisiana 72-0724532
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
313 Carondelet Street, New Orleans, Louisiana 70130 (Address of
principal executive offices and zip code)
Registrant's telephone number, including area code (504) 533-5332
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1998
Class A Common Stock, no par value 156,030,418 Shares
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Hibernia Corporation and Subsidiaries June 30 December 31 June 30
Unaudited ($ in thousands) 1998 1997 1997
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<S> <C> <C> <C>
Assets
Cash and due from banks .................................. $ 472,273 $ 574,626 $ 523,582
Short-term investments ................................... 223,909 445,715 297,833
Securities available for sale ............................ 2,433,731 2,526,612 2,546,082
Securities held to maturity .............................. -- -- --
Loans, net of unearned income ............................ 9,046,010 8,208,092 7,281,766
Reserve for possible loan losses ..................... (121,447) (122,401) (134,500)
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Loans, net ....................................... 8,924,563 8,085,691 7,147,266
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Bank premises and equipment .............................. 188,810 188,994 194,332
Customers' acceptance liability .......................... 321 144 1,183
Other assets ............................................. 361,113 338,763 364,610
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Total assets ..................................... $ 12,604,720 $ 12,160,545 $ 11,074,888
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Liabilities
Deposits:
Noninterest-bearing .................................. $ 1,744,539 $ 1,793,224 $ 1,656,752
Interest-bearing ..................................... 7,971,029 7,828,408 7,533,222
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Total deposits ................................... 9,715,568 9,621,632 9,189,974
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Short-term borrowings .................................... 797,671 715,876 618,785
Liability on acceptances ................................. 321 144 1,183
Other liabilities ........................................ 160,506 149,877 146,637
Debt ..................................................... 706,114 506,548 12,675
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Total liabilities ................................ 11,380,180 10,994,077 9,969,254
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Shareholders' equity Preferred Stock, no par value:
Authorized - 100,000,000 shares; 2,000,000 Series A
issued and outstanding at June 30, 1998, December 31, . 100,000 100,000 100,000
1997 and June 30, 1997
Class A Common Stock, no par value:
Authorized - 300,000,000 shares; issued 152,454,976,
151,516,727, and 151,031,889 at June 30, 1998,
December 31, 1997 and June 30, 1997, respectively ..... 292,714 290,912 290,080
Surplus .................................................. 407,480 397,959 392,437
Retained earnings ........................................ 432,246 380,082 338,062
Treasury stock at cost: 51,598 shares at June 30, 1997 ... -- -- (639)
Unrealized gains (losses) on securities available for sale 18,117 14,902 3,969
Unearned compensation .................................... (26,017) (17,387) (18,275)
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Total shareholders' equity ....................... 1,224,540 1,166,468 1,105,634
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Total liabilities and shareholders' equity ....... $ 12,604,720 $ 12,160,545 $ 11,074,888
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See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Income Statements
Hibernia Corporation and Subsidiaries
Three Months Ended Six Months Ended
June 30 June 30
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Unaudited ($ in thousands), except per-share data 1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans ............................. $ 191,265 $ 155,928 $ 371,857 $ 302,715
Interest on securities available for sale .............. 38,570 41,880 80,823 84,467
Interest on securities held to maturity ................ - - - -
Interest on short-term investments ..................... 3,397 3,640 6,759 7,427
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Total interest income .............................. 233,232 201,448 459,439 394,609
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Interest expense
Interest on deposits ................................... 84,655 78,443 167,401 153,555
Interest on short-term borrowings ...................... 7,879 6,110 16,685 10,733
Interest on debt ....................................... 9,856 226 18,429 974
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Total interest expense ............................. 102,390 84,779 202,515 165,262
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Net interest income ........................................ 130,842 116,669 256,924 229,347
Provision for possible loan losses ..................... 5,500 43 9,000 182
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Net interest income after provision for possible loan losses 125,342 116,626 247,924 229,165
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Noninterest income
Service charges on deposits ............................ 20,751 19,161 40,136 36,820
Trust fees ............................................. 4,411 3,972 8,295 7,608
Other service, collection and exchange charges ......... 15,130 11,207 28,511 21,083
Other operating income ................................. 5,370 4,061 8,707 7,190
Securities gains (losses), net ......................... 27 404 914 419
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Total noninterest income ........................... 45,689 38,805 86,563 73,120
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Noninterest expense
Salaries and employee benefits ......................... 51,696 46,597 101,484 94,034
Occupancy expense, net ................................. 9,844 8,449 17,787 16,494
Equipment expense ...................................... 7,677 7,776 15,087 15,392
Data processing expense ................................ 6,379 6,219 13,168 11,456
Foreclosed property expense, net ....................... (658) (251) (652) (561)
Amortization of intangibles ............................ 4,118 3,535 7,998 7,193
Other operating expense ................................ 25,940 27,196 52,697 49,855
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Total noninterest expense .......................... 104,996 99,521 207,569 193,863
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Income before income taxes ................................. 66,035 55,910 126,918 108,422
Income tax expense ......................................... 23,192 19,551 44,549 37,539
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Net income ................................................. $ 42,843 $ 36,359 $ 82,369 $ 70,883
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Net income applicable to common shareholders ............... $ 41,118 $ 34,634 $ 78,919 $ 67,433
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Net income per common share ................................ $ 0.27 $ 0.23 $ 0.53 $ 0.45
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Net income per common share - assuming dilution ............ $ 0.27 $ 0.23 $ 0.52 $ 0.45
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- ---------------
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
Hibernia Corporation and Subsidiaries
Unaudited ($ in thousands, except per-share data)
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Unrealized
Gains (Losses)
on Securities
Preferred Common Retained Available
Stock Stock Surplus Earnings for Sale Other Total
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<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997 ..... $ 100,000 $ 290,912 $ 397,959 $ 380,082 $ 14,902 $ (17,387) $ 1,166,468
Net income ........................ - - - 82,369 - - 82,369
Issuance of common stock:
Stock Option Plan .............. - 637 1,871 - - - 2,508
Restricted stock awards ........ - 856 7,332 - - - 8,188
Cash dividends declared:
Common ($.18 per share) ........ - - - (26,755 - - (26,755)
Preferred ($1.725 per share) ... - - - (3,450) - - (3,450)
Purchase of common stock by ESOP .. - - - - - (8,630) (8,630)
Change in unrealized gains (losses)
on securities available for sale - - - - 3,215 - 3,215
Other ............................. - 309 318 - - - 627
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Balances at June 30, 1998 ......... $ 100,000 $ 292,714 $ 407,480 $ 432,246 $ 18,117 $ (26,017) $ 1,224,540
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</TABLE>
<TABLE>
<CAPTION>
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Unrealized
Gains (Losses)
on Securities
Preferred Common Retained Available
Stock Stock Surplus Earnings for Sale Other Total
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<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 ..... $ 100,000 $ 289,375 $ 375,579 $ 293,221 $ 7,976 $ (13,887) $ 1,052,264
Net income ........................ - - - 70,883 - - 70,883
Issuance of common stock:
Dividend Reinvestment Plan ..... - 260 1,503 - - - 1,763
Stock Option Plan .............. - 397 1,070 - - - 1,467
Restricted stock awards ........ - 4 20 - - - 24
Retirement Security Plan ....... - 44 265 - - - 309
Director compensation .......... - - 32 - - 225 257
By pooled companies prior to merger - - 13,968 - - - 13,968
Cash dividends declared:
Common ($.16 per share) ........ - - - (20,346 - - (20,346)
Preferred ($1.725 per share) ... - - - (3,450) - - (3,450)
By pooled companies prior to merger - - - (2,246) - - (2,246)
Acquisition of treasury stock ..... - - - - - (295) (295)
Purchase of common stock by ESOP .. - - - - - (5,021) (5,021)
Allocation of ESOP shares ......... - - - - - 64 64
Change in unrealized gains (losses)
on securities available for sale - - - - (4,007) - (4,007)
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Balances at June 30, 1997 ......... $ 100,000 $ 290,080 $ 392,437 $ 338,062 $ 3,969 $ (18,914) $ 1,105,634
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- ----------------
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Hibernia Corporation and Subsidiaries
Six Months Ended June 30
Unaudited ($ in thousands) 1998 1997
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<S> <C> <C>
Operating activities
Net income ............................................................ $ 82,369 $ 70,883
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses ............................. 9,000 182
Amortization of intangibles and deferred charges ............... 7,766 6,954
Depreciation and amortization .................................. 13,424 14,180
Premium amortization, net of discount accretion ................ 1,264 1,188
Realized securities gains, net ................................. (914) (419)
Gain on sale of assets ......................................... (367) (1,195)
Provision for losses on foreclosed and other assets ............ 207 412
Decrease in deferred income tax asset .......................... 557 968
Increase in interest receivable and other assets ............... (20,967) (10,320)
Increase (decrease) in interest payable and other liabilities .. 19,044 (29,606)
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Net cash provided by operating activities ........................ 111,383 53,227
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Investing activities
Purchases of securities available for sale ............................ (932,138) (226,009)
Proceeds from maturities of securities available for sale ............. 601,256 278,301
Proceeds from sales of securities available for sale .................. 428,269 21,099
Net increase in loans ................................................. (1,127,900) (629,828)
Proceeds from sales of loans .......................................... 662,273 136,235
Purchases of loans .................................................... (384,081) (74,737)
Acquisitions, net of cash acquired of $64,095 ......................... - 56,563
Purchases of premises, equipment and other assets ..................... (25,954) (16,443)
Proceeds from sales of foreclosed assets and excess bank-owned property 2,945 5,664
Proceeds from sales of premises, equipment and other assets ........... 750 209
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Net cash used by investing activities ............................ (774,580) (448,946)
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Financing activities
Net increase in domestic deposits ..................................... 33,074 160,171
Net increase in foreign time deposits ................................. 60,930 13,071
Net increase in short-term borrowings ................................. 81,795 279,064
Proceeds from issuance of debt ........................................ 500,000 -
Payments on debt ...................................................... (300,434) (44,517)
Proceeds from issuance of common stock ................................ 2,508 3,820
Purchase of common stock by ESOP ...................................... (8,630) (5,021)
Dividends paid ........................................................ (30,205) (26,057)
Acquisition of treasury stock ......................................... - (295)
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Net cash provided by financing activities ........................ 339,038 380,236
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Decrease in cash and cash equivalents ................................... (324,159) (15,483)
Cash and cash equivalents at beginning of period ........................ 1,020,341 836,898
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Cash and cash equivalents at end of period ....................... $ 696,182 $ 821,415
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- --------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Hibernia Corporation and Subsidiaries
Unaudited
Note 1 BASIS OF PRESENTATION The accompanying unaudited consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the audited consolidated
financial statements and notes included in Hibernia Corporation's Annual Report
on Form 10-K for the year ended December 31, 1997.
In June 1998 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in years
beginning after June 15, 1999. Because of the minimal use of derivatives,
management does not anticipate that the adoption of SFAS No. 133 will have a
significant effect on the financial condition or operating results of the
Hibernia Corporation.
Note 2 MERGER AGREEMENTS On July 1, 1998 Hibernia Corporation (the
Company) consummated a merger with Peoples Holding Corporation (Peoples)
accounted for as a pooling of interests, wherein the Company issued 3,562,367
shares of Class A Common Stock valued at $70,980,000, based on a per-share
market value of $19.925. At June 30, 1998 Peoples had total assets of $232
million, loans of $81 million and deposits of $193 million.
The Company is a party to definitive merger agreements with MarTex
Bancshares, Inc. (MarTex) and First Guaranty Bank (First Guaranty), which are
pending shareholder and regulatory approval. It is anticipated that these
transactions will be accounted for as poolings of interests when consummated.
The estimated transaction values of these mergers assuming a value of Class A
Common Stock of $18.875, the closing price on July 31, 1998, are approximately
$65,120,000 for MarTex and $75,900,000 for First Guaranty. At June 30, 1998
MarTex had total assets of $323 million, loans of $180 million and deposits of
$294 million. At June 30, 1998 First Guaranty had total assets of $243 million,
loans of $145 million and deposits of $214 million.
Note 3 AUTHORIZED SHARES On June 30, 1998 the Company's Articles of
Incorporation were amended to increase the number of authorized shares of Class
A Common Stock from 200,000,000 to 300,000,000.
Note 4 EMPLOYEE BENEFIT PLANS The Company's stock option plans provide
incentive and non-qualified options to various key employees and non-employee
directors. The options are granted at no less than the fair market value of the
stock at the date of grant. Options granted to directors upon inception of
service as a director vest in six months. Until October 1997 those options were
granted under the 1987 Stock Option Plan; after October 1997 those options are
granted under the 1993 Directors' Stock Option Plan. All other 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 granted 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
generally expire 10 years from the date of grant 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 365 days. All
options vest immediately upon a change in control of the Company.
The following tables summarize the option activity in the plans during
the second quarter of 1998. During 1997 the 1987 Stock Option Plan was
terminated; therefore, at June 30, 1998 there are no shares available for grant
under this plan. The termination did not impact options outstanding under the
1987 Stock Option Plan.
<TABLE>
<CAPTION>
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Weighted
Average
Incentive Non-Qualified Total Exercise Price
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<S> <C> <C> <C> <C>
1987 Stock Option Plan:
Outstanding, March 31, 1998 ...... 141,803 1,235,776 1,377,579 $ 7.10
Canceled ......................... - (42,625) (42,625) 16.45
Exercised ........................ (20,000) (13,399) (33,399) 5.16
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Outstanding, June 30, 1998 ....... 121,803 1,179,752 1,301,555 $ 6.84
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Exercisable, June 30, 1998 ....... 121,803 1,179,752 1,301,555 $ 6.84
Long-Term Incentive Plan:
Outstanding, March 31, 1998 ...... 12,598 7,423,873 7,436,471 $ 11.79
Granted .......................... - 87,700 87,700 19.60
Canceled ......................... - (78,680) (78,680) 13.95
Exercised ........................ - (168,485) (168,485) 8.00
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Outstanding, June 30, 1998 ....... 12,598 7,264,408 7,277,006 $ 11.95
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Exercisable, June 30, 1998 ....... 12,598 2,977,014 2,989,612 $ 8.10
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Available for grant, June 30, 1998 967,250
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1993 Directors' Stock Option Plan:
Outstanding, March 31, 1998 ...... - 275,000 275,000 $ 9.98
Granted .......................... - 70,000 70,000 21.72
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Outstanding, June 30, 1998 ....... - 345,000 345,000 $ 12.36
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Exercisable, June 30, 1998 ....... - 162,500 162,500 $ 8.53
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Available for grant, June 30, 1998 567,500
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</TABLE>
In addition to the above option activity in the plans, 13,350 shares of
restricted stock were awarded under the Long-Term Incentive Plan during the
second quarter of 1998.
During 1995, the Company instituted an employee stock ownership plan
(ESOP) in which substantially all employees participate. The ESOP, with a
guarantee of Hibernia Corporation, borrowed funds from Hibernia National Bank to
purchase Hibernia Class A Common Stock. The ESOP acquired $30,000,000 of
Hibernia Class A Common Stock in open-market purchases. As of June 30, 1998 the
ESOP held 2,855,567 shares of Hibernia Class A Common Stock.
Note 5 NET INCOME PER COMMON SHARE The following sets forth the computation
of net income per common share and net income per common share assuming
dilution.
<TABLE>
<CAPTION>
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($ in thousands, except per-share data) Three Months Ended June 30 Six Months Ended June 30
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1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Numerator:
Net income .................................... $ 42,843 $ 36,359 $ 82,369 $ 70,883
Preferred stock dividends ..................... 1,725 1,725 3,450 3,450
- ------------------------------------------------------------------------------------------------------------------------
Numerator for net income per common share ..... 41,118 34,634 78,919 67,433
Effect of dilutive securities ................. - - - -
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Numerator for net income per common
share - assuming dilution ................. $ 41,118 $ 34,634 $ 78,919 $ 67,433
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Denominator:
Denominator for net income per common
share (weighted average shares outstanding) 150,341,762 149,119,949 150,211,687 149,151,706
Effect of dilutive securities:
Stock options ............................. 2,688,390 1,724,304 2,779,636 1,803,929
Purchase warrants ......................... 184,645 169,349 183,933 169,873
Restricted stock awards ................... 14,100 - 14,100 -
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Denominator for net income per common
share - assuming dilution ................. 153,228,897 151,013,602 153,189,356 151,125,508
- ------------------------------------------------------------------------------------------------------------------------
Net income per common share ....................... $ 0.27 $ 0.23 $ 0.53 $ 0.45
- ------------------------------------------------------------------------------------------------------------------------
Net income per common share - assuming dilution ... $ 0.27 $ 0.23 $ 0.52 $ 0.45
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</TABLE>
The weighted average shares outstanding exclude average common shares
held by the ESOP which have not been committed to be released. These shares
totaled 2,035,779 and 1,815,892 for the three months ended June 30, 1998 and
1997, respectively, and 1,925,231 and 1,703,284 for the six months ended June
30, 1998 and 1997, respectively. The common shares issued in all mergers
accounted for as poolings of interests consummated in 1997 and 1998 are
considered to be outstanding as of January 1, 1997, the beginning of the
earliest period presented.
Options with an exercise price greater than the average market price of
the Company's Class A Common Stock for the periods presented are antidilutive
and, therefore, are not included in the computation of net income per common
share - assuming dilution. During the three months ended June 30, 1998 and 1997
there were 81,200 antidilutive options outstanding with exercise prices ranging
from $21.56 to $21.72 per option, and 1,713,281 antidilutive options outstanding
with exercise prices ranging from $13.44 to $18.80, respectively. During the six
months ended June 30, 1998 and 1997 there were 103,700 antidilutive options
outstanding with exercise prices ranging from $20.25 to $21.72 per option, and
198,131 antidilutive options outstanding with exercise prices ranging from
$14.94 to $18.80, respectively.
Note 6 COMPREHENSIVE INCOME As of January 1, 1998, the Company adopted
SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of SFAS No. 130 had no impact on the Company's net income
or shareholders' equity. SFAS No. 130 requires unrealized gains or losses on the
Company's available for sale securities to be included in other comprehensive
income. Prior to the adoption of SFAS No. 130, these unrealized gains or losses
were reported separately only in shareholders' equity.
Comprehensive income totaled $46,406,000 and $50,485,000 for the three
months ended June 30, 1998 and 1997, respectively, and $85,584,000 and
$66,876,000 for the six months ended June 30, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
CONSOLIDATED SUMMARY OF INCOME AND SELECTED FINANCIAL DATA (1)
Hibernia Corporation and Subsidiaries
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Three Months Ended Six Months Ended
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June 30 March 31 June 30 June 30 June 30
($ in thousands, except per-share data) 1998 1998 1997 1998 1997
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<S> <C> <C> <C> <C> <C>
Interest income ........................................... $ 233,232 $ 226,207 $ 201,448 $ 459,439 $ 394,609
Interest expense .......................................... 102,390 100,125 84,779 202,515 165,262
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income ....................................... 130,842 126,082 116,669 256,924 229,347
Provision for possible loan losses ........................ 5,500 3,500 43 9,000 182
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses .............................. 125,342 122,582 116,626 247,924 229,165
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Noninterest income ..................................... 45,662 39,987 38,401 85,649 72,701
Securities gains (losses), net ......................... 27 887 404 914 419
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest income ........................................ 45,689 40,874 38,805 86,563 73,120
Noninterest expense ....................................... 104,996 102,573 99,521 207,569 193,863
- ------------------------------------------------------------------------------------------------------------------------------------
Income before taxes ....................................... 66,035 60,883 55,910 126,918 108,422
Income tax expense ........................................ 23,192 21,357 19,551 44,549 37,539
- ------------------------------------------------------------------------------------------------------------------------------------
Net income ................................................ $ 42,843 $ 39,526 $ 36,359 $ 82,369 $ 70,883
- ------------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common shareholders .............. $ 41,118 $ 37,801 $ 34,634 $ 78,919 $ 67,433
- ------------------------------------------------------------------------------------------------------------------------------------
Per common share information:
Net income ............................................. $ 0.27 $ 0.25 $ 0.23 $ 0.53 $ 0.45
Net income - assuming dilution ......................... $ 0.27 $ 0.25 $ 0.23 $ 0.52 $ 0.45
Cash dividends declared ................................ $ 0.09 $ 0.09 $ 0.08 $ 0.18 $ 0.16
Average shares outstanding (000s) ......................... 150,342 150,080 149,120 150,212 149,152
Average shares outstanding - assuming dilution (000s) ..... 153,229 152,913 151,014 153,189 151,126
Dividend payout ratio ..................................... 33.33% 36.00% 34.78% 33.96% 35.56%
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Selected quarter-end balances (in millions)
Loans ..................................................... $ 9,046.0 $ 8,637.0 $ 7,281.8
Deposits .................................................. 9,715.6 9,778.7 9,190.0
Debt ...................................................... 706.1 706.3 12.7
Equity .................................................... 1,224.5 1,200.2 1,105.6
Total assets .............................................. 12,604.7 12,307.4 11,074.9
- ------------------------------------------------------------------------------------------------------------------------------------
Selected average balances (in millions)
Loans ..................................................... $ 8,835.2 $ 8,447.1 $ 7,040.8 $ 8,642.3 $ 6,882.6
Deposits .................................................. 9,694.4 9,573.2 8,947.6 9,634.1 8,874.1
Debt ...................................................... 706.2 629.7 12.9 668.2 31.4
Equity .................................................... 1,212.2 1,186.5 1,073.2 1,199.4 1,067.5
Total assets .............................................. 12,395.4 12,264.1 10,673.5 12,330.1 0,575.7
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Selected ratios
Net interest margin (taxable-equivalent) .................. 4.63% 4.60% 4.85% 4.62% 4.83%
Return on assets .......................................... 1.38% 1.29% 1.36% 1.34% 1.34%
Return on common equity ................................... 14.79% 13.92% 14.24% 14.36% 13.94%
Return on total equity .................................... 14.14% 13.33% 13.55% 13.73% 13.28%
Efficiency ratio .......................................... 58.59% 60.77% 63.13% 59.65% 63.14%
Average equity/average assets ............................. 9.78% 9.67% 10.05% 9.73% 10.09%
Tier 1 risk-based capital ratio ........................... 10.88% 11.11% 12.05%
Total risk-based capital ratio ............................ 12.13% 12.36% 13.30%
Leverage ratio ............................................ 8.62% 8.52% 8.93%
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Tax-effected net income and ratios excluding goodwill
and core deposit intangible amortization and balances (2)
Net income applicable to common shareholders .............. $ 43,754 $ 40,461 $ 37,479 $ 84,216 $ 73,213
Net income per common share ............................... $ 0.29 $ 0.27 $ 0.25 $ 0.56 $ 0.49
Net income per common share - assuming dilution ........... $ 0.29 $ 0.26 $ 0.25 $ 0.55 $ 0.48
Return on assets .......................................... 1.49% 1.39% 1.49% 1.44% 1.47%
Return on common equity ................................... 18.18% 17.31% 18.11% 17.75% 17.84%
Efficiency ratio .......................................... 56.92% 58.97% 61.05% 57.92% 60.96%
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------
(1) All financial information has been restated for mergers accounted for as
poolings of interests. The effects of mergers accounted for as purchase
transactions have been included from the date of consummation. Prior periods
have been conformed to current-period presentation.
(2) Amortization and balances of core deposit intangibles are net of applicable
taxes. Goodwill amortization and balances are not tax effected.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's Discussion presents a review of the major factors and trends
affecting the performance of Hibernia Corporation (the "Company" or "Hibernia")
and its subsidiaries, principally Hibernia National Bank and Hibernia National
Bank of Texas, collectively referred to as the "Banks." This discussion should
be read in conjunction with the accompanying tables and consolidated financial
statements.
SECOND-QUARTER 1998 HIGHLIGHTS
Hibernia Corporation's second-quarter 1998 results showed continued
improvement in earnings over the second quarter of 1997 and strong growth in
loans, deposits and noninterest income.
o Net income for the second quarter of 1998 totaled $42.8 million ($.27
per common share), up 18% compared to $36.4 million ($.23 per common
share) for the second quarter of 1997. Tangible income per common share
was $.29 in the second quarter of 1998 compared to $.25 in the second
quarter of 1997. Net income for the first six months of 1998 totaled
$82.4 million ($.53 per common share), up 16% compared to $70.9 million
($.45 per common share) for the first six months of 1997. Tangible
income per common share was $.56 for the first six months of 1998
compared to $.49 for the first six months of 1997.
o Pre-tax, pre-provision earnings were $71.5 million, a 28% increase from
the second quarter 1997 level of $56.0 million. The second quarter of
1998 included a provision for possible loan losses totaling $5.5
million.
o Tangible returns on assets (ROA) and common equity (ROCE) were 1.49%
and 18.18%, respectively, for the second quarter of 1998 compared to
1.49% and 18.11% for the same period a year ago. For the first six
months of 1998, tangible ROA and ROCE were 1.44% and 17.75%,
respectively, compared to 1.47% and 17.84%, respectively for the same
period a year ago.
o Second-quarter 1998 earnings improved compared to the same period last
year because of a $14.2 million (12%) increase in net interest income
(resulting from higher average earning assets) and a $7.3 million (19%)
improvement in noninterest income (excluding securities transactions).
These increases were partially offset by increases in noninterest
expense and income tax expense, which were up $5.5 million (6%) and
$3.6 million (19%), respectively.
o Net income for the first six months of 1998 improved over the first six
months of 1997 due to a $27.6 million (12%) increase in net interest
income and a $12.9 million (18%) improvement in noninterest income
(excluding securities transactions). These increases were partially
offset by a $13.7 million (7%) increase in noninterest expense and a
$7.0 (19%) increase in income taxes.
o Total loans grew $1.8 billion (24%) from June 30, 1997 to $9.0 billion
at June 30, 1998. Commercial loans grew $899.9 million (34%) to $3.5
billion, small business loans increased $168.3 million (10%) to $1.8
billion and consumer loans increased $696.0 million (23%) to $3.7
billion.
o Asset quality remained strong with nonperforming assets as a percentage
of total loans plus foreclosed assets and excess bank-owned property of
.40% at June 30, 1998, down slightly from .42% at June 30, 1997. The
reserve coverage of nonperforming loans was 390% at June 30, 1998.
o Deposits increased $525.6 million (6%) to $9.7 billion at June 30, 1998
compared to June 30, 1997.
o In July 1998, Hibernia's Board of Directors declared a quarterly cash
dividend of $.09 per common share, a 13% increase from the $.08
quarterly dividend declared in July 1997.
MERGER ACTIVITY
In the first quarter of 1998, the Company completed mergers with Northwest
Bancshares of Louisiana, Inc., parent company of the $101 million asset First
National Bank in Mansfield; ArgentBank with total assets of $770 million; and
Firstshares of Texas, Inc., parent company of the $288 million asset First
National Bank (Marshall). All three mergers were accounted for as poolings of
interests. During 1997, Hibernia completed two mergers with East Texas financial
institutions which were accounted for as poolings of interests. All prior-year
information has been restated to reflect the effect of the mergers.
Measures of financial performance subsequent to purchase transactions are
more relevant when comparing "tangible" results (i.e., before amortization of
goodwill and core deposit intangibles), because they are more indicative of cash
flows, and thus the Company's ability to support growth and pay dividends. The
tangible measures of financial performance are presented in the Consolidated
Summary of Income and Selected Financial Data on page 11.
The institutions with which the Company merged are collectively referred to
as the "merged companies." The merged companies in transactions accounted for as
poolings of interests are referred to as the "pooled companies," and the merged
companies in transactions accounted for as purchase transactions are referred to
as the "purchased companies."
On July 1, 1998, the Company consummated a merger with Peoples Holding
Corporation, parent of the $232 million asset Peoples Bank & Trust Company
(Peoples), accounted for as a pooling of interests. Mergers are pending with two
financial institutions: First Guaranty Bank (First Guaranty), with total assets
of $243 million and MarTex Bancshares, Inc. (MarTex), parent company of the $322
million asset First Service Bank. The mergers with First Guaranty and MarTex are
pending regulatory and shareholder approval. It is anticipated that these
transactions will be accounted for as poolings of interests when consummated.
After these mergers Hibernia would have approximately $13.4 billion in assets
and 251 banking locations in 34 Louisiana parishes and 12 Texas counties.
FINANCIAL CONDITION:
EARNING ASSETS
Earning assets averaged $11.5 billion in the second quarter of 1998, a $1.7
billion (17%) increase from the second-quarter 1997 average of $9.9 billion. The
growth in average earning assets was due to strong and diversified loan growth,
as a result of offering quality service and innovative lending products in
existing markets as well as in the markets of merger partners. Hibernia has
funded the loan growth through increases in deposits and borrowed funds.
Loans. Average loans for the second quarter of 1998 of $8.8 billion were up
$388.1 million (5%) from the first quarter of 1998 and up $1.8 billion (25%)
compared to the second quarter of 1997. For the first six months of 1998 average
loans increased $1.8 billion (26%) compared to the first six months of 1997.
Table 1 presents Hibernia's commercial and small business loans classified
by repayment source and consumer loans classified by type at June 30, 1998,
March 31, 1998 and June 30, 1997. Total loans increased $409.0 million (5%)
during the second quarter of 1998 compared to March 31, 1998, as commercial
loans increased $208.6 million (6%), small business loans increased $116.8
million (7%) and consumer loans increased $83.6 million (2%). Compared to June
30, 1997, loans increased $1.8 billion (24%). Commercial loans were up $899.9
million (34%), small business loans grew $168.3 million (10%) and consumer loans
increased $696.0 million (23%). Commercial and small business growth was spread
across most categories. The decrease in the commercial and industrial segment of
the small business portfolio from June 30, 1997 to both March 31, 1998 and June
30, 1998 resulted primarily from the reclassification of merger bank loans to
their appropriate category after converting to Hibernia's loan system. In
consumer lending, growth was concentrated in residential mortgage loans and
revolving credit loans.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
TABLE 1 - COMPOSITION OF LOAN PORTFOLIO
- --------------------------------------------------------------------------------------------------------------
June 30, 1998 March 31, 1998 June 30, 1997
- --------------------------------------------------------------------------------------------------------------
($ in millions) Loans Percent Loans Percent Loans Percent
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial:
Commercial and industrial ..... $ 1,217.8 13.5% $ 1,224.8 14.2% $ 934.2 12.8%
Services industry ............. 848.9 9.4 722.2 8.4 524.3 7.2
Real estate ................... 470.8 5.2 487.0 5.6 462.6 6.3
Health care ................... 284.6 3.1 275.9 3.2 230.2 3.2
Transportation, communications
and utilities .............. 246.3 2.7 239.8 2.8 191.0 2.6
Energy ........................ 406.1 4.5 298.7 3.4 223.4 3.1
Other ......................... 50.6 0.6 68.1 0.8 59.5 0.8
- --------------------------------------------------------------------------------------------------------------
Total commercial ........... 3,525.1 39.0 3,316.5 38.4 2,625.2 36.0
- --------------------------------------------------------------------------------------------------------------
Small Business:
Commercial and industrial ..... 673.6 7.5 663.0 7.7 959.5 13.2
Services industry ............. 385.1 4.3 347.4 4.0 250.3 3.4
Real estate ................... 246.3 2.7 234.3 2.7 143.0 2.0
Health care ................... 98.7 1.1 83.7 0.9 55.5 0.8
Transportation, communications
and utilities .............. 67.2 0.7 58.1 0.7 29.9 0.4
Energy ........................ 39.2 0.4 42.4 0.5 13.3 0.2
Other ......................... 318.3 3.5 282.7 3.3 208.6 2.8
- --------------------------------------------------------------------------------------------------------------
Total small business ....... 1,828.4 20.2 1,711.6 19.8 1,660.1 22.8
- --------------------------------------------------------------------------------------------------------------
Consumer:
Residential mortgages:
First mortgages ............ 1,869.8 20.6 1,857.7 21.5 1,372.7 18.9
Junior liens ............... 152.8 1.7 133.8 1.6 118.3 1.6
Indirect ...................... 777.7 8.6 748.3 8.7 755.2 10.4
Revolving credit .............. 314.8 3.5 296.0 3.4 232.1 3.2
Other ......................... 577.4 6.4 573.1 6.6 518.2 7.1
- --------------------------------------------------------------------------------------------------------------
Total consumer ............. 3,692.5 40.8 3,608.9 41.8 2,996.5 41.2
- --------------------------------------------------------------------------------------------------------------
Total loans ...................... $ 9,046.0 100.0% $ 8,637.0 100.0% $ 7,281.8 100.0%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Securities. Average securities decreased $63.7 million (3%) in the second
quarter of 1998 compared to the second quarter of 1997, and were down $50.5
million (2%) for the first six months of 1998 compared to the same period in
1997. The decreases were the result of the reinvestment of maturing securities
into higher-yielding loans. Securities primarily consist of mortgage-backed and
U.S. government agency securities. Most securities held by the Company qualify
as securities that may be pledged and are used to collateralize repurchase
agreements and public fund deposits.
Short-Term Investments. Average short-term investments (primarily federal
funds sold and repurchase agreements) for the three months ended June 30, 1998,
totaled $228.3 million, down $36.6 million (14%) compared to an average of
$264.9 million in the second quarter of 1997. For the first six months of 1998
compared to the same period in 1997, short-term investments decreased $44.9
million (16%) to $232.0 million.
ASSET QUALITY
Nonperforming assets -- which include nonaccrual loans, restructured loans,
foreclosed assets and excess bank-owned property -- totaled $36.5 million at
June 30, 1998. Nonperforming assets as a percentage of total loans plus
foreclosed assets and excess bank-owned property were .40% at June 30, 1998, a
slight improvement from .42% at June 30, 1997 and virtually unchanged from .39%
at March 31, 1998.
Nonperforming loans, which totaled $31.2 million at June 30, 1998,
increased $7.7 million (33%) from a year ago, and $2.7 million (10%) from the
prior quarter end. Foreclosed assets totaled $2.9 million at June 30, 1998, down
$1.7 million (37%) from a year earlier, and up $0.2 million (8%) from March 31,
1998. Excess bank-owned property at June 30, 1998 was down $0.5 million (16%)
from June 30, 1997, and down $0.4 million (13%) from March 31, 1998. Table 2
presents a summary of nonperforming assets at the end of the last five quarters.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
TABLE 2 - NONPERFORMING ASSETS
- ----------------------------------------------------------------------------------------------------------
June 30 March 31 Dec. 31 Sept. 30 June 30
($ in thousands) 1998 1998 1997 1997 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans ........................ $ 31,160 $ 28,443 $ 22,420 $ 24,429 $ 23,457
Restructured loans ...................... - - - - -
- ----------------------------------------------------------------------------------------------------------
Total nonperforming loans ........... 31,160 28,443 22,420 24,429 23,457
- ----------------------------------------------------------------------------------------------------------
Foreclosed assets ....................... 2,908 2,701 2,510 4,809 4,640
Excess bank-owned property .............. 2,388 2,760 2,360 2,218 2,841
- ----------------------------------------------------------------------------------------------------------
Total nonperforming assets .......... $ 36,456 $ 33,904 $ 27,290 $ 31,456 $ 30,938
- ----------------------------------------------------------------------------------------------------------
Reserve for possible loan losses ........ $121,447 $119,558 $122,401 $127,158 $134,500
Nonperforming loans as a percentage
of total loans ...................... 0.34% 0.33% 0.27% 0.32% 0.32%
Nonperforming assets as a percentage
of total loans plus foreclosed assets
and excess bank-owned property ...... 0.40% 0.39% 0.33% 0.41% 0.42%
Reserve for possible loan losses as a
percentage of nonperforming loans ... 389.75% 420.34% 545.95% 520.52% 573.39%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
At June 30, 1998 the recorded investment in loans considered impaired under
Statement of Financial Accounting Standards (SFAS) No. 114 was $28.0 million.
The related portion of the reserve for possible loan losses was $4.3 million.
The comparable amounts at June 30, 1997 were $17.0 million and $3.0 million,
respectively. These loans are included in nonaccrual loans in Table 2.
Table 3 shows loan delinquencies for the last five quarters. Both the
amount and percentage of loan delinquencies to total loans declined at June 30,
1998 compared to June 30, 1997 and increased slightly compared to March 31,
1998. The amount of total delinquencies decreased $7.1 million (13%) from June
30, 1997 and increased $5.6 million (14%) from March 31, 1998. Delinquencies as
a percentage of total loans at June 30, 1998 were .52%, down from .74% a year
ago and up slightly from .48% at March 31, 1998.
Accruing loans past due 90 days or more were $6.8 million at June 30, 1998
compared to $3.6 million at June 30, 1997 and $6.6 million at March 31, 1998.
Commercial loan delinquencies were .12% of total commercial loans at June 30,
1998 compared to .19% at June 30, 1997 and .07% at March 31, 1998. Small
business loan delinquencies decreased to .74% at June 30, 1998, from .83% at
June 30, 1997 and were unchanged from March 31, 1998. Consumer loan
delinquencies decreased to .79% from 1.17% at June 30, 1997 and increased from
.73% at March 31, 1998. The improvement in consumer delinquencies from 1997 is
primarily due to a change in the reporting methodology from number of days to
payment cycle dates for mortgage loans, a methodology utilized in the banking
industry.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
TABLE 3 - LOAN DELINQUENCIES (1)
- --------------------------------------------------------------------------------------------------------------
June 30 March 31 Dec. 31 Sept. 30 June 30
($ in millions) 1998 1998 1997 1997 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Days past due:
30 to 89 days ................................ $ 40.0 $ 34.6 $ 60.8 $ 51.3 $ 50.3
90 days or more .............................. 6.8 6.6 5.6 5.7 3.6
- --------------------------------------------------------------------------------------------------------------
Total delinquencies ...................... $ 46.8 $ 41.2 $ 66.4 $ 57.0 $ 53.9
- --------------------------------------------------------------------------------------------------------------
Total delinquencies as a percentage of loans:
Commercial ................................... 0.12% 0.07% 0.18% 0.13% 0.19%
Small business ............................... 0.74 0.74 0.84 0.88 0.83
Consumer ..................................... 0.79 0.73 1.38 1.20 1.17
Total loans .................................. 0.52 0.48 0.81 0.74 0.74
- --------------------------------------------------------------------------------------------------------------
- ----------------
(1) Accruing loans past due as to principal and/or interest 30 days or more
</TABLE>
Table 4 presents a summary of changes in nonperforming loans for the
three-month and six-month periods ended June 30, 1998 and 1997. Loans totaling
$13.0 million were added to nonperforming loans during the second quarter of
1998. Payments and sales resulted in a $8.2 million reduction in nonperforming
loans while $1.1 million of loans returned to performing status. Charge-offs
further reduced nonperforming loans in the second quarter of 1998 by $1.0
million. In the event nonaccrual loans that have been charged-off are recovered
in subsequent periods, the recoveries would be reflected in the reserve for
possible loan losses in Table 5 and not as a component of nonperforming loan
activity.
In addition to the nonperforming assets discussed above, other commercial
loans for which payments are current that are subject to potential future
classification as nonperforming totaled $44.1 million at June 30, 1998.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE 4 - SUMMARY OF NONPERFORMING LOAN ACTIVITY
- --------------------------------------------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
- --------------------------------------------------------------------------------
($ in thousands) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonperforming loans
at beginning of period . $ 28,443 $ 17,765 $ 22,420 $ 16,742
Additions .................. 13,041 12,435 22,862 31,583
Charge-offs, gross ......... (993) (2,486) (1,774) (5,491)
Returns to performing status (1,136) (150) (2,162) (1,041)
Payments and sales ......... (8,195) (4,107) (10,186) (18,336)
- --------------------------------------------------------------------------------
Nonperforming loans
at end of period ....... $ 31,160 $ 23,457 $ 31,160 $ 23,457
- --------------------------------------------------------------------------------
</TABLE>
RESERVE AND PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses is a charge to earnings in order to
maintain the reserve for possible loan losses at a level consistent with
management's assessment of the loan portfolio in light of current and expected
economic conditions. As a result of loan growth, the anticipated future
collectibility of loans and the amounts and timing of future cash flows expected
to be received on impaired loans, the Company recorded a $5.5 million provision
for possible loan losses in the second quarter of 1998 and a $3.5 million
provision in the first quarter of 1998. Although nominal provisions had been
recorded by the merged companies, the provision in the first quarter of 1998
represented the first time a quarterly provision expense had been recorded by
the Company since the third quarter of 1993. Table 5 presents an analysis of the
activity in the reserve for possible loan losses for the second quarter and
first six months of 1998 and 1997.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TABLE 5 - RESERVE FOR POSSIBLE LOAN LOSSES ACTIVITY
- ----------------------------------------------------------------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
- ----------------------------------------------------------------------------------------------------
($ in thousands) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period ..... $ 119,558 $ 133,781 $ 122,401 $ 141,541
Loans charged off .................. (8,864) (9,037) (19,190) (22,831)
Recoveries ......................... 5,253 9,235 9,236 15,130
- ----------------------------------------------------------------------------------------------------
Net loans charged off .............. (3,611) 198 (9,954) (7,701)
Provision for possible loan losses . 5,500 43 9,000 182
Additions due to purchased companies - 478 - 478
- ----------------------------------------------------------------------------------------------------
Balance at end of period ........... $ 121,447 $ 134,500 $ 121,447 $ 134,500
- ----------------------------------------------------------------------------------------------------
Reserve for possible loan losses
as a percentage of loans ....... 1.34% 1.85% 1.34% 1.85%
Annualized net charge-offs as a
percentage of average loans .... 0.16% (0.01% 0.23% 0.22%
- ----------------------------------------------------------------------------------------------------
</TABLE>
Net charge-offs totaled $3.6 million in the second quarter of 1998,
compared to net recoveries of $0.2 million in the second quarter of 1997. The
second quarter of 1997 included the collection of a large commercial loan that
had previously been charged-off and the sale of a group of charged-off consumer
loans in bankruptcy. For the first six months of 1998, net charge-offs totaled
$10.0 million compared to $7.7 million for the same period in 1997. As a
percentage of average loans, annualized net charge-offs were .16% and .23% for
the second quarter and the first six months of 1998, respectively.
The reserve for possible loan losses totaled $121.4 million, or 1.34% of
total loans, at June 30, 1998, compared to $134.5 million, or 1.85%, a year
earlier. The reserve for possible loan losses as a percentage of loans has been
declining since the end of 1993 as a result of net charge-offs and loan growth.
The reserve for possible loan losses as a percentage of nonperforming loans was
390% at June 30, 1998, compared to 573% at June 30, 1997 and 420% at March 31,
1998. The present level of reserve for possible loan losses is considered to be
adequate to absorb future potential loan losses inherent in the existing
portfolio considering the level and mix of the loan portfolio, current economic
conditions and market trends.
FUNDING SOURCES:
DEPOSITS
Average deposits totaled $9.7 billion in the second quarter of 1998, a
$746.8 million (8%) increase from the second quarter of 1997. For the first six
months of 1998 compared to the same period in 1997, average deposits increased
$760.0 million (9%) to $9.6 billion. This growth resulted from Hibernia's
emphasis on attracting new deposits and expanding current banking relationships
through outstanding service and the promotion of products such as the Tower
Super SavingsSM account (which offers liquidity and a rate indexed to the 90-day
Treasury bill auction discount rate). Table 6 presents the composition of
average deposits for the second and first quarters of 1998 and the second
quarter of 1997.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
TABLE 6 - DEPOSIT COMPOSITION
- --------------------------------------------------------------------------------------------------------------
Second Quarter 1998 First Quarter 1998 Second Quarter 1997
- --------------------------------------------------------------------------------------------------------------
Average % of Average % of Average % of
($ in millions) Balances Deposits Balances Deposits Balances Deposits
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing ........... $ 1,766.4 18.2% $ 1,724.0 18.0% $ 1,566.4 17.5%
NOW accounts .................. 288.1 3.0 366.9 3.8 471.0 5.3
Money market deposit accounts . 1,933.5 19.9 1,903.7 19.9 1,700.5 19.0
Savings accounts .............. 1,076.3 11.1 964.2 10.1 756.9 8.4
Other consumer time deposits .. 2,870.1 29.6 2,866.5 29.9 2,851.7 31.9
- --------------------------------------------------------------------------------------------------------------
Total core deposits ....... 7,934.4 81.8 7,825.3 81.7 7,346.5 82.1
- --------------------------------------------------------------------------------------------------------------
Public fund certificates of
deposit of $100,000 or more 1,007.6 10.4 1,019.5 10.7 1,046.6 11.7
Certificates of deposit of
$100,000 or more .......... 541.4 5.6 567.4 5.9 473.4 5.3
Foreign time deposits ......... 211.0 2.2 161.0 1.7 81.1 0.9
- --------------------------------------------------------------------------------------------------------------
Total deposits ............ $ 9,694.4 100.0% $ 9,573.2 100.0% $ 8,947.6 100.0%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Average core deposits totaled $7.9 billion in the second quarter of 1998, a
$587.9 million (8%) increase from the second quarter of 1997. Average
noninterest-bearing deposits grew $200.0 million and savings deposits increased
$319.4 million in the second quarter of 1998 compared to the second quarter of
1997. NOW account average balances were down $182.9 million and money market
deposit accounts were up $233.0 million in the second quarter of 1998 compared
to the second quarter of 1997 due to the enhanced Reserve Money Manager account
designed to create a more efficient sweep process.
Average noncore deposits were up $158.9 million (10%) from the second
quarter of 1997 to $1.8 billion or 18% of total deposits. Large denomination
certificates of deposit increased $29.0 million (2%) compared to the second
quarter of 1997. Foreign time deposits increased $129.9 million (160%) due to
successful efforts to market a treasury management product which moves
commercial customer funds into higher-yielding Eurodollar deposits.
BORROWINGS
Average borrowings -- which include federal funds purchased, securities
sold under agreements to repurchase (repurchase agreements) and debt -increased
$829.9 million (167%) to $1.3 billion for the second quarter of 1998 compared to
the second quarter of 1997. For the first six months of 1998 compared to the
same period in 1997 average borrowings increased $852.5 million (182%) to $1.3
billion.
Average debt for the second quarter of 1998 totaled $706.2 million, up from
$12.9 million in the second quarter of 1997. At June 30, 1998 the Company's
debt, which is comprised of advances from the Federal Home Loan Bank of Dallas
(FHLB), totaled $706.1 million. Debt increased $693.4 million from June 30, 1997
as Hibernia locked in attractive fixed rates to fund its growing loan portfolio.
In June 1998 the FHLB exercised its right to call $300 million of advances.
Replacement funding consisted of FHLB advances for $100 million and $200
million. The terms of these advances stipulate that payment may be demanded at
quarterly intervals beginning in December 1998 for the $100 million advance and
June 2003 for the $200 million advance. The Company's reliance on borrowings,
while higher than a year ago, is still within parameters determined by
management to be prudent in terms of liquidity and interest rate risk.
INTEREST RATE SENSITIVITY
The primary objective of asset/liability management is controlling interest
rate risk. On a continuing basis, management monitors the sensitivity of net
interest income to changes in interest rates through methods that include
simulation and gap reports. Using these tools, management attempts to optimize
the asset/liability mix to minimize the impact of significant rate movements
within a broad range of interest rate scenarios. Management may alter the mix of
floating- and fixed-rate assets and liabilities, change pricing schedules and
enter into derivative contracts as a means of minimizing interest rate risk.
On a limited basis, the Company has entered into interest rate and foreign
exchange rate swap, forward and option contracts to hedge interest rate or
foreign exchange risk on specific assets and liabilities. Hibernia held foreign
exchange rate forward contracts totaling $20.0 million at June 30, 1998, which
minimize the Company's exchange rate risk on loans to be repaid in foreign
currencies. At June 30, 1998 the Company was party to an interest rate swap
contract with a notional amount of $125.0 million. This swap, which matured on
July 1, 1998, was entered into during the second quarter of 1998 as a hedge
against a deposit relationship of the same maturity.
Derivative financial instruments are also held or issued by the Company for
trading purposes to provide customers the ability to manage their own interest
rate and foreign exchange risk. In general, matched trading positions are
established to minimize risk to the Company. The notional value of these
instruments totaled $284.3 million at June 30, 1998. In addition to these
customer-related financial instruments, the Company has entered into contracts
for its own account related to its mortgage origination activity which total
$237.4 million. As of June 30, 1998 Hibernia's credit exposure related to
derivative financial instruments held for trading totaled $1.2 million.
RESULTS OF OPERATIONS:
NET INTEREST INCOME
Taxable-equivalent net interest income for the second quarter of 1998
totaled $133.5 million, a $14.3 million increase from the same period in 1997
and up $4.7 million from the first quarter of 1998. Taxable-equivalent net
interest income for the first six months of 1998 totaled $262.3 million, a $28.0
million increase over the first six months of 1997.
Factors contributing to the increase in net interest income for the second
quarter and first six months of 1998 over the comparable periods in 1997
include: overall growth in earning assets and the positive effect of the change
in the mix of earning assets from securities to loans as can be seen in Table 7.
These factors were partially offset by lower yields on loans and securities and
rising funding costs.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
TABLE 7 - INTEREST-EARNING ASSET COMPOSITION
- ------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------
Second First Fourth Third Second
(Percentage of average balances) Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial loans ................ 30.0% 28.6% 27.0% 26.4% 26.1%
Small business loans ............ 15.2 15.8 16.3 16.6 15.8
Consumer loans .................. 31.3 30.5 29.8 30.0 29.5
- ------------------------------------------------------------------------------------------
Total loans ................. 76.5 74.9 73.1 73.0 71.4
- ------------------------------------------------------------------------------------------
Securities available for sale ... 21.5 23.0 24.1 24.3 25.9
Short-term investments .......... 2.0 2.1 2.8 2.7 2.7
- ------------------------------------------------------------------------------------------
Total interest-earning assets 100.0% 100.0% 100.0% 100.0% 100.0%
- ------------------------------------------------------------------------------------------
</TABLE>
Table 8 details the net interest margin for the most recent five quarters.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TABLE 8 - NET INTEREST MARGIN (taxable-equivalent)
- ----------------------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------
Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Yield on earning assets ............ 8.19% 8.21% 8.10% 8.29% 8.30%
Rate on interest-bearing liabilities 4.44 4.43 4.41 4.36 4.32
- ----------------------------------------------------------------------------------------------------
Net interest spread ............ 3.75 3.78 3.69 3.93 3.98
Contribution of
noninterest-bearing funds ...... 0.88 0.82 0.88 0.86 0.87
- ----------------------------------------------------------------------------------------------------
Net interest margin ............ 4.63% 4.60% 4.57% 4.79% 4.85%
- ----------------------------------------------------------------------------------------------------
Noninterest-bearing funds
supporting earning assets ...... 19.87% 18.71% 20.03% 19.77% 20.06%
- ----------------------------------------------------------------------------------------------------
</TABLE>
The net interest margin was 4.63% for the second quarter of 1998, down 22
basis points from the second quarter of 1997, and up three basis points from the
first quarter of 1998. The positive effects of the change in the mix of earning
assets was partially offset by the shift in the mix of funding sources toward
market rate funds, and when compared to the second quarter of 1997, the negative
impact of declining loan yields. In the second quarter of 1998, 56.5% of
Hibernia's earning assets were supported by market-rate funds compared to 52.8%
in the same period in 1997. The attractive introductory rates offered on
Hibernia's Equity PrimeLine(R) loan product and Tower Super SavingsSM account
during 1997 illustrate the pricing strategies necessary to successfully promote
products in the current competitive environment.
In addition, the net interest margin was negatively impacted (approximately
four basis points) in the second quarter of 1998 and (approximately three basis
points) in the first six months of 1998 by the funding cost of a transaction
designed to utilize capital losses. The income associated with this transaction
will be recorded as a securities gain in noninterest income rather than in net
interest income.
Table 9 presents an analysis of changes in taxable-equivalent net interest
income between the second quarter of 1998 and the first quarter of 1998 and
between the second quarter of 1998 and the second quarter of 1997.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
TABLE 9 - CHANGES IN TAXABLE-EQUIVALENT NET INTEREST INCOME (1)
- ------------------------------------------------------------------------------------------------------------------------
Second Quarter 1998 Compared to:
- ------------------------------------------------------------------------------------------------------------------------
First Quarter 1998 Second Quarter 1997
- ------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) Due to Change In:
- ------------------------------------------------------------------------------------------------------------------------
($ in thousands) Volume Rate Total Volume Rate Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Taxable-equivalent
interest earned on:
Commercial loans .............. $ 5,001 $ 1,592 $ 6,593 $ 19,118 $ (1,196) $ 17,922
Small business loans .......... (742) 108 (634) 4,680 (30) 4,650
Consumer loans ................ 3,912 809 4,721 15,020 (2,151) 12,869
- ------------------------------------------------------------------------------------------------------------------------
Loans ..................... 8,171 2,509 10,680 38,818 (3,377) 35,441
- ------------------------------------------------------------------------------------------------------------------------
Securities available for sale . (1,827) (1,886) (3,713) (1,069) (2,220) (3,289)
Short-term investments ........ (108) 143 35 (528) 285 (243)
- ------------------------------------------------------------------------------------------------------------------------
Total ................... 6,236 766 7,002 37,221 (5,312) 31,909
- ------------------------------------------------------------------------------------------------------------------------
Interest paid on:
NOW accounts .................. (696) 573 (123) (1,506) 1,082 (424)
Money market
deposit accounts .......... 187 231 418 1,480 (97) 1,383
Savings accounts .............. 905 155 1,060 2,548 548 3,096
Other consumer time deposits .. 47 (6) 41 240 (32) 208
Public fund certificates of
deposit of $100,000 or more (160) 13 (147) (529) (285) (814)
Certificates of deposit
of $100,000 or more ....... (338) 339 1 902 180 1,082
Foreign deposits .............. 654 6 660 1,700 (19) 1,681
Federal funds purchased ....... (1,102) (36) (1,138) 1,251 31 1,282
Repurchase agreements ......... 157 53 210 538 (51) 487
Debt .......................... 1,063 220 1,283 9,685 (55) 9,630
- ------------------------------------------------------------------------------------------------------------------------
Total ................... 717 1,548 2,265 16,309 1,302 17,611
- ------------------------------------------------------------------------------------------------------------------------
Taxable-equivalent
net interest income ........... $ 5,519 $ (782) $ 4,737 $ 20,912 $ (6,614) $ 14,298
- ------------------------------------------------------------------------------------------------------------------------
- ---------------
(1) Change due to mix (both volume and rate) has been allocated to volume and
rate changes in proportion to the relationship of the absolute dollar
amounts to the changes in each.
</TABLE>
The analysis of Consolidated Average Balances, Interest and Rates on pages
22 and 23 of this discussion presents the Company's taxable-equivalent net
interest income and average balances for the three months ended June 30, 1998,
March 31, 1998 and June 30, 1997, and for the first six months of 1998 and 1997.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES, INTEREST AND RATES
- ------------------------------------------------------------------------------------------------------------------------------------
Hibernia Corporation and Subsidiaries
Taxable-equivalent basis (1) Second Quarter 1998 First Quarter 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(Average balances $ in millions, Average Average
interest $ in thousands) Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Commercial loans .............................. $ 3,460.0 $ 74,512 8.64% $ 3,226.5 $ 67,919 8.54%
Small business loans .......................... 1,752.9 41,486 9.49 1,784.3 42,120 9.57
Consumer loans ................................ 3,622.3 76,323 8.45 3,436.3 71,602 8.42
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans (2) ........................... 8,835.2 192,321 8.73 8,447.1 181,641 8.71
- ------------------------------------------------------------------------------------------------------------------------------------
Securities available for sale ................. 2,484.7 40,215 6.48 2,595.0 43,928 6.79
Short-term investments ........................ 228.3 3,397 5.97 235.8 3,362 5.78
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets ............. 11,548.2 $235,933 8.19% 11,277.9 $228,931 8.21%
- ------------------------------------------------------------------------------------------------------------------------------------
Reserve for possible loan losses .................. (119.6) (121.1)
Noninterest-earning assets:
Cash and due from banks ....................... 423.1 452.9
Other assets .................................. 543.7 654.4
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest-earning assets .......... 966.8 1,107.3
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets .............................. $ 12,395.4 $12,264.1
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts .............................. $ 288.1 $ 2,804 3.90% $ 366.9 $ 2,927 3.24%
Money market deposit accounts ............. 1,933.5 12,277 2.55 1,903.7 11,859 2.53
Savings accounts .......................... 1,076.3 8,715 3.25 964.2 7,655 3.22
Other consumer time deposits .............. 2,870.1 37,303 5.21 2,866.5 37,262 5.27
Public fund certificates of deposit
of $100,000 or more ................... 1,007.6 13,580 5.41 1,019.5 13,727 5.46
Certificates of deposit of $100,000 or more 541.4 7,215 5.35 567.4 7,214 5.16
Foreign time deposits ..................... 211.0 2,761 5.25 161.0 2,101 5.29
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits ....... 7,928.0 84,655 4.28 7,849.2 82,745 4.28
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased ................... 237.2 3,207 5.42 318.7 4,345 5.53
Repurchase agreements ..................... 382.6 4,672 4.90 369.7 4,462 4.89
Debt .......................................... 706.2 9,856 5.60 629.7 8,573 5.52
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities ........ 9,254.0 $102,390 4.44% 9,167.3 $100,125 4.43%
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Noninterest-bearing deposits .................. 1,766.4 1,724.0
Other liabilities ............................. 162.8 186.3
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest-bearing liabilities ..... 1,929.2 1,910.3
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity ........................ 1,212.2 1,186.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 12,395.4 $12,264.1
- ------------------------------------------------------------------------------------------------------------------------------------
SPREAD AND NET YIELD
Interest rate spread .............................. 3.75% 3.78%
Cost of funds supporting interest-earning assets .. 3.56% 3.61%
Net interest income/margin ........................ $133,543 4.63% $128,806 4.60%
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------
(1) Based on the statutory income tax rate of 35%. (2) Yield computations
include nonaccrual loans in loans outstanding.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES, INTEREST AND RATES (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
Hibernia Corporation and Subsidiaries Six Months Ended
Taxable-equivalent basis (1) Second Quarter 1997 June 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(Average balances $ in millions, Average Average
interest $ in thousands) Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Commercial loans .............................. $ 2,573.3 $ 56,590 8.82% $ 3,341.0 $142,363 8.59%
Small business loans .......................... 1,555.2 36,836 9.50 1,768.5 83,607 9.53
Consumer loans ................................ 2,912.3 63,454 8.73 3,532.8 147,993 8.43
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans (2) ........................... 7,040.8 156,880 8.94 8,642.3 373,963 8.72
- ------------------------------------------------------------------------------------------------------------------------------------
Securities available for sale ................. 2,548.4 43,504 6.83 2,539.6 84,142 6.64
Short-term investments ........................ 264.9 3,640 5.51 232.0 6,759 5.87
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets ............. 9,854.1 $204,024 8.30% 11,413.9 $ 464,864 8.20%
- ------------------------------------------------------------------------------------------------------------------------------------
Reserve for possible loan losses .................. (133.6) (120.4)
Noninterest-earning assets:
Cash and due from banks ....................... 416.6 437.9
Other assets .................................. 536.4 598.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest-earning assets .......... 953.0 1,036.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets .............................. $ 10,673.5 $12,330.1
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts .............................. $ 471.0 $ 3,228 2.75% $ 327.3 $ 5,731 3.53%
Money market deposit accounts ............. 1,700.5 10,894 2.57 1,918.7 24,137 2.54
Savings accounts .......................... 756.9 5,619 2.98 1,020.6 16,370 3.23
Other consumer time deposits .............. 2,851.7 37,095 5.22 2,868.2 74,565 5.24
Public fund certificates of deposit
of $100,000 or more ................... 1,046.6 14,394 5.52 1,013.5 27,307 5.43
Certificates of deposit of $100,000 or more 473.4 6,133 5.20 554.4 14,429 5.25
Foreign time deposits ..................... 81.1 1,080 5.34 186.1 4,862 5.27
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits ....... 7,381.2 78,443 4.26 7,888.8 167,401 4.28
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased ................... 144.6 1,925 5.34 277.8 7,552 5.48
Repurchase agreements ..................... 338.6 4,185 4.96 376.1 9,133 4.90
Debt .......................................... 12.9 226 7.01 668.2 18,429 5.56
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities ........ 7,877.3 $ 84,779 4.32% 9,210.9 $202,515 4.43%
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Noninterest-bearing deposits .................. 1,566.4 1,745.3
Other liabilities ............................. 156.6 174.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest-bearing liabilities ..... 1,723.0 1,919.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity ........................ 1,073.2 1,199.4
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity. $ 10,673.5 $12,330.1
- ------------------------------------------------------------------------------------------------------------------------------------
SPREAD AND NET YIELD
Interest rate spread .............................. 3.98% 3.77%
Cost of funds supporting interest-earning assets .. 3.45% 3.58%
Net interest income/margin ........................ $119,245 4.85% $262,349 4.62%
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------
(1) Based on the statutory income tax rate of 35%. (2) Yield computations
include nonaccrual loans in loans outstanding.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES, INTEREST AND RATES (CONTINUED)
- ----------------------------------------------------------------------------------------------------
Hibernia Corporation and Subsidiaries Six Months Ended
Taxable-equivalent basis (1) June 30, 1997
- ----------------------------------------------------------------------------------------------------
(Average balances $ in millions, Average
interest $ in thousands) Balance Interest Rate
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Commercial loans ............................... $ 2,471.8 $107,698 8.79%
Small business loans ........................... 1,543.4 72,397 9.46
Consumer loans ................................. 2,867.4 124,539 8.74
- ----------------------------------------------------------------------------------------------------
Total loans (2) ............................ 6,882.6 304,634 8.92
- ----------------------------------------------------------------------------------------------------
Securities available for sale .................. 2,590.1 87,554 6.77
Short-term investments ......................... 276.9 7,427 5.41
- ----------------------------------------------------------------------------------------------------
Total interest-earning assets .............. 9,749.6 $399,615 8.25%
- ----------------------------------------------------------------------------------------------------
Reserve for possible loan losses (135.7) Noninterest-earning assets:
Cash and due from banks ........................ 428.1
Other assets ................................... 533.7
- ----------------------------------------------------------------------------------------------------
Total noninterest-earning assets ........... 961.8
- ----------------------------------------------------------------------------------------------------
Total assets ............................... $ 10,575.7
- ----------------------------------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts ............................... $ 514.2 $ 7,021 2.75%
Money market deposit accounts .............. 1,698.1 21,241 2.52
Savings accounts ........................... 677.4 9,329 2.78
Other consumer time deposits ............... 2,847.8 73,971 5.24
Public fund certificates of deposit
of $100,000 or more .................... 1,033.2 28,167 5.50
Certificates of deposit of $100,000 or more 463.7 11,869 5.16
Foreign time deposits ...................... 74.4 1,957 5.30
- ----------------------------------------------------------------------------------------------------
Total interest-bearing deposits ........ 7,308.8 153,555 4.24
- ----------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased .................... 100.1 2,618 5.28
Repurchase agreements ...................... 338.1 8,115 4.84
Debt ........................................... 31.4 974 6.26
- ----------------------------------------------------------------------------------------------------
Total interest-bearing liabilities ......... 7,778.4 $165,262 4.28%
- ----------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Noninterest-bearing deposits ................... 1,565.3
Other liabilities .............................. 164.5
- ----------------------------------------------------------------------------------------------------
Total noninterest-bearing liabilities ...... 1,729.8
- ----------------------------------------------------------------------------------------------------
Total shareholders' equity ......................... 1,067.5
- ----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 10,575.7
- ----------------------------------------------------------------------------------------------------
SPREAD AND NET YIELD
Interest rate spread ............................... 3.97%
Cost of funds supporting interest-earning assets ... 3.42%
Net interest income/margin ......................... $234,353 4.83%
- ----------------------------------------------------------------------------------------------------
- ------------
(1) Based on the statutory income tax rate of 35%. (2) Yield computations
include nonaccrual loans in loans outstanding.
</TABLE>
NONINTEREST INCOME
Noninterest income for the second quarter of 1998 was up $6.9 million (18%)
to $45.7 million compared to the same period of 1997. For the first six months
of 1998 compared to the same period in 1997, noninterest income was up $13.4
million (18%). Excluding securities transactions noninterest income increased
$7.3 million (19%) in the second quarter of 1998 over the second quarter of
1997, and was up $12.9 million (18%) over the first six months of 1997. The
major categories of noninterest income for the three months and six months ended
June 30, 1998 and 1997 are presented in Table 10.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TABLE 10 - NONINTEREST INCOME
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
- -------------------------------------------------------------------------------------------------------------------
% %
June 30 June 30 Increase June 30 June 30 Increase
($ in thousands) 1998 1997 (Decrease) 1998 1997 (Decrease)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposits ......... $20,751 $19,161 8% $40,136 $36,820 9%
Trust fees .......................... 4,411 3,972 11 8,295 7,608 9
Other service, collection and
exchange charges:
Mortgage loan fees ........... 3,558 2,296 55 6,937 4,319 61
Retail investment service fees 4,752 3,218 48 8,326 5,793 44
ATM fees ..................... 2,467 2,231 11 4,871 4,340 12
Other fees ................... 4,353 3,462 26 8,377 6,631 26
- -------------------------------------------------------------------------------------------------------------------
Total other service, collection
and exchange charges ............ 15,130 11,207 35 28,511 21,083 35
- -------------------------------------------------------------------------------------------------------------------
Other income ........................ 5,370 4,061 32 8,707 7,190 21
Securities gains (losses), net ...... 27 404 (93) 914 419 118
- -------------------------------------------------------------------------------------------------------------------
Total noninterest income ........ $45,689 $38,805 18% $86,563 $73,120 18%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Service charges on deposits increased $1.6 million (8%) for the second
quarter of 1998 and $3.3 million (9%) for the first six months of 1998 over the
comparable periods in 1997 primarily due to increases in the price for certain
deposit activities, the number of accounts and commercial account analysis fees.
Trust fees were up $0.4 million (11%) in the second quarter of 1998 and
$0.7 million (9%) for the first six months of 1998 compared to the same periods
in 1997 primarily due to new business and market value increases.
Other service, collection and exchange charges were up $3.9 million (35%)
and $7.4 million (35%) in the second quarter and the first six months of 1998,
respectively, compared to the same periods in 1997. Increases in fees from
mortgage processing, underwriting and servicing; retail investment services;
ATMs; and debit and credit cards were the major factors contributing to the
growth.
Mortgage loan fees increased $1.3 million in the second quarter and $2.6
million in the first six months of 1998 compared to the same periods in 1997.
These increases were primarily due to an increase in mortgage loan activity. In
the first half of 1998, Hibernia processed more than $1.0 billion in residential
first mortgages as compared to $1.1 billion in all of 1997.
Market conditions and financial products attractive to consumers such as
mutual funds and discount brokerage services fueled the $1.5 million increase in
retail investment service fees for the second quarter and a $2.5 million
increase in the first six months of 1998 over the comparable periods in 1997.
Hibernia's upgraded and expanded ATM network resulted in a $0.2 million increase
in ATM fees for the second quarter and a $0.5 million increase in the first six
months of 1998 over the comparable periods in 1997. Fees resulting from
Hibernia's CheckmateSM debit card and Capital Access(C) credit card for small
businesses led to a $0.9 million increase in other fees for the second quarter
of 1998. For the first six months of 1998, this increase totaled $1.7 million.
NONINTEREST EXPENSE
For the second quarter of 1998, noninterest expense totaled $105.0 million,
a $5.5 million (6%) increase from the second quarter of 1997. For the first six
months of 1998 compared to the same period in 1997, noninterest expense was up
$13.7 million (7%). The increases in noninterest expense were primarily due to
increases in staff costs, occupancy and equipment, data processing and the
amortization of intangibles. Noninterest expense for the three months and six
months ended June 30, 1998 and 1997 is presented by major category in Table 11.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
TABLE 11 - NONINTEREST EXPENSE
- ------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
- ------------------------------------------------------------------------------------------------------------------------
Percentage Percentage
June 30 June 30 Increase June 30 June 30 Increase
($ in thousands) 1998 1997 (Decrease) 1998 1997 (Decrease)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries ........................ $ 44,220 $ 39,056 13% $ 86,307 $ 78,381 10%
Benefits ........................ 7,476 7,541 (1) 15,177 15,653 (3)
- ------------------------------------------------------------------------------------------------------------------------
Total staff costs ........... 51,696 46,597 11 101,484 94,034 8
- ------------------------------------------------------------------------------------------------------------------------
Occupancy, net .................. 9,844 8,449 17 17,787 16,494 8
Equipment ....................... 7,677 7,776 (1) 15,087 15,392 (2)
- ------------------------------------------------------------------------------------------------------------------------
Total occupancy and equipment 17,521 16,225 8 32,874 31,886 3
- ------------------------------------------------------------------------------------------------------------------------
Data processing ................. 6,379 6,219 3 13,168 11,456 15
Telecommunications .............. 2,858 2,827 1 6,090 5,747 6
Advertising and promotional
expenses .................... 3,338 4,631 (28) 8,730 8,177 7
Postage ......................... 1,660 1,536 8 3,563 3,454 3
Stationery and supplies ......... 1,937 2,330 (17) 3,852 4,294 (10)
Professional fees ............... 1,965 1,608 22 3,797 3,320 14
Regulatory expense .............. 690 677 2 1,334 1,351 (1)
Loan collection expense ......... 1,134 1,010 12 2,186 1,775 23
Foreclosed property expense, net (658) (251) (162) (652) (561) (16)
Amortization of intangibles ..... 4,118 3,535 16 7,998 7,193 11
Other ........................... 12,358 12,577 (2) 23,145 21,737 6
- ------------------------------------------------------------------------------------------------------------------------
Total noninterest expense ... $ 104,996 $ 99,521 6% $ 207,569 $ 193,863 7%
- ------------------------------------------------------------------------------------------------------------------------
Efficiency ratio ................(1) 58.59% 63.13% 59.65% 63.14%
Tangible efficiency ratio .......(2) 56.92% 61.05% 57.92% 60.96%
- ------------------------------------------------------------------------------------------------------------------------
- ---------------
(1) Noninterest expense as a percentage of taxable-equivalent net interest
income plus noninterest income (excluding securities transactions).
(2) Noninterest expense (excluding amortization of purchase accounting
intangibles) as a percentage of taxable-equivalent net interest income
plus noninterest income (excluding securities transactions).
</TABLE>
Staff costs, which represent approximately 50% of noninterest expense,
increased $5.1 million (11%) in the second quarter of 1998 and $7.5 million (8%)
for the first six months of 1998 compared to the same periods a year ago. Higher
accruals for performance based incentives and bonuses and normal merit increases
were major factors contributing to the increase in staff costs.
Occupancy and equipment expenses increased $1.3 million (8%) in the second
quarter of 1998 and $1.0 million (3%) for the first six months of 1998 over the
comparable periods in 1997. These increases were due to the establishment of a
$2.0 million reserve to improve customer delivery convenience by optimizing an
expanding banking office network. On a normalized basis, occupancy and equipment
expense decreased $0.7 million (4%) and $1.0 million (3%) in the second quarter
and first six months of 1998, respectively, compared to the same periods in
1997.
Data processing expenses increased $0.2 million (3%) for the second quarter
of 1998, compared to the second quarter of 1997. For the first six months of
1998, data processing expenses increased $1.7 million (15%). These increases
were primarily due to expenses related to continued improvements in technology,
Year 2000 compliance and increased transaction volume related to growth in the
Company's customer base.
The Company expects to continue incurring charges related to Year 2000
compliance; however, these costs have not been material to date and are not
expected to have a material impact on the Company's earnings in the future. The
majority of the costs associated with these efforts are the responsibility of
the Company's third party data processor which also provides many of the
Company's software applications. In addition, a portion of the Company's costs
is likely to constitute a reassignment of existing internal resources and,
therefore, is not expected to be incremental.
A team comprised of Hibernia employees and representatives of the Company's
third party data processor was formed in early 1997 to address Year 2000 issues.
The team's plan is to achieve Year 2000 compliance for all mainframe application
systems, local area network application systems and departmental and vendor
application systems by the end of 1998. In addition, the Company is discussing
Year 2000 issues and their potential impact on business operations with many of
its customers and suppliers. Hibernia and its data-processing vendors remain on
schedule to ensure the Company meets Year 2000 compliance requirements.
Professional fees increased $0.4 million (22%) for the second quarter of
1998 and $0.5 million (14%) for the first six months of 1998 compared to the
same periods in 1997, primarily due to increases in legal and professional fees
related to the business banking and personal trust portfolios.
Amortization of intangibles, a noncash expense, increased $0.6 million to
$4.1 million in the second quarter of 1998 compared to the second quarter of
1997, and increased $0.8 million to $8.0 million for the first six months of
1998 compared to the first six months of 1997. This increase is primarily due to
an increase in the amortization of mortgage servicing rights resulting from the
growth in mortgage loan activity and an increase in prepayments.
The Company's efficiency ratio, defined as noninterest expense as a
percentage of taxable-equivalent net interest income plus noninterest income
(excluding securities transactions), is a key measure that management uses to
evaluate the success of efforts to control costs while generating revenue
efficiently. The efficiency ratio at June 30, 1998 was 58.59% for the second
quarter of 1998 compared to 63.13% for the same period in 1997. This ratio for
the first six months of 1998 improved from 63.14% for the first six months of
1997 to 59.65% for the first six months of 1998. The tangible efficiency ratio,
which excludes amortization of purchase accounting intangibles from the
calculation, was 56.92% for the second quarter of 1998, a 413 basis point
improvement from 61.05% for the same period of 1997. For the first six months of
1998, the tangible efficiency ratio was 57.92% compared to 60.96% for the first
six months of 1997. The improvement in efficiency for both periods in 1998
reflects higher revenue growth rates compared to expense growth rates.
INCOME TAXES
The Company recorded $23.2 million in income tax expense in the second
quarter of 1998, a $3.6 million (19%) increase from $20.0 million in the second
quarter of 1997 as pretax income rose 18%. For the first six months of 1998,
income tax expense totaled $44.5 million, up 19% compared to $37.5 million for
the first six months of 1997.
Hibernia National Bank is subject to a Louisiana shareholders' tax based
partly on income. The income portion of this tax is recorded as state income
tax. In addition, certain subsidiaries of the Company and Hibernia National Bank
are subject to Louisiana state income tax. Hibernia National Bank of Texas is
subject to Texas franchise tax.
CAPITAL
Shareholders' equity totaled $1,224.5 million at June 30,1998 compared to
$1,105.6 million a year earlier. The increase is primarily the result of net
income over the most recent 12 months totaling $152.5 million, the issuance of
$17.7 million of common stock, a $14.1 million change in unrealized gains
(losses) on securities available for sale, and a $7.7 million increase in
unearned compensation, partially offset by $51.4 million in dividends declared
on common stock and $6.9 million in dividends declared on preferred stock.
Risk-based capital and leverage ratios exceed the ratios required for
designation as a "well-capitalized" institution under regulatory guidelines.
Table 12 presents Hibernia's ratios along with selected components of the
capital ratio calculations for the most recent five quarters.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
TABLE 12 - CAPITAL
- --------------------------------------------------------------------------------------------------------------
June 30 March 31 Dec. 31 Sept. 30 June 30
($ in millions) 1998 1998 1997 1997 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Risk-based capital:
Tier 1 ..................... $ 1,054.2 $ 1,030.1 $ 994.0 $ 968.7 $ 938.7
Total ...................... 1,175.2 1,146.1 1,106.4 1,072.4 1,036.6
Assets:
Quarterly average assets (1) 12,228.0 12,091.5 11,582.8 10,989.8 10,515.1
Net risk-adjusted assets ... 9,684.7 9,271.5 8,991.8 8,277.0 7,790.9
Ratios:
Tier 1 risk-based capital .. 10.88% 11.11% 11.07% 11.70% 12.05%
Total risk-based capital ... 12.13 12.36 12.32 12.96 13.30
Leverage ................... 8.62 8.52 8.58 8.81 8.93
- --------------------------------------------------------------------------------------------------------------
- -------------
(1) Excluding SFAS No. 115 adjustment and disallowed intangibles
</TABLE>
Market capitalization is defined as the number of outstanding shares of
common stock multiplied by the price of that stock. Hibernia's market
capitalization grew to $3.1 billion at June 30, 1998, a 45% increase from $2.1
billion at June 30, 1997.
A shelf registration statement was filed by the Company in July 1996 with
the Securities and Exchange Commission which allows the Company to issue up to
$250 million of securities, including preferred stock and subordinated debt. The
Company issued $100 million of Fixed/Adjustable Rate Noncumulative Preferred
Stock on September 30, 1996. The remaining $150 million in securities included
in this shelf registration provide Hibernia with the flexibility to quickly
modify its capital structure to meet competitive and market conditions. In
connection with the July 1, 1998 merger with Peoples the Company issued 3.6
million shares of Class A Common Stock. As a result of the pending mergers with
First Guaranty and MarTex previously discussed, the Company is expected to issue
approximately 7.5 million shares of Hibernia Class A Common Stock. These mergers
are not expected to have a material impact on Hibernia's capital ratios.
LIQUIDITY
Liquidity is a measure of ability to fund loan commitments and meet deposit
maturities and withdrawals in a timely and cost-effective way. Liquidity needs
can be met by generating profits, attracting new deposits, converting assets
(such as short-term investments, securities available for sale and loans) to
cash and increased borrowings. Management monitors liquidity through a periodic
review of maturity profiles, yield and rate behaviors, and loan and deposit
forecasts to minimize funding risks.
The loan-to-deposit ratio, one measure of liquidity, was 93.1% at June 30,
1998, 88.3% at March 31, 1998 and 79.2% at June 30, 1997. Another indicator of
liquidity is the large liability dependence ratio, which measures reliance on
short-term borrowings and other large liabilities (such as large-denomination
and public fund certificates of deposit and foreign deposits). Based on average
balances, 19.0% of Hibernia's loans and securities were funded by net large
liabilities (total large liabilities less short-term investments) in the second
quarter of 1998, down 93 basis points from the first quarter of 1998 and up 3
basis points from the second quarter of 1997. The level of large liability
dependence is within limits established by management to maintain liquidity and
safety.
Attracting and retaining core deposits are the Company's primary sources of
liquidity. Hibernia's extensive retail office network, aided by the promotion of
attractive deposit products, provided $7.9 billion in core deposits at June 30,
1998, up $0.4 billion (5%) from $7.6 billion a year earlier. In addition,
Hibernia has a large base of treasury management-related repurchase agreements
as part of total customer relationships. Because of the nature of the
relationships, these funds are considered stable and not subject to the same
volatility as other sources of noncore funds.
Large-denomination certificates of deposit, public funds, and funds that
can be purchased through the Banks' memberships in the Federal Home Loan Bank of
Dallas and from correspondent banks were additional sources of liquidity. The
Company can also raise additional funds through the sale of securities
registered on the shelf registration discussed in the Capital section.
<PAGE>
HIBERNIA CORPORATION
PART II. OTHER INFORMATION
Item 2. Recent Sales of Unregistered Securities
The Company permits its directors who are entitled to receive an annual
retainer fee to elect to take all or a portion of that fee in common stock of
the Company, rather than in cash. The issuance of the stock to those directors
who make the election in exchange for their services has not been registered by
the Company. No underwriters or other securities dealers are used in this
transaction, and no funds are paid to the Company from the directors in exchange
for the shares. The shares are issued in exchange for the directors' services as
outside directors to the Company.
In April of 1998, an aggregate of 6,211 shares of Class A Common Stock
were purchased in the open market by the Company and issued to eight of the
Company's directors. The aggregate purchase price of these shares by the Company
was $132,816. This transaction was exempt under Section 4(2) of the Securities
Act of 1933 as a private offering from the Company to fourteen of its directors.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on April 21, 1998.
Three items were submitted to a vote of the shareholders at that meeting:
o Election of seven directors to serve until the 2001 Annual Meeting
of Shareholders;
o Approval of an amendment to the Articles of Incorporation of the Company
to increase the number of authorized shares of Class A Common Stock from
200,000,000 to 300,000,000; and
o Ratification of the appointment of Ernst & Young LLP as independent
auditors for the Company for 1998.
The vote on these matters, as tabulated by the Commissioners of Election,
was as follows:
1. Election of Directors
Shares to Which
Authority to
Name of Director Shares Voted For Vote was Withheld
Robert H. Boh 123,386,002 1,141,312
J. Herbert Boydstun 123,315,077 1,212,237
E.R. "Bo" Campbell 123,352,387 1,174,927
Richard W. Freeman, Jr. 123,391,608 1,135,706
Stephen A. Hansel 123,268,794 1,258,520
Elton R. King 123,375,733 1,151,581
James R. Peltier 123,378,432 1,148,882
2. Approval of Amendment to the Articles of Incorporation
Shares Voted For Shares Voted Against Shares Abstained
119,025,062 4,572,673 929,579
3. Ratification of the Appointment of Ernst & Young LLP as independent auditors
Shares Voted For Shares Voted Against Shares Abstained
123,839,884 277,511 409,919
Any shareholder intending to present a proposal that is not subject to
Rule 14a-8 to the 1999 Annual Meeting of Shareholders of the Company who wishes
to avoid management's ability to exercise discretionary voting authority on that
proposal must notify the Company of his intention to present the proposal no
later than January 26, 1999.
Item 6. Exhibits and Reports on Form 8-K*
(a) Exhibits
(b) Reports on Form 8-K
A report on Form 8-K dated June 30, 1998, was filed by the
registrant reporting Item 5 Other Events.
* Exhibits and Reports on Form 8-K have been separately filed with the
Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized to sign on behalf of the registrant.
HIBERNIA CORPORATION
(Registrant)
Date: August 12, 1998 By: /s/ Ron E. Samford, Jr.
------------------------- -----------------------
Ron E. Samford, Jr.
Executive Vice President and Controller
Chief Accounting Officer
(in his capacity as a duly authorized officer
of the Registrant and in his capacity as
Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Jun-30-1998
<CASH> 472,273
<INT-BEARING-DEPOSITS> 4,303
<FED-FUNDS-SOLD> 219,606
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,433,731
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<LOANS> 9,046,010
<ALLOWANCE> (121,447)
<TOTAL-ASSETS> 12,604,720
<DEPOSITS> 9,715,568
<SHORT-TERM> 797,671
<LIABILITIES-OTHER> 160,827
<LONG-TERM> 706,114
0
100,000
<COMMON> 292,714
<OTHER-SE> 831,826
<TOTAL-LIABILITIES-AND-EQUITY> 12,604,720
<INTEREST-LOAN> 371,857
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<INTEREST-TOTAL> 459,439
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<INTEREST-EXPENSE> 202,515
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<LOAN-LOSSES> 9,000
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<EXPENSE-OTHER> 207,569
<INCOME-PRETAX> 126,918
<INCOME-PRE-EXTRAORDINARY> 82,369
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<LOANS-NON> 31,160
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