<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 June 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 July 31, 1999
----- ----------------------------
Class A Common Stock, no par value 160,202,501 Shares
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Hibernia Corporation and Subsidiaries June 30 December 31 June 30
Unaudited ($ in thousands) 1999 1998 1998
====================================================================================================================================
<S> <C> <C> <C>
Assets
Cash and cash equivalents ................................... $ 734,679 $ 945,021 $ 746,360
Securities available for sale ............................... 2,803,224 2,761,701 2,647,292
Mortgage loans held for sale ................................ 143,739 281,434 171,903
Loans, net of unearned income ............................... 10,484,846 9,907,194 9,134,749
Reserve for loan losses ................................. (150,805) (130,347) (125,390)
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net .......................................... 10,334,041 9,776,847 9,009,359
- ------------------------------------------------------------------------------------------------------------------------------------
Bank premises and equipment ................................. 204,151 194,723 196,699
Customers' acceptance liability ............................. 214 331 321
Other assets ................................................ 514,602 369,827 371,302
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets ........................................ $ 14,734,650 $ 14,329,884 $ 13,143,236
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities
Deposits:
Noninterest-bearing ..................................... $ 2,100,308 $ 2,065,770 $ 1,811,175
Interest-bearing ........................................ 9,228,625 8,826,803 8,391,617
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits ...................................... 11,328,933 10,892,573 10,202,792
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings ....................................... 1,106,102 1,134,136 788,753
Liability on acceptances .................................... 214 331 321
Other liabilities ........................................... 148,978 151,905 163,479
Debt ........................................................ 805,270 806,337 706,945
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities ................................... 13,389,497 12,985,282 11,862,290
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Preferred Stock, no par value:
Authorized - 100,000,000 shares; 2,000,000 Series A
issued and outstanding at June 30, 1999, December 31,
1998 and June 30, 1998 .................................... 100,000 100,000 100,000
Class A Common Stock, no par value:
Authorized - 300,000,000 shares; issued and outstanding -
160,156,403, 159,850,398 and 159,467,343 at June 30, 1999,
December 31, 1998 and June 30, 1998, respectively ....... 307,500 306,913 306,177
Surplus ..................................................... 423,656 416,269 412,830
Retained earnings ........................................... 571,969 531,233 469,360
Accumulated other comprehensive income ...................... (20,221) 27,938 18,596
Unearned compensation ....................................... (37,751) (37,751) (26,017)
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity .......................... 1,345,153 1,344,602 1,280,946
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity .......... $ 14,734,650 $ 14,329,884 $ 13,143,236
====================================================================================================================================
- ----------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Income Statements
Hibernia Corporation and Subsidiaries
Three Months Ended Six Months Ended
June 30 June 30
==================================================================================================================================
Unaudited ($ in thousands, except per-share data) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans ...................... $ 208,227 $ 194,575 $ 410,167 $ 378,326
Interest on securities available for sale ....... 42,321 41,810 84,088 87,234
Interest on short-term investments .............. 2,780 4,040 6,449 8,303
Interest and fees on mortgage loans held for sale 3,285 2,847 6,997 5,691
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest income ....................... 256,613 243,272 507,701 479,554
- ----------------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits ............................ 88,641 89,345 174,672 176,828
Interest on short-term borrowings ............... 11,954 7,864 24,799 16,753
Interest on debt ................................ 11,209 9,878 22,344 18,480
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest expense ...................... 111,804 107,087 221,815 212,061
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income ................................. 144,809 136,185 285,886 267,493
Provision for loan losses ....................... 12,200 5,581 42,200 9,149
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses . 132,609 130,604 243,686 258,344
- ----------------------------------------------------------------------------------------------------------------------------------
Noninterest income
Service charges on deposits ..................... 24,124 21,455 46,726 41,544
Trust fees ...................................... 5,669 4,412 10,205 8,301
Retail investment service fees .................. 6,167 4,752 11,615 8,327
Mortgage loan origination and servicing fees .... 4,438 3,502 8,940 6,806
Other service, collection and exchange charges .. 8,882 7,017 16,908 13,667
Other operating income .......................... 3,021 5,441 9,083 8,879
Securities gains (losses), net .................. 368 37 409 924
- ----------------------------------------------------------------------------------------------------------------------------------
Total noninterest income .................... 52,669 46,616 103,886 88,448
- ----------------------------------------------------------------------------------------------------------------------------------
Noninterest expense
Salaries and employee benefits .................. 55,395 53,622 115,979 105,280
Occupancy expense, net .......................... 8,233 10,108 16,102 18,319
Equipment expense ............................... 8,009 7,855 17,040 15,454
Data processing expense ......................... 7,753 6,854 15,819 13,886
Advertising and promotional expense ............. 3,629 3,438 7,259 8,906
Foreclosed property expense, net ................ (54) (684) (425) (691)
Amortization of intangibles ..................... 5,337 4,280 9,862 8,323
Other operating expense ......................... 23,285 23,312 46,288 45,514
- ----------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense ................... 111,587 108,785 227,924 214,991
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes .......................... 73,691 68,435 119,648 131,801
Income tax expense .................................. 26,338 24,132 42,724 46,330
- ----------------------------------------------------------------------------------------------------------------------------------
Net income .......................................... $ 47,353 $ 44,303 $ 76,924 $ 85,471
==================================================================================================================================
Net income applicable to common shareholders ........ $ 45,628 $ 42,578 $ 73,474 $ 82,021
==================================================================================================================================
Net income per common share ......................... $ 0.29 $ 0.27 $ 0.47 $ 0.52
==================================================================================================================================
Net income per common share - assuming dilution ..... $ 0.29 $ 0.27 $ 0.46 $ 0.51
==================================================================================================================================
- ---------------
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 ............................. - - - 76,924 - - $ 76,924
Unrealized gains (losses) on securities,
net of reclassification adjustments . - - - - (48,159) - (48,159)
--------
Comprehensive income ................... $ 28,765
--------
Issuance of common stock:
Stock Option Plan ................... - 578 2,044 - - -
Restricted stock awards ............. - 9 65 - - -
By pooled companies prior to merger . - - 5,387 - - -
Cash dividends declared:
Preferred ($1.725 per share) ........ - - - (3,450) - -
Common ($.21 per share) ............. - - - (32,611) - -
By pooled companies prior to merger . - - - (127) - -
Other .................................. - - (109) - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1999 .............. $100,000 $307,500 $ 423,656 $ 571,969 $(20,221) $(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 ............................. - - - 85,471 - - $85,471
Unrealized gains (losses) on securities,
net of reclassification adjustments . - - - - 3,174 - 3,174
---------
Comprehensive income ................... $ 88,645
---------
Issuance of common stock:
Stock Option Plan ................... - 637 1,871 - - -
Restricted stock awards ............. - 856 7,332 - - -
Cash dividends declared:
Preferred ($1.725 per share) ........ - - - (3,450) - -
Common ($.18 per share) ............. - - - (26,728) - -
By pooled companies prior to merger . - - - (638) - -
Purchase of common shares by ESOP ...... - - - - - (8,630)
Other .................................. - 308 377 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1998 .............. $100,000 $306,177 $412,830 $ 469,360 $18,596 $(26,017)
====================================================================================================================================
- ----------------
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Hibernia Corporation and Subsidiaries
Six Months Ended June 30
Unaudited ($ in thousands) 1999 1998
=========================================================================================================================
<S> <C> <C>
Operating activities
Net income ............................................................ $ 76,924 $ 85,471
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses ...................................... 42,200 9,149
Amortization of intangibles and deferred charges ............... 9,759 8,090
Depreciation and amortization .................................. 15,193 13,742
Non-cash compensation expense .................................. 4,385 -
Premium amortization, net of discount accretion ................ 3,631 1,703
Realized securities gains, net ................................. (409) (924)
Gain on sale of assets ......................................... (1,026) (1,688)
Provision for losses on foreclosed and other assets ............ 784 238
Decrease (increase) in mortgage loans held for sale ............ 137,695 (101,736)
Decrease (increase) in deferred income tax asset ............... (1,195) 590
Increase in interest receivable and other assets ............... (22,397) (24,818)
Increase (decrease) in interest payable and other liabilities .. (3,531) 18,989
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities ........................ 262,013 8,806
- ------------------------------------------------------------------------------------------------------------------------
Investing activities
Purchases of securities available for sale ............................ (185,099) (1,010,341)
Proceeds from maturities of securities available for sale ............. 222,392 667,673
Proceeds from sales of securities available for sale .................. 52,405 440,151
Net increase in loans ................................................. (506,372) (691,208)
Proceeds from sales of loans .......................................... 1,166 7,464
Purchases of loans .................................................... (131,279) (76,074)
Purchases of premises, equipment and other assets ..................... (27,956) (21,952)
Proceeds from sales of foreclosed assets and excess bank-owned property 3,863 3,837
Proceeds from sales of premises, equipment and other assets ........... 125 750
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 ............................ (382,203) (679,700)
- ------------------------------------------------------------------------------------------------------------------------
Financing activities
Net increase (decrease) in deposits ................................... (28,487) 99,818
Net increase (decrease) in short-term borrowings ...................... (28,034) 68,792
Proceeds from issuance of debt ........................................ - 500,000
Payments on debt ...................................................... (1,067) (300,617)
Proceeds from issuance of common stock ................................ 3,624 2,508
Purchase of common stock by ESOP ...................................... - (8,630)
Dividends paid ........................................................ (36,188) (30,816)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities ................. (90,152) 331,055
- ------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents ................................... (210,342) (339,839)
Cash and cash equivalents at beginning of period ........................ 945,021 1,086,199
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period ....................... $ 734,679 $ 746,360
========================================================================================================================
- ---------------
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.
Six months ended June 30
------------------------
1999 1998
---- ----
(in thousands)
Net interest and noninterest income......... $395,990 $364,385
Net income ......... $ 75,404 $ 84,932
Net income per common share ......... $ .46 $ .52
Net income per common share - assuming dilution $ .45 $ .51
Hibernia Corporation (the Company) was a party to a definitive merger
agreement with First Guaranty Bank (First Guaranty) which the Company and First
Guaranty terminated on May 17, 1999. The terms of this termination include
settling and dismissing litigation brought by the Company against First Guaranty
related to the definitive merger agreement.
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 second quarter of 1999. During 1997, the 1987 Stock Option Plan was
terminated; therefore, at June 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, March 31, 1999 ...... 50,163 1,085,390 1,135,553 $ 6.09
Exercised ........................ - (522) (522) 4.94
- --------------------------------------------------------------------------------------------------------------
Outstanding, June 30, 1999 ....... 50,163 1,084,868 1,135,031 $ 6.09
- --------------------------------------------------------------------------------------------------------------
Exercisable, June 30, 1999 ....... 50,163 1,084,868 1,135,031 $ 6.09
==============================================================================================================
Long-Term Incentive Plan:
Outstanding, March 31, 1999 ...... 12,598 9,097,650 9,110,248 $ 13.04
Granted .......................... - 42,900 42,900 13.92
Canceled ......................... - (34,704) (34,704) 16.08
Exercised ........................ - (56,645) (56,645) 9.18
- --------------------------------------------------------------------------------------------------------------
Outstanding, June 30, 1999 ....... 12,598 9,049,201 9,061,799 $ 13.06
==============================================================================================================
Exercisable, June 30, 1999 ....... 12,598 4,010,507 4,023,105 $ 9.19
==============================================================================================================
Available for grant, June 30, 1999 1,108,714
==============================================================================================================
1993 Directors' Stock Option Plan:
Outstanding, March 31, 1999 ...... - 300,000 300,000 $ 12.61
Granted .......................... - 70,000 70,000 12.69
- --------------------------------------------------------------------------------------------------------------
Outstanding, June 30, 1999 ....... - 370,000 370,000 $ 12.63
==============================================================================================================
Exercisable, June 30, 1999 ....... - 193,750 193,750 $ 9.78
==============================================================================================================
Available for grant, June 30, 1999 502,500
==============================================================================================================
</TABLE>
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 June 30 Six Months Ended June 30
====================================================================================================================================
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income .................................... $ 47,353 $ 44,303 $ 76,924 $ 85,471
Preferred stock dividends ..................... 1,725 1,725 3,450 3,450
- ------------------------------------------------------------------------------------------------------------------------------------
Numerator for net income per common share ..... 45,628 42,578 73,474 82,021
Effect of dilutive securities ................. - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Numerator for net income per common
share - assuming dilution ................. $ 45,628 $ 42,578 $ 73,474 $ 82,021
====================================================================================================================================
Denominator:
Denominator for net income per common
share (weighted average shares outstanding) 157,186,457 157,354,129 157,069,839 157,224,054
Effect of dilutive securities:
Stock options ............................. 1,428,623 2,688,390 1,712,513 2,779,636
Purchase warrants ......................... - 184,645 - 183,933
Restricted stock awards ................... 77,500 14,100 77,500 14,100
- ------------------------------------------------------------------------------------------------------------------------------------
Denominator for net income per common
share - assuming dilution ................. 158,692,580 160,241,264 158,859,852 160,201,723
- ------------------------------------------------------------------------------------------------------------------------------------
Net income per common share ....................... $ 0.29 $ 0.27 $ 0.47 $ 0.52
====================================================================================================================================
Net income per common share - assuming dilution ... $ 0.29 $ 0.27 $ 0.46 $ 0.51
====================================================================================================================================
</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 2,938,617 and 2,035,779 for the
three months ended June 30, 1999 and 1998, respectively, and 2,970,012 and
1,925,231 for the six months ended June 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 June 30, 1999 and 1998
there were 4,138,079 antidilutive options outstanding with exercise prices
ranging from $13.88 to $21.72 per option, and 81,200 antidilutive options
outstanding with exercise prices ranging from $21.56 to $21.72 per option,
respectively. During the six months ended June 30, 1999 and 1998 there were
4,096,079 antidilutive options outstanding with exercise prices ranging from
$14.94 to $21.72 per option, and 103,700 antidilutive options outstanding with
exercise prices ranging from $20.25 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>
Six months ended June 30, 1999
Average loans ................ $3,969,300 $2,045,500 $4,075,300 $ 2,000 $ 47,500 $10,139,600
Average assets ............... $4,033,900 $2,089,400 $7,516,900 $3,211,800 $ 533,800 $17,385,800
Average deposits ............. $ 751,800 $1,387,100 $6,499,200 $1,900,200 $ 91,100 $10,629,400
Net interest income .......... $ 64,738 $ 67,212 $ 131,687 $ 33,376 $ (8,928) $ 288,085
Noninterest income ........... $ 14,337 $ 9,936 $ 78,149 $ 505 $ 3,003 $ 105,930
Net income ................... $ 20,465 $ 13,950 $ 26,149 $ 19,190 $ (2,088) $ 77,666
====================================================================================================================================
Six months ended June 30, 1998
Average loans ................ $3,294,200 $1,525,400 $3,834,000 $ - $ 59,700 $ 8,713,300
Average assets ............... $3,334,500 $1,561,300 $7,572,300 $2,676,500 $ 527,600 $15,672,200
Average deposits ............. $ 667,600 $1,105,800 $6,519,600 $1,527,900 $ 46,800 $ 9,867,700
Net interest income .......... $ 56,180 $ 53,621 $ 136,317 $ 28,628 $ (5,147) $ 269,599
Noninterest income ........... $ 8,396 $ 8,118 $ 68,037 $ 1,484 $ 4,185 $ 90,220
Net income ................... $ 23,768 $ 13,213 $ 34,581 $ 17,194 $ (2,783) $ 85,973
====================================================================================================================================
</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>
Six months ended June 30, 1999
Segment total .................... $10,139,600 $ 17,385,800 $10,629,400 $ 288,085 $ 105,930 $ 77,666
Excess funds invested .......... - (3,316,800) - - - -
Reclassification of cash items
in process of collection ..... - 291,700 291,700 - - -
Taxable-equivalent adjustment on
tax exempt loans ............. - - - (2,199) - (1,429)
Mortgage servicing rights ...... - (16,400) - - (2,044) (433)
Income tax expense ............. - - - - - 1,120
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated total ............... $10,139,600 $ 14,344,300 $10,921,100 $ 285,886 $ 103,886 $ 76,924
====================================================================================================================================
Six months ended June 30, 1998
Segment total .................... $ 8,713,300 $ 15,672,200 $ 9,867,700 $ 269,599 $ 90,220 $ 85,973
Excess funds invested .......... - (3,032,000) - - - -
Reclassification of cash items
in process of collection ..... - 258,400 258,400 - - -
Taxable-equivalent adjustment on
tax exempt loans ............. - - - (2,106) - (1,369)
Mortgage servicing rights ...... - (15,400) - - (1,772) (325)
Income tax expense ............. - - - - - 1,192
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated total ............... $ 8,713,300 $ 12,883,200 $10,126,100 $ 267,493 $ 88,448 $ 85,471
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED SUMMARY OF INCOME AND SELECTED FINANCIAL DATA (1)
Hibernia Corporation and Subsidiaries
====================================================================================================================================
Three Months Ended Six Months Ended
June 30 March 31 June 30 June 30 June 30
($ in thousands, except per-share data) 1999 1999 1998 1999 1998
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Interest income ..................................... $ 256,613 $ 251,088 $ 243,272 $ 507,701 $ 479,554
Interest expense .................................... 111,804 110,011 107,087 221,815 212,061
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income ................................. 144,809 141,077 136,185 285,886 267,493
Provision for loan losses ........................... 12,200 30,000 5,581 42,200 9,149
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses ....................... 132,609 111,077 130,604 243,686 258,344
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Noninterest income ............................... 52,301 51,176 46,579 103,477 87,524
Securities gains (losses), net ................... 368 41 37 409 924
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest income .................................. 52,669 51,217 46,616 103,886 88,448
Noninterest expense ................................. 111,587 116,337 108,785 227,924 214,991
- ------------------------------------------------------------------------------------------------------------------------------------
Income before taxes ................................. 73,691 45,957 68,435 119,648 131,801
Income tax expense .................................. 26,338 16,386 24,132 42,724 46,330
- ------------------------------------------------------------------------------------------------------------------------------------
Net income .......................................... $ 47,353 $ 29,571 $ 44,303 $ 76,924 $ 85,471
====================================================================================================================================
Net income applicable to common shareholders ........ $ 45,628 $ 27,846 $ 42,578 $ 73,474 $ 82,021
====================================================================================================================================
Per common share information:
Net income ....................................... $ 0.29 $ 0.18 $ 0.27 $ 0.47 $ 0.52
Net income - assuming dilution ................... $ 0.29 $ 0.18 $ 0.27 $ 0.46 $ 0.51
Cash dividends declared .......................... $ 0.105 $ 0.105 $ 0.09 $ 0.21 $ 0.18
Average shares outstanding (000s) ................... 157,186 156,952 157,354 157,070 157,224
Average shares outstanding - assuming dilution (000s) 158,693 158,952 160,241 158,860 160,202
Dividend payout ratio ............................... 36.21% 58.33% 33.33% 44.68% 34.62%
====================================================================================================================================
Selected quarter-end balances (in millions)
Loans ............................................... $ 10,484.8 $ 10,148.8 $ 9,134.7
Deposits ............................................ 11,328.9 10,828.9 10,202.8
Debt ................................................ 805.3 805.5 706.9
Equity .............................................. 1,345.2 1,349.6 1,280.9
Total assets ........................................ 14,734.6 14,283.7 13,143.2
====================================================================================================================================
Selected average balances (in millions)
Loans ............................................... $ 10,279.2 $ 9,998.3 $ 8,897.2 $ 10,139.6 $ 8,713.3
Deposits ............................................ 11,072.6 10,767.9 10,185.9 10,921.1 10,126.1
Debt ................................................ 805.3 806.0 707.1 805.7 669.2
Equity .............................................. 1,356.5 1,356.5 1,268.2 1,356.5 1,254.8
Total assets ........................................ 14,428.4 14,259.2 12,945.7 14,344.3 12,883.2
====================================================================================================================================
Selected ratios
Net interest margin (taxable-equivalent) ............ 4.39% 4.35% 4.61% 4.37% 4.60%
Return on assets .................................... 1.31% 0.83% 1.37% 1.07% 1.33%
Return on common equity ............................. 14.53% 8.86% 14.58% 11.69% 14.21%
Return on total equity .............................. 13.96% 8.72% 13.97% 11.34% 13.62%
Efficiency ratio .................................... 55.83% 59.64% 58.63% 57.71% 59.62%
Average equity/average assets ....................... 9.40% 9.51% 9.80% 9.46% 9.74%
Tier 1 risk-based capital ratio ..................... 9.85% 10.82% 11.08%
Total risk-based capital ratio ...................... 11.10% 12.07% 12.33%
Leverage ratio ...................................... 7.96% 8.43% 8.66%
====================================================================================================================================
Cash-basis financial data (2)
Net income applicable to common shareholders ........ $ 48,708 $ 30,489 $ 45,377 $ 79,197 $ 87,643
Net income per common share ......................... $ 0.31 $ 0.19 $ 0.29 $ 0.50 $ 0.56
Net income per common share - assuming dilution ..... $ 0.31 $ 0.19 $ 0.28 $ 0.50 $ 0.55
Return on assets .................................... 1.41% 0.91% 1.47% 1.17% 1.43%
Return on common equity ............................. 17.93% 10.98% 17.89% 14.41% 17.53%
Efficiency ratio .................................... 54.00% 58.14% 56.93% 56.05% 57.86%
Average equity/average assets ....................... 8.32% 8.58% 8.71% 8.45% 8.64%
====================================================================================================================================
- ----------------
(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.
SECOND-QUARTER 1999 HIGHLIGHTS
Hibernia Corporation's second-quarter 1999 results showed improvement in
earnings over the second quarter of 1998 and the first quarter of 1999 and
continued growth in loans, deposits and noninterest income.
o Net income for the second quarter of 1999 totaled $47.4 million ($.29 per
common share), up 7% compared to $44.3 million ($.27 per common share) for
the second quarter of 1998. Cash-basis net income per common share was $.31
in the second quarter of 1999 compared to $.29 in the second quarter of
1998. Net income for the first six months of 1999 totaled $76.9 million
($.47 per common share), down 10% compared to $85.5 million ($.52 per
common share) for the first six months of 1998. Cash-basis net income per
common share was $.50 for the first six months of 1999 compared to $.56 for
the first six months of 1998.
o Net income for the second quarter of 1999, excluding merger-related
expenses, would have been $47.5 million ($.29 per common share), up 6%
compared to $44.9 million ($.27 per common share) for the second quarter of
1998. Merger-related expenses totaled $0.2 million after income tax and
$0.6 million after income tax for the second quarter of 1999 and 1998,
respectively. Net income for the first six months of 1999, excluding
merger-related expenses, would have been $82.7 million ($.50 per common
share), down 5% compared to $86.8 million ($.53 per common share) for the
first six months of 1998. Merger-related expenses totaled $5.8 million
after income tax and $1.3 million after income tax for the first six months
of 1999 and 1998, respectively.
o Pre-tax, pre-provision earnings were $85.9 million, a 16% increase from the
second quarter 1998 level of $74.0 million. Pre-tax, pre-provision earnings
for the first six months of 1999 were $161.8 million, a 15% increase
compared to $141.0 million for the first six months of 1998. The second
quarter and first six months of 1999 included provisions for loan losses
totaling $12.2 million and $42.2 million, respectively, compared to $5.6
million and $9.1 million for the same periods of 1998.
o Total assets grew $1.6 billion (12%) to $14.7 billion at June 30, 1999
compared to June 30, 1998. Shareholders' equity increased $64.2 million
(5%) to $1.3 billion at June 30, 1999 compared to June 30, 1998. Book value
per common share increased $.41 (5%) to $7.92 at June 30, 1999 compared to
June 30, 1998.
o Total loans grew $1.4 billion (15%) from June 30, 1998 to $10.5 billion at
June 30, 1999. Commercial loans grew $456.8 million (13%) to $4.0 billion,
small business loans increased $346.9 million (18%) to $2.3 billion and
consumer loans increased $546.4 million (15%) to $4.2 billion.
o Deposits increased $1.1 billion (11%) to $11.3 billion at June 30, 1999
compared to June 30, 1998.
o The cash-basis efficiency ratio, excluding merger-related expenses, was
53.87% for the second quarter of 1999, a 255 basis point improvement from
56.42% for the same period of 1998.
o In July 1999, Hibernia's Board of Directors declared a quarterly cash
dividend of 10.5 cents per common share, a 17% increase from 9 cents per
common share declared in July 1998.
MERGER ACTIVITY
On May 21, 1999, the Company consummated the purchase of the Beaumont
branches of Chase Bank of Texas, N.A. for $87 million (the "Beaumont
transaction"). At May 21, 1999 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 purchase transactions are referred to
as the "purchased companies."
FINANCIAL CONDITION:
EARNING ASSETS
Earning assets averaged $13.5 billion in the second quarter of 1999, a $1.4
billion (12%) increase from the second-quarter 1998 average of $12.1 billion.
The increase in average earning assets was due to diversified loan growth, 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 second quarter of 1999 of $10.3 billion were
up $280.9 million (3%) from the first quarter of 1999 and up $1.4 billion (16%)
compared to the second quarter of 1998. For the first six months of 1999 average
loans increased $1.4 billion (16%) compared to the first six months of 1998. The
Beaumont transaction added approximately $77.5 million to second quarter 1999
average loans and approximately $39.0 million to average loans for the first six
months of 1999. Loan growth, excluding the effect of the Beaumont transaction,
has slowed in comparison to levels experienced in recent periods 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 June 30, 1999,
March 31, 1999 and June 30, 1998. Total loans increased $336.0 million (3%)
during the second quarter of 1999 compared to March 31, 1999, as small business
loans increased $222.0 million (11%) and consumer loans increased $147.3 million
(4%), while commercial loans decreased $33.3 million (1%). Compared to June 30,
1998, loans increased $1.4 billion (15%). Commercial loans were up $456.8
million (13%), small business loans grew $346.9 million (18%) and consumer loans
increased $546.4 million (15%). The growth in the commercial portfolio primarily
resulted from increases in the commercial and industrial and services industry
categories. The small business portfolio growth was primarily focused in the
services industry. In consumer lending, growth was spread among residential
mortgage and indirect loans.
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. 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 3.8% of total loans as of June 30, 1999.
During the second quarter of 1999, Hibernia securitized $210.0 million of
its residential first mortgages through Federal National Mortgage Association
(FNMA). This portion of the consumer portfolio was securitized with provisions
of recourse and a reserve has been established to cover estimated losses. This
transaction affects the categorization of individual line items on the balance
sheet by reducing mortgage loans and increasing securities.
<TABLE>
<CAPTION>
=============================================================================================================================
TABLE 1 - COMPOSITION OF LOAN PORTFOLIO
=============================================================================================================================
June 30, 1999 March 31, 1999 June 30, 1998
- -----------------------------------------------------------------------------------------------------------------------------
($ in millions) Loans Percent Loans Percent Loans Percent
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Commercial:
Commercial and industrial ..... $ 1,471.5 14.0% $ 1,431.6 14.1% $ 1,217.9 13.3%
Services industry ............. 1,064.2 10.2 1,064.2 10.5 849.0 9.3
Real estate ................... 482.9 4.6 508.0 5.0 470.8 5.2
Health care ................... 319.0 3.0 318.3 3.1 284.5 3.1
Transportation, communications
and utilities .............. 224.8 2.2 210.3 2.1 246.3 2.7
Energy ........................ 355.4 3.4 425.0 4.2 406.1 4.4
Other ......................... 64.1 0.6 57.8 0.6 50.5 0.6
- -----------------------------------------------------------------------------------------------------------------------------
Total commercial ........... 3,981.9 38.0 4,015.2 39.6 3,525.1 38.6
- -----------------------------------------------------------------------------------------------------------------------------
Small Business:
Commercial and industrial ..... 884.1 8.4 738.4 7.3 814.9 8.9
Services industry ............. 501.9 4.8 473.9 4.6 385.1 4.2
Real estate ................... 326.9 3.1 295.9 2.9 246.3 2.7
Health care ................... 129.9 1.2 115.2 1.1 98.7 1.1
Transportation, communications
and utilities .............. 79.0 0.8 80.7 0.8 67.2 0.8
Energy ........................ 37.6 0.4 37.3 0.4 39.2 0.4
Other ......................... 357.2 3.4 353.2 3.5 318.3 3.5
- -----------------------------------------------------------------------------------------------------------------------------
Total small business ....... 2,316.6 22.1 2,094.6 20.6 1,969.7 21.6
- -----------------------------------------------------------------------------------------------------------------------------
Consumer:
Residential mortgages:
First mortgages ............ 1,970.8 18.8 1,997.7 19.7 1,699.9 18.6
Junior liens ............... 230.9 2.2 199.2 2.0 152.8 1.7
Indirect ...................... 1,010.0 9.6 907.5 8.9 777.7 8.5
Revolving credit .............. 346.9 3.3 328.0 3.2 314.8 3.4
Other ......................... 627.7 6.0 606.6 6.0 694.7 7.6
- -----------------------------------------------------------------------------------------------------------------------------
Total consumer ............. 4,186.3 39.9 4,039.0 39.8 3,639.9 39.8
=============================================================================================================================
Total loans ...................... $ 10,484.8 100.0% $ 10,148.8 100.0% $ 9,134.7 100.0%
=============================================================================================================================
</TABLE>
Securities. Average securities increased $74.9 million (3%) in the second
quarter of 1999 compared to the second quarter of 1998, and were up $34.5
million (1%) for the first six 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 $10.5 million and $8.4
million in the second quarter and first six 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 agreement to resell (reverse
repurchase agreements) for the three months ended June 30, 1999, totaled $218.3
million, down $56.1 million (20%) compared to $274.4 million in the second
quarter of 1998. For the first six months of 1999 compared to the same period in
1998, average short-term investments decreased $29.0 million (10%) to $259.2
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 for certain deposits
thus reducing the need for reverse repurchase agreements.
Mortgage Loans Held For Sale. Average mortgage loans held for sale for the
second quarter of 1999 increased $4.8 million (2%) compared to the second
quarter of 1998, and were up $35.7 million (20%) for the first six 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 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 $36.1 million (71%) from June 30, 1998
and increased $38.2 million (78%) from March 31, 1999. The increase in
delinquencies is primarily due to the Company's participation in a syndicated,
secured credit to an oil and gas company that filed for bankruptcy protection in
the second quarter of 1999. Hibernia's exposure to this customer totals $29.4
million. As of June 30, 1999 this loan is over 90 days past due but remains on
accrual status as the Company expects to collect all principal and interest due.
Hibernia and other members of the bank group are working together to protect
their interests in bankruptcy court.
<TABLE>
<CAPTION>
================================================================================================================
TABLE 2 - LOAN DELINQUENCIES (1)
================================================================================================================
June 30 March 31 Dec. 31 Sept. 30 June 30
($ in millions) 1999 1999 1998 1998 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Days past due:
30 to 89 days ........................... $ 51.3 $ 41.8 $ 52.6 $ 54.3 $ 43.8
90 days or more ......................... 35.8 7.1 7.0 6.1 7.2
- ----------------------------------------------------------------------------------------------------------------
Total delinquencies ................. $ 87.1 $ 48.9 $ 59.6 $ 60.4 $ 51.0
- ----------------------------------------------------------------------------------------------------------------
Total delinquencies as a percentage of loans:
Commercial .............................. 1.11% 0.20% 0.27% 0.08% 0.12%
Small business .......................... 0.47% 0.68% 0.50% 0.72% 0.73%
Consumer ................................ 0.76% 0.66% 0.98% 1.11% 0.90%
Total loans ............................. 0.83% 0.48% 0.60% 0.63% 0.56%
- ----------------------------------------------------------------------------------------------------------------
- --------------
(1) Accruing loans past due as to principal and/or interest 30 days or more.
</TABLE>
Delinquencies as a percentage of total loans at June 30, 1999 were 0.83%,
up from 0.56% a year ago and up from 0.48% at March 31, 1999. Accruing loans
past due 90 days or more were $35.8 million at June 30, 1999 compared to $7.2
million at June 30, 1998 and $7.1 million at March 31, 1999.
Commercial loan delinquencies were 1.11% of total commercial loans at June
30, 1999 compared to 0.12% at June 30, 1998 and 0.20% at March 31, 1999. The
increase in both the 90 days or more past due category and commercial loan
delinquencies is primarily due to the exposure to the syndicated oil and gas
credit previously discussed. Small business loan delinquencies decreased to
0.47% at June 30, 1999, from 0.73% at June 30, 1998 and 0.68% at March 31, 1999.
Consumer loan delinquencies decreased to 0.76% from 0.90% at June 30, 1998 and
increased from 0.66% at March 31, 1999. The improvement in consumer
delinquencies from 1998 is primarily due to ongoing adjustments in the
underwriting and acceptance criteria and improvements in the collection process.
Nonperforming assets -- which include nonaccrual loans, restructured loans,
foreclosed assets and excess bank-owned property -- totaled $100.5 million at
June 30, 1999.
Nonperforming loans, which totaled $86.7 million at June 30, 1999,
increased $54.5 million (170%) from a year ago, and increased $23.2 million
(37%) from the prior quarter end. The increase in nonperforming loans in the
quarter was primarily attributable to certain larger commercial credits. The
majority of nonperforming consumer loans are residential mortgage loans on which
significant losses are not expected.
Foreclosed assets totaled $9.3 million at June 30, 1999, up $5.9 million
(170%) from a year earlier, and virtually unchanged from March 31, 1999. Excess
bank-owned property at June 30, 1999 was up $2.2 million (91%) from June 30,
1998, and up $0.9 million (26%) from March 31, 1999. Table 3 presents a summary
of nonperforming assets and selected ratios at the end of the last five
quarters.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
TABLE 3 - NONPERFORMING ASSETS
- ----------------------------------------------------------------------------------------------------------------------
June 30 March 31 Dec. 31 Sept. 30 June 30
($ in thousands) 1999 1999 1998 1998 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial ...................... $ 63,425 $ 42,120 $ 19,214 $ 9,111 $ 10,149
Small business .................. 19,039 16,613 17,695 19,001 18,205
Consumer ........................ 4,203 4,721 4,031 4,508 3,779
Restructured loans .................. - - - - -
- ----------------------------------------------------------------------------------------------------------------------
Total nonperforming loans ... 86,667 63,454 40,940 32,620 32,133
- ----------------------------------------------------------------------------------------------------------------------
Foreclosed assets ................... 9,311 9,268 10,762 6,776 3,450
Excess bank-owned property .......... 4,559 3,622 2,648 2,329 2,388
- ----------------------------------------------------------------------------------------------------------------------
Total nonperforming assets .. $100,537 $ 76,344 $ 54,350 $ 41,725 $ 37,971
======================================================================================================================
Reserve for loan losses ............. $150,805 $150,008 $130,347 $129,009 $125,390
Nonperforming loan ratio:
Commercial loans ................ 1.59% 1.05% 0.50% 0.25% 0.29%
Small business loans ............ 0.82% 0.79% 0.85% 0.94% 0.92%
Consumer loans .................. 0.10% 0.12% 0.10% 0.12% 0.10%
Total loans ..................... 0.83% 0.63% 0.41% 0.34% 0.35%
Nonperforming asset ratio ........... 0.96% 0.75% 0.55% 0.43% 0.42%
Reserve for loan losses as a
percentage of nonperforming loans 174.01% 236.40% 318.39% 395.49% 390.22%
======================================================================================================================
</TABLE>
At June 30, 1999 the recorded investment in loans considered impaired under
Statement of Financial Accounting Standards (SFAS) No. 114 was $82.7 million.
The related portion of the reserve for loan losses was $21.0 million. The
comparable amounts at June 30, 1998 were $28.6 million and $4.3 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 $43.8 million were added to nonperforming loans
during the second quarter of 1999, primarily in the commercial loan portfolio.
Sales and payments resulted in a $9.3 million reduction in nonperforming loans
while $0.5 million of loans were returned to performing status. Charge-offs
further reduced nonperforming loans in the second quarter of 1999 by $10.0
million. When nonaccrual loans that have been charged-off are recovered in
subsequent periods, the recoveries would be reflected in the reserve for loan
losses in Table 5 and not as a component of nonperforming loan activity.
<TABLE>
<CAPTION>
=============================================================================================================
TABLE 4 - SUMMARY OF NONPERFORMING LOAN ACTIVITY
=============================================================================================================
1999 1998
- -------------------------------------------------------------------------------------------------------------
Second First Fourth Third Second
($ in thousands) Quarter Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans
at beginning of period . $ 63,454 $ 40,940 $ 32,620 $ 32,133 $ 29,516
Additions .................. 43,804 42,428 20,944 8,622 13,041
Charge-offs, gross ......... (9,974) (7,662) (2,219) (509) (993)
Transfer to OREO ........... (801) (243) (5,758) (3,396) -
Returns to performing status (509) (219) (755) (433) (1,136)
Payments and sales ......... (9,307) (11,790) (3,892) (3,797) (8,295)
- -------------------------------------------------------------------------------------------------------------
Nonperforming loans
at end of period ....... $ 86,667 $ 63,454 $ 40,940 $ 32,620 $ 32,133
=============================================================================================================
</TABLE>
In addition to the nonperforming loans discussed above, other commercial
loans that are subject to potential future classification as nonperforming
totaled $81.6 million at June 30, 1999. This amount includes the syndicated oil
and gas credit previously discussed.
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 $12.2 million provision for loan losses in the second
quarter of 1999 and a $42.2 million provision for the first six months of 1999,
compared to $5.6 million and $9.1 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. Net
charge-offs of $14.4 million in the second quarter exceeded the provision of
$12.2 million. However, the provision for the first six months of 1999 exceeded
net charge-offs by $17.4 million. Table 5 presents an analysis of the activity
in the reserve for loan losses for the last five quarters.
Net charge-offs totaled $14.4 million in the second quarter of 1999 and
$24.8 million for the first six months of 1999, compared to $3.8 million and
$10.4 million in the comparable periods of 1998. As a percentage of average
loans, annualized net charge-offs were 0.56% in the second quarter of 1999
compared to 0.17% in the second quarter of 1998 and 0.41% in the first quarter
of 1999. The increase in net charge-offs is related primarily to the commercial
loan portfolio. Net charge-offs in both the small business and consumer
portfolios have declined from the second quarter of 1998 and the first quarter
of 1999. The second quarter of 1999 includes a $0.7 million recovery on the sale
of a portfolio of charged-off consumer loans.
The reserve for loan losses is comprised of specific reserves (assessed for
each loan that is reviewed for impairment or for which a probable loss has been
identified), general reserves and an unallocated reserve.
<TABLE>
<CAPTION>
=====================================================================================================================
TABLE 5 - RESERVE FOR LOAN LOSSES ACTIVITY
=====================================================================================================================
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Second First Fourth Third Second
($ in thousands) Quarter Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period . $ 150,008 $ 130,347 $ 129,009 $ 125,390 $ 123,574
Loans charged off:
Commercial ................. (10,390) (7,182) (853) (538) (338)
Small business ............. (2,916) (2,983) (4,356) (2,714) (2,901)
Consumer ................... (5,524) (6,167) (7,323) (5,190) (6,056)
Recoveries:
Commercial ................. 682 2,828 1,231 1,216 2,554
Small business ............. 970 1,000 603 512 669
Consumer ................... 2,740 2,165 2,048 2,244 2,307
- ---------------------------------------------------------------------------------------------------------------------
Net loans charged off .......... (14,438) (10,339) (8,650) (4,470) (3,765)
Provision for loan losses ...... 12,200 30,000 9,988 8,089 5,581
Additions due to acquisition ... 3,035 - - - -
- ---------------------------------------------------------------------------------------------------------------------
Balance at end of period ....... $ 150,805 $ 150,008 $ 130,347 $ 129,009 $ 125,390
=====================================================================================================================
Reserve for loan losses
as a percentage of loans ... 1.44% 1.48% 1.32% 1.34% 1.37%
Annualized net charge-offs as a
percentage of average loans:
Commercial ............. 0.97% 0.44% (0.04)% (0.08)% (0.26%)
Small business ......... 0.36% 0.38% 0.74% 0.45% 0.47%
Consumer ............... 0.27% 0.40% 0.54% 0.31% 0.42%
Total loans ............ 0.56% 0.41% 0.36% 0.19% 0.17%
=====================================================================================================================
</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
such as 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 second quarter of 1999. However, as previously noted, certain asset
quality measures including delinquencies and nonaccrual loans, principally in
the commercial portfolio, deteriorated and an increase in the risk profile of
the portfolio was indicated by the Company's internal risk rating system. The
Company had anticipated and proactively addressed these issues by increasing the
level of the reserve for loan losses by $19.7 million in the first quarter of
1999; therefore, the level of the reserve was maintained during the second
quarter of 1999.
The assumptions and methodologies used in allocating the reserve were
unchanged during the quarter. However, the allocation to certain portfolios
changed based on the risk profile, resulting in a higher allocation to the
commercial portfolio offset by modest reductions in the consumer portfolio and
unallocated reserves. This shift occurred as charge-offs have increased during
the most recent quarters, which are weighted more heavily in determining the
level of general reserves.
The reserve coverage of annualized net charge-offs declined during the
quarter to 261% from 363% in the first quarter of 1999 and 833% in the second
quarter of 1998. This decline was primarily due to the higher level of
commercial net charge-offs during the second 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 $150.8 million, or 1.44% of total loans
at June 30, 1999, compared to $125.4 million, or 1.37% of total loans at June
30, 1998. The reserve for loan losses as a percentage of nonperforming loans was
174% at June 30, 1999, compared to 390% at June 30, 1998 and 236% at March 31,
1999. During the remainder of 1999 the Company expects to continue experiencing
elevated levels of nonperforming loans and net charge-offs compared to 1998. 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 $11.1 billion in the second quarter of 1999, an
$886.7 million (9%) increase from the second quarter of 1998. For the first six
months of 1999 compared to the same period in 1998, average deposits increased
$795.0 million (8%) to $10.9 billion. The increases were the result of internal
growth and the effect of the Beaumont transaction, which added $209.4 million in
average deposits to the second quarter of 1999 and $105.3 million in average
deposits to the first six months of 1999. Internal growth resulted from
Hibernia's emphasis on attracting new deposits and expanding current banking
relationships through outstanding service and the introduction of new products
such as Tower GoldSM Services, which offers liquidity, competitive interest
rates and the security of a bank deposit. Table 6 presents the composition of
average deposits for the periods presented.
<TABLE>
<CAPTION>
==============================================================================================================================
TABLE 6 - DEPOSIT COMPOSITION
==============================================================================================================================
Second Quarter 1999 First Quarter 1999 Second Quarter 1998
- ------------------------------------------------------------------------------------------------------------------------------
Average % of Average % of Average % of
($ in millions) Balances Deposits Balances Deposits Balances Deposits
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing ........... $ 2,010.3 18.2% $ 1,920.6 17.8% $ 1,833.8 18.0%
NOW accounts .................. 370.9 3.3 299.9 2.8 336.9 3.3
Money market deposit accounts . 2,077.7 18.8 2,205.6 20.5 2,009.5 19.7
Savings accounts .............. 1,629.8 14.7 1,341.8 12.5 1,106.1 10.9
Other consumer time deposits .. 2,950.4 26.6 2,954.7 27.4 3,070.7 30.1
- ------------------------------------------------------------------------------------------------------------------------------
Total core deposits ....... 9,039.1 81.6 8,722.6 81.0 8,357.0 82.0
- ------------------------------------------------------------------------------------------------------------------------------
Public fund certificates of
deposit of $100,000 or more 1,124.3 10.2 1,095.0 10.2 1,028.3 10.1
Certificates of deposit of
$100,000 or more .......... 617.2 5.6 644.9 6.0 589.6 5.8
Foreign time deposits ......... 292.0 2.6 305.4 2.8 211.0 2.1
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits ............ $ 11,072.6 100.0% $ 10,767.9 100.0% $ 10,185.9 100.0%
==============================================================================================================================
</TABLE>
Average core deposits totaled $9.0 billion in the second quarter of 1999, a
$682.1 million (8%) increase from the second quarter of 1998. The Beaumont
transaction accounted for $149.1 million (22%) of the growth in average core
deposits in the second quarter of 1999 compared to the second quarter of 1998.
Average noninterest-bearing deposits grew $176.5 million and average savings
deposits increased $523.7 million in the second quarter of 1999 compared to the
second quarter of 1998. NOW account average balances were up $34.0 million and
average money market deposit accounts were up $68.2 million in the second
quarter of 1999 compared to the second quarter of 1998. Net of the effect of the
Beaumont transaction, NOW account average balances were down $2.1 million and
average money market deposit accounts were up $57.0 million primarily due to the
effect of the application of the Reserve Money Manager sweep process to deposits
acquired through mergers.
Average noncore deposits were up $204.6 million (11%) from the second
quarter of 1998 to $2.0 billion or 18% of total deposits. The Beaumont
transaction accounted for $60.2 million (29%) of the growth in average noncore
deposits in the second quarter of 1999 compared to the second quarter of 1998.
Average large denomination certificates of deposit increased $123.6 million (8%)
compared to the second quarter of 1998. Average foreign time deposits increased
$81.0 million (38%) due to successful efforts to market a treasury management
product which sweeps commercial customer funds into higher-yielding Eurodollar
deposits.
Total deposits at June 30, 1999, were $11.3 billion, up $1.1 billion (11%)
from June 30, 1998. The Beaumont transaction accounted for $464.8 (41%) of the
growth in total deposits.
BORROWINGS
Average borrowings -- which include federal funds purchased; securities
sold under agreements to repurchase (repurchase agreements); treasury, tax and
loan account; and debt -- increased $515.7 million (39%) to $1.8 billion for the
second quarter of 1999 compared to the second quarter of 1998. For the first six
months of 1999 compared to the first six months of 1998 average borrowings
increased $560.3 million (42%) to $1.9 billion.
Average debt for the second quarter of 1999 totaled $805.3 million, up from
$707.1 million in the second quarter of 1998. At June 30, 1999 the Company's
debt, which is comprised of advances from the Federal Home Loan Bank of Dallas
(FHLB), totaled $805.3 million. Debt increased $98.3 million from June 30, 1998
as Hibernia locked in attractive fixed rates to fund the growth in its loan
portfolio. The FHLB may demand payment of $300 million in callable advances at
quarterly intervals, of which $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 $38.2 million at June 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 $454.6 million at June 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 $193.2 million at June 30, 1999. Hibernia's credit exposure related to
derivative financial instruments held for trading totaled $3.9 million at June
30, 1999.
RESULTS OF OPERATIONS:
NET INTEREST INCOME
Taxable-equivalent net interest income for the second quarter of 1999
totaled $147.6 million, an $8.6 million increase from the same period in 1998
and up $3.7 million from the first quarter of 1999. Taxable-equivalent net
interest income for the first six months of 1999 totaled $291.4 million, an
$18.4 million increase over the first six months of 1998.
Factors contributing to the increase in net interest income for the second
quarter and first six 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; and the effect of the Beaumont transaction (approximately $0.8
million). These factors were partially offset by lower yields on loans and
securities as a result of the competitive lending environment. Table 7 shows the
composition of earning assets for the most recent five quarters, revealing the
change in the mix of earning assets.
<TABLE>
<CAPTION>
=======================================================================================================================
TABLE 7 - INTEREST-EARNING ASSET COMPOSITION
=======================================================================================================================
1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Second First Fourth Third Second
(Percentage of average balances) Quarter Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial loans ................ 29.8% 29.5% 29.1% 29.1% 28.7%
Small business loans ............ 16.1 15.5 15.7 15.9 15.7
Consumer loans .................. 30.4 30.0 30.4 30.3 29.4
- -----------------------------------------------------------------------------------------------------------------------
Total loans ................. 76.3 75.0 75.2 75.3 73.8
- -----------------------------------------------------------------------------------------------------------------------
Securities available for sale ... 20.6 21.0 21.7 20.8 22.4
Short-term investments .......... 1.6 2.2 1.3 2.3 2.2
Mortgage loans held for sale .... 1.5 1.8 1.8 1.6 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
- -----------------------------------------------------------------------------------------------------------------------------
Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Yield on earning assets ............ 7.72% 7.70% 7.83% 8.00% 8.17%
Rate on interest-bearing liabilities 4.11 4.14 4.27 4.47 4.44
- -----------------------------------------------------------------------------------------------------------------------------
Net interest spread ............ 3.61 3.56 3.56 3.53 3.73
Contribution of
noninterest-bearing funds ...... 0.78 0.79 0.86 0.89 0.88
- -----------------------------------------------------------------------------------------------------------------------------
Net interest margin ............ 4.39% 4.35% 4.42% 4.42% 4.61%
=============================================================================================================================
Noninterest-bearing funds
supporting earning assets ...... 19.07% 19.17% 20.22% 19.89% 19.81%
=============================================================================================================================
</TABLE>
The net interest margin was 4.39% for the second quarter of 1999, down 22
basis points from the second quarter of 1998, and up four basis points from the
first quarter of 1999. The positive effects of the change in the mix of earning
assets 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 second quarter of 1999 was also
negatively impacted due to the shift in the mix of funding sources toward market
rate funds. In the second quarter of 1999, 59.4% of Hibernia's earning assets
were supported by market-rate funds compared to 56.3% in the same period in
1998.
The net interest margin was negatively impacted (approximately 3 basis
points) in the second quarter of 1998 and (approximately 3 basis points) in the
first six months of 1998 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 second quarter of 1999 and the first quarter of 1999 and
between the second quarter of 1999 and the second quarter of 1998.
<TABLE>
<CAPTION>
====================================================================================================================================
TABLE 9 - CHANGES IN TAXABLE-EQUIVALENT NET INTEREST INCOME (1)
====================================================================================================================================
Second Quarter 1999 Compared to:
- ------------------------------------------------------------------------------------------------------------------------------------
First Quarter 1999 Second 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 .............. $ 1,561 $ (188) $ 1,373 $ 11,046 $ (8,805) $ 2,241
Small business loans .......... 2,171 418 2,589 6,251 (2,616) 3,635
Consumer loans ................ 2,081 231 2,312 11,588 (3,775) 7,813
- ------------------------------------------------------------------------------------------------------------------------------------
Loans ..................... 5,813 461 6,274 28,885 (15,196) 13,689
- ------------------------------------------------------------------------------------------------------------------------------------
Securities available for sale . (289) 786 497 1,195 (764) 431
Short-term investments ........ (1,042) 153 (889) (759) (501) (1,260)
Mortgage loans held for sale .. (635) 208 (427) 71 367 438
- ------------------------------------------------------------------------------------------------------------------------------------
Total ................... 3,847 1,608 5,455 29,392 (16,094) 13,298
====================================================================================================================================
Interest paid on:
NOW accounts .................. 447 (128) 319 293 (1,133) (840)
Money market
deposit accounts .......... (738) 265 (473) 425 (1,211) (786)
Savings accounts .............. 2,446 997 3,443 4,506 768 5,274
Other consumer time deposits .. (52) (198) (250) (1,526) (2,592) (4,118)
Public fund certificates of
deposit of $100,000 or more 353 (177) 176 1,228 (1,644) (416)
Certificates of deposit
of $100,000 or more ....... (343) (144) (487) 357 (622) (265)
Foreign deposits .............. (147) 29 (118) 940 (493) 447
Federal funds purchased ....... (866) 43 (823) 4,665 (380) 4,285
Repurchase agreements ......... (158) 90 (68) 390 (585) (195)
Debt .......................... (9) 83 74 1,367 (36) 1,331
- ------------------------------------------------------------------------------------------------------------------------------------
Total ................... 933 860 1,793 12,645 (7,928) 4,717
====================================================================================================================================
Taxable-equivalent
net interest income ........... $ 2,914 $ 748 $ 3,662 $ 16,747 $ (8,166) $ 8,581
====================================================================================================================================
- ----------------
(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
23 and 24 of this discussion presents the Company's taxable-equivalent net
interest income and average balances for the three months ended June 30, 1999,
March 31, 1999 and June 30, 1998, and for the first six months of 1999 and 1998.
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CONSOLIDATED AVERAGE BALANCES, INTEREST AND RATES
====================================================================================================================================
Hibernia Corporation and Subsidiaries
Taxable-equivalent basis (1) Second Quarter 1999 First Quarter 1999
- ------------------------------------------------------------------------------------------------------------------------------------
(Average balances $ in millions, Average Average
interest $ in thousands) Balance Interest Rate Balance Interest Rate
====================================================================================================================================
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Commercial loans .............................. $ 4,009.7 $ 76,767 7.68% $ 3,928.2 $ 75,394 7.78%
Small business loans .......................... 2,170.5 47,778 8.83 2,071.8 45,189 8.85
Consumer loans ................................ 4,099.0 84,775 8.29 3,998.3 82,463 8.34
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans (2) ........................... 10,279.2 209,320 8.17 9,998.3 203,046 8.23
- ------------------------------------------------------------------------------------------------------------------------------------
Securities available for sale ................. 2,777.1 43,970 6.33 2,795.6 43,473 6.23
Short-term investments ........................ 218.3 2,780 5.11 300.6 3,669 4.95
Mortgage loans held for sale .................. 199.2 3,285 6.61 238.3 3,712 6.32
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets ............. 13,473.8 $ 259,355 7.72% 13,332.8 $ 253,900 7.70%
- ------------------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses ........................... (153.8)
Noninterest-earning assets:
Cash and due from banks ....................... 469.7 486.0
Other assets .................................. 638.7 571.3
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest-earning assets .......... 1,108.4 1,057.3
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets .............................. $ 14,428.4 $ 14,259.2
====================================================================================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts .............................. $ 370.9 $ 2,297 2.48% $ 299.9 $ 1,978 2.68%
Money market deposit accounts ............. 2,077.7 12,063 2.33 2,205.6 12,536 2.31
Savings accounts .......................... 1,629.8 14,177 3.49 1,341.8 10,734 3.24
Other consumer time deposits .............. 2,950.4 35,856 4.87 2,954.7 36,106 4.96
Public fund certificates of deposit
of $100,000 or more ................... 1,124.3 13,439 4.79 1,095.0 13,263 4.91
Certificates of deposit of $100,000 or more 617.2 7,601 4.94 644.9 8,088 5.09
Foreign time deposits ..................... 292.0 3,208 4.41 305.4 3,326 4.42
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits ....... 9,062.3 88,641 3.92 8,847.3 86,031 3.94
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased ................... 620.0 7,477 4.84 691.9 8,300 4.86
Repurchase agreements ..................... 416.2 4,477 4.31 431.0 4,545 4.28
Debt .......................................... 805.3 11,209 5.58 806.0 11,135 5.60
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities ........ 10,903.8 $ 111,804 4.11% 10,776.2 $ 110,011 4.14%
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Noninterest-bearing deposits .................. 2,010.3 1,920.6
Other liabilities ............................. 157.8 205.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest-bearing liabilities ..... 2,168.1 2,126.4
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity ........................ 1,356.5 1,356.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 14,428.4 $ 14,259.2
====================================================================================================================================
SPREAD AND NET YIELD
Interest rate spread .............................. 3.61% 3.56%
Cost of funds supporting interest-earning assets .. 3.33% 3.35%
Net interest income/margin ........................ $ 147,551 4.39% $ 143,889 4.35%
====================================================================================================================================
- ----------
(1) Based on the statutory income tax rate of 35%.
(2) Yield computations include nonaccrual loans in loans outstanding.
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
CONSOLIDATED AVERAGE BALANCES, INTEREST AND RATES
====================================================================================================================================
Hibernia Corporation and Subsidiaries Six Months Ended
Taxable-equivalent basis (1) Second Quarter 1998 June 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 .............................. $ 3,460.9 $ 74,526 8.64% $ 3,969.2 $ 152,162 7.73%
Small business loans .......................... 1,891.2 44,143 9.36 2,121.4 92,968 8.84
Consumer loans ................................ 3,545.1 76,962 8.70 4,049.0 167,236 8.32
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans (2) ........................... 8,897.2 195,631 8.82 10,139.6 412,366 8.20
- ------------------------------------------------------------------------------------------------------------------------------------
Securities available for sale ................. 2,702.2 43,539 6.45 2,786.3 87,444 6.28
Short-term investments ........................ 274.4 4,040 5.91 259.2 6,449 5.02
Mortgage loans held for sale .................. 194.4 2,847 5.87 218.6 6,997 6.45
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets ............. 12,068.2 $ 246,057 8.17% 13,403.7 $ 513,256 7.71%
- ------------------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses ........................... (123.6) (142.4)
Noninterest-earning assets:
Cash and due from banks ....................... 439.4 477.8
Other assets .................................. 561.7 605.2
Total noninterest-earning assets .......... 1,001.1 1,083.0
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets .............................. $ 12,945.7 $ 14,344.3
====================================================================================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts .............................. $ 336.9 $ 3,137 3.73% $ 335.5 $ 4,275 2.57%
Money market deposit accounts ............. 2,009.5 12,849 2.56 2,141.3 24,599 2.32
Savings accounts .......................... 1,106.1 8,903 3.23 1,486.6 24,911 3.38
Other consumer time deposits .............. 3,070.7 39,974 5.22 2,952.7 71,962 4.91
Public fund certificates of deposit
of $100,000 or more ................... 1,028.3 13,855 5.40 1,109.7 26,702 4.85
Certificates of deposit of $100,000 or more 589.6 7,866 5.35 630.9 15,689 5.01
Foreign time deposits ..................... 211.0 2,761 5.25 298.7 6,534 4.41
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits ....... 8,352.1 89,345 4.29 8,955.4 174,672 3.93
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased ................... 236.1 3,192 5.42 655.7 15,776 4.85
Repurchase agreements ..................... 382.6 4,672 4.90 423.6 9,023 4.30
Debt .......................................... 707.1 9,878 5.60 805.7 22,344 5.59
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities ........ 9,677.9 $ 107,087 4.44% 10,840.4 $ 221,815 4.13%
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Noninterest-bearing deposits .................. 1,833.8 1,965.7
Other liabilities ............................. 165.8 181.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest-bearing liabilities ..... 1,999.6 2,147.4
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity ........................ 1,268.2 1,356.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 12,945.7 $ 14,344.3
====================================================================================================================================
SPREAD AND NET YIELD
Interest rate spread .............................. 3.73% 3.58%
Cost of funds supporting interest-earning assets .. 3.56% 3.34%
Net interest income/margin ........................ $ 138,970 4.61% $ 291,441 4.37%
====================================================================================================================================
- ----------
(1) Based on the statutory income tax rate of 35%.
(2) Yield computations include nonaccrual loans in loans outstanding.
</TABLE>
<TABLE>
<CAPTION>
=========================================================================================================
CONSOLIDATED AVERAGE BALANCES, INTEREST AND RATES
=========================================================================================================
Hibernia Corporation and Subsidiaries Six Months Ended
Taxable-equivalent basis (1) June 30, 1998
- ---------------------------------------------------------------------------------------------------------
(Average balances $ in millions, Average
interest $ in thousands) Balance Interest Rate
=========================================================================================================
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Commercial loans .............................. $ 3,342.0 $ 142,419 8.59%
Small business loans .......................... 1,905.5 88,833 9.40
Consumer loans ................................ 3,465.8 149,180 8.66
- ---------------------------------------------------------------------------------------------------------
Total loans (2) ........................... 8,713.3 380,432 8.80
- ---------------------------------------------------------------------------------------------------------
Securities available for sale ................. 2,751.8 90,724 6.60
Short-term investments ........................ 288.2 8,303 5.81
Mortgage loans held for sale .................. 182.9 5,691 6.28
- ---------------------------------------------------------------------------------------------------------
Total interest-earning assets ............. 1,936.2 $ 485,150 8.18%
- ---------------------------------------------------------------------------------------------------------
Reserve for loan losses ........................... (124.5)
Noninterest-earning assets:
Cash and due from banks ....................... 454.7
Other assets .................................. 616.8
- ---------------------------------------------------------------------------------------------------------
Total noninterest-earning assets .......... 1,071.5
- ---------------------------------------------------------------------------------------------------------
Total assets .............................. $ 12,883.2
=========================================================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts .............................. $ 376.6 $ 6,404 3.43%
Money market deposit accounts ............. 1,994.3 25,279 2.56
Savings accounts .......................... 1,049.8 16,737 3.21
Other consumer time deposits .............. 3,070.5 79,953 5.25
Public fund certificates of deposit
of $100,000 or more ................... 1,034.6 27,865 5.43
Certificates of deposit of $100,000 or more 602.6 15,728 5.26
Foreign time deposits ..................... 186.1 4,862 5.27
- ---------------------------------------------------------------------------------------------------------
Total interest-bearing deposits ....... 8,314.5 176,828 4.29
- ---------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased ................... 279.4 7,620 5.50
Repurchase agreements ..................... 376.1 9,133 4.90
Debt .......................................... 669.2 18,480 5.57
- ---------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities ........ 9,639.2 $ 212,061 4.44%
- ---------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Noninterest-bearing deposits .................. 1,811.6
Other liabilities ............................. 177.6
- ---------------------------------------------------------------------------------------------------------
Total noninterest-bearing liabilities ..... 1,989.2
- ---------------------------------------------------------------------------------------------------------
Total shareholders' equity ........................ 1,254.8
- ---------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 12,883.2
=========================================================================================================
SPREAD AND NET YIELD
Interest rate spread .............................. 3.74%
Cost of funds supporting interest-earning assets .. 3.58%
Net interest income/margin ........................ $ 273,089 4.60%
=========================================================================================================
- -------------
(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 second quarter of 1999 was up $6.1 million (13%)
to $52.7 million compared to the same period of 1998. For the first six months
of 1999 compared to the same period in 1998, noninterest income was up $15.4
million (17%). The effect of the Beaumont transaction accounted for
approximately $1.2 million of the increase. Excluding securities transactions,
noninterest income increased $5.7 million (12%) in the second quarter of 1999
over the second quarter of 1998, and was up $16.0 million (18%) during the first
six months of 1999 compared to the same period in 1998. The major categories of
noninterest income for the three months and six months ended June 30, 1999 and
1998 are presented in Table 10.
<TABLE>
<CAPTION>
==================================================================================================================================
TABLE 10 - NONINTEREST INCOME
==================================================================================================================================
Three Months Ended Six Months Ended
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage Percentage
June 30 June 30 Increase June 30 June 30 Increase
($ in thousands) 1999 1998 (Decrease) 1999 1998 (Decrease)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposits ............ $24,124 $21,455 12% $46,726 $41,544 12%
Trust fees ............................. 5,669 4,412 29 10,205 8,301 23
Retail investment service fees ......... 6,167 4,752 30 11,615 8,327 39
Mortgage loan origination
and servicing fees ................. 4,438 3,502 27 8,940 6,806 31
Other service, collection and
exchange charges:
ATM fees ........................... 3,026 2,496 21 5,865 4,945 19
Debit/credit card fees ............. 2,830 1,944 46 5,087 3,543 44
Other .............................. 3,026 2,577 17 5,956 5,179 15
- ----------------------------------------------------------------------------------------------------------------------------------
Total other service, collection
and exchange charges ...... 8,882 7,017 27 16,908 13,667 24
- ----------------------------------------------------------------------------------------------------------------------------------
Other operating income:
Gain on sales of mortgage loans .... 1,125 2,567 (56) 3,257 4,044 (19)
Other income ....................... 1,896 2,874 (34) 5,826 4,835 20
- ----------------------------------------------------------------------------------------------------------------------------------
Total other operating income .. 3,021 5,441 (44) 9,083 8,879 2
- ----------------------------------------------------------------------------------------------------------------------------------
Securities gains (losses), net ......... 368 37 895 409 924 (56)
- ----------------------------------------------------------------------------------------------------------------------------------
Total noninterest income ...... $52,669 $46,616 13% $103,886 $88,448 17%
==================================================================================================================================
</TABLE>
Service charges on deposits increased $2.7 million (12%) for the second
quarter of 1999 and $5.2 million (12%) for the first six 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.
Retail investment service fees increased $1.4 million (30%) and $3.3
million (39%) in the second quarter and the first six months of 1999,
respectively, compared to the same periods in 1998. The increase is primarily
due to the availability of insurance products throughout the banking office
network from lines acquired in 1998 and market conditions which resulted in an
increase in the sale of financial products such as annuities and discount
brokerage services.
Trust fees were up $1.3 million (29%) in the second quarter of 1999 and
$1.9 million (23%) for the first six months of 1999 compared to the same periods
in 1998 primarily due to new business and $1.0 million in income associated with
the $1.4 billion increase in trust assets resulting from the Beaumont
transaction. Hibernia's total assets held in trust accounts increased to $9.2
billion as a result of the Beaumont transaction.
Mortgage loan origination and servicing fees increased $0.9 million (27%)
in the second quarter and $2.1 million (31%) in the first six 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 $4.7 billion. In the first
six months of 1999, Hibernia processed more than $1.1 billion in residential
first mortgage loans as compared to $1.0 billion in the first six months of
1998.
Other service, collection and exchange charges were up $1.9 million (27%)
and $3.2 million (24%) in the second quarter and the first six 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 $0.5 million in the second quarter and $0.9 million in the
first six 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 second quarter and $1.5 million for the first six months of
1999, compared to the same periods in 1998.
Other operating income decreased $2.4 million (44%) for the second quarter
and increased $0.2 million (2%) for the first six months of 1999 over the
comparable periods in 1998. Gains on sales of mortgage loans were down $1.4
million in the second quarter and were down $0.8 million in the first six months
of 1999 over the comparable periods in 1998 primarily due to the current
interest rate environment. Other income decreased $1.0 million for the second
quarter and increased $1.0 million in the first six months of 1999 compared to
the same periods in 1998. The increase in the first six 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 increased $0.3 million (895%) in the second quarter and
decreased $0.5 million (56%) in the first six months of 1999 compared to the
same periods in 1998. The second quarter and first six months of 1998 included
gains on a transaction which utilized capital losses.
NONINTEREST EXPENSE
For the second quarter of 1999, noninterest expense totaled $111.6 million,
a $2.8 million (3%) increase from the second quarter of 1998. For the first six
months of 1999 compared to the same period in 1998, noninterest expense was up
$12.9 million (6%). The effect of the Beaumont transaction accounted for
approximately $1.8 million of the increase. Excluding merger-related expenses,
noninterest expense increased $3.5 million (3%) in the second quarter of 1999
over the second quarter of 1998, and was up $6.0 million (3%) for the first six
months of 1999 compared to the same period in 1998. Merger-related expenses were
$0.3 million and $0.9 million in the second quarter of 1999 and 1998,
respectively. Merger-related expenses were $8.9 million and $2.0 million in the
first six months of 1999 and 1998, respectively. The major categories
contributing to the increase in noninterest expense were staff costs, data
processing and the amortization of intangibles. Noninterest expense for the
three months and six months ended June 30, 1999 and 1998 are presented by major
category in Table 11.
Staff costs, which represent approximately 50% of noninterest expense,
increased $1.8 million (3%) in the second quarter of 1999 and $10.7 million
(10%) for the first six months of 1999 compared to the same periods a year ago.
The Beaumont transaction accounted for approximately $0.6 million of the
increase. Excluding the effect of merger-related expenses, staff costs increased
$1.9 million (3%) in the second quarter of 1999 over the second quarter of 1998,
and increased $5.9 million (6%) during the first six 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. The remainder of the change in staff costs is primarily
due to normal merit increases, partially offset by lower accruals for
performance based incentives.
Occupancy and equipment expenses decreased $1.7 million (10%) in the second
quarter of 1999 and $0.6 million (2%) for the first six months of 1999 over the
comparable periods in 1998. Excluding the effect of merger-related expenses,
occupancy and equipment expenses decreased $2.0 million (6%) in the first six
months of 1999 as compared to the first six months of 1998. The second quarter
of 1998 included a $2.0 million charge to improve customer delivery convenience
by optimizing an expanding banking office network.
<TABLE>
<CAPTION>
============================================================================================================================
TABLE 11 - NONINTEREST EXPENSE
============================================================================================================================
Three Months Ended Six Months Ended
- ----------------------------------------------------------------------------------------------------------------------------
Percentage Percentage
June 30 June 30 Increase June 30 June 30 Increase
($ in thousands) 1999 1998 (Decrease) 1999 1998 (Decrease)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries ........................ $ 46,840 $ 45,890 2% $ 98,325 $ 89,555 10%
Benefits ........................ 8,555 7,732 11 17,654 15,725 12
- ----------------------------------------------------------------------------------------------------------------------------
Total staff costs ........... 55,395 53,622 3 115,979 105,280 10
- ----------------------------------------------------------------------------------------------------------------------------
Occupancy, net .................. 8,233 10,108 (19) 16,102 18,319 (12)
Equipment ....................... 8,009 7,855 2 17,040 15,454 10
- ----------------------------------------------------------------------------------------------------------------------------
Total occupancy and equipment 16,242 17,963 (10) 33,142 33,773 (2)
- ----------------------------------------------------------------------------------------------------------------------------
Data processing ................. 7,753 6,854 13 15,819 13,886 14
Advertising and promotional
expenses .................... 3,629 3,438 6 7,259 8,906 (18)
Foreclosed property expense, net (54) (684) (92) (425) (691) (38)
Amortization of intangibles ..... 5,337 4,280 25 9,862 8,323 18
Telecommunications .............. 2,449 2,918 (16) 4,981 6,214 (20)
Postage ......................... 1,769 1,771 - 3,637 3,785 (4)
Stationery and supplies ......... 1,419 1,568 (10) 2,899 3,023 (4)
Professional fees ............... 1,686 2,058 (18) 4,086 3,987 2
State taxes on equity ........... 2,848 2,119 34 5,695 4,688 21
Regulatory expense .............. 762 727 5 1,523 1,422 7
Loan collection expense ......... 1,010 1,134 (11) 2,015 2,186 (8)
Other ........................... 11,342 11,017 3 21,452 20,209 6
- ----------------------------------------------------------------------------------------------------------------------------
Total noninterest expense ... $ 111,587 $ 108,785 3% $ 227,924 $ 214,991 6%
- ----------------------------------------------------------------------------------------------------------------------------
Efficiency ratio (1) ............ 55.83% 58.63% 57.71% 59.62%
Cash-basis efficiency ratio (2) . 54.00% 56.93% 56.05% 57.86%
============================================================================================================================
- ---------------
(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>
Data processing expenses increased $0.9 million (13%) for the second
quarter of 1999 compared to the second quarter of 1998. For the first six months
of 1999, data processing expenses increased $1.9 million (14%). The Beaumont
transaction accounted for approximately $0.2 million of the increase. Excluding
the effect of merger-related expenses, data processing expenses increased $1.1
million (17%) for the second quarter and increased $1.6 million (12%) for the
first six months of 1999 compared to the same periods a year ago. The increase
in data processing expenses is primarily related to continued improvements in
technology, Year 2000 compliance and increased transaction volume related to
growth in the Company's customer base.
Advertising and promotional expenses increased $0.2 million (6%) in the
second quarter of 1999 compared to the second quarter of 1998, and decreased
$1.6 million (18%) for the first six months of 1999 compared to the first six
months of 1998. Excluding merger-related expenses, advertising and promotional
expenses increased $0.3 million (8%) for the second quarter and decreased $1.5
million (18%) for the first six months of 1999 compared to the same periods a
year ago. The decrease in advertising and promotional expenses for the first six
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, such as the Tower Super SavingsSM
account and the Hibernia CheckmateSM debit card.
Amortization of intangibles, a noncash expense, increased $1.1 million
(25%) to $5.3 million in the second quarter of 1999 compared to the second
quarter of 1998, and increased $1.5 million (18%) to $9.9 million for the first
six months of 1999 compared to the first six 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 decreased $0.4 million (18%) for the second quarter of
1999 compared to the second quarter of 1998. For the first six months of 1999,
professional fees increased $0.1 million (2%). Excluding merger-related
expenses, professional fees decreased $0.2 million (13%) for the second quarter
and decreased $0.5 million (13%) for the first six months of 1999 compared to
the same periods a year ago. State taxes on equity increased $0.7 million (34%)
in the second quarter of 1999 compared to the second quarter of 1998, and
increased $1.0 million (21%) for the first six months of 1999 compared to the
first six 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 second quarter of 1999 was 55.83% compared to 58.63%
for the second quarter of 1998. The ratio for the first six months of 1999
improved to 57.71% from 59.62% for the first six months of 1998. Excluding the
effect of merger-related expenses, the efficiency ratio would have been 55.71%
for the second quarter of 1999 compared to 58.12% for the second quarter of 1998
and 55.45% for the first six months of 1999 compared to 59.05% for the first six
months of 1998.
The cash-basis efficiency ratio, which excludes amortization of purchase
accounting intangibles from the calculation, was 54.00% for the second quarter
of 1999, a 293 basis point improvement from 56.93% for the comparable period of
1998. For the first six months of 1999, the cash-basis efficiency ratio was
56.05% compared to 57.86% for the first six months of 1998. Excluding the effect
of merger-related expenses, the cash-basis efficiency ratio would have been
53.87% for the second quarter of 1999 compared to 56.42% for the second quarter
of 1998 and 53.78% for the first six months of 1999 compared to 57.29% for the
first six months of 1998. The improvement in efficiency for both periods in 1999
reflects higher revenue growth rates compared to expense growth rates. The
Company expects this ratio to decline further in future periods. The declines
are expected to result from achievement of cost efficiencies, enhancement of
noninterest revenue sources and increased net interest income.
INCOME TAXES
The Company recorded $26.3 million in income tax expense in the second
quarter of 1999, a $2.2 million (9%) increase from $24.1 million in the second
quarter of 1998 as pretax income rose 8%. For the first six months of 1999,
income tax expense totaled $42.7 million, a $3.6 million (8%) decrease from
$46.3 million for the first six 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 $1,345.2 million at June 30, 1999 compared to
$1,280.9 million a year earlier. The increase is primarily the result of net
income over the most recent 12 months totaling $172.4 million and the issuance
of $12.2 million of common stock (primarily related to stock-based compensation
and incentives), partially offset by a $38.8 million change in unrealized gains
(losses) on securities available for sale, an $11.7 million increase in unearned
compensation, $62.9 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 $15.0 million in stock, the purchase of which was authorized in 1998.
As a result, the ESOP acquired approximately 1,443,000 shares of stock during
1998 and holds a total of approximately 3,874,000 shares at June 30, 1999.
Risk-based capital and leverage ratios exceed the ratios required for
designation as a "well-capitalized" institution under regulatory guidelines.
Table 12 presents Hibernia's ratios along with selected components of the
capital ratio calculations for the most recent five quarters.
<TABLE>
<CAPTION>
==========================================================================================================================
TABLE 12 - CAPITAL
==========================================================================================================================
June 30 March 31 Dec. 31 Sept. 30 June 30
($ in millions) 1999 1998 1998 1998 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Risk-based capital:
Tier 1 ..................... $ 1,128.5 $ 1,188.1 $ 1,166.0 $ 1,141.1 $ 1,105.6
Total ...................... 1,271.8 1,325.7 1,296.3 1,270.2 1,230.3
Assets:
Quarterly average assets (1) 14,185.1 14,090.2 13,629.9 13,081.8 12,773.3
Net risk-adjusted assets ... 11,457.9 10,985.4 10,819.7 10,341.6 9,976.0
Ratios:
Tier 1 risk-based capital .. 9.85% 10.82% 10.78% 11.03% 11.08%
Total risk-based capital ... 11.10% 12.07% 11.98% 12.28% 12.33%
Leverage ................... 7.96% 8.43% 8.55% 8.72% 8.66%
==========================================================================================================================
- ---------------
(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 on May 21, 1999, has enabled Hibernia to leverage its
capital by acquiring assets without increasing equity. As a result of this
transaction, the Company's capital ratios could decline from their current
levels, but will remain above the standards required for designation as a
"well-capitalized" institution.
A shelf registration statement was filed by the Company in July 1996 with
the Securities and Exchange Commission which allows the Company to issue up to
$250 million of securities, including preferred stock and subordinated debt. The
Company issued $100 million of Fixed/Adjustable Rate Noncumulative Preferred
Stock on September 30, 1996. The remaining $150 million in securities included
in this shelf registration provide Hibernia with the flexibility to quickly
modify its capital structure to meet competitive and market conditions.
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 (such as 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 $9.4 billion at June 30, 1999, a $1.0 billion
(12%) increase from June 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 92.5% at June 30,
1999, 93.7% at March 31, 1999 and 89.5% at June 30, 1998. The decrease in the
current quarter compared to the first quarter of 1999 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 (such as large-denomination and public
fund certificates of deposit and foreign deposits). Based on average balances,
21.5% of Hibernia's loans and securities were funded by net large liabilities
(total large liabilities less short-term investments) in the second quarter of
1999, down 49 basis points from the first quarter of 1999 and up 308 basis
points from the second quarter of 1998. The level of large liability dependence
is within limits established by management to maintain liquidity and safety.
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 $2.0 billion residential first mortgage
portfolio and $1.0 billion indirect consumer portfolio. The Company also has
$150 million remaining on its shelf registration previously discussed in the
Capital section, 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 second 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 has 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 have 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, such as small business credit card processing and
services supporting securities brokerage businesses. As of June 30, 1999 all
mission critical systems provided by third parties have been remediated, unit
tested and implemented into the current application environment. As of June 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 items such as 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 60% of total loans. 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. The Company has categorized 13 accounts as high risk.
These accounts have a total aggregate maximum potential exposure of only $183.3
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 is also evaluating 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.
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 costs of
approximately $1.7 million, most of which has already been expensed, to upgrade
ATMs, hardware, software and other technology. This investment will be funded
through operating cash flows and will be expensed as incurred.
As of June 30, 1999, the Company has incurred expenses of approximately
$1.5 million, of which $0.1 million occurred in the second quarter of 1999. 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 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
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 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
A report on Form 8-K dated May 18, 1999, was filed by the
registrant reporting Item 5 Other Events.
* Exhibits and Reports on Form 8-K have been separately filed with the
Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized to sign on behalf of the registrant.
HIBERNIA CORPORATION
(Registrant)
Date: August 13, 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)
EXHIBIT 10.44
CHANGE OF CONTROL EMPLOYMENT AGREEMENT
THIS AGREEMENT, which shall only become effective as an employment
agreement upon satisfaction of the conditions described in Section 1 hereof, is
made as of the 8th day of April, 1996 between and among Hibernia Corporation, a
Louisiana corporation (the "Company"), Hibernia National Bank, a national
banking association (the "Bank") (collectively, with their direct and indirect
subsidiaries, ("Hibernia") and _______________ ("Executive").
W I T N E S S E T H:
WHEREAS, Hibernia and/or the Bank employs Executive in a position of
significant authority and responsibility;
WHEREAS, Hibernia on behalf of itself and its shareholders, wishes to
attract and retain well-qualified executives and key personnel and to assure
itself of the continuity of its management;
WHEREAS, Hibernia recognizes that Executive is a valuable resource and,
in the event of a change of control of the Company or the Bank, Hibernia desires
to assure itself of Executive's continued loyalty and services or, in the event
Executive is terminated or adversely modified as a result thereof, to assure
Executive of adequate severance; and
WHEREAS, in the event of a change of control of Hibernia, Hibernia
desires to assure, as much as possible, that its management team remains intact
for a period of time after the change of control in order to assure a smooth
transition and to increase the value of its franchise to its shareholders.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Employment.
In the event of a change of control of Hibernia or the Bank, as defined
herein below, Hibernia hereby agrees to continue Executive in its employ, and
Executive hereby agrees to remain in the employ of Hibernia, for the period
commencing on the Effective Date of the change in control, as defined herein
below, and ending on the last day of the month that is [two years/one year]
after the Effective Date (the "Employment Period"). It is hereby acknowledged
and agreed that this Agreement shall not operate to ensure employment, and shall
not constitute an employment agreement, until and unless a change of control, as
defined herein, occurs, and, in the event of a change of control, only for the
Employment Period, as defined above.
2. Position and Duties.
(a) During the Employment Period, Executive shall hold such position
and exercise such authority and perform such duties as are commensurate with the
position held and authority being exercised and duties being performed by
Executive immediately prior to the Effective Date, which services shall be
performed at the location where Executive was employed immediately prior to the
Effective Date or at such other location as Hibernia may reasonably require
within a 20-mile radius of the location at which Executive was employed
immediately prior to the Effective Date. The position, authority and duties of
Executive shall be deemed to be not commensurate with Executive's previous
position, authority or duties if (i) Hibernia becomes a direct or indirect
subsidiary of another corporation or corporations or becomes controlled,
directly or indirectly, by one or more unincorporated entities ("parent
company") or (ii) all or substantially all of the assets of Hibernia are
acquired by another corporation or unincorporated entity or group of
corporations or unincorporated entities owned or controlled, directly or
indirectly, by another corporation or unincorporated entity ("successor"),
unless, in either case, Executive's position, authority and duties with such
parent company or successor are at least commensurate in all material respects
with those held, exercised and assigned with Hibernia immediately prior to the
Effective Date.
(b) Excluding periods of vacation and sick leave to which Executive is
entitled, Executive agrees that during the Employment Period Executive shall
devote his or her full business time and attention to Executive's
responsibilities as described herein and shall perform such duties and
responsibilities faithfully and efficiently. Notwithstanding the foregoing,
Executive may engage in such outside professional, civic, charitable and
personal activities as are permitted by Hibernia's Code of Ethics and which do
not materially interfere with the performance of Executive's duties and
responsibilities.
3. Compensation and Benefits.
During the Employment Period, Executive shall receive the following
compensation and benefits:
(a) An annual base salary which is not less than his or her annual base
salary immediately prior to the Effective Date. During the Employment Period,
Executive's annual base salary shall be reviewed at least annually and shall be
increased from time to time consistent with increases in annual base salary
awarded in the ordinary course of business to other executives and key
employees. Any increase in annual base salary shall not limit or reduce any
other obligation to Executive under this Agreement. Hibernia shall not reduce
Executive's annual base salary during the Employment Period without Executive's
consent.
(b) A bonus (either pursuant to a bonus or incentive plan or program of
Hibernia or otherwise) in cash at least equal to the product of the average of
the bonus payout ratio1 for the three years (or such shorter period as Executive
has been employed by Hibernia) prior to the Effective Date (expressed as a
fraction) times the target bonus for the year in question (such bonus is
hereinafter sometimes referred to as the "Employment Period Bonus"). For
purposes of this paragraph (b), the parties acknowledge and agree that the bonus
payout ratio is the percentage of Executive's target bonus for the year(s) in
question which was actually awarded to Executive in the year(s) in question. The
annual bonus shall be payable within 60 days after the end of each fiscal year.
(c) Notwithstanding anything in paragraph (b) above to the contrary,
however, Executive shall not be entitled to an Employment Period Bonus with
respect to any year for which no bonuses have been or will be paid to any
officer eligible to receive a bonus from Hibernia. It is expressly understood
and agreed by the parties hereto that any bonus, regardless when paid, that is
paid to any officer of Hibernia that relates to a year to which an Employment
Period Bonus is otherwise required to be paid, shall require the payment of an
Employment Period Bonus to Executive.
(d) Executive shall be eligible to participate and to continue existing
participation in any and all incentive compensation plans of Hibernia which
provide opportunities to receive compensation in addition to annual base salary
and cash bonus on the same terms and conditions as other executives and key
employees of Hibernia.
(e) Executive shall be entitled to participate in salaried employee
benefit plans of Hibernia and receive perquisites on the same terms and
conditions as other executives and key employees of Hibernia.
(f) Executive shall be entitled to continue to accrue credited service
for retirement benefits and receive retirement benefits under and pursuant to
the terms of any qualified retirement plan of Hibernia or supplemental executive
retirement plan of Hibernia in effect on the Effective Date, on the same terms
and conditions as other executives and key employees of Hibernia.
4. Termination.
(a) Executive acknowledges and agrees that his or her employment is at
the pleasure of the Board of Directors (or, to the extent so delegated by such
Board, the Chief Executive Officer) of the Bank and/or the Company and that he
or she may be removed at any time by the Board of Directors (or, to the extent
so delegated by such Board, the Chief Executive Officer). Hibernia acknowledges
and agrees that Executive may resign his or her employment with Hibernia at any
time with or without Good Reason as hereinafter defined. If, at any time after
the Effective Date of a change in control and prior to the expiration of the
Employment Period, Executive is removed from the position which Executive held
prior to the Effective Date of a change in control, as hereinafter defined,
other than for cause or as a result of Executive's disability, or if Executive
resigns his or her position for Good Reason, the Bank shall pay to Executive a
lump sum severance amount equal to the aggregate salary remaining unpaid during
the unexpired portion of the Employment Period, plus an amount equal to the
product of the bonus, if any, that would be payable to Executive pursuant to
Section 3 hereof times the fraction, the numerator of which is the number of
months remaining in the unexpired portion of the Employment Period and the
denominator of which is [twenty-four/twelve].
(b) In order to ensure a smooth transition of management in the event
of a change of control, Executive may also resign his or her employment
voluntarily, with or without Good Reason, during the thirty-day period following
the date that is six months after the Effective Date of a change of control,
and, if Executive so terminates his employment, Executive shall be entitled to a
lump sum severance amount equal to the aggregate salary remaining unpaid during
the unexpired portion of the Employment Period, plus an amount equal to one-half
of his or her Employment Period Bonus.
(c) In the event of termination pursuant to this Section 4(a) or
Section 4(b), the Company shall provide career counseling services for the
benefit of Executive for a period of [twelve/six] months following termination
of employment, including, but not limited to, the use of a telephone,
photocopying and fax equipment and counseling services relating to availability
of other job opportunities, all at no charge or cost to Executive.
(d) In the event Executive remains in the employ of the Bank for the
entire Employment Period (commencing on the Effective Date), and this Agreement
is not terminated by Employee and the Bank or by its terms, then this Agreement
shall terminate on the date that falls [two years/one year] after the Effective
Date.
(e) Notwithstanding anything in this Section 4 to the contrary,
Executive and Hibernia hereby acknowledge and agree that the parties hereto may,
upon the mutual consent of all parties hereto, modify or amend the provisions
hereof or terminate this Agreement at any time before or after the Effective
Date and that, upon such termination, the provisions hereof shall have no
further force or effect.
(f) If it shall be determined that any payment to Executive pursuant to
this Section 4 of this Agreement (a "Payment") would be subject to any Taxes (as
defined below), then Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by Executive
of all Taxes imposed upon the Gross-Up Payment, Executive retains an amount of
the Gross-Up Payment equal to the Taxes imposed on the Payment.
5. Confidential and Proprietary Information.
Executive acknowledges and agrees that any and all non public
information regarding Hibernia and its customers is confidential and the
unauthorized disclosure of such information will result in irreparable harm to
Hibernia. An Executive shall not, during his employment by Hibernia and for a
period of five years thereafter, disclose or permit the disclosure of any such
information to any person other than an employee of Hibernia or an individual
engaged by Hibernia to render professional services to Hibernia under
circumstances that require such person to maintain the confidentiality of such
information, except as such disclosure may be required by law. The provisions of
this Section 5 shall survive any termination of this Agreement. For purposes of
this Section 5, the term "confidential information" shall not include
information that (i) was or becomes generally available to the public other than
as a result of disclosure by Executive, (ii) was or becomes available to
Executive on a non confidential basis from a source other than Hibernia.
6. Definitions.
For purposes of this Agreement, the following terms shall have the
meanings given them in this Section 6.
(a) "Cause" shall mean a material breach by Executive of his
obligations under Section 2 of this Agreement or any failure or refusal to
perform the material duties associated with his position.
(b) "Good Reason" shall mean (i) the assignment to Executive of duties
that are materially inconsistent with Executive's position, authority, duties or
responsibilities immediately prior to the change in control, or any other action
by Hibernia which results in a material diminution in such position, authority,
duties or responsibilities; or (ii) requiring Executive, without his consent, to
be based at any office or location other than the office or location at which
Executive was employed immediately prior to the change in control; provided,
however, that any such relocation requests shall not be grounds for resignation
with Good Reason if such relocation is within a twenty-mile radius of the
location at which Executive was based prior to the Effective Date of a change in
control.
(c) "Disability" shall mean circumstances that qualify Executive for
long-term disability benefits under Hibernia's Long-Term Disability Plan as in
effect immediately prior to the change in control.
(d) "Change of control" shall be deemed to occur if (i) a person,
including a "group" as defined in Section 13(d)(3) of the Securities and
Exchange Act of 1934 and the rules and regulations promulgated there under,
becomes the beneficial owner of shares of Hibernia having 50% or more of the
voting power of Hibernia, (ii) Hibernia shall have sold or disposed of all or
substantially all of its assets or substantially all of the assets of the Bank,
or (iii) during any period of two consecutive calendar years, the individuals
who, at the beginning of such period, constitute the Board of Directors of the
Company cease for any reason to constitute at least a majority thereof, unless
the election or the nomination for election by the Company shareholders of each
new director was approved by a vote of at least a majority of the directors then
still in office who were directors at the beginning of the period or persons
nominated or elected by such directors. The Effective Date of a change in
control for purposes of this Agreement shall be (A) the date on which Hibernia
receives a copy of a Schedule 13D disclosing beneficial ownership of shares in
accordance with (d)(i) above; (B) the closing date of a sale of assets by
Hibernia in accordance with (d)(ii) above; or (C) the date of the annual or
special meeting of shareholders at which the last director necessary to meet the
requirements of (d)(iii) above is elected.
(e) "Taxes" shall mean the incremental United States federal, state and
local income, excise and other taxes including, but without limitation, the
excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, as
amended, payable to Executive with respect to any applicable item of income.
7. Liability of the Company; Regulatory Restrictions.
The parties recognize that the enforceability of employment contracts
with national banks are subject to some uncertainty and that national banks and
their bank holding companies are subject to regulatory restrictions that change
from time to time. As a result, Executive may be prevented from obtaining or
enforcing any or all of his rights here under from the Bank or the Company. The
Company agrees that if, for any reason, the Bank is prevented from performing
its obligations here under, the Company will perform each and every obligation
as if it were the sole party to the Agreement and without regard to whether the
Agreement specifies certain obligations to be those of the Bank rather than the
Company; provided, however, nothing herein shall require the Company to perform
any obligation if such performance is prohibited or limited by applicable law or
regulation, as determined in a proceeding or adjudication by a court, tribunal,
or regulatory agency having authority to so determine, which determination is
final and subject to no further appeals. The parties further acknowledge and
agree that it is the intent of this Agreement that it be enforced to the fullest
degree permitted by law and regulation.
8. Notices.
All notices and other communications provided for by this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
in person or mailed by United States Certified Mail, return receipt requested,
postage prepaid, addressed as follows:
If to Executive:
If to Hibernia:
Hibernia Corporation (or Hibernia National Bank)
313 Carondelet Street
New Orleans, Louisiana 70130
Attention: Director, Human Resources
or to such other addresses any party may have furnished to the other in writing
in accordance with this Agreement.
9. Governing Law.
The provisions of this Agreement shall be interpreted and construed in
accordance with, and enforcement may be made under, the law of the State of
Louisiana.
10. Successors and Assigns.
Except as otherwise provided herein, this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
11. Severability.
If any provision or portion of this Agreement shall be determined to be
invalid or unenforceable for any reason, the remaining provisions of this
Agreement shall be unaffected thereby and shall remain in full force and effect
to the fullest extent permitted by applicable law.
12. Entire Agreement; Amendment.
This Agreement sets forth the entire Agreement of the parties hereto
and supersedes all prior agreements, understandings and covenants with respect
to the subject matter hereof. This Agreement may be amended or terminated only
by mutual agreement of the parties in writing.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
HIBERNIA NATIONAL BANK HIBERNIA CORPORATION
By: _______________________ By:_______________________
Title: ____________________ Title: ___________________
EXECUTIVE
--------------------------
- --------
1 The bonus payout ratio shall be the percentage of the target bonus for
Executive, which target bonus is expressed as a percentage of annual base salary
and which is established in advance of each fiscal year by Hibernia, which is
actually awarded in that year. For example, if the target bonus is 50% of base
salary, and the award is 25% of the target, then the bonus payout ratio is 25%.
For purposes of this provision, the bonus payout ratios for the three years in
question would be aggregated and divided by three, and the resulting average
would be applied to the target bonus for the Executive in the year in which the
Employment Period Bonus would be paid.
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