<PAGE>
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 September 30, 1999 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 October 31, 1999
Class A Common Stock, no par value 160,316,314 Shares
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Hibernia Corporation and Subsidiaries September 30 December 31 September 30
Unaudited ($ in thousands) 1999 1998 1998
========================================================================================================================
<S> <C> <C> <C>
Assets
Cash and cash equivalents ..................................... $ 762,602 $ 945,021 $ 770,328
Securities available for sale ................................. 2,738,944 2,761,701 2,623,191
Mortgage loans held for sale .................................. 106,447 281,434 167,979
Loans, net of unearned income ................................. 10,876,053 9,907,194 9,612,217
Reserve for loan losses ................................... (156,282) (130,347) (129,009)
- ------------------------------------------------------------------------------------------------------------------------
Loans, net ............................................ 10,719,771 9,776,847 9,483,208
- ------------------------------------------------------------------------------------------------------------------------
Bank premises and equipment ................................... 206,149 194,723 196,586
Customers' acceptance liability ............................... 176 331 498
Other assets .................................................. 511,843 369,827 349,049
- ------------------------------------------------------------------------------------------------------------------------
Total assets .......................................... $ 15,045,932 $ 14,329,884 $ 13,590,839
- ------------------------------------------------------------------------------------------------------------------------
Liabilities
Deposits:
Noninterest-bearing ....................................... $ 2,048,787 $ 2,065,770 $ 1,859,075
Interest-bearing .......................................... 9,410,765 8,826,803 8,350,049
- ------------------------------------------------------------------------------------------------------------------------
Total deposits ........................................ 11,459,552 10,892,573 10,209,124
- ------------------------------------------------------------------------------------------------------------------------
Short-term borrowings ......................................... 1,024,788 1,134,136 1,115,004
Liability on acceptances ...................................... 176 331 498
Other liabilities ............................................. 149,228 151,905 224,585
Debt .......................................................... 1,045,060 806,337 706,729
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities ..................................... 13,678,804 12,985,282 12,255,940
- ------------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Preferred Stock, no par value:
Authorized - 100,000,000 shares; 2,000,000 Series A
issued and outstanding at September 30, 1999, December 31,
1998 and September 30, 1998 ............................... 100,000 100,000 100,000
Class A Common Stock, no par value:
Authorized - 300,000,000 shares; issued and outstanding -
160,283,151, 159,850,398 and 159,583,824 at
September 30, 1999, December 31, 1998 and
September 30, 1998, respectively ......................... 307,744 306,913 306,401
Surplus ....................................................... 424,395 416,269 413,279
Retained earnings ............................................. 603,206 531,233 501,173
Accumulated other comprehensive income ........................ (30,466) 27,938 40,063
Unearned compensation ......................................... (37,751) (37,751) (26,017)
- ------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity ............................ 1,367,128 1,344,602 1,334,899
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity ............ $ 15,045,932 $ 14,329,884 $ 13,590,839
========================================================================================================================
- ---------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Income Statements
Hibernia Corporation and Subsidiaries
Three Months Ended Nine Months Ended
September 30 September 30
- -------------------------------------------------------------------------------------------------------------
Unaudited ($ in thousands, except per-share data) ... 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans ...................... $ 222,561 $ 200,262 $ 632,728 $ 578,588
Interest on securities available for sale ....... 42,691 38,834 126,779 126,068
Interest on short-term investments .............. 2,981 4,408 9,430 12,711
Interest and fees on mortgage loans held for sale 2,247 3,234 9,244 8,925
- -------------------------------------------------------------------------------------------------------------
Total interest income ....................... 270,480 246,738 778,181 726,292
- -------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits ............................ 94,386 90,857 269,058 267,685
Interest on short-term borrowings ............... 14,958 10,988 39,757 27,741
Interest on debt ................................ 11,432 10,156 33,776 28,636
- -------------------------------------------------------------------------------------------------------------
Total interest expense ...................... 120,776 112,001 342,591 324,062
- -------------------------------------------------------------------------------------------------------------
Net interest income ................................. 149,704 134,737 435,590 402,230
- -------------------------------------------------------------------------------------------------------------
Provision for loan losses ....................... 28,500 8,089 70,700 17,238
- -------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses . 121,204 126,648 364,890 384,992
- -------------------------------------------------------------------------------------------------------------
Noninterest income
Service charges on deposits ..................... 24,931 22,273 71,657 63,817
Trust fees ...................................... 6,610 4,204 16,815 12,505
Retail investment service fees .................. 5,964 4,515 17,579 12,842
Mortgage loan origination and servicing fees .... 4,811 3,805 13,751 10,611
Other service, collection and exchange charges .. 9,453 7,509 26,361 21,176
Other operating income .......................... 4,029 3,896 13,112 12,775
Securities gains (losses), net .................. (1) 2,774 408 3,698
- -------------------------------------------------------------------------------------------------------------
Total noninterest income .................... 55,797 48,976 159,683 137,424
- -------------------------------------------------------------------------------------------------------------
Noninterest expense
Salaries and employee benefits .................. 42,288 53,574 158,267 158,854
Occupancy expense, net .......................... 8,507 8,331 24,609 26,650
Equipment expense ............................... 8,068 7,908 25,108 23,362
Data processing expense ......................... 8,003 7,476 23,822 21,362
Advertising and promotional expense ............. 4,063 3,785 11,322 12,691
Foreclosed property expense, net ................ 26 (336) (399) (1,027)
Amortization of intangibles ..................... 7,088 4,178 16,950 12,501
Other operating expense ......................... 22,779 19,752 69,067 65,266
- -------------------------------------------------------------------------------------------------------------
Total noninterest expense ................... 100,822 104,668 328,746 319,659
- -------------------------------------------------------------------------------------------------------------
Income before income taxes .......................... 76,179 70,956 195,827 202,757
Income tax expense .................................. 26,711 23,458 69,435 69,788
- -------------------------------------------------------------------------------------------------------------
Net income .......................................... $ 49,468 $ 47,498 $ 126,392 $ 132,969
=============================================================================================================
Net income applicable to common shareholders ........ $ 47,743 $ 45,773 $ 121,217 $ 127,794
=============================================================================================================
Net income per common share ......................... $ 0.30 $ 0.29 $ 0.77 $ 0.81
=============================================================================================================
Net income per common share - assuming dilution ..... $ 0.30 $ 0.29 $ 0.76 $ 0.80
=============================================================================================================
- ---------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
Hibernia Corporation and Subsidiaries
($ in thousands, except per-share data)
===================================================================================================================================
Accumulated
Other
Preferred Common Retained Comprehensive Comprehensive
Stock Stock Surplus Earnings Income Other Income
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1998 ............ $ 100,000 $ 306,913 $ 416,269 $ 531,233 $ 27,938 $ (37,751)
Net income ............................... - - - 126,392 - - $126,392
Unrealized gains (losses) on securities,
net of reclassification adjustments.... - - - - (58,404) - (58,404)
-----------
Comprehensive income ..................... $ 67,988
-----------
Issuance of common stock:
Stock Option Plan ..................... - 810 2,773 - - -
Restricted stock awards ............... - 21 137 - - -
By pooled companies prior to merger ... - - 5,387 - - -
Cash dividends declared:
Preferred ($2.5875 per share) ......... - - - (5,175) - -
Common ($.315 per share) .............. - - - (49,117) - -
By pooled companies prior to merger ... - - - (127) - -
Other .................................... - - (171) - - -
- ------------------------------------------------------------------------------------------------------------------------
Balances at September 30, 1999 ........... $ 100,000 $ 307,744 $ 424,395 $ 603,206 $ (30,466) $ (37,751)
========================================================================================================================
===================================================================================================================================
Accumulated
Other
Preferred Common Retained Comprehensive Comprehensive
Stock Stock Surplus Earnings Income Other Income
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1997 ............ $ 100,000 $ 304,376 $ 403,250 $ 414,705 $ 15,422 $ (17,387)
Net income ............................... - - - 132,969 - - $132,969
Unrealized gains (losses) on securities,
net of reclassification adjustment..... - - - - 24,641 - 24,641
---------
Comprehensive income ..................... $157,610
---------
Issuance of common stock:
Stock Option Plan ..................... - 855 2,357 - - -
Restricted stock awards ............... - 861 7,372 - - -
Cash dividends declared:
Preferred ($2.5875 per share) ......... - - - (5,175) - -
Common ($.27 per share) ............... - - - (40,570) - -
By pooled companies prior to merge..... - - - (756) - -
Purchase of common shares by ESOP ........ - - - - - (8,630)
Other .................................... - 309 300 - - -
- ------------------------------------------------------------------------------------------------------------------------
Balances at September 30, 1998 ........... $ 100,000 $ 306,401 $ 413,279 $ 501,173 $ 40,063 $ (26,017)
========================================================================================================================
- ---------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Hibernia Corporation and Subsidiaries
Nine Months Ended September 30
Unaudited ($ in thousands) 1999 1998
========================================================================================================
<S> <C> <C>
Operating activities
Net income ............................................................ $ 126,392 $ 132,969
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses ...................................... 70,700 17,238
Amortization of intangibles and deferred charges ............... 16,867 12,185
Depreciation and amortization .................................. 22,583 20,946
Non-cash compensation expense .................................. 4,385 --
Premium amortization, net of discount accretion ................ 5,222 2,980
Realized securities gains, net ................................. (408) (3,698)
Gain on sale of assets ......................................... (2,461) (2,073)
Provision for losses on foreclosed and other assets ............ 1,121 283
Decrease (increase) in mortgage loans held for sale ............ 174,987 (97,812)
Decrease in deferred income tax asset .......................... 216 1,284
Increase in interest receivable and other assets ............... (18,611) (12,123)
Increase (decrease) in interest payable and other liabilities .. (3,259) 29,723
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities ........................ 397,734 101,902
- --------------------------------------------------------------------------------------------------------
Investing activities
Purchases of securities available for sale ............................ (237,008) (1,303,701)
Proceeds from maturities of securities available for sale ............. 313,673 925,840
Proceeds from sales of securities available for sale .................. 59,960 584,105
Net increase in loans ................................................. (689,248) (1,073,852)
Proceeds from sales of loans .......................................... 81,698 7,464
Purchases of loans .................................................... (444,418) (179,174)
Purchases of premises, equipment and other assets ..................... (42,239) (33,953)
Proceeds from sales of foreclosed assets and excess bank-owned property 5,164 6,059
Proceeds from sales of premises, equipment and other assets ........... 2,040 998
Acquisition of the Beaumont branches of Chase Bank of Texas, N.A.,
net of $277,702 cash acquired ................................... 188,552 --
- --------------------------------------------------------------------------------------------------------
Net cash used by investing activities ............................ (761,826) (1,066,214)
- --------------------------------------------------------------------------------------------------------
Financing activities
Net increase in deposits .............................................. 102,132 106,149
Net increase (decrease) in short-term borrowings ...................... (109,348) 395,044
Proceeds from issuance of debt ........................................ 240,000 500,000
Payments on debt ...................................................... (1,277) (300,833)
Proceeds from issuance of common stock ................................ 4,585 3,212
Purchase of common stock by ESOP ...................................... -- (8,630)
Dividends paid ........................................................ (54,419) (46,501)
- --------------------------------------------------------------------------------------------------------
Net cash provided by financing activities ........................ 181,673 648,441
- --------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents ................................... (182,419) (315,871)
Cash and cash equivalents at beginning of period ........................ 945,021 1,086,199
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period ....................... $ 762,602 $ 770,328
========================================================================================================
- -------------
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, 1998.
Note 2
Merger Agreements
On May 21, 1999 Hibernia National Bank purchased the assets and assumed
the liabilities of the Beaumont branches of Chase Bank of Texas, N.A. for $87
million. At May 21, 1999 the Beaumont branches had $172 million in loans and
$465 million in deposits. Under the purchase method of accounting, the assets
and liabilities of the Beaumont branches were adjusted to their estimated fair
value as of the purchase date. The excess of cost over the fair value of net
assets acquired was $62.6 million and is being amortized on a straight-line
basis over 25 years. In addition, intangibles of $12.7 million related to core
deposits and $17.1 million related to trust business were recorded and are being
amortized on an accelerated basis over approximately seven years.
Unaudited pro forma data giving effect to the purchase of the Beaumont
branches as if the transaction had occurred at the beginning of each period
presented is included in the table below. Unaudited pro forma data is not
necessarily indicative of future results.
Nine months ended September 30
------------------------------
1999 1998
---- ----
($ in thousands, except per-share data)
Net interest and noninterest income......... $606,304 $562,338
Net income ......... $124,864 $132,209
Net income per common share ......... $ .76 $ .81
Net income per common share - assuming dilution $ .75 $ .79
Note 3
Employee Benefit Plans
The Company's stock option plans provide incentive and non-qualified
options to various key employees and non-employee directors. Options granted to
directors upon inception of service as a director vest in six months and are
granted at the fair market value of the stock at the date of grant. Until
October 1997 those options were granted under the 1987 Stock Option Plan; since
October 1997 those options have been granted under the 1993 Directors' Stock
Option Plan. 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, and were granted at the fair market value
of the stock at 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 third quarter of 1999. During 1997, the 1987 Stock Option Plan was
terminated; therefore, at September 30, 1999 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>
===============================================================================================
Weighted
Average
Incentive Non-Qualified Total Exercise Price
===============================================================================================
<S> <C> <C> <C> <C>
1987 Stock Option Plan:
Outstanding, June 30, 1999 ............ 50,163 1,084,868 1,135,031 $ 6.09
Exercised ............................. (6,250) (563) (6,813) 4.71
- -----------------------------------------------------------------------------------------------
Outstanding, September 30, 1999 ....... 43,913 1,084,305 1,128,218 $ 6.10
===============================================================================================
Exercisable, September 30, 1999 ....... 43,913 1,084,305 1,128,218 $ 6.10
===============================================================================================
Long-Term Incentive Plan:
Outstanding, June 30, 1999 ............ 12,598 9,049,201 9,061,799 $ 13.06
Granted ............................... - 47,500 47,500 13.99
Canceled .............................. - (68,909) (68,909) 16.80
Exercised ............................. - (113,955) (113,955) 8.07
- -----------------------------------------------------------------------------------------------
Outstanding, September 30, 1999 ....... 12,598 8,913,837 8,926,435 $ 13.10
===============================================================================================
Exercisable, September 30, 1999 ....... 12,598 3,880,722 3,893,320 $ 9.19
===============================================================================================
Available for grant, September 30, 1999 1,100,743
===============================================================================================
1993 Directors' Stock Option Plan:
Outstanding, June 30, 1999 ............ - 370,000 370,000 $ 12.63
Granted ............................... - 5,000 5,000 11.81
- -----------------------------------------------------------------------------------------------
Outstanding, September 30, 1999 ....... - 375,000 375,000 $ 12.61
===============================================================================================
Exercisable, September 30, 1999 ....... - 198,750 198,750 $ 9.96
===============================================================================================
Available for grant, September 30, 1999 497,500
===============================================================================================
</TABLE>
In addition to the above option activity in the plans, 30,450 shares of
restricted stock were awarded under the Long-Term Incentive Plan during the
third quarter of 1999.
Note 4
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>
========================================================================================================================
($ in thousands, except share and per-share data) Three Months Ended Sept. 30 Nine Months Ended Sept. 30
- ------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 49,468 $ 47,498 $ 126,392 $ 132,969
Preferred stock dividends 1,725 1,725 5,175 5,175
- ---------------------------------------------------------------------------------------------------------------------
Numerator for net income per common share 47,743 45,773 121,217 127,794
Effect of dilutive securities - - - -
- ---------------------------------------------------------------------------------------------------------------------
Numerator for net income per common
share - assuming dilution $ 47,743 $ 45,773 $ 121,217 $ 127,794
- ---------------------------------------------------------------------------------------------------------------------
Denominator:
Denominator for net income per common
share (weighted average shares outstanding) 157,353,827 157,341,542 157,165,542 157,263,647
Effect of dilutive securities:
Stock options 1,424,761 2,134,900 1,674,907 2,584,281
Purchase warrants - 179,055 - 182,453
Restricted stock awards 100,900 30,950 100,900 30,950
- ---------------------------------------------------------------------------------------------------------------------
Denominator for net income per common
share - assuming dilution 158,879,488 159,686,447 158,941,349 160,061,331
- ---------------------------------------------------------------------------------------------------------------------
Net income per common share $ 0.30 $ 0.29 $ 0.77 $ 0.81
========================================================================================================================
Net income per common share - assuming dilution $ 0.30 $ 0.29 $ 0.76 $ 0.80
========================================================================================================================
</TABLE>
The weighted average shares outstanding exclude average common shares
held by the Company's Employee Stock Ownership Plan which have not been
committed to be released. These shares totaled 2,875,295 and 2,161,385 for the
three months ended September 30, 1999 and 1998, respectively, and 2,938,093 and
2,004,814 for the nine months ended September 30, 1999 and 1998, respectively.
The common shares issued in all mergers accounted for as poolings of interests
consummated in 1999 and 1998 are considered to be outstanding as of January 1,
1998, 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 September 30, 1999 and
1998 there were 4,122,625 antidilutive options outstanding with exercise prices
ranging from $13.88 to $21.72 per option, and 1,990,885 antidilutive options
outstanding with exercise prices ranging from $18.28 to $21.72 per option,
respectively. During the nine months ended September 30, 1999 and 1998 there
were 4,055,625 antidilutive options outstanding with exercise prices ranging
from $14.94 to $21.72 per option, and 182,200 antidilutive options outstanding
with exercise prices ranging from $19.50 to $21.72 per option, respectively.
Note 5
Segment Information
The Company's segment information is presented by line of business.
Each line of business is a strategic unit that serves a particular group of
customers with certain common characteristics through various products and
services. The basis of segmentation and the accounting policies used by each
segment are consistent with that described in the December 31, 1998 annual
report. There are no significant intersegment revenues.
The following table presents selected financial information for each
segment.
<TABLE>
<CAPTION>
========================================================================================================================
Small Investments
Commercial Business Consumer and Public Segment
($ in thousands) Banking Banking Banking Funds Other Total
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Nine months ended Sept. 30, 1999
Average loans .................. $ 3,967,100 $ 2,143,400 $ 4,167,200 $ 1,500 $ 33,900 $10,313,100
Average assets ................. $ 4,026,300 $ 2,187,400 $ 7,659,600 $ 3,107,600 $ 552,900 $17,533,800
Average deposits ............... $ 792,600 $ 1,456,900 $ 6,587,700 $ 1,856,900 $ 60,000 $10,754,100
Net interest income ............ $ 99,531 $ 104,635 $ 203,915 $ 45,652 $ (14,334) $ 439,399
Noninterest income ............. $ 20,499 $ 15,243 $ 123,219 $ 737 $ 5,797 $ 165,495
Net income ..................... $ 29,992 $ 24,666 $ 50,590 $ 26,315 $ (2,467) $ 129,096
========================================================================================================================
Nine months ended Sept. 30, 1998
Average loans .................. $ 3,403,200 $ 1,612,200 $ 3,854,700 $ - $ 51,600 $ 8,921,700
Average assets ................. $ 3,458,900 $ 1,648,200 $ 7,522,700 $ 2,649,700 $ 524,300 $15,803,800
Average deposits ............... $ 683,300 $ 1,163,800 $ 6,467,800 $ 1,535,500 $ 52,800 $ 9,903,200
Net interest income ............ $ 87,760 $ 83,330 $ 201,509 $ 41,106 $ (8,226) $ 405,479
Noninterest income ............. $ 13,525 $ 12,652 $ 104,309 $ 1,716 $ 8,563 $ 140,765
Net income ..................... $ 37,520 $ 21,959 $ 52,291 $ 24,341 $ (3,365) $ 132,746
========================================================================================================================
</TABLE>
The following is a reconciliation of segment totals to consolidated
totals.
<TABLE>
<CAPTION>
==================================================================================================================================
Average Average Average Net Interest Noninterest
($ in thousands) Loans Assets Deposits Income Income Net Income
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Nine months ended Sept. 30, 1999
Segment total .................... $ 10,313,100 $ 17,533,800 $ 10,754,100 $ 439,399 $ 165,495 $ 129,096
Excess funds invested .......... - (3,305,800) - - - -
Reclassification of cash items
in process of collection ..... - 296,100 296,100 - - -
Taxable-equivalent adjustment on
tax exempt loans ............. - - - (3,809) - (2,476)
Mortgage servicing rights ...... - (16,900) - - (5,812) (2,424)
Income tax expense ............. - - - - - 2,196
- ----------------------------------------------------------------------------------------------------------------------------------
Consolidated total ............... $ 10,313,100 $ 14,507,200 $ 11,050,200 $ 435,590 $ 159,683 $ 126,392
==================================================================================================================================
Nine months ended Sept. 30, 1998
Segment total .................... $ 8,921,700 $ 15,803,800 $ 9,903,200 $ 405,479 $ 140,765 $ 132,746
Excess funds invested .......... - (3,036,500) - - - -
Reclassification of cash items
in process of collection ..... - 257,700 257,700 - - -
Taxable-equivalent adjustment on
tax exempt loans ............. - - - (3,249) - (2,112)
Mortgage servicing rights ...... - (15,700) - - (3,341) (912)
Income tax expense ............. - - - - - 3,247
- ----------------------------------------------------------------------------------------------------------------------------------
Consolidated total ............... $ 8,921,700 $ 13,009,300 $ 10,160,900 $ 402,230 $ 137,424 $ 132,969
==================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED SUMMARY OF INCOME AND SELECTED FINANCIAL DATA (1)
Hibernia Corporation and Subsidiaries
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
Sept. 30 June 30 Sept. 30 Sept. 30 Sept. 30
($ in thousands, except per-share data) 1999 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 270,480 $ 256,613 $ 246,738 $ 778,181 $ 726,292
Interest expense 120,776 111,804 112,001 342,591 324,062
- --------------------------------------------------------------------------------------------------------------------
Net interest income 149,704 144,809 134,737 435,590 402,230
Provision for loan losses 28,500 12,200 8,089 70,700 17,238
- --------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 121,204 132,609 126,648 364,890 384,992
- --------------------------------------------------------------------------------------------------------------------
Noninterest income:
Noninterest income 55,798 52,301 46,202 159,275 133,726
Securities gains (losses), net (1) 368 2,774 408 3,698
- --------------------------------------------------------------------------------------------------------------------
Noninterest income 55,797 52,669 48,976 159,683 137,424
Noninterest expense 100,822 111,587 104,668 328,746 319,659
- --------------------------------------------------------------------------------------------------------------------
Income before taxes 76,179 73,691 70,956 195,827 202,757
Income tax expense 26,711 26,338 23,458 69,435 69,788
- --------------------------------------------------------------------------------------------------------------------
Net income $ 49,468 $ 47,353 $ 47,498 $ 126,392 $ 132,969
====================================================================================================================
Net income applicable to common shareholders $ 47,743 $ 45,628 $ 45,773 $ 121,217 $ 127,794
====================================================================================================================
Per common share information:
Net income $ 0.30 $ 0.29 $ 0.29 $ 0.77 $ 0.81
Net income - assuming dilution $ 0.30 $ 0.29 $ 0.29 $ 0.76 $ 0.80
Cash dividends declared $ 0.105 $ 0.105 $ 0.09 $ 0.315 $ 0.27
Average shares outstanding (000s) 157,354 157,186 157,342 157,166 157,264
Average shares outstanding-assuming dilution(000s) 158,879 158,693 159,686 158,941 160,061
Dividend payout ratio 35.00% 36.21% 31.03% 40.91% 33.33%
====================================================================================================================
Selected quarter-end balances (in millions)
Loans $10,876.1 $10,484.8 $ 9,612.2
Deposits 11,459.6 11,328.9 10,209.1
Debt 1,045.1 805.3 706.7
Equity 1,367.1 1,345.1 1,334.9
Total assets 15,045.9 14,734.6 13,590.8
====================================================================================================================
Selected average balances (in millions)
Loans $10,654.5 $10,279.2 $ 9,331.7 $10,313.1 $ 8,921.7
Deposits 11,304.1 11,072.6 10,229.5 11,050.2 10,160.9
Debt 815.6 805.3 706.8 809.0 681.8
Equity 1,353.4 1,356.5 1,301.3 1,355.5 1,270.5
Total assets 14,827.7 14,428.4 13,257.4 14,507.2 13,009.3
====================================================================================================================
Selected ratios
Net interest margin (taxable-equivalent) 4.42% 4.39% 4.42% 4.39% 4.54%
Return on assets 1.33% 1.31% 1.43% 1.16% 1.36%
Return on common equity 15.24% 14.53% 15.24% 12.86% 14.56%
Return on total equity 14.62% 13.96% 14.60% 12.43% 13.95%
Efficiency ratio 48.30% 55.83% 56.95% 54.46% 58.72%
Average equity/average assets 9.13% 9.40% 9.82% 9.34% 9.77%
Tier 1 risk-based capital ratio 9.99% 9.85% 11.03%
Total risk-based capital ratio 11.24% 11.10% 12.28%
Leverage ratio 7.97% 7.96% 8.72%
====================================================================================================================
Cash-basis financial data (2)
Net income applicable to common shareholders $ 51,963 $ 48,708 $ 48,529 $ 131,160 $ 136,173
Net income per common share $ 0.33 $ 0.31 $ 0.31 $ 0.83 $ 0.87
Net income per common share - assuming dilution $ 0.33 $ 0.31 $ 0.30 $ 0.83 $ 0.85
Return on assets 1.47% 1.41% 1.53% 1.27% 1.47%
Return on common equity 19.70% 17.93% 18.48% 16.13% 17.86%
Efficiency ratio 45.72% 54.00% 55.27% 52.47% 56.99%
Average equity/average assets 7.89% 8.32% 8.78% 8.26% 8.69%
====================================================================================================================
- ---------------
(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)Excluding amortization and balances of purchase accounting intangibles
net of applicable taxes.
</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 (the "Bank"). This
discussion should be read in conjunction with the accompanying tables and
consolidated financial statements.
THIRD-QUARTER 1999 HIGHLIGHTS
Hibernia Corporation's third-quarter 1999 results showed improvement in
earnings over the third quarter of 1998 and the second quarter of 1999.
o Net income for the third quarter of 1999 totaled $49.5 million ($.30 per
common share), up 4% compared to $47.5 million ($.29 per common share) for
the third quarter of 1998. Cash-basis net income per common share was $.33
in the third quarter of 1999 compared to $.31 in the third quarter of 1998.
Net income for the first nine months of 1999 totaled $126.4 million ($.77
per common share), down 5% compared to $133.0 million ($.81 per common
share) for the first nine months of 1998. Cash-basis net income per common
share was $.83 for the first nine months of 1999 compared to $.87 for the
first nine months of 1998.
o Net income for the first nine months of 1999, excluding merger-related
expenses, was $132.2 million ($.81 per common share), down 2% compared to
$134.6 million ($.82 per common share) for the first nine months of 1998.
Merger-related expenses totaled $5.8 million after income tax and $1.6
million after income tax for the first nine months of 1999 and 1998,
respectively.
o Pre-tax, pre-provision earnings were $104.7 million, a 32% increase from
the third quarter 1998 level of $79.0 million. Pre-tax, pre-provision
earnings for the first nine months of 1999 were $266.5 million, a 21%
increase compared to $220.0 million for the first nine months of 1998. The
third quarter and first nine months of 1999 included provisions for loan
losses totaling $28.5 million and $70.7 million, respectively, compared to
$8.1 million and $17.2 million for the same periods of 1998.
o On a taxable-equivalent basis excluding securities transactions, revenues
for the third quarter of 1999 totaled $208.7 million, a $24.9 million (14%)
increase from the third quarter 1998 level of $183.8 million. Noninterest
income (excluding securities transactions) increased $9.6 million (21%) to
$55.8 million for the third quarter of 1999 compared to the third quarter
of 1998. Noninterest expense decreased $3.8 million (4%) to $100.8 million
for the third quarter of 1999 compared to the same period in 1998. No
accrual for management incentives was made in the third quarter of 1999,
and $11.3 million accrued in prior periods was reversed. As a result, the
efficiency ratio for the third quarter of 1999 was 48.30% compared to
56.95% for the third quarter of 1998.
o Total assets grew $1.5 billion (11%) to $15.0 billion at September 30, 1999
compared to September 30, 1998. Shareholders' equity increased $32.2
million (2%) to $1.4 billion at September 30, 1999 compared to September
30, 1998. Book value per common share increased $.21 (3%) to $8.06 at
September 30, 1999 compared to September 30, 1998.
o Total loans grew $1.3 billion (13%) from September 30, 1998 to $10.9
billion at September 30, 1999. Consumer loans grew $877.1 million (23%) to
$4.8 billion, small business loans increased $323.3 million (16%) to $2.3
billion and commercial loans increased $63.5 million (2%) to $3.8 billion.
o Total deposits grew $1.3 billion (12%) from September 30, 1998 to $11.5
billion at September 30, 1999.
o In October 1999, Hibernia's Board of Directors declared a quarterly cash
dividend of 12 cents per common share, a 14% increase from 10.5 cents per
common share declared in October 1998.
MERGER ACTIVITY
In the second quarter of 1999, the Company consummated the purchase of
the Beaumont branches of Chase Bank of Texas, N.A.for $87 million (the "Beaumont
transaction"). At the date of purchase the four Beaumont branches located in
Jefferson County, Texas had $172 million in loans, $465 million in deposits and
over $1.4 billion in assets held in trust accounts. In the first quarter of
1999, the Company completed a merger with MarTex Bancshares, Inc. parent of the
$312 million asset First Service Bank. This merger was accounted for as a
pooling of interests. In 1998 the Company completed four mergers, three in
Louisiana and one in East Texas which were accounted for as poolings of
interests. All prior-period information has been restated to reflect the effect
of the mergers accounted for as poolings of interests. Because the Beaumont
transaction was accounted for as a purchase, the results of operations of the
Beaumont branches are included with those of Hibernia from the transaction
consummation date.
Measures of financial performance subsequent to purchase transactions are
more relevant when comparing "cash-basis" results (i.e., before amortization of
purchase accounting intangibles), because they are more indicative of cash
flows, and thus the Company's ability to support growth and pay dividends. The
cash-basis 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 purchases are referred to as the
"purchased companies."
FINANCIAL CONDITION:
EARNING ASSETS
Earning assets averaged $13.8 billion in the third quarter of 1999, a $1.4
billion (11%) increase from the third-quarter 1998 average of $12.4 billion. The
increase in average earning assets was primarily due to loan growth in the
consumer and small business portfolios, as a result of offering quality service
and competitive 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 and the reinvestment of proceeds from maturing securities.
Loans. Average loans for the third quarter of 1999 of $10.7 billion were up
$375.3 million (4%) from the second quarter of 1999 and up $1.3 billion (14%)
compared to the third quarter of 1998. For the first nine months of 1999 average
loans increased $1.4 billion (16%) compared to the first nine months of 1998.
Excluding the effect of the Beaumont transaction, average loans increased
approximately 10% for the third quarter and the first nine months of 1999
compared to the same periods in 1998. Loan growth, excluding the effect of the
Beaumont transaction, has slowed in comparison to levels experienced in prior
years as a result of the competitive environment.
Table 1 presents Hibernia's commercial and small business loans classified
by repayment source and consumer loans classified by type at September 30, 1999,
June 30, 1999 and September 30, 1998. Total loans increased $391.3 million (4%)
during the third quarter of 1999 compared to June 30, 1999.
Consumer loans increased $578.5 million (14%) and $877.1 million (23%)
compared to June 30, 1999 and September 30, 1998, respectively. The consumer
portfolio growth was spread among residential mortgages and indirect loans.
Small business loans increased $28.2 million (1%) and $323.3 million (16%)
compared to June 30, 1999 and September 30, 1998, respectively. The growth in
the small business portfolio was primarily focused in the services and real
estate industry categories.
Commercial loans decreased $215.4 million (5%) compared to June 30, 1999
and increased $63.5 million (2%) compared to September 30, 1998. The decrease in
commercial loans is primarily driven by the Company's efforts to diversify risk
by reducing exposure levels to individual borrowers.
Although the overall economy continues to expand, the energy industry
experienced a decline within the past year as a result of a decrease in oil
prices worldwide earlier in the year. The Company's experienced energy/maritime
management team reviews the energy portfolio for potential adverse developments
and proactively manages Hibernia's exposure to risk. As a result of these
efforts and alternative funding sources available to certain borrowers, the
Company's energy portfolio has been reduced. However, the Company remains active
in the energy industry on a selective basis and the energy portion of the loan
portfolio represents 2.7% of total loans as of September 30, 1999.
During the second quarter of 1999, Hibernia securitized $210.0 million of
its residential first mortgages through the Federal National Mortgage
Association (FNMA). This portion of the consumer portfolio was securitized with
provisions of recourse and a reserve has been established to cover estimated
losses. This transaction affects the categorization of individual line items on
the balance sheet by reducing mortgage loans and increasing securities.
<TABLE>
<CAPTION>
=========================================================================================================================
TABLE 1 - COMPOSITION OF LOAN PORTFOLIO
=========================================================================================================================
September 30, 199 June 30, 1999 September 30, 1998
- ------------------------------------------------------------------------------------------------------------------------
($ in millions) Loans Percent Loans Percent Loans Percent
- ------------------------------------------------------------------------------------------------------------------------
Commercial:
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $ 1,511.3 13.9% $ 1,471.5 14.0% $ 1,354.5 14.1%
Services industry 918.7 8.4 1,064.2 10.2 942.8 9.8
Real estate 447.2 4.1 482.9 4.6 440.0 4.6
Health care 321.4 3.0 319.0 3.0 293.1 3.0
Transportation, communications
and utilities 229.2 2.1 224.8 2.2 206.8 2.2
Energy 250.0 2.3 355.4 3.4 406.6 4.2
Other 88.7 0.8 64.1 0.6 59.2 0.6
- ------------------------------------------------------------------------------------------------------------------------
Total commercial 3,766.5 34.6 3,981.9 38.0 3,703.0 38.5
- ------------------------------------------------------------------------------------------------------------------------
Small Business:
Commercial and industrial 858.1 7.9 884.1 8.4 792.5 8.2
Services industry 516.5 4.7 501.9 4.8 405.9 4.2
Real estate 347.3 3.2 326.9 3.1 275.6 2.9
Health care 138.8 1.3 129.9 1.2 107.7 1.1
Transportation, communications
and utilities 82.9 0.8 79.0 0.8 70.4 0.7
Energy 40.0 0.4 37.6 0.4 37.5 0.4
Other 361.2 3.3 357.2 3.4 331.9 3.5
- ------------------------------------------------------------------------------------------------------------------------
Total small business 2,344.8 21.6 2,316.6 22.1 2,021.5 21.0
- ------------------------------------------------------------------------------------------------------------------------
Consumer:
Residential mortgages:
First mortgages 2,374.5 21.8 1,970.8 18.8 1,857.9 19.4
Junior liens 257.0 2.4 230.9 2.2 173.7 1.8
Indirect 1,152.6 10.6 1,010.0 9.6 825.5 8.6
Revolving credit 359.9 3.3 346.9 3.3 328.8 3.4
Other 620.8 5.7 627.7 6.0 701.8 7.3
- ------------------------------------------------------------------------------------------------------------------------
Total consumer 4,764.8 43.8 4,186.3 39.9 3,887.7 40.5
=========================================================================================================================
Total loans $10,876.1 100.0% $10,484.8 100.0% $ 9,612.2 100.0%
=========================================================================================================================
</TABLE>
Securities. Average securities increased $171.4 million (7%) in the third
quarter of 1999 compared to the third quarter of 1998, and were up $80.7 million
(3%) for the first nine months of 1999 compared to the same period in 1998.
Excluding the effect of the securitization of residential first mortgages
previously discussed, average securities decreased $38.6 million and $18.5
million in the third quarter and first nine months of 1999, respectively,
compared to the same periods in 1998. 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 securities purchased under agreements to resell (reverse
repurchase agreements) for the three months ended September 30, 1999, totaled
$224.9 million, down $64.4 million (22%) compared to $289.3 million in the third
quarter of 1998. For the first nine months of 1999 compared to the same period
in 1998, average short-term investments decreased $40.9 million (14%) to $247.6
million. The decrease in short-term investments is primarily due to a reduction
in reverse repurchase agreements. This reduction is the result of the
securitization of residential first mortgages previously discussed as the
security generated in this transaction provides collateral required for certain
deposits thus reducing the need for reverse repurchase agreements.
Mortgage Loans Held For Sale. Average mortgage loans held for sale for the
third quarter of 1999 decreased $63.4 million (32%) compared to the third
quarter of 1998, and increased $2.3 million (1%) for the first nine months of
1999 compared to the same period in 1998. Mortgage loans held for sale,
previously included in total loans, began to be reported as a separate item on
the balance sheet as of January 1, 1999. All prior-period information has been
reclassified to reflect this change.
ASSET QUALITY
Several key measures are used to evaluate and monitor the Company's asset
quality. These measures include the level of loan delinquencies, nonaccrual
loans, restructured loans, foreclosed assets and excess bank-owned property, and
several related ratios.
Table 2 shows loan delinquencies for each of the last five quarters and
delinquencies as a percentage of loans in each portfolio and in total. The
amount of total delinquencies increased $19.5 million (32%) from September 30,
1998 and decreased $7.2 million (8%) from June 30, 1999. Delinquencies at
September 30, 1999 include a large commercial loan on which a payment of $26.0
million was received early in the fourth quarter of 1999, reducing the total
delinquencies ratio by approximately one-third to 0.49%. The Company's $29.4
million participation in a syndicated, secured credit to an oil and gas company,
which was reported as 90 days or more past due at June 30, 1999, was sold in the
third quarter of 1999.
<TABLE>
<CAPTION>
=========================================================================================================================
TABLE 2 - LOAN DELINQUENCIES (1)
=========================================================================================================================
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
($ in millions) 1999 1999 1999 1998 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Days past due:
30 to 89 days .................. $ 72.6 $ 51.3 $ 41.8 $ 52.6 $ 54.3
90 days or more ................ 7.3 35.8 7.1 7.0 6.1
- -------------------------------------------------------------------------------------------------------------------------
Total delinquencies ........ $ 79.9 $ 87.1 $ 48.9 $ 59.6 $ 60.4
- -------------------------------------------------------------------------------------------------------------------------
Total delinquencies as a percentage of loans:
Commercial ..................... 0.92% 1.11% 0.20% 0.27% 0.08%
Small business ................. 0.37% 0.47% 0.68% 0.50% 0.72%
Consumer ....................... 0.76% 0.76% 0.66% 0.98% 1.11%
Total loans .................... 0.73% 0.83% 0.48% 0.60% 0.63%
- -------------------------------------------------------------------------------------------------------------------------
- ---------------
(1) Accruing loans past due as to principal and/or interest 30 days or more.
</TABLE>
Delinquencies as a percentage of total loans at September 30, 1999 were
0.73%, up from 0.63% a year ago and down from 0.83% at June 30, 1999. Accruing
loans past due 90 days or more were $7.3 million at September 30, 1999 compared
to $6.1 million at September 30, 1998 and $35.8 million at June 30, 1999. The
decrease in the 90 days or more past due category from the second quarter 1999
is primarily due to the sale of the syndicated oil and gas credit previously
mentioned. Commercial loan delinquencies were 0.92% of total commercial loans at
September 30, 1999 compared to 0.08% at September 30, 1998 and 1.11% at June 30,
1999. Small business loan delinquencies decreased to 0.37% at September 30,
1999, from 0.72% at September 30, 1998 and 0.47% at June 30, 1999. Consumer loan
delinquencies decreased to 0.76% from 1.11% at September 30, 1998 and were
unchanged from June 30, 1999. The improvement in consumer delinquencies from
1998 is primarily due to ongoing adjustments in loan underwriting and acceptance
criteria as well as improvements in the collection process.
Nonperforming assets, which include nonaccrual loans, restructured loans,
foreclosed assets and excess bank-owned property, totaled $76.0 million at
September 30, 1999.
Nonperforming loans, which totaled $62.0 million at September 30, 1999,
decreased $24.7 million (29%) from the prior quarter end, and increased $29.3
million (90%) from a year ago. The decrease in nonperforming loans in the third
quarter was primarily attributable to sales, payments and charge-offs of certain
large commercial credits. The majority of nonperforming consumer loans are
residential mortgage loans on which no significant losses are expected.
Foreclosed assets totaled $9.9 million at September 30, 1999, up $3.2
million (47%) from a year earlier, and up $0.6 million (7%) from June 30, 1999.
Excess bank-owned property at September 30, 1999 was up $1.8 million (77%) from
September 30, 1998, and down $0.4 million (9%) from June 30, 1999. Table 3
presents a summary of nonperforming assets and selected ratios at the end of the
last five quarters.
<TABLE>
<CAPTION>
=========================================================================================================================
TABLE 3 - NONPERFORMING ASSETS
=========================================================================================================================
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
($ in thousands) 1999 1999 1999 1998 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial ...................... $ 35,906 $ 63,425 $ 42,120 $ 19,214 $ 9,111
Small business .................. 19,061 19,039 16,613 17,695 19,001
Consumer ........................ 6,991 4,203 4,721 4,031 4,508
Restructured loans .................. - - - - -
- -------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans ... 61,958 86,667 63,454 40,940 32,620
- -------------------------------------------------------------------------------------------------------------------------
Foreclosed assets ................... 9,944 9,311 9,268 10,762 6,776
Excess bank-owned property .......... 4,127 4,559 3,622 2,648 2,329
- -------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets .. $ 76,029 $100,537 $ 76,344 $ 54,350 $ 41,725
=========================================================================================================================
Reserve for loan losses ............. $156,282 $150,805 $150,008 $130,347 $129,009
Nonperforming loan ratio:
Commercial loans ................ 0.95% 1.59% 1.05% 0.50% 0.25%
Small business loans ............ 0.81% 0.82% 0.79% 0.85% 0.94%
Consumer loans .................. 0.15% 0.10% 0.12% 0.10% 0.12%
Total loans ..................... 0.57% 0.83% 0.63% 0.41% 0.34%
Nonperforming asset ratio ........... 0.70% 0.96% 0.75% 0.55% 0.43%
Reserve for loan losses as a
percentage of nonperforming loans 252.24% 174.01% 236.40% 318.39% 395.49%
=========================================================================================================================
</TABLE>
At September 30, 1999 the recorded investment in loans considered impaired
under Statement of Financial Accounting Standards (SFAS) No. 114 was $55.2
million. The related portion of the reserve for loan losses was $15.5 million.
The comparable amounts at September 30, 1998 were $28.5 million and $5.8
million, respectively. These loans are included in nonaccrual loans in Table 3.
Table 4 presents a summary of changes in nonperforming loans for the last
five quarters. Loans totaling $24.3 million were added to nonperforming loans
during the third quarter of 1999, primarily in the commercial loan portfolio.
Sales and payments resulted in a $26.1 million reduction in nonperforming loans
while $5.1 million of loans were returned to performing status. Charge-offs
further reduced nonperforming loans in the third quarter of 1999 by $16.2
million. To the extent that nonaccrual loans that have been charged-off are
recovered in subsequent periods, the recoveries would be reflected in the
reserve for loan losses in Table 5 and not as a component of nonperforming loan
activity.
<TABLE>
<CAPTION>
=========================================================================================================================
TABLE 4 - SUMMARY OF NONPERFORMING LOAN ACTIVITY
=========================================================================================================================
1999 1998
- -------------------------------------------------------------------------------------------------------------------------
Third Second First Fourth Third
($ in thousands) Quarter Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans
at beginning of period . $ 86,667 $ 63,454 $ 40,940 $ 32,620 $ 32,133
Additions .................. 24,309 43,804 42,428 20,944 8,622
Charge-offs, gross ......... (16,195) (9,974) (7,662) (2,219) (509)
Transfer to OREO ........... (1,623) (801) (243) (5,758) (3,396)
Returns to performing status (5,064) (509) (219) (755) (433)
Payments and sales ......... (26,136) (9,307) (11,790) (3,892) (3,797)
=========================================================================================================================
Nonperforming loans
at end of period ....... $ 61,958 $ 86,667 $ 63,454 $ 40,940 $ 32,620
=========================================================================================================================
</TABLE>
In addition to the nonperforming loans discussed above, other commercial
loans that are subject to potential future classification as nonperforming
totaled $78.6 million at September 30, 1999, a decrease of $3.0 million (4%)
from June 30, 1999 and an increase of $29.3 million (59%) from September 30,
1998.
RESERVE AND PROVISION FOR LOAN LOSSES
The provision for loan losses is a charge to earnings to maintain the
reserve for loan losses at a level consistent with management's assessment of
the loan portfolio in light of current economic conditions and market trends.
The Company recorded a $28.5 million provision for loan losses in the third
quarter of 1999 and a $70.7 million provision for the first nine months of 1999,
compared to $8.1 million and $17.2 million in the comparable periods of 1998.
These provisions were made to address loan growth and credit quality issues
within the loan portfolio, primarily in the commercial portfolio, as indicated
by higher levels of charge-offs, nonperforming loans and delinquencies. The
provision for loan losses for the third quarter of 1999 and for the first nine
months of 1999 exceeded net charge-offs by $5.5 million and $22.9 million,
respectively. Table 5 presents an analysis of the activity in the reserve for
loan losses for the last five quarters.
Net charge-offs totaled $23.0 million in the third quarter of 1999 and
$47.8 million for the first nine months of 1999, compared to $4.5 million and
$14.8 million in the comparable periods of 1998. As a percentage of average
loans, annualized net charge-offs were 0.86% in the third quarter of 1999
compared to 0.19% in the third quarter of 1998 and 0.56% in the second quarter
of 1999. The increase in net charge-offs is related primarily to the commercial
loan portfolio. Net charge-offs in the small business portfolio have declined
from the third quarter of 1998 and the second quarter of 1999 primarily
resulting from a large recovery in the third quarter of 1999. Net charge-offs in
the consumer portfolio increased in the third quarter of 1999 compared to the
second quarter of 1999 and the third quarter off 1998, however, the second
quarter of 1999 includes a $0.7 million recovery on the sale of a portfolio of
charged-off consumer loans.
The reserve for loan losses is comprised of specific reserves (assessed for
each loan that is reviewed for impairment or for which a probable loss has been
identified), general reserves and an unallocated reserve.
<TABLE>
<CAPTION>
=========================================================================================================================
TABLE 5 - RESERVE FOR LOAN LOSSES ACTIVITY
=========================================================================================================================
1999 1998
- -------------------------------------------------------------------------------------------------------------------------
Third Second First Fourth Third
($ in thousands) Quarter Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period . $ 150,805 $ 150,008 $ 130,347 $ 129,009 $ 125,390
Loans charged off:
Commercial ................. (19,221) (10,390) (7,182) (853) (538)
Small business ............. (2,803) (2,916) (2,983) (4,356) (2,714)
Consumer ................... (5,906) (5,524) (6,167) (7,323) (5,190)
Recoveries:
Commercial ................. 1,367 682 2,828 1,231 1,216
Small business ............. 1,790 970 1,000 603 512
Consumer ................... 1,750 2,740 2,165 2,048 2,244
- -------------------------------------------------------------------------------------------------------------------------
Net loans charged off .......... (23,023) (14,438) (10,339) (8,650) (4,470)
Provision for loan losses ...... 28,500 12,200 30,000 9,988 8,089
Additions due to acquisition ... - 3,035 - - -
- -------------------------------------------------------------------------------------------------------------------------
Balance at end of period ....... $ 156,282 $ 150,805 $ 150,008 $ 130,347 $ 129,009
=========================================================================================================================
Reserve for loan losses
as a percentage of loans ... 1.44% 1.44% 1.48% 1.32% 1.34%
Annualized net charge-offs as a
percentage of average loans:
Commercial ............. 1.85% 0.97% 0.44% (0.04%) (0.08%)
Small business ......... 0.18% 0.36% 0.38% 0.74% 0.45%
Consumer ............... 0.37% 0.27% 0.40% 0.54% 0.31%
Total loans ............ 0.86% 0.56% 0.41% 0.36% 0.19%
=========================================================================================================================
</TABLE>
The Company continuously evaluates its reserve for loan losses to maintain
an adequate level to absorb loan losses inherent in the loan portfolio. Reserves
on impaired loans are based on discounted cash flows using the loan's initial
effective interest rate or the fair value of the collateral for certain
collateral-dependent loans. Factors contributing to the determination of
specific reserves include the financial condition of the borrower, changes in
the value of pledged collateral and general economic conditions. General
reserves are established based on historical charge-offs considering factors
which include risk rating, industry concentration and loan type, with the most
recent charge-off experience weighted more heavily. The unallocated reserve
generally serves to compensate for the uncertainty in estimating loan losses,
including the possibility of improper risk ratings and specific reserve
allocations. In addition, the reserve considers trends in delinquencies and
nonaccrual loans, industry concentration, the volatility of risk ratings and the
evolving portfolio mix in terms of collateral, relative loan size, the degree of
seasoning in the various loan products and loans recently acquired through
mergers. The results of reviews performed by internal and external examiners are
also considered.
The methodology used in the periodic review of reserve adequacy, which is
performed at least quarterly, is designed to be dynamic and responsive to
changes in actual credit losses. These changes are reflected in both the general
and unallocated reserves. The historical loss ratios, which are key factors in
this analysis, are updated quarterly and are weighted more heavily for recent
charge-off experience. The review of reserve adequacy is performed by executive
management and presented to the Board of Directors for their review,
consideration and ratification.
There were no significant changes in the composition of the loan portfolio
during the third quarter of 1999 except for the previously discussed decrease in
the commercial portfolio. The Company continued to proactively manage its
problem loan exposure in the third quarter of 1999, primarily through sales and
charge-offs of certain large commercial credits. This resulted in improvements
in certain asset quality measures including nonaccrual loans and loans past due
90 days or more. However, reserve levels were maintained for the third quarter
of 1999 in view of the risk profile of the portfolio as indicated by the
Company's internal risk rating system at the end of the quarter and based on
consistent application of our reserve methodology.
The assumptions and methodologies used in allocating the reserve were
unchanged during the quarter. The allocation to the various portfolios remained
relatively constant during the quarter based on their risk profile. During 1999,
allocations to the commercial portfolio have increased, offset by modest
reductions attributable to the consumer portfolio.
The reserve coverage of annualized net charge-offs declined during the
quarter to 170% from 261% in the second quarter of 1999 and 722% in the third
quarter of 1998. This decline was primarily due to the higher level of
commercial net charge-offs during the third quarter of 1999. The reserve for
loan losses is established to provide for losses which are inherent in the
portfolio. Therefore, a comparison of historical charge-offs to the reserve is
not necessarily an appropriate indicator of reserve adequacy since the timing of
charge-offs and recoveries, primarily in the commercial portfolio, impacts these
ratios.
The reserve for loan losses totaled $156.3 million, or 1.44% of total loans
at September 30, 1999, compared to $129.0 million, or 1.34% of total loans at
September 30, 1998. The reserve for loan losses as a percentage of nonperforming
loans was 252% at September 30, 1999, compared to 395% at September 30, 1998 and
174% at June 30, 1999. During the remainder of 1999 the Company expects the
level of net charge-offs to be lower than the third quarter of 1999 but modestly
higher than a year ago. The present level of the reserve for loan losses is
considered adequate to absorb probable loan losses inherent in the portfolio
considering the level and mix of the loan portfolio, current economic conditions
and market trends.
FUNDING SOURCES:
DEPOSITS
Average deposits totaled $11.3 billion in the third quarter of 1999, a $1.1
billion (11%) increase from the third quarter of 1998. For the first nine months
of 1999 compared to the same period in 1998, average deposits increased $889.3
million (9%) to $11.1 billion. Excluding the effect of the Beaumont transaction,
average deposits increased approximately 6% for the third quarter and
approximately 7% for the first nine months of 1999 compared to the same periods
in 1998. The increases were primarily due to internal growth as a result of
Hibernia's emphasis on attracting new deposits and expanding current banking
relationships through outstanding service and the introduction of new products
including Tower GoldSM Services, which offers liquidity, competitive interest
rates and the security of a bank deposit. Table 6 presents the composition of
average deposits for the periods presented.
<TABLE>
<CAPTION>
========================================================================================================================
TABLE 6 - DEPOSIT COMPOSITION
========================================================================================================================
Third Quarter 1999 Second Quarter 1999 Third Quarter 1998
- ------------------------------------------------------------------------------------------------------------------------
Average % of Average % of Average % of
($ in millions) Balances Deposits Balances Deposits Balances Deposits
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing ........... $ 2,059.6 18.2 % $ 2,010.3 18.2 % $ 1,827.1 17.8 %
NOW accounts .................. 420.7 3.7 370.9 3.3 331.6 3.2
Money market deposit accounts . 1,995.9 17.7 2,077.7 18.8 2,024.4 19.8
Savings accounts .............. 1,841.9 16.3 1,629.8 14.7 1,194.4 11.7
Other consumer time deposits .. 2,954.1 26.1 2,950.4 26.6 3,024.0 29.6
- ------------------------------------------------------------------------------------------------------------------------
Total core deposits ....... 9,272.2 82.0 9,039.1 81.6 8,401.5 82.1
- ------------------------------------------------------------------------------------------------------------------------
Public fund certificates of
deposit of $100,000 or more 1,030.7 9.1 1,124.3 10.2 984.2 9.6
Certificates of deposit of
$100,000 or more .......... 690.8 6.1 617.2 5.6 605.4 5.9
Foreign time deposits ......... 310.4 2.8 292.0 2.6 238.4 2.4
- ------------------------------------------------------------------------------------------------------------------------
Total deposits ............ $ 11,304.1 100.0 % $ 11,072.6 100.0 % $ 10,229.5 100.0 %
========================================================================================================================
</TABLE>
Average core deposits totaled $9.3 billion in the third quarter of 1999, a
$870.7 million (10%) increase from the third quarter of 1998. The Beaumont
transaction accounted for approximately 35% of the growth in average core
deposits in the third quarter of 1999 compared to the third quarter of 1998.
Average noninterest-bearing deposits grew $232.5 million and average savings
deposits increased $647.5 million in the third quarter of 1999 compared to the
third quarter of 1998. NOW account average balances were up $89.1 million and
average money market deposit accounts were down $28.5 million in the third
quarter of 1999 compared to the third quarter of 1998.
Average noncore deposits were up $203.9 million (11%) from the third
quarter of 1998 to $2.0 billion or 18% of total deposits. The Beaumont
transaction accounted for approximately 65% of the growth in average noncore
deposits in the third quarter of 1999 compared to the third quarter of 1998.
Average large denomination certificates of deposit increased $131.9 million (8%)
compared to the third quarter of 1998. Average foreign time deposits increased
$72.0 million (30%) due to successful efforts to market a treasury management
product which sweeps commercial customer funds into higher-yielding Eurodollar
deposits.
Total deposits at September 30, 1999, were $11.5 billion, up $1.3 billion
(12%) from September 30, 1998. The Beaumont transaction accounted for
approximately one-third of the growth in total deposits.
BORROWINGS
Average borrowings (which include federal funds purchased; securities sold
under agreements to repurchase; treasury, tax and loan account; and debt)
increased $475.4 million (31%) to $2.0 billion for the third quarter of 1999
compared to the third quarter of 1998. For the first nine months of 1999
compared to the first nine months of 1998 average borrowings increased $531.8
million (38%) to $1.9 billion.
Average debt for the third quarter of 1999 totaled $815.6 million, up from
$706.8 million in the third quarter of 1998. At September 30, 1999 the Company's
debt, which is comprised of advances from the Federal Home Loan Bank of Dallas
(FHLB), totaled $1,045.1 million. Debt increased $338.3 million from September
30, 1998 as Hibernia locked in attractive rates to fund the growth in its loan
portfolio. In October 1999, the Company's debt was reduced by $100 million due
to the maturity of an FHLB advance. In addition, the FHLB may demand payment of
$500 million in callable advances at quarterly intervals, of which $200 million
is not callable before September 2001 and $200 million is not callable before
June 2003. If called prior to maturity, replacement funding will be offered by
the FHLB at a then-current rate. 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 $23.1 million at September 30, 1999,
which minimize the Company's exchange rate risk on loans to be repaid in foreign
currencies.
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 $548.2 million at September 30, 1999. In addition to these
customer-related derivative financial instruments, the Company has entered into
contracts for its own account related to its mortgage origination activity which
totaled $161.7 million at September 30, 1999. Hibernia's credit exposure related
to derivative financial instruments held for trading totaled $4.2 million at
September 30, 1999.
RESULTS OF OPERATIONS:
NET INTEREST INCOME
Taxable-equivalent net interest income for the third quarter of 1999
totaled $152.9 million, a $15.3 million increase from the same period in 1998
and up $5.4 million from the second quarter of 1999. Taxable-equivalent net
interest income for the first nine months of 1999 totaled $444.4 million, a
$33.7 million increase over the first nine months of 1998.
Factors contributing to the increase in net interest income for the third
quarter and first nine months of 1999 over the comparable periods in 1998
include: overall growth in earning assets; the positive effect of the change in
the mix of earning assets from securities to loans; lower rates paid on deposits
and borrowings; a higher level of interest income recorded from collection on
nonaccrual or previously charged-off loans; and the effect of the Beaumont
transaction (approximately 15% of the increase for the third quarter of 1999 and
approximately 60% of the increase for the first nine months of 1999). These
factors were partially offset by lower yields on loans as a result of the
competitive lending environment.
Taxable-equivalent net interest income for the third quarter of 1998 was
negatively impacted due to a $3.0 million adjustment related to revenue-sharing
arrangements with certain automobile dealers brought about by a
higher-than-expected level of consumer automobile loan prepayments.
Table 7 shows the composition of earning assets for the most recent five
quarters, reflecting the change in the mix of earning assets.
<TABLE>
<CAPTION>
===================================================================================================
TABLE 7 - INTEREST-EARNING ASSET COMPOSITION
===================================================================================================
1999 1998
- ---------------------------------------------------------------------------------------------------
Third Second First Fourth Third
(Percentage of average balances) Quarter Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial loans ................ 28.0% 29.8% 29.5% 29.1% 29.1%
Small business loans ............ 16.8 16.1 15.5 15.7 15.9
Consumer loans .................. 32.6 30.4 30.0 30.4 30.3
- ---------------------------------------------------------------------------------------------------
Total loans ................. 77.4 76.3 75.0 75.2 75.3
- ---------------------------------------------------------------------------------------------------
Securities available for sale ... 20.0 20.6 21.0 21.7 20.8
Short-term investments .......... 1.6 1.6 2.2 1.3 2.3
Mortgage loans held for sale .... 1.0 1.5 1.8 1.8 1.6
- ---------------------------------------------------------------------------------------------------
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)
============================================================================================================
1999 1998
- ------------------------------------------------------------------------------------------------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Yield on earning assets ............ 7.91% 7.72% 7.70% 7.83% 8.00%
Rate on interest-bearing liabilities 4.26 4.11 4.14 4.27 4.47
- ------------------------------------------------------------------------------------------------------------
Net interest spread ............ 3.65 3.61 3.56 3.56 3.53
Contribution of
noninterest-bearing funds ...... 0.77 0.78 0.79 0.86 0.89
- ------------------------------------------------------------------------------------------------------------
Net interest margin ............ 4.42% 4.39% 4.35% 4.42% 4.42%
============================================================================================================
Noninterest-bearing funds
supporting earning assets ...... 18.27% 19.07% 19.17% 20.22% 19.89%
============================================================================================================
</TABLE>
The net interest margin was 4.42% for the third quarter of 1999, unchanged
from the third quarter of 1998, and up three basis points from the second
quarter of 1999. The positive effects of the change in the mix of earning assets
and a higher level of interest income recorded on nonaccrual or previously
charged-off loans were offset by the impact of declining loan yields, as a
result of increasing competition, and a higher-than-expected level of public
fund deposits which by virtue of their collateral requirements have a very thin
spread. However, these public fund deposits had a positive impact on net
interest income. The net interest margin for the third quarter of 1999 was also
negatively impacted due to the shift in the mix of funding sources toward market
rate funds. In the third quarter of 1999, 60.8% of Hibernia's earning assets
were supported by market-rate funds compared to 57.1% in the same period in
1998.
The $3.0 million adjustment related to revenue-sharing arrangements with
certain automobile dealers described above negatively impacted the net interest
margin in the third quarter of 1998 (approximately ten basis points) and in the
first nine months of 1998 (approximately three basis points). In addition, the
net interest margin was reduced in the third quarter of 1998 and in the first
nine months of 1998 (approximately three basis points each period) by the
funding cost of a transaction which utilized capital losses. The income
associated with this transaction was recorded as a securities gain in
noninterest income rather than in net interest income.
Table 9 presents an analysis of changes in taxable-equivalent net interest
income between the third quarter of 1999 and the second quarter of 1999 and
between the third quarter of 1999 and the third quarter of 1998.
<TABLE>
<CAPTION>
========================================================================================================================
TABLE 9 - CHANGES IN TAXABLE-EQUIVALENT NET INTEREST INCOME (1)
========================================================================================================================
Third Quarter 1999 Compared to:
- ------------------------------------------------------------------------------------------------------------------------
Second Quarter 1999 Third Quarter 1998
- ------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) Due to Change In:
- ------------------------------------------------------------------------------------------------------------------------
($ in thousands) Volume Rate Total Volume Rate Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Taxable-equivalent
interest earned on:
Commercial loans .............. $(2,938) $4,387 $ 1,449 $ 5,328 $(5,043) $ 285
Small business loans .......... 3,022 1,292 4,314 7,695 (631) 7,064
Consumer loans ................ 8,156 932 9,088 15,212 205 15,417
- ------------------------------------------------------------------------------------------------------------------------
Loans ..................... 8,240 6,611 14,851 28,235 (5,469) 22,766
- ------------------------------------------------------------------------------------------------------------------------
Securities available for sale . (497) 836 339 2,748 1,015 3,763
Short-term investments ........ 85 116 201 (900) (527) (1,427)
Mortgage loans held for sale .. (1,057) 19 (1,038) (1,051) 64 (987)
- ------------------------------------------------------------------------------------------------------------------------
Total ................... 6,771 7,582 14,353 29,032 (4,917) 24,115
========================================================================================================================
Interest paid on:
NOW accounts .................. 312 37 349 681 (980) (299)
Money market
deposit accounts .......... (488) 1,230 742 (187) (462) (649)
Savings accounts .............. 1,942 1,293 3,235 6,025 1,172 7,197
Other consumer time deposits .. 45 380 425 (899) (2,402) (3,301)
Public fund certificates of
deposit of $100,000 or more (1,143) 374 (769) 607 (1,214) (607)
Certificates of deposit
of $100,000 or more ....... 935 333 1,268 1,114 (478) 636
Foreign deposits .............. 208 287 495 881 (329) 552
Federal funds purchased ....... 1,430 690 2,120 3,997 (498) 3,499
Repurchase agreements ......... 438 446 884 768 (297) 471
Debt .......................... 142 81 223 1,530 (254) 1,276
- ------------------------------------------------------------------------------------------------------------------------
Total ................... 3,821 5,151 8,972 14,517 (5,742) 8,775
========================================================================================================================
Taxable-equivalent
net interest income ........... $ 2,950 $2,431 $ 5,381 $ 14,515 $ 825 $ 15,340
========================================================================================================================
- ---------------
(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
24 and 25 of this discussion presents the Company's taxable-equivalent net
interest income and average balances for the three months ended September 30,
1999, June 30, 1999 and September 30, 1998, and for the first nine months of
1999 and 1998.
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================================
CONSOLIDATED AVERAGE BALANCES, INTEREST AND RATES
===========================================================================================================================
Hibernia Corporation and Subsidiaries
Taxable-equivalent basis (1) Third Quarter 1999 Second Quarter 1999
- ---------------------------------------------------------------------------------------------------------------------------
(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 .............................. $ 3,859.7 $ 78,216 8.04% $ 4,009.7 $ 76,767 7.68%
Small business loans .......................... 2,305.3 52,092 8.97 2,170.5 47,778 8.83
Consumer loans ................................ 4,489.5 93,863 8.31 4,099.0 84,775 8.29
- ---------------------------------------------------------------------------------------------------------------------------
Total loans (2) ........................... 10,654.5 224,171 8.35 10,279.2 209,320 8.17
- ---------------------------------------------------------------------------------------------------------------------------
Securities available for sale ................. 2,745.9 44,309 6.45 2,777.1 43,970 6.33
Short-term investments ........................ 224.9 2,981 5.26 218.3 2,780 5.11
Mortgage loans held for sale .................. 135.5 2,247 6.63 199.2 3,285 6.61
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets ............. 13,760.8 $ 273,708 7.91% 13,473.8 $ 259,355 7.72%
- ---------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses ........................... (148.9) (153.8)
Noninterest-earning assets:
Cash and due from banks ....................... 490.2 469.7
Other assets .................................. 725.6 638.7
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest-earning assets .......... 1,215.8 1,108.4
- ---------------------------------------------------------------------------------------------------------------------------
Total assets .............................. $ 14,827.7 $ 14,428.4
===========================================================================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts .............................. $ 420.7 $ 2,646 2.50% $ 370.9 $ 2,297 2.48%
Money market deposit accounts ............. 1,995.9 12,805 2.55 2,077.7 12,063 2.33
Savings accounts .......................... 1,841.9 17,412 3.75 1,629.8 14,177 3.49
Other consumer time deposits .............. 2,954.1 36,281 4.87 2,950.4 35,856 4.87
Public fund certificates of deposit
of $100,000 or more ................... 1,030.7 12,670 4.88 1,124.3 13,439 4.79
Certificates of deposit of $100,000 or more 690.8 8,869 5.09 617.2 7,601 4.94
Foreign time deposits ..................... 310.4 3,703 4.73 292.0 3,208 4.41
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits ....... 9,244.5 94,386 4.05 9,062.3 88,641 3.92
- ---------------------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased ................... 732.0 9,597 5.20 620.0 7,477 4.84
Repurchase agreements ..................... 455.2 5,361 4.67 416.2 4,477 4.31
Debt .......................................... 815.6 11,432 5.56 805.3 11,209 5.58
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities ........ 11,247.3 $ 120,776 4.26% 10,903.8 $ 111,804 4.11%
- ---------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Noninterest-bearing deposits .................. 2,059.6 2,010.3
Other liabilities ............................. 167.4 157.8
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest-bearing liabilities ..... 2,227.0 2,168.1
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity ........................ 1,353.4 1,356.5
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 14,827.7 $ 14,428.4
===========================================================================================================================
SPREAD AND NET YIELD
Interest rate spread .............................. 3.65% 3.61%
Cost of funds supporting interest-earning assets .. 3.49% 3.33%
Net interest income/margin ........................ $ 152,932 4.42% $ 147,551 4.39%
===========================================================================================================================
- ---------------
(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
===========================================================================================================================
Hibernia Corporation and Subsidiaries Nine Months Ended
Taxable-equivalent basis (1) Third Quarter 1998 September 30, 1999
- ---------------------------------------------------------------------------------------------------------------------------
(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 .............................. $ 3,604.7 $ 77,931 8.58% $ 3,932.3 $ 230,356 7.83%
Small business loans .......................... 1,965.1 45,028 9.09 2,183.4 145,084 8.88
Consumer loans ................................ 3,761.9 78,446 8.29 4,197.4 261,097 8.31
- ---------------------------------------------------------------------------------------------------------------------------
Total loans (2) ........................... 9,331.7 201,405 8.57 10,313.1 636,537 8.25
- ---------------------------------------------------------------------------------------------------------------------------
Securities available for sale ................. 2,574.5 40,546 6.29 2,772.7 131,753 6.34
Short-term investments ........................ 289.3 4,408 6.05 247.6 9,430 5.09
Mortgage loans held for sale .................. 198.9 3,234 6.50 190.6 9,244 6.47
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets ............. 12,394.4 $ 249,593 8.00% 13,524.0 $ 786,964 7.78%
- ---------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses ........................... (126.4) (144.6)
Noninterest-earning assets:
Cash and due from banks ....................... 427.3 482.0
Other assets .................................. 562.1 645.8
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest-earning assets .......... 989.4 1,127.8
- ---------------------------------------------------------------------------------------------------------------------------
Total assets .............................. $ 13,257.4 $ 14,507.2
===========================================================================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts .............................. $ 331.6 $ 2,945 3.52% $ 364.2 $ 6,921 2.54%
Money market deposit accounts ............. 2,024.4 13,454 2.64 2,092.3 37,404 2.39
Savings accounts .......................... 1,194.4 10,215 3.39 1,606.3 42,323 3.52
Other consumer time deposits .............. 3,024.0 39,582 5.19 2,953.3 108,244 4.90
Public fund certificates of deposit
of $100,000 or more ................... 984.2 13,277 5.35 1,083.1 39,372 4.86
Certificates of deposit of $100,000 or more 605.4 8,233 5.39 651.1 24,557 5.04
Foreign time deposits ..................... 238.4 3,151 5.24 302.6 10,237 4.52
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits ....... 8,402.4 90,857 4.29 9,052.9 269,058 3.97
- ---------------------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased ................... 429.6 6,098 5.63 681.5 25,373 4.98
Repurchase agreements ..................... 391.0 4,890 4.96 434.2 14,384 4.43
Debt .......................................... 706.8 10,156 5.70 809.0 33,776 5.58
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities ........ 9,929.8 $ 112,001 4.47% 10,977.6 $ 342,591 4.17%
- ---------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Noninterest-bearing deposits .................. 1,827.1 1,997.3
Other liabilities ............................. 199.2 176.8
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest-bearing liabilities ..... 2,026.3 2,174.1
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity ........................ 1,301.3 1,355.5
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 13,257.4 $ 14,507.2
===========================================================================================================================
SPREAD AND NET YIELD
Interest rate spread .............................. 3.53% 3.61%
Cost of funds supporting interest-earning assets .. 3.58% 3.39%
Net interest income/margin ........................ $ 137,592 4.42% $ 444,373 4.39%
===========================================================================================================================
- ---------------
(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
=======================================================================================
Hibernia Corporation and Subsidiaries Nine Months Ended
Taxable-equivalent basis (1) September 30, 1998
- ---------------------------------------------------------------------------------------
(Average balances $ in millions, Average
interest $ in thousands) Balance Interest Rate
=======================================================================================
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Commercial loans .............................. $ 3,430.6 $ 220,323 8.59%
Small business loans .......................... 1,925.5 133,883 9.30
Consumer loans ................................ 3,565.6 227,631 8.53
- ---------------------------------------------------------------------------------------
Total loans (2) ........................... 8,921.7 581,837 8.72
- ---------------------------------------------------------------------------------------
Securities available for sale ................. 2,692.0 131,271 6.50
Short-term investments ........................ 288.5 12,711 5.89
Mortgage loans held for sale .................. 188.3 8,925 6.32
- ---------------------------------------------------------------------------------------
Total interest-earning assets ............. 12,090.5 $ 734,744 8.12%
- ---------------------------------------------------------------------------------------
Reserve for loan losses ........................... (125.1)
Noninterest-earning assets:
Cash and due from banks ....................... 445.5
Other assets .................................. 598.4
- ---------------------------------------------------------------------------------------
Total noninterest-earning assets .......... 1,043.9
- ---------------------------------------------------------------------------------------
Total assets .............................. $ 13,009.3
=======================================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts .............................. $ 361.5 $ 9,349 3.46%
Money market deposit accounts ............. 2,004.4 38,733 2.58
Savings accounts .......................... 1,098.6 26,952 3.28
Other consumer time deposits .............. 3,054.8 119,535 5.23
Public fund certificates of deposit
of $100,000 or more ................... 1,017.6 41,143 5.41
Certificates of deposit of $100,000 or more 603.5 23,961 5.31
Foreign time deposits ..................... 203.7 8,012 5.26
- ---------------------------------------------------------------------------------------
Total interest-bearing deposits ....... 8,344.1 267,685 4.29
- ---------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased ................... 330.0 13,718 5.56
Repurchase agreements ..................... 381.1 14,023 4.92
Debt .......................................... 681.8 28,636 5.62
- ---------------------------------------------------------------------------------------
Total interest-bearing liabilities ........ 9,737.0 $ 324,062 4.45%
- ---------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Noninterest-bearing deposits .................. 1,816.8
Other liabilities ............................. 185.0
- ---------------------------------------------------------------------------------------
Total noninterest-bearing liabilities ..... 2,001.8
- ---------------------------------------------------------------------------------------
Total shareholders' equity ........................ 1,270.5
- ---------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 13,009.3
=======================================================================================
SPREAD AND NET YIELD
Interest rate spread .............................. 3.67%
Cost of funds supporting interest-earning assets .. 3.58%
Net interest income/margin ........................ $ 410,682 4.54%
=======================================================================================
- ----------
(1) Based on the statutory income tax rate of 35%.
(2) Yield computations include nonaccrual loans in loans outstanding.
</TABLE>
<PAGE>
NONINTEREST INCOME
Noninterest income for the third quarter of 1999 was up $6.8 million (14%)
to $55.8 million compared to the same period of 1998. For the first nine months
of 1999 compared to the same period in 1998, noninterest income was up $22.3
million (16%). The effect of the Beaumont transaction accounted for
approximately 40% of the increase for the third quarter of 1999 and
approximately 20% of the increase for the first nine months of 1999. Excluding
securities transactions, noninterest income increased $9.6 million (21%) in the
third quarter of 1999 over the third quarter of 1998, and was up $25.5 million
(19%) during the first nine months of 1999 compared to the same period in 1998.
The major categories of noninterest income for the three months and nine months
ended September 30, 1999 and 1998 are presented in Table 10.
<TABLE>
<CAPTION>
=============================================================================================================================
TABLE 10 - NONINTEREST INCOME
=============================================================================================================================
Three Months Ended Nine Months Ended
- -----------------------------------------------------------------------------------------------------------------------------
Percentage Percentage
Sept. 30 Sept. 30 Increase Sept. 30 Sept. 30 Increase
($ in thousands) 1999 1998 (Decrease) 1999 1998 (Decrease)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposits .......... $ 24,931 $ 22,273 12% $ 71,657 $ 63,817 12%
Trust fees ........................... 6,610 4,204 57 16,815 12,505 34
Retail investment service fees ....... 5,964 4,515 32 17,579 12,842 37
Mortgage loan origination
and servicing fees ............... 4,811 3,805 26 13,751 10,611 30
Other service, collection and
exchange charges:
ATM fees ......................... 3,038 2,713 12 8,903 7,658 16
Debit/credit card fees ........... 3,007 2,134 41 8,094 5,677 43
Other ............................ 3,408 2,662 28 9,364 7,841 19
- -----------------------------------------------------------------------------------------------------------------------------
Total other service, collection
and exchange charges .... 9,453 7,509 26 26,361 21,176 24
- -----------------------------------------------------------------------------------------------------------------------------
Other operating income:
Gain on sales of mortgage loans .. 1,662 2,446 (32) 4,919 6,490 (24)
Other income ..................... 2,367 1,450 63 8,193 6,285 30
- -----------------------------------------------------------------------------------------------------------------------------
Total other operating income 4,029 3,896 3 13,112 12,775 3
- -----------------------------------------------------------------------------------------------------------------------------
Securities gains (losses), net ....... (1) 2,774 (100) 408 3,698 (89)
- -----------------------------------------------------------------------------------------------------------------------------
Total noninterest income .... $ 55,797 $ 48,976 14% $ 159,683 $ 137,424 16%
=============================================================================================================================
</TABLE>
Service charges on deposits increased $2.7 million (12%) for the third
quarter of 1999 and $7.8 million (12%) for the first nine months of 1999 over
the comparable periods in 1998. This change was the result of growth in
transaction-based fees and commercial account analysis fees due to an increase
in the number of accounts.
Trust fees were up $2.4 million (57%) in the third quarter of 1999 and $4.3
million (34%) for the first nine months of 1999 compared to the same periods in
1998 primarily due to new business and the income associated with the $1.4
billion increase in trust assets resulting from the Beaumont transaction. The
effect of the Beaumont transaction accounted for approximately 85% of the
increase for the third quarter of 1999 and approximately 70% of the increase for
the first nine months of 1999.
Retail investment service fees increased $1.4 million (32%) and $4.7
million (37%) in the third quarter and the first nine months of 1999,
respectively, compared to the same periods in 1998. The increase is primarily
due to market conditions which resulted in an increase in the sale of financial
products including annuities and discount brokerage services, and also to the
availability of insurance products throughout the banking office network from
lines acquired in 1998.
Mortgage loan origination and servicing fees increased $1.0 million (26%)
in the third quarter and $3.1 million (30%) in the first nine months of 1999
compared to the same periods in 1998. The increase in mortgage fees resulted
primarily from the Company's continued emphasis on mortgage banking and the
increase in the volume of mortgage loans serviced to $5.1 billion. In the first
nine months of 1999, Hibernia processed more than $1.8 billion in residential
first mortgage loans as compared to $1.6 billion in the first nine months of
1998.
Other service, collection and exchange charges were up $1.9 million (26%)
and $5.2 million (24%) in the third quarter and the first nine months of 1999,
respectively, compared to the same periods in 1998. Increases in fees from ATMs
and debit and credit cards were the major factors contributing to the growth.
ATM fees increased $0.3 million in the third quarter and $1.2 million in the
first nine months of 1999 over the comparable periods in 1998 due to the
continued growth of the ATM network and expansion of ATM services. Fees
generated by Hibernia's Capital Access(C) credit card for small businesses and
CheckmateSM debit card led to an increase in debit/credit card fees of $0.9
million for the third quarter and $2.4 million for the first nine months of
1999, compared to the same periods in 1998.
Other operating income increased $0.1 million (3%) for the third quarter
and increased $0.3 million (3%) for the first nine months of 1999 over the
comparable periods in 1998. Gains on sales of mortgage loans were down $0.8
million in the third quarter and were down $1.6 million in the first nine months
of 1999 over the comparable periods in 1998 primarily due to the current
interest rate environment. The third quarter of 1999 includes a $1.1 million
gain on the sale of mortgage servicing rights. Other income increased $0.9
million for the third quarter and increased $1.9 million in the first nine
months of 1999 compared to the same periods in 1998. The increase in the first
nine months of 1999 is primarily due to a $1.7 million gain in the first quarter
of 1999 related to an investment in a mezzanine financing.
Securities gains decreased $2.8 million (100%) in the third quarter and
decreased $3.3 million (89%) in the first nine months of 1999 compared to the
same periods in 1998. In the third quarter of 1998 the Company liquidated high
quality securities for a $1.3 million gain and used the proceeds to buy similar
quality securities with a higher yield. The third quarter of 1998 and the first
nine months of 1998 also included gains on a transaction designed to utilize
capital losses.
NONINTEREST EXPENSE
For the third quarter of 1999, noninterest expense totaled $100.8 million,
a $3.8 million (4%) decrease from the third quarter of 1998. For the first nine
months of 1999 compared to the same period in 1998, noninterest expense was up
$9.1 million (3%). Excluding the effect of the Beaumont transaction,
noninterest expense would have decreased approximately 10% for the third
quarter of 1999 compared to the third quarter of 1998 and would have been
virtually unchanged for the first nine months of 1999 compared to the first
nine months of 1998. Excluding merger-related expenses, noninterest expense
decreased $3.5 million (3%) in the third quarter of 1999 over the third quarter
of 1998, and was up $2.5 million (1%)for the first nine months of 1999 compared
to the same period in 1998. Merger-related expenses totaled $0.1 million in
the third quarter of 1999 and $0.4 million in the third quarter of 1998. Merger-
related expenses in the first nine months of 1999 and 1998 totaled $9.0 million
and $2.5 million, respectively. The major categories contributing to the changes
in noninterest expense were staff costs, data processing, the amortization of
intangibles and state taxes on equity. Noninterest expense for the three months
and nine months ended September 30, 1999 and 1998 are presented by major
category in Table 11.
<TABLE>
<CAPTION>
=============================================================================================================================
TABLE 11 - NONINTEREST EXPENSE
=============================================================================================================================
Three Months Ended Nine Months Ended
- -----------------------------------------------------------------------------------------------------------------------------
Percentage Percentage
Sept. 30 Sept. 30 Increase Sept. 30 Sept. 30 Increase
($ in thousands) 1999 1998 (Decrease) 1999 1998 (Decrease)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries ........................ $ 34,259 $ 46,219 (26)% $ 132,584 $ 135,774 (2)%
Benefits ........................ 8,029 7,355 9 25,683 23,080 11
- -----------------------------------------------------------------------------------------------------------------------------
Total staff costs ........... 42,288 53,574 (21) 158,267 158,854 -
- -----------------------------------------------------------------------------------------------------------------------------
Occupancy, net .................. 8,507 8,331 2 24,609 26,650 (8)
Equipment ....................... 8,068 7,908 2 25,108 23,362 7
- -----------------------------------------------------------------------------------------------------------------------------
Total occupancy and equipment 16,575 16,239 2 49,717 50,012 (1)
- -----------------------------------------------------------------------------------------------------------------------------
Data processing ................. 8,003 7,476 7 23,822 21,362 12
Advertising and promotional
expenses .................... 4,063 3,785 7 11,322 12,691 (11)
Foreclosed property expense, net 26 (336) (108) (399) (1,027) (61)
Amortization of intangibles ..... 7,088 4,178 70 16,950 12,501 36
Telecommunications .............. 2,646 2,721 (3) 7,627 8,935 (15)
Postage ......................... 1,832 1,653 11 5,469 5,438 1
Stationery and supplies ......... 1,630 1,426 14 4,529 4,449 2
Professional fees ............... 1,427 1,025 39 5,513 5,012 10
State taxes on equity ........... 2,848 2,369 20 8,543 7,057 21
Regulatory expense .............. 754 730 3 2,277 2,152 6
Loan collection expense ......... 1,280 982 30 3,295 3,168 4
Other ........................... 10,362 8,846 17 31,814 29,055 9
- -----------------------------------------------------------------------------------------------------------------------------
Total noninterest expense ... $ 100,822 $ 104,668 (4)% $ 328,746 $ 319,659 3 %
- -----------------------------------------------------------------------------------------------------------------------------
Efficiency ratio (1) ............ 48.30% 56.95% 54.46% 58.72%
Cash-basis efficiency ratio (2) . 45.72% 55.27% 52.47% 56.99%
=============================================================================================================================
- ---------------
(1) Noninterest expense as a percentage of taxable-equivalent net interest income plus noninterest income (excluding
securities transactions)
(2) Excluding amortization of purchase accounting intangibles.
</TABLE>
Staff costs, which represent the largest component of noninterest expense,
decreased $11.3 million (21%) in the third quarter of 1999 and $0.6 million for
the first nine months of 1999 compared to the same periods a year ago. No
accrual for management incentives was made in the third quarter of 1999, and
$11.3 million accrued in prior periods was reversed. The reversal included $9.6
million related to a long-term performance share award for senior management.
The reversal resulted from the expected failure to meet certain requirements
necessary to achieve a payout under that plan. In addition, a management bonus
program for 1999 affecting a much larger group will not be fulfilled at
originally planned levels. Excluding the effect of merger-related expenses,
staff costs decreased $5.3 million (3%) during the first nine months of 1999
compared to the same period in 1998. Merger-related expenses, which primarily
occurred in the first quarter of 1999, included a $4.4 million stock grant
agreement with two key merger employees that was in place several years prior to
negotiation of the merger agreement.
Occupancy and equipment expenses increased $0.3 million (2%) in the third
quarter of 1999 and decreased $0.3 million (1%) for the first nine months of
1999 over the comparable periods in 1998. The first nine months of 1998 include
a $2.0 million charge to improve customer delivery convenience by optimizing an
expanding banking office network. Excluding the effect of merger-related
expenses, occupancy and equipment expenses decreased $1.7 million (3%) in the
first nine months of 1999 as compared to the first nine months of 1998.
Data processing expenses increased $0.5 million (7%) for the third quarter
of 1999 compared to the third quarter of 1998. For the first nine months of
1999, data processing expenses increased $2.5 million (12%). Excluding the
effect of merger-related expenses, data processing expenses increased $2.1
million (10%) for the first nine months of 1999 compared to the same period a
year ago. The increase in data processing expenses is primarily related to
continued improvements in technology and increased transaction volume related to
growth in the Company's customer base.
Advertising and promotional expenses increased $0.3 million (7%) in the
third quarter of 1999 compared to the third quarter of 1998, and decreased $1.4
million (11%) for the first nine months of 1999 compared to the first nine
months of 1998. Excluding merger-related expenses, advertising and promotional
expenses increased $0.4 million (12%) for the third quarter and decreased $1.0
million (9%) for the first nine months of 1999 compared to the same periods a
year ago. The decrease in advertising and promotional expenses for the first
nine months of 1999 is primarily due to higher expenses in 1998 related to
advertising, direct marketing and shareholder communications. Higher advertising
expenses in 1998 were the result of opportunities related to the mergers of
several competitors, the expansion of the franchise into the markets of merged
companies and the promotion of products, which include the Tower Super SavingsSM
account and the Hibernia CheckmateSM debit card.
Amortization of intangibles, a noncash expense, increased $2.9 million
(70%) to $7.1 million for the third quarter of 1999 compared to the third
quarter of 1998, and increased $4.4 million (36%) to $17.0 million for the first
nine months of 1999 compared to the first nine months of 1998. This increase is
primarily due to an increase in the amortization of mortgage servicing rights
resulting from the growth in mortgage lending activity, and the amortization of
intangibles resulting from the Beaumont transaction.
Professional fees increased $0.4 million (39%) for the third quarter of
1999 compared to the third quarter of 1998. For the first nine months of 1999,
professional fees increased $0.5 million (10%). Excluding merger-related
expenses, professional fees increased $0.4 million (43%) for the third quarter
and decreased $0.1 million (1%) for the first nine months of 1999 compared to
the same periods a year ago. State taxes on equity increased $0.5 million (20%)
in the third quarter of 1999 compared to the third quarter of 1998, and
increased $1.5 million (21%) for the first nine months of 1999 compared to the
first nine months of 1998 due to the increased level of equity and higher tax
rates.
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 used to evaluate the
success of efforts to control costs while generating revenue efficiently. The
efficiency ratio for the third quarter of 1999 was 48.30% compared to 56.95% for
the third quarter of 1998, primarily resulting from the reduction in staff costs
discussed earlier. The ratio for the first nine months of 1999 was 54.46% down
from 58.72% for the first nine months of 1998. Excluding the effect of
merger-related expenses, the efficiency ratio would have been 48.27% for the
third quarter of 1999 compared to 56.72% for the third quarter of 1998 and
52.97% for the first nine months of 1999 compared to 58.27% for the first nine
months of 1998.
The cash-basis efficiency ratio, which excludes amortization of purchase
accounting intangibles from the calculation, was 45.72% for the third quarter of
1999 compared to 55.27% for the third quarter of 1998. For the first nine months
of 1999, the cash-basis efficiency ratio was 52.47% compared to 56.99% for the
first nine months of 1998. Excluding the effect of merger-related expenses, the
cash-basis efficiency ratio would have been 45.69% for the third quarter of 1999
compared to 55.05% for the third quarter of 1998 and 50.98% for the first nine
months of 1999 compared to 56.54% for the first nine months of 1998.
INCOME TAXES
The Company recorded $26.7 million in income tax expense in the third
quarter of 1999, a $3.3 million (14%) increase from $23.5 million in the third
quarter of 1998 as pretax income rose 7%. The effective tax rate in the third
quarter of 1998 was lower than normal primarily because of a tax accrual
adjustment related to a merger bank. For the first nine months of 1999, income
tax expense totaled $69.4 million, a $0.4 million (1%) decrease from $69.8
million for the first nine months of 1998.
Hibernia National Bank is subject to a Louisiana shareholders' tax based
partly on income. The income portion is recorded as state income tax. In
addition, certain subsidiaries of the Company and Hibernia National Bank are
subject to Louisiana state income tax. Effective January 1, 1999 Hibernia
National Bank of Texas was merged with and into Hibernia National Bank resulting
in one bank in all markets. The Texas operations of Hibernia National Bank are
subject to Texas franchise tax.
CAPITAL
Shareholders' equity totaled $1,367.1 million at September 30, 1999
compared to $1,334.9 million a year earlier. The increase is primarily the
result of net income over the most recent 12 months totaling $174.4 million
and the issuance of $12.4 million of common stock (primarily related to stock-
based compensation and incentives), partially offset by a $70.5 million change
in unrealized gains (losses) on securities available for sale, an $11.7 million
increase in unearned compensation, $65.5 million in dividends declared on
common stock and $6.9 million in dividends declared on preferred stock. The
change in unrealized gains (losses) is primarily due to a change in the interest
rate environment. The increase in unearned compensation is related to the
purchase of stock by Hibernia's Employee Stock Ownership Plan (ESOP). During
1998 the ESOP completed its purchase of the originally authorized $30.0 million
of stock and acquired an additional $15.0 million in stock, the purchase of
which was authorized in 1998. As a result, the ESOP acquired approximately
1,443,000 shares of stock during 1998 and holds a total of approximately
3,874,000 shares at September 30, 1999.
Risk-based capital and leverage ratios exceed the ratios required for
designation as a "well-capitalized" institution under regulatory guidelines.
Table 12 presents Hibernia's ratios along with selected components of the
capital ratio calculations for the most recent five quarters.
<TABLE>
<CAPTION>
===================================================================================================================================
TABLE 12 - CAPITAL
===================================================================================================================================
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
($ in millions) 1999 1999 1999 1998 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Risk-based capital:
Tier 1 ................................................. $ 1,166.1 $ 1,128.5 $ 1,188.1 $ 1,166.0 $ 1,141.1
Total .................................................. 1,312.1 1,271.8 1,325.7 1,296.3 1,270.2
Assets:
Quarterly average assets (1) ........................... 14,624.0 14,185.1 14,090.2 13,629.9 13,081.8
Net risk-adjusted assets ............................... 11,671.2 11,457.9 10,985.4 10,819.7 10,341.6
Ratios:
Tier 1 risk-based capital .............................. 9.99% 9.85% 10.82% 10.78% 11.03%
Total risk-based capital ............................... 11.24% 11.10% 12.07% 11.98% 12.28%
Leverage ............................................... 7.97% 7.96% 8.43% 8.55% 8.72%
===================================================================================================================================
- ---------------
(1) Excluding SFAS No. 115 adjustment and disallowed intangibles.
</TABLE>
The acquisition of the Beaumont branches of Chase Bank of Texas, N.A.,
which was completed in the second quarter of 1999, enabled Hibernia to leverage
its capital by acquiring assets without increasing equity. As a result of this
transaction, the Company's capital ratios have declined from previous levels,
but continue to exceed the standards required for designation as a
"well-capitalized" institution.
LIQUIDITY
Liquidity is a measure of the ability to fund loan commitments and meet
deposit maturities and withdrawals in a timely and cost-effective way. These
needs can be met by generating profits, attracting new deposits, converting
assets (including short-term investments, mortgage loans held for sale,
securities available for sale and loans) to cash and increasing borrowings.
To minimize funding risks, management monitors liquidity through a periodic
review of maturity profiles, yield and rate behaviors, and loan and deposit
forecasts.
Attracting and retaining core deposits are the Company's primary sources of
liquidity. Core deposits totaled $9.2 billion at September 30, 1999, a $0.8
billion (10%) increase from September 30, 1998. This increase is the result of
Hibernia's extensive banking office network, aided by the promotion of
attractive deposit products, and the effect of the Beaumont transaction, which
added $331.0 million in core deposits. In addition, Hibernia has a large base of
treasury management-related repurchase agreements and foreign deposits 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 and
public funds were additional sources of liquidity during the quarter.
The loan-to-deposit ratio, one measure of liquidity, was 94.9% at September
30, 1999, 92.5% at June 30, 1999, and 94.2% at September 30, 1998. The decrease
in second quarter of 1999 compared to the third quarter of 1998 reflects the
effect of the Beaumont transaction which added $464.8 million in deposits and
$172.0 million in loans (a 37.0% loan-to-deposit ratio). Another indicator of
liquidity is the large liability dependence ratio, which measures reliance on
short-term borrowings and other large liabilities (which include
large-denomination and public fund certificates of deposit and foreign
deposits). Based on average balances, 22.1% of Hibernia's loans and securities
were funded by net large liabilities (total large liabilities less short-term
investments) in the third quarter of 1999, up 61 basis points from the second
quarter of 1999 and up 263 basis points from the third quarter of 1998. The
level of large liability dependence is within limits established by management
to maintain liquidity and soundness.
Management believes that the current level of short-term investments and
securities available for sale is adequate to meet the Company's current
liquidity needs. In February 1999 Hibernia National Bank established a $2.0
billion bank note program. Notes issued under the program will mature 30 days or
more after the date of issue and bear fixed or floating interest rates.
Additional sources of liquidity available to the Company include the ability to
issue brokered certificates of deposit and the ability to sell or securitize a
substantial portion of the Company's $2.4 billion residential first mortgage
portfolio and $1.2 billion indirect consumer portfolio. The Company also has
available Federal funds lines and its membership in the FHLB to further augment
liquidity by providing a readily accessible source of funds at competitive
rates.
YEAR 2000
The Year 2000 issue results from the fact that many computer programs store
and process data using two digits rather than four to define the applicable
year. Any computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This issue
affects not only Hibernia, but virtually all companies and organizations that
use computer information systems.
A team comprised of Hibernia employees and representatives of the Company's
third party data processor, Alltel Information Services, Inc., was formed in
early 1997 to address the Year 2000 issue. As of the end of the third quarter of
1999, the Company has substantially completed its plan to achieve Year 2000
compliance for all mainframe application systems, local area network application
systems, departmental and vendor application systems and the Company's
infrastructure. Efforts to ensure Year 2000 compliance, which includes both the
remediation of the application program code and the successful unit testing in
an isolated and fully functional environment, will continue throughout the
remainder of 1999. In addition to testing and making appropriate changes to its
internal systems, the Company continues to discuss the Year 2000 issue and its
potential impact on business operations with many of its customers and vendors.
The status of these activities is provided to Hibernia's Board of Directors, and
the Company's regulators monitor Year 2000 efforts.
Through the performance of a business impact analysis, the Company
identified 37 mission critical systems, or systems identified as vital to core
business activities of the Company. As of June 30, 1999 the Company had modified
or updated the application program code to address date-related issues on all 37
mission critical systems. Unit testing, which ensures that changes do not
adversely affect any other functionality of the application, has occurred on all
mission critical systems and is scheduled throughout 1999 to continuously
reaffirm the Year 2000 compliance of mission critical systems. As of July 1,
1999 all 37 mission critical systems had been placed into production, signifying
the implementation of those systems into the current application environment.
Integrated testing of mission critical and other systems, in which the ability
of all systems to interface effectively after December 31, 1999 is verified,
will continue during the remainder of 1999.
A small number of mission critical systems are provided by third parties on
a service bureau basis, including small business credit card processing and
services supporting securities brokerage businesses. As of June 30, 1999 all
mission critical systems provided by third parties had been remediated, unit
tested and implemented into the current application environment. As of September
30, 1999 the Company has substantially completed remediation, unit testing and
integrated testing on all non-mission critical systems. Date-reliant
infrastructure components, which include ATMs; personal computers; and internal
phone, vault and alarm systems, have been verified to be Year 2000 compliant.
The Company and its data processing vendors and service providers will monitor
progress and implement contingency plans in the event that Year 2000 compliance
efforts fail to achieve their objectives.
The Company is evaluating the Year 2000 readiness of its significant
borrowers and the resulting effect on the credit quality of its loan portfolio.
The Company's Year 2000 credit risk policy requires that a risk assessment be
performed on all new and existing borrowers with an aggregate household maximum
potential exposure in excess of $3.0 million. Through a review of the credit
portfolio the Company has identified relationships representing a total maximum
potential exposure of approximately 55% of total loans at September 30, 1999. A
Year 2000 risk assessment of all identified relationships has been performed.
Through a review of the assessments, a determination of the Company's risk was
made based on the borrower's level of risk and the availability of alternative
sources of repayment in the event the borrower's ability to conduct business is
significantly impaired. As of September 30, 1999, the Company has categorized 11
accounts as high risk. These accounts have a total aggregate maximum potential
exposure of only $148.4 million. The Company will continue to update its risk
assessment and monitor its customer relationships and expects a reduction in the
amount of the maximum potential exposure during the remainder of 1999.
The Company continues to evaluate the Year 2000 readiness of its
significant depositors and the potential effect on its liquidity. In early 1999,
a funding analysis of commercial, small business and consumer customers which
met certain criteria was performed. This analysis identified potential funding
risks in late 1999 and early 2000. Through a review of these relationships and
certain withdrawal/advance scenarios, the Company has estimated contingency
funding needs and developed a contingency funding plan to meet its liquidity
needs. The Company continues to monitor its cash position and will adjust
accordingly as a result of a change in customer demand. In addition, customer
relationship information will continue to be monitored to prudently and
efficiently manage potential liquidity fluctuations.
The Company expects to continue incurring charges related to Year 2000
compliance. However, 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. Contract specifications
require the Company's third party data processor to ensure that all systems meet
Year 2000 compliance and other banking regulations. Hibernia estimates that it
will supplement its vendors' efforts with its own efforts at a total cost of
approximately $1.7 million, most of which has already been expensed, in order to
upgrade ATMs, hardware, software and other technology. This investment will be
funded through operating cash flows and has been expensed as incurred.
During the third quarter of 1999 the Company incurred approximately $0.2
million in expenses related to the Year 2000 issue. As of September 30, 1999,
the total expenses incurred by the Company approximate $1.7 million. Year 2000
expenses were spread throughout a number of noninterest expense categories and
do not include computer equipment and software that was scheduled to be replaced
in the normal course of business. The Company does not separately track the
indirect costs incurred for the Year 2000 project which primarily consists of
payroll costs of employees from various departments.
The Company's estimates of Year 2000 costs and time periods by which the
Company expects to be prepared for the new millennium are based upon
management's best estimates, which were derived utilizing numerous assumptions
about future events. There can be no guarantee that these estimates will be
achieved, and actual results could differ from those anticipated. Because of the
critical nature of the Year 2000 issues to the Company's business and to all of
the financial services industry, if necessary modifications are not made, the
Company's operations could be materially impacted. Hibernia and its data
processing vendors remain on schedule to ensure achievement of Year 2000
compliance; therefore, an adverse impact on the Company's operations is not
expected.
The discussion above entitled "Year 2000," includes certain "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995 ("PSLRA"). This statement is included for the express purpose
of availing Hibernia of the protections of the safe harbor provisions of the
PSLRA. Management's ability to predict results or effects of Year 2000 issues is
inherently uncertain, and is subject to factors that may cause actual results to
differ materially from those projected. Factors that could affect the actual
results include the possibility that remediation efforts and contingency plans
will not operate as intended, the Company's failure to timely or completely
identify all software and hardware applications requiring remediation,
unexpected costs, and the uncertainty associated with the impact of Year 2000
issues on the banking industry and on the Company's customers, vendors, and
others with whom it conducts business. Readers are cautioned not to place undue
reliance on these forward looking statements.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company and the Bank are parties to certain pending legal
proceedings arising from matters incidental to their business. In addition, the
terms of the settlement agreement between Hibernia National Bank and the other
parties to litigation related to the Bank's sale of collateral protection
insurance has been approved by the court and will not have a material effect on
the financial condition, results of operations or liquidity of the Company.
Item 6. Exhibits and Reports on Form 8-K*
(a) Exhibits
EXHIBIT DESCRIPTION
3.1 Exhibit 3.1 to the Quarterly Report on Form 10-Q (as amended)
for the fiscal quarter ended June 30, 1998, filed with the
Commission by the Registrant (Commission File No. 0-7220) is
hereby incorporated by reference (Articles of Incorporation
of the Registrant, as amended to date)
3.2 Exhibit 3.2 to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, filed with the Commission by the
Registrant (Commission File No. 0-7220) is hereby incorporated
by reference (By-Laws of the Registrant, as amended to date)
10.13 Exhibit 10.13 to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, filed with the Commission by the
Registrant (Commission File No. 0-7220) is hereby incorporated
by reference (Deferred Compensation Plan for Outside Directors
of Hibernia Corporation and its Subsidiaries, as amended to
date)
10.14 Exhibit 10.14 to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1990, filed with the Commission by the
Registrant (Commission File No. 0-7220) is hereby incorporated
by reference (Hibernia Corporation Executive Life Insurance
Plan)
10.16 Exhibit 4.7 to the Registration Statement on Form S-8 filed
with the Commission by the Registrant (Registration No.
33-26871) is hereby incorporated by reference (Hibernia
Corporation 1987 Stock Option Plan, as amended to date)
10.34 Exhibit C to the Registrant's definitive proxy statement dated
August 17, 1992 relating to its 1992 Annual Meeting of
Shareholders filed by the Registrant with the Commission is
hereby incorporated by reference (Long-Term Incentive Plan of
Hibernia Corporation)
10.35 Exhibit A to the Registrant's definitive proxy statement dated
March 23, 1993 relating to its 1993 Annual Meeting of
Shareholders filed by the Registrant with the Commission is
hereby incorporated by reference (1993 Director Stock Option
Plan of Hibernia Corporation)
10.36 Exhibit 10.36 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 filed with the
Commission (Commission file no. 0-7220) is hereby incorporated
by reference (Employment agreement between Stephen A. Hansel
and Hibernia Corporation)
10.38 Exhibit 10.38 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 filed with the
Commission (Commission File No. 0-7220) is hereby incorporated
by reference (Employment Agreement between E. R. "Bo"
Campbell and Hibernia Corporation)
10.39 Exhibit 10.39 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 filed with the
Commission (Commission File No. 0-7220) is hereby incorporated
by reference (Employment Agreement between B. D. Flurry
and Hibernia Corporation)
10.40 Exhibit 10.40 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 filed with the
Commission (Commission File No. 0-7220) is hereby incorporated
by reference (Split-Dollar Life Insurance Plan of Hibernia
Corporation effective as of July 1996)
10.41 Exhibit 10.41 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 filed with the
Commission (Commission File No. 0-7220) is hereby incorporated
by reference (Nonqualified Deferred Compensation Plan for Key
Management Employees of Hibernia Corporation effective as of
July 1996)
10.42 Exhibit 10.42 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 filed with the
Commission (Commission File No. 0-7220) is hereby incorporated
by reference (Supplemental Stock Compensation Plan for Key
Management Employees effective as of July 1996)
10.43 Exhibit 10.43 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 filed with the
Commission (Commission No. 0-7220) is hereby incorporated by
reference (Nonqualified Target Benefit (Deferred Award) Plan
of Hibernia Corporation effective as of July 1996))
10.44 Exhibit 10.44 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1999 (Form of
Change of Control Employment Agreement for Executive and
Senior Officers of the Registrant, as amended to date)
10.45 Exhibit 10.45 to the Registrant's Annual Report on Form
10-K (as amended) for the fiscal year ended December 31, 1997
filed with the Commission (Commission No. 0-7220) is hereby
incorporated by reference (Employment Agreement between
Randall A. Howard and Hibernia Corporation)
13 Exhibit 13 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 filed with the
Commission (Commission File No.0-7220) is hereby incorporated
by reference (1998 Annual Report to security holders of
Hibernia Corporation).
21 Exhibit 21 to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, filed with the Commission by the
Registrant (Commission File No. 0-7220) is hereby incorporated
by reference (Subsidiaries of the Registrant)
27 Financial Data Schedule
99.1 Exhibit 99.1 to the Annual Report on Form 10-K (as amended)
dated May 28, 1999 is hereby incorporated by reference
(Annual Report of the Retirement Security Plan for the fiscal
year ended December 31, 1998)
99.2 Exhibit 99.2 to the Annual Report on Form 10-K (as amended)
dated May 28, 1999 is hereby incorporated by reference (Annual
Report of the Employee Stock Ownership Plan and Trust for the
fiscal year ended December 31, 1998)
(b) Reports on Form 8-K
None
*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: November 12, 1999 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)
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