<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 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 July 31, 2000
----- ----------------------------
Class A Common Stock, no par value 158,979,848 Shares
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Hibernia Corporation and Subsidiaries June 30 December 31 June 30
Unaudited ($ in thousands) 2000 1999 1999
====================================================================================================================================
<S> <C> <C> <C>
Assets
Cash and cash equivalents ......................................... $ 617,444 $ 827,699 $ 734,679
Securities available for sale ..................................... 2,684,405 2,660,322 2,803,224
Securities held to maturity (estimated fair value of $378,743 and
$297,072 at June 30, 2000 and December 31, 1999, respectively) 392,120 300,525 -
Mortgage loans held for sale ...................................... 68,389 92,704 143,739
Loans, net of unearned income ..................................... 11,591,743 10,856,676 10,484,846
Reserve for loan losses ....................................... (162,757) (156,072) (150,805)
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Loans, net ................................................ 11,428,986 10,700,604 10,334,041
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Bank premises and equipment ....................................... 206,869 205,165 204,151
Customers' acceptance liability ................................... 80 108 214
Other assets ...................................................... 564,056 527,052 514,602
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Total assets .............................................. $ 15,962,349 $ 15,314,179 $ 14,734,650
====================================================================================================================================
Liabilities
Deposits:
Noninterest-bearing ........................................... $ 2,139,377 $ 2,085,322 $ 2,100,308
Interest-bearing .............................................. 10,122,400 9,770,581 9,228,625
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Total deposits ............................................ 12,261,777 11,855,903 11,328,933
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Short-term borrowings ............................................. 1,274,563 1,102,690 1,106,102
Liability on acceptances .......................................... 80 108 214
Other liabilities ................................................. 166,140 135,114 148,978
Debt .............................................................. 844,425 844,849 805,270
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Total liabilities ......................................... 14,546,985 13,938,664 13,389,497
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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 June 30, 2000,
December 31, 1999 and June 30, 1999, respectively ............. 93,000 100,000 100,000
Class A Common Stock, no par value:
Authorized - 300,000,000 shares; issued -
160,905,021, 160,324,729 and 160,156,403 at June 30, 2000,
December 31, 1999 and June 30, 1999, respectively ............. 308,938 307,824 307,500
Surplus ........................................................... 429,708 425,185 423,656
Retained earnings ................................................. 690,338 631,314 571,969
Treasury stock at cost: 1,776,400 shares at June 30, 2000 ......... (18,955) - -
Accumulated other comprehensive income ............................ (52,979) (54,122) (20,221)
Unearned compensation ............................................. (34,686) (34,686) (37,751)
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Total shareholders' equity ................................ 1,415,364 1,375,515 1,345,153
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Total liabilities and shareholders' equity ................ $ 15,962,349 $ 15,314,179 $ 14,734,650
====================================================================================================================================
----------------
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Income Statements
Hibernia Corporation and Subsidiaries
Three Months Ended Six Months Ended
June 30 June 30
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Unaudited ($ in thousands, except per-share data) 2000 1999 2000 1999
==================================================================================================================================
Interest income
<S> <C> <C> <C> <C>
Interest and fees on loans ............................. $ 248,733 $ 208,227 $ 481,986 $ 410,167
Interest on securities available for sale .............. 44,815 42,321 86,864 84,088
Interest on securities held to maturity ................ 5,744 - 10,313 -
Interest on short-term investments ..................... 1,678 2,780 4,507 6,449
Interest and fees on mortgage loans held for sale ...... 1,564 3,285 2,920 6,997
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Total interest income .............................. 302,534 256,613 586,590 507,701
----------------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits ................................... 116,461 88,641 226,274 174,672
Interest on short-term borrowings ...................... 19,832 11,954 33,787 24,799
Interest on debt ....................................... 12,010 11,209 23,980 22,344
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Total interest expense ............................. 148,303 111,804 284,041 221,815
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Net interest income ........................................ 154,231 144,809 302,549 285,886
Provision for loan losses .............................. 17,000 12,200 33,250 42,200
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Net interest income after provision for loan losses ........ 137,231 132,609 269,299 243,686
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Noninterest income
Service charges on deposits ............................ 25,190 24,124 49,267 46,726
Brokerage and investment service fees .................. 11,586 6,167 20,109 11,615
Trust fees ............................................. 7,239 5,669 13,903 10,205
Mortgage loan origination and servicing fees ........... 5,733 4,438 10,973 8,940
Other service, collection and exchange charges ......... 10,436 8,882 20,529 16,908
Other operating income ................................. 2,954 3,021 6,800 9,083
Securities gains (losses), net ......................... (3,731) 368 (3,701) 409
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Total noninterest income ........................... 59,407 52,669 117,880 103,886
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Noninterest expense
Salaries and employee benefits ......................... 60,816 55,395 117,101 115,979
Occupancy expense, net ................................. 8,879 8,233 17,287 16,102
Equipment expense ...................................... 7,268 8,009 14,869 17,040
Data processing expense ................................ 7,754 7,753 15,847 15,819
Advertising and promotional expense .................... 3,770 3,629 7,537 7,259
Foreclosed property expense, net ....................... 319 (54) 396 (425)
Amortization of intangibles ............................ 6,643 5,337 13,273 9,862
Other operating expense ................................ 23,317 23,285 45,517 46,288
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Total noninterest expense .......................... 118,766 111,587 231,827 227,924
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Income before income taxes ................................. 77,872 73,691 155,352 119,648
Income tax expense ......................................... 27,861 26,338 55,210 42,724
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Net income ................................................. $ 50,011 $ 47,353 $ 100,142 $ 76,924
==================================================================================================================================
Net income applicable to common shareholders ............... $ 48,407 $ 45,628 $ 96,813 $ 73,474
==================================================================================================================================
Net income per common share ................................ $ 0.31 $ 0.29 $ 0.62 $ 0.47
==================================================================================================================================
Net income per common share - assuming dilution ............ $ 0.31 $ 0.29 $ 0.61 $ 0.46
==================================================================================================================================
----------------
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 ............................. - - - 100,142 - - $100,142
Unrealized gains (losses) on securities,
net of reclassification adjustments.. - - - - 1,143 - 1,143
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Comprehensive income ................... $101,285
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Issuance of common stock:
Stock Option Plan ................... - 124 383 - - -
Restricted stock awards ............. - 15 63 - - -
Shares issued in acquisition of
Southcoast Capital, L.L.C ......... - 975 4,100 - - 1,641
Cash dividends declared:
Preferred ($1.725 per share) ........ - - - (3,329) - -
Common ($.24 per share) ............. - - - (37,789) - -
Acquisition of treasury stock .......... - - - - - (20,596)
Redemption of preferred stock .......... (7,000) - 131 - - -
Other .................................. - - (154) - - -
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Balances at June 30, 2000 .............. $ 93,000 $ 308,9380 $ 429,708 $ 690,338 $ (52,979) $ (53,641)
====================================================================================================================================
====================================================================================================================================
Accumulated
Other
Preferred Common Retained Comprehensive Comprehensive
Stock Stock Surplus Earnings Income Other Income
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1998 .......... $ 100,000 $ 306,913 $ 416,269 $ 531,233 $ 27,938 $ (37,751)
Net income ............................. - - - 76,924 - - $ 76,924
Unrealized gains (losses) on securities,
net of reclassification adjustments.. - - - - (48,159) - (48,159)
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Comprehensive income ................... $ 28,765
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Issuance of common stock:
Stock Option Plan ................... - 578 2,044 - - -
Restricted stock awards ............. - 9 65 - - -
By pooled companies prior to merger.. - - 5,387 - - -
Cash dividends declared:
Preferred ($1.725 per share) ........ - - - (3,450) - -
Common ($.21 per share) ............. - - - (32,611) - -
By pooled companies prior to merger.. - - - (127) - -
Other .................................. - - (109) - - -
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Balances at June 30, 1999 .............. $ 100,000 $ 307,500 $ 423,656 $ 571,969 $ (20,221) $ (37,751)
====================================================================================================================================
----------------
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Hibernia Corporation and Subsidiaries
Six Months Ended June 30
Unaudited ($ in thousands) 2000 1999
===============================================================================================================================
<S> <C> <C>
Operating activities
Net income ............................................................ $ 100,142 $ 76,924
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses ...................................... 33,250 42,200
Amortization of intangibles and deferred charges ............... 13,219 9,759
Depreciation and amortization .................................. 13,670 15,193
Non-cash compensation expense .................................. - 4,385
Premium amortization (discount accretion) net,.................. (1,483) 3,631
Realized securities losses (gains), net ........................ 3,701 (409)
Gains on sales of assets, net .................................. (1,073) (1,026)
Provision for losses on foreclosed and other assets ............ 612 784
Decrease in mortgage loans held for sale ....................... 24,315 137,695
Increase in deferred income tax asset .......................... (2,227) (1,195)
Increase in interest receivable and other assets ............... (25,533) (22,397)
Increase (decrease) in interest payable and other liabilities .. 28,243 (3,531)
-------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities ........................ 186,836 262,013
-------------------------------------------------------------------------------------------------------------------------------
Investing activities
Purchases of securities available for sale ............................ (696,167) (185,099)
Purchases of securities held to maturity .............................. (112,476) -
Proceeds from maturities of securities available for sale ............. 642,598 222,392
Proceeds from maturities of securities held to maturity ............... 20,865 -
Proceeds from sales of securities available for sale .................. 28,078 52,405
Net increase in loans ................................................. (372,057) (506,372)
Proceeds from sales of loans .......................................... 3,702 1,166
Purchases of loans .................................................... (357,851) (131,279)
Purchases of premises, equipment and other assets ..................... (16,289) (27,956)
Proceeds from sales of foreclosed assets and excess bank-owned property 4,571 3,863
Proceeds from sales of premises, equipment and other assets ........... 859 125
Acquisitions, net of cash acquired of $76,627 and $277,702 for the
periods ended June 30, 2000 and 1999, respectively .............. 62,810 188,552
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Net cash used by investing activities ............................ (791,357) (382,203)
-------------------------------------------------------------------------------------------------------------------------------
Financing activities
Net increase (decrease) in deposits ................................... 291,014 (28,487)
Net increase (decrease) in short-term borrowings ...................... 171,873 (28,034)
Payments on debt ...................................................... (424) (1,067)
Proceeds from issuance of common stock ................................ 507 3,624
Dividends paid ........................................................ (41,239) (36,188)
Redemption of preferred shares ........................................ (6,869) -
Acquisition of treasury stock ......................................... (20,596) -
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Net cash provided (used) by financing activities ................. 394,266 (90,152)
-------------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents ................................... (210,255) (210,342)
Cash and cash equivalents at beginning of period ........................ 827,699 945,021
-------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period ....................... $ 617,444 $ 734,679
===============================================================================================================================
---------------
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 $3.1 million related to core
deposits were also recorded and are being amortized on an accelerated basis over
approximately ten years.
Unaudited pro forma data giving effect to the purchase transactions
previously discussed and the Beaumont transaction in the second quarter of 1999,
as if the transactions had occurred at the beginning of each period presented,
is included in the table below. Unaudited pro forma data is not necessarily
indicative of future results.
Six months ended June 30
------------------------
2000 1999
---- ----
($ in thousands, except per-share data)
Net interest and noninterest income $425,795 $407,320
Net income $100,553 $ 75,695
Net income per common share $ .62 $ .46
Net income per common share - assuming dilution $ .61 $ .45
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 will
be included from the date of consummation of the merger. The excess of cost over
the fair value of net assets acquired was approximately $22.3 million and will
be amortized on a straight-line basis over 15 years.
Note 3
Employee Benefit Plans
The Company's stock option plans provide incentive and non-qualified
options to various key employees and non-employee directors. Options granted to
directors upon inception of service as a director vest in six months and are
granted at the fair market value of the stock at the date of grant. Until
October 1997 those options were granted under the 1987 Stock Option Plan; since
October 1997 those options have been granted under the 1993 Directors' Stock
Option Plan. Options granted under the 1987 Stock Option Plan, the Long-Term
Incentive Plan and the 1993 Directors' Stock Option Plan become exercisable in
the following increments: 50% after the expiration of two years from the date of
grant, an additional 25% three years from the date of grant and the remaining
25% four years from the date of grant, and were granted at the fair market value
of the stock at the date of grant.
Options granted to employees and directors, other than the chief executive
officer, become immediately exercisable if the holder of the option dies while
the option is outstanding. Options granted under the 1987 Stock Option Plan
generally expire 10 years from the date granted. Options granted under the
Long-Term Incentive Plan and the 1993 Directors' Stock Option Plan generally
expire 10 years from the date of grant unless the holder dies, retires, becomes
permanently disabled or leaves the employ of the Company, at which time the
options expire at various times ranging from 30 to 365 days. All options vest
immediately upon a change in control of the Company.
The following tables summarize the option activity in the plans during the
second quarter of 2000. During 1997, the 1987 Stock Option Plan was terminated;
therefore, at June 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, March 31, 2000 ...... 43,913 1,083,512 1,127,425 $ 6.10
Exercised ........................ - (500) (500) 4.94
-----------------------------------------------------------------------------------------------------------------
Outstanding, June 30, 2000 ....... 43,913 1,083,012 1,126,925 $ 6.10
==================================================================================================================
Exercisable, June 30, 2000 ....... 43,913 1,083,012 1,126,925 $ 6.10
=================================================================================================================
Long-Term Incentive Plan:
Outstanding, March 31, 2000 ...... 12,598 11,537,461 11,550,059 $ 12.34
Granted .......................... - 14,750 14,750 11.71
Canceled ......................... - (216,962) (216,962) 13.44
Exercised ........................ - (54,649) (54,649) 7.93
-----------------------------------------------------------------------------------------------------------------
Outstanding, June 30, 2000 ....... 12,598 11,280,600 11,293,198 $ 12.34
=================================================================================================================
Exercisable, June 30, 2000 ....... 12,598 5,299,976 5,312,574 $ 11.04
=================================================================================================================
Available for grant, June 30, 2000 957,878
=================================================================================================================
1993 Directors' Stock Option Plan:
Outstanding, March 31, 2000 ...... - 370,000 370,000 $ 12.49
Granted .......................... - 60,000 60,000 10.38
-----------------------------------------------------------------------------------------------------------------
Outstanding, June 30, 2000 ....... - 430,000 430,000 $ 12.20
=================================================================================================================
Exercisable, June 30, 2000 ....... - 273,750 273,750 $ 11.59
=================================================================================================================
Available for grant, June 30, 2000 442,500
=================================================================================================================
</TABLE>
In addition to the above option activity in the plans, 86,210 shares of
restricted stock were awarded under the Long-Term Incentive Plan during the
second 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 June 30 Six Months Ended June 30
----------------------------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income .................................... $ 50,011 $ 47,353 $ 100,142 $ 76,924
Preferred stock dividends ..................... 1,604 1,725 3,329 3,450
----------------------------------------------------------------------------------------------------------------------------------
Numerator for net income per common share ..... 48,407 45,628 96,813 73,474
Effect of dilutive securities ................. - - - -
----------------------------------------------------------------------------------------------------------------------------------
Numerator for net income per common
share - assuming dilution ................. $ 48,407 $ 45,628 $ 96,813 $ 73,474
==================================================================================================================================
Denominator:
Denominator for net income per common
share (weighted average shares outstanding) 156,937,383 157,186,457 157,224,514 157,069,839
Effect of dilutive securities:
Stock options ............................. 1,256,090 1,428,623 958,815 1,712,513
Restricted stock awards ................... 169,260 77,500 169,260 77,500
----------------------------------------------------------------------------------------------------------------------------------
Denominator for net income per common
share - assuming dilution ................. 158,362,733 158,692,580 158,352,589 158,859,852
----------------------------------------------------------------------------------------------------------------------------------
Net income per common share ....................... $ 0.31 $ 0.29 $ 0.62 $ 0.47
==================================================================================================================================
Net income per common share - assuming dilution ... $ 0.31 $ 0.29 $ 0.61 $ 0.46
==================================================================================================================================
</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 2,652,080 and 2,938,617 for the three months
ended June 30, 2000 and 1999, respectively, and 2,687,042 and 2,970,012 for the
six months ended June 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 June 30, 2000 and 1999 there
were 5,484,984 antidilutive options outstanding with exercise prices ranging
from $11.81 to $21.72 per option, and 4,138,079 antidilutive options outstanding
with exercise prices ranging from $13.88 to $21.72 per option, respectively.
During the six months ended June 30, 2000 and 1999 there were 5,486,984
antidilutive options outstanding with exercise prices ranging from $11.16 to
$21.72 per option, and 4,096,079 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>
Six months ended June 30, 2000
Average loans ................ $ 3,702,800 $ 2,341,800 $ 5,130,100 $ 1,300 $ 22,400 $ 11,198,400
Average assets ............... $ 3,766,300 $ 2,391,900 $ 8,071,000 $ 3,121,200 $ 598,300 $ 17,948,700
Average deposits ............. $ 990,000 $ 1,689,200 $ 7,056,200 $ 1,940,900 $ (5,800) $ 11,670,500
Net interest income .......... $ 64,849 $ 76,998 $ 155,107 $ 18,544 $ (10,467) $ 305,031
Noninterest income ........... $ 17,932 $ 12,505 $ 89,722 $ 608 $ 2,811 $ 123,578
Net income ................... $ 20,716 $ 22,295 $ 53,700 $ 9,151 $ (3,469) $ 102,393
====================================================================================================================================
Six months ended June 30, 1999
Average loans ................ $ 3,969,300 $ 2,045,500 $ 4,075,300 $ 2,000 $ 47,500 $ 10,139,600
Average assets ............... $ 4,033,900 $ 2,089,400 $ 7,516,900 $ 3,211,800 $ 533,800 $ 17,385,800
Average deposits ............. $ 751,800 $ 1,387,100 $ 6,499,200 $ 1,900,200 $ 91,100 $ 10,629,400
Net interest income .......... $ 64,738 $ 67,212 $ 131,687 $ 33,376 $ (8,928) $ 288,085
Noninterest income ........... $ 14,337 $ 9,936 $ 78,149 $ 505 $ 3,003 $ 105,930
Net income ................... $ 20,465 $ 13,950 $ 26,149 $ 19,190 $ (2,088) $ 77,666
====================================================================================================================================
</TABLE>
The following is a reconciliation of segment totals to consolidated totals.
<TABLE>
<CAPTION>
====================================================================================================================================
Average Average Average Net Interest Noninterest
($ in thousands) Loans Assets Deposits Income Income Net Income
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Six months ended June 30, 2000
Segment total .................... $ 11,198,400 $ 17,948,700 $ 11,670,500 $ 305,031 $ 123,578 $ 102,393
Excess funds invested .......... - (2,696,200) - - - -
Reclassification of cash items
in process of collection ..... - 308,600 308,600 - - -
Taxable-equivalent adjustment on
tax exempt loans ............. - - - (2,482) - (1,613)
Mortgage servicing rights ...... - (22,300) - - (5,698) (2,528)
Income tax expense ............. - - - - - 1,890
------------------------------------------------------------------------------------------------------------------------------------
Consolidated total ............... $ 11,198,400 $ 15,538,800 $ 11,979,100 $ 302,549 $ 117,880 $ 100,142
====================================================================================================================================
Six months ended June 30, 1999
Segment total .................... $ 10,139,600 $ 17,385,800 $ 10,629,400 $ 288,085 $ 105,930 $ 77,666
Excess funds invested .......... - (3,316,800) - - - -
Reclassification of cash items
in process of collection ..... - 291,700 291,700 - - -
Taxable-equivalent adjustment on
tax exempt loans ............. - - - (2,199) - (1,429)
Mortgage servicing rights ...... - (16,400) - - (2,044) (433)
Income tax expense ............. - - - - - 1,120
------------------------------------------------------------------------------------------------------------------------------------
Consolidated total ............... $ 10,139,600 $ 14,344,300 $ 10,921,100 $ 285,886 $ 103,886 $ 76,924
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED SUMMARY OF INCOME AND SELECTED FINANCIAL DATA (1)
Hibernia Corporation and Subsidiaries
====================================================================================================================================
Three Months Ended Six Months Ended
------------------------------------------------------------------------------------------------------------------------------------
June 30 March 31 June 30 June 30 June 30
($ in thousands, except per-share data) 2000 2000 1999 2000 1999
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Interest income ...................................... $ 302,534 $ 284,056 $ 256,613 $ 586,590 $ 507,701
Interest expense ..................................... 148,303 135,738 111,804 284,041 221,815
------------------------------------------------------------------------------------------------------------------------------------
Net interest income .................................. 154,231 148,318 144,809 302,549 285,886
Provision for loan losses ............................ 17,000 16,250 12,200 33,250 42,200
------------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses ........................ 137,231 132,068 132,609 269,299 243,686
------------------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Noninterest income ................................ 63,138 58,443 52,301 121,581 103,477
Securities gains (losses), net .................... (3,731) 30 368 (3,701) 409
------------------------------------------------------------------------------------------------------------------------------------
Noninterest income ................................... 59,407 58,473 52,669 117,880 103,886
Noninterest expense .................................. 118,766 113,061 111,587 231,827 227,924
------------------------------------------------------------------------------------------------------------------------------------
Income before taxes .................................. 77,872 77,480 73,691 155,352 119,648
Income tax expense ................................... 27,861 27,349 26,338 55,210 42,724
------------------------------------------------------------------------------------------------------------------------------------
Net income ........................................... $ 50,011 $ 50,131 $ 47,353 $ 100,142 $ 76,924
====================================================================================================================================
Net income applicable to common shareholders ......... $ 48,407 $ 48,406 $ 45,628 $ 96,813 $ 73,474
====================================================================================================================================
Per common share information:
Net income ........................................ $ 0.31 $ 0.31 $ 0.29 $ 0.62 $ 0.47
Net income - assuming dilution .................... $ 0.31 $ 0.31 $ 0.29 $ 0.61 $ 0.46
Cash dividends declared ........................... $ 0.12 $ 0.12 $ 0.105 $ 0.24 $ 0.21
Average shares outstanding (000s) .................... 156,937 157,512 157,186 157,225 157,070
Average shares outstanding - assuming dilution (000s) 158,363 158,238 158,693 158,353 158,860
Dividend payout ratio ................................ 38.71% 38.71% 36.21% 38.71% 44.68%
====================================================================================================================================
Selected quarter-end balances (in millions)
Loans ................................................ $ 11,591.7 $ 11,326.0 $ 10,484.8
Deposits ............................................. 12,261.8 12,161.2 11,328.9
Debt ................................................. 844.4 844.6 805.3
Equity ............................................... 1,415.4 1,393.7 1,345.2
Total assets ......................................... 15,962.3 15,741.8 14,734.7
====================================================================================================================================
Selected average balances (in millions)
Loans ................................................ $ 11,423.2 $ 10,973.5 $ 10,279.2 $ 11,198.4 $ 10,139.6
Deposits ............................................. 12,082.4 11,875.8 11,072.6 11,979.1 10,921.1
Debt ................................................. 844.5 844.7 805.3 844.6 805.7
Equity ............................................... 1,392.8 1,383.1 1,356.5 1,388.0 1,356.5
Total assets ......................................... 15,788.5 15,289.1 14,428.4 15,538.8 14,344.3
====================================================================================================================================
Selected ratios
Net interest margin (taxable-equivalent) ............. 4.27% 4.27% 4.39% 4.27% 4.37%
Return on assets ..................................... 1.27% 1.31% 1.31% 1.29% 1.07%
Return on common equity .............................. 14.90% 15.08% 14.53% 14.99% 11.69%
Return on total equity ............................... 14.36% 14.50% 13.96% 14.43% 11.34%
Efficiency ratio ..................................... 53.99% 53.99% 55.83% 53.99% 57.71%
Average equity/average assets ........................ 8.82% 9.05% 9.40% 8.93% 9.46%
Tier 1 risk-based capital ratio ...................... 10.00% 10.15% 9.85%
Total risk-based capital ratio ....................... 11.25% 11.40% 11.10%
Leverage ratio ....................................... 7.90% 8.12% 7.96%
====================================================================================================================================
Cash-basis financial data (2)
Net income applicable to common shareholders ......... $ 52,288 $ 52,329 $ 48,708 $ 104,617 $ 79,197
Net income per common share .......................... $ 0.33 $ 0.33 $ 0.31 $ 0.67 $ 0.50
Net income per common share - assuming dilution ...... $ 0.33 $ 0.33 $ 0.31 $ 0.66 $ 0.50
Return on assets ..................................... 1.38% 1.43% 1.41% 1.41% 1.17%
Return on common equity .............................. 18.89% 19.14% 17.93% 19.01% 14.41%
Efficiency ratio ..................................... 51.78% 51.62% 54.00% 51.70% 56.05%
Average equity/average assets ........................ 7.70% 7.90% 8.32% 7.80% 8.45%
====================================================================================================================================
----------------
(1) All financial information has been restated for mergers accounted for
as poolings of interests. The effects of mergers accounted for as
purchase transactions have been included from the date of consummation.
Prior periods have been conformed to current-period presentation.
(2) Excluding amortization and balances of purchase accounting intangibles
net of applicable taxes.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's Discussion presents a review of the major factors and trends
affecting the performance of Hibernia Corporation (the "Company" or "Hibernia")
and its subsidiaries, principally Hibernia National Bank (the "Bank"). This
discussion should be read in conjunction with the accompanying tables and
consolidated financial statements.
SECOND-QUARTER 2000 HIGHLIGHTS
Strong financial results and solid growth are reflected in Hibernia
Corporation's financial information for the second quarter and first six months
of 2000.
o Net income for the second quarter of 2000 totaled $50.0 million ($.31 per
common share), up 6% compared to $47.4 million ($.29 per common share) for
the second quarter of 1999. Net income for the first six months of 2000
totaled $100.1 million ($.62 per common share), up 30% compared to $76.9
million ($.47 per common share) for the first six months of 1999.
o Cash-basis net income was $53.9 million ($.33 per common share) in the
second quarter of 2000, up 7% compared to $50.4 million ($.31 per common
share) in the second quarter of 1999. Cash-basis net income was $107.9
million ($.67 per common share) for the first six months of 2000, up 31%
compared to $82.6 million ($.50 per common share) for the first six months
of 1999.
o Net income for the second quarter of 2000, excluding merger-related
expenses, was $50.0 million ($.31 per common share), up 5% compared to
$47.5 million ($.29 per common share) for the second quarter of 1999. Net
income for the first six months of 2000, excluding merger-related expenses,
was $100.2 million ($.62 per common share), up 21% compared to $82.7
million ($.50 per common share) for the first six months of 1999.
o On a taxable-equivalent basis excluding securities transactions, revenues
for the second quarter of 2000 totaled $220.0 million, a $20.1 million
(10%) increase from the second quarter 1999 level of $199.9 million. On a
taxable-equivalent basis excluding securities transactions, revenues for
the first six months of 2000 totaled $429.4 million, a $34.5 million (9%)
increase from the first six months of 1999 level of $394.9 million.
Noninterest income (excluding securities transactions) increased $10.8
million (21%) to $63.1 million for the second quarter of 2000 compared to
the second quarter of 1999. Noninterest income (excluding securities
transactions) increased $18.1 million (17%) to $121.6 million for the first
six months of 2000 compared to the first six months of 1999.
o Total assets increased $1.2 billion (8%) to $16.0 billion at June 30, 2000
compared to June 30, 1999. Shareholders' equity increased $70.2 million
(5%) to $1.4 billion at June 30, 2000 compared to June 30, 1999. Book value
per common share increased $.53 (7%) to $8.45 at June 30, 2000 compared to
June 30, 1999.
o Total loans increased $1.1 billion (11%) from June 30, 1999 to $11.6
billion at June 30, 2000. Consumer loans grew $1.4 billion (34%) to $5.6
billion, small business loans increased $77.2 million (3%) to $2.4 billion
and commercial loans decreased $380.6 million (10%) to $3.6 billion.
o Total deposits grew $0.9 billion (8%) from June 30, 1999 to $12.3 billion
at June 30, 2000.
o In April 2000, the Board of Directors authorized a buyback of up to 7.5
million common shares over the next 12 months. As of June 30, 2000, the
Company had repurchased approximately 1.8 million shares of its common
stock.
o Hibernia continues to broaden its range of financial products and services.
On April 1, 2000, Hibernia added investment banking with the completion of
the merger with Southcoast Capital, L.L.C. and on July 6, 2000, Hibernia
expanded its insurance line by completing a merger with The Rosenthal
Agency.
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."
Upon the completion of two banking offices currently under construction in
Southeast Louisiana, Hibernia will have 255 locations in 34 Louisiana parishes
and 15 Texas counties.
FINANCIAL CONDITION:
EARNING ASSETS
Earning assets averaged $14.7 billion in the second quarter of 2000, a $1.2
billion (9%) increase from the second-quarter 1999 average of $13.5 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 second quarter of 2000 of $11.4 billion were
up $449.7 million (4%) from the first quarter of 2000 and up $1.1 billion (11%)
compared to the second quarter of 1999. Excluding the effect of the Compass
transaction, average loans increased approximately 4% for the second quarter of
2000 compared to the first quarter of 2000. Excluding the effect of the Compass
and Beaumont transactions, average loans increased approximately 10% for the
second quarter of 2000 compared to the second quarter of 1999.
Table 1 presents Hibernia's commercial and small business loans classified
by repayment source and consumer loans classified by type at June 30, 2000,
March 31, 2000 and June 30, 1999. Total loans increased $265.7 million (2%)
during the second quarter of 2000 compared to March 31, 2000.
<TABLE>
<CAPTION>
===================================================================================================================================
TABLE 1 - COMPOSITION OF LOAN PORTFOLIO
===================================================================================================================================
June 30, 2000 March 31, 2000 June 30, 1999
-----------------------------------------------------------------------------------------------------------------------------------
($ in millions) Loans Percent Loans Percent Loans Percent
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Commercial:
Commercial and industrial ..... $ 1,442.3 12.4% $ 1,476.8 13.0% $ 1,471.5 14.0%
Services industry ............. 848.4 7.3 905.2 8.0 1,064.2 10.2
Real estate ................... 455.0 3.9 494.3 4.4 482.9 4.6
Health care ................... 299.7 2.6 329.6 2.9 319.0 3.0
Transportation, communications
and utilities .............. 227.5 2.0 244.6 2.2 224.8 2.2
Energy ........................ 253.1 2.2 240.8 2.1 355.4 3.4
Other ......................... 75.3 0.7 65.8 0.6 64.1 0.6
-----------------------------------------------------------------------------------------------------------------------------------
Total commercial ........... 3,601.3 31.1 3,757.1 33.2 3,981.9 38.0
-----------------------------------------------------------------------------------------------------------------------------------
Small Business:
Commercial and industrial ..... 782.3 6.7 763.1 6.7 884.1 8.4
Services industry ............. 585.8 5.0 556.8 4.9 501.9 4.8
Real estate ................... 382.7 3.3 372.5 3.3 326.9 3.1
Health care ................... 144.8 1.2 142.9 1.3 129.9 1.2
Transportation, communications
and utilities .............. 87.8 0.8 94.3 0.8 79.0 0.8
Energy ........................ 32.6 0.3 33.3 0.3 37.6 0.4
Other ......................... 377.8 3.3 373.5 3.3 357.2 3.4
-----------------------------------------------------------------------------------------------------------------------------------
Total small business ....... 2,393.8 20.6 2,336.4 20.6 2,316.6 22.1
-----------------------------------------------------------------------------------------------------------------------------------
Consumer:
Residential mortgages:
First mortgages ............ 2,660.0 22.9 2,520.4 22.3 1,970.8 18.8
Junior liens ............... 344.5 3.0 303.4 2.7 230.9 2.2
Indirect ...................... 1,570.7 13.6 1,433.0 12.6 1,010.0 9.6
Revolving credit .............. 412.9 3.6 379.3 3.3 346.9 3.3
Other ......................... 608.5 5.2 596.4 5.3 627.7 6.0
-----------------------------------------------------------------------------------------------------------------------------------
Total consumer ............. 5,596.6 48.3 5,232.5 46.2 4,186.3 39.9
-----------------------------------------------------------------------------------------------------------------------------------
Total loans ....................... $ 11,591.7 100.0 $ 11,326.0 100.0% $ 10,484.8 100.0%
===================================================================================================================================
</TABLE>
Consumer loans increased $364.1 million (7%) and $1.4 billion (34%)
compared to March 31, 2000 and June 30, 1999, respectively. The consumer
portfolio growth was primarily in residential mortgages and indirect loans.
Small business loans increased $57.4 million (2%) and $77.2 million (3%)
compared to March 31, 2000 and June 30, 1999, respectively. The growth in the
small business portfolio 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 $155.8 million (4%) compared to March 31, 2000
and decreased $380.6 million (10%) compared to June 30, 1999. The decrease in
commercial loans from June 30, 1999 was the result of the implementation in 1999
of policies designed to create more granularity in and diversify the risk of the
portfolio.
While oil prices have rebounded in recent months from the worldwide
decrease in oil prices experienced in 1998 and early 1999, the recovery in the
energy industry may be delayed due to uncertainties with respect to future price
trends. This lag in recovery is especially evident in the energy-services
sector. 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, and the
energy portion of the loan portfolio represents 2.5% of total loans as of June
30, 2000.
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 $33.7 million (1%) in the second quarter of 2000 compared to the
second quarter of 1999, and were down $94.5 million (3%) for the first six
months of 2000 compared to the same period in 1999. The decrease was primarily
the result of the change in unrealized securities gains (losses) reflecting the
current interest rate environment. Securities primarily consist of
mortgage-backed and U.S. government agency securities. Most securities held by
the Company qualify as securities that may be pledged and are used for customer
repurchase agreements and to collateralize public or trust deposits.
Securities Held to Maturity. Average securities held to maturity in the
second quarter of 2000 totaled $370.3 million. Average securities held to
maturity for the first six months of 2000 totaled $333.8 million. The increases
from the second quarter and the first six months of 1999 were a result of the
securitizations of residential first mortgages in the first quarter of 2000 and
the fourth quarter of 1999.
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 June 30, 2000 totaled $106.9
million, down $111.4 million (51%) compared to $218.3 million in the second
quarter of 1999. For the six months of 2000 compared to the same period in 1999,
average short-term investments decreased $107.5 million (41%) to $151.7 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 second quarter of 2000 decreased $120.2 million (60%) compared to the
second quarter of 1999, and decreased $141.6 million (65%) for the first six
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 $44.8 million (51%) from June 30, 1999 and decreased
$2.3 million (5%) from March 31, 2000. Accruing loans past due 90 days or more
were $5.9 million at June 30, 2000 compared to $35.8 million at June 30, 1999
and $6.3 million at March 31, 2000.
Delinquencies at June 30, 1999 included the Company's $29.4 million
participation in a syndicated, secured credit to an oil and gas company. This
participation was sold in the third quarter of 1999.
<TABLE>
<CAPTION>
============================================================================================================================
TABLE 2 - LOAN DELINQUENCIES
============================================================================================================================
June 30 March 31 Dec. 31 Sept. 30 June 30
($ in millions) 2000 2000 1999 1999 1999
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Days past due:
30 to 89 days ........................... $ 36.4 $ 38.3 $ 43.6 $ 72.6 $ 51.3
90 days or more ......................... 5.9 6.3 6.0 7.3 35.8
-----------------------------------------------------------------------------------------------------------------------------
Total delinquencies ................. $ 42.3 $ 44.6 $ 49.6 $ 79.9 $ 87.1
----------------------------------------------------------------------------------------------------------------------------
Total delinquencies as a percentage of loans:
Commercial .............................. 0.04% 0.11% 0.15% 0.92% 1.11%
Small business .......................... 0.38% 0.42% 0.34% 0.37% 0.47%
Consumer ................................ 0.57% 0.58% 0.75% 0.76% 0.76%
Total loans ............................. 0.37% 0.39% 0.46% 0.73% 0.83%
============================================================================================================================
</TABLE>
Delinquencies as a percentage of total loans at June 30, 2000 were 0.37%,
down from 0.83% a year ago and down from 0.39% at March 31, 2000. Commercial
delinquencies at June 30, 1999 reflected the Company's exposure to the
syndicated oil and gas credit previously discussed. The improvement in small
business delinquencies from the second quarter of 1999 is the result of
continued enhancements in the underwriting, portfolio management and collection
processes. The improvement in consumer delinquencies from the prior year is due
to a continued strong focus on the collection process as well as growth in the
consumer portfolio.
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 $95.2 million at June
30, 2000, up from $86.7 million at June 30, 1999 and up from $77.4 million at
March 31, 2000. The change from the first quarter of 2000 was primarily driven
by nonaccrual loans in the commercial loan portfolio, which increased to $69.9
million from $51.2 million. 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 $7.3 million at June 30, 2000, down $2.0 million (22%) from a
year earlier, and up $0.1 million (1%) from March 31, 2000. Excess bank-owned
property at June 30, 2000 was down $1.2 million (26%) from June 30, 1999, and
down $0.5 million (13%) from March 31, 2000.
Nonperforming assets as a percentage of total loans plus foreclosed assets
and excess bank-owned property (nonperforming asset ratio) is one measure of
asset quality. At June 30, 2000 the Company's nonperforming asset ratio was
0.91% compared to 0.96% at June 30, 1999 and 0.78% at March 31, 2000.
The composition of nonperforming loans, foreclosed assets and excess
bank-owned property as well as certain asset quality ratios for the past five
quarters are set forth in Table 3.
<TABLE>
<CAPTION>
=============================================================================================================================
TABLE 3 - NONPERFORMING ASSETS
=============================================================================================================================
June 30 March 31 Dec. 31 Sept. 30 June 30
($ in thousands) 2000 2000 1999 1999 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial ....................... $ 69,905 $ 51,187 $ 51,620 $ 35,906 $ 63,425
Small business ................... 19,515 19,325 18,329 19,061 19,039
Consumer ......................... 5,740 6,928 6,512 6,991 4,203
Restructured loans ................... - - - - -
-----------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans .... 95,160 77,440 76,461 61,958 86,667
-----------------------------------------------------------------------------------------------------------------------------
Foreclosed assets .................... 7,283 7,186 7,710 9,944 9,311
Excess bank-owned property ........... 3,389 3,887 4,197 4,127 4,559
-----------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets ... $105,832 $ 88,513 $ 88,368 $ 76,029 $100,537
=============================================================================================================================
Reserve for loan losses .............. $162,757 $161,274 $156,072 $156,282 $150,805
Nonperforming loan ratio:
Commercial loans ................. 1.94% 1.36% 1.40% 0.95% 1.59%
Small business loans ............. 0.82% 0.83% 0.78% 0.81% 0.82%
Consumer loans ................... 0.10% 0.13% 0.14% 0.15% 0.10%
Total loans ...................... 0.82% 0.68% 0.70% 0.57% 0.83%
Nonperforming asset ratio ............ 0.91% 0.78% 0.81% 0.70% 0.96%
Reserve for loan losses as a
percentage of nonperforming loans 171.04% 208.26% 204.12% 252.24% 174.01%
=============================================================================================================================
</TABLE>
At June 30, 2000 the recorded investment in loans considered impaired under
Statement of Financial Accounting Standards (SFAS) No. 114 was $89.4 million.
The related portion of the reserve for loan losses was $27.9 million. The
comparable amounts at June 30, 1999 were $82.7 million and $21.0 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 $41.1 million were added to nonperforming loans
during the second quarter of 2000. Charge-offs reduced nonperforming loans by
$9.5 million. Loans totaling $1.5 million were returned to performing status
while payments and sales resulted in a $10.6 million further reduction in
nonperforming loans in the second quarter of 2000. To the extent that nonaccrual
loans that have been charged-off are recovered in subsequent periods, the
recoveries would be reflected in the reserve for loan losses in Table 5 and not
as a component of nonperforming loan activity.
<TABLE>
<CAPTION>
===========================================================================================================
TABLE 4 - SUMMARY OF NONPERFORMING LOAN ACTIVITY
===========================================================================================================
2000 1999
-----------------------------------------------------------------------------------------------------------
Second First Fourth Third Second
($ in thousands) Quarter Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans
at beginning of period .. $ 77,440 $ 76,461 $ 61,958 $ 86,667 $ 63,454
Additions ................... 41,057 11,329 32,296 24,309 43,804
Charge-offs, gross .......... (9,499) (3,998) (10,347) (16,195) (9,974)
Transfer to OREO ............ (1,693) (1,355) (2,489) (1,623) (801)
Returns to performing status (1,522) (420) (869) (5,064) (509)
Payments and sales .......... (10,623) (4,577) (4,088) (26,136) (9,307)
-----------------------------------------------------------------------------------------------------------
Nonperforming loans
at end of period ........ $ 95,160 $ 77,440 $ 76,461 $ 61,958 $ 86,667
===========================================================================================================
</TABLE>
In addition to the nonperforming loans discussed above, other commercial
loans that are subject to potential future classification as nonperforming
totaled $81.2 million at June 30, 2000, an increase of $13.6 million (20%) from
March 31, 2000 and a decrease of $0.4 million from June 30, 1999.
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 economic conditions
and market trends. The Company recorded a $17.0 million provision for loan
losses in the second quarter of 2000 and a $33.3 million provision for the first
six months of 2000, compared to $12.2 million and $42.2 million in the
comparable periods of 1999. The higher provision for the first six months of
1999 was primarily due to expected losses resulting from the bankruptcy of one
large commercial loan customer. The provision for loan losses for the second
quarter and first six months of 2000 exceeded net charge-offs by $1.1 million
and $6.3 million, respectively.
Net charge-offs totaled $15.9 million in the second quarter of 2000 and
$26.9 million for the first six months of 2000 compared to $14.4 million and
$24.8 million in the comparable periods of 1999. As a percentage of average
loans, annualized net charge-offs were 0.56% in the second quarter of 2000,
unchanged from the second quarter of 1999, and up from 0.40% in the first
quarter of 2000. Commercial net charge-offs declined to $7.8 million in the
second quarter of 2000 from $9.7 million in the same period of 1999, and
increased from $2.6 million in the first quarter of 2000. Net charge-offs of
$2.0 million in the small business portfolio for the second quarter of 2000 were
relatively unchanged from the comparable period in 1999, and decreased $1.0
million from $3.0 million in the first quarter of 2000. Consumer net charge-offs
increased to $6.1 million in the second quarter of 2000, up from $2.8 million in
the second quarter of 1999 and $5.4 million in the prior quarter. The second
quarter of 1999 included a $0.7 million recovery on the sale of a portfolio of
charged off consumer loans. The increase in consumer net charge-offs 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 second quarter of 1999 except for the previously discussed decrease in
the commercial portfolio and increases in the small business and consumer
portfolios, particularly in residential mortgages and indirect loans. The
Company continued to focus on managing its problem loan exposure in the second
quarter of 2000. The reserve coverage of total loans was virtually unchanged for
the second 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
---------------------------------------------------------------------------------------------------------------------------
Second First Fourth Third Second
($ in thousands) Quarter Quarter Quarter Quarter Quarter
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period ........ $ 161,274 $ 156,072 $ 156,282 $ 150,805 $ 150,008
Loans charged off:
Commercial ........................ (8,589) (2,826) (9,402) (19,221) (10,390)
Small business .................... (3,174) (3,947) (3,432) (2,803) (2,916)
Consumer .......................... (7,782) (7,198) (7,440) (5,906) (5,524)
Recoveries:
Commercial ........................ 777 204 426 1,367 682
Small business .................... 1,158 951 1,075 1,790 970
Consumer .......................... 1,709 1,768 1,645 1,750 2,740
---------------------------------------------------------------------------------------------------------------------------
Net loans charged off ................. (15,901) (11,048) (17,128) (23,023) (14,438)
Provision for loan losses ............. 17,000 16,250 17,100 28,500 12,200
Additions due to purchase transactions 452 - - - 3,035
Transfer due to securitizations ....... (68) - (182) - -
---------------------------------------------------------------------------------------------------------------------------
Balance at end of period .............. $ 162,757 $ 161,274 $ 156,072 $ 156,282 $ 150,805
===========================================================================================================================
Reserve for loan losses
as a percentage of loans .......... 1.40% 1.42% 1.44% 1.44% 1.44%
Annualized net charge-offs as a
percentage of average loans:
Commercial .................... 0.85% 0.28% 0.97% 1.85% 0.97%
Small business ................ 0.34% 0.52% 0.40% 0.18% 0.36%
Consumer ...................... 0.45% 0.44% 0.48% 0.37% 0.27%
Total loans ................... 0.56% 0.40% 0.63% 0.86% 0.56%
===========================================================================================================================
</TABLE>
The assumptions and methodologies used in allocating the reserve were
unchanged during the quarter. The allocations to the commercial and small
business 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.
The reserve coverage of annualized net charge-offs declined during the
quarter to 256% from 365% in the first quarter of 2000 and 261% in the second
quarter of 1999. This decline was primarily due to the higher level of net
charge-offs during the second 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 $162.8 million, or 1.40% of total loans
at June 30, 2000, compared to $150.8 million, or 1.44% of total loans at June
30, 1999 and $161.3 million, or 1.42% of total loans at March 31, 2000. The
reserve for loan losses as a percentage of nonperforming loans was 171% at June
30, 2000, compared to 174% at June 30, 1999 and 208% at March 31, 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 economic conditions and market trends.
FUNDING SOURCES:
DEPOSITS
Average deposits totaled $12.1 billion in the second quarter of 2000, a
$1.0 billion (9%) increase from the second quarter of 1999. For the first six
months of 2000 compared to the same period in 1999, average deposits increased
$1.1 billion (10%) to $12.0 billion. Excluding the effect of the Compass and
Beaumont transactions, average deposits increased approximately 7% for the
second quarter of 2000 compared to the same period in 1999. Table 6 presents the
composition of average deposits for the periods presented.
<TABLE>
<CAPTION>
=================================================================================================================================
TABLE 6 - DEPOSIT COMPOSITION
=================================================================================================================================
Second Quarter 2000 First Quarter 2000 Second Quarter 1999
---------------------------------------------------------------------------------------------------------------------------------
Average %of Average %of Average %of
($ in millions) Balances Deposits Balances Deposits Balances Deposits
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing ............ $ 2,096.6 17.3% $ 2,036.3 17.1% $ 2,010.3 18.2%
NOW accounts ................... 296.2 2.4 304.6 2.6 370.9 3.3
Money market deposit accounts .. 2,124.4 17.6 2,204.2 18.6 2,077.7 18.8
Savings accounts ............... 2,108.9 17.5 2,028.3 17.1 1,629.8 14.7
Other consumer time deposits ... 2,922.9 24.2 2,908.6 24.5 2,950.4 26.6
---------------------------------------------------------------------------------------------------------------------------------
Total core deposits ........ 9,549.0 79.0 9,482.0 79.9 9,039.1 81.6
---------------------------------------------------------------------------------------------------------------------------------
Public fund certificates of
deposit of $100,000 or more 1,035.8 8.6 973.1 8.2 1,124.3 10.2
Certificates of deposit of
$100,000 or more ........... 1,134.5 9.4 1,096.7 9.2 617.2 5.6
Foreign time deposits .......... 363.1 3.0 324.0 2.7 292.0 2.6
---------------------------------------------------------------------------------------------------------------------------------
Total deposits ............. $ 12,082.4 100.0% $ 11,875.8 100.0% $ 11,072.6 100.0%
=================================================================================================================================
</TABLE>
Average core deposits totaled $9.5 billion in the second quarter of 2000, a
$509.9 million (6%) increase from the second quarter of 1999. The Compass and
Beaumont transactions accounted for approximately 35% of the growth in average
core deposits in the second quarter of 2000 compared to the second quarter of
1999. Average noninterest-bearing deposits grew $86.3 million and average
savings deposits increased $479.1 million in the second quarter of 2000 compared
to the second 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 through outstanding service and the
promotion of products, including Tower GoldSM Services, which offers liquidity,
competitive interest rates and the security of a bank deposit. NOW account
average balances were down $74.7 million and average money market deposit
accounts were up $46.7 million in the second quarter of 2000 compared to the
second quarter of 1999.
Average noncore deposits were up $499.9 million (25%) from the second
quarter of 1999 to $2.5 billion or 21% of total deposits. The Compass and
Beaumont transactions accounted for approximately 15% of the growth in average
noncore deposits in the second quarter of 2000 compared to the second quarter of
1999. Average large denomination certificates of deposit increased $428.8
million compared to the second quarter of 1999 as a result of competitive
pricing and increased marketing efforts. Average foreign time deposits increased
$71.1 million due to successful efforts to market a treasury management product
which sweeps commercial customer funds into higher-yielding Eurodollar deposits.
Total deposits at June 30, 2000 were $12.3 billion, up $0.9 billion (8%)
from June 30, 1999. The Compass transaction accounted for approximately 10% of
the growth in total deposits.
BORROWINGS
Average borrowings (which include federal funds purchased; securities sold
under agreements to repurchase; treasury, tax and loan account; and debt)
increased $296.7 million (16%) to $2.1 billion for the second quarter of 2000
compared to the second quarter of 1999. For the first six months of 2000
compared to the first six months of 1999, average borrowings increased $117.0
million (6%) to $2.0 billion.
Average debt for the second quarter of 2000 totaled $844.5 million, up from
$805.3 million in the second quarter of 1999. At June 30, 2000 the Company's
debt, which is comprised of advances from the Federal Home Loan Bank of Dallas
(FHLB), totaled $844.4 million. Debt increased $39.1 million from June 30, 1999
as Hibernia locked in attractive rates. During 1999, the FHLB exercised its
right to call a $100 million advance, and a $100 million advance reached
maturity. Replacement funding consisted of a $200 million advance bearing a
fixed rate of 5.65% and a $40 million advance bearing a monthly 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, while higher than a year ago, 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 risk on specific assets and liabilities. Hibernia held foreign
exchange rate forward contracts totaling $12.0 million at June 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 $479.1 million at June 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 $170.8 million at June 30, 2000. Hibernia's credit
exposure related to derivative financial instruments held for trading totaled
$5.6 million at June 30, 2000.
RESULTS OF OPERATIONS:
NET INTEREST INCOME
Taxable-equivalent net interest income for the second quarter of 2000
totaled $156.8 million, a $9.3 million increase from the same period in 1999 and
up $5.9 million from the first quarter of 2000. Taxable-equivalent net interest
income for the first six months of 2000 totaled $307.8 million, a $16.4 million
increase over the first six months of 1999.
Factors contributing to the increase in net interest income for the second
quarter and first six months of 2000 over the comparable periods in 1999
include: overall growth in earning assets, the positive effect of the change in
the mix of earning assets from short-term investments and mortgage loans held
for sale to loans and securities; higher yields on earning assets; and the
effect of the Beaumont transaction (approximately 40% of the increase for the
second quarter and first six months of 2000). These factors were partially
offset by higher rates paid on deposits and borrowings; the continuing change in
the deposit mix toward market-rate deposits; and the effect of the change in the
mix of the loan portfolio.
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
-------------------------------------------------------------------------------------------------------------------
Second First Fourth Third Second
(Percentage of average balances) Quarter Quarter Quarter Quarter Quarter
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial loans ................. 24.9% 26.0% 26.6% 28.0% 29.8%
Small business loans ............. 16.0 16.4 16.9 16.8 16.1
Consumer loans ................... 36.7 35.0 34.6 32.6 30.4
-------------------------------------------------------------------------------------------------------------------
Total loans .................. 77.6 77.4 78.1 77.4 76.3
-------------------------------------------------------------------------------------------------------------------
Securities available for sale .... 18.6 18.6 19.0 20.0 20.6
Securities held to maturity ...... 2.5 2.1 0.9 - -
-------------------------------------------------------------------------------------------------------------------
Total securities ............. 21.1 20.7 19.9 20.0 20.6
-------------------------------------------------------------------------------------------------------------------
Short-term investments ........... 0.7 1.4 1.3 1.6 1.6
Mortgage loans held for sale ..... 0.6 0.5 0.7 1.0 1.5
-------------------------------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------------------------
Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Yield on earning assets ............. 8.32% 8.12% 7.98% 7.91% 7.72%
Rate on interest-bearing liabilities 4.92 4.66 4.44 4.26 4.11
----------------------------------------------------------------------------------------------------------------------
Net interest spread ............. 3.40 3.46 3.54 3.65 3.61
Contribution of
noninterest-bearing funds ....... 0.87 0.81 0.80 0.77 0.78
----------------------------------------------------------------------------------------------------------------------
Net interest margin ............. 4.27% 4.27% 4.34% 4.42% 4.39%
======================================================================================================================
Noninterest-bearing funds
supporting earning assets ....... 17.65% 17.47% 17.98% 18.27% 19.07%
======================================================================================================================
</TABLE>
The net interest margin was 4.27% for the second quarter of 2000, down 12
basis points from the second quarter of 1999 and unchanged from the first
quarter of 2000. The decline in the net interest margin from 1999 is primarily
the result of a decline in the level of noninterest-bearing funds supporting
earning assets, a shift in deposit mix toward market rate funds and a higher
level of public fund certificates of deposit. Although these public fund
deposits had a positive impact on net interest income by virtue of their
collateral requirements, the net interest spread earned on these funds is
thinner in relation to other earning assets. These factors were partially offset
by the positive effects of the overall growth of earning assets and the change
in the mix of earning assets.
Table 9 presents an analysis of changes in taxable-equivalent net interest
income between the second quarter of 2000 and the first quarter of 2000 and
between the second quarter of 2000 and the second quarter of 1999.
<TABLE>
<CAPTION>
====================================================================================================================================
TABLE 9 - CHANGES IN TAXABLE-EQUIVALENT NET INTEREST INCOME (1)
====================================================================================================================================
Second Quarter 2000 Compared to:
------------------------------------------------------------------------------------------------------------------------------------
First Quarter 2000 Second 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 ............... $ (527) $ 3,591 $ 3,064 $ (6,894) $ 11,453 $ 4,559
Small business loans ........... 801 1,096 1,897 4,251 2,690 6,941
Consumer loans ................. 9,250 1,259 10,509 27,336 1,653 28,989
------------------------------------------------------------------------------------------------------------------------------------
Loans ...................... 9,524 5,946 15,470 24,693 15,796 40,489
------------------------------------------------------------------------------------------------------------------------------------
Securities available for sale .. 1,730 998 2,728 (539) 2,910 2,371
Securities held to maturity .... 1,132 43 1,175 5,744 - 5,744
------------------------------------------------------------------------------------------------------------------------------------
Securities ................. 2,862 1,041 3,903 5,205 2,910 8,115
------------------------------------------------------------------------------------------------------------------------------------
Short-term investments ......... (1,387) 236 (1,151) (1,645) 543 (1,102)
Mortgage loans held for sale ... 75 133 208 (2,282) 561 (1,721)
------------------------------------------------------------------------------------------------------------------------------------
Total .................... 11,074 7,356 18,430 25,971 19,810 45,781
====================================================================================================================================
Interest paid on:
NOW accounts ................... (78) (127) (205) (528) 890 362
Money market
deposit accounts ........... (547) 110 (437) 277 2,269 2,546
Savings accounts ............... 891 496 1,387 4,767 4,553 9,320
Other consumer time deposits ... 180 1,507 1,687 (338) 2,718 2,380
Public fund certificates of
deposit of $100,000 or more 900 1,157 2,057 (1,122) 3,222 2,100
Certificates of deposit
of $100,000 or more ........ 543 550 1,093 7,347 1,642 8,989
Foreign deposits ............... 545 521 1,066 890 1,233 2,123
Federal funds purchased ........ 3,921 917 4,838 1,913 2,710 4,623
Repurchase agreements .......... 288 751 1,039 1,458 1,797 3,255
Debt ........................... (3) 43 40 553 248 801
------------------------------------------------------------------------------------------------------------------------------------
Total .................... 6,640 5,925 12,565 15,217 21,282 36,499
====================================================================================================================================
Taxable-equivalent
net interest income ............ $ 4,434 $ 1,431 $ 5,865 $ 10,754 $ (1,472) $ 9,282
====================================================================================================================================
----------
(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 June 30, 2000,
March 31, 2000 and June 30, 1999 and the first six months of 2000 and 1999.
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CONSOLIDATED AVERAGE BALANCES, INTEREST AND RATES
====================================================================================================================================
Hibernia Corporation and Subsidiaries
Taxable-equivalent basis (1) Second Quarter 2000 First 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 .............................. $ 3,668.5 $ 81,326 8.92% $ 3,693.2 $ 78,262 8.52%
Small business loans .......................... 2,357.4 54,719 9.34 2,322.5 52,822 9.15
Consumer loans ................................ 5,397.3 113,764 8.47 4,957.8 103,255 8.37
----------------------------------------------------------------------------------------------------------------------------------
Total loans (2) ........................... 11,423.2 249,809 8.79 10,973.5 234,339 8.58
----------------------------------------------------------------------------------------------------------------------------------
Securities available for sale ................. 2,743.4 46,341 6.76 2,640.2 43,613 6.61
Securities held to maturity ................... 370.3 5,744 6.20 297.3 4,569 6.15
----------------------------------------------------------------------------------------------------------------------------------
Total securities .......................... 3,113.7 52,085 6.69 2,937.5 48,182 6.56
----------------------------------------------------------------------------------------------------------------------------------
Short-term investments ........................ 106.9 1,678 6.31 196.6 2,829 5.79
Mortgage loans held for sale .................. 79.0 1,564 7.92 75.0 1,356 7.24
----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets ............. 14,722.8 $ 305,136 8.32% 14,182.6 $ 286,706 8.12%
----------------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses ........................... (165.0) (158.0)
Noninterest-earning assets:
Cash and due from banks ....................... 475.8 516.3
Other assets .................................. 754.9 748.2
----------------------------------------------------------------------------------------------------------------------------------
Total noninterest-earning assets .......... 1,230.7 1,264.5
----------------------------------------------------------------------------------------------------------------------------------
Total assets .............................. $ 15,788.5 $ 15,289.1
==================================================================================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts .............................. $ 296.2 $ 2,659 3.61% $ 304.6 $ 2,864 3.78%
Money market deposit accounts ............. 2,124.4 14,609 2.77 2,204.2 15,046 2.75
Savings accounts .......................... 2,108.9 23,497 4.48 2,028.3 22,110 4.38
Other consumer time deposits .............. 2,922.9 38,236 5.26 2,908.6 36,549 5.05
Public fund certificates of deposit
of $100,000 or more ................... 1,035.8 15,539 6.03 973.1 13,482 5.57
Certificates of deposit of $100,000 or more 1,134.5 16,590 5.88 1,096.7 15,497 5.68
Foreign time deposits ..................... 363.1 5,331 5.91 324.0 4,265 5.30
----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits ....... 9,985.8 116,461 4.69 9,839.5 109,813 4.49
----------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased ................... 760.1 12,100 6.40 508.9 7,262 5.74
Repurchase agreements ..................... 533.6 7,732 5.83 512.2 6,693 5.26
Debt .......................................... 844.5 12,010 5.72 844.7 11,970 5.70
----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities ........ 12,124.0 $ 148,303 4.92% 11,705.3 $ 135,738 4.66%
----------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Noninterest-bearing deposits .................. 2,096.6 2,036.3
Other liabilities ............................. 175.1 164.4
----------------------------------------------------------------------------------------------------------------------------------
Total noninterest-bearing liabilities ..... 2,271.7 2,200.7
----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity ........................ 1,392.8 1,383.1
----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 15,788.5 $ 15,289.1
==================================================================================================================================
SPREAD AND NET YIELD
Interest rate spread .............................. 3.40% 3.46%
Cost of funds supporting interest-earning assets .. 4.05% 3.85%
Net interest income/margin ........................ $ 156,833 4.27% $ 150,968 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 Six Months Ended
Taxable-equivalent basis (1) Second Quarter 1999 June 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 .............................. $ 4,009.7 $ 76,767 7.68% $ 3,680.8 $ 159,588 8.72%
Small business loans .......................... 2,170.5 47,778 8.83 2,340.0 107,541 9.24
Consumer loans ................................ 4,099.0 84,775 8.29 5,177.6 217,019 8.42
------------------------------------------------------------------------------------------------------------------------------------
Total loans (2) ........................... 10,279.2 209,320 8.17 11,198.4 484,148 8.69
------------------------------------------------------------------------------------------------------------------------------------
Securities available for sale ................. 2,777.1 43,970 6.33 2,691.8 89,953 6.69
Securities held to maturity ................... - - - 333.8 10,313 6.18
------------------------------------------------------------------------------------------------------------------------------------
Total securities .......................... 2,777.1 43,970 6.33 3,025.6 100,266 6.63
------------------------------------------------------------------------------------------------------------------------------------
Short-term investments ........................ 218.3 2,780 5.11 151.7 4,507 5.97
Mortgage loans held for sale .................. 199.2 3,285 6.61 77.0 2,920 7.59
------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets ............. 13,473.8 $ 259,355 7.72% 14,452.7 $ 591,841 8.22%
------------------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses ........................... (153.8) (161.6)
Noninterest-earning assets:
Cash and due from banks ....................... 469.7 496.1
Other assets .................................. 638.7 751.6
------------------------------------------------------------------------------------------------------------------------------------
Total noninterest-earning assets .......... 1,108.4 1,247.7
------------------------------------------------------------------------------------------------------------------------------------
Total assets .............................. $ 14,428.4 $ 15,538.8
====================================================================================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts .............................. $ 370.9 $ 2,297 2.48% $ 300.4 $ 5,523 3.70%
Money market deposit accounts ............. 2,077.7 12,063 2.33 2,164.3 29,654 2.76
Savings accounts .......................... 1,629.8 14,177 3.49 2,068.6 45,607 4.43
Other consumer time deposits .............. 2,950.4 35,856 4.87 2,915.8 74,787 5.16
Public fund certificates of deposit
of $100,000 or more ................... 1,124.3 13,439 4.79 1,004.4 29,020 5.81
Certificates of deposit of $100,000 or more 617.2 7,601 4.94 1,115.6 32,086 5.78
Foreign time deposits ..................... 292.0 3,208 4.41 343.5 9,597 5.62
------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits ....... 9,062.3 88,641 3.92 9,912.6 226,274 4.59
------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased ................... 620.0 7,477 4.84 634.5 19,362 6.14
Repurchase agreements ..................... 416.2 4,477 4.31 522.9 14,425 5.55
Debt .......................................... 805.3 11,209 5.58 844.6 23,980 5.71
------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities ........ 10,903.8 $ 111,804 4.11% 11,914.6 $ 284,041 4.79%
------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Noninterest-bearing deposits .................. 2,010.3 2,066.5
Other liabilities ............................. 157.8 169.7
------------------------------------------------------------------------------------------------------------------------------------
Total noninterest-bearing liabilities ..... 2,168.1 2,236.2
------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity ........................ 1,356.5 1,388.0
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 14,428.4 $ 15,538.8
====================================================================================================================================
SPREAD AND NET YIELD
Interest rate spread ..............................
Cost of funds supporting interest-earning assets .. 3.61% 3.43%
Net interest income/margin ........................ 3.33% 3.95%
Net interest income/margin ........................ $ 147,551 4.39% $ 307,800 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 Six Months Ended
Taxable-equivalent basis (1) June 30, 1999
-----------------------------------------------------------------------------------------------
(Average balances $ in millions, Average
interest $ in thousands) Balance Interest Rate
===============================================================================================
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Commercial loans .............................. $ 3,969.2 $ 152,162 7.73%
Small business loans .......................... 2,121.4 92,968 8.84
Consumer loans ................................ 4,049.0 167,236 8.32
-----------------------------------------------------------------------------------------------
Total loans (2) ........................... 10,139.6 412,366 8.20
-----------------------------------------------------------------------------------------------
Securities available for sale ................. 2,786.3 87,444 6.28
Securities held to maturity ................... - - -
-----------------------------------------------------------------------------------------------
Total securities .......................... 2,786.3 87,444 6.28
-----------------------------------------------------------------------------------------------
Short-term investments ........................ 259.2 6,449 5.02
Mortgage loans held for sale .................. 218.6 6,997 6.45
-----------------------------------------------------------------------------------------------
Total interest-earning assets ............. 13,403.7 $ 513,256 7.71%
-----------------------------------------------------------------------------------------------
Reserve for loan losses ........................... (142.4)
Noninterest-earning assets:
Cash and due from banks ....................... 477.8
Other assets .................................. 605.2
-----------------------------------------------------------------------------------------------
Total noninterest-earning assets .......... 1,083.0
-----------------------------------------------------------------------------------------------
Total assets .............................. $ 14,344.3
===============================================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts .............................. $ 335.5 $ 4,275 2.57%
Money market deposit accounts ............. 2,141.3 24,599 2.32
Savings accounts .......................... 1,486.6 24,911 3.38
Other consumer time deposits .............. 2,952.7 71,962 4.91
Public fund certificates of deposit
of $100,000 or more ................... 1,109.7 26,702 4.85
Certificates of deposit of $100,000 or more 630.9 15,689 5.01
Foreign time deposits ..................... 298.7 6,534 4.41
-----------------------------------------------------------------------------------------------
Total interest-bearing deposits ....... 8,955.4 174,672 3.93
-----------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased ................... 655.7 15,776 4.85
Repurchase agreements ..................... 423.6 9,023 4.30
Debt .......................................... 805.7 22,344 5.59
-----------------------------------------------------------------------------------------------
Total interest-bearing liabilities ........ 10,840.4 $ 221,815 4.13%
-----------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Noninterest-bearing deposits .................. 1,965.7
Other liabilities ............................. 181.7
-----------------------------------------------------------------------------------------------
Total noninterest-bearing liabilities ..... 2,147.4
-----------------------------------------------------------------------------------------------
Total shareholders' equity ........................ 1,356.5
-----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 14,344.3
===============================================================================================
SPREAD AND NET YIELD
Interest rate spread .............................. 3.58%
Cost of funds supporting interest-earning assets .. 3.34%
Net interest income/margin ........................ $ 291,441 4.37%
===============================================================================================
-----------
(1) Based on the statutory income tax rate of 35%.
(2) Yield computations include nonaccrual loans in loans outstanding.
</TABLE>
<PAGE>
NONINTEREST INCOME
Noninterest income for the second quarter of 2000 was up $6.7 million (13%)
to $59.4 million compared to the same period of 1999. For the first six months
of 2000 compared to the same period in 1999, noninterest income was up $14.0
million (13%). Excluding securities transactions, noninterest income increased
$10.8 million (21%) in the second quarter of 2000, and was up $18.1 million
(17%) during the first six months of 2000 compared to the same period in 1999.
The major categories of noninterest income for the three months and six months
ended June 30, 2000 and 1999 are presented in Table 10.
<TABLE>
<CAPTION>
================================================================================================================================
TABLE 10 - NONINTEREST INCOME
================================================================================================================================
Three Months Ended Six Months Ended
--------------------------------------------------------------------------------------------------------------------------------
Percentage Percentage
June 30 June 30 Increase June 30 June 30 Increase
($ in thousands) 2000 1999 (Decrease) 2000 1999 (Decrease)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposits ............ $ 25,190 $ 24,124 4% $ 49,267 $ 46,726 5%
Brokerage and investment service fees .. 11,586 6,167 88 20,109 11,615 73
Trust fees ............................. 7,239 5,669 28 13,903 10,205 36
Mortgage loan origination
and servicing fees ................. 5,733 4,438 29 10,973 8,940 23
Other service, collection and
exchange charges:
ATM fees ........................... 3,298 3,026 9 6,525 5,865 11
Debit/credit card fees ............. 3,631 2,830 28 6,869 5,087 35
Other .............................. 3,507 3,026 16 7,135 5,956 20
--------------------------------------------------------------------------------------------------------------------------------
Total other service, collection
and exchange charges ...... 10,436 8,882 17 20,529 16,908 21
--------------------------------------------------------------------------------------------------------------------------------
Other operating income:
Gain on sales of mortgage loans .... 659 1,125 (41) 2,288 3,257 (30)
Other income ....................... 2,295 1,896 21 4,512 5,826 (23)
--------------------------------------------------------------------------------------------------------------------------------
Total other operating income .. 2,954 3,021 (2) 6,800 9,083 (25)
--------------------------------------------------------------------------------------------------------------------------------
Securities gains(losses), net .......... (3,731) 368 N/M (3,701) 409 N/M
-------------------------------------------------------------------------------------------------------------------------------
Total noninterest income ...... $ 59,407 $ 52,669 13% $ 117,880 $ 103,886 13%
================================================================================================================================
</TABLE>
Service charges on deposits increased $1.1 million (4%) for the second
quarter of 2000 and $2.5 million (5%) for the first six 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.
Brokerage and investment service fees increased $5.4 million (88%) and $8.5
million (73%) in the second quarter and the first six 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 including annuities and discount brokerage services, and the effect of
the Southcoast transaction, which contributed approximately $3.6 million of
income in the second quarter and the first six months of 2000.
Trust fees were up $1.6 million (28%) in the second quarter of 2000 and
$3.7 million (36%) for the first six months of 2000 compared to the same period
in 1999 primarily due to the income associated with the $1.4 billion increase in
trust assets resulting from the Beaumont transaction. At June 30, 2000 trust
assets totaled $9.2 billion.
Mortgage loan origination and servicing fees increased $1.3 million (29%)
in the second quarter and $2.0 million (23%) in the first six 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 $6.0 billion at June 30, 2000
as compared to $4.8 billion at June 30, 1999. In the first six months of 2000,
Hibernia funded approximately $1.0 billion in residential first mortgages.
Other service, collection and exchange charges were up $1.6 million (17%)
and $3.6 million (21%) in the second quarter and the first six months of 2000,
respectively, compared to the same periods in 1999. ATM fees increased $0.3
million in the second quarter and $0.7 million in the first six 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 $0.8 million for the second quarter and
$1.8 million for the first six months of 2000, compared to the same periods in
1999.
Other operating income decreased $0.1 million (2%) for the second quarter
and $2.3 million (25%) for the first six months of 2000 over the comparable
periods in 1999. Gains on sales of mortgage loans were down $0.5 million in the
second quarter and $1.0 million in the first six months of 2000 over the
comparable periods in 1999 primarily due to the current interest rate
environment. Other income increased $0.4 million for the second quarter and
decreased $1.3 million in the first six months of 2000 compared to the same
periods in 1999. The first six months of 1999 included a $1.7 million gain
related to an investment in a mezzanine financing.
Net securities losses totaled $3.7 million in the second quarter and the
first six months of 2000 compared to securities gains of $0.4 million for the
comparable periods 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 second quarter of 2000, noninterest expense totaled $118.8 million,
a $7.2 million (6%) increase from the second quarter of 1999. For the first six
months of 2000 compared to the same period in 1999, noninterest expense was up
$3.9 million (2%). On a cash-basis excluding merger-related expenses,
noninterest expense increased $6.2 million (6%) in the second quarter of 2000
over the second quarter of 1999, and was up $9.5 million (4%) for the first six
months of 2000 compared to the same period in 1999. Merger-related expenses were
$0.3 million in the second quarter of 1999, and were $0.1 million and $8.9
million for the first six months of 2000 and 1999, respectively. The major
categories contributing to the changes in noninterest expense were staff costs,
the amortization of intangibles, loan collection expense and state taxes on
equity. Noninterest expense for the three months and six months ended June 30,
2000 and 1999 are presented by major category in Table 11.
Staff costs, which represent the largest component of noninterest expense,
increased $5.4 million (10%) in the second quarter of 2000 and $1.1 million (1%)
for the first six months of 2000 compared to the same periods a year ago.
Excluding the effect of merger-related expenses, staff costs increased $6.2
million (6%) for the first six months of 2000, of which $4.4 million was related
to staff additions from the Beaumont and Southcoast transactions. Merger-related
staff costs were $0.1 million and $5.1 million in the first six 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.
Amortization of intangibles, a noncash expense, increased $1.3 million
(24%) to $6.6 million in the second quarter of 2000 compared to the second
quarter of 1999, and increased $3.4 million (35%) to $13.3 million for the first
six months of 2000 compared to the first six months of 1999. This increase is
primarily due to amortization of goodwill, core deposit intangibles and trust
intangibles associated with the purchase of the Beaumont branches.
Professional fees decreased $0.2 million (10%) for the second quarter of
2000 compared to the second quarter of 1999 and decreased $0.9 million (21%) for
the first six months of 2000 compared to the same period of 1999. Excluding
merger-related expenses, professional fees decreased $0.1 million (9%) and $0.1
million (3%) for the second quarter and first six months of 2000, respectively.
<TABLE>
<CAPTION>
====================================================================================================================================
TABLE 11 - NONINTEREST EXPENSE
====================================================================================================================================
Three Months Ended Six Months Ended
------------------------------------------------------------------------------------------------------------------------------------
Percentage Percentage
June 30 June 30 Increase June 30 June 30 Increase
($ in thousands) ................ 2000 1999 (Decrease) 2000 1999 (Decrease)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries ........................ $ 51,293 $ 46,840 10% $ 97,998 $ 98,325 -%
Benefits ........................ 9,523 8,555 11 19,103 17,654 8
------------------------------------------------------------------------------------------------------------------------------------
Total staff costs ........... 60,816 55,395 10 117,101 115,979 1
------------------------------------------------------------------------------------------------------------------------------------
Occupancy, net .................. 8,879 8,233 8 17,287 16,102 7
Equipment ....................... 7,268 8,009 (9) 14,869 17,040 (13)
------------------------------------------------------------------------------------------------------------------------------------
Total occupancy and equipment 16,147 16,242 (1) 32,156 33,142 (3)
------------------------------------------------------------------------------------------------------------------------------------
Data processing ................. 7,754 7,753 - 15,847 15,819 -
Advertising and promotional
expenses .................... 3,770 3,629 4 7,537 7,259 4
Foreclosed property expense, net 319 (54) 691 396 (425) 193
Amortization of intangibles ..... 6,643 5,337 24 13,273 9,862 35
Telecommunications .............. 2,095 2,449 (14) 4,483 4,981 (10)
Postage ......................... 1,792 1,769 1 3,734 3,637 3
Stationery and supplies ......... 1,217 1,419 (14) 2,317 2,899 (20)
Professional fees ............... 1,517 1,686 (10) 3,210 4,086 (21)
State taxes on equity ........... 3,255 2,848 14 6,009 5,695 6
Regulatory expense .............. 1,045 762 37 2,085 1,523 37
Loan collection expense ......... 1,445 1,010 43 2,506 2,015 24
Other ........................... 10,951 11,342 (3) 21,173 21,452 (1)
------------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense ... $ 118,766 $ 111,587 6% $ 231,827 $ 227,924 2%
====================================================================================================================================
Efficiency ratio (1) ............ 53.99% 55.83% 53.99% 57.71%
Cash-basis efficiency ratio (2) . 51.78% 54.00% 51.70% 56.05%
====================================================================================================================================
----------
(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>
State taxes on equity increased $0.4 million (14%) in the second quarter of
2000 compared to the second quarter of 1999, and increased $0.3 million (6%) for
the first six months of 2000 compared to the first six months of 1999 due to the
increased level of equity. Loan collection expense increased $0.4 million (43%)
in the second quarter of 2000 and $0.5 million (24%) for the first six months of
2000 compared to the same periods a year ago.
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 at June 30, 2000 was 53.99% compared to 55.83% at June 30,
1999. The ratio for the first six months of 2000 improved to 53.99% from 57.71%
for the first six months of 1999. Excluding the effect of merger-related
expenses, the efficiency ratio would have been 53.98% for the second quarter of
2000 compared to 55.71% for the second quarter of 1999 and 53.96% for the first
six months of 2000 compared to 55.44% for the first six months of 1999.
The cash-basis efficiency ratio, which excludes amortization of purchase
accounting intangibles from the calculation, was 51.78% for the second quarter
of 2000, a 222 basis point improvement from 54.00% for the comparable period of
1999. For the first six months of 2000, the cash-basis efficiency ratio was
51.70% compared to 56.05% for the first six months of 1999. Excluding the effect
of merger-related expenses, the cash-basis efficiency ratio would have been
51.77% for the second quarter of 2000 compared to 53.87% for the second quarter
of 1999 and 51.68% for the first six months of 2000 compared to 53.78% for the
first six months of 1999. The improvement in efficiency for both periods in 2000
reflects higher revenue growth rates compared to expense growth rates. The
Company expects this ratio to decline further in future periods. The declines
are expected to result from achievement of cost efficiencies contemplated in
completed business combinations, enhancement of noninterest revenue sources and
increased net interest income.
INCOME TAXES
The Company recorded $27.9 million in income tax expense in the second
quarter of 2000, a $1.5 million (6%) increase from $26.3 million in the second
quarter of 1999 as pretax income rose 6%.
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 $1,415.4 million at June 30, 2000 compared to
$1,345.2 million a year earlier. The increase is primarily the result of net
income over the most recent 12 months totaling $198.3 million, a $3.1 million
increase in unearned compensation and the issuance of $7.4 million of common
stock, partially offset by $73.1 million in dividends declared on common stock,
a $32.8 million change in unrealized gains (losses) on securities available for
sale, an increase of $18.9 million of treasury stock, the redemption of $7.0
million of preferred stock and $6.8 million in dividends declared on preferred
stock. The change in unrealized gains (losses) is primarily due to a change in
the interest rate environment.
Risk-based capital and leverage ratios exceed the ratios required for
designation as a "well-capitalized" institution under regulatory guidelines.
Table 12 presents Hibernia's ratios along with selected components of the
capital ratio calculations for the most recent five quarters.
<TABLE>
<CAPTION>
==================================================================================================================================
TABLE 12 - CAPITAL
==================================================================================================================================
June 30 March 31 Dec. 31 Sept. 30 June 30
($ in millions) 2000 2000 1999 1999 1999
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Risk-based capital:
Tier 1 ..................... $ 1,233.7 $ 1,229.2 $ 1,203.2 $ 1,166.1 $ 1,128.5
Total ...................... 1,388.1 1,380.7 1,350.7 1,312.1 1,271.8
Assets:
Quarterly average assets (1) 15,618.5 15,129.7 14,833.7 14,624.0 14,185.1
Net risk-adjusted assets ... 12,341.7 12,109.4 11,788.6 11,671.2 11,457.9
Ratios:
Tier 1 risk-based capital .. 10.00% 10.15% 10.21% 9.99% 9.85%
Total risk-based capital ... 11.25% 11.40% 11.46% 11.24% 11.10%
Leverage ................... 7.90% 8.12% 8.11% 7.97% 7.96%
==================================================================================================================================
----------------
(1) Excluding the adjustment for unrealized gains (losses) on securities
available for sale and disallowed intangibles.
</TABLE>
The acquisition of selected assets and deposits from three Compass Bank
branches, which was completed on June 22, 2000, and the acquisition of the
Beaumont branches of Chase Bank of Texas, N.A., which was completed in the
second quarter of 1999, enabled Hibernia to leverage its capital by acquiring
assets without increasing equity.
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 June 30, 2000, the Company had repurchased
approximately 1.8 million shares of its common stock. If all of the shares
authorized to be repurchased were purchased, the buyback would represent
approximately 4.7% of current shares issued.
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 $9.6 billion at June 30, 2000, a $0.2 billion
(3%) increase from June 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 94.5% at June 30,
2000, 93.1% at March 31, 2000, and 92.5% at June 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 second
quarter of 2000, compared to 23.0% in the first quarter of 2000 and 21.5% in the
second 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 brokered certificates of deposit and the ability to
sell or securitize a substantial portion of the Company's $2.7 billion
residential first mortgage portfolio and $1.6 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 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K*
(a) Exhibits
EXHIBIT DESCRIPTION
3.1 Exhibit 3.1 to the Quarterly Report on Form 10-Q (as amended)
for the fiscal quarter ended June 30, 1998, filed with the
Commission by the Registrant (Commission File No. 0-7220) is
hereby incorporated by reference (Articles of Incorporation of
the Registrant, as amended to date)
3.2 Exhibit 3.2 to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, filed with the Commission by the
Registrant (Commission File No. 0-7220) is hereby incorporated
by reference (By-Laws of the Registrant, as amended to date)
10.13 Exhibit 10.13 to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, filed with the Commission by the
Registrant (Commission File No. 0-7220) is hereby incorporated
by reference (Deferred Compensation Plan for Outside Directors
of Hibernia Corporation and its Subsidiaries, as amended to
date)
10.14 Exhibit 10.14 to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1990, filed with the Commission by
the Registrant (Commission File No. 0-7220) is hereby
incorporated by reference (Hibernia Corporation Executive Life
Insurance Plan)
10.16 Exhibit 4.7 to the Registration Statement on Form S-8 filed
with the Commission by the Registrant (Registration No.
33-26871) is hereby incorporated by reference (Hibernia
Corporation 1987 Stock Option Plan, as amended to date)
10.34 Exhibit C to the Registrant's definitive proxy statement dated
August 17, 1992 relating to its 1992 Annual Meeting of
Shareholders filed by the Registrant with the Commission is
hereby incorporated by reference (Long-Term Incentive Plan of
Hibernia Corporation)
10.35 Exhibit 10.35 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 2000 filed with
the Commission ( 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 No. 0-7220) is hereby incorporated by
reference (Nonqualified Target Benefit (Deferred Award) Plan
of Hibernia Corporation effective as of July 1996))
10.44 Exhibit 10.44 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1999 (Form of
Change of Control Employment Agreement for Executive and
Senior Officers of the Registrant, as amended to date)
10.45 Exhibit 10.45 to the Registrant's Annual Report on Form
10-K (as amended) for the fiscal year ended December 31, 1997
filed with the Commission (Commission No. 0-7220) is hereby
incorporated by reference (Employment Agreement between
Randall A. Howard and Hibernia Corporation)
13 Exhibit 13 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998 filed with the
Commission (Commission File No.0-7220) is hereby incorporated
by reference (1998 Annual Report to security holders of
Hibernia Corporation).
21 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
A report on Form 8-K dated April 20, 2000, was filed by
the registrant reporting Item 5 Other Events.
A report on Form 8-K dated May 31, 2000, was filed by the
registrant reporting Item 5 Other Events.
* Exhibits and Reports on Form 8-K have been separately filed with the
Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized to sign on behalf of the registrant.
HIBERNIA CORPORATION
--------------------
(Registrant)
Date: August 11, 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)
