Hibernia Corporation

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Hibernia Corporation

313 Carondelet Street
New Orleans, Louisiana 70130
Telephone: (504) 533-3332
Toll Free: (800) 666-4417
Fax: (504) 533-2466
Web site: http://www.hibernia.com; http://www.hibernia.com

Public Company
Employees: 5,211
Sales: $1,270.0 million (1999)
Stock Exchanges: New York
Ticker Symbol: HIB
NAIC: 52211 Commercial Banking; 551111 Offices of Bank Holding Companies

Hibernia Corporation, headquartered in New Orleans, is a holding company initially formed to serve as the parent company for what has since become Louisianas largest bank, Hibernia National Bank, the Corporations principal subsidiary. Along with its Texas counterpart, the Hibernia National Bank of Texas, the Louisiana bank has 255 offices located in 34 parishes in Louisiana and 15 counties in Texas, with total assets of about $15.8 billion. At 23 percent, Hibernia ranks first in Louisiana in its deposit market share and ranks at least within the top three banks in 31 Louisiana parishes and six Texas counties, where it commands an 11 percent deposit share. Its banks offer a full array of deposit services, including checking, savings, money market, CD, and IRA accounts. However, much of Hibernia Nationals focus has been on commercial lending to small and mid-sized businesses, and such loans still account for over 50 percent of its loan portfolio, while home mortgages and consumer loans together account for about 40 percent. In addition to Hibernia National Bank, under its corporate holding umbrella Hibernia has a loan production office in Mississippi and the Hibernia Rosenthal Insurance Company, the largest independent insurance broker in Louisiana. Other diverse operations of Hibernia include investment and brokerage services and on-line banking.

197284: From Origins to Competitive Position

Hibernia Corporation emerged in 1972 as part of a restruc-turing effort designed to promote the growth of the Hibernia National Bank. At the time, the bank was a venerable New Orleans landmark, already over 100 years old, having been founded by a group of Irish American investors in 1870 and given the ancient name of their native land. However, up until the early 1970s, it had been a very conservative slumbering organization, content to keep financial pace with the slow development of Big Easy businesses, where, with its focus on commercial lending, its principal interest lay.

By 1972 it had become the third largest bank in New Orleans, but in size, with just over $500 million in assets, it was a distant third behind the citys premier, ultra-conservative bank, the Whitney, and the second-place First Commerce Corporation. Historically, it had been disinclined to invest much in growth. In fact, when Hibernia Corporation was formed as its holding company, Hibernia National only had ten branch banks and seemed deter-mined to stay both small and safe, annually earning barely one-half of one percent on its assets. Although it had some strengths, including the only trust division in Louisiana in the top 300 nationwide, it simply continued to stir stagnant financial waters, lacking forceful, imaginative direction. It was what analyst Lisa L. Rogers termed an also-ran wholesale bank. Its major innovation when it opened its 11th branch in 1973 was a cycle-up window for customers on bikes, toted as the first in the country hardly a banking service milestone.

Through 1972 and 1973, there was a changing of the executive guard at Hibernia National. Under the holding companys umbrella, the new watch began transforming the bank into a major player, not just in New Orleans, but eventually throughout Louisiana and beyond. From the outset, the new managers of Hibernia National and its parent holding company were growth minded, even though they retained a reputation for fiscal conservatism, pursuing what Harlan S. Byrne in Barrens described as aggressive but disciplined banking practices.

At the top, in 1973 Martin C. Miler replaced F. George Ramel as president and CEO of the Hibernia Corporation. Miler, a native of Iowa trained at the Wharton School, came to Hibernia from an executive post at the First Union National Bank in Charlotte, North Carolina, bringing a fresh perspective and a challenging motto: Run scared, never got cocky. He faced major problems, the first being the seemingly impossible task of making any significant inroads with Whitneys extremely loyal clientele, which included the cream of the Crescent Citys businesses. To break that banks virtual monopoly, Miler began updating Hibernia National with a state-of-the art computer system and offering such new and popular services as discretionary fund management and Super Now accounts, services that the much more conservative Whitney disdained to extend to its customers.

A second major problem was that Louisiana law inhibited growth because it prohibited expansion across parish lines. Although that would change in 1985, Miler at first had to look beyond Louisiana for opportunities. He began by building strong correspondent ties with banks in other states, using them to purchase participation in out-of-state loans, some of which were made to large, well leveraged companies. It was an important strategy for two major reasons: it yielded high returns at a time when prime interest rates were very high, and it limited Hibernias reliance on Louisianas principal business-the energy industry. Even during the peak of the oil boom in the late 1970s and early 1980s, Hibernias energy-related loans topped out at no more than seven percent of the total amount in its lending portfolio. In the same period, loans to out-of-state borrowers accounted for about 40 percent of its loan total.

Although more innovative than the managers of the Whitney, Miler was not inclined to take unnecessary risks. He was an excellent planner and very protective of Hibernias clients. In 1979, when the Sandinistas overthrew the Somoza regime in Nicaragua, proving once again that overseas investments in developing countries was always a gamble, Miler appointed Thomas S. Mabon director of Hibernias international banking division. Mabons challenge was to create an overseas lending strategy that would provide investment security. As a result, Hibernia began limiting its third-world lending to the overseas operations of domestic companies with ties to Hibernias regional, Gulf states customer base. It was a cautious policy, but one soon emulated by a growing number of U.S. banks.

Under Milers leadership, Hibernias profits continued to rise annually. He proved very adept at safeguarding the banks clients principal through careful market timing. Among other things, in the early 1980s, with interest rates near their peak, he invested extensively in high-yielding securities, including Ginnie Maes, and continued to diversify Hibernias lending. By 1983, with $1.7 billion in assets, Hibernia National Bank had produced an average annual earnings growth of 22.8 percent per share over a ten year period, almost six percent higher than the average for the nations top ten banks. Its performance prompted Keefe, Bruyette and Woods to rank it number one in the country for consistent growth of earnings. It was also running neck to neck with First Commerce for second place behind Whitney, still the big kid on the New Orleans financial block, though running out of competitive wind.

198589: Accelerated Growth Results in Louisianas Largest Bank

It was in the first part of the 1980s that many Louisiana financial institutions went into an oil boom frenzy, overloading their portfolios with energy related loans, many of which were not adequately secured. Some of the less cautious banks took a bad beating in the hard recession that hit Louisiana when the oil bubble burst in the mid 1980s. These became attractive acquisition targets for Hibernia, which continued to report solid profits throughout the 1980s. Starting in 1985, after Louisiana removed its restrictions preventing banks from branching across parish lines, Hibernia began buying up some of the financially beleaguered in-state banks. By September 1989, it had acquired 15 of them and had moved into population centers like Baton Rouge, Shreveport, Alexandria, Lake Charles, Monroe, and Lafayette. Within a year, it also bought nine banks and thrifts in East Texas, establishing the Hibernia National Bank of Texas. The first of these, acquired in August of 1989 for $30 million, was First State of Pflugerville, located in an Austin suburb.

Many of these banks came to Hibernia at bargain prices. About half of them were banks in difficulty which, without watering down their shareholders equity, Hibernia acquired through the cooperation of FDIC. Once getting a toehold in a new locale, Hibernia worked quickly to increase its market share. For example, before October 1987, Hibernia had no presence in Shreveport/Bossier City area, which had Louisianas third largest market. By 1989, through buyouts and takeovers, it had established 35 branches in the area and owned a 20 percent share of its bank deposit market.

For 64 consecutive quarters, up to 1989, Hibernia increased its profits, augmenting its net income at a compound rate of 20 percent per annum, at the time an enviable and impressive performance for a Louisiana bank. Between 1973 and 1989, its assets rose from a paltry $500 million to $6.3 billion, its work force from 713 employees to close to 3,000, its banking offices from 12 in New Orleans to 150 in Louisiana and Texas. It had in fact become Louisianas largest bank holding corporation.

Company Perspectives:

Hibernias purpose is to help people achieve their financial goals and realize their dreams. Hibernias Ten Commandments: 1. Make service matter; 2. Act empowered, like owners; 3. Make smart, quick decisions; 4. Sell ethically and aggressively, accept prudent risk and price accordingly; 5. Encourage continuous improvement; 6. Listen carefully, then communicate openly and quickly; 7. Create an environment where people can excel, be rewarded and have fun; 8. Win as a team; 9. Treat all others with respect; 10. Invest for long-term individual and company success.

199092: Hibernias Fortunes Decline, Leaving it Vulnerable

However, midway through 1990 the corporations financial worm started to turn. It had over-extended itself and, reportedly, undercapitalized its business, suffering an $11 million loss in 1990, the first in its history. Its out-of-state lending, which had stood it in good stead through the 1980s, became a problem when, in 1990, the economy turned sluggish nationwide. Hibernias real estate investments were especially hard hit. As a result, in the early 1990s it began some downsizing measures. Although it disclaimed a need for funds, in 1991 it sold its Hibernia National Bank credit card business to First USA Inc. of Dallas. At the time, Hibernias credit card operation serviced 4,440,000 accounts and had outstanding loans of $315 million. The move was prompted by the increasing costs of processing credit card loans coupled with an increase in loan defaults and personal bankruptcies.

Hibernias 1991 first-quarter net loss of $49.5 million fueled speculations that it might sell off its profitable Texas subsidiary, which in 1990 had net operating earnings of $5.9 million, per-forming better than expected. In 1991, with about $1.2 billion in assets, it clearly offered an enticing acquisitions plum. Not finding viable buyers or outside investments partners, Hibernia hung tough, despite a poorly performing real estate portfolio in Louisiana and ongoing bottom line problems that promoted fifty-fifty odds on Hibernias financial collapse. To survive, Hibernia continued to tighten its corporate belt, selling off some $470 million in assets, cutting its work force by ten percent and reducing the ranks of its top executives. Among the departed was Miler, who resigned as Hibernias president, CEO, and chairman. He was replaced by Stephen A. Hansel, a former CFO at Barnett Banks Inc., who took on the job in 1992. Also joining the top executive team as COO was C. Geron Hargon, who helped shaped new survival strategies, including a focus on lending within Hibernias own markets rather than out of state and a bolstering of capital funds. It was a tough uphill fight. In 1991, despite a second-quarter bright spot resulting from an outsourcing of its data processing operations, Hibernia had had its worst year on record, with losses reaching $165.6 million. More losses followed in 1992, and although at $64 million they seemed less formidable, speculation about Hibernias imminent collapse continued.

19932000: Phenomenal Turnaround

Hibernias fortunes began improving after Hansel recapitalized the bank and renewed its focus, first on an improved asset quality and then on business development initiatives. He also oversaw the upgrading of its technology, particularly its information-management and distribution systems. Late in 1993, he guided Hibernia into another acquisitions cycle that by the close of 1995 had substantially increased the corporations assets and greatly improved its profitability. Between 1993, when Hibernias returned to the black at $48 million, and 1995, when its net income almost tripled, its assets grew from $4.8 billion to $7.2 billion, with 160 offices in Texas and 25 Louisiana parishes, or 12 more parishes than it operated midway through 1992. As Moodys senior analyst Nicholas Krasno observed, Hibernias comeback had been pretty extreme. Speculative doomsayers either grew silent, no longer predicting Hibernias collapse, or spoke of it only as a likely target for a leveraged buyout.

In 1996, US Banker ranked Hibernia 5th among the nations top 100 banks, noting that Hansel had greatly expanded the banks franchise territory and substantially altered its asset mix. Still, on paper it looked as if the runner had stumbled. Although its revenue increased to $736 million, up almost $70 million from 1995, Hibernias net income declined by 16 percent and its earnings per share slid from $1.02 to 85 cents. In truth, Hibernia was still performing very well, but in 1996 it no longer had tax deferment benefits that it had enjoyed in 1994 and 1995, and it had to cough up more of its earnings to the IRS. Hibernia was still expanding, however, purchasing some banks and merging with others. It ended 1996 with almost 200 branches in Louisiana and Texas and assets of $9.37 billion.

Hibernias impressive recovery and growth continued through the remaining years of the century. By 1999, its total assets had climbed to $15.3 billion and its net income to $175.1 million, and it was still expanding, both through acquisitions and diversification of its corporate portfolio. For example, in 1997, when legal and regulatory restrictions permitted, Hibernia began selling life insurance and fixed annuities through Tower Insurance Agency, which Hibernia had owned since 1991. In 1998, it bought two other agencies, gathering them under the banner of the newly named Hibernia Insurance Agency Inc. Two years later it made a major purchase, buying the Rosenthal Agency, Louisianas largest independent insurance company, which, with $90 million in premiums, was more than four times the size of Hibernias 1998 acquisitions combined.

By the summer of 2000, after purchasing three Texas offices from Compass Bank, Hibernia boasted 255 branches that spread across 34 Louisiana parishes and 15 Texas counties, with total assets of about $15.8 billion. Thanks to the strategies of its management team, it had not only grown but had stabilized through its risk reduction policies of diversifying it portfolio. Moreover, its future continued to look bright, despite continued speculation that, as a medium-sized fish, it might yet become fare for a much larger predator.

Key Dates:

Hibernia Corporation is formed as holding company for Hibernia National Bank.
Martin C. Miler becomes president and CEO of Hibernia National Bank.
Changes in Louisiana banking regulations allow Hibernia to begin acquiring other state banks.
Hibernia, with the acquisition of First State of Pflugerville in Texas, becomes the first Louisiana bank holding company to expand across the states boundaries.
Company logs first annual loss in its history.
Company sells credit card operation to First USA Inc. of Dallas.
Miler resigns, and Stephen A. Hansel becomes Hibernias president and CEO.
Hibernia buys the Rosenthal Agency.

Principal Subsidiaries

Hibernia National Bank; Hibernia National Bank of Texas; Hibernia Southcoast Capital.

Principal Competitors

Acadiana Bancshares, Inc.; BANK ONE Corporation; Regions Financial Corporation; Union Planters Corporation; Whitney Holding Corporation.

Further Reading

Byrne, Harlan S., Hibernia Corp.: Conservative Lending, Acquiring Spell Bank Success, Barrens, August 2, 1989, pp. 3637.

Dunaway, Kenneth W., ABA Convention City: The Unique Nature of the New Orleans Banking Market, ABA Banking Journal, October 1985, p. 74.

Fink, Ronald B., Lessons from New Orleans Ills, United States Banker, February 1990, pp. 2631, 88,

Greer, Jim, Shrinking Hibernia Might Depart Texas, Houston Business Journal, June 17, 1991, p. 12.

Kimball, Allan C, Hibernia Sells Its Credit Card, Austin Business Journal, March 18, 1991, p. 7.

Kreuzer, Terese, At Hibernia, Its Mardi Gras All Year, Bankers Monthly, February 1990, pp. 2124.

Mack, Toni, The Battle of New Orleans, ABA Banking Journal, March 26, 1984, p. 62.

Milligan, John W., Ranking Americas Big Banks, United States Banker, April 1996, p. 37.

Reich-Hale, David, Louisiana Purchase Is Hibernias Biggest Ever in Insurance, American Banker, June 2, 2000, p. 7.

Zganjar, Leslie, The Rise and Fall of Hibernia Corp., Greater Baton Rouge Business Report, August 13, 1991, p. 12.

John W. Fiero