Hibernia's 2004 Earnings Grow 13% to Record $293 Million; Texas Expan

Hibernia's 2004 Earnings Grow 13% to Record $293 Million; Texas Expansion Continues; Assets Top $22 Billion

    Business Editors

    NEW ORLEANS--(BUSINESS WIRE)--Jan. 19, 2005--Hibernia Corporation (NYSE: HIB) today reported 2004 net income of $293.0 million, up 13% from $258.3 million a year earlier. Earnings per common share (EPS) and EPS assuming dilution for 2004 were $1.90 and $1.86, respectively, up 14% and 13% from $1.67 and $1.64 a year earlier.
    Fourth-quarter 2004 net income totaled $77.1 million, up 8% from $71.5 million a year earlier. EPS and EPS assuming dilution for fourth-quarter 2004 were $0.50 and $0.49, up 6% and 7% from $0.47 and $0.46.
    During 2004, Hibernia's assets exceeded $22 billion for the first time. The company maintained a strong balance sheet and made additional improvements in sales and service. Asset quality remained strong, and investments for future growth coupled with expense management continued to be a key focus. Hibernia significantly strengthened its position in Texas, completing a merger with $2.7-billion Coastal Bancorp, Inc., in the second quarter. Expenses related to the merger totaled $6.4 million. Also in 2004, Hibernia opened 12 new offices as part of a branch-building program in Dallas-Fort Worth and Houston.
    "We're pleased with 2004 results and enthusiastic about our opportunities for more success in 2005," said President and CEO Herb Boydstun. "The Coastal merger was the largest in our history. It also created a much larger presence in Houston and provided entry into the Rio Grande Valley, Austin, Corpus Christi and other attractive Texas markets. The operational conversion went very smoothly, and we've made good progress from a sales standpoint since June.
    "Complementing the merger was our branch-building program, which has improved our reach in Dallas, Fort Worth and Houston," Boydstun said. Sales results from these new offices have exceeded initial expectations. At the same time, he pointed out, "the company continued to leverage strengths that have made us Louisiana's deposit market share leader, strengths that include service, products, delivery systems and brand."
    Hibernia's lending discipline, coupled with actions in 2004 to mitigate earnings volatility, exemplify how the company has worked to operate in a careful, cautious and conservative manner, Boydstun said. In third-quarter 2004, Hibernia sold most of its approximately $10-billion third-party residential mortgage servicing portfolio to CitiMortgage, Inc., eliminating the volatility associated with the sold portfolio. Hibernia is servicing those loans until the mortgage files are transferred, expected to occur in first-quarter 2005. Hibernia will continue to originate home loans, maintain its adjustable rate mortgages and sell the servicing rights for fixed-rate first mortgage loans.
    The sale of the residential mortgage servicing portfolio resulted in a net loss of approximately $1.9 million. This includes associated expenses of $3.8 million and a fourth-quarter increase of $926,000 in original loss estimates. The increase in the loss resulted from higher-than-expected prepayments of loans in the sold portfolio during the first 90 days after the sale.
    In addition to expenses related to the Coastal merger and the sale of the residential mortgage servicing portfolio, results for 2004 include: non-cash income of $14 million in the first half of the year related to the net reversal of a portion of the reserve for temporary impairment of mortgage servicing rights and net losses, including writedowns due to other-than-temporary impairment, of $20.3 million in investment securities.

    Summary of financial performance

    Loans at Dec. 31, 2004, were $15.7 billion, up 22% from $12.9 billion a year earlier. Coastal contributed approximately $2 billion in loans on the May 13 merger date. Excluding loans added from Coastal, loans in 2004 grew approximately 7% from a year earlier. Hibernia continues to expect similar loan growth in 2005.
    Loans at year-end 2004 were up 1% from the end of the third quarter. Consumer loans were up 1%, and commercial loans increased 9%, while small-business loans were down 5% from Sept. 30, 2004. The growth in commercial loans and decline in small-business loans reflect the transfer of approximately $275 million of larger small-business loans to the commercial portfolio in fourth-quarter 2004.
    Deposits at Dec. 31, 2004, totaled $17.4 billion, up 23% from $14.2 billion a year earlier and up 4% from $16.7 billion at Sept. 30, 2004. Coastal contributed approximately $1.7 billion in deposits on the merger date. Excluding Coastal's deposits, 2004 deposits grew approximately 11% from a year earlier. Hibernia continues to expect deposit growth for 2005 to be approximately 8%.
    The information above regarding loans and deposits contains some non-GAAP comparisons, which management believes will help investors better understand the impact of the Coastal acquisition. Reconciling tables for selected financial data can be found on the company's Internet site (www.hibernia.com/earnings).

    Revenue for 2004 totaled $1.2 billion, up 13% from 2003.

    Net interest income for full-year and fourth-quarter 2004 totaled $750.7 million and $195.9 million, respectively, both up 12% from year-earlier periods. In third-quarter 2003, net interest income included $20.7 million in expenses associated with prepayment of a $300 million Federal Home Loan Bank (FHLB) advance and termination of a related interest-rate swap.
    The net interest margin for 2004 was 3.98%, compared to 4.16% for 2003. The 2003 net interest margin was negatively impacted 13 basis points by the prepayment of the FHLB advance and termination of the related interest-rate swap. The decline in the 2004 net interest margin resulted from a combination of the Coastal merger and a flatter yield curve as earning assets continued to reprice downward in the low interest rate environment. The fourth-quarter 2004 net interest margin was 3.90%, unchanged from third-quarter 2004 and down from 4.27% a year earlier. Based on management's current assumptions of interest rates and balance sheet items, the company continues to expect the net interest margin to remain relatively flat in 2005.
    Noninterest income for full-year and fourth-quarter 2004 totaled $387.4 million and $101.9 million, respectively, up 11% and 30% from year-earlier periods. Service charges on deposits, card-related fees, mortgage-banking income and investment-banking fees contributed to the growth for both periods. Included in totals for 2004 and 2003 are net securities transactions and activity related to the valuation of mortgage servicing rights.
    Noninterest expense for full-year and fourth-quarter 2004 totaled $640.1 million and $167.9 million, respectively, up 13% and 28% from year-earlier periods. These increases resulted primarily from the addition of Coastal and the 12 new Texas branches opened during 2004. Included in 2004 noninterest expense are the previously mentioned $6.4 million in Coastal merger-related expenses. A detailed breakout of Coastal merger-related expenses can be found in Hibernia's supplemental financial tables at www.hibernia.com/earnings. In 2003, noninterest expense included a third-quarter $9.6 million valuation adjustment of an energy asset reclassified from the private-equity portfolio to other foreclosed assets. Hibernia currently expects to sell this asset in first-quarter 2005. Also included in 2003 noninterest expense is a second-quarter charge of $5.2 million associated with a reduction in force.

    Asset quality

    Hibernia maintained prudent loan underwriting standards throughout 2004, which contributed to another year of good asset quality.

--	The provision for loan losses was $48.3 million for the year, down 20% from $60.1 million in 2003, and $12.0 million for the fourth quarter, down 10% from $13.3 million a year ago and down 2% from $12.3 million for third-quarter 2004.
--	Net charge-offs for the year were $48.8 million, down 18% from $59.5 million in 2003, and $13.7 million for the fourth quarter, up 3% from $13.3 million a year earlier and up 13% from $12.1 million for third-quarter 2004.
--	The net charge-off ratio for 2004 was 0.34%, compared to 0.50% for 2003. The annualized net charge-off ratio for the fourth quarter was 0.35%, compared to 0.43% a year earlier and 0.31% for third-quarter 2004. By category, net charge-off ratios were: consumer, 0.46%, compared to 0.56% and 0.44%; commercial, 0.13%, compared to 0.09% and -0.06%; and small-business, 0.33%, compared to 0.46% and 0.41%.
--	Nonperforming assets at the end of 2004 were $77.8 million, compared to $67.8 million a year earlier and $75.7 million at Sept. 30, 2004; nonperforming loans were $65.1 million, compared to $55.6 million and $64.3 million.
--	The nonperforming asset ratio at Dec. 31, 2004, was 0.49%, compared to 0.53% and 0.49%; the nonperforming loan ratio was 0.41%, compared to 0.43% and 0.41%.
--	Reserve coverage of nonperforming loans was 350% at Dec. 31, 2004, compared to 384% and 366%; reserve coverage of total loans was 1.45%, compared to 1.66% and 1.52%.

    Texas expansion

    The Coastal merger and the Texas branch-building program more than doubled the number of Hibernia Texas locations in 2004 to more than 100, or approximately one-third of Hibernia's total locations. The Coastal merger added 43 branches, and Hibernia opened an additional 12 locations in 2004. Hibernia plans to open approximately 20 new branches in Houston and Dallas-Fort Worth in 2005. The board of directors has authorized an additional $150 million to extend the de novo program beyond 2005. This will bring the company's total investment in the program since it began in 2003 to $250 million. By the end of 2007, the company expects to have opened approximately 70 offices as part of the de novo program.
    "Based on the initial results of our new offices, we believe the Texas de novo program is a good use of our capital," Boydstun said. In 2004, the net loss related to the de novo program for commercial and retail offices totaled approximately $0.05 per diluted share after tax, and as we accelerate the program, we expect it to have an expense impact that is somewhat higher in 2005. We'll also continue to look at acquisition opportunities in 2005." Details of the Texas de novo program costs can be found in Hibernia's supplemental financial tables at www.hibernia.com/earnings. Management believes this information will help investors better understand the company's Texas de novo program.

    Additional information

    Other results at Dec. 31, 2004, compared to a year earlier, include the following:

    -- Assets: $22.3 billion, up 20% from $18.6 billion at Dec. 31,
    2003.

    -- Leverage ratio: 7.51%, compared to 8.65% a year earlier. The
    decline resulted from the acquisition of Coastal and was in
    line with management's expectations.

    -- Stock repurchase: Hibernia repurchased 2.9 million shares of
    its common stock in 2004, including 266,000 shares in the
    fourth quarter.

    Boydstun pointed out that Hibernia's 2005 plan is designed to achieve the company's mission of growing earnings 8% to 10% annually. The company currently anticipates first-quarter 2005 gains from two events: the sale of the previously mentioned energy asset and the merger of the PULSE and Discover networks. The company will continue as a participant in PULSE. These gains could total up to $0.08 per diluted share after tax. The company also currently anticipates that it will expense options beginning in third-quarter 2005. Had the company expensed options in 2004, the impact would have totaled $0.05 per diluted share after tax. Management expects a similar impact for full-year 2005. However, the company has not yet decided whether it will retroactively apply the new accounting provisions. Neither the expensing of options nor the income from these gains is included in Hibernia's 2005 earnings guidance.
    For supplemental financial tables, go to www.hibernia.com/earnings. A live listen-only audio Webcast of management's conference call with analysts and the media will be available beginning at 1 p.m. CT today on hibernia.com. The conference also will be available in archived format at the same address through Jan. 31.

    Hibernia is on Forbes magazine's list of the world's 2,000 largest companies and Fortune magazine's list of America's top 1,000 companies according to annual revenue. Hibernia has $22.3 billion in assets and 314 locations in 34 Louisiana parishes and 34 Texas counties. Hibernia Corporation's common stock (HIB) is listed on the New York Stock Exchange.

    Statements in this report 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 report. By nature, forward-looking statements involve inherent risk and uncertainties. Various factors, including, but not limited to, unforeseen local, regional, national or global events, economic conditions, asset quality, interest rates, loan demand, changes in business or consumer spending, borrowing or savings habits, deposit growth, adequacy of the reserve for loan losses, competition, stock price volatility, government monetary policy, anticipated expense levels, changes in laws and regulations, the level of success of the Company's asset/liability management strategies as well as its marketing, product development, sales and other strategies, the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as the Financial Accounting Standards Board and other accounting standard setters, the costs and effects of litigation and of unexpected or adverse outcomes in such litigation, unexpected costs or issues in its expansion or acquisition plans 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 and could impact Hibernia's ability to achieve the goals described in its mission statement. Hibernia undertakes no obligation to update or revise forward-looking statements to reflect subsequent circumstances, events or information or for any other reason.

FINANCIAL INFORMATION (Unaudited) ---------------------------------------------------------------------- SUMMARY OF OPERATIONS THREE MONTHS ENDED ($ in thousands, except --------------------------------------------- per-share data) Dec. 31 Dec. 31 Sept. 30 2004 2003 CHANGE 2004 CHANGE --------- --------- ------- --------- ------- Interest income $272,936 $225,074 21 % $261,558 4 % Interest expense 77,065 49,638 55 69,719 11 --------- --------- --------- Net interest income 195,871 175,436 12 191,839 2 Provision for loan losses 12,000 13,300 (10) 12,250 (2) --------- --------- --------- Net interest income after provision 183,871 162,136 13 179,589 2 --------- --------- --------- Noninterest income: Service charges on deposits 48,047 42,519 13 48,115 - Card-related fees 16,230 11,713 39 15,994 1 Mortgage banking 6,053 980 518 5,701 6 Retail investment fees 6,634 6,914 (4) 7,887 (16) Trust fees 5,381 5,981 (10) 5,839 (8) Insurance 4,344 3,940 10 4,808 (10) Investment banking 6,206 3,101 100 5,017 24 Other service, collection and exchange charges 5,228 5,220 - 5,585 (6) Other operating income 3,750 10,202 (63) 4,992 (25) Securities gains (losses), net 43 (12,152) 100 153 (72) --------- --------- --------- Noninterest income 101,916 78,418 30 104,091 (2) --------- --------- --------- Noninterest expense: Salaries and employee benefits 88,150 67,520 31 87,347 1 Occupancy and equipment 22,271 17,449 28 22,035 1 Data processing 9,337 8,492 10 9,540 (2) Advertising and promotional expense 7,267 5,484 33 8,350 (13) Stationery and supplies, postage and telecommunications 7,307 5,976 22 7,318 - Amortization of purchase accounting intangibles 1,826 1,191 53 1,904 (4) Foreclosed property expense, net (911) 160 (669) (493) (85) Other operating expense 32,672 25,333 29 30,350 8 --------- --------- --------- Noninterest expense 167,919 131,605 28 166,351 1 --------- --------- --------- Income before income taxes and minority interest 117,868 108,949 8 117,329 - Income tax expense 40,746 37,456 9 40,823 - Minority interest, net of income tax expense 5 - - 40 (88) --------- --------- --------- Net income $77,117 $71,493 8 % $76,466 1 % ========= ========= =========

Net income per common share $0.50 $0.47 6 % $0.50 - % Net income per common share - assuming dilution $0.49 $0.46 7 % $0.49 - % Return on average assets 1.41 % 1.59 % (18)bp 1.44 % (3)bp Return on average equity 16.18 % 16.48 % (30)bp 16.40 %(22)bp

FINANCIAL INFORMATION (Unaudited) ---------------------------------------------------------------------- SUMMARY OF OPERATIONS YEAR ENDED ($ in thousands, except per-share data) ----------------------------- Dec. 31 Dec. 31 2004 2003 CHANGE ----------- --------- ------- Interest income $1,002,433 $910,305 10 % Interest expense 251,760 239,552 5 ----------- --------- Net interest income 750,673 670,753 12 Provision for loan losses 48,250 60,050 (20) ----------- --------- Net interest income after provision 702,423 610,703 15 ----------- --------- Noninterest income: Service charges on deposits 181,684 157,748 15 Card-related fees 60,074 47,923 25 Mortgage banking 34,845 26,506 31 Retail investment fees 30,357 27,241 11 Trust fees 23,273 23,520 (1) Insurance 18,725 18,181 3 Investment banking 18,660 12,460 50 Other service, collection and exchange charges 21,438 19,933 8 Other operating income 18,714 23,382 (20) Securities gains (losses), net (20,344) (6,811) (199) ----------- --------- Noninterest income 387,426 350,083 11 ----------- --------- Noninterest expense: Salaries and employee benefits 336,392 296,127 14 Occupancy and equipment 83,597 70,657 18 Data processing 38,128 35,922 6 Advertising and promotional expense 31,698 23,710 34 Stationery and supplies, postage and telecommunications 28,623 25,109 14 Amortization of purchase accounting intangibles 6,442 5,055 27 Foreclosed property expense, net (1,619) 9,867 (116) Other operating expense 116,870 97,936 19 ----------- --------- Noninterest expense 640,131 564,383 13 ----------- --------- Income before income taxes and minority interest 449,718 396,403 13 Income tax expense 156,688 138,067 13 Minority interest, net of income tax expense 76 - - ----------- --------- Net income $292,954 $258,336 13 % =========== =========

Net income per common share $1.90 $1.67 14 % Net income per common share - assuming dilution $1.86 $1.64 13 % Return on average assets 1.43 % 1.45 % (2)bp Return on average equity 15.85 % 15.08 % 77 bp

--30--JC/na*

CONTACT: Hibernia Corporation, New Orleans Media Inquiries: Steven Thorpe, 504-533-2753 sthorpe@hibernia.com or Investor Inquiries: Trisha Voltz, 504-533-2180 tvoltz@hibernia.com http://www.hibernia.com

KEYWORD: TEXAS LOUISIANA INDUSTRY KEYWORD: BANKING EARNINGS SOURCE: Hibernia Corporation

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