<PAGE>
HIBERNIA CORPORATION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2000 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
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (504) 533-5332
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 2000
---------------------------------- -------------------------------
Class A Common Stock, no par value 158,547,873 Shares
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Hibernia Corporation and Subsidiaries September 30 December 31 September 30
Unaudited ($ in thousands) 2000 1999 1999
====================================================================================================================================
<S> <C> <C> <C>
Assets
Cash and cash equivalents ............................................. $ 576,444 $ 827,699 $ 762,602
Securities available for sale ......................................... 2,700,774 2,660,322 2,738,944
Securities held to maturity (estimated fair value of $363,728 and
$297,072 at September 30, 2000 and December 31, 1999, respectively) 377,270 300,525 -
Mortgage loans held for sale .......................................... 117,285 92,704 106,447
Loans, net of unearned income ......................................... 11,838,792 10,856,676 10,876,053
Reserve for loan losses ........................................... (162,704) (156,072) (156,282)
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Loans, net .................................................... 11,676,088 10,700,604 10,719,771
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Premises and equipment ................................................ 207,113 205,165 206,149
Customers' acceptance liability ....................................... 10 108 176
Other assets .......................................................... 584,149 527,052 511,843
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Total assets .................................................. $ 16,239,133 $ 15,314,179 $ 15,045,932
====================================================================================================================================
Liabilities
Deposits:
Noninterest-bearing ............................................... $ 2,181,620 $ 2,085,322 $ 2,048,787
Interest-bearing .................................................. 10,034,732 9,770,581 9,410,765
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Total deposits ................................................ 12,216,352 11,855,903 11,459,552
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Short-term borrowings ................................................. 1,335,213 1,102,690 1,024,788
Liability on acceptances .............................................. 10 108 176
Other liabilities ..................................................... 175,666 135,114 149,228
Federal Home Loan Bank advances ....................................... 1,044,212 844,849 1,045,060
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Total liabilities ............................................. 14,771,453 13,938,664 13,678,804
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Shareholders' equity
Preferred Stock, no par value:
Authorized - 100,000,000 shares; Series A issued and outstanding -
1,860,000, 2,000,000 and 2,000,000 at September 30, 2000,
December 31, 1999 and September 30, 1999, respectively ........... 93,000 100,000 100,000
Class A Common Stock, no par value:
Authorized - 300,000,000 shares; issued - 160,954,160,
160,324,729 and 160,283,151 at September 30, 2000,
December 31, 1999 and September 30, 1999, respectively ........... 309,032 307,824 307,744
Surplus ............................................................... 431,879 425,185 424,395
Retained earnings ..................................................... 723,049 631,314 603,206
Treasury stock at cost: 1,969,720 shares at September 30, 2000 ........ (21,155) - -
Accumulated other comprehensive income ................................ (33,439) (54,122) (30,466)
Unearned compensation ................................................. (34,686) (34,686) (37,751)
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Total shareholders' equity .................................... 1,467,680 1,375,515 1,367,128
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Total liabilities and shareholders' equity .................... $ 16,239,133 $ 15,314,179 $ 15,045,932
====================================================================================================================================
----------------
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Income Statements
Hibernia Corporation and Subsidiaries
Three Months Ended Nine Months Ended
September 30 September 30
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Unaudited ($ in thousands, except per-share data) 2000 1999 2000 1999
====================================================================================================================================
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans ...................... $ 259,829 $ 222,561 $ 741,815 $ 632,728
Interest on securities available for sale ....... 43,133 42,691 129,997 126,779
Interest on securities held to maturity ......... 6,004 - 16,317 -
Interest on short-term investments .............. 1,822 2,981 6,329 9,430
Interest and fees on mortgage loans held for sale 1,895 2,247 4,815 9,244
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Total interest income ....................... 312,683 270,480 899,273 778,181
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Interest expense
Interest on deposits ............................ 126,042 94,386 352,316 269,058
Interest on short-term borrowings ............... 21,027 14,958 54,814 39,757
Interest on Federal Home Loan Bank advances ..... 11,663 11,432 35,643 33,776
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Total interest expense ...................... 158,732 120,776 442,773 342,591
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Net interest income ................................. 153,951 149,704 456,500 435,590
Provision for loan losses ....................... 17,400 28,500 50,650 70,700
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Net interest income after provision for loan losses . 136,551 121,204 405,850 364,890
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Noninterest income
Service charges on deposits ..................... 26,296 24,931 75,563 71,657
Retail investment service fees .................. 6,922 5,302 22,304 15,529
Trust fees ...................................... 6,369 6,610 20,272 16,815
Mortgage loan origination and servicing fees .... 5,762 4,811 16,735 13,751
Investment banking .............................. 2,420 - 6,021 -
Insurance ....................................... 3,033 662 4,159 2,050
Other service, collection and exchange charges .. 10,596 9,453 31,125 26,361
Other operating income .......................... 2,817 4,029 9,617 13,112
Securities gains (losses), net .................. 11 (1) (3,690) 408
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Total noninterest income .................... 64,226 55,797 182,106 159,683
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Noninterest expense
Salaries and employee benefits .................. 62,696 42,288 179,797 158,267
Occupancy expense, net .......................... 8,903 8,507 26,190 24,609
Equipment expense ............................... 7,147 8,068 22,016 25,108
Data processing expense ......................... 6,615 8,003 22,462 23,822
Advertising and promotional expense ............. 3,282 4,063 10,819 11,322
Foreclosed property expense, net ................ (33) 26 363 (399)
Amortization of intangibles ..................... 7,115 7,088 20,388 16,950
Other operating expense ......................... 23,547 22,779 69,064 69,067
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Total noninterest expense ................... 119,272 100,822 351,099 328,746
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Income before income taxes .......................... 81,505 76,179 236,857 195,827
Income tax expense .................................. 28,442 26,711 83,652 69,435
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Net income .......................................... $ 53,063 $ 49,468 $ 153,205 $ 126,392
====================================================================================================================================
Net income applicable to common shareholders ........ $ 51,459 $ 47,743 $ 148,272 $ 121,217
====================================================================================================================================
Net income per common share ......................... $ 0.33 $ 0.30 $ 0.94 $ 0.77
====================================================================================================================================
Net income per common share - assuming dilution ..... $ 0.33 $ 0.30 $ 0.94 $ 0.76
====================================================================================================================================
----------------
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, 1999 ........... $ 100,000 $ 307,824 $ 425,185 $ 631,314 $ (54,122) $ (34,686)
Net income .............................. - - - 153,205 - - $ 153,205
Unrealized gains (losses) on securities,
net of reclassification adjustments - - - - 20,683 - 20,683
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Comprehensive income .................... $ 173,888
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Issuance of common stock:
Stock Option Plan .................... - 168 418 - - 572
Restricted stock awards .............. - 25 119 - - -
Shares issued in acquisitions - 1,015 4,264 - - 1,641
Cash dividends declared:
Preferred ($2.5875 per share) ........ - - - (4,933) - -
Common ($.36 per share) .............. - - - (56,537) - -
Issuance of 790,888 common stock
purchase warrants in acquisitions - - 2,000 - - -
Acquisition of treasury stock ........... - - - - - (23,368)
Redemption of preferred stock ........... (7,000) - 131 - - -
Other ................................... - - (238) - - -
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Balances at September 30, 2000 .......... $ 93,000 $ 309,032 $ 431,879 $ 723,049 $ (33,439) $ (55,841)
====================================================================================================================================
====================================================================================================================================
Accumulated
Other
Preferred Common Retained Comprehensive Comprehensive
Stock Stock Surplus Earnings Income Other Income
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1998 ........... $ 100,000 $ 306,913 $ 416,269 $ 531,233 $ 27,938 $ (37,751)
Net income .............................. - - - 126,392 - - $ 126,392
Unrealized gains (losses) on securities,
net of reclassification adjustments - - - - (58,404) - (58,404)
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Comprehensive income .................... $ 67,988
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Issuance of common stock:
Stock Option Plan .................... - 810 2,773 - - -
Restricted stock awards .............. - 21 137 - - -
By pooled companies prior to merger - - 5,387 - - -
Cash dividends declared:
Preferred ($2.5875 per share) ........ - - - (5,175) - -
Common ($.315 per share) ............. - - - (49,117) - -
By pooled companies prior to merger - - - (127) - -
Other ................................... - - (171) - - -
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Balances at September 30, 1999 .......... $ 100,000 $ 307,744 $ 424,395 $ 603,206 $ (30,466) $ (37,751)
====================================================================================================================================
----------------
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Hibernia Corporation and Subsidiaries
Nine Months Ended September 30
Unaudited ($ in thousands) 2000 1999
====================================================================================================================================
<S> <C> <C>
Operating activities
Net income ............................................................ $ 153,205 $ 126,392
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses ...................................... 50,650 70,700
Amortization of intangibles and deferred charges ............... 20,308 16,867
Depreciation and amortization .................................. 20,697 22,583
Non-cash compensation expense .................................. - 4,385
Premium amortization (discount accretion), net ................. (2,196) 5,222
Realized securities losses (gains), net ........................ 3,690 (408)
Gains on sales of assets, net .................................. (1,410) (2,461)
Provision for losses on foreclosed and other assets ............ 759 1,121
Decrease (increase) in mortgage loans held for sale ............ (24,581) 174,987
Decrease (increase) in deferred income tax asset ............... (2,021) 216
Increase in interest receivable and other assets ............... (22,731) (18,611)
Increase (decrease) in interest payable and other liabilities .. 25,371 (3,259)
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Net cash provided by operating activities ........................ 221,741 397,734
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Investing activities
Purchases of securities available for sale ............................ (1,453,366) (237,008)
Purchases of securities held to maturity .............................. (112,476) -
Proceeds from maturities of securities available for sale ............. 1,423,972 313,673
Proceeds from maturities of securities held to maturity ............... 35,692 -
Proceeds from sales of securities available for sale .................. 19,975 59,960
Net increase in loans ................................................. (559,489) (689,248)
Proceeds from sales of loans .......................................... 4,162 81,698
Purchases of loans .................................................... (437,122) (444,418)
Purchases of premises, equipment and other assets ..................... (27,033) (42,239)
Proceeds from sales of foreclosed assets and excess bank-owned property 6,986 5,164
Proceeds from sales of premises, equipment and other assets ........... 884 2,040
Acquisitions, net of cash acquired of $78,049 and $277,702 for the
periods ended September 30, 2000 and 1999, respectively ......... 43,287 188,552
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Net cash used by investing activities ............................ (1,054,528) (761,826)
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Financing activities
Net increase in deposits .............................................. 240,616 102,132
Net increase (decrease) in short-term borrowings ...................... 232,523 (109,348)
Proceeds from Federal Home Loan Bank advances ......................... 300,000 240,000
Payments on Federal Home Loan Bank advances ........................... (100,937) (1,277)
Proceeds from issuance of common stock ................................ 1,158 4,585
Dividends paid ........................................................ (61,591) (54,419)
Redemption of preferred shares ........................................ (6,869) -
Acquisition of treasury stock ......................................... (23,368) -
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Net cash provided by financing activities ........................ 581,532 181,673
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Decrease in cash and cash equivalents ................................... (251,255) (182,419)
Cash and cash equivalents at beginning of period ........................ 827,699 945,021
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Cash and cash equivalents at end of period ....................... $ 576,444 $ 762,602
====================================================================================================================================
----------------
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 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, 1999.
Note 2
Merger Agreements
On April 1, 2000 Hibernia Corporation (the Company) purchased Southcoast
Capital, L.L.C. (Southcoast). Southcoast is a full-service investment banking
firm providing corporate finance, equity research, institutional equity sales
and trading services. Under the purchase method of accounting, the assets and
liabilities of Southcoast were adjusted to their estimated fair values as of the
purchase date and their financial results are included from the date of
consummation of the merger. The excess of cost over the fair value of net assets
acquired was approximately $4.3 million and is being amortized on a
straight-line basis over 20 years.
On June 22, 2000 Hibernia National Bank purchased the assets and assumed
the liabilities of three East Texas banking offices of Compass Bank for $56.5
million. This transaction resulted in the acquisition of $38.9 million of
selected loans and $114.9 million in deposits. Under the purchase method of
accounting, the assets and liabilities of the branches were adjusted to their
estimated fair values as of the purchase date. The excess of cost over the fair
value of net assets acquired was $10.6 million and is being amortized on a
straight-line basis over 20 years. Intangibles of $3.1 million related to core
deposits were also recorded and are being amortized on an accelerated basis over
approximately ten years.
On July 6, 2000 Hibernia Corporation purchased The Rosenthal Agency
(Rosenthal), an independent insurance broker. Under the purchase method of
accounting, the assets and liabilities of Rosenthal were adjusted to their
estimated fair values as of the purchase date and their financial results are
included from the date of consummation of the merger. The excess of cost over
the fair value of net assets acquired was approximately $22.6 million and is
being amortized on a straight-line basis over 15 years.
Unaudited pro forma data giving effect to the purchase transactions
discussed above and the Beaumont transaction in the second quarter of 1999, as
if the transactions had occurred at the beginning of each period presented, is
included in the table below. Unaudited pro forma data is not necessarily
indicative of future results.
Nine months ended September 30
------------------------------
2000 1999
---- ----
($ in thousands, except per-share data)
Net interest and noninterest income $649,146 $623,260
Net income $152,253 $124,647
Net income per common share $ .94 $ .76
Net income per common share - assuming dilution $ .93 $ .75
Note 3
Employee Benefit Plans
The Company's stock option plans provide incentive and non-qualified
options to various key employees and non-employee directors. Options granted to
directors upon inception of service as a director vest in six months and are
granted at the fair market value of the stock at the date of grant. Until
October 1997 those options were granted under the 1987 Stock Option Plan; since
October 1997 those options have been granted under the 1993 Directors' Stock
Option Plan. Options granted under the 1987 Stock Option Plan, the Long-Term
Incentive Plan and the 1993 Directors' Stock Option Plan become exercisable in
the following increments: 50% after the expiration of two years from the date of
grant, an additional 25% three years from the date of grant and the remaining
25% four years from the date of grant, and were granted at the fair market value
of the stock at the date of grant.
Options granted to employees and directors, other than the chief executive
officer, become immediately exercisable if the holder of the option dies while
the option is outstanding. Options granted under the 1987 Stock Option Plan
generally expire 10 years from the date granted. Options granted under the
Long-Term Incentive Plan and the 1993 Directors' Stock Option Plan generally
expire 10 years from the date of grant unless the holder dies, retires, becomes
permanently disabled or leaves the employ of the Company, at which time the
options expire at various times ranging from 30 to 365 days. All options vest
immediately upon a change in control of the Company.
The following tables summarize the option activity in the plans during the
third quarter of 2000. During 1997, the 1987 Stock Option Plan was terminated;
therefore, at September 30, 2000 there are no shares available for grant under
this plan. The termination did not impact options outstanding under the 1987
Stock Option Plan.
<TABLE>
<CAPTION>
============================================================================================================================
Weighted
Average
Incentive Non-Qualified Total Exercise Price
============================================================================================================================
<S> <C> <C> <C> <C>
1987 Stock Option Plan:
Outstanding, June 30, 2000 ............ 43,913 1,083,012 1,126,925 $ 6.10
Canceled .............................. - (2,000) (2,000) 14.94
Exercised ............................. - (1,733) (1,733) 4.94
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Outstanding, September 30, 2000 ....... 43,913 1,079,279 1,123,192 $ 6.09
============================================================================================================================
Exercisable, September 30, 2000 ....... 43,913 1,079,279 1,123,192 $ 6.09
============================================================================================================================
Long-Term Incentive Plan:
Outstanding, June 30, 2000 ............ 12,598 11,280,600 11,293,198 $ 12.34
Granted ............................... - 3,500 3,500 9.91
Canceled .............................. - (207,553) (207,553) 13.53
Exercised ............................. - (82,062) (82,062) 8.65
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Outstanding, September 30, 2000 ....... 12,598 10,994,485 11,007,083 $ 12.34
============================================================================================================================
Exercisable, September 30, 2000 ....... 12,598 5,155,063 5,167,661 $ 11.03
============================================================================================================================
Available for grant, September 30, 2000 1,171,609
============================================================================================================================
1993 Directors' Stock Option Plan:
Outstanding, June 30, 2000 ............ - 430,000 430,000 $ 12.20
----------------------------------------------------------------------------------------------------------------------------
Outstanding, September 30, 2000 ....... - 430,000 430,000 $ 12.20
============================================================================================================================
Exercisable, September 30, 2000 ....... - 273,750 273,750 $ 11.59
============================================================================================================================
Available for grant, September 30, 2000 442,500
============================================================================================================================
</TABLE>
In addition to the above option activity in the plans, 10,000 shares of
restricted stock were awarded under the Long-Term Incentive Plan during the
third quarter of 2000.
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 per-share data) Three Months Ended September 30 Nine Months Ended Sept. 30
------------------------------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Numerator:
Net income .................................... $ 53,063 $ 49,468 $ 153,205 $ 126,392
Preferred stock dividends ..................... 1,604 1,725 4,933 5,175
------------------------------------------------------------------------------------------------------------------------------------
Numerator for net income per common share ..... 51,459 47,743 148,272 121,217
Effect of dilutive securities ................. - - - -
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Numerator for net income per common
share - assuming dilution ................. $ 51,459 $ 47,743 $ 148,272 $ 121,217
====================================================================================================================================
Denominator:
Denominator for net income per common
share (weighted average shares outstanding) 156,427,005 157,353,827 156,956,737 157,165,542
Effect of dilutive securities:
Stock options ............................. 1,377,683 1,424,761 1,118,728 1,674,907
Restricted stock awards ................... 159,785 100,900 159,785 100,900
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Denominator for net income per common
share - assuming dilution ................. 157,964,473 158,879,488 158,235,250 158,941,349
====================================================================================================================================
Net income per common share ....................... $ 0.33 $ 0.30 $ 0.94 $ 0.77
====================================================================================================================================
Net income per common share - assuming dilution ... $ 0.33 $ 0.30 $ 0.94 $ 0.76
====================================================================================================================================
</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 2,589,001 and 2,875,295 for the three months
ended September 30, 2000 and 1999, respectively, and 2,654,123 and 2,938,093 for
the nine months ended September 30, 2000 and 1999, respectively. The common
shares issued in all mergers accounted for as poolings of interests consummated
in 1999 are considered to be outstanding as of January 1, 1999, the beginning of
the earliest period presented.
Options with an exercise price greater than the average market price of the
Company's Class A Common Stock for the periods presented are antidilutive and,
therefore, are not included in the computation of net income per common share -
assuming dilution. During the three months ended September 30, 2000 and 1999
there were 5,326,160 antidilutive options outstanding with exercise prices
ranging from $12.56 to $21.72 per option, and 4,122,625 antidilutive options
outstanding with exercise prices ranging from $13.88 to $21.72 per option,
respectively. During the nine months ended September 30, 2000 and 1999 there
were 5,346,660 antidilutive options outstanding with exercise prices ranging
from $11.16 to $21.72 per option, and 4,055,625 antidilutive options outstanding
with exercise prices ranging from $14.94 to $21.72 per option, respectively.
Note 5
Segment Information
The Company's segment information is presented by line of business. Each
line of business is a strategic unit that provides various products and services
to groups of customers that have certain common characteristics. The basis of
segmentation and the accounting policies used by each segment are consistent
with that described in the December 31, 1999 Annual Report. There are no
significant intersegment revenues.
The following table presents selected financial information for each
segment.
<TABLE>
<CAPTION>
====================================================================================================================================
Small Investments
Commercial Business Consumer and Public Segment
($ in thousands) Banking Banking Banking Funds Other Total
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Nine months ended Sept. 30, 2000
Average loans .................... $ 3,650,900 $ 2,354,400 $ 5,315,400 $ 900 $ 23,100 $ 11,344,700
Average assets ................... $ 3,703,800 $ 2,359,400 $ 8,149,000 $ 3,141,100 $ 693,400 $ 18,046,700
Average deposits ................. $ 1,020,500 $ 1,719,300 $ 7,117,700 $ 1,908,200 $ 3,500 $ 11,769,200
Net interest income .............. $ 96,254 $ 115,423 $ 227,581 $ 19,632 $ 1,221 $ 460,111
Noninterest income ............... $ 24,909 $ 19,191 $ 137,989 $ 1,017 $ 6,253 $ 189,359
Net income ....................... $ 26,582 $ 35,691 $ 93,239 $ 8,865 $ (9,280) $ 155,097
====================================================================================================================================
Nine months ended Sept. 30, 1999
Average loans .................... $ 3,967,100 $ 2,143,400 $ 4,167,200 $ 1,500 $ 33,900 $ 10,313,100
Average assets ................... $ 4,026,300 $ 2,187,400 $ 7,659,600 $ 3,107,600 $ 552,900 $ 17,533,800
Average deposits ................. $ 792,600 $ 1,456,900 $ 6,587,700 $ 1,856,900 $ 60,000 $ 10,754,100
Net interest income .............. $ 99,581 $ 104,635 $ 203,915 $ 45,652 $ (14,334) $ 439,399
Noninterest income ............... $ 20,499 $ 15,243 $ 123,219 $ 737 $ 5,797 $ 165,495
Net income ....................... $ 29,992 $ 24,666 $ 50,590 $ 26,315 $ (2,467) $ 129,096
====================================================================================================================================
</TABLE>
The following is a reconciliation of segment totals to consolidated totals.
<TABLE>
<CAPTION>
====================================================================================================================================
Average Average Average Net Interest Noninterest
($ in thousands) Loans Assets Deposits Income Income Net Income
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Nine months ended Sept. 30, 2000
Segment total .................... $ 11,344,700 $ 18,046,700 $ 11,769,200 $ 460,111 $ 189,359 $ 155,097
Excess funds invested .......... - (2,632,100) - - - -
Reclassification of cash items
in process of collection ..... - 308,700 308,700 - - -
Taxable-equivalent adjustment on
tax exempt loans ............. - - - (3,611) - (2,347)
Mortgage servicing rights ...... - (23,000) - - (7,253) (2,889)
Income tax expense ............. - - - - - 3,344
------------------------------------------------------------------------------------------------------------------------------------
Consolidated total ............... $ 11,344,700 $ 15,700,300 $ 12,077,900 $ 456,500 $ 182,106 $ 153,205
====================================================================================================================================
Nine months ended Sept. 30, 1999
Segment total .................... $ 10,313,100 $ 17,533,800 $ 10,754,100 $ 439,399 $ 165,495 $ 129,096
Excess funds invested .......... - (3,305,800) - - - -
Reclassification of cash items
in process of collection ..... - 296,100 296,100 - - -
Taxable-equivalent adjustment on
tax exempt loans ............. - - - (3,809) - (2,476)
Mortgage servicing rights ...... - (16,900) - - (5,812) (2,424)
Income tax expense ............. - - - - - 2,196
------------------------------------------------------------------------------------------------------------------------------------
Consolidated total ............... $ 10,313,100 $ 14,507,200 $ 11,050,200 $ 435,590 $ 159,683 $ 126,392
====================================================================================================================================
</TABLE>
Note 6
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
Subsequently, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," which defers the effective date of SFAS No. 133 to apply to
all financial statements for years beginning after June 15, 2000. The FASB also
issued SFAS No. 138, which amends certain provisions of SFAS No. 133 by
providing implementation guidance in selected areas. Because of the limited use
of derivatives, management does not anticipate that the adoption of SFAS No.133
will have a material impact on the financial condition or operating results of
the Company.
Derivative financial instruments are held or issued by the Company for
trading purposes to provide customers the ability to manage their own interest
rate sensitivity and foreign exchange risk. Matched positions are ordinarily
established to minimize risk to the Company. Notional principal amounts express
the volume of these derivative financial instruments although the amounts
potentially subject to credit and market risk are much smaller. The estimated
fair value represents the net present value of the expected future cash flows of
these derivative financial instruments. The notional value of derivative
financial instruments held for trading for customers at September 30, 2000
totaled $493,702,000, with a net positive fair value of $674,000. In addition to
these customer-related derivative contracts, the Company has entered into
contracts for its own account related to its mortgage origination activity with
a notional amount of $209,315,000 and a net negative fair value of $1,596,000 at
September 30, 2000. The net negative fair value of these contracts is offset by
an increase in the fair value of the mortgage loans held for sale. The Company
has also entered into limited foreign exchange contracts to manage its exposure
to foreign currency changes for certain foreign currency denominated loans.
These contracts have a notional amount of $10,501,000 and a net positive fair
value of $3,000 at September 30, 2000.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED SUMMARY OF INCOME AND SELECTED FINANCIAL DATA (1)
Hibernia Corporation and Subsidiaries
====================================================================================================================================
Three Months Ended Nine Months Ended
------------------------------------------------------------------------------------------------------------------------------------
Sept. 30 June 30 Sept. 30 Sept. 30 Sept. 30
($ in thousands, except per-share data) 2000 2000 1999 2000 1999
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Interest income ..................................... $ 312,683 $ 302,534 $ 270,480 $ 899,273 $ 778,181
Interest expense .................................... 158,732 148,303 120,776 442,773 342,591
------------------------------------------------------------------------------------------------------------------------------------
Net interest income ................................. 153,951 154,231 149,704 456,500 435,590
Provision for loan losses ........................... 17,400 17,000 28,500 50,650 70,700
------------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses ....................... 136,551 137,231 121,204 405,850 364,890
------------------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Noninterest income ............................... 64,215 63,138 55,798 185,796 159,275
Securities gains (losses), net ................... 11 (3,731) (1) (3,690) 408
------------------------------------------------------------------------------------------------------------------------------------
Noninterest income .................................. 64,226 59,407 55,797 182,106 159,683
Noninterest expense ................................. 119,272 118,766 100,822 351,099 328,746
------------------------------------------------------------------------------------------------------------------------------------
Income before taxes ................................. 81,505 77,872 76,179 236,857 195,827
Income tax expense .................................. 28,442 27,861 26,711 83,652 69,435
------------------------------------------------------------------------------------------------------------------------------------
Net income .......................................... $ 53,063 $ 50,011 $ 49,468 $ 153,205 $ 126,392
====================================================================================================================================
Net income applicable to common shareholders ........ $ 51,459 $ 48,407 $ 47,743 $ 148,272 $ 121,217
====================================================================================================================================
Per common share information:
Net income ....................................... $ 0.33 $ 0.31 $ 0.30 $ 0.94 $ 0.77
Net income - assuming dilution ................... $ 0.33 $ 0.31 $ 0.30 $ 0.94 $ 0.76
Cash dividends declared .......................... $ 0.12 $ 0.12 $ 0.105 $ 0.36 $ 0.315
Average shares outstanding (000s) ................... 156,427 156,937 157,354 156,957 157,166
Average shares outstanding - assuming dilution (000s) 157,964 158,363 158,879 158,235 158,941
Dividend payout ratio ............................... 36.36% 38.71% 35.00% 38.30% 40.91%
====================================================================================================================================
Selected quarter-end balances (in millions)
Loans ............................................... $ 11,838.8 $ 11,591.7 $ 10,876.1
Deposits ............................................ 12,216.4 12,261.8 11,459.6
Federal Home Loan Bank advances ..................... 1,044.2 844.4 1,045.1
Equity .............................................. 1,467.7 1,415.4 1,367.1
Total assets ........................................ 16,239.1 15,962.3 15,045.9
====================================================================================================================================
Selected average balances (in millions)
Loans ............................................... $ 11,634.2 $ 11,423.2 $ 10,654.5 $ 11,344.7 $ 10,313.1
Deposits ............................................ 12,273.3 12,082.4 11,304.1 12,077.9 11,050.2
Federal Home Loan Bank advances ..................... 812.8 844.5 815.6 833.9 809.0
Equity .............................................. 1,438.0 1,392.8 1,353.4 1,404.8 1,355.5
Total assets ........................................ 16,019.9 15,788.5 14,827.7 15,700.3 14,507.2
====================================================================================================================================
Selected ratios
Net interest margin (taxable-equivalent) ............ 4.19% 4.27% 4.42% 4.24% 4.39%
Return on assets .................................... 1.32% 1.27% 1.33% 1.32% 1.16%
Return on common equity ............................. 15.30% 14.90% 15.24% 15.09% 12.86%
Return on total equity .............................. 14.76% 14.36% 14.62% 14.54% 12.43%
Efficiency ratio .................................... 54.01% 53.99% 48.30% 54.00% 54.46%
Average equity/average assets ....................... 8.98% 8.82% 9.13% 8.95% 9.34%
Tier 1 risk-based capital ratio ..................... 9.97% 10.00% 9.99%
Total risk-based capital ratio ...................... 11.22% 11.25% 11.24%
Leverage ratio ...................................... 7.88% 7.90% 7.97%
====================================================================================================================================
Cash-basis financial data (2)
Net income applicable to common shareholders ........ $ 55,799 $ 52,288 $ 51,963 $ 160,416 $ 131,160
Net income per common share ......................... $ 0.36 $ 0.33 $ 0.33 $ 1.02 $ 0.83
Net income per common share - assuming dilution ..... $ 0.35 $ 0.33 $ 0.33 $ 1.01 $ 0.83
Return on assets .................................... 1.45% 1.38% 1.47% 1.42% 1.27%
Return on common equity ............................. 19.78% 18.89% 19.70% 19.27% 16.13%
Efficiency ratio .................................... 51.56% 51.78% 45.72% 51.66% 52.47%
Average equity/average assets ....................... 7.73% 7.70% 7.89% 7.77% 8.26%
====================================================================================================================================
----------------
(1) All financial information has been restated for mergers accounted for
as poolings of interests. The effects of mergers accounted for as
purchase transactions have been included from the date of consummation.
Prior periods have been conformed to current-period presentation.
(2) Excluding amortization and balances of purchase accounting intangibles
net of applicable taxes.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's Discussion presents a review of the major factors and trends
affecting the performance of Hibernia Corporation (the "Company" or "Hibernia")
and its subsidiaries, principally Hibernia National Bank (the "Bank"). This
discussion should be read in conjunction with the accompanying tables and
consolidated financial statements.
THIRD-QUARTER 2000 HIGHLIGHTS
Hibernia Corporation's results for the third quarter and first nine months
of 2000 showed strong financial performance and continued growth in loans,
deposits and noninterest income.
o Net income for the third quarter of 2000 totaled $53.1 million ($.33 per
common share), up 7% compared to $49.5 million ($.30 per common share) for
the third quarter of 1999. Net income for the first nine months of 2000
totaled $153.2 million ($.94 per common share), up 21% compared to $126.4
million ($.77 per common share) for the first nine months of 1999.
o Cash-basis net income, excluding merger-related expenses, for the third
quarter of 2000, was $57.4 million ($.36 per common share), up 7% compared
to $53.7 million ($.33 per common share) for the third quarter of 1999.
Cash-basis net income, excluding merger-related expenses, for the first
nine months of 2000, was $165.4 million ($1.02 per common share), up 16%
compared to $142.2 million ($.87 per common share) for the first nine
months of 1999.
o On a taxable-equivalent basis excluding securities transactions, revenues
for the third quarter of 2000 totaled $220.8 million, a $12.1 million (6%)
increase from the third quarter 1999 level of $208.7 million. On a
taxable-equivalent basis excluding securities transactions, revenues for
the first nine months of 2000 totaled $650.2 million, a $46.6 million (8%)
increase from the first nine months of 1999 level of $603.6 million.
o Noninterest income (excluding securities transactions) increased $8.4
million (15%) to $64.2 million for the third quarter of 2000 compared to
the third quarter of 1999. Insurance and investment banking, two of the
Company's newest business lines, helped fuel this growth by contributing
$5.5 million to noninterest income in the third quarter. Noninterest income
(excluding securities transactions) increased $26.5 million (17%) to $185.8
million for the first nine months of 2000 compared to the first nine months
of 1999.
o Total assets increased $1.2 billion (8%) to $16.2 billion at September 30,
2000 compared to September 30, 1999. Shareholders' equity increased $100.6
million (7%) to $1.5 billion at September 30, 2000 compared to September
30, 1999. Book value per common share increased $.74 (9%) to $8.80 at
September 30, 2000 compared to September 30, 1999.
o Total loans increased $1.0 billion (9%) from September 30, 1999 to $11.8
billion at September 30, 2000. Consumer loans grew $1.1 billion (24%) to
$5.9 billion, small business loans increased $45.0 million (2%) to $2.4
billion and commercial loans decreased $211.7 million (6%) to $3.6 billion,
as Hibernia's efforts to diversify the risk of the loan portfolio continued
to show progress.
o Total deposits grew $0.8 billion (7%) from September 30, 1999 to $12.2
billion at September 30, 2000.
o As of September 30, 2000, Hibernia had repurchased approximately 2.0
million shares of its common stock under a plan authorized to buy back up
to 7.5 million shares over 12 months.
o In October 2000, Hibernia's Board of Directors declared a quarterly cash
dividend of 13 cents per common share, an 8% increase from 12 cents per
common share declared in October 1999.
MERGER ACTIVITY
On July 6, 2000, the Company significantly expanded its insurance
capabilities by consummating the purchase of The Rosenthal Agency (Rosenthal),
Louisiana's largest independent insurance broker and the 90th largest in the
United States. Rosenthal's client base includes specialty industries such as
energy and marine, construction and bonding, transportation, real estate,
wholesalers and auto dealerships. On June 22, 2000, the Company completed the
purchase of three East Texas banking offices from Compass Bank (the "Compass
transaction"). This transaction resulted in the acquisition of $115 million in
deposits and selected loans of $39 million. On April 1, 2000, the Company
consummated the purchase of Southcoast Capital, L.L.C. (Southcoast), a
full-service investment banking firm providing corporate finance, equity
research, institutional equity sales and trading services. In accordance with
the purchase method of accounting, the financial results of the purchased
companies are included from the dates of consummation of the mergers.
In the first quarter of 1999, the Company completed a merger with one East
Texas financial institution which was accounted for as a pooling of interests.
All prior-period information has been restated to reflect the effect of this
merger. In the second quarter of 1999, the Company purchased the assets and
assumed the liabilities of the Beaumont branches of Chase Bank of Texas, N.A.
(the "Beaumont transaction"). At the date of purchase the four Beaumont branches
located in Jefferson County, Texas had $172 million in loans, $465 million in
deposits and over $1.4 billion in assets held in trust accounts. 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 13.
The institutions with which the Company merged are collectively referred to
as the "merged companies." The merged companies in transactions accounted for as
poolings of interests are referred to as the "pooled companies," and the merged
companies in transactions accounted for as purchases are referred to as the
"purchased companies."
Hibernia has 264 locations in 34 Louisiana parishes, 16 Texas counties and
two Mississippi counties.
FINANCIAL CONDITION:
EARNING ASSETS
Earning assets averaged $14.9 billion in the third quarter of 2000, a $1.2
billion (8%) increase from the third-quarter 1999 average of $13.8 billion. The
increase in average earning assets was primarily due to loan growth in the
consumer portfolio, as a result of the Company's continued emphasis on real
estate secured loans and an increase in indirect lending. Hibernia has funded
the loan growth through increases in deposits and borrowed funds.
Loans. Average loans for the third quarter of 2000 of $11.6 billion were up
$211.0 million (2%) from the second quarter of 2000 and up $1.0 billion (9%)
compared to the third quarter of 1999. For the first nine months of 2000,
average loans increased $1.0 billion (10%) compared to the first nine months of
1999.
Table 1 presents Hibernia's commercial and small business loans classified
by repayment source and consumer loans classified by type at September 30, 2000,
June 30, 2000 and September 30, 1999. Total loans increased $247.1 million (2%)
during the third quarter of 2000 compared to June 30, 2000 and $962.7 million
(9%) compared to September 30, 1999.
<TABLE>
<CAPTION>
================================================================================================================================
TABLE 1 - COMPOSITION OF LOAN PORTFOLIO
================================================================================================================================
September 30, 2000 June 30, 2000 September 30, 1999
--------------------------------------------------------------------------------------------------------------------------------
($ in millions) Loans Percent Loans Percent Loans Percent
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Commercial:
Commercial and industrial ..... $ 1,436.1 12.1% $ 1,442.3 12.4% $ 1,511.3 13.9%
Services industry ............. 815.7 6.9 848.4 7.3 918.7 8.4
Real estate ................... 463.8 3.9 455.0 3.9 447.2 4.1
Health care ................... 302.7 2.6 299.7 2.6 321.4 3.0
Transportation, communications
and utilities .............. 203.0 1.7 227.5 2.0 229.2 2.1
Energy ........................ 240.1 2.0 253.1 2.2 250.0 2.3
Other ......................... 93.4 0.8 75.3 0.7 88.7 0.8
--------------------------------------------------------------------------------------------------------------------------------
Total commercial ........... 3,554.8 30.0 3,601.3 31.1 3,766.5 34.6
--------------------------------------------------------------------------------------------------------------------------------
Small Business:
Commercial and industrial ..... 758.6 6.4 782.3 6.7 858.1 7.9
Services industry ............. 595.3 5.0 585.8 5.0 516.5 4.7
Real estate ................... 408.0 3.5 382.7 3.3 347.3 3.2
Health care ................... 140.8 1.2 144.8 1.2 138.8 1.3
Transportation, communications
and utilities .............. 93.3 0.8 87.8 0.8 82.9 0.8
Energy ........................ 28.1 0.2 32.6 0.3 40.0 0.4
Other ......................... 365.7 3.1 377.8 3.3 361.2 3.3
--------------------------------------------------------------------------------------------------------------------------------
Total small business ....... 2,389.8 20.2 2,393.8 20.6 2,344.8 21.6
--------------------------------------------------------------------------------------------------------------------------------
Consumer:
Residential mortgages:
First mortgages ............ 2,752.2 23.3 2,660.0 22.9 2,374.5 21.8
Junior liens ............... 384.2 3.2 344.5 3.0 257.0 2.4
Indirect ...................... 1,716.7 14.5 1,570.7 13.6 1,152.6 10.6
Revolving credit .............. 433.6 3.7 412.9 3.6 359.9 3.3
Other ......................... 607.5 5.1 608.5 5.2 620.8 5.7
--------------------------------------------------------------------------------------------------------------------------------
Total consumer ............. 5,894.2 49.8 5,596.6 48.3 4,764.8 43.8
--------------------------------------------------------------------------------------------------------------------------------
Total loans ....................... $ 11,838.8 100.0% $ 11,591.7 100.0% $ 10,876.1 100.0%
================================================================================================================================
</TABLE>
Consumer loans increased $297.6 million (5%) and $1.1 billion (24%)
compared to June 30, 2000 and September 30, 1999, respectively. The consumer
portfolio growth was primarily in residential mortgages and indirect loans.
Small business loans decreased $4.0 million compared to June 30, 2000 and
increased $45.0 million (2%) compared to September 30, 1999. The growth in the
small business portfolio compared to 1999 was primarily focused in the services
industry and real estate categories, partially offset with a decrease in the
commercial and industrial category.
Commercial loans decreased $46.5 million (1%) compared to June 30, 2000 and
decreased $211.7 million (6%) compared to September 30, 1999. The decrease in
commercial loans from September 30, 1999 was the result of the company's
continued effort to create more granularity in and diversify the risk of the
portfolio.
The energy portion of the loan portfolio represents 2.3% of total loans as
of September 30, 2000. 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, the Company's
energy portfolio has been reduced from levels experienced in early 1999.
However, the Company remains active in the energy industry on a selective basis.
During 2000 and 1999, Hibernia securitized $625.1 million of its
residential first mortgages through the Federal National Mortgage Association
(FNMA), of which $112.5 million was securitized during the second quarter of
2000, $302.6 million was securitized during the fourth quarter of 1999 and
$210.0 million was securitized during the second quarter of 1999. These portions
of the consumer portfolio were securitized with recourse provisions, and
reserves have been established to cover potential losses. These transactions
affect the categorization of individual line items on the balance sheet by
reducing mortgage loans and increasing securities and related recourse reserves.
Securities Available for Sale. Average securities available for sale
decreased $54.7 million (2%) in the third quarter of 2000 compared to the third
quarter of 1999, and were down $81.1 million (3%) for the first nine months of
2000 compared to the same period in 1999. The decreases were primarily the
result of the changes in unrealized securities gains (losses) reflecting the
current interest rate environment. Securities available for sale 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 for customer repurchase agreements and to collateralize public or trust
deposits.
Securities Held to Maturity. Average securities held to maturity in the
third quarter of 2000 totaled $386.1 million. Average securities held to
maturity for the first nine months of 2000 totaled $351.4 million. The increases
from the third quarter and the first nine months of 1999 were a result of the
securitizations of residential first mortgages discussed earlier.
Short-Term Investments. Average short-term investments, primarily federal
funds sold and securities purchased under agreements to resell (reverse
repurchase agreements), for the three months ended September 30, 2000 totaled
$105.0 million, down $119.9 million (53%) compared to $224.9 million in the
third quarter of 1999. For the nine months of 2000 compared to the same period
in 1999, average short-term investments decreased $111.6 million (45%) to $136.0
million. The decrease in short-term investments is primarily due to a reduction
in reverse repurchase agreements. This reduction is the result of the
securitizations of residential first mortgages previously discussed which
generated collateral required for certain deposits, thus reducing the need for
reverse repurchase agreements.
Mortgage Loans Held For Sale. Mortgage loans held for sale are loans that
have been originated and are pending securitization or sale in the secondary
market. Since mortgage warehouse loans are generally held in inventory for a
short period of time (30 to 60 days), there may be significant differences
between average and period-end balances. Average mortgage loans held for sale
for the third quarter of 2000 decreased $40.7 million (30%) compared to the
third quarter of 1999, and decreased $107.7 million (57%) for the first nine
months of 2000 compared to the same period in 1999. As a result of changes in
the interest rate environment, the Company experienced an increase in the level
of adjustable-rate mortgages funded and retained. Generally, Hibernia retains
adjustable-rate mortgage loans and sells fixed-rate mortgage loans, while
retaining the associated servicing rights.
ASSET QUALITY
Several key measures are used to evaluate and monitor the Company's asset
quality. These measures include the level of loan delinquencies, nonaccrual
loans, restructured loans, foreclosed assets and excess bank-owned property, in
addition to their related ratios.
Table 2 shows loan delinquencies and delinquencies as a percentage of their
related portfolio segment and in total for each of the last five quarters. Total
delinquencies decreased $11.2 million (14%) from September 30, 1999 and
increased $26.4 million (62%) from June 30, 2000. Accruing loans past due 90
days or more, which are primarily consumer loans, were $6.3 million at September
30, 2000 compared to $7.3 million at September 30, 1999 and $5.9 million at
June 30, 2000.
<TABLE>
<CAPTION>
=====================================================================================================================
TABLE 2 - LOAN DELINQUENCIES
=====================================================================================================================
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
($ in millions) 2000 2000 2000 1999 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Days past due:
30 to 89 days ........................... $ 62.4 $ 36.4 $ 38.3 $ 43.6 $ 72.6
90 days or more ......................... 6.3 5.9 6.3 6.0 7.3
---------------------------------------------------------------------------------------------------------------------
Total delinquencies ................. $ 68.7 $ 42.3 $ 44.6 $ 49.6 $ 79.9
---------------------------------------------------------------------------------------------------------------------
Total delinquencies as a percentage of loans:
Commercial .............................. 0.42% 0.04% 0.11% 0.15% 0.92%
Small business .......................... 0.39% 0.38% 0.42% 0.34% 0.37%
Consumer ................................ 0.75% 0.57% 0.58% 0.75% 0.76%
Total loans ............................. 0.58% 0.37% 0.39% 0.46% 0.73%
=====================================================================================================================
</TABLE>
Delinquencies as a percentage of total loans at September 30, 2000 were
0.58%, down from 0.73% a year ago and up from 0.37% at June 30, 2000. Commercial
delinquencies increased from the prior quarter primarily due to a real estate
secured loan. Delinquencies at September 30, 1999, included a large commercial
loan on which a payment of $26.0 million was received early in the fourth
quarter of 1999, reducing the total delinquency ratio by approximately one-third
to 0.49%. The increase in consumer delinquencies in the quarter was primarily
related to the indirect and residential mortgage portfolios.
<TABLE>
<CAPTION>
==================================================================================================================================
TABLE 3 - NONPERFORMING ASSETS
==================================================================================================================================
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
($ in thousands) 2000 2000 2000 1999 1999
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial ....................... $ 83,958 $ 69,905 $ 51,187 $ 51,620 $ 35,906
Small business ................... 16,927 19,515 19,325 18,329 19,061
Consumer ......................... 4,633 5,740 6,928 6,512 6,991
Restructured loans ................... - - - - -
----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans .... 105,518 95,160 77,440 76,461 61,958
----------------------------------------------------------------------------------------------------------------------------------
Foreclosed assets .................... 7,567 7,283 7,186 7,710 9,944
Excess bank-owned property ........... 2,597 3,389 3,887 4,197 4,127
----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets ... $115,682 $105,832 $ 88,513 $ 88,368 $ 76,029
==================================================================================================================================
Reserve for loan losses .............. $162,704 $162,757 $161,274 $156,072 $156,282
Nonperforming loan ratio:
Commercial loans ................. 2.36% 1.94% 1.36% 1.40% 0.95%
Small business loans ............. 0.71% 0.82% 0.83% 0.78% 0.81%
Consumer loans ................... 0.08% 0.10% 0.13% 0.14% 0.15%
Total loans ...................... 0.89% 0.82% 0.68% 0.70% 0.57%
Nonperforming asset ratio ............ 0.98% 0.91% 0.78% 0.81% 0.70%
Reserve for loan losses as a
percentage of nonperforming loans 154.20% 171.04% 208.26% 204.12% 252.24%
==================================================================================================================================
</TABLE>
Nonperforming loans consist of nonaccrual loans (loans on which interest
income is not currently recognized) and restructured loans (loans with
below-market rates or other concessions due to the deteriorated financial
condition of the borrower). Nonperforming loans totaled $105.5 million at
September 30, 2000, up from $62.0 million at September 30, 1999 and up from
$95.2 million at June 30, 2000. The increases from the prior quarter and the
same quarter a year ago were driven by nonaccrual loans in the commercial loan
portfolio, which increased to $84.0 million from $69.9 million and $35.9
million, respectively. The majority of nonperforming consumer loans are
residential mortgage loans on which no significant losses are expected.
Foreclosed assets (assets to which title has been assumed in satisfaction
of debt) totaled $7.6 million at September 30, 2000, down $2.4 million (24%)
from a year earlier, and up $0.3 million (4%) from June 30, 2000. Excess
bank-owned property at September 30, 2000 was down $1.5 million (37%) from
September 30, 1999, and down $0.8 million (23%) from June 30, 2000.
Nonperforming assets as a percentage of total loans plus foreclosed assets
and excess bank-owned property (nonperforming asset ratio) is one measure of
asset quality. At September 30, 2000 the Company's nonperforming asset ratio was
0.98% compared to 0.70% at September 30, 1999 and 0.91% at June 30, 2000.
The composition of nonperforming loans, foreclosed assets and excess
bank-owned property as well as certain asset quality ratios for the past five
quarters are set forth in Table 3.
At September 30, 2000 the recorded investment in loans considered impaired
under Statement of Financial Accounting Standards (SFAS) No. 114 was $100.9
million. The related portion of the reserve for loan losses was $26.4 million.
The comparable amounts at September 30, 1999 were $55.2 million and $15.5
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 $36.1 million were added to nonperforming loans
during the third quarter of 2000. Charge-offs reduced nonperforming loans by
$10.7 million, while payments resulted in a $9.1 million further reduction in
nonperforming loans in the third quarter of 2000. Loans totaling $3.9 million
were returned to performing status. To the extent that nonaccrual loans that
have been charged-off are recovered in subsequent periods, the recoveries would
be reflected in the reserve for loan losses in Table 5 and not as a component of
nonperforming loan activity.
<TABLE>
<CAPTION>
=======================================================================================================================
TABLE 4 - SUMMARY OF NONPERFORMING LOAN ACTIVITY
=======================================================================================================================
2000 1999
-----------------------------------------------------------------------------------------------------------------------
Third Second First Fourth Third
($ in thousands) Quarter Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans
at beginning of period .. $ 95,160 $ 77,440 $ 76,461 $ 61,958 $ 86,667
Additions ................... 36,062 41,057 11,329 32,296 24,309
Charge-offs, gross .......... (10,673) (9,499) (3,998) (10,347) (16,195)
Transfer to OREO ............ (1,889) (1,693) (1,355) (2,489) (1,623)
Returns to performing status (3,893) (1,522) (420) (869) (5,064)
Payments .................... (9,102) (8,636) (4,506) (3,956) (9,251)
Sales ....................... (147) (1,987) (71) (132) (16,885)
-----------------------------------------------------------------------------------------------------------------------
Nonperforming loans
at end of period ........ $ 105,518 $ 95,160 $ 77,440 $ 76,461 $ 61,958
=======================================================================================================================
</TABLE>
In addition to the nonperforming loans discussed above, other commercial
loans that are subject to potential future classification as nonperforming
totaled $54.2 million at September 30, 2000.
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 risk of loss in the loan portfolio in light of current risk management
strategies, economic conditions and market trends. The Company recorded a $17.4
million provision for loan losses in the third quarter of 2000 and a $50.7
million provision for the first nine months of 2000, compared to $28.5 million
and $70.7 million in the comparable periods of 1999. The provision for loan
losses for the first nine months of 2000 exceeded net charge-offs by $6.3
million.
Net charge-offs totaled $17.5 million in the third quarter of 2000 and
$44.4 million for the first nine months of 2000 compared to $23.0 million and
$47.8 million in the comparable periods of 1999. As a percentage of average
loans, annualized net charge-offs were 0.60% in the third quarter of 2000, down
from 0.86% in the third quarter of 1999, and up from 0.56% in the second quarter
of 2000. Commercial net charge-offs declined to $9.2 million in the third
quarter of 2000 from $17.9 million in the same period of 1999, and increased
from $7.8 million in the second quarter of 2000. Net charge-offs of $2.9 million
in the small business portfolio for the third quarter of 2000 increased from
$1.0 million in the comparable period in 1999, and from $2.0 million in the
second quarter of 2000. The third quarter of 1999 included two large recoveries
of previously charged off small business loans. Consumer net charge-offs
increased to $5.4 million in the third quarter of 2000, up from $4.2 million in
the third quarter of 1999 and down from $6.1 million in the prior quarter. The
increase in consumer net charge-offs from the prior year resulted from the
growth in the consumer portfolio and a higher level of charge-offs in the
indirect automobile lending portfolio.
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 (based on historical loss factors) and an
unallocated reserve.
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, the observable market value of the loan or the fair
value of the collateral for certain collateral-dependent loans. Factors
contributing to the determination of specific reserves include the financial
condition of the borrower, changes in the value of pledged collateral and
general economic conditions. General reserves are established based on
historical charge-offs considering factors which include risk rating, industry
concentration and loan type, with the most recent charge-off experience weighted
more heavily. The unallocated reserve, which is judgmentally determined,
generally serves to compensate for the uncertainty in estimating loan losses,
including the possibility of changes in risk ratings and specific reserve
allocations. It also considers the lagging impact of historical charge-off
ratios in periods where future charge-offs are expected to increase or decrease
significantly. 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 its review, consideration
and ratification.
There were no significant changes in the composition of the loan portfolio
from the third quarter of 1999 except for the previously discussed decrease in
the commercial portfolio and increase in the consumer portfolio, particularly in
residential mortgages and indirect loans. The Company continued to focus on
managing its problem loans in the third quarter of 2000. The reserve coverage of
total loans was virtually unchanged for the third quarter of 2000 based on
management's assessment of reserve adequacy after consideration of the risk
profile of the portfolio as indicated by the Company's internal risk rating
system and based on consistent application of our reserve methodology.
Table 5 presents an analysis of the activity in the reserve for loan losses
for the last five quarters.
<TABLE>
<CAPTION>
==============================================================================================================================
TABLE 5 - RESERVE FOR LOAN LOSSES ACTIVITY
==============================================================================================================================
2000 1999
------------------------------------------------------------------------------------------------------------------------------
Third Second First Fourth Third
($ in thousands) Quarter Quarter Quarter Quarter Quarter
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period ........ $ 162,757 $ 161,274 $ 156,072 $ 156,282 $ 150,805
Loans charged off:
Commercial ........................ (9,285) (8,589) (2,826) (9,402) (19,221)
Small business .................... (3,665) (3,174) (3,947) (3,432) (2,803)
Consumer .......................... (7,608) (7,782) (7,198) (7,440) (5,906)
Recoveries:
Commercial ........................ 103 777 204 426 1,367
Small business .................... 791 1,158 951 1,075 1,790
Consumer .......................... 2,213 1,709 1,768 1,645 1,750
------------------------------------------------------------------------------------------------------------------------------
Net loans charged off ................. (17,451) (15,901) (11,048) (17,128) (23,023)
Provision for loan losses ............. 17,400 17,000 16,250 17,100 28,500
Additions due to purchase transactions (2) 452 - - -
Transfer due to securitizations ....... - (68) - (182) -
------------------------------------------------------------------------------------------------------------------------------
Balance at end of period .............. $ 162,704 $ 162,757 $ 161,274 $ 156,072 $ 156,282
==============================================================================================================================
Reserve for loan losses
as a percentage of loans .......... 1.37% 1.40% 1.42% 1.44% 1.44%
Annualized net charge-offs as a
percentage of average loans:
Commercial .................... 1.05% 0.85% 0.28% 0.97% 1.85%
Small business ................ 0.48% 0.34% 0.52% 0.40% 0.18%
Consumer ...................... 0.38% 0.45% 0.44% 0.48% 0.37%
Total loans ................... 0.60% 0.56% 0.40% 0.63% 0.86%
==============================================================================================================================
</TABLE>
The assumptions and methodologies used in allocating the reserve were
unchanged during the quarter. The allocations to each of the portfolios
continued to increase from a year ago resulting in a decline in unallocated
reserves. This reallocation is consistent with management's expectations and the
loan loss methodology which weights recent history more heavily and also
reflects the current risk profile of the portfolio. It also reflects the
continued growth in the consumer portfolio.
The reserve coverage of annualized net charge-offs was 233% during the
third quarter of 2000 compared to 256% in the second quarter of 2000 and 170% in
the third quarter of 1999. This increase from a year ago was primarily due to a
lower level of net charge-offs during the third quarter of 2000. 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 measure of reserve adequacy, since the timing of
charge-offs and recoveries impacts these ratios.
The reserve for loan losses totaled $162.7 million, or 1.37% of total loans
at September 30, 2000, compared to $156.3 million, or 1.44% of total loans at
September 30, 1999 and $162.8 million, or 1.40% of total loans at June 30, 2000.
The reserve for loan losses as a percentage of nonperforming loans was 154% at
September 30, 2000, compared to 252% at September 30, 1999 and 171% at June 30,
2000. 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 risk management strategies, economic
conditions and market trends.
FUNDING SOURCES:
DEPOSITS
Average deposits totaled $12.3 billion in the third quarter of 2000, a $1.0
billion (9%) increase from the third quarter of 1999. For the first nine months
of 2000 compared to the same period in 1999, average deposits increased $1.0
billion (9%) to $12.1 billion. Excluding the effect of the Compass transaction,
average deposits increased 8% for the third quarter of 2000 compared to the same
period in 1999. Table 6 presents the composition of average deposits for the
periods presented.
<TABLE>
<CAPTION>
====================================================================================================================================
TABLE 6 - DEPOSIT COMPOSITION
====================================================================================================================================
Third Quarter 2000 Second Quarter 2000 Third Quarter 1999
------------------------------------------------------------------------------------------------------------------------------------
Average %of Average %of Average %of
($ in millions) Balances Deposits Balances Deposits Balances Deposits
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing ............ $ 2,112.9 17.2% $ 2,096.6 17.3% $ 2,059.6 18.2%
NOW accounts ................... 307.7 2.5 296.2 2.4 420.7 3.7
Money market deposit accounts .. 2,155.4 17.6 2,124.4 17.6 1,995.9 17.7
Savings accounts ............... 2,147.9 17.5 2,108.9 17.5 1,841.9 16.3
Other consumer time deposits ... 2,972.1 24.2 2,922.9 24.2 2,954.1 26.1
------------------------------------------------------------------------------------------------------------------------------------
Total core deposits ........ 9,696.0 79.0 9,549.0 79.0 9,272.2 82.0
------------------------------------------------------------------------------------------- ----------------------------------------
Public fund certificates of
deposit of $100,000 or more 933.1 7.6 1,035.8 8.6 1,030.7 9.1
Certificates of deposit of
$100,000 or more ........... 1,188.2 9.7 1,134.5 9.4 690.8 6.1
Foreign time deposits .......... 456.0 3.7 363.1 3.0 310.4 2.8
------------------------------------------------------------------------------------------------------------------------------------
Total deposits ............. $ 12,273.3 100.0% $ 12,082.4 100.0% $ 11,304.1 100.0%
====================================================================================================================================
</TABLE>
Average core deposits totaled $9.7 billion in the third quarter of 2000, a
$423.8 million (5%) increase from the third quarter of 1999. The Compass
transaction accounted for approximately 25% of the growth in average core
deposits in the third quarter of 2000 compared to the third quarter of 1999.
Average noninterest-bearing deposits grew $53.3 million and average savings
deposits increased $306.0 million in the third quarter of 2000 compared to the
third quarter of 1999. The increases were primarily due to internal growth as a
result of Hibernia's emphasis on attracting new deposits and expanding current
banking relationships. This growth was aided by the continued promotion of
products like Tower GoldSM Services and Tower AdvantageSM, both of which offer
liquidity, competitive interest rates and the security of a bank deposit. NOW
account average balances were down $113.0 million and average money market
deposit accounts were up $159.5 million in the third quarter of 2000 compared to
the third quarter of 1999. These changes were primarily due to increased volume
in the Reserve Money Manager sweep, resulting from increases in the Tower GoldSM
checking product.
Average noncore deposits were up $545.4 million (27%) from the third
quarter of 1999 to $2.6 billion or 21% of total deposits. Average large
denomination certificates of deposit increased $399.8 million compared to the
third quarter of 1999 as a result of competitive pricing and increased marketing
efforts. Average foreign time deposits increased $145.6 million due to
successful efforts to market a treasury management product which sweeps
commercial customer funds into higher-yielding Eurodollar deposits.
Total deposits at September 30, 2000 were $12.2 billion, up $0.8 billion
(7%) from September 30, 1999. The Compass transaction accounted for
approximately 15% of the growth in total deposits.
BORROWINGS
Average borrowings (which include federal funds purchased; securities sold
under agreements to repurchase; treasury, tax and loan account; and Federal Home
Loan Bank advances) increased $116.3 million (6%) to $2.1 billion for the third
quarter of 2000 compared to the third quarter of 1999. For the first nine months
of 2000 compared to the first nine months of 1999, average borrowings increased
$116.6 million (6%) to $2.0 billion.
Average Federal Home Loan Bank (FHLB) advances for the third quarter of
2000 totaled $812.8 million, down from $815.6 million in the third quarter of
1999. At September 30, 2000 the Company's FHLB advances totaled $1,044.2 million
a decrease of $0.8 million from September 30, 1999. In the fourth quarter of
1999, the FHLB exercised its right to call a $100 million advance, and a $100
million advance reached maturity. In August 2000, another FHLB advance of $100
million matured. Replacement funding consisted of a $300 million advance bearing
a quarterly adjustable rate. The FHLB may demand payment of $400 million in
callable advances at quarterly intervals, of which $200 million is not callable
before September 2001 and $200 million is not callable before June 2003. If
called prior to maturity, replacement funding will be offered by the FHLB at a
then-current rate. The Company's reliance on borrowings continues to be within
parameters determined by management to be prudent in terms of liquidity and
interest rate sensitivity.
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,
adjust maturities through the sale and purchase of securities available for
sale, 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 rate risk on specific assets and liabilities. Hibernia held
foreign exchange rate forward contracts totaling $11.1 million at September 30,
2000, 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 sensitivity. Matched positions are ordinarily established to minimize risk
to the Company. The notional value of derivative financial instruments held for
trading totaled $493.1 million at September 30, 2000. In addition to these
customer-related derivative financial instruments, the Company has entered into
derivative contracts for its own account related to its mortgage origination
activity, which totaled $209.3 million at September 30, 2000. Hibernia's credit
exposure related to derivative financial instruments held for trading totaled
$4.1 million at September 30, 2000.
RESULTS OF OPERATIONS:
NET INTEREST INCOME
Taxable-equivalent net interest income for the third quarter of 2000
totaled $156.6 million, a $3.7 million increase from the same period in 1999 and
$0.2 million decrease from the second quarter of 2000. Taxable-equivalent net
interest income for the first nine months of 2000 totaled $464.4 million, a
$20.0 million increase over the first nine months of 1999.
The increase in net interest income for the third quarter and first nine
months of 2000 from the comparable periods in 1999 was largely a result of the
growth in earning assets. Contributing to the growth in average earning assets
was the increase in consumer loans, which were up $1.3 million (28%) in
third-quarter 2000 compared to the same quarter in 1999.
Table 7 shows the composition of earning assets for the most recent five
quarters, reflecting the change in the mix of earning assets.
<TABLE>
<CAPTION>
=============================================================================================================================
TABLE 7 - INTEREST-EARNING ASSET COMPOSITION
=============================================================================================================================
2000 1999
-----------------------------------------------------------------------------------------------------------------------------
Third Second First Fourth Third
(Percentage of average balances) Quarter Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial loans ................. 23.4% 24.9% 26.0% 26.6% 28.0%
Small business loans ............. 16.1 16.0 16.4 16.9 16.8
Consumer loans ................... 38.5 36.7 35.0 34.6 32.6
-----------------------------------------------------------------------------------------------------------------------------
Total loans .................. 78.0 77.6 77.4 78.1 77.4
-----------------------------------------------------------------------------------------------------------------------------
Securities available for sale .... 18.1 18.6 18.6 19.0 20.0
Securities held to maturity ...... 2.6 2.5 2.1 0.9 -
-----------------------------------------------------------------------------------------------------------------------------
Total securities ............. 20.7 21.1 20.7 19.9 20.0
-----------------------------------------------------------------------------------------------------------------------------
Short-term investments ........... 0.7 0.7 1.4 1.3 1.6
Mortgage loans held for sale ..... 0.6 0.6 0.5 0.7 1.0
-----------------------------------------------------------------------------------------------------------------------------
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)
=============================================================================================================================
2000 1999
-----------------------------------------------------------------------------------------------------------------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Yield on earning assets ............. 8.42% 8.32% 8.12% 7.98% 7.91%
Rate on interest-bearing liabilities 5.14 4.92 4.66 4.44 4.26
-----------------------------------------------------------------------------------------------------------------------------
Net interest spread ............. 3.28 3.40 3.46 3.54 3.65
Contribution of
noninterest-bearing funds ....... 0.91 0.87 0.81 0.80 0.77
-----------------------------------------------------------------------------------------------------------------------------
Net interest margin ............. 4.19% 4.27% 4.27% 4.34% 4.42%
=============================================================================================================================
Noninterest-bearing funds
supporting earning assets ....... 17.65% 17.65% 17.47% 17.98% 18.27%
=============================================================================================================================
</TABLE>
The net interest margin was 4.19% for the third quarter of 2000, down 23
basis points from the third quarter of 1999 and down 8 basis points from the
second quarter of 2000. The decline in the net interest margin from 1999 is
primarily due to the effect of the change in the mix of the loan portfolio to
relatively lower yielding, consumer loans, previously discussed, and the
continuing change in the deposit mix toward market-rate deposits.
Table 9 presents an analysis of changes in taxable-equivalent net interest
income between the third quarter of 2000 and the second quarter of 2000 and
between the third quarter of 2000 and the third quarter of 1999.
<TABLE>
<CAPTION>
====================================================================================================================================
TABLE 9 - CHANGES IN TAXABLE-EQUIVALENT NET INTEREST INCOME (1)
====================================================================================================================================
Third Quarter 2000 Compared to:
------------------------------------------------------------------------------------------------------------------------------------
Second Quarter 2000 Third Quarter 1999
------------------------------------------------------------------------------------------------------------------------------------
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 ............... $ (3,821) $ 3,228 $ (593) $ (7,701) $ 10,218 $ 2,517
Small business loans ........... 866 1,993 2,859 2,061 3,425 5,486
Consumer loans ................. 7,307 1,594 8,901 26,681 2,121 28,802
------------------------------------------------------------------------------------------------------------------------------------
Loans ...................... 4,352 6,815 11,167 21,041 15,764 36,805
------------------------------------------------------------------------------------------------------------------------------------
Securities available for sale .. (874) (826) (1,700) (894) 1,226 332
Securities held to maturity .... 246 14 260 6,004 - 6,004
------------------------------------------------------------------------------------------------------------------------------------
Securities ................. (628) (812) (1,440) 5,110 1,226 6,336
------------------------------------------------------------------------------------------------------------------------------------
Short-term investments ......... (31) 175 144 (1,900) 741 (1,159)
Mortgage loans held for sale ... 316 15 331 (757) 405 (352)
------------------------------------------------------------------------------------------------------------------------------------
Total .................... 4,009 6,193 10,202 23,494 18,136 41,630
====================================================================================================================================
Interest paid on:
NOW accounts ................... 106 202 308 (838) 1,159 321
Money market
deposit accounts ........... 215 1,757 1,972 1,081 2,695 3,776
Savings accounts ............... 440 992 1,432 3,171 4,346 7,517
Other consumer time deposits ... 653 2,321 2,974 222 4,707 4,929
Public fund certificates of
deposit of $100,000 or more (1,599) 913 (686) (1,285) 3,468 2,183
Certificates of deposit
of $100,000 or more ........ 805 1,063 1,868 7,424 2,165 9,589
Foreign deposits ............... 1,424 289 1,713 2,053 1,288 3,341
Federal funds purchased ........ 28 569 597 405 2,695 3,100
Repurchase agreements .......... 160 438 598 1,176 1,793 2,969
Federal Home Loan Bank advances (453) 106 (347) (37) 268 231
------------------------------------------------------------------------------------------------------------------------------------
Total .................... 1,779 8,650 10,429 13,372 24,584 37,956
====================================================================================================================================
Taxable-equivalent
net interest income ............ $ 2,230 $ (2,457) $ (227) $ 10,122 $ (6,448) $ 3,674
====================================================================================================================================
----------------
(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
26 and 27 of this discussion presents the Company's taxable-equivalent net
interest income and average balances for the three months ended September 30,
2000, June 30, 2000 and September 30, 1999 and the first nine months of 2000 and
1999.
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CONSOLIDATED AVERAGE BALANCES, INTEREST AND RATES
====================================================================================================================================
Hibernia Corporation and Subsidiaries
Taxable-equivalent basis (1) Third Quarter 2000 Second Quarter 2000
------------------------------------------------------------------------------------------------------------------------------------
(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 .............................. $ 3,499.8 $ 80,733 9.18% $ 3,668.5 $ 81,326 8.92%
Small business loans .......................... 2,394.3 57,578 9.57 2,357.4 54,719 9.34
Consumer loans ................................ 5,740.1 122,665 8.51 5,397.3 113,764 8.47
------------------------------------------------------------------------------------------------------------------------------------
Total loans (2) ........................... 11,634.2 260,976 8.93 11,423.2 249,809 8.79
------------------------------------------------------------------------------------------------------------------------------------
Securities available for sale ................. 2,691.2 44,641 6.63 2,743.4 46,341 6.76
Securities held to maturity ................... 386.1 6,004 6.22 370.3 5,744 6.20
------------------------------------------------------------------------------------------------------------------------------------
Total securities .......................... 3,077.3 50,645 6.58 3,113.7 52,085 6.69
------------------------------------------------------------------------------------------------------------------------------------
Short-term investments ........................ 105.0 1,822 6.90 106.9 1,678 6.31
Mortgage loans held for sale .................. 94.8 1,895 8.00 79.0 1,564 7.92
------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets ............. 14,911.3 $ 315,338 8.42% 14,722.8 $ 305,136 8.32%
------------------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses ........................... (166.0) (165.0)
Noninterest-earning assets:
Cash and due from banks ....................... 482.6 475.8
Other assets .................................. 792.0 754.9
------------------------------------------------------------------------------------------------------------------------------------
Total noninterest-earning assets .......... 1,274.6 1,230.7
------------------------------------------------------------------------------------------------------------------------------------
Total assets .............................. $ 16,019.9 $ 15,788.5
====================================================================================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts .............................. $ 307.7 $ 2,967 3.84% $ 296.2 $ 2,659 3.61%
Money market deposit accounts ............. 2,155.4 16,581 3.06 2,124.4 14,609 2.77
Savings accounts .......................... 2,147.9 24,929 4.62 2,108.9 23,497 4.48
Other consumer time deposits .............. 2,972.1 41,210 5.52 2,922.9 38,236 5.26
Public fund certificates of deposit
of $100,000 or more ................... 933.1 14,853 6.33 1,035.8 15,539 6.03
Certificates of deposit of $100,000 or more 1,188.2 18,458 6.18 1,134.5 16,590 5.88
Foreign time deposits ..................... 456.0 7,044 6.14 363.1 5,331 5.91
------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits ....... 10,160.4 126,042 4.94 9,985.8 116,461 4.69
------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased ................... 761.9 12,697 6.63 760.1 12,100 6.40
Repurchase agreements ..................... 544.4 8,330 6.09 533.6 7,732 5.83
Federal Home Loan Bank advances ............... 812.8 11,663 5.71 844.5 12,010 5.72
------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities ........ 12,279.5 $ 158,732 5.14% 12,124.0 $ 148,303 4.92%
------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Noninterest-bearing deposits .................. 2,112.9 2,096.6
Other liabilities ............................. 189.5 175.1
------------------------------------------------------------------------------------------------------------------------------------
Total noninterest-bearing liabilities ..... 2,302.4 2,271.7
------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity ........................ 1,438.0 1,392.8
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 16,019.9 $ 15,788.5
====================================================================================================================================
SPREAD AND NET YIELD
Interest rate spread .............................. 3.28% 3.40%
Cost of funds supporting interest-earning assets .. 4.23% 4.05%
Net interest income/margin ........................ $ 156,606 4.19% $ 156,833 4.27%
====================================================================================================================================
----------------
(1) Based on the statutory income tax rate of 35%.
(2) Yield computations include nonaccrual loans in loans outstanding.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CONSOLIDATED AVERAGE BALANCES, INTEREST AND RATES
====================================================================================================================================
Hibernia Corporation and Subsidiaries Nine Months Ended
Taxable-equivalent basis (1) Third Quarter 1999 September 30, 2000
------------------------------------------------------------------------------------------------------------------------------------
(Average balances $ in millions, Average Average
interest $ in thousands) Balance Interest Rate Balance Interest Rate
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Commercial loans .............................. $ 3,859.7 $ 78,216 8.04% $ 3,611.4 $ 240,650 8.90%
Small business loans .......................... 2,305.3 52,092 8.97 2,359.1 165,157 9.35
Consumer loans ................................ 4,489.5 93,863 8.31 5,374.2 339,317 8.43
------------------------------------------------------------------------------------------------------------------------------------
Total loans (2) ........................... 10,654.5 224,171 8.35 11,344.7 745,124 8.77
------------------------------------------------------------------------------------------------------------------------------------
Securities available for sale ................. 2,745.9 44,309 6.45 2,691.6 134,595 6.67
Securities held to maturity ................... - - - 351.4 16,317 6.19
------------------------------------------------------------------------------------------------------------------------------------
Total securities .......................... 2,745.9 44,309 6.45 3,043.0 150,912 6.61
------------------------------------------------------------------------------------------------------------------------------------
Short-term investments ........................ 224.9 2,981 5.26 136.0 6,329 6.21
Mortgage loans held for sale .................. 135.5 2,247 6.63 82.9 4,815 7.74
------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets ............. 13,760.8 $ 273,708 7.91% 14,606.6 $ 907,180 8.29%
------------------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses ........................... (148.9) (163.0)
Noninterest-earning assets:
Cash and due from banks ....................... 490.2 491.5
Other assets .................................. 725.6 765.2
------------------------------------------------------------------------------------------------------------------------------------
Total noninterest-earning assets .......... 1,215.8 1,256.7
------------------------------------------------------------------------------------------------------------------------------------
Total assets .............................. $ 14,827.7 $ 15,700.3
====================================================================================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts .............................. $ 420.7 $ 2,646 2.50% $ 302.9 $ 8,491 3.74%
Money market deposit accounts ............. 1,995.9 12,805 2.55 2,161.3 46,235 2.86
Savings accounts .......................... 1,841.9 17,412 3.75 2,095.2 70,535 4.50
Other consumer time deposits .............. 2,954.1 36,281 4.87 2,934.6 115,996 5.28
Public fund certificates of deposit
of $100,000 or more ................... 1,030.7 12,670 4.88 980.5 43,873 5.98
Certificates of deposit of $100,000 or more 690.8 8,869 5.09 1,140.0 50,545 5.92
Foreign time deposits ..................... 310.4 3,703 4.73 381.3 16,641 5.83
------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits ....... 9,244.5 94,386 4.05 9,995.8 352,316 4.71
------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased ................... 732.0 9,597 5.20 677.3 32,059 6.32
Repurchase agreements ..................... 455.2 5,361 4.67 530.1 22,755 5.73
Federal Home Loan Bank advances ............... 815.6 11,432 5.56 833.9 35,643 5.71
------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities ........ 11,247.3 $ 120,776 4.26% 12,037.1 $ 442,773 4.91%
------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Noninterest-bearing deposits .................. 2,059.6 2,082.1
Other liabilities ............................. 167.4 176.3
------------------------------------------------------------------------------------------------------------------------------------
Total noninterest-bearing liabilities ..... 2,227.0 2,258.4
------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity ........................ 1,353.4 1,404.8
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 14,827.7 $ 15,700.3
====================================================================================================================================
SPREAD AND NET YIELD
Interest rate spread .............................. 3.65% 3.38%
Cost of funds supporting interest-earning assets .. 3.49% 4.05%
Net interest income/margin ........................ $ 152,932 4.42% $ 464,407 4.24%
====================================================================================================================================
----------------
(1) Based on the statutory income tax rate of 35%.
(2) Yield computations include nonaccrual loans in loans outstanding.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================
CONSOLIDATED AVERAGE BALANCES, INTEREST AND RATES
===============================================================================================
Hibernia Corporation and Subsidiaries Nine Months Ended
Taxable-equivalent basis (1) September 30, 1999
-----------------------------------------------------------------------------------------------
(Average balances $ in millions, Average
interest $ in thousands) Balance Interest Rate
===============================================================================================
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Commercial loans .............................. $ 3,932.3 $ 230,356 7.83%
Small business loans .......................... 2,183.4 145,084 8.88
Consumer loans ................................ 4,197.4 261,097 8.31
-----------------------------------------------------------------------------------------------
Total loans (2) ........................... 10,313.1 636,537 8.25
-----------------------------------------------------------------------------------------------
Securities available for sale ................. 2,772.7 131,753 6.34
Securities held to maturity ................... - - -
-----------------------------------------------------------------------------------------------
Total securities .......................... 2,772.7 131,753 6.34
-----------------------------------------------------------------------------------------------
Short-term investments ........................ 247.6 9,430 5.09
Mortgage loans held for sale .................. 190.6 9,244 6.47
-----------------------------------------------------------------------------------------------
Total interest-earning assets ............. 13,524.0 $ 786,964 7.78%
-----------------------------------------------------------------------------------------------
Reserve for loan losses ........................... (144.6)
Noninterest-earning assets:
Cash and due from banks ....................... 482.0
Other assets .................................. 645.8
-----------------------------------------------------------------------------------------------
Total noninterest-earning assets .......... 1,127.8
-----------------------------------------------------------------------------------------------
Total assets .............................. $ 14,507.2
===============================================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts .............................. $ 364.2 $ 6,921 2.54%
Money market deposit accounts ............. 2,092.3 37,404 2.39
Savings accounts .......................... 1,606.3 42,323 3.52
Other consumer time deposits .............. 2,953.3 108,244 4.90
Public fund certificates of deposit
of $100,000 or more ................... 1,083.1 39,372 4.86
Certificates of deposit of $100,000 or more 651.1 24,557 5.04
Foreign time deposits ..................... 302.6 10,237 4.52
-----------------------------------------------------------------------------------------------
Total interest-bearing deposits ....... 9,052.9 269,058 3.97
-----------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased ................... 681.5 25,373 4.98
Repurchase agreements ..................... 434.2 14,384 4.43
Federal Home Loan Bank advances ............... 809.0 33,776 5.58
-----------------------------------------------------------------------------------------------
Total interest-bearing liabilities ........ 10,977.6 $ 342,591 4.17%
-----------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Noninterest-bearing deposits .................. 1,997.3
Other liabilities ............................. 176.8
-----------------------------------------------------------------------------------------------
Total noninterest-bearing liabilities ..... 2,174.1
-----------------------------------------------------------------------------------------------
Total shareholders' equity ........................ 1,355.5
-----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 14,507.2
===============================================================================================
SPREAD AND NET YIELD
Interest rate spread .............................. 3.61%
Cost of funds supporting interest-earning assets .. 3.39%
Net interest income/margin ........................ $ 444,373 4.39%
===============================================================================================
----------------
(1) Based on the statutory income tax rate of 35%.
(2) Yield computations include nonaccrual loans in loans outstanding.
</TABLE>
NONINTEREST INCOME
Noninterest income for the third quarter of 2000 was up $8.4 million (15%)
to $64.2 million compared to the same period of 1999. For the first nine months
of 2000 compared to the same period in 1999, noninterest income was up $22.4
million (14%). Excluding securities transactions, noninterest income increased
$8.4 million (15%) in the third quarter of 2000, and was up $26.5 million (17%)
during the first nine months of 2000 compared to the same period in 1999. The
effect of the purchased companies accounted for approximately 65% of the
increase, excluding securities transactions, for the third quarter of 2000 and
approximately 50% of the increase for the first nine months of 2000. The major
categories of noninterest income for the three months and nine months ended
September 30, 2000 and 1999 are presented in Table 10.
<TABLE>
<CAPTION>
====================================================================================================================================
TABLE 10 - NONINTEREST INCOME
====================================================================================================================================
Three Months Ended Nine Months Ended
------------------------------------------------------------------------------------------------------------------------------------
Percentage Percentage
Sept. 30 Sept. 30 Increase Sept. 30 Sept. 30 Increase
($ in thousands) 2000 1999 (Decrease) 2000 1999 (Decrease)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposits ............ $ 26,296 $ 24,931 5% $ 75,563 $ 71,657 5%
Retail investment service fees ......... 6,922 5,302 31 22,304 15,529 44
Trust fees ............................. 6,369 6,610 (4) 20,272 16,815 21
Mortgage loan origination
and servicing fees ................. 5,762 4,811 20 16,735 13,751 22
Investment banking ..................... 2,420 - - 6,021 - -
Insurance .............................. 3,033 662 358 4,159 2,050 103
Other service, collection and
exchange charges:
ATM fees ........................... 3,372 3,038 11 9,897 8,903 11
Debit/credit card fees ............. 3,711 3,007 23 10,581 8,094 31
Other .............................. 3,513 3,408 3 10,647 9,364 14
------------------------------------------------------------------------------------------------------------------------------------
Total other service, collection
and exchange charges ...... 10,596 9,453 12 31,125 26,361 18
------------------------------------------------------------------------------------------------------------------------------------
Other operating income:
Gain on sales of mortgage loans .... 652 1,662 (61) 2,940 4,919 (40)
Other income ....................... 2,165 2,367 (9) 6,677 8,193 (19)
------------------------------------------------------------------------------------------------------------------------------------
Total other operating income .. 2,817 4,029 (30) 9,617 13,112 (27)
------------------------------------------------------------------------------------------------------------------------------------
Securities gains (losses), net ......... 11 (1) N/M (3,690) 408 N/M
------------------------------------------------------------------------------------------------------------------------------------
Total noninterest income ...... $ 64,226 $ 55,797 15% $ 182,106 $ 159,683 14%
====================================================================================================================================
</TABLE>
Service charges on deposits increased $1.4 million (5%) for the third
quarter of 2000 and $3.9 million (5%) for the first nine months of 2000 over the
comparable periods in 1999. 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 $1.6 million (31%) and $6.8
million (44%) in the third quarter and the first nine months of 2000,
respectively, compared to the same periods in 1999. The increases were primarily
due to market conditions which resulted in an increase in the sale of financial
products and services, particularly annuities and discount brokerage services.
Trust fees were down $0.2 million (4%) in the third quarter of 2000 and up
$3.5 million (21%) for the first nine months of 2000 compared to the same period
in 1999. The increase for the first nine months of 2000 was primarily due to the
income associated with the $1.4 billion increase in trust assets resulting from
the Beaumont transaction. At September 30, 2000 trust assets totaled $8.9
billion.
Mortgage loan origination and servicing fees increased $1.0 million (20%)
in the third quarter and $3.0 million (22%) in the first nine months of 2000
compared to the same periods in 1999. The increase in mortgage fees resulted
primarily from the Company's continued emphasis on mortgage banking and the
increase in volume of mortgage loans serviced to $6.3 billion at September 30,
2000 as compared to $5.1 billion at September 30, 1999. In the first nine months
of 2000, Hibernia funded approximately $1.5 billion in residential first
mortgages.
The merger with Southcoast was completed on April 1, 2000, initiating the
Company's entry into one of its newest business lines, full-service investment
banking. Investment banking contributed $2.4 million and $6.0 million for the
third quarter and first nine months of 2000, respectively.
Insurance increased $2.4 million (358%) in the third quarter and $2.1
million (103%) in the first nine months of 2000 compared to the same periods in
1999. The purchase of Rosenthal, Louisiana's largest independent insurance
broker, consummated on July 6, 2000, significantly expanded Hibernia's insurance
capabilities.
Other service, collection and exchange charges were up $1.1 million (12%)
and $4.8 million (18%) in the third quarter and the first nine months of 2000,
respectively, compared to the same periods in 1999. ATM fees increased $0.3
million in the third quarter and $1.0 million in the first nine months of 2000
over the comparable periods in 1999 due to the continued growth of the ATM
network and expansion of ATM services. Fees generated by Hibernia's CheckmateSM
debit card and Capital Access(C) credit card for small businesses led to an
increase in debit/credit card fees of $0.7 million for the third quarter and
$2.5 million for the first nine months of 2000, compared to the same periods in
1999.
Other operating income decreased $1.2 million (30%) for the third quarter
and $3.5 million (27%) for the first nine months of 2000 over the comparable
periods in 1999. Gains on sales of mortgage loans were down $1.0 million in the
third quarter and $2.0 million in the first nine months of 2000 over the
comparable periods in 1999. The decrease reflects the current interest rate
environment and a $1.1 million gain on the sale of mortgage servicing recorded
in the third quarter of 1999. Other income decreased $0.2 million for the third
quarter and $1.5 million in the first nine months of 2000 compared to the same
periods in 1999. The first nine months of 1999 included a $1.7 million gain
related to an investment in a mezzanine financing.
Net securities losses totaled $3.7 million for the first nine months of
2000 compared to net securities gains of $0.4 million for the same period in
1999. The net securities loss in 2000 was due to an energy-related
private-equity investment loss of $5.3 million, partially offset by $1.6 million
of other securities gains.
NONINTEREST EXPENSE
For the third quarter of 2000, noninterest expense totaled $119.3 million,
an $18.5 million (18%) increase from the third quarter of 1999. For the first
nine months of 2000 compared to the same period in 1999, noninterest expense was
up $22.4 million (7%). The effect of the purchased companies accounted for
approximately 25% of the increase for the third quarter of 2000 and
approximately 65% of the increase for the first nine months of 2000.
Merger-related expenses associated with the pooled companies were $0.1 million
and $9.0 million for the first nine months of 2000 and 1999, respectively.
Excluding merger-related expenses, noninterest expense, on a normalized basis -
which excludes the reversal of the management incentive accrual in third-quarter
1999 and additional staff costs associated with the purchased companies -
increased 2% in third-quarter 2000 and 5% for the first nine months from the
comparable year-ago periods. Noninterest expense for the three months and nine
months ended September 30, 2000 and 1999 are presented by major category in
Table 11.
Staff costs, which represent the largest component of noninterest expense,
increased $20.4 million (48%) in the third quarter of 2000 and $21.5 million
(14%) for the first nine months of 2000 compared to the same periods a year ago.
No accrual for management incentives was made in the third quarter of 1999, and
$11.3 million accrued in prior periods was reversed. Staff costs for the
purchased companies totaled $3.8 million and $8.0 million for the third quarter
and the first nine months of 2000. Merger-related staff costs were $0.1 million
and $5.1 million in the first nine months of 2000 and 1999, respectively.
Merger-related staff costs in 1999, which primarily occurred in the first
quarter, 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. Excluding the effect of merger-related expenses, staff costs on a
normalized basis - which excludes the reversal of the management incentive
accruals and additional staff costs associated with the purchased companies -
increased 7% for the third quarter and first nine months of 2000 compared to the
same periods in 1999.
Data processing costs decreased $1.4 million (17%) for the third quarter
and $1.4 million (6%) for the first nine months of 2000 compared to the same
periods a year ago. This is primarily due to decreases in expenses associated
with outside data processing services.
Amortization of intangibles, a noncash expense, increased $3.4 million
(20%) to $20.4 million for the first nine months of 2000 compared to the first
nine months of 1999. This increase is primarily due to amortization of goodwill,
core deposit intangibles and trust intangibles associated with the purchased
companies.
<TABLE>
<CAPTION>
====================================================================================================================================
TABLE 11 - NONINTEREST EXPENSE
====================================================================================================================================
Three Months Ended Nine Months Ended
------------------------------------------------------------------------------------------------------------------------------------
Percentage Percentage
Sept. 30 Sept. 30 Increase Sept. 30 Sept. 30 Increase
($ in thousands) 2000 1999 (Decrease) 2000 1999 (Decrease)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries ......................... $ 52,856 $ 34,259 54% $ 150,853 $ 132,584 14%
Benefits ......................... 9,840 8,029 23 28,944 25,683 13
------------------------------------------------------------------------------------------------------------------------------------
Total staff costs ............ 62,696 42,288 48 179,797 158,267 14
------------------------------------------------------------------------------------------------------------------------------------
Occupancy, net ................... 8,903 8,507 5 26,190 24,609 6
Equipment ........................ 7,147 8,068 (11) 22,016 25,108 (12)
------------------------------------------------------------------------------------------------------------------------------------
Total occupancy and equipment 16,050 16,575 (3) 48,206 49,717 (3)
------------------------------------------------------------------------------------------------------------------------------------
Data processing .................. 6,615 8,003 (17) 22,462 23,822 (6)
Advertising and promotional
expenses ..................... 3,282 4,063 (19) 10,819 11,322 (4)
Foreclosed property expense, net . (33) 26 (227) 363 (399) 191
Amortization of intangibles ...... 7,115 7,088 - 20,388 16,950 20
Telecommunications ............... 2,122 2,646 (20) 6,605 7,627 (13)
Postage .......................... 1,810 1,832 (1) 5,544 5,469 1
Stationery and supplies .......... 968 1,630 (41) 3,285 4,529 (27)
Professional fees ................ 870 1,427 (39) 4,080 5,513 (26)
State taxes on equity ............ 3,255 2,848 14 9,264 8,543 8
Regulatory expense ............... 1,077 754 43 3,162 2,277 39
Loan collection expense .......... 1,581 1,280 24 4,087 3,295 24
Other ............................ 11,864 10,362 14 33,037 31,814 4
------------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense .... $ 119,272 $ 100,822 18% $ 351,099 $ 328,746 7%
====================================================================================================================================
Efficiency ratio (1) ............. 54.01% 48.30% 54.00% 54.46%
Cash-basis efficiency ratio (2) .. 51.56% 45.72% 51.66% 52.47%
====================================================================================================================================
----------------
(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>
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 quarter ended September 30, 2000 was 54.01% compared to
48.30% at September 30, 1999. The ratio for the first nine months of 2000 was
54.00%, down from 54.46% for the first nine months of 1999. The 1999 ratios were
impacted by the reversal of management incentive accruals and merger-related
expenses, discussed earlier in this section.
The cash-basis efficiency ratio, which excludes amortization of purchase
accounting intangibles from the calculation, was 51.56% for the third quarter of
2000 compared to 45.72% for the same period of 1999. For the first nine months
of 2000, the cash-basis efficiency ratio was 51.66% compared to 52.47% for the
first nine months of 1999.
INCOME TAXES
The Company recorded $28.4 million in income tax expense in the third
quarter of 2000, a $1.7 million (6%) increase from $26.7 million in the third
quarter of 1999 as pretax income rose 7%.
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. The Texas operations of Hibernia National
Bank are subject to Texas franchise tax.
CAPITAL
Shareholders' equity totaled $1,467.7 million at September 30, 2000
compared to $1,367.1 million a year earlier. The increase is primarily the
result of net income over the most recent 12 months totaling $201.9 million, the
issuance of $9.1 million of common stock, a $3.1 million increase in unearned
compensation and the issuance of $2.0 million of common stock purchase warrants.
This increase is partially offset by $75.4 million in dividends declared on
common stock, the acquistion of $23.4 million of treasury stock, the redemption
of $7.0 million of preferred stock, $6.7 million in dividends declared on
preferred stock and a $3.0 million decrease in unrealized gains (losses) on
securities available for sale.
Risk-based capital and leverage ratios exceed the ratios required for
designation as a "well-capitalized" institution under regulatory guidelines.
Table 12 presents Hibernia's ratios along with selected components of the
capital ratio calculations for the most recent five quarters.
<TABLE>
<CAPTION>
====================================================================================================================================
TABLE 12 - CAPITAL
====================================================================================================================================
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
($ in millions) 2000 2000 2000 1999 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Risk-based capital:
Tier 1 ..................... $ 1,246.3 $ 1,233.7 $ 1,229.2 $ 1,203.2 $ 1,166.1
Total ...................... 1,402.6 1,388.1 1,380.7 1,350.7 1,312.1
Assets:
Quarterly average assets (1) 15,811.4 15,618.5 15,129.7 14,833.7 14,624.0
Net risk-adjusted assets ... 12,495.8 12,341.7 12,109.4 11,788.6 11,671.2
Ratios:
Tier 1 risk-based capital .. 9.97% 10.00% 10.15% 10.21% 9.99%
Total risk-based capital ... 11.22% 11.25% 11.40% 11.46% 11.24%
Leverage ................... 7.88% 7.90% 8.12% 8.11% 7.97%
====================================================================================================================================
----------------
(1) Excluding the adjustment for unrealized gains (losses) on securities
available for sale and disallowed intangibles
</TABLE>
In the first quarter of 2000, the Company redeemed approximately $7.0
million of preferred stock. In April 2000, Hibernia's Board of Directors
authorized the Company to begin a buyback of up to 7.5 million common shares
over the next 12 months. As of September 30, 2000, the Company had repurchased
1,953,400 shares of its common stock at a cumulative weighted average price of
$10.70.
LIQUIDITY
Liquidity is a measure of the ability to fund loan commitments and meet
deposit maturities and withdrawals in a timely and cost-effective way. These
needs can be met by generating profits, attracting new deposits, converting
assets (including short-term investments, mortgage loans held for sale,
securities available for sale and loans) to cash and increasing borrowings. To
minimize funding risks, management monitors liquidity through periodic reviews
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 $9.8 billion at September 30, 2000, a $0.6
billion (6%) increase from September 30, 1999. 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 Compass transaction, which
added approximately $104.4 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 96.9% at September
30, 2000, 94.5% at June 30, 2000, and 94.9% at September 30, 1999. Another
indicator of liquidity is the large liability dependence ratio, which measures
reliance on short-term borrowings and other large liabilities (including
large-denomination and public fund certificates of deposit and foreign
deposits). Based on average balances, 25.5% of Hibernia's loans and securities
were funded by net large liabilities (total large liabilities less short-term
investments) in the third quarter of 2000, unchanged from the second quarter of
2000 and up from 22.1% in the third quarter of 1999. The level of large
liability dependence is within limits established by management to maintain
liquidity and soundness.
Management believes that the current level of short-term investments and
securities available for sale is adequate to meet the Company's current
liquidity needs. Additional sources of liquidity available to the Company
include the ability to issue additional retail brokered certificates of deposit
and the ability to sell or securitize a substantial portion of the Company's
$2.8 billion residential first mortgage portfolio and $1.7 billion indirect
consumer portfolio. The Company also has available Federal funds lines and its
membership in the FHLB to further augment liquidity by providing a readily
accessible source of funds at competitive rates.
Statements in Management's Discussion and Analysis of Financial Condition
and Results of Operations that are not historical facts should be considered
forward-looking statements with respect to Hibernia. Forward-looking statements
of this type speak only as of the date of this filing. By nature,
forward-looking statements involve inherent risk and uncertainties. Various
factors, including, but not limited to, economic conditions, asset quality,
interest rates, loan demand and changes in the assumptions used in making the
forward-looking statements, could cause actual results to differ materially from
those contemplated by the 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 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 10.35 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 2000 filed with
the Commission by the (Commission File No. 0-7220) is hereby
incorporated by reference (1993 Director Stock Option Plan of
Hibernia Corporation, as amended to date)
10.36 Exhibit 10.36 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 filed with the
Commission (Commission file no. 0-7220) is hereby incorporated
by reference (Employment agreement between Stephen A. Hansel
and Hibernia Corporation)
10.38 Exhibit 10.38 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999 filed with the
Commission (Commission File No. 0-7220) is hereby incorporated
by reference (Employment Agreement between E. R. "Bo"
Campbell and Hibernia Corporation)
10.40 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 File 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 File 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 Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 2000 filed with the
Commission (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 June 27, 2000 is hereby incorporated by reference(Annual
Report of the Retirement Security Plan for the fiscal year
ended December 31, 1999)
99.2 Exhibit 99.2 to the Annual Report on Form 10-K (as amended)
dated June 27, 2000 is hereby incorporated by reference(Annual
Report of the Employee Stock Ownership Plan and Trust for the
fiscal year ended December 31, 1999)
(b) Reports on Form 8-K
None
*Exhibits and Reports on Form 8-K have been separately filed with the
Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized to sign on behalf of the registrant.
HIBERNIA CORPORATION
--------------------------
(Registrant)
Date: November 14, 2000 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)
