The credit-quality cloud over Hibernia Corp. is lifting.
Analysts Brock Vandervliet of Citigroup's Salomon Smith Barney and Jacqueline Reeves of Putnam, Lovell de Guardiola & Thornton Inc. raised their ratings on the New Orleans banking company to "buy" from "neutral," citing first-quarter improvements in loan quality.
"After a year of credit turmoil, we believe that Hibernia's credit outlook has improved materially," Mr. Vandervliet said. "In addition, some of the largest exposures are gradually being moved out of the bank, which should reduce Hibernia's risk profile going forward."
Mr. Vandervliet upgraded Hibernia Monday on the heels of Ms. Reeves' upgrade Friday. Both reports came shortly after a Hibernia presentation at the Mid-South Bank Conference in New Orleans. Hibernia shares rose 62.5 cents, or 5.81%, to $11.375 Monday.
Mr. Vandervliet said the most important sign of better credit quality was the "markedly improved" condition of loans on Hibernia's watch list.
Mr. Vandervliet said he had gained confidence since January, when he had believed there was a danger that some watch-listed credits would be given nonperforming status. "This could have pushed the nonperforming-asset ratio over 1%," he said, "but we no longer believe that is a likely outcome."
A number of energy companies on the watch list have improved thanks to rising energy prices, Mr. Vandervliet said.
He noted that net chargeoffs declined in the first quarter to 40 basis points, from 63 basis points in the fourth quarter. The improvement was most dramatic in Hibernia's commercial portfolio, in which net chargeoffs fell to 28 basis points, from 97. Consumer net chargeoffs fell to 44 basis points, from 48.
Small-business chargeoffs rose to 52 basis points, from 40, because of two credits originated by a bank Hibernia acquired, Mr. Vandervliet explained. "This is not a major issue."
He said Hibernia's nonperforming assets were stable, pointing out that two credits - to a health-care company and funeral home - accounted for more than half of the nonperformers.
The prospects for the funeral home are good, but the health-care company's future is "nebulous," said Mr. Vandervliet.
Ms. Reeves pointed out that Hibernia's syndicated portfolio also improved.
In her report to clients, she said that Hibernia's exposure to big "national credits" loans declined 16% over the last year, which lowered its risk considerably. Big loans can severely damage a portfolio if they deteriorate, analysts say.
Ms. Reeves' report said loans in the $20 million-to-$30-million category accounted for 27.4% of Hibernia's portfolio, down from 41.3% in the year-earlier period. Those of $10 million to $20 million accounted for 44.5%, up 33.8%, and those of $10 million or less 22%, up from 14.3%
Hibernia's announcement in April that it would resume buying back shares underscored the credit quality improvement, Mr. Vandervliet said. He said management had indicated that Hibernia could not buy back stock until it assured the board that its credit quality was "out of the woods."