================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
- --------------------------------------------------------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001 Commission file number 0-1026
WHITNEY HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Louisiana 72-6017893
(State of incorporation) (I.R.S. Employer Identification No. )
228 St. Charles Avenue
New Orleans, Louisiana 70130
(Address of principal executive offices)
(504) 586-7272
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, no par value
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
As of March 1, 2002, the aggregate market value of the voting stock held by
nonaffiliates was approximately $1,146,674,000.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 1, 2002
----- ----------------------------
Common Stock, no par value 26,471,545
Documents Incorporated by Reference Part of 10-K in which incorporated
------------------------------------ ----------------------------------
Proxy Statement dated March 15, 2002 Part III
WHITNEY HOLDING CORPORATION
TABLE OF CONTENTS
Page
- ------------------------------------------------------------------------------------------------------------------
PART I
Item 1: Business 3
Item 2: Properties 5
Item 3: Legal Proceedings 5
Item 4: Submission of Matters to a Vote of Security Holders 5
Item 4a: Executive Officers of the Registrant 5
- ------------------------------------------------------------------------------------------------------------------
PART II
Item 5: Market for the Registrant's Common Stock and Related Stockholder Matters 6
Item 6: Selected Financial Data 7
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Item 7a: Quantitative and Qualitative Disclosure about Market Risk 27
Item 8: Financial Statements and Supplementary Data 28
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 59
- ------------------------------------------------------------------------------------------------------------------
PART III
Item 10: Directors and Executive Officers of the Registrant 59
Item 11: Executive Compensation 62
Item 12: Security Ownership of Certain Beneficial Owners and Management 62
Item 13: Certain Relationships and Related Transactions 62
- ------------------------------------------------------------------------------------------------------------------
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K 62
Signatures 66
Page 2 of 73 Pages
PART I
Item 1: BUSINESS
ORGANIZATION AND RECENT DEVELOPMENTS
Whitney Holding Corporation (the Company or Whitney) is a Louisiana
bank holding company registered pursuant to the Bank Holding Company Act of 1956
(BHCA). The Company began operations in 1962 as the parent of Whitney National
Bank, which has been in continuous operation in the greater New Orleans area
since 1883. Beginning in 1995 the Company has at times operated as a multi-bank
holding company, having established new entities in connection with business
acquisitions. With changes in interstate banking laws, the Company has merged
all banking operations into Whitney National Bank and intends to continue
merging the operations of future acquisitions at the earliest possible date.
Throughout this annual report, references to the "Bank" will cover Whitney
National Bank and all former subsidiary banks.
In October 2001, Whitney purchased Redstone Financial, Inc. and its
subsidiary bank, Northwest Bank, N. A., located in Houston, Texas. This was the
Company's third bank acquisition in the Houston metropolitan area. Whitney first
entered this market by purchasing Bank of Houston in February 2000 and expanded
its presence in January 2001 when it completed a share exchange with American
Bank. In January 2001, the Company also completed a merger with Prattville
Financial Services Corporation, whose principal subsidiary was Bank of
Prattville. Bank of Prattville operated in the metropolitan area of Montgomery,
Alabama.
The Company also owns Whitney Community Development Corporation, which
is authorized to make equity and debt investments in corporations or projects
whose activities promote community welfare. Such activities could include
providing housing, services or jobs for residents of areas with mainly low or
moderate incomes and supporting small businesses that service such areas. In the
third quarter of 1999, the Bank formed Whitney Securities, L.L.C., a wholly
owned subsidiary that began operations as a broker-dealer in securities on March
1, 2000.
NATURE OF BUSINESS AND MARKETS
The Company, through the Bank, engages in community banking, serving a
market area that covers the five-state Gulf Coast region stretching from
Houston, Texas, across southern Louisiana and the coastal region of Mississippi,
to central and south Alabama, and into the western panhandle of Florida. The
Bank serves commercial, small business and retail customers, offering a variety
of transaction and savings deposit products and cash management services,
secured and unsecured loan products, including revolving credit facilities, and
commercial transaction financing. The Bank also provides trust and investment
management services to retirement benefit plans, corporations and individuals,
and, through Whitney Securities, L.L.C., offers investment brokerage services
and annuity products. In addition, the Bank maintains a foreign branch on Grand
Cayman in the British West Indies.
THE SUBSIDIARY BANK
All material funds of the Company are invested in the Bank. The Bank
has a large number of customer relationships that have been developed over a
period of many years. The loss of any single customer or a few customers would
not have a material adverse effect on the Bank or the Company. The Bank has
customers in a number of foreign countries, but the revenue derived from these
foreign customers is not a material portion of its overall revenues.
COMPETITION
There is significant competition within the financial services industry
in general as well as with respect to the particular financial services provided
by the Company and the Bank. Within its market, the Bank competes directly with
major banking institutions of comparable or larger size and resources, as well
as with various other smaller banking organizations. The Bank also has numerous
local and national "nonbank" competitors, including savings and loans, credit
unions, mortgage companies, personal and commercial finance companies,
investment brokerage and financial advisory firms, and registered investment
companies.
Legislative efforts to modernize the financial services industry, as
discussed in the following section on industry regulation, may lead to changes
in the organizational structure of and scope of services provided by certain of
the Company's competitors. As these changes occur, management will evaluate
whether they create competitive advantages and develop appropriate responses.
Page 3 of 73 Pages
The growth of electronic communication and commerce over the Internet
influences the Company's competitive environment in several ways. Entities have
been formed which deliver financial services and access to financial products
and transactions exclusively through the Internet. Internet-based services have
been and are being developed that are designed to enhance the value of
traditional financial products. The Internet will also make it easier for
consumers to obtain comparative information on financial products and, over
time, could lead to changes in consumer preferences for financial products.
Whitney opened a website in 2000 to provide information about the
Company and market the Bank's products and services. The Company enhanced the
capabilities of the site by adding online banking services in both 2001 and 2000
and plans to add new features in the future. As management continues to monitor
and evaluate the competitive challenges posed by the growing use of the
Internet, it will develop responses appropriate in light of its overall market
strategy.
For over a decade, there has been consolidation within the financial
services industry, particularly with respect to the banking and savings and loan
segments of this industry. General competitive pressures have driven the most
recent industry consolidation activity. All of the Bank's major direct banking
competitors have been relatively active in expansion through acquisition. Since
early 1994 Whitney has acquired 16 separate banking operations involving
approximately $2.5 billion of assets. Recently, the Company has focused on
opportunities in the Houston, Texas market, consistent with its goal of growing
its Houston-area operations to at least $1 billion over the next several years.
While growth in Houston is Whitney's primary focus, the Company continues to
seek opportunities to leverage its operations through acquisitions that
significantly expand existing market share or provide access to new parts of its
market area with attractive economic fundamentals. The overall trend toward
industry consolidation is expected to continue in the near term.
INDUSTRY REGULATION AND INFLUENCE OF GOVERMENTAL AGENCIES
The participants in the financial services industry are subject to
varying degrees of regulation and governmental supervision. The current system
of laws and regulations will likely change over time and will influence the
competitive positions of the participants. Whether these changes will be
favorable or unfavorable to the Company and the Bank cannot be predicted.
The banking industry is extensively regulated under both federal and
state law. The regulation and ongoing supervision of bank holding companies and
their subsidiaries is intended primarily for the protection of depositors, the
deposit insurance funds of the Federal Deposit Insurance Corporation (FDIC) and
the banking system as a whole, and not for the protection of the holding
company's shareholders and creditors. The Bank has been assessed at relatively
low rates for deposit insurance premiums in recent years, reflecting both the
level of the deposit insurance funds in relation to required levels and the
favorable overall risk rating assigned to the Bank by its primary regulator.
Growth in insured deposits and higher estimates of potential insured losses by
the FDIC have lowered the ratio of deposit insurance funds to insured deposits
and increased the likelihood that premium rates will go up. Certain legislative
proposals related to deposit insurance reform have included provisions that
would substantially increase the cost of deposit insurance. The Company's
management is unable to predict if or when deposit insurance premiums will be
increased or to what extent.
The Company is subject to regulation under the BHCA and to supervision
by the Board of Governors of the Federal Reserve System (FRB). Bank holding
companies must seek the FRB's approval for all bank acquisitions and must limit
their activities to those permitted under the BHCA, including the modifications
to the BHCA brought about by the enactment of the Gramm-Leach-Bliley Act (GLB)
of 1999. GLB attempts in many ways to modernize the framework of the U.S.
financial services industry. Among other provisions, it allows for the creation
of a financial holding company that is authorized to engage in underwriting and
selling insurance and securities, to conduct both commercial and merchant
banking, to invest in and develop real estate and to engage in other
complementary activities. Whitney currently has no plans to apply for a
financial holding company charter.
The Office of the Comptroller of the Currency (OCC) is the Bank's
primary regulator and provides ongoing supervision through regular examinations
and other means. Bank supervision focuses on evaluating management's ability to
identify, assess and control risk in all areas of bank operations in a safe and
sound manner. Regulators have a wide range of enforcement actions available to
deal with institutions with unacceptable levels of risk. These actions could
have a material impact on a bank's financial results and could impose additional
limits on a bank's ability to pay dividends to its holding company. Regulators
are also charged with monitoring compliance with other laws and regulations,
such as those designed to encourage banks to meet the needs of all segments of
their service areas. Regulatory agencies consider compliance ratings when
deciding, for example, whether to approve an acquisition by the bank or its
holding company.
Page 4 of 73 Pages
The monetary and fiscal policies of the FRB also have a significant
impact on the banking industry. In its effort to restrain inflationary growth or
moderate recessions, the FRB uses various tools to influence the money supply
and interest rates. These actions attempt to regulate the availability of bank
credit and affect asset yields and costs of funds.
EMPLOYEES
At the end of 2001, the Company and the Bank employed a total of 2,406
employees. Whitney affords its employees a variety of competitive benefit
programs including retirement plans and group health, life and other insurance
programs. The Company also supports training and educational programs designed
to ensure that employees have the types and levels of skills needed to perform
at their best in their current positions and to help them prepare for positions
of increasing responsibility.
Item 2: PROPERTIES
The Company owns no real estate in its own name. The Company's
executive offices are located in downtown New Orleans in the main office
facility owned by Whitney National Bank. The Bank makes portions of this
facility and certain other facilities in Louisiana, Mississippi and Texas
available for lease to third parties, although such incidental leasing activity
is not material to Whitney's overall operations. The Bank owns outright
approximately 75% of its active banking facilities, which total close to 130
locations. The remaining branch facilities are subject to leases, each of which
management considers to be reasonable and appropriate to its location.
Management ensures that all properties, whether owned or leased, are maintained
in suitable condition. Management also evaluates its banking facilities on an
ongoing basis to identify possible under-utilization and to determine the need
for functional improvements, relocations or possible sales.
The Bank holds a variety of property interests acquired through the
years in settlement of loans. Reference is made to Note 7 to the consolidated
financial statements included in Item 8 herein for further information regarding
such property interests.
Item 3: LEGAL PROCEEDINGS
There are no pending legal proceedings, other than routine litigation
incidental to the business, to which the Company or its subsidiaries is a party
or to which any of their property is subject.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 4a: EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to Item 10 of this Form 10-K, page 59.
Page 5 of 73 Pages
PART II
Item 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
a) The Company's stock is traded over-the-counter on The Nasdaq
Stock Market and is reported under the symbol WTNY. The Summary of
Quarterly Financial Information appearing in Item 8 of this Form 10-K
and located on page 58 shows the range of closing prices of the
Company's stock for each calendar quarter of 2001 and 2000 as
reported on The Nasdaq Stock Market, and is incorporated by reference
herein.
The Company has declared a 3-for-2 split of its common
stock payable on April 9, 2002 to shareholders of record on March 20,
2002. Share and per share figures in this annual report on Form 10-K
have not been adjusted to reflect this split.
b) The approximate number of shareholders of record of the
Company, as of March 1, 2002, was as follows:
Title of Class Shareholders of Record
-------------------------- ----------------------
Common Stock, no par value 5,715
c) Dividends declared by the Company are discussed in the
Summary of Quarterly Financial Information appearing in Item 8 of
this Form 10-K and located on page 58, which is incorporated by
reference herein.
Page 6 of 73 Pages
Item 6: SELECTED FINANCIAL DATA
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
Years Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
YEAR-END BALANCE SHEET DATA
Total assets $7,243,650 $6,650,265 $5,868,028 $5,627,153 $5,146,722
Earning assets 6,681,786 6,078,951 5,362,819 5,151,564 4,694,474
Loans 4,554,538 4,601,492 3,928,414 3,515,969 3,068,352
Investment in securities 1,632,340 1,462,189 1,387,016 1,436,684 1,563,865
Deposits 5,950,160 5,332,474 4,666,375 4,607,638 4,239,088
Shareholders' equity 717,888 665,764 596,204 599,777 561,479
- ------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET DATA
Total assets $6,831,564 $6,282,044 $5,638,980 $5,222,628 $4,960,536
Earning assets 6,303,445 5,771,256 5,163,140 4,771,433 4,536,620
Loans 4,515,740 4,235,562 3,616,247 3,185,988 2,799,781
Investment in securities 1,525,254 1,478,609 1,466,061 1,397,271 1,656,221
Deposits 5,548,556 4,927,214 4,540,887 4,234,796 3,957,660
Shareholders' equity 698,099 622,814 600,012 587,511 537,931
- ------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Interest income $441,145 $452,261 $378,493 $363,568 $350,156
Interest expense 161,349 185,181 135,433 134,242 132,385
Net interest income 279,796 267,080 243,060 229,326 217,771
Net interest income (TE) 285,161 273,176 249,407 234,782 223,037
Provision for possible loan losses 19,500 12,690 6,470 709 (1,358)
Non-interest income, excluding securities transactions
and merger-related items 89,957 74,270 68,885 60,890 55,319
Securities transactions 165 850 (32) 841 (135)
Noninterest expense, excluding merger-related items 232,918 222,077 207,753 201,499 179,917
Merger-related items (net expense) 5,099 1,102 - 6,149 3,397
Net income 75,820 72,842 67,326 57,125 61,330
Net income before tax-effected merger-related items 78,350 73,558 67,326 61,683 63,857
- ------------------------------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets 1.11% 1.16% 1.19% 1.09% 1.24%
Return on average assets before
tax-effected merger-related items 1.15 1.17 1.19 1.18 1.29
Return on average shareholders' equity 10.86 11.70 11.22 9.72 11.40
Return on average shareholders' equity before
tax-effected merger-related items 11.22 11.81 11.22 10.50 11.87
Net interest margin 4.52 4.73 4.83 4.92 4.92
Average loans to average deposits 81.39 85.96 79.64 75.23 70.74
Efficiency ratio before merger-related items 62.09 63.92 65.27 68.15 64.64
Reserve for possible loan losses to loans 1.57 1.33 1.21 1.23 1.55
Nonperforming assets to loans plus foreclosed and
surplus property .76 .54 .45 .48 .53
Average shareholders' equity to average assets 10.22 9.91 10.64 11.25 10.84
Shareholders' equity to total assets 9.91 10.01 10.16 10.66 10.91
Leverage ratio 8.72 8.93 10.01 10.33 10.79
- ------------------------------------------------------------------------------------------------------------------------------
COMMON SHARE DATA
Earnings Per Share
Basic $2.88 $2.84 $2.60 $2.18 $2.37
Basic before tax-effected merger-related items 2.97 2.87 2.60 2.36 2.47
Diluted 2.85 2.83 2.59 2.17 2.35
Diluted before tax-effected merger-related items 2.95 2.86 2.59 2.34 2.45
Dividends
Cash dividends per share $1.54 $1.44 $1.32 $1.20 $1.12
Dividend payout ratio 53.81% 50.04% 48.76% 52.34% 43.20%
Book Value Per Share $27.15 $25.38 $23.43 $22.83 $21.60
Trading Data
High stock price $48.84 $41.69 $41.75 $63.38 $59.75
Low stock price 36.00 31.50 32.19 35.75 34.75
Closing stock price 43.85 36.31 37.06 37.50 57.00
Trading volume 9,310,232 7,044,391 9,370,446 6,574,200 5,582,668
Average Shares Outstanding
Basic 26,367,149 25,650,656 25,888,798 26,158,585 25,900,300
Diluted 26,557,365 25,712,466 25,966,232 26,374,770 26,111,301
- ------------------------------------------------------------------------------------------------------------------------------
Page 7 of 73 Pages
Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to focus on significant
changes in the financial condition of Whitney Holding Corporation and its
subsidiaries (the Company or Whitney) and on their results of operations during
2001, 2000 and 1999. Virtually all of the Company's operations are contained in
its banking subsidiary, Whitney National Bank (the Bank). This discussion and
analysis is intended to highlight and supplement information presented elsewhere
in this annual report on Form 10-K, particularly the consolidated financial
statements and related notes in Item 8. Certain financial information in prior
years has been reclassified to conform to the current year's presentation.
OVERVIEW
Whitney made three business acquisitions in 2001 and two in 2000 as
detailed in Note 3, incurring conversion and other merger expenses related to
the acquisitions in each of these years and recognizing a merger-related gain in
2001. Table 1 compares net income, earnings per share, return on average assets
and return on average shareholders' equity for 2001, 2000 and 1999, showing the
effect of these merger-related items.
TABLE 1. EFFECTS OF MERGER-RELATED ITEMS
- -------------------------------------------------------------------------------------------------------------------------
Years Ended December 31
- -------------------------------------------------------------------------------------------------------------------------
(dollars in millions, except per share data) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
Earnings before tax-effected merger-related items $78.4 $73.6 $67.3
Tax-effected merger-related items (2.6) (.8) -
- -------------------------------------------------------------------------------------------------------------------------
Net income $75.8 $72.8 $67.3
- -------------------------------------------------------------------------------------------------------------------------
Basic earnings per share before tax-effected merger-related items $2.97 $2.87 $2.60
Effect of tax-effected merger-related items (.09) (.03) -
- -------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $2.88 $2.84 $2.60
- -------------------------------------------------------------------------------------------------------------------------
Return on average assets before tax-effected merger-related items 1.15% 1.17% 1.19%
Effect of tax-effected merger-related items (.04) (.01) -
- -------------------------------------------------------------------------------------------------------------------------
Return on average assets 1.11% 1.16% 1.19%
- -------------------------------------------------------------------------------------------------------------------------
Return on average shareholders' equity before tax-effected merger-related items 11.22% 11.81% 11.22%
Effect of tax-effected merger-related items (.36) (.11) -
- -------------------------------------------------------------------------------------------------------------------------
Return on average shareholders' equity 10.86% 11.70% 11.22%
- -------------------------------------------------------------------------------------------------------------------------
The Company earned $2.97 per share, or $78.4 million, for 2001,
excluding tax-effected merger-related items. This is a 3% increase over the
$2.87 per share, or $73.6 million, earned for 2000. The key components of 2001's
earnings performance follow:
o Net interest income, on a taxable-equivalent (TE) basis, increased
4%, or $12.0 million, from 2000. Whitney was and continues to be
moderately asset sensitive, which implies it would experience some
compression in its net interest margin in a declining rate
environment, holding other factors constant. Short-term market
rates declined sharply during 2001, and Whitney's net interest
margin (TE) of 4.52% was 21 basis points below the margin in 2000.
The mix of funding sources has been favorably impacted by an
increase in overall liquidity during 2001; however, the mix of
earning assets has trended toward investment vehicles with a
smaller spread to the cost of funds because of a slowing in loan
demand.
o Noninterest income, excluding securities transactions, grew 23% in
2001, or $16.8 million, including a merger-related gain of
approximately $1.1 million. Service charges on deposit accounts
increased 16%, or $5.0 million, and secondary mortgage market
operations generated a $5.5 million increase in fee income. At the
end of the third quarter of 2001, Whitney recognized a $3.6
million gain when it sold its merchant processing agreements to a
firm that specializes in this business, retaining an interest in
the net revenues produced through an alliance formed with the
specialist. This move lowered fourth quarter noninterest income by
approximately $2.2 million and noninterest expense by $2.1
million.
o Noninterest expense, excluding merger-related costs, increased a
moderate 5%, or $10.8 million,
Page 8 of 73 Pages
between 2000 and 2001, including an increase of $1.4 million in
purchased intangibles amortization related to acquisitions.
Adjusting for the impact of the merchant business sale, the
increase in noninterest expense would have been approximately 6%,
or $12.9 million. Ongoing expense control efforts and savings from
system integration activities have helped offset growth in
noninterest expense from purchased operations.
o The Company provided $19.5 million for possible loan losses in
2001 compared to $12.7 million in 2000. As the economy entered
into a recession in 2001 and experienced the initial repercussions
of the September terrorist attacks, customer credit risks
increased throughout most of the banking industry. This was also
the case for Whitney. Net charge-offs increased to $9.4 million in
2001 from $1.6 million in 2000, and nonperforming assets were .76%
of loans plus foreclosed assets and surplus bank property at the
end of 2001 compared to .54% a year earlier. Whitney's overall
credit quality picture, however, continued to compare favorably to
industry statistics.
Per share earnings of $2.87 in 2000 before tax-effected merger-related
items were 10% higher than the $2.60 per share earned in 1999. The $73.6 million
earned in 2000 before merger items was $6.3 million above the $67.3 million
earned in 1999. Growth in net interest income (TE) of 10%, or $23.8 million,
reflected a 17% increase in loans in 2000 and a healthy net interest margin that
showed only limited compression as a result of the greater use of higher-cost
sources of funds to support earning asset growth. Noninterest income, excluding
securities transactions, grew 8%, or $5.4 million. Important factors, in
addition to expansion into the Houston, Texas market in early 2000, included the
positive impact of Whitney Securities' first full year of operations and the
growth in fees from merchant processing and credit and debit card activity on
increased transaction volumes and strategic adjustments to service fee
schedules. Noninterest expense, excluding merger-related costs, increased 7%, or
$14.3 million, between 1999 and 2000, with much of this increase attributable to
the Houston expansion and other bank operations acquired in 2000, including
purchased intangibles amortization of $2.5 million. Excluding these operations,
noninterest expense increased less than 3% in 2000. Expense control efforts had
a favorable impact on the growth rate of several major expense categories. A
moderate increase in the risk profile of the loan portfolio, coupled with strong
loan growth, were the major factors behind the $6.2 million increase in the
provision for possible loan losses in 2000.
FORWARD-LOOKING STATEMENTS
This discussion contains forward-looking statements as that term is
defined by the Private Securities Litigation Reform Act of 1995. Such statements
include, but may not be limited to, comments about the sensitivity of Whitney's
net interest margin to changing market interest rate environments, comments
regarding the expected growth rate of the loan portfolio, statements of the
results of net interest income simulations run by the Company to measure
interest rate sensitivity, and comments about possible future benefits to be
derived from Whitney's recently formed alliance to provide credit card sale
processing services to its merchant customers. Factors that could affect actual
results and potential benefits include the actual timing and extent of future
interest rate movements, trends in Whitney's earning assets and sources of
funds, the level of success of asset/liability management strategies
implemented, trends in credit card sale activity in Whitney's market area and
the success of ongoing customer development and retention efforts by the
alliance. In making forward-looking statement, management makes assumptions
about these and other factors. Other important factors include, but are not
limited to, the economic strength and the performance of the economies in
Whitney's market area, actions that may be taken by the Federal Reserve Board to
influence interest rates in response to changing economic conditions, changes in
laws and regulations affecting the activities of the banking industry and other
financial service providers, the nature and level of competition, trends in
customer behavior and preferences, and the Company's ability to execute its
plans to respond effectively.
Because it is uncertain whether future conditions and events will
confirm the Company's assumptions, there is a risk that Whitney's future results
will differ materially from what is stated in or implied by such forward-looking
statements. The Company cautions readers to consider this risk. Whitney
undertakes no obligation to update any forward-looking statement included in
this discussion, whether as a result of new information, future events or
developments, or for any other reason.
Page 9 of 73 Pages
LOANS AND RESERVE FOR POSSIBLE LOAN LOSSES
The rate of portfolio lending slowed in 2001, reflecting economic
conditions and market uncertainty. Average loans increased 7%, or $280 million,
in 2001 compared to growth in 2000 of 17%, or $619 million. Total loans were
little changed between the end of 2000 and 2001. Table 2, which is based on
regulatory reporting codes, shows loan balances at December 31, 2001 and at the
end of the previous four years.
TABLE 2. LOANS OUTSTANDING BY TYPE
- ---------------------------------------------------------------------------------------------------------------------------
December 31
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural loans $1,852,497 $1,815,205 $1,564,903 $1,404,003 $1,270,962
Real estate loans - commercial and other 1,576,817 1,544,390 1,318,130 1,123,309 903,741
Real estate loans - retail mortgage 820,808 888,699 726,765 667,089 574,795
Loans to individuals 304,416 353,198 318,616 321,568 318,854
- ---------------------------------------------------------------------------------------------------------------------------
Total loans $4,554,538 $4,601,492 $3,928,414 $3,515,969 $3,068,352
- ---------------------------------------------------------------------------------------------------------------------------
Commercial loans, including those secured by real property, increased
approximately $250 million, or 8%, on average in 2001, but were up only $70
million, or 2%, between year-end 2000 and 2001. Commercial real estate lending,
which encompasses loans secured by properties used in commercial or industrial
operations, increased $97 million, or 7%, on average, but only $32 million, or
2%, from the prior year end. The year over year increase in 2000 was 17%. Growth
in this portfolio category in 2001 has been limited, as anticipated, by
developers taking advantage of permanent financing opportunities in a favorable
rate environment and a moderating pace of new project development. In recent
years, growth came from a variety of sources, including apartment and
condominium projects largely in the eastern Gulf Coast region, and retail, small
office and industrial and commercial facilities throughout the Company's market
area. Loans for hotel projects were stable during both 2001 and 2000 after
growing rapidly in previous years with new construction spurred by a strong
convention and tourism industry in the New Orleans metropolitan area. Hotel
loans were approximately 11% of total commercial real estate loans at the end of
both 2001 and 2000. In the current economic environment, a return to
significantly faster growth in the commercial real estate portfolio in 2002 is
not anticipated.
Commercial loans other than those secured by real property increased on
average by $153 million, or 9%, in 2001, but were 2%, or $37 million, higher
than year-end 2000. This followed a $250 million, or 16%, increase in 2000 from
the end of 1999. Most portfolio sectors were relatively stable during 2001,
although there was some noticeable growth in loans to customers in the oil and
gas and maritime industries. Also included in this category are loans to
individuals, generally secured by collateral other than real estate, that are
used to fund investments in new or expanded business opportunities. Increased
economic uncertainty and reduced opportunities led to a decrease in such
investment loans in 2001 after two years of rapid growth. Overall, the portfolio
remained well-diversified. Participations in syndicated commercial loans at
December 31, 2001, totaled approximately $200 million, including $80 million
related to the oil and gas industry and $40 million to the gaming industry. All
of these loans are with customers operating in Whitney's market area and are
subject to standard underwriting criteria. The rate of commercial loan growth in
2002 will depend mainly on the economic fundamentals of the Company's market
area as well as on its ability to develop customers in the newer parts of its
market and take advantage of competitive circumstances to attract new business
in its established market.
Loans to customers related to the oil and gas industry increased $20
million in 2001 from the end of the previous year after a $30 million increase
in 2000. Whitney's customer base mainly provides services and products to
support exploration and production activities. An improvement in underlying
commodity prices helped maintain active production levels through much of 2001
and began to stimulate new exploration and development activity. Commodity
prices turned lower toward the latter part of 2001 in reaction to slowing global
demand for energy, and production activity has been reduced. The commitment to
new exploration and development is impacted more by changes in longer term
expectations about demand and prices. The level of activity in this industry
continues to have an important impact on the economies of certain portions of
Whitney's market area, particularly southern Louisiana and Houston. At December
31, 2001, outstanding loans to oil and gas industry customers totaled $301
million, or approximately 7% of total loans.
Page 10 of 73 Pages
Retail loans, including both retail mortgage loans and other loans to
individuals, increased $30 million on average in 2001, but decreased $117
million, or 9%, from the end of 2000. With the shift late in 2000 to a strategy
of selling substantially all residential mortgage loan production in the
secondary market, retail mortgage loans decreased $68 million, or 8%, in 2001
from year-end 2000. This category had grown $162 million, or 22%, in 2000. The
major factor behind the increase in 2000 was the growth in the origination of
adjustable-rate mortgage loan products, which then were being retained in the
portfolio, particularly as market rates rose in the second half of 1999 and into
2000. Whitney continued to promote its fixed-term home equity loan product in
2001. Such loans increased $10 million, or 6%, in 2001, after an increase of $53
million, or 42%, in 2000. This product offers customers the opportunity to
leverage increased home values and equity to obtain tax-advantaged consumer
financing.
Loans to individuals include various consumer installment and credit
line loan products other than retail mortgage loan products. In early 2001,
management decided to also begin selling student loan production at the earliest
possible date rather than holding such loans through the student deferment
period. The Company sold $40 million of qualifying student loans from the
existing portfolio in January 2001. Including the impact of this decision, loans
to individuals decreased $49 million, or 14%, in 2001. The increase in 2000 over
1999 resulted mainly from loans with customers of acquired bank operations.
Whitney's exit from one segment of this market in 1999 and consumer preference
for tax-advantaged home equity financing continued to impede growth in this
category during 2000 and 2001.
Table 3 reflects contractual loan maturities, unadjusted for scheduled
principal reductions, prepayments or repricing opportunities. Loans held for
sale are included with maturities of one year or less. Retail mortgages in the
sale pipeline totaled $60 million at December 31, 2001, and loans to individuals
held for sale totaled $17 million. Approximately 78% of the value of loans with
a maturity greater than one year bears a fixed rate of interest.
TABLE 3. LOAN MATURITIES BY TYPE
- ---------------------------------------------------------------------------------------------------------------------------
December 31, 2001
- ---------------------------------------------------------------------------------------------------------------------------
One year One through More than
(dollars in thousands) or less five years five years Total
- ---------------------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural loans $1,201,844 $ 580,101 $ 70,552 $1,852,497
Real estate loans- commercial and other 435,559 935,614 205,644 1,576,817
Real estate loans - retail mortgage 124,449 206,680 489,679 820,808
Loans to individuals 151,179 144,131 9,106 304,416
- ---------------------------------------------------------------------------------------------------------------------------
Total $1,913,031 $1,866,526 $774,981 $4,554,538
- ---------------------------------------------------------------------------------------------------------------------------
Page 11 of 73 Pages
Each loan carries a degree of credit risk. Management's evaluation of
this risk is ultimately reflected in the Company's financial statements by the
level of the reserve for possible loan losses, and changes in this ongoing
evaluation over time are reflected in the provision for loan losses charged to
operating expense.
At December 31, 2001, the reserve for possible loan losses was $71.6
million, or 1.57% of total loans, compared to $61.0 million, or 1.33% of total
loans at the end of 2000. Table 4 shows the activity in the reserve for possible
loan losses over the past five years. The allocation of the reserve is included
in Table 5.
TABLE 4. SUMMARY OF ACTIVITY IN THE RESERVE FOR POSSIBLE LOAN LOSSES
- --------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
Balance at the beginning of year $61,017 $47,543 $43,187 $47,549 $46,845
Reserves acquired in bank purchases 1,196 2,388 - - -
Reserves on loans transferred to held for sale (651) - - - -
Provision for possible loan losses
charged (credited) to operations 19,500 12,690 6,470 709 (1,358)
Loans charged to the reserve
Commercial, financial and agricultural (11,678) (4,244) (5,673) (6,688) (6,271)
Real estate (primarily commercial) (804) (1,581) (1,378) (544) (1,052)
Loans to individuals (3,020) (2,656) (2,991) (6,492) (3,057)
- -------------------------------------------------------------------------------------------------------------------------
Total (15,502) (8,481) (10,042) (13,724) (10,380)
- -------------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off
Commercial, financial and agricultural 3,130 2,679 4,408 4,054 6,531
Real estate (primarily commercial) 1,313 2,454 1,313 2,714 3,472
Loans to individuals 1,630 1,744 2,207 1,885 2,439
- -------------------------------------------------------------------------------------------------------------------------
Total 6,073 6,877 7,928 8,653 12,442
- -------------------------------------------------------------------------------------------------------------------------
Net (charge-offs) recoveries (9,429) (1,604) (2,114) (5,071) 2,062
- -------------------------------------------------------------------------------------------------------------------------
Balance at the end of year $71,633 $61,017 $47,543 $43,187 $47,549
- -------------------------------------------------------------------------------------------------------------------------
Ratios
Net charge-offs (recoveries) to average loans .21% .04% .06% .16% (.07)%
Gross charge-offs to average loans .34 .20 .28 .43 .37
Recoveries to gross charge-offs 39.18 81.09 78.95 63.05 119.87
Reserve for possible loan losses to loans at end of year 1.57 1.33 1.21 1.23 1.55
- -------------------------------------------------------------------------------------------------------------------------
In making its risk evaluation and establishing a reserve level that it
believes is adequate to absorb losses inherent in the portfolio, management
considers various sources of information. Some of the more important sources
include analyses prepared on specific loans reviewed for impairment, statistics
on balances of loans assigned to internal risk rating categories by loan
officers and the Company's independent credit review function, reports on the
composition and repayment performance of consumer and other loan portfolios not
subject to individual risk ratings, and factors developed through ongoing
migration analysis of historical loss experience. In addition to this more
objective and quantitative information, management's evaluation must take into
consideration its assessment of general economic conditions and how current
conditions affect specific segments of borrowers. Management must also come to a
judgment regarding the level of accuracy inherent in the loss reserve estimation
process. A formal reserve analysis is prepared at least quarterly that
summarizes the results of the evaluation process and helps ensure a consistent
process over time.
In 2001 as in 2000, the credit risk profile of the Company's customers
increased moderately, led by commercial loans not secured by real estate, but
the overall profile remained well within acceptable limits and compared
favorably to industry statistics. The increased risk profile is evident in
higher levels of nonperforming loans and loans internally classified as having
above normal credit risk as discussed below. As would be expected, the
percentage of the reserve allocated to commercial loans has also increased as is
shown in Table 5. Management's evaluation of credit risk included an assessment
of what impact the economic repercussions of the terrorist attacks on the United
States could have on the Company's customers. In Whitney's market area, the most
immediate impact was felt by businesses related to the
Page 12 of 73 Pages
convention and tourism industry, including, among others, hotels and
restaurants, and by the employees of these businesses. Loan officers are
monitoring the operations of affected customers and their responses to this
evolving situation. Management used stress tests to identify credits that would
have the most difficulty with debt service if there were to be a prolonged
downturn more severe than would have been considered in the normal underwriting
process. Stress tests were applied to approximately $100 million of loans and
commitments for hotel financing and $80 million of restaurant industry loans,
and the results indicated acceptable levels of risk. The lasting impact of these
attacks remains uncertain, however, and this uncertainty along with questions
concerning the depth of the economic slowdown in 2001 are reflected in the level
of unallocated reserves.
TABLE 5. ALLOCATION OF THE RESERVE FOR POSSIBLE LOAN LOSSES
- -------------------------------------------------------------------------------------------------------------------------
December 31
- -------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
Reserve Loans Reserve Loans Reserve Loans Reserve Loans Reserve Loans
- -------------------------------------------------------------------------------------------------------------------------
Commercial, financial and
agricultural 50.7% 40.7% 48.2% 39.4% 47.6% 39.8% 39.6% 39.9% 42.4% 41.4%
Real estate - commercial
and other 24.8 34.6 28.1 33.6 29.0 33.6 31.7 32.0 29.2 29.5
Real estate - retail mortgage 10.7 18.0 11.5 19.3 14.8 18.5 20.1 19.0 15.2 18.7
Loans to individuals 6.3 6.7 8.1 7.7 8.4 8.1 8.4 9.1 9.1 10.4
Unallocated 7.5 - 4.1 - .2 - .2 - 4.1 -
- -------------------------------------------------------------------------------------------------------------------------
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
- -------------------------------------------------------------------------------------------------------------------------
Nonperforming assets consist of nonperforming loans, foreclosed assets
and surplus banking property. Table 6 provides information on nonperforming
assets for each year in the five-year period ended December 31, 2001. The $10
million increase in nonperforming assets in 2001 to $35 million followed an $8
million increase in 2000 and smaller increases in 1999 and 1998 from the low
point in recent years of approximately $16 million at the end of 1997. There
have been no significant trends related to industries or markets underlying the
changes in nonperforming loans. Nonperforming assets as a percent of loans plus
foreclosed assets and surplus banking property increased to .76% at the end of
2001 from .54% at the end of 2000 and .45% in 1999.
TABLE 6. NONPERFORMING ASSETS
- ----------------------------------------------------------------------------------------------------------------------
December 31
- ----------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis $33,412 $23,579 $13,966 $11,862 $10,437
Restructured loans 383 465 1,634 2,660 2,342
- ----------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 33,795 24,044 15,600 14,522 12,779
Foreclosed assets and surplus banking property 991 995 1,909 2,320 3,609
- ----------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $34,786 $25,039 $17,509 $16,842 $16,388
- ----------------------------------------------------------------------------------------------------------------------
Loans 90 days past due still accruing $6,916 $4,343 $3,020 $5,228 $2,986
- ----------------------------------------------------------------------------------------------------------------------
Ratios
Nonperforming assets to loans plus
foreclosed assets and surplus banking
property .76% .54% .45% .48% .53%
Reserve for possible loan losses to
nonperforming loans 211.96 253.77 304.76 297.40 372.09
Loans 90 days past due still accruing to loans .15 .09 .08 .15 .10
- ----------------------------------------------------------------------------------------------------------------------
At December 31, 2001, loans internally classified as having above
normal credit risk represented 6.5% of total loans. This compared to
approximately 6.2% at December 31, 2000. The December 31, 2001 total of $299
million was
Page 13 of 73 Pages
$15 million above year-end 2000's total. The increase during 2001 was largely
influenced by participations in credit facilities with two customers in
Whitney's market area that were included in the shared national credit review
process by Federal banking regulators. Loans warranting special attention
because of risk characteristics that indicate potential weaknesses totaled $153
million at December 31, 2001, little changed from the prior year end. There was
a $26 million increase, to a total of $134 million, in loans classified as
having well-defined weaknesses that, if not corrected, would likely result in
some loss. Loans for which full repayment is doubtful, however, decreased by $7
million, to a total of $11 million at year-end 2001.
INVESTMENT IN SECURITIES
Total investment in securities was $1.63 billion at December 31, 2001,
compared to $1.46 billion at year-end 2000. The average total investment
portfolio was $1.53 billion in 2001, compared to $1.48 billion in 2000, an
increase of 3%, or $47 million. Between these same periods, average federal
funds sold and other short-term investments increased $205 million, reflecting
increased liquidity from growth in deposit funding sources during 2001 as
discussed in the following section.
The weighted-average taxable-equivalent portfolio yield was 5.77% at
December 31, 2001, a decrease of 51 basis points from approximately 6.28% at
December 31, 2000, reflecting mainly lower rates for reinvestment opportunities
in 2001. Substantially all of the securities in the investment portfolio bear
fixed interest rates.
Information about the contractual maturity structure of investment
securities at December 31, 2001 is shown in Table 7. The carrying value of
securities with explicit call options totaled $153 million at year-end 2001.
These call options and the scheduled principal reductions and projected
prepayments on mortgage-backed securities are not reflected in Table 7.
Including principal reductions on mortgage-backed securities, the
weighted-average maturity of the overall securities portfolio was approximately
41 months at December 31, 2001, little changed from year-end 2000.
TABLE 7. DISTRIBUTION OF INVESTMENT MATURITIES
- -------------------------------------------------------------------------------------------------------------------------
December 31, 2001
- -------------------------------------------------------------------------------------------------------------------------
Over one through Over five through
(dollars in thousands) One year and less five years ten years Over ten years Total
- -------------------------------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- -------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE
- -------------------------------------------------------------------------------------------------------------------------
U. S. agency securities $113,980 6.29% $311,705 4.96% $ 28,698 5.79% $ - -% $454,383 5.35%
Mortgage-backed securities(a) 10,208 6.12 91,545 6.27 371,692 5.92 356,573 5.87 830,018 5.94
Obligations of states and
political subdivisions (b) 5,234 6.32 16,724 6.49 13,453 6.80 4,760 6.32 40,171 6.55
U. S. Treasury securities 5,110 2.18 59,132 5.00 - - - - 64,242 4.78
Other debt securities 55 7.25 25,814 4.67 150 6.75 - - 26,019 4.69
Equity securities(c) - - - - - - 25,694 - 25,694 -
- -------------------------------------------------------------------------------------------------------------------------
Total $134,587 6.12% $504,920 5.24% $413,993 5.94% $387,027 5.88% $1,440,527 5.69%
- -------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD TO MATURITY
- -------------------------------------------------------------------------------------------------------------------------
U. S. agency securities $7,402 6.39% $32,630 5.32% $ - -% $ - - % $40,032 5.52%
Obligations of states and
political subdivisions (b) 9,616 7.15 34,568 6.89 51,313 7.17 25,373 7.22 120,870 7.10
U. S. Treasury securities 20,090 5.59 10,821 5.75 - - - - 30,911 5.65
- -------------------------------------------------------------------------------------------------------------------------
Total $37,108 6.15% $78,019 6.08% $51,313 7.17% $25,373 7.22% $191,813 6.54%
- -------------------------------------------------------------------------------------------------------------------------
(a) Distributed by contractual maturity without regard to repayment schedules or projected prepayments.
(b) Tax exempt yields are expressed on a fully taxable equivalent basis.
(c) These securities have no stated maturities or guaranteed dividends.
Effective January 1, 2001, the Company reclassified securities with a
carrying value of $528 million, and an unrealized net loss of $6.4 million, as
available for sale in connection with the adoption of Statement of Financial
Accounting Standards No. 133. These securities had previously been classified as
held to maturity. Securities available for
Page 14 of 73 Pages
sale are reported at estimated fair market value in the consolidated balance
sheets. The unrealized loss at the effective date of the reclassification was
reported net of tax in other comprehensive income in the first quarter of 2001.
Whitney continued to classify most of its securities from states and political
subdivisions, as well as shorter duration. U. S. Treasury and agency securities,
as held to maturity. During 1999 the Company had begun building its investment
in securities classified as available for sale, primarily as a means to increase
liquidity management flexibility. With the reclassification in 2001, such
securities constituted 88% of the total investment portfolio at December 31,
2001. The net unrealized gain on available for sale securities was $15.8 million
at year-end 2001. The improvement from an unrealized net gain of $2.9 million at
the end of 2000, before the reclassification, reflected the favorable impact of
generally lower market interest rates on fixed income security prices.
The Company does not normally maintain a trading portfolio.
Occasionally, the Bank holds immaterial amounts of trading account securities
for short periods while buying and selling securities for customers. Such
securities, if any, are included in other assets in the consolidated balance
sheets.
At December 31, 2001, Whitney held no investment in securities of a
single issuer, other than securities issued or guaranteed by the U. S.
government or its agencies, that exceeded 10% of its shareholders' equity. The
Company has made no investments in financial instruments or participated in
agreements with values that are linked to or derived from changes in the value
of some underlying asset or index. These financial instruments or agreements are
commonly referred to as derivatives and include such instruments as futures,
forward contracts, option contracts, interest rate swap agreements and other
financial arrangements with similar characteristics. Management continues to
evaluate whether to use derivatives as part of its asset/liability and liquidity
management processes.
DEPOSITS AND SHORT-TERM BORROWINGS
Average deposits increased 13%, or $621 million, in 2001, and were up
9%, or $386 million, in 2000. Deposits associated with purchased bank operations
contributed approximately $100 million to average deposit growth in 2001 and
$150 million in 2000. Deposit growth accelerated in 2001 with the competitive
positioning of new money market deposit products for businesses and individuals
and greater demand for the safety and liquidity of deposit products in response
to turmoil in the capital markets.
TABLE 8. AVERAGE DEPOSITS
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Noninterest-bearing demand deposits $1,447,871 26.1% $1,342,127 27.2% $1,247,143 27.4%
NOW account deposits 598,973 10.8 543,424 11.0 539,415 11.9
Money market deposits 1,065,027 19.2 820,393 16.7 799,170 17.6
Savings deposits 463,583 8.3 458,717 9.3 493,129 10.9
Other time deposits 1,114,207 20.1 993,948 20.2 840,548 18.5
Time deposits $100,000 and over 858,895 15.5 768,605 15.6 620,953 13.7
- -------------------------------------------------------------------------------------------------------------------
Total $5,548,556 100.0% $4,927,214 100.0% $4,540,358 100.0%
- -------------------------------------------------------------------------------------------------------------------
Money market deposits increased 30%, or $245 million on average,
compared to 2000. Growth in money market deposits in recent years has been
supported by the promotion of bundled banking services, and the Whitney
continued to promote these services in 2001. Demand for safety and liquidity
also helped maintain the level of funding from time deposits during 2001,
although there was some erosion beginning in the third quarter in the face of
continued declines in renewal rates. These deposits had increased strongly in
2000 as Whitney responded to rising short-term market rates during that period
with competitively structured time deposit products. The growth in time deposits
over $100,000 in both 2001 and 2000 also reflected an increase in Eurodollar
deposits, including funds from new and existing corporate customers for cash
management purposes. Table 9 shows the maturity structure of time deposits over
and under $100,000 at December 31, 2001.
Noninterest-bearing demand deposits were also higher in 2001, having
grown 8%, or $106 million on average, from 2000. Table 8 shows that
noninterest-bearing deposits have remained a healthy percentage of average total
deposits over the last three years, with the small decrease in 2001 reflecting
the flow of liquidity to interest-bearing deposit products. Deposits in
traditional savings accounts were steady in 2001, but would have been lower
absent purchased operations, continuing a trend that reflects consumer
preference for the convenience and flexibility offered by newer deposit
products.
Page 15 of 73 Pages
TABLE 9. MATURITIES OF TIME DEPOSITS
- --------------------------------------------------------------------------------
(dollars in thousands)
- --------------------------------------------------------------------------------
Remaining maturity of time deposits of $100,000 or more
as of December 31, 2001
Three months or less $476,746
Over three months through twelve months 293,026
Over twelve months 37,145
- --------------------------------------------------------------------------------
Total time deposits of $100,000 or more 806,917
- --------------------------------------------------------------------------------
Remaining maturity of time deposits of less than $100,000
as of December 31,2001
Three months or less 291,282
Over three months through twelve months 576,977
Over twelve months 157,385
- --------------------------------------------------------------------------------
Total time deposits of less than $100,000 1,025,644
- --------------------------------------------------------------------------------
Total time deposits $1,832,561
- --------------------------------------------------------------------------------
As deposits grew in 2001, the level of short-term borrowings decreased.
These borrowings consist primarily of purchases of federal funds and sales of
securities under repurchase agreements. Total average short-term borrowings were
23%, or $157 million, lower in 2001 following a 48%, or $218 million, increase
in 2000. In 2001, the Company made little use of available wholesale short-term
funding sources, such as overnight and term federal funds purchased and brokered
repurchase agreements, as it had in 2000 to fund strong loan growth. Average
short-term borrowings from customers under repurchase agreements were stable in
2001, after increasing 14% in 2000 to approximately $400 million. Increased
funding from this source in recent years reflected both the growth in commercial
relationships and the attractiveness of Whitney's treasury management sweep
product. Because of the underlying customer relationship, these borrowings can
be a relatively stable source of funds.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
At December 31, 2001, shareholders' equity totaled $718 million
compared to $666 million at the end of 2000 and $596 million at the end of 1999.
The major factors in the $52 million increase in 2001 were earnings, net of
dividends declared, of $35 million, and an $8 million increase in other
comprehensive income representing an unrealized net holding gain on securities
available for sale. In 2000, net retained earnings of $36 million and the $22
million value of common stock issued to purchase First Ascension Bancorp, Inc.
led to a $70 million increase in shareholders' equity. Over the last three
years, the dividend payout ratio has been relatively stable, increasing slightly
to 54% in 2001 from 50% in 2000 and 49% in 1999.
Whitney last executed a stock repurchase program in 1999, when it
repurchased one million shares for $39 million. The Company has no program
currently, but will consider similar programs in the future as appropriate
opportunities arise.
The ratios in Table 10 indicate that the Company remained strongly
capitalized at December 31, 2001. The overall reduction in the capital ratios in
recent years from earlier levels has been influenced mainly by the rate of asset
growth coupled with the decisions made and actions taken by the Company in
managing its capital position, including the 1999 stock repurchase program. Cash
business acquisitions, such as the purchases of Redstone Financial, Inc. in 2001
and Bank of Houston in 2000, will also reduce regulatory capital ratios. In
these transactions, the Company acquires intangible assets that are deducted in
determining regulatory capital and excluded from risk-weighted assets.
Page 16 of 73 Pages
TABLE 10. RISK-BASED CAPITAL AND CAPITAL RATIOS
- ----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
Tier 1 regulatory capital $604,179 $577,036 $568,117 $561,625 $540,955
Tier 2 regulatory capital 63,878 61,017 47,543 43,187 44,346
- ----------------------------------------------------------------------------------------------------------------------------
Total regulatory capital $668,057 $638,053 $615,660 $604,812 $585,301
- ----------------------------------------------------------------------------------------------------------------------------
Risk-weighted assets $5,102,470 $5,063,114 $4,427,620 $4,050,755 $3,544,467
- ----------------------------------------------------------------------------------------------------------------------------
Ratios
Leverage ratio (Tier 1 capital to average assets) 8.72% 8.93% 10.01% 10.33% 10.79%
Tier 1 capital to risk-weighted assets 11.84 11.40 12.83 13.86 15.26
Total capital to risk-weighted assets 13.09 12.60 13.90 14.93 16.51
Shareholders' equity to total assets 9.91 10.01 10.16 10.66 10.91
- ----------------------------------------------------------------------------------------------------------------------------
The regulatory capital ratios of Whitney National Bank exceed the
minimum required ratios, and the Bank has been categorized as "well-capitalized"
in the most recent notice received from its regulatory agency.
LIQUIDITY
The object of liquidity management is to ensure that funds are
available to meet cash flow requirements of depositors and borrowers, while at
the same time meeting the operating, capital and strategic cash flow needs of
the Company and the Bank, all in the most cost-effective manner. The Company
develops it liquidity management strategies and measures and monitors liquidity
risk as part of its overall asset/liability management process, making full use
of the quantitative modeling tools available to project cash flows under a
variety of possible scenarios. Projections are also made assuming credit
stressed conditions, although such conditions are not likely to arise.
On the liability side, liquidity management focuses on growing the base
of more stable core deposits at competitive rates, including the use of
treasury-management products for commercial customers, while at the same time
ensuring access to economical wholesale funding sources. The section above on
Deposits and Short-term Borrowings discusses changes in these liability-funding
sources in 2001 and 2000. During 2000, Whitney National Bank became a member of
the Federal Home Loan Bank system. This membership provides access to a variety
of Federal Home Loan Bank advance products as an alternative source of funds. In
addition, both the Company and the Bank have access to external funding sources
in the financial markets, and the Bank has developed the ability to gather
deposits at a nationwide level.
Liquidity management on the asset side primarily addresses the
composition and maturity structure of the loan and investment securities
portfolios and their impact on the Company's ability to generate cash flows from
scheduled payments, contractual maturities, prepayments, their use as collateral
for borrowings under repurchase agreements and possible outright sales or
securitizations. Table 3 above presents the contractual maturity structure of
the loan portfolio and Table 7 presents contractual investment maturities. As
mentioned earlier, the Company began building its investment in securities
classified as available for sale in 1999 and, effective 2001, reclassified in
excess of $500 million of its portfolio of securities held to maturity to this
category. These actions further increased liquidity management flexibility.
Cash generated from operations is another important source of funds to
meet liquidity needs. The consolidated statements of cash flows present
operating cash flows and summarize all significant sources and uses of funds for
each year in the three-year period ended December 31, 2001.
The Bank saw its liquidity position grow throughout 2001 reflecting
strong deposit inflows, moderate loan demand, and an attractive refinancing
environment. This liquidity position will likely return to more normal levels
with increased economic activity, a return to confidence in the capital markets
and rising market interest rates.
Whitney Holding Corporation had approximately $63 million in cash
available for acquisitions, dividend payments to shareholders, or other
corporate uses at the end of 2001, before consideration of any future dividends
that may be received from the Bank. Because the Bank received approval to pay
the Company dividends above limits set by statutory and regulatory provisions in
2001, the Bank will be required to seek continuing approval to declare future
dividends to the Company until it reestablishes dividend capacity under those
provisions.
The Bank had approximately $1.3 billion in unfunded loan commitments
outstanding at December 31, 2001, an increase of $74 million from 2000's year
end. Note 14 shows the details of these and other unfunded commitments at
December 31, 2001 and 2000. Because loan commitments may, and many times do,
expire without being drawn upon, unfunded balances should not be used as a
projection of actual future liquidity requirements.
Page 17 of 73 Pages
ASSET/LIABILITY MANAGEMENT
The objective of the Company's asset/liability management is to
implement strategies for the funding and deployment of its financial resources
that are expected to maximize soundness and profitability over time at
acceptable levels of risk.
Interest rate sensitivity is the potential impact of changing rate
environments on both net interest income and cash flows. The Company and the
Bank obtain measures of their interest rate sensitivity by running net interest
income simulations, monitoring the economic value of equity and preparing gap
analyses.
The simplest method of measuring interest rate sensitivity is gap
analysis, which identifies the difference between the dollar volume of assets
and liabilities that reprice within specified time periods. Gap analysis has
several limitations, including the fact that it is a point in time measurement.
Table 11 shows the Company's static gap position as of December 31, 2001.
TABLE 11. INTEREST RATE SENSITIVITY
- ----------------------------------------------------------------------------------------------------------------------
By Maturity or Repricing Dates at December 31, 2001
- ----------------------------------------------------------------------------------------------------------------------
0-30 31-90 91-180 181-365 After Noninterest-
(dollars in millions) Days Days Days Days 1 Year Bearing Total
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
Securities available for sale $ 20 $62 $ 97 $173 $1,088 $ - $1,440
Securities held to maturity - 16 8 18 150 - 192
Loans 1,720 533 344 502 1,456 - 4,555
Federal funds sold and
short-term investments 495 - - - - - 495
Other assets - - - - - 562 562
- ----------------------------------------------------------------------------------------------------------------------
Total assets 2,235 611 449 693 2,694 562 7,244
- ----------------------------------------------------------------------------------------------------------------------
SOURCES OF FUNDS
NOW account deposits 766 - - - - - 766
Money market deposits 1,228 - - - - - 1,228
Savings deposits 14 - - - 475 - 489
Other time deposits 134 157 276 301 158 - 1,026
Time deposits $100,000 and over 304 141 148 178 36 - 807
Short-term borrowings 512 - - - - - 512
Noninterest-bearing demand deposits - - - - - 1,634 1,634
Other liabilities - - - - - 64 64
Shareholders' equity - - - - - 718 718
- ----------------------------------------------------------------------------------------------------------------------
Total sources of funds 2,958 298 424 479 669 2,416 7,244
- ----------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ (723) $ 313 $ 25 $ 214 $2,025 $(1,854)
Cumulative interest rate sensitivity gap $ (723) $(410) $(385) $(171) $1,854 $ -
Cumulative interest rate sensitivity gap
as a percentage of total earning assets (10.82)% (6.14)% (5.76)% (2.56)% 27.75%
- ----------------------------------------------------------------------------------------------------------------------
Table 11 indicates that the Company is somewhat liability sensitive in
the near term. However, static gap does not take into consideration the actions
that management intends to take to maximize net interest income over time. A
more sophisticated tool used by the Company to evaluate and manage its interest
rate sensitivity is a net interest income simulation model, which tests the
Bank's reaction to various economic environments. The model is able to
incorporate management's assumptions and expectations regarding such factors as
loan and deposit growth, pricing, prepayment speeds and spreads between interest
rates. Assumptions can also be entered into the model to evaluate the impact of
possible strategic responses to changes in the competitive environment.
As part of its regular formal asset/liability management process, a
base case simulation is run that uses current growth forecasts and assumes a
stable rate environment and structure. The base case simulation as of the end of
2001 showed an increase in net interest income (TE) for the next twelve-month
period of approximately $9 million, or 3%, from 2001 levels. When the base case
simulation was subjected to parallel up and down instantaneous rate shocks of
100 basis points, the model showed an annual impact on Whitney's 2002 net
interest income (TE) that ranged from a positive $10 million at 100 basis points
up to a negative $6 million at 100 basis points down. Additional simulations
were run applying instantaneous parallel rate shocks up to 300 basis points as
well as gradual rate changes of up to 200 basis points. In the current rate
environment, certain downward rate shocks caused unrealistic model assumptions,
and the results from these
Page 18 of 73 Pages
simulation runs were disregarded. The results of other simulations showed that
the Company's sensitivity was within acceptable limits, considering established
internal guidelines.
Unlike the gap analysis, the net interest income simulations at the end
of 2001 indicate that the Company is moderately asset sensitive. The actual
impact of changing interest rates on net interest income, however, is dependent
on many factors. These include Whitney's ability to achieve growth in earning
assets and maintain a desired mix of earning assets and interest-bearing
liabilities, the actual timing of repricing of assets and liabilities, the
magnitude of interest rate changes, interest rate spreads and the level of
success of asset/liability management strategies implemented.
The method used for measuring longer-term interest rate risk is the
economic value of equity analysis. At year-end 2001, the Company's sensitivity
was acceptable under internal guidelines at all levels of rate shock simulation
that produced realistic results.
Changes in interest rates affect the fair values of financial
instruments. Note 15 contains information regarding these fair values. The
differences between fair values and book values were primarily the result of
differences between contractual and market interest rates at each year end.
Fluctuations in fair values will occur as interest rates change.
IMPACT OF INFLATION AND CHANGING PRICES
The great majority of assets and liabilities of a financial institution
are monetary in nature. Management believes the most significant potential
impact of inflationary or deflationary economic cycles on Whitney's financial
results is its ability to react to changes in interest rates. Interest rates do
not, however, necessarily move in the same direction, or at the same magnitude,
as the prices of goods and services. As discussed above, the Company employs
asset/liability management strategies in its attempt to minimize the effects of
economic cycles on its net interest income.
Inflation and changing prices also have an impact on the growth of
total assets in the banking industry and the resulting need to increase capital
at higher than normal rates in order to maintain an appropriate equity to assets
ratio. Changing prices will also affect the trend in noninterest operating
expenses and noninterest income.
Page 19 of 73 Pages
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income (TE) increased 4%, or 12.0 million, in 2001,
following a 9%, or $23.7 million, increase in 2000 over 1999. As discussed
earlier, Whitney was moderately asset sensitive throughout 2001, which implies
that it would experience some compression in its net interest margin in a
declining rate environment, holding other factors constant. The net interest
margin, which is net interest income (TE) as a percent of average earning
assets, decreased to 4.52% in 2001 from 4.73% in 2000 and 4.83% in 1999. The
margin compression in 2001 came as an 86 basis point decrease in the yield (TE)
on earning assets was not fully matched by a 65 basis point decrease in the cost
of funding these assets. Between 1999 and 2000, the earning asset yield
increased 49 basis points while the cost of funds increased 59 basis points,
leading to the 10 basis point decline in the net interest margin between these
periods. Tables 12 and 13 show the factors contributing to these changes and the
components of these changes.
There was a moderate 7% increase in average loans in 2001 compared to a
17% increase in 2000 over 1999. Average loans as a percent of earning assets
declined to below 72% in 2001 after reaching a high for recent years in 2000.
There was a corresponding surge in short-term investments in 2001 that was
prompted by increased liquidity in a period of reduced loan demand. For the
year, short-term investments grew to over 4% of average earning assets from less
than 1% in 2000. The loan portfolio yield (TE) decreased 90 basis points between
2000 and 2001, reflecting a 225 basis point decline in the average prime rate.
Approximately 68% of the value of the loan portfolio at year-end 2001 is subject
to repricing within one year, which is up from 58% at year-end 2000. With
declining loan yields, the overall yield on earning assets is 2001 was 86 basis
points lower than in 2000.
In 2000, the mix of earning assets had followed a favorable trend of
recent years, driven by strong loan growth. The 17% growth in average loans in
2000 was well above the 12% rate of growth in total average earning assets. As a
result, loans comprised 73% of average earning assets in 2000, up from 70% in
1999. The improved asset mix, as well as a 53 basis point increase in the loan
yield (TE), led to the 49 basis point increase in the yield (TE) on total
earning assets. Loan yields increased in response to the rise in market rates as
evidenced by the 124 basis point increase in the average prime rate for 2000
compared to 1999.
The total interest cost of funding earning assets in 2001 decreased 63
basis points from 2000. The percentage of average earning assets funded by
noninterest-bearing deposits remained a healthy 23% during 2001, having declined
only slightly from 24% in 1999. The favorable impact of liquidity on the mix of
funding sources was reflected in the decrease in higher-cost sources of funds as
a percent of average earning assets to 39% in 2001 from 42% in 2000. Higher-cost
funding sources include both short-term borrowings and time deposits. While the
cost of short-term borrowings decreased quickly throughout 2001, falling 246
basis points on average in response to falling market rates, the maturity
structure of fixed rate time deposits was such that the cost of these deposits
declined much more slowly, although the pace accelerated in the third and fourth
quarters of the year. The cost of time deposits at year-end 2001 was 3.53%,
approximately 250 basis points below the cost at the end of 2000.
During 2000, Whitney made increased use of wholesale funding sources to
leverage loan growth and responded to rising short-term market rates during
that period with competitively structured time deposit products. As a result,
higher-cost sources of funds grew to 42% of average earning assets in that
year, up from 37% in 1999. These changes coupled with the impact of rising
short-term market rates led to the increase of 59 basis points in the total
interest cost of funding earning assets during 2000.
Page 20 of 73 Pages
TABLE 12. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME (TE) (a) AND INTEREST RATES
- ------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans (TE)(a),(b) $4,515,740 $344,613 7.63% $4,235,562 $361,345 8.53% $3,616,247 $289,136 8.00%
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. agency securities 530,411 31,372 5.91 636,052 38,882 6.11 531,907 31,802 5.98
Mortgage-backed securities 684,934 41,070 6.00 489,073 30,144 6.16 531,544 32,286 6.07
Obligations of states and
political subdivisions (TE)(a) 165,809 11,894 7.17 202,598 15,152 7.48 214,418 16,133 7.52
U.S. Treasury securities 104,670 6,215 5.94 122,018 7,438 6.10 167,016 10,237 6.13
Other securities 39,430 2,015 5.11 28,868 1,853 6.42 21,176 1,402 6.62
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment in securities 1,525,254 92,566 6.07 1,478,609 93,469 6.32 1,466,061 91,860 6.27
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and
short-term investments 262,451 9,331 3.56 57,085 3,543 6.21 80,832 3,913 4.84
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 6,303,445 $446,510 7.08% 5,771,256 $458,357 7.94% 5,163,140 $384,909 7.45%
- ------------------------------------------------------------------------------------------------------------------------------------
NONEARNING ASSETS
Other assets 592,469 565,213 521,066
Reserve for possible loan losses (64,350) (54,425) (45,226)
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $6,831,564 $6,282,044 $5,638,980
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
NOW account deposits $ 598,973 $ 7,727 1.29% $ 543,424 $ 8,086 1.49% $ 539,415 $ 8,036 1.49%
Money market deposits 1,065,027 30,655 2.88 820,393 33,638 4.10 799,170 28,640 3.58
Savings deposits 463,583 7,055 1.52 458,717 9,281 2.02 493,129 9,964 2.02
Other time deposits 1,114,207 58,772 5.27 993,948 53,294 5.36 840,549 39,936 4.75
Time deposits $100,000 and over 858,895 42,006 4.89 768,605 44,587 5.80 620,953 29,979 4.83
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 4,100,685 146,215 3.57 3,585,087 148,886 4.15 3,293,216 116,555 3.54
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 515,152 15,134 2.94 672,118 36,295 5.40 454,047 18,878 4.16
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 4,615,837 $161,349 3.50% 4,257,205 $185,181 4.35% 3,747,263 $135,433 3.61%
- ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 1,447,871 1,342,127 1,247,143
Other liabilities 69,757 59,898 44,458
Shareholders' equity 698,099 622,814 600,116
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $6,831,564 $6,282,044 $5,638,980
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income and margin(TE)(a) $285,161 4.52% $273,176 4.73% $249,476 4.83%
Net earning assets and spread $1,687,608 3.58% $1,514,051 3.59% $1,415,877 3.84%
Interest cost of funding
earning assets 2.56% 3.21% 2.62%
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Taxable-equivalent (TE) amounts are calculated using a marginal federal income tax rate of 35%.
(b) Average balance includes nonaccruing loans of $27,492, $21,358 and $10,954, respectively, in 2001, 2000 and 1999.
Page 21 of 73 Pages
TABLE 13. SUMMARY OF CHANGES IN NET INTEREST INCOME (TE) (a)
- ------------------------------------------------------------------------------------------------------------------------------
2001 Compared to 2000 2000 Compared to 1999
- ------------------------------------------------------------------------------------------------------------------------------
Due to Due to
Change in Total Change in Total
--------------------- Increase ------------------- Increase
(dollars in thousands) Volume Rate (Decrease) Volume Rate (Decrease)
- ------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME (TE) (a)
Loans (TE)(a),(b) $22,931 $(39,663) $(16,732) $51,902 $20,307 $72,209
- ------------------------------------------------------------------------------------------------------------------------------
U.S. agency securities (6,283) (1,227) (7,510) 6,352 728 7,080
Mortgage-backed securities 11,765 (839) 10,926 (2,612) 470 (2,142)
Obligations of states and political
subdivisions (TE)(a) (2,660) (598) (3,258) (885) (96) (981)
U.S. Treasury securities (1,034) (189) (1,223) (2,743) (56) (2,799)
Other securities 589 (427) 162 495 (44) 451
- ------------------------------------------------------------------------------------------------------------------------------
Total investment in securities 2,377 (3,280) (903) 607 1,002 1,609
- ------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and short term investments 7,879 (2,091) 5,788 (1,315) 945 (370)
- ------------------------------------------------------------------------------------------------------------------------------
Total interest income (TE) (a) 33,187 (45,034) (11,847) 51,194 22,254 73,448
- ------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
NOW account deposits 779 (1,138) (359) 60 (10) 50
Money market deposits 8,536 (11,519) (2,983) 778 4,220 4,998
Savings deposits 97 (2,323) (2,226) (696) 13 (683)
Other time deposits 6,356 (878) 5,478 7,838 5,520 13,358
Time deposits $100,000 and over 4,886 (7,467) (2,581) 7,906 6,702 14,608
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 20,654 (23,325) (2,671) 15,886 16,445 32,331
- ------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings (7,167) (13,994) (21,161) 10,737 6,680 17,417
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense 13,487 (37,319) (23,832) 26,623 23,125 49,748
- ------------------------------------------------------------------------------------------------------------------------------
Change in net interest income (TE)(a) $19,700 $ (7,715) $11,985 $24,571 $ (871) $23,700
- ------------------------------------------------------------------------------------------------------------------------------
(a) Taxable-equivalent (TE) amounts are calculated using a marginal federal income tax rate of 35%.
(b) Interest recognized on a cash basis on nonaccruing loans and prior cost recovery interest currently recognized on nonaccruing
and certain accruing loans was $945, $2,586 and $422 in 2001, 2000 and 1999, respectively.
Page 22 of 73 Pages
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses was $19.5 million in 2001,
compared to $12.7 million in 2000 and $6.5 million in 1999. The size of future
provisions will reflect asset quality trends and management's ongoing
evaluation, based on established internal policies and practices, of the amount
of loss inherent in the portfolio.
For a discussion of the evaluation process and of changes in the
reserve for possible loan losses, nonperforming assets and general asset
quality, see the earlier section on Loans and Reserve for Possible Loan Losses.
NONINTEREST INCOME
Table 14 shows the components of noninterest income for each year in
the three-year period ended December 31, 2001, along with the percent changes
between years for each component. Noninterest income before securities
transactions increased 23%, or $16.8 million, in 2001 and 8%, or $5.4 million,
in 2000. Excluding income from sales and other dispositions of foreclosed assets
and surplus banking property, noninterest income increased 20% in 2001 and 9% in
2000.
TABLE 14. NONINTEREST INCOME
- ---------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 % change 2000 % change 1999
- ---------------------------------------------------------------------------------------------------------------------
Service charges on deposit accounts $35,275 16.4% $30,312 3.6% $29,247
Credit card income 14,002 (8.8) 15,349 15.9 13,249
Trust service fees 9,384 1.9 9,206 8.2 8,511
Secondary mortgage market operations 7,575 257.6 2,118 (32.8) 3,153
ATM fees 4,281 4.7 4,089 5.9 3,862
Investment services income 3,906 45.7 2,681 73.0 1,550
International services income 2,371 10.9 2,138 4.2 2,052
Other fees and charges 2,658 5.0 2,532 21.1 2,090
Other operating income 2,785 (6.5) 2,978 79.3 1,661
Net gain on sales and other
dispositions of foreclosed assets 1,963 14.5 1,714 37.3 1,248
Net gains on disposals of surplus property 3,274 184.0 1,153 (49.0) 2,262
Gain on sale of merchant processing agreements 3,570 (a) - (a) -
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest income before securities
transactions 91,044 22.6 74,270 7.8 68,885
Securities transactions 165 (80.6) 850 (a) (32)
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest income $91,209 21.4% $75,120 9.1% $68,853
- ---------------------------------------------------------------------------------------------------------------------
(a) Not meaningful.
Income from service charges on deposit accounts increased 16%, or $5.0
million, in 2001 after an increase of 4%, or $1.1 million, in 2000. Whitney
implemented refinements to its pricing policies for certain business accounts
during the second quarter of 2001 and, as short-term market interest rates
declined throughout the year, appropriately lowered the earnings credit allowed
as an offset to service charges on these accounts. The combined impact helped
increase business service fees by $3.2 million compared to 2000. Also during
2001's second quarter, the Company began introducing automated tools to help
banking officers with certain service fee decisions and to measure their
performance against corporate standards. The impact of those tools together with
underlying growth in the deposit customer base accounted for the remaining
increase in income from service charges on deposit accounts. Fee-based deposit
accounts also grew in 2000, including the impact of acquisitions, but
corresponding growth in service charge income was restrained in part by the
impact on the earnings credit of higher short-term market rates during that
year.
At the end of 2001's third quarter, Whitney entered into an alliance
with a firm that specializes in processing credit card sale transactions for
merchants. In forming this alliance, Whitney sold its existing merchant
processing agreements to the specialist firm and recognized a gain of $3.6
million, while maintaining an interest in the ongoing net revenues generated
through the alliance. This move will initially reduce future noninterest income
by an estimated $9.5 million annually and noninterest expense by $9.0 million.
For the fourth quarter of 2001, the reductions were approximately $2.2 million
of income and $2.1 million of expense. Over time, results from the alliance are
expected to fully benefit from the specialist's
Page 23 of 73 Pages
significant operating efficiencies and from additional growth in the merchant
customer base through focused sales management and enhanced customer service.
As a result of this move, credit card income decreased 9%, or $1.3
million, in 2001, after having grown 16%, or $2.1 million, in 2000. This income
category includes fees from merchant processing services and from activity on
Bank-issued credit and debit cards. Fee income from debit card activity has made
an increasingly important contribution in recent years as the Company expanded
the distribution of its product and saw increasing acceptance and use of these
cards for retail transactions. Debit card fee income was up 42%, or $1.2
million, in 2001 on a 37% increase in transaction volume and a 34% increase in
the cardholder base. This followed income growth of 48%, or $.9 million, in 2000
when transaction volume rose 45% and the base increased 30%. Fee income from
credit card activity grew 14% in 2001, consistent with the growth in transaction
volume, and was up 20% in 2000.
Trust service fees increased 2% in 2001 and 8% in 2000. Marketing and
incentive-based sales efforts across Whitney's market area have been successful
in building the customer base for trust services. The continuing weakness in
equity markets, however, has limited the Company's ability to achieve the fee
income growth rates of earlier years when financial markets performed strongly
over a sustained period.
Secondary mortgage market operations posted a $5.5 million increase in
fee income to a level over three times that in 2000. Late in the third quarter
of 2000, the Company began to shift away from retaining new residential mortgage
loans for the portfolio. In addition, favorable market rates and an expanded
sales force generated strong origination volumes throughout 2001. Refinancing
activity accounted for approximately 65% of the $461 million of loans originated
in 2001. Whitney sold approximately 95% of this production, compared to 38% of
the $219 million originated in 2000. With a rise in market rates in the latter
part of 1999 that continued through most of 2000, residential mortgage loan
production in 2000 had slowed and the Company's origination efforts shifted to
adjustable rate loans that it held in portfolio. This led to a 33%, or $1.0
million, decline in income from secondary mortgage market operations in 2000
compared to 1999.
Investment service income grew 46%, or $1.2 million, in 2001, mainly
because increased demand for fixed income securities offset softness in retail
brokerage activity that was brought on by weak equity markets. Whitney
Securities, the Company's broker-dealer unit, had its first full year of
operations in 2000 after its inception in the third quarter of 1999. The
performance of this unit was the primary factor behind the 73%, or $1.1 million,
increase in investment services income in 2000.
Late in the second quarter of 1999, the Company opened a new parking
facility next to its main office. The operating revenue from this facility
totaled $1.2 million in 2000 and $.6 million in 1999 and accounts for almost
half of the increase in the other operating income category in 2000. The
remaining increase in this category between 1999 and 2000 and the small decrease
in 2001 resulted mainly from certain one-time items.
Net gains on sales and other dispositions of foreclosed assets include
income from sales of grandfathered assets that vary from year to year as
opportunities for sales arise. Management evaluates its banking facilities on an
ongoing basis to identify possible under-utilization and to determine the need
for functional improvements, relocations or possible sales. The net gains
recognized in each period from these and other dispositions of surplus banking
property are shown in Table 14. The total for 2001 includes a merger-related
gain of approximately $1.1 million.
Page 24 of 73 Pages
NONINTEREST EXPENSE
Table 15 shows the components of noninterest expense without
merger-related expenses for each year in the three-year period ended December
31, 2001, along with the percent changes between years for each component.
Noninterest expense before merger-related expenses increased 5%, or $10.8
million, in 2001 after a 7% increase in 2000.
TABLE 15. NONINTEREST EXPENSE
- ---------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 % change 2000 % change 1999
- ---------------------------------------------------------------------------------------------------------------------
Employee compensation $101,937 6.4% $95,838 6.5% $89,978
Employee benefits 17,538 10.0 15,939 1.7 15,668
- ---------------------------------------------------------------------------------------------------------------------
Total personnel expense 119,475 6.9 111,777 5.8 105,646
Equipment and data processing expense 21,802 (6.6) 23,346 1.2 23,068
Net occupancy expense 20,102 5.2 19,115 10.4 17,318
Credit card processing services 8,134 (21.4) 10,354 9.2 9,478
Telecommunication and postage 8,571 (1.6) 8,714 4.8 8,316
Legal and professional services 6,456 8.4 5,958 15.6 5,154
Amortization of intangibles 7,430 23.3 6,027 59.4 3,781
Ad valorem taxes 7,045 7.5 6,554 4.5 6,274
Security and other outsourced services 7,792 14.1 6,830 10.4 6,188
Stationery and supplies 4,315 3.5 4,169 (10.1) 4,635
Advertising 4,443 26.3 3,519 45.3 2,422
Deposit insurance and regulatory fees 1,936 11.3 1,740 16.5 1,493
Miscellaneous operating losses 2,544 46.4 1,738 36.5 1,273
Other operating expense 12,873 5.2 12,236 (3.7) 12,707
- ---------------------------------------------------------------------------------------------------------------------
Noninterest expense, before
merger-related expenses 232,918 4.9 222,077 6.9 207,753
Merger-related expenses 6,186 (a) 1,102 (a) -
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest expense $239,104 7.1% $223,179 7.4% $207,753
- ---------------------------------------------------------------------------------------------------------------------
(a) Not meaningful.
Personnel expense increased 7%, or $7.7 million, in 2001 and 6%, or
$6.1 million, in 2000. In 2001, employee compensation rose 6%, or $6.1 million,
while employee benefits increased 10%, or $1.6 million. Base salaries and the
cost of various targeted employee incentive pay plans, such as for mortgage
originators, increased 6%, or $5.0 million, including approximately $1.4 million
related to the bank operations purchased late in 2001 and 2000. Adjusting for
the impact of purchased operations, the increase would have been approximately
4%. Reductions in staff levels achieved through the integration of the
operations of pooled entities acquired in early 2001 helped limit the overall
increase. An increase in stock-based compensation, which fluctuates with changes
in Whitney's stock price, led to an overall $1.1 million increase in long-term
incentive plan expense. Effective 2001, Whitney increased the percentage of
employee 401(k) plan savings that is matches. The impact of this change and an
increase in the cost of health benefits were the major factors behind the rise
in employee benefits expense.
Adjusting for the impact of purchased operations, the overall 2000
increase in personnel expense would have been 3%, or $3.0 million, with base
salaries and incentive compensation rising 3%, or $3.1 million, and employee
benefits decreasing 1%. The favorable impact on compensation expense of a net
reduction in average staff levels for 2000 was offset by regular merit increases
and higher employee sales incentive compensation, increased hiring incentives,
and a $.3 million net increase in long-term incentive plan compensation. An $.8
million reduction in the actuarially determined expense for the defined benefit
pension plan more than offset the rise in health benefit plan costs in 2000,
leading to the net decrease in employee benefits expense, excluding purchased
operations.
Equipment and data processing expense was 7%, or $1.5 million, lower in
2001, following an increase of 1%, or $.3 million, in 2000. Whitney has achieved
savings from systems integration activities completed in 2001 and close control
over capital expenditures and service agreements over the past several years.
These savings helped offset the recurring
Page 25 of 73 Pages
costs added for purchased operations and enhanced applications, including those
associated with expanding Internet-based banking services that were first
introduced in the second half of 2000.
Net occupancy expense increased 5%, or $1.0 million, in 2001, following
a 10%, or $1.8 million, increase in 2000. Purchased operations were a factor in
each year, accounting for over one third of the increase in 2000. Functional
improvement projects at certain facilities, including the main office in New
Orleans, led to increased depreciation expense in both 2001 and 2000, and high
energy prices in the first part of the year increased utility expense in 2001.
For 2000, there was a net increase in recurring expenses associated with the
relocation of certain Louisiana bank operations to more suitable leased
premises, and the parking garage completed its first full year of operations.
For both 2001 and 2000, the elimination of under-utilized facilities helped
offset the growth in occupancy expense from the factors cited above. In
addition, beginning in 1999, the Company reevaluated many of its facilities
service contracts and negotiated changes that helped limit growth in maintenance
and repairs expense.
Credit card processing services expense decreased 21%, or $2.2 million,
in 2001, largely as a result of the merchant business sale discussed earlier.
Adjusting for the impact of the sale, this expense category decreased 1% in 2001
following a 9% increase in 2000. These changes compare with related revenue
growth of 6% on an adjusted basis in 2001 and 16% in 2000. The favorable spread
between revenue and expense growth rates mainly reflected the impact of
adjustments to merchant processing service fee schedules in 2000.
Telecommunication and postage expense was little changed in 2001
following a 5% increase in 2000. The impact of the postal rate increase that
took effect in early 2001 was offset by expense reductions associated with the
restructuring of the Company's data communication contracts. The increase in
2000 mainly reflected an expanding branch network and overall growth in the
customer base, including the impact of acquisitions.
The expense for legal and professional services increased 8% in 2001
after rising 16% in 2000. Legal expense rose in 2001, partly as a result of
services provided in forming the merchant business alliance, after being stable
in 2000. As would be expected, there has also been increased demand for legal
services to support loan collection efforts. The expense for consulting and
other professional services was lower in 2001, following an increase in 2000.
Consulting services related to the Company's entry into the Houston, Texas
market and market research services were the major factors behind the increase
in 2000, offsetting the elimination of services for Year 2000 remediation
testing in the prior year.
The business acquisitions in 2001 and 2000 accounted for all of the
increases in the amortization of intangibles in these two years. As discussed in
Notes 2 and 9 to the consolidated financial statements, there will be no
goodwill amortization in 2002 and later years, although goodwill will be subject
to at least an annual assessment for impairment. Goodwill amortization totaled
$3.6 million in 2001, $2.9 million in 2000 and $1.3 million in 1999. Scheduled
amortization of intangible assets other than goodwill in 2002 is $5.8 million.
No indication of goodwill impairment was identified in the preliminary initial
assessment required by SFAS No. 142.
The expense for security and other outsourced services increased 14% in
2001 after rising 10% in 2000. These increases reflected in large part decisions
to outsource certain back office operations in 1999 and the extension of
existing service arrangements to acquired operations. The benefit of staff
reductions from outsourcing decisions has been reflected in personnel expense.
The favorable impact of ongoing expense control efforts in recent years
is evident in the stationery and supplies expense category which rose 4% in 2001
after a 10% decrease in 2000. The success of these efforts also factored into
the decrease in other operating expense in 2000.
Toward the end of 2000, Whitney launched a multi-faceted advertising
campaign featuring a Louisiana-based celebrity spokesperson. Costs associated
with this ongoing campaign, which initially focused on promoting the Company's
new Internet-banking services, contributed to increases in advertising expense
of 26%, or $.9 million, in 2001 and 45%, or $1.1 million, in 2000. Introductory
campaigns in the Houston market and some increase in product-specific sales
campaigns also contributed to the rise in 2000.
The Company and its acquired entities recognize various nonrecurring
expenses to complete merger transactions and to integrate the acquired
operations into the Whitney system. These merger-related expenses include change
in control payments and severance or retention bonuses for management and
employees of a merged entity, investment banker fees, fees for various
professional services and losses on cancellation of contracts and the
disposition of obsolete and redundant facilities and equipment. Total
merger-related expenses vary with each transaction.
INCOME TAXES
Income tax expense was $36.6 million in 2001, $33.5 million in 2000 and
$30.4 million in 1999. The Company's effective tax rate was 32.6% in 2001, 31.5%
in 2000 and 31.1% in 1999. These effective rates were lower than the 35%
Page 26 of 73 Pages
federal statutory tax rate primarily because of tax-exempt interest income
received from the financing of state and local governments. The increase in 2001
mainly reflected the termination of the Subchapter S election for post-merger
earnings from American Bank's operations, as discussed in Note 20 to the
consolidated financial statements. In connection with the Subchapter S
termination, however, Whitney also recorded a deferred tax benefit of
approximately $1 million in 2001 that partly offset the impact of the taxability
of post-merger earnings.
Louisiana-sourced income of commercial banks is not subject to state
income taxes. Rather, banks in Louisiana pay a tax based on the value of their
capital stock in lieu of income and franchise taxes, and these ad valorem taxes
are included in noninterest expense. This expense will fluctuate based in part
on the growth in the Bank's equity and earnings and in part based on market
valuation trends for the banking industry.
See Note 20 for additional information on the Company's effective tax
rates and the composition of changes in income tax expense for all periods.
FOURTH QUARTER RESULTS
Whitney reported net income of $.75 per share in the fourth quarter of
2001, compared to $.67 per share in the year-earlier period. Excluding
tax-effected merger-related items, the Company earned $.76 per share, a 9%
increase over the $.70 per share earned in the final quarter of 2000.
Selected highlights from the fourth quarter's results follow:
o Net interest income (TE) increased 6%, or $4.2 million, from the
fourth quarter of 2000. Although short-term rates declined
significantly during 2001, Whitney's net interest margin (TE) of
4.52% in the fourth quarter of 2001 was only 10 basis points below
the year-earlier quarter. The mix of funding sources was favorably
impacted by the increase in overall liquidity during 2001;
however, the mix of earning assets trended toward investment
vehicles with a smaller spread to the cost of funds because of a
slowing in loan demand.
o Noninterest income, excluding securities transactions, was
approximately 14%, or $2.8 million, higher than in 2000's fourth
quarter, after adjusting for the impact of the merchant business
sale. Whitney's sale of its existing agreements to process
mechants' credit card transactions was discussed earlier. For the
fourth quarter of 2001, this move reduced noninterest income by
approximately $2.2 million and noninterest expense by
approximately $2.1 million. Secondary mortgage market activity
continued strong during the quarter and fees from these operations
grew $2.1 million to a level almost four times that in the fourth
quarter of 2000. Income from service charges on deposit accounts
increased 25%, or $1.9 million. Noninterest income for the fourth
quarter of 2000 included approximately $1.0 million of net gains
on dispositions of surplus banking facilities and grandfathered
assets. In the fourth quarter of 2001, such dispositions resulted
in a net loss of $.3 million.
o Excluding merger-related costs, noninterest expense in 2001's
fourth quarter was 2%, or $1.0 million, less than in the fourth
quarter of 2000. Adjusting for the impact of the merchant business
sale, noninterest expense would have shown a 2% increase. Total
personnel expense increased 3%, or $1.0 million, over the level in
2000's fourth quarter, including a $.3 million impact from the
most recent bank acquisition. Savings from systems integration
activities in 2001 and close control over capital expenditures and
service agreements helped reduce equipment and data processing
expense between the fourth quarters of 2000 and 2001.
o Whitney provided $6.5 million for possible loan losses in the
fourth quarter of 2001, compared to a $4.9 million provision in
2000's fourth quarter. Net charge-offs totaled $1.4 million in the
fourth quarter of 2001, compared to $.9 million in the
year-earlier quarter. The reserve for possible loan losses was
1.57% of total loans at December 31, 2001 compared to 1.33% at the
end of 2000.
The Summary of Quarterly Financial Information on page 58 provides
selected comparative financial information for each of the four quarters in 2001
and 2000.
Item 7a: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Incorporated by reference to Item 7 of this Form 10-K, pages 18 and 19.
Page 27 of 73 Pages
Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WHITNEY HOLDING COPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from financial institutions $ 271,512 $ 273,121
Investment in securities
Securities available for sale 1,440,527 537,262
Securities held to maturity, fair values of $195,712 and $919,039, respectively 191,813 924,927
- ---------------------------------------------------------------------------------------------------------------------------
Total investment in securities 1,632,340 1,462,189
Federal funds sold and short-term investments 494,908 15,270
Loans, net of unearned income 4,554,538 4,601,492
Reserve for possible loan losses (71,633) (61,017)
- ---------------------------------------------------------------------------------------------------------------------------
Net loans 4,482,905 4,540,475
- ---------------------------------------------------------------------------------------------------------------------------
Bank premises and equipment 167,419 174,450
Intangible assets 103,605 87,017
Accrued interest receivable 32,461 44,203
Other assets 58,500 53,540
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $ 7,243,650 $ 6,650,265
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing demand deposits $ 1,634,258 $ 1,473,432
Interest-bearing deposits 4,315,902 3,859,042
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits 5,950,160 5,332,474
- ---------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 511,517 586,477
Accrued interest payable 14,946 23,492
Accounts payable and other accrued liabilities 49,139 42,058
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 6,525,762 5,984,501
- ---------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized --100,000,000 shares
Issued -- 26,444,832 and 26,620,639 shares, respectively 2,800 2,800
Capital surplus 154,397 158,083
Retained earnings 556,241 521,220
Accumulated other comprehensive income 10,104 1,657
Treasury stock at cost -- 393,582 shares in 2000 - (13,680)
Unearned restricted stock compensation (5,654) (4,316)
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 717,888 665,764
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 7,243,650 $ 6,650,265
- ---------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Page 28 of 73 Pages
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31
- --------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 343,397 $ 360,480 $ 288,286
Interest and dividends on investments
U.S. agency securities 31,372 38,882 31,802
Mortgage-backed securities 41,070 30,144 32,286
Obligations of states and political subdivisions 7,745 9,921 10,567
U.S. Treasury securities 6,215 7,438 10,237
Other securities 2,015 1,853 1,402
Interest on federal funds sold and short-term investments 9,331 3,543 3,913
- --------------------------------------------------------------------------------------------------------------------------
Total interest income 441,145 452,261 378,493
- --------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 146,215 148,886 116,555
Interest on short-term borrowings 15,134 36,295 18,878
- --------------------------------------------------------------------------------------------------------------------------
Total interest expense 161,349 185,181 135,433
- --------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 279,796 267,080 243,060
PROVISION FOR POSSIBLE LOAN LOSSES 19,500 12,690 6,470
- --------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 260,296 254,390 236,590
- --------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 35,275 30,312 29,247
Credit card income 14,002 15,349 13,249
Trust service fees 9,384 9,206 8,511
Secondary mortgage market operations 7,575 2,118 3,153
Other noninterest income 24,808 17,285 14,725
Securities transactions 165 850 (32)
- --------------------------------------------------------------------------------------------------------------------------
Total noninterest income 91,209 75,120 68,853
- --------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Employee compensation 104,806 95,838 89,978
Employee benefits 17,604 15,939 15,668
- --------------------------------------------------------------------------------------------------------------------------
Total personnel expense 122,410 111,777 105,646
Equipment and data processing expense 23,040 23,346 23,068
Net occupancy expense 20,179 19,115 17,318
Credit card processing services 8,134 10,354 9,478
Telecommunication and postage 8,582 8,714 8,316
Legal and professional fees 8,712 6,686 5,154
Amortization of intangibles 7,430 6,027 3,781
Ad valorem taxes 7,045 6,554 6,274
Other noninterest expense 33,572 30,606 28,718
- --------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 239,104 223,179 207,753
- --------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 112,401 106,331 97,690
INCOME TAX EXPENSE 36,581 33,489 30,364
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 75,820 $ 72,842 $ 67,326
- --------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Basic $ 2.88 $ 2.84 $ 2.60
Diluted 2.85 2.83 2.59
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic 26,367,149 25,650,656 25,888,798
Diluted 26,557,365 25,712,466 25,966,232
- --------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Page 29 of 73 Pages
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated Unearned
Other Restricted
(dollars in thousands, Common Capital Retained Comprehensive Treasury Stock
except per share data) Stock Surplus Earnings Income Stock Compensation Total
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $2,800 $154,995 $450,329 $948 $ (4,613) $(4,682) $599,777
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 67,326 - - - 67,326
Other comprehensive income:
Unrealized net holding loss on
securities, net of
reclassification adjustments
and taxes - - - (6,241) - - (6,241)
- -------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 67,326 (6,241) - - 61,085
- -------------------------------------------------------------------------------------------------------------------
Cash dividends, $1.32 per share - - (30,275) - - - (30,275)
Cash dividends, pooled entities - - (2,550) - - - (2,550)
Stock acquired under repurchase program - - - - (38,736) - (38,736)
Stock sold to dividend reinvestment and
employee retirement plans - 1,430 - - 1,329 - 2,759
Long-term incentive plan stock activity:
Restricted grants and related activity - 623 - - 958 609 2,190
Options exercised - 111 - - 288 - 399
Directors' compensation plan stock activity - 22 - - 96 - 118
Stock transactions, pooled entities - 1,437 - - - - 1,437
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 2,800 158,618 484,830 (5,293) (40,678) (4,073) 596,204
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 72,842 - - - 72,842
Other comprehensive income:
Unrealized net holding gain on
securities, net of
reclassification adjustments
and taxes - - - 6,950 - - 6,950
- -------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 72,842 6,950 - - 79,792
- -------------------------------------------------------------------------------------------------------------------
Cash dividends, $1.44 per share - - (32,872) - - - (32,872)
Cash dividends, pooled entities - - (3,580) - - - (3,580)
Stock issued in purchase business
combination - (344) - - 22,497 - 22,153
Stock sold to dividend reinvestment and
employee retirement plans - 46 - - 3,034 - 3,080
Long-term incentive plan stock activity:
Restricted grants and related activity - 140 - - 797 (243) 694
Options exercised - (51) - - 240 - 189
Directors' compensation plan stock activity - - - - 120 - 120
Stock transactions, pooled entities - (326) - - 310 - (16)
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 2,800 158,083 521,220 1,657 (13,680) (4,316) 665,764
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 75,820 - - - 75,820
Other comprehensive income:
Cumulative effect of accounting change - - - (4,175) - - (4,175)
Unrealized net holding gain on
securities, net of
reclassification adjustments
and taxes - - - 12,622 - - 12,622
- -------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 75,820 8,477 - - 84,267
- -------------------------------------------------------------------------------------------------------------------
Cash dividends, $1.54 per share - - (40,597) - - - (40,597)
Cash dividends, pooled entities - - (202) - - - (202)
Stock sold to dividend reinvestment and
employee retirement plans - 1,613 - - 1,535 - 3,148
Long-term incentive plan stock activity:
Restricted grants and related activity - 5,273 - - (934) (1,338) 3,001
Options exercised - 2,103 - - - - 2,103
Directors' compensation plan stock activity - 42 - - 101 - 143
Treasury stock issued in pooling
business combination - (12,978) - - 12,978 - -
Stock transactions, pooled entities - 261 - - - - 261
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $2,800 $154,397 $556,241 $10,104 $ - $(5,654) $717,888
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Page 30 of 73
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 75,820 $ 72,842 $ 67,326
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of bank premises and equipment 19,201 20,258 20,114
Amortization of purchased intangibles 7,430 6,027 3,781
Restricted stock compensation earned 3,758 2,307 3,298
Securities premium amortization, net of discount accretion 302 497 1,343
Provision for possible loan losses 19,500 12,690 6,470
Provision for losses on foreclosed assets 79 89 211
Net gains on sales and other dispositions of foreclosed assets (916) (1,357) (1,248)
Net gains on sales and other dispositions of surplus property (3,626) (1,079) (2,180)
Net (gains) losses on sales of investment securities (165) (850) 18
Deferred tax benefit (5,619) (4,941) (1,939)
Increase in accrued income taxes 2,155 614 811
(Increase) decrease in accrued interest receivable and prepaid expenses 12,842 (8,209) 2,121
Increase (decrease) in accrued interest payable and other accrued expenses (7,168) 13,329 1,165
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 123,593 112,217 101,291
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of investment securities held to maturity 206,034 173,789 374,605
Purchases of investment securities held to maturity - (14,476) (226,085)
Proceeds from maturities of investment securities available for sale 562,282 72,409 188,061
Proceeds from sales of investment securities available for sale 140,305 1,294 11,228
Purchases of investment securities available for sale (1,004,264) (157,635) (309,154)
Net (increase) decrease in loans 112,299 (571,689) (415,735)
Net (increase) decrease in federal funds sold and short-term investments (456,988) 4,389 150,777
Proceeds from sales and other dispositions of foreclosed assets 2,095 2,899 3,210
Proceeds from sales of surplus banking property 5,983 4,156 5,812
Purchases of bank premises and equipment (10,501) (13,334) (24,079)
Net cash paid in business acquisitions (35,933) (45,141) -
Other, net (1,080) (2,646) (6,832)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (479,768) (545,985) (248,192)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in transaction account and savings account deposits 683,648 18,429 (9,937)
Net increase (decrease) in time deposits (212,110) 408,153 67,898
Net increase (decrease) in short-term borrowings (82,421) 60,070 179,397
Proceeds from issuance of common stock 5,096 3,316 4,389
Purchases of common stock (847) (1,705) (40,024)
Cash dividends (38,800) (35,486) (32,381)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 354,566 452,777 169,342
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (1,609) 19,009 22,441
Cash and cash equivalents at beginning of year 273,121 254,112 231,671
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 271,512 $ 273,121 $ 254,112
- ---------------------------------------------------------------------------------------------------------------------------
Cash received during the year for:
Interest income $ 452,887 $ 445,411 $ 378,900
Cash paid during the year for:
Interest expense $ 169,895 $ 176,006 $ 135,460
Income taxes 39,842 36,992 30,084
- ---------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Page 31 of 73 Pages
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
NATURE OF BUSINESS
Whitney Holding Corporation (the Company) is a Louisiana bank holding
company headquartered in New Orleans, Louisiana. The Company's principal
subsidiary is Whitney National Bank, which has been in continuous operation
since 1883 and represents virtually all of the operations and net income of the
Company.
The Bank engages in community banking in its market area stretching
across the five-state Gulf Coast region, including southern Louisiana; the
Houston, Texas metropolitan area; the coastal region of Mississippi; central and
south Alabama; and the panhandle of Florida. The Bank, together with its
wholly-owned subsidiary, Whitney Securities L.L.C., offers commercial and retail
banking products and services, including trust products and investment services,
to the customers in the communities it serves.
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT PRONOUNCEMENTS
The accounting and reporting policies of the Company and its
subsidiaries follow generally accepted accounting principles and practices
within the banking industry. The following is a summary of the more significant
accounting policies:
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated. The Company reports the balances and results
of operations from business combinations accounted for as purchases from the
respective dates of acquisition (see Note 3). Prior year financial statements
are restated to reflect subsequent business combinations accounted for as
poolings of interests. Certain financial information for prior years has been
reclassified to conform to the current year's presentation.
Use of Estimates
In preparing the consolidated financial statements, the Company is
required to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Investment in Securities
Securities are classified as trading, held to maturity or available for
sale. Management determines the classification of securities when they are
purchased and reevaluates this classification periodically as conditions change
that could require reclassification.
Trading account securities are bought and held principally for resale
in the near term. They are carried at fair value with realized and unrealized
gains or losses reflected in noninterest income. Trading account securities are
immaterial in each period presented and have been included in other assets on
the consolidated balance sheets.
Securities which the Company both positively intends and has the
ability to hold to maturity are classified as securities held to maturity and
are carried at amortized cost. Intent and ability to hold are not considered
satisfied when a security is available to be sold in response to changes in
interest rates, prepayment rates, liquidity needs or other reasons as part of an
overall asset/liability management strategy.
Securities not meeting the criteria to be classified as either trading
securities or securities held to maturity are classified as available for sale
and are carried at fair value. Net unrealized holding gains or losses are
excluded from net income and are recognized in other comprehensive income and in
accumulated other comprehensive income, a separate component of shareholders'
equity.
Interest and dividend income earned on securities either held to
maturity or available for sale are recognized in interest income, including
amortization of premiums and accretion of discounts computed using the interest
method. Realized gains and losses on securities either held to maturity or
available for sale are computed based upon specifically identified amortized
cost and are reported as a separate component of noninterest income.
Page 32 of 73 Pages
Loans
Loans are carried at the principal amounts outstanding net of unearned
income. Interest on loans and accretion of unearned income, including deferred
loan fees, are computed to yield a level rate of return on recorded principal.
Interest is no longer accrued on a loan when the borrower's ability to
meet contractual payments is in doubt. For commercial and real estate loans, a
loan is placed on nonaccrual status generally when it is ninety days past due as
to principal or interest, and the loan is not otherwise both well secured and in
the process of collection. When a loan is placed on nonaccrual status, any
accrued but uncollected interest is reversed against interest income. Interest
payments on nonaccrual loans are used to reduce the reported loan principal
under the cost recovery method when the collectibility of the remaining
principal is not reasonably assured; otherwise, such payments are recognized as
interest income in the period in which they are received. A loan on nonaccrual
status may be reinstated to accrual status when full payment of contractual
principal and interest is expected and this expectation is supported by current
sustained performance.
A loan is considered impaired when it is probable that all amounts will
not be collected as they become due according to the contractual terms of the
loan agreement. Generally, impaired loans are accounted for on a nonaccrual
basis. The extent of impairment is measured based upon a comparison of the
recorded investment in the loan with either the expected cash flows discounted
using the loan's original effective interest rate or, in the case of certain
collateral-dependent loans, the fair value of the underlying collateral. The
amount of impairment is included in the reserve for possible loan losses.
Reserve for Possible Loan Losses
The reserve for possible loan losses is maintained at a level that, in
the opinion of management, is adequate to absorb losses inherent in the loan
portfolio. The adequacy of the reserve level is evaluated on an ongoing basis.
Management considers various sources of information including reports on general
and local economic conditions, analyses of specific loans reviewed for
impairment, statistics from the internal credit risk rating process, reports on
the payment performance of portfolio segments not subject to individual risk
ratings, and historical loss experience. Management also forms a judgment about
the level of accuracy inherent in the evaluation process. Changes in
management's evaluation over time are reflected in the provision for possible
loan losses charged to operating expense.
As actual loan losses are incurred, they are charged against the
reserve. Recoveries on loans previously charged against the reserve are added
back to the reserve when collected.
Bank Premises and Equipment
Bank premises and equipment are carried at cost, less accumulated
depreciation and amortization. Depreciation and amortization are computed
primarily using the straight-line method over the estimated useful lives of the
assets and over the shorter of the lease terms or the estimated lives of
leasehold improvements. Additions to bank premises and equipment and major
replacements or improvements are capitalized.
Foreclosed Assets and Surplus Property
Collateral acquired through foreclosure or in settlement of loans and
surplus property are reported with other assets in the consolidated balance
sheets. With the exception of grandfathered property interests, which are
assigned a nominal book value, these assets are recorded at estimated fair
value, less estimated selling costs, if this value is lower than the carrying
value of the related loan or property asset. The initial reduction in the
carrying amount of a loan to the fair value of the collateral received is
charged to the reserve for possible loan losses. Losses arising from the
transfer of bank premises and equipment to surplus property are charged to
current earnings. Subsequent valuation adjustments for either foreclosed assets
or surplus property are also included in current earnings, as are the revenues
and expenses associated with managing these assets prior to sale.
Page 33 of 73 Pages
Goodwill and Other Intangible Assets
The Company has recognized intangible assets in connection with its
purchase business combinations. Identifiable intangible assets acquired by the
Company have mainly represented the value of the deposit relationships purchased
in these transactions. Goodwill represents the purchase price premium over the
fair value of the net assets of an acquired business, including identifiable
intangible assets. In many bank mergers, this premium is driven mainly by the
expectation of synergies. In certain banking-industry acquisitions, current
accounting principles require the recognition of an unidentifiable intangible
asset separate from goodwill, even though it arises from the same sources as
goodwill.
As is discussed below in the section on Recent Pronouncements, goodwill
is no longer subject to amortization, although amortization continued for
existing goodwill through the end of 2001. Beginning in 2002, goodwill is
subject to at least an annual assessment for impairment, defined as the amount
by which the implied fair value of the goodwill contained in any reporting unit
within a company is less than the goodwill's carrying value. Impairment losses
identified after a transition period would be charged to operating expense.
Identifiable intangible assets with finite lives continue to be amortized over
the periods benefited and are evaluated for impairment similar to other
long-lived assets. If the useful life of an identifiable intangible asset is
indefinite, the recorded asset is not amortized but tested for impairment by
comparison to its estimated fair value. Unidentifiable intangibles other than
goodwill, although conceptually similar to goodwill, will also continue to be
amortized in accordance with existing accounting guidance. The Financial
Accounting Standards Board is scheduled to revisit the principles underlying the
accounting for such unidentifiable intangibles.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return. Income taxes are accounted for using the asset and liability method.
Under this method the expected tax consequences of temporary differences that
arise between the tax bases of assets or liabilities and their reported amounts
in the financial statements represent either deferred tax liabilities to be
settled in the future or deferred tax assets that will be realized as a
reduction of future taxes payable. Currently enacted tax rates and laws are used
to calculate the expected tax consequences. Valuation allowances are established
against net deferred tax assets if, based on all available evidence, it is more
likely than not that some or all of the assets will not be realized.
Earnings Per Share
Basic earnings per share is computed by dividing income applicable to
common shares (net income in all periods presented) by the weighted-average
number of common shares outstanding for the applicable period. Diluted earnings
per share is computed using the weighted-average number of common shares
outstanding increased by the number of additional shares that would have been
issued if potentially dilutive stock options had been exercised as determined
using the treasury stock method.
Statements of Cash Flows
The Company considers only cash on hand and balances due from financial
institutions as cash and cash equivalents for purposes of the consolidated
statements of cash flows.
Operating Segment Disclosures
Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
established standards for reporting information about a company's operating
segments using a "management approach." Reportable segments are identified as
those revenue-producing components for which separate financial information is
produced internally and which are subject to evaluation by the chief operating
decision maker in deciding how to allocate resources to segments. Consistent
with its stated strategy that is focused on providing a consistent package of
community banking products and services throughout a coherent market area, the
Company has identified its overall banking operations as its only reportable
segment. Because the overall banking operations comprise substantially all of
the consolidated operations, no separate segment disclosures are presented.
Page 34 of 73 Pages
Other
Assets held by the Bank in a fiduciary capacity are not assets of the
Bank and are not included in the consolidated balance sheets. Generally, certain
minor sources of income are recorded on a cash basis, which does not differ
materially from the accrual basis.
Recent Pronouncements
Effective January 1, 2001, the Company adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
SFAS No. 138. These statements provide comprehensive and consistent standards
for the recognition and measurement of derivative instruments and hedging
activities. Because the Company does not currently employ such instruments or
engage in the hedging strategies covered by the statements, adopting the new
recognition and measurement standards had no impact.
An additional provision of these statements allowed the Company to
transfer, upon adoption, any security held to maturity into the
available-for-sale category without calling into question the Company's intent
to hold other debt securities to maturity. Under this provision, Whitney elected
to transfer all mortgage-backed securities and certain other securities with a
total carrying value of $528 million into the available-for-sale classification
on the effective date. The net unrealized loss on the transferred securities
totaled $6.4 million, or $4.2 million net of tax. This tax-effected loss was
recognized in other comprehensive income in 2001.
In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, "Business Combinations." This statement required all business
combinations initiated after June 30, 2001, to be accounted for using the
purchase method. The pooling method of accounting for business combinations is
no longer available. Application of the purchase method under SFAS No. 141 in
many ways follows existing authoritative guidance, including the requirement to
record the net assets of an acquired business at fair value. SFAS No. 141 does,
however, provide new guidance on identifying intangible assets that should be
recognized as assets apart from goodwill and, in certain circumstances, calls
for a reclassification between these categories of existing balances from
purchase business combinations completed by June 30, 2001. The Company made no
significant reclassifications in connection with the implementation of SFAS No.
141.
The accounting for goodwill and other identifiable intangible assets
after acquisition is now governed by SFAS No. 142, "Goodwill and Other
Intangible Assets," which was issued concurrent with SFAS No. 141. Under SFAS
No. 142, goodwill is no longer subject to amortization, although amortization
continued for existing goodwill through the end of 2001. Rather, beginning in
2002, goodwill is subject to at least an annual assessment for impairment. In
transitioning to the guidance of SFAS No. 142, the Company must assess by the
end of the second quarter of 2002 whether there is an indication that goodwill
in any reporting unit is impaired at the date of adoption. If impairment is
indicated, then as soon as possible, but before the end of 2002, the Company
must compare the implied fair value of the goodwill in that reporting unit with
the carrying amount of the goodwill, both of which would be measured as of the
adoption date. Any transitional impairment loss would be recognized in the
Company's statement of operations as the cumulative effect of a change in
accounting principle. Impairment losses identified after the transition period
are charged to operating expense.
Under SFAS No. 142, identifiable intangible assets other than goodwill
continue to be amortized over their estimated useful lives to their estimated
residual values, if any, and are reviewed for impairment in accordance with SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." If
the useful life of an identifiable intangible asset is indefinite, however, the
recorded asset is not amortized but is tested for impairment by comparison to
its estimated fair value under the guidance of SFAS No. 142.
In performing the initial assessment required to identify indications
of goodwill impairment, the Company assigned all goodwill to one reporting unit
that represents Whitney's overall banking operations. This reporting unit is the
same of the operating segment identified earlier, and its operations constitute
substantially all of the Company's consolidated operations. Goodwill impairment
would be indicated only if the fair value of the reporting unit is less than its
carrying value. Based on the Company's preliminary valuation, no goodwill
impairment is expected. Goodwill impairment testing will be performed annually,
unless interim events or circumstances make it more likely than not that an
impairment loss has occurred.
The FASB has also issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," and SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-lived Assets." SFAS No. 143 covers the accounting for closure or
removal-type costs that are incurred with respect to long-lived assets. Among
other provisions, SFAS No.
Page 35 of 73 Pages
144 essentially extends the guidance of SFAS No. 121 to long-lived assets that
are part of discontinued operations and resolves significant implementation
issues related to SFAS No. 121. Adopting these new standards should have no
significant impact on Whitney's financial position or results of operations.
NOTE 3
MERGERS AND ACQUISITIONS
Poolings of Interest
In January 2001, Whitney completed two acquisitions that have been
accounted for as poolings of interests: American Bank in Houston, Texas
(American) and Prattville Financial Services Corporation (PFSC), whose principal
subsidiary was Bank of Prattville. American had five locations in the Houston
area with $275 million in total assets and $247 million in deposits. American
shareholders received 1,814,990 shares in this transaction. Upon its acquisition
by the Company, American's election to be taxed under Subchapter S of the
Internal Revenue Code terminated. The impact of this termination is discussed in
Note 20. Bank of Prattville had approximately $160 million in total assets and
$136 million of deposits in its three locations in the metropolitan area of
Montgomery, Alabama. The Company exchanged 1,060,137 shares of its common stock
in this transaction. Prior period financial statements have been restated to
reflect the balances and operating results of these pooled entities.
As discussed in Note 2, SFAS No. 141 requires all business combinations
initiated after June 30, 2001, to be accounted for using the purchase method.
Purchase Transactions
On October 26, 2001, Whitney purchased Redstone Financial Inc. and one
of its subsidiary banks, Northwest Bank, N. A., for cash of approximately $34
million. Northwest Bank had two offices in Houston, Texas with approximately
$170 million in total assets, including $74 million in loans, and $145 million
in deposits. Applying purchase accounting to this transaction, the Company
recorded approximately $25 million in intangible assets, with $7.5 million
assigned to the value of deposit relationships with an eight-year life and the
remainder to goodwill. Under the guidance of new accounting pronouncements
discussed in Note 2, the goodwill is not being amortized but will be subject to
periodic assessments for impairment.
During 2000, Whitney completed two business acquisitions, both of which
were accounted for as purchases. In mid-February 2000, Bank of Houston was
acquired for cash of $58 million. At acquisition, Bank of Houston had $180
million in assets, including $44 million in loans, and $142 million in deposits
at its two locations in the metropolitan Houston area. In early November 2000,
the Company purchased First Ascension Bancorp, Inc. and its subsidiary, First
National Bank of Gonzales, which had $90 million in total assets, including $60
million in loans, and $77 million in deposits in four locations in Ascension
Parish, Louisiana. The Company issued 647,262 shares of common stock in this
transaction that was valued at approximately $22 million. Intangible assets
acquired in these transactions totaled $59 million, with $12 million assigned to
the value of deposit relationships with an estimated life of approximately nine
years and $47 million to goodwill.
The Company's financial statements include the results from these
acquired operations since the respective acquisition dates. The pro forma impact
of these acquisitions on Whitney's results of operations is insignificant. All
acquired banking operations have been merged into Whitney National Bank.
Page 36 of 73 Pages
NOTE 4
INVESTMENT IN SECURITIES
Summary information about securities available for sale and securities
held to maturity follows:
- ----------------------------------------------------------------------------------------------------------------
Securities Available for Sale
- ----------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gains (Losses) Value
- ----------------------------------------------------------------------------------------------------------------
December 31, 2001
- ----------------------------------------------------------------------------------------------------------------
Mortgage-backed securities $ 827,623 $ 5,616 $(3,221) $ 830,018
U.S. agency securities 444,302 10,335 (254) 454,383
U.S. Treasury securities 61,799 2,471 (28) 64,242
Obligations of states and political subdivisions 39,782 592 (203) 40,171
Other securities 51,258 455 - 51,713
- ----------------------------------------------------------------------------------------------------------------
Total $1,424,764 $19,469 $(3,706) $1,440,527
- ----------------------------------------------------------------------------------------------------------------
December 31, 2000
- ----------------------------------------------------------------------------------------------------------------
Mortgage-backed securities $124,888 $ 348 $(1,832) $123,404
U.S. agency securities 327,439 3,541 (639) 330,341
U.S. Treasury securities 36,351 1,763 (7) 38,107
Obligations of states and political subdivisions 15,688 204 (3) 15,889
Other securities 29,986 5 (470) 29,521
- ----------------------------------------------------------------------------------------------------------------
Total $534,352 $5,861 $(2,951) $537,262
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Securities Held to Maturity
- ----------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gains (Losses) Value
- ----------------------------------------------------------------------------------------------------------------
December 31, 2001
- ----------------------------------------------------------------------------------------------------------------
U.S. agency securities $ 40,032 $1,551 $ - $ 41,583
U.S. Treasury securities 30,911 738 - 31,649
Obligations of states and political subdivisions 120,870 2,252 (642) 122,480
- ----------------------------------------------------------------------------------------------------------------
Total $191,813 $4,541 $ (642) $195,712
- ----------------------------------------------------------------------------------------------------------------
December 31, 2000
- ----------------------------------------------------------------------------------------------------------------
Mortgage-backed securities $341,884 $ 921 $(5,950) $336,855
U.S. agency securities 324,492 332 (3,275) 321,549
U.S. Treasury securities 76,482 372 (90) 76,764
Obligations of states and political subdivisions 172,669 2,469 (667) 174,471
Other securities 9,400 - - 9,400
- ----------------------------------------------------------------------------------------------------------------
Total $924,927 $4,094 $(9,982) $919,039
- ----------------------------------------------------------------------------------------------------------------
Page 37 of 73 Pages
The amortized cost and estimated fair value of securities available for
sale and held to maturity by contractual maturity follow:
- -----------------------------------------------------------------------
Securities Available for Sale
- -----------------------------------------------------------------------
Amortized Fair
(dollars in thousands) Cost Value
- -----------------------------------------------------------------------
December 31, 2001
- -----------------------------------------------------------------------
Within one year $ 131,927 $ 134,587
One to five years 494,080 504,920
Five to ten years 411,454 413,993
After ten years 387,303 387,027
- -----------------------------------------------------------------------
Total $1,424,764 $1,440,527
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
Securities Held to Maturity
- -----------------------------------------------------------------------
Amortized Fair
(dollars in thousands) Cost Value
- -----------------------------------------------------------------------
December 31, 2001
- -----------------------------------------------------------------------
Within one year $37,108 $37,682
One to five years 78,019 80,654
Five to ten years 51,313 52,125
After ten years 25,373 25,251
- -----------------------------------------------------------------------
Total $191,813 $195,712
- -----------------------------------------------------------------------
The expected maturity of a security may differ from its contractual
maturity, particularly for mortgage-backed securities and certain U.S. agency
securities and obligations of states and political subdivisions, because of
principal prepayments and the exercise of call options.
Securities with carrying values of $987 million and $1.02 billion at
December 31, 2001 and 2000, respectively, were sold under repurchase agreements,
pledged to secure public deposits and trust deposits or pledged for other
purposes. In these totals were $78 million in 2001 and $90 million in 2000 for
securities pledged at the Federal Reserve discount window in connection with the
Company's overall contingency funding plans.
With the adoption of SFAS No. 133 effective January 1, 2001, as
discussed in Note 2, Whitney elected to transfer all mortgage-backed securities
and certain other securities that had been classified as being held to maturity
into the available-for-sale classification. The carrying value of these
securities prior to transfer was $528 million. The net unrealized loss on the
transferred securities totaling $6.4 million was reported, net of tax, as a
component of other comprehensive income in 2001.
Page 38 of 73 Pages
NOTE 5
LOANS
The composition of the Company's loan portfolio follows:
December 31
- -----------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000
- -----------------------------------------------------------------------------------------------------
Commercial, financial and agricultural $1,852,497 40.7% $1,815,205 39.4%
Real estate loans - commercial and other 1,576,817 34.6 1,544,390 33.6
Real estate loans - retail mortgage 820,808 18.0 888,699 19.3
Loans to individuals 304,416 6.7 353,198 7.7
- -----------------------------------------------------------------------------------------------------
Total $4,554,538 100.0% $4,601,492 100.0%
- -----------------------------------------------------------------------------------------------------
The Bank makes loans in the normal course of business to directors and
executive officers of the Company and the Bank and to their associates. Loans to
such related parties carry substantially the same terms, including interest
rates and collateral requirements, as those prevailing at the time for
comparable transactions with unrelated parties and do not involve more than
normal risks of collectibility when originated. An analysis of the changes in
loans to related parties during 2001 follows:
- ------------------------------------------------------------
(dollars in thousands) 2001
- ------------------------------------------------------------
Beginning balance $ 67,469
Additions 65,010
Repayments (64,175)
Net decrease from changes in related parties (25,506)
- ------------------------------------------------------------
Ending balance $ 42,798
- ------------------------------------------------------------
Outstanding unfunded commitments and letters of credit to related
parties totaled $39 million and $57 million at December 31, 2001 and 2000,
respectively.
NOTE 6
RESERVE FOR POSSIBLE LOAN LOSSES
A summary analysis of changes in the reserve for possible loan losses
follows:
Years Ended December 31
- -----------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999
- -----------------------------------------------------------------------------------------------------
Balance at beginning of year $ 61,017 $ 47,543 $ 43,187
Reserves acquired in bank purchases 1,196 2,388 -
Reserves on loans transferred to held for sale (651) - -
Provision for possible loan losses 19,500 12,690 6,470
Loans charged off (15,502) (8,481) (10,042)
Recoveries 6,073 6,877 7,928
- -----------------------------------------------------------------------------------------------------
Net charge-offs (9,429) (1,604) (2,114)
- -----------------------------------------------------------------------------------------------------
Balance at end of year $ 71,633 $ 61,017 $ 47,543
- -----------------------------------------------------------------------------------------------------
Page 39 of 73 Pages
NOTE 7
IMPAIRED LOANS, NONPERFORMING LOANS, FORECLOSED ASSETS AND SURPLUS PROPERTY
Information on loans evaluated for possible impairment losses follows:
December 31
- -----------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000
- -----------------------------------------------------------------------------------------------------
Impaired loans at year end
Requiring a loss reserve $22,141 $19,088
Not requiring a loss reserve 2,504 2,291
- -----------------------------------------------------------------------------------------------------
Total recorded investment in impaired loans $24,645 $21,379
- -----------------------------------------------------------------------------------------------------
Total impairment loss allowance required at year end $8,607 $6,992
- -----------------------------------------------------------------------------------------------------
Average recorded investment in impaired loans during the year $22,478 $19,151
- -----------------------------------------------------------------------------------------------------
The following is a summary of nonperforming loans and foreclosed assets
and surplus property:
December 31
- -----------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000
- -----------------------------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis $33,412 $23,579
Restructured loans 383 465
- -----------------------------------------------------------------------------------------------------
Total nonperforming loans $33,795 $24,044
- -----------------------------------------------------------------------------------------------------
Total foreclosed assets and surplus property $991 $995
- -----------------------------------------------------------------------------------------------------
Interest income is recognized on certain nonaccrual loans as payments
are received. Interest payments on other nonaccrual loans are accounted for
under the cost recovery method, but this interest may later be recognized in
income when loan collections exceed expectations or when workout efforts result
in fully rehabilitated credits. The following compares contractual interest
income on nonaccrual loans and restructured loans with the cash-basis and
cost-recovery interest actually recognized on these loans:
Years Ended December 31
- --------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999
- --------------------------------------------------------------------------------------------------
Contractual interest $ 2,752 $1,927 $1,131
Interest recognized 945 2,586 422
- --------------------------------------------------------------------------------------------------
Increase (decrease) in reported interest income $(1,807) $ 659 $ (709)
- --------------------------------------------------------------------------------------------------
The Bank owns a variety of property interests that it acquired in
routine banking transactions generally before 1933. No ready market for these
assets existed when they were initially acquired; and, as was general banking
practice at the time, they were written down to a nominal value. The property
includes ownership interests in scattered undeveloped acreage, various mineral
interests, and a few commercial and residential sites in southeast Louisiana.
Page 40 of 73 Pages
The revenues and direct expenses related to these grandfathered
property interests that are included in the statements of operations follow:
Years Ended December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Revenues $1,365 $1,314 $881
Direct expenses 211 41 34
- --------------------------------------------------------------------------------
NOTE 8
BANK PREMISES AND EQUIPMENT
An analysis of bank premises and equipment by asset classification
follows:
December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 2001 2000
- --------------------------------------------------------------------------------
Land $ 39,861 $ 38,923
Buildings and improvements 175,326 173,054
Furnishings and equipment 107,191 105,378
- --------------------------------------------------------------------------------
322,378 317,355
Accumulated depreciation and amortization (154,959) (142,905)
- --------------------------------------------------------------------------------
Total bank premises and equipment $ 167,419 $ 174,450
- --------------------------------------------------------------------------------
Provisions for depreciation and amortization included in noninterest
expense were as follows:
Years Ended December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Buildings and improvements $ 7,099 $ 6,672 $ 6,157
Furnishings and equipment 12,102 13,586 13,957
- --------------------------------------------------------------------------------
Total depreciation and amortization expense $19,201 $20,258 $20,114
- --------------------------------------------------------------------------------
At December 31, 2001, the Bank was obligated under a number of
noncancelable operating leases. Certain of these leases have escalation clauses
and renewal options. Total rental expense, net of immaterial sublease rentals,
was $3.8 million in 2001, $3.9 million in 2000, and $3.3 million in 1999.
As of December 31, 2001, the future minimum rentals under noncancelable
operating leases having an initial lease term in excess of one year were as
follows:
(dollars in thousands)
- ------------------------------------------------
2002 $ 3,554
2003 3,335
2004 3,216
2005 2,640
2006 2,182
Later years 12,982
- ------------------------------------------------
Total $27,909
- ------------------------------------------------
Page 41 of 73 Pages
NOTE 9
GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets consist of identifiable intangibles, such as the
value of deposit relationships; goodwill acquired in business combinations
accounted for as purchases; and unidentifiable intangibles acquired in certain
banking-industry transactions. The remaining unamortized cost of intangible
assets consisted of the following:
December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 2001 2000
- --------------------------------------------------------------------------------
Deposit relationships and other identifiable intangibles $24,803 $20,655
Unidentifiable intangibles 9,850 10,303
Goodwill 68,952 56,059
- --------------------------------------------------------------------------------
Total intangible assets $103,605 $87,017
- --------------------------------------------------------------------------------
Amortization of intangible assets included in noninterest expense was
as follows:
Years Ended December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Deposit relationships and other identifiable
intangibles $3,352 $2,681 $2,072
Unidentifiable intangibles 453 453 451
Goodwill 3,625 2,893 1,258
- --------------------------------------------------------------------------------
Total amortization $7,430 $6,027 $3,781
- --------------------------------------------------------------------------------
As is discussed in Note 2, the accounting for goodwill and other
intangible assets is now governed by SFAS No. 142, "Goodwill and Other
Intangible Assets," which was issued in June 2001. Under this new standard,
there will be no goodwill amortization in 2002 and later years. Approximately
$2.5 million of the goodwill amortization in 2001 was not deductible for income
tax purposes. The balance of goodwill that will not generate future tax
deductions was $60 million at December 31, 2001.
Beginning in 2002, goodwill must be tested for impairment at least
annually. No indication of goodwill impairment was identified in the preliminary
initial assessment required by SFAS No. 142.
Identifiable intangible assets with finite lives continue to be
amortized under SFAS No. 142. The Company's only significant identifiable
intangible assets reflect the value of deposit relationships, all of which have
finite lives. Remaining lives ranged from one to eight years at December 31,
2001. The weighted-average remaining life of identifiable intangible assets was
approximately seven years. Unidentifiable intangible assets will be amortized
over a remaining life of approximately six years. Scheduled amortization of
intangible assets other than goodwill in 2002 is $5.8 million.
NOTE 10
SHORT-TERM BORROWINGS
Short-term borrowings consisted of the following:
December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 2001 2000
- --------------------------------------------------------------------------------
Federal funds purchased $100,101 $ 104,216
Securities sold under agreements to repurchase 371,416 438,044
Treasury Investment Program 40,000 32,621
Federal Home Loan Bank advances - 11,596
- --------------------------------------------------------------------------------
Total short-term borrowings $511,517 $586,477
- --------------------------------------------------------------------------------
Page 42 of 73 Pages
The Bank has the ability to exercise legal authority over the
securities that serve as collateral for the securities sold under repurchase
agreements. The carrying and estimated fair values of securities sold under
repurchase agreements at December 31, 2001, by term of the underlying borrowing
agreement, were as follows:
Up to
(dollars in thousands) Overnight 30 days
- --------------------------------------------------------------------------------
December 31, 2001
- --------------------------------------------------------------------------------
Carrying value:
U.S. Treasury securities $ 11,133 $701
U.S. agency securities 359,296 -
- --------------------------------------------------------------------------------
Total book value $370,429 $701
- --------------------------------------------------------------------------------
Fair value:
U.S. Treasury securities $ 11,714 $738
U.S. agency securities 361,139 -
- --------------------------------------------------------------------------------
Total fair value $372,853 $738
- --------------------------------------------------------------------------------
Outstanding borrowings $370,695 $721
- --------------------------------------------------------------------------------
Additional information about federal funds purchased follows:
- --------------------------------------------------------------------------------
(dollars in thousands) 2001 2000
- --------------------------------------------------------------------------------
Average effective yield on December 31 1.27% 6.28%
- --------------------------------------------------------------------------------
Average for the year
Effective yield 3.84% 6.49%
Balance $91,548 $192,672
- --------------------------------------------------------------------------------
Maximum month-end outstanding $114,977 $366,253
- --------------------------------------------------------------------------------
Additional information about securities sold under repurchase
agreements follows:
- --------------------------------------------------------------------------------
(dollars in thousands) 2001 2000
- --------------------------------------------------------------------------------
Average effective yield on December 31 .68% 5.02%
- --------------------------------------------------------------------------------
Average for the year
Effective yield 2.67% 4.86%
Balance $396,664 $447,440
- --------------------------------------------------------------------------------
Maximum month-end outstanding $435,319 $513,304
- --------------------------------------------------------------------------------
Under the Treasury Investment Program, temporary excess U.S. Treasury
receipts are loaned to participating financial institutions at 25 basis points
under the federal funds rate. Repayment of these borrowed funds can be demanded
at any time. The Company limited its participation to $40 million and has
pledged $45 million in securities as collateral for borrowings under this
program.
Page 43 of 73 Pages
NOTE 11
EMPLOYEE BENEFIT PLANS
Retirement Plans
Whitney has a noncontributory qualified defined benefit pension plan
covering substantially all of its employees. The benefits are based on an
employee's total years of service and his or her highest five-year level of
compensation during the final ten years of employment. Contributions are made in
amounts sufficient to meet funding requirements set forth in federal employee
benefit and tax laws plus such additional amounts as the Company may determine
to be appropriate.
The following table details the changes both in the actuarial present
value of the pension benefit obligation and in the plan's assets for the years
ended December 31, 2001 and 2000. The table also shows the funded status of the
plan at each year end and identifies amounts recognized and unrecognized in the
Company's consolidated balance sheets.
- --------------------------------------------------------------------------------
(dollars in thousands) 2001 2000
- --------------------------------------------------------------------------------
Benefit obligation, beginning of year $ 74,706 $ 66,714
Service cost for benefits 3,020 3,458
Interest cost on benefit obligation 4,843 4,905
Net actuarial (gain) loss (1,117) 3,131
Benefits paid (3,718) (3,502)
- --------------------------------------------------------------------------------
Benefit obligation, end of year 77,734 74,706
- --------------------------------------------------------------------------------
Plan assets at fair value, beginning of year 100,039 101,844
Actual return on plan assets (1,181) 2,005
Benefits paid (3,718) (3,502)
Plan expenses (318) (308)
- --------------------------------------------------------------------------------
Plan assets at fair value, end of year 94,822 100,039
- --------------------------------------------------------------------------------
Plan assets in excess of benefit obligation,
end of year 17,088 25,333
Unrecognized net actuarial gains (10,065) (19,453)
Unrecognized net implementation asset (689) (1,094)
Unrecognized prior service cost resulting
from plan amendments (956) (1,080)
- --------------------------------------------------------------------------------
Prepaid pension asset $ 5,378 $ 3,706
- --------------------------------------------------------------------------------
The Company recognized a net pension benefit in each of the three years
in the period ended December 31, 2001. The components of the net pension benefit
were as follows:
- -----------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999
- -----------------------------------------------------------------------------------------
Service cost for benefits during the period $ 3,020 $ 3,458 $ 3,756
Interest cost on benefit obligation 4,843 4,905 4,535
Expected return on plan assets (7,857) (8,002) (7,677)
Amortization of:
Unrecognized net actuarial gains (1,149) (999) (421)
Unrecognized net implementation asset (405) (405) (405)
Unrecognized prior service cost (124) (124) (124)
- -----------------------------------------------------------------------------------------
Net pension benefit $(1,672) $(1,167) $ (336)
- -----------------------------------------------------------------------------------------
Page 44 of 73 Pages
The weighted-average discount rate used in determining the actuarial
present value of the pension benefit obligation was 6.75% for 2001, 7.25% for
2000 and 7.50% for 1999. For all periods presented, the Company assumed an 8%
expected long-term rate of return on plan assets and an annual rate of increase
in future compensation levels of 4%.
The pension plan held 214,800 shares of Whitney common stock at
December 31, 2001, and 219,800 shares at December 31, 2000 and 1999.
Whitney also has a nonqualified defined benefit plan that provides
retirement benefits to designated executive officers. These benefits are
calculated using the qualified plan's formula, but without applying the
restrictions imposed on qualified plans by certain provisions of the Internal
Revenue Code. Benefits that become payable under the nonqualified plan would be
reduced by amounts paid from the qualified plan. At December 31, 2001, the
actuarial present value of the excess benefit obligation was $3.8 million and
the recorded accrued pension liability was $3.0 million. The net pension expense
for the excess benefit plan was approximately $.6 million in 2001 and $.5
million in 2000 and 1999.
Whitney sponsors an employee savings plan under Section 401(k) of the
Internal Revenue Code that covers substantially all full-time employees. Through
2000, the Company annually matched the savings of each participant up to 3% of
his or her compensation. Beginning in 2001, the matching percentage increased to
4%. Tax law imposes limits on total annual participant savings. Participants are
fully vested in their savings and in the matching Company contributions at all
times. The expense of the Company's matching contributions, including those made
by pooled entities with comparable plans, was approximately $2.5 million in
2001, $1.9 million in 2000, and $1.7 million in 1999.
Health and Welfare Plans
Whitney maintains health care and life insurance benefit plans for
retirees and their eligible dependents. Participant contributions are required
under the health plan. Beginning in 1999, all health care benefits are covered
under contracts with health maintenance or preferred provider organizations or
insurance contracts. The Company recognizes the expected cost of providing these
postretirement benefits during the period employees are actively working. The
Company funds its obligations under these plans as contractual payments come
due.
The net postretirement benefit liability reported with other
liabilities in the consolidated balance sheets was $7.6 million at December 31,
2001 and $7.2 million at December 31, 2000. The net periodic postretirement
benefit expense was approximately $1.1 million for 2001, $.7 million for 2000
and $.6 million for 1999. This expense includes components for the portion of
the expected benefit obligation attributed to current service, for interest on
the accumulated benefit obligation, and for amortization of unrecognized
actuarial gains or losses. No component was individually significant for any
period reported.
For the actuarial calculation of its postretirement benefit obligations
at December 31, 2001, 2000 and 1999, the Company assumed annual health care cost
increases beginning at 11.00%, 7.20% and 7.80%, respectively, with each
decreasing to a 5.00% rate over a four to six year period. Discount rates of
6.75% in 2001, 7.25% in 2000 and 7.50% in 1999 were used in determining the
present value of benefit obligations at the end of each period. A 1% rise in the
assumed health care cost trend rates would increase the accumulated benefit
obligation by approximately $1.4 million and the periodic net benefit expense by
approximately $200,000. A 1% fall in these trend rates would decrease the
accumulated benefit obligation by $1.1 million and the periodic net benefit
expense by $170,000.
Page 45 of 73 Pages
NOTE 12
STOCK-BASED INCENTIVE COMPENSATION
Whitney maintains two incentive compensation plans that incorporate
stock-based compensation. The long-term incentive plan for key employees is
administered by the Compensation Committee of the Board of Directors. The
Committee designates who will participate and authorizes the awarding of grants.
Under this plan, participants may receive stock options, restricted stock,
performance shares, phantom shares and stock appreciation rights. To date, the
Company has awarded only stock options and restricted stock. The Company may
issue up to 7% of its outstanding common shares in connection with the long-term
incentive plan awards. The directors' compensation plan provides for the annual
award of common stock and stock options to each nonemployee director. Whitney is
authorized to issue 750,000 shares under this plan. At December 31, 2001, future
awards covering the issuance of 740,617 shares could be made under the employee
plan and 731,800 shares under the directors' plan.
The following schedule summarizes the common stock grants awarded under
these plans during 2001, 2000 and 1999:
- ------------------------------------------------------------------------------
(dollars in thousands) Initial Market Value
Shares of Award on
Year Plan Awarded Grant Date
- ------------------------------------------------------------------------------
2001 Employee 82,200 $3,436
Director 4,200 196
2000 Employee 78,500 2,909
Director 4,200 145
1999 Employee 88,750 3,609
Director 5,100 200
- ------------------------------------------------------------------------------
Employees forfeit their shares if they terminate employment within
three years of the grant date and they are prohibited from transferring or
otherwise disposing of the shares during this period. In addition, the employee
grants are subject to adjustment based on the Company's performance, as measured
by its return on assets and return on equity over the restriction period, in
relation to that of a designated peer group. The ultimate performance-based
awards can range from 0% to 200% of the initial grants. All restrictions on
employee shares would lapse upon a change in control of the Company. The
directors' shares are awarded without any significant restrictions and are not
subject to future adjustment.
The Company initially measures the compensation expense related to a
stock grant as the market value of the shares awarded on the grant date. This
expense is recognized ratably over the restriction period, if any. Adjustments
are made for forfeitures as they occur. The Company periodically re-measures
compensation expense for performance-based grants for changes both in the
estimate of the unrestricted shares to which employees will ultimately become
entitled and in the market value of Whitney's stock. Differences from previous
compensation expense measurements are recognized prospectively over the
remaining restriction periods. Compensation expense related to common stock
awards was $3.8 million in 2001, $2.5 million in 2000, and $3.5 million in 1999.
Pge 46 of 73 Pages
The following table summarizes stock option activity under the employee
long-term incentive plan and under the directors' compensation plan for each of
the three years in the period ended December 31, 2001. The exercise price for
all options is set at the market price on the grant date. All options are fully
exercisable six months after the grant date and expire after ten years.
- --------------------------------------------------------------------------------
Employees Directors
- --------------------------------------------------------------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Number Price Number Price
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1998 518,013 $39.61 71,000 $36.84
Options granted 164,750 40.66 17,000 50.88
Options exercised (18,101) 20.99 - -
Options forfeited (36,250) 46.37 - -
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1999 628,412 40.16 88,000 37.31
Options granted 206,125 37.19 14,000 34.44
Options exercised (7,101) 23.89 - -
Options forfeited (39,250) 43.95 - -
- --------------------------------------------------------------------------------
Outstanding at
December 31, 2000 788,186 39.35 102,000 36.92
Options granted 223,875 41.80 14,000 46.68
Options exercised (51,430) 32.07 (1,000) 30.50
Options forfeited (13,000) 45.23 - -
- --------------------------------------------------------------------------------
Outstanding and exercisable at
December 31, 2001 947,631 $40.23 115,000 $38.16
- --------------------------------------------------------------------------------
The following table summarizes certain information about the stock
options outstanding under these plans at December 31, 2001:
- --------------------------------------------------------------------------------
Weighted- Weighted-
Number of Average Average
Range of Shares Years to Exercise
Exercise Prices Under Option Expiration Price
- --------------------------------------------------------------------------------
$13.22-$19.42 11,759 1.2 $18.02
$26.25-$28.88 108,488 3.1 28.12
$30.00-$39.31 287,259 7.2 35.09
$40.66-$46.88 513,875 7.8 41.79
$50.88-$55.00 141,250 6.4 54.50
- --------------------------------------------------------------------------------
$13.22-$55.00 1,062,631 6.9 $40.01
- --------------------------------------------------------------------------------
In connection with the merger with Meritrust Federal Savings Bank in
1998, the Company converted options held by Meritrust employees and directors
into options to acquire 93,283 shares of Whitney stock at a weighted-average
exercise price of $11.26. Holders exercised options for 13,380 shares in 2001,
8,928 shares in 2000 and 22,992 shares in 1999. The unexercised options at
December 31, 2001 for 10,140 shares had an exercise price of $23.30 and a
remaining life of five years.
Page 47 of 73 Pages
Upon its merger with First Citizens BancStock, Inc. in 1996, the
Company converted options held by First Citizens employees and directors into
options on 192,551 Whitney shares with a weighted-average exercise price of
$11.64. Holders exercised options for 11,310 shares in 2001 and 22,191 shares in
1999. No options remain unexercised at December 31, 2001.
SFAS No. 123, "Accounting for Stock-Based Compensation," established a
fair value based method of accounting for stock-based compensation, including
the award of stock options. As provided for in SFAS No. 123, however, the
Company elected to continue to follow Accounting Principles Board Opinion No. 25
and related interpretations to measure and recognize stock-based incentive
compensation expense. Under this Opinion, the Company's recognizes no
compensation expense with respect to fixed awards of stock options. Because
Whitney awards options with an exercise price equal to the stock's market price,
the options have no intrinsic value on the award date, which is also the
measurement date for compensation expense.
SFAS No. 123 requires the following disclosure of pro forma net income
and earnings per share determined as if the fair value method had been applied
in measuring and recognizing stock-based compensation expense related to option
grants:
- -------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------
Net income $75,820 $72,842 $67,326
Pro forma stock-based compensation expense, net of tax 2,055 1,602 1,514
- -------------------------------------------------------------------------------------------------------
Pro forma net income $73,765 $71,240 $65,812
- -------------------------------------------------------------------------------------------------------
Pro forma earnings per share
Basic $2.80 $2.78 $2.54
Diluted 2.78 2.77 2.53
Weighted-average fair value of options granted during the year 9.59 8.14 9.52
- -------------------------------------------------------------------------------------------------------
The fair values of the stock options were estimated as of the grant
dates using the Black-Sholes option-pricing model. The Company made the
following significant assumptions in applying the option-pricing model: (a) an
expected annualized volatility for Whitney's common stock of 24.17% in 2001,
23.43% in 2000, and 22.47% in 1999; (b) an average option life of seven years
before exercise; (c) an expected annual dividend yield of 3.64% in 2001, 4.20%
in 2000, and 3.60% in 1999; and (d) a weighted-average risk-free interest rate
of 5.28% in 2001, 6.30% in 2000, and 6.10% in 1999.
NOTE 13
REGULATORY MATTERS
Regulatory Capital Requirements
Measures of regulatory capital are an important tool used by regulators
to monitor the financial health of insured financial institutions. The primary
quantitative measures used by regulators to gauge capital adequacy are the
ratios of Tier 1 and total regulatory capital to risk-weighted assets and the
ratio of Tier 1 regulatory capital to average total assets, also known as the
leverage ratio. The regulators define the components and computation of each of
these ratios. The minimum capital ratios for both the Company and the Bank are
generally 4% Tier 1 capital, 8% total capital and 4% leverage. However,
regulators may set higher capital requirements for an individual institution
when particular circumstances warrant.
To evaluate capital adequacy, regulators compare an institution's
regulatory capital ratios with their agency guidelines as well as with the
guidelines established as part of the uniform regulatory framework for prompt
corrective supervisory action toward insured institutions. In reaching an
overall conclusion on capital adequacy or assigning an appropriate
classification under the uniform framework, regulators must also consider other
subjective and quantitative assessments of risk associated with the institution,
such as interest-rate risk. Regulators will take certain mandatory as well as
possible additional discretionary actions against institutions they judge to be
inadequately capitalized. These actions could materially impact the
institution's financial position and results of operations.
Page 48 of 73 Pages
Under the regulatory framework for prompt corrective action, the
capital levels of banks are categorized into one of five classifications ranging
from well capitalized to critically under-capitalized. For an institution to
qualify as well capitalized, its Tier 1 capital, total capital and leverage
ratios must be at least 6%, 10% and 5%, respectively. Maintaining capital ratios
at the well-capitalized levels avoids certain restrictions that, for example,
could impact the FDIC insurance premium rate. As of December 31, 2001 and 2000,
the Bank was categorized as well-capitalized, and there have been no events
since December 31, 2001 that management believes would cause this status to
change.
The actual capital amounts and ratios and the minimum and
well-capitalized required capital amounts for the Company and the Bank are
presented in the following tables:
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) Actual Well-
December 31, 2001 Amount Ratio Minimum(a) Capitalized(b)
- -------------------------------------------------------------------------------------------------------------
Total Capital (to Risk Weighted Assets):
Company $668,057 13.09% $408,198 (c)
Whitney Bank 600,363 11.79 407,472 $509,340
- -------------------------------------------------------------------------------------------------------------
Tier 1 Capital (to Risk Weighted Assets):
Company 604,179 11.84 204,099 (c)
Whitney Bank 536,597 10.54 203,736 305,604
- -------------------------------------------------------------------------------------------------------------
Leverage (Tier 1 Capital to Average Assets):
Company 604,179 8.72 277,245 (c)
Whitney Bank 536,297 7.75 276,982 346,227
- -------------------------------------------------------------------------------------------------------------
December 31, 2000
- -------------------------------------------------------------------------------------------------------------
Total Capital (to Risk Weighted Assets):
Company $638,053 12.60% $405,348 (c)
Whitney Bank 578,513 11.42 405,177 $506,472
- -------------------------------------------------------------------------------------------------------------
Tier 1 Capital (to Risk Weighted Assets):
Company 577,036 11.40 202,674 (c)
Whitney Bank 517,526 10.22 202,589 303,883
- -------------------------------------------------------------------------------------------------------------
Leverage (Tier 1 Capital to Average Assets):
Company 577,036 8.93 258,456 (c)
Whitney Bank 517,526 8.02 258,057 322,571
- -------------------------------------------------------------------------------------------------------------
(a) Minimum capital required for capital adequacy purposes.
(b) Capital required for well-capitalized status.
(c) Not applicable.
Other Regulatory Matters
Dividends received from the Bank represent the primary source of funds
available to the Company for the declaration and payment of dividends to
Whitney's shareholders. There are various regulatory and statutory provisions
that limit the amount of dividends that the Bank may distribute to the Company.
During 2001, the Bank received regulatory approval to pay the Company
approximately $81 million in dividends in excess of these limits. As a result,
the Bank will be required to seek continuing approval to declare future
dividends until its reestablishes dividend capacity under those provisions. This
is not expected to impair the Company's ability to declare regular quarterly
dividends.
Under current Federal Reserve regulations, the Bank is limited in the
amounts it may lend to the Company to a maximum of 10% of its capital and
surplus, as defined in the regulations. Any such loans must be collateralized
from 100% to 130% of the loan amount, depending upon the nature of the
underlying collateral. The Bank made no loans to the Company during 2001 and
2000.
Page 49 of 73 Pages
Banks are required to maintain currency and coin or a
noninterest-bearing balance with the Federal Reserve Bank to meet reserve
requirements based on a percentage of deposits. During 2001 as in 2000, the Bank
covered its reserve maintenance requirement with balances of coin and currency.
NOTE 14
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
To meet the financing needs of its customers, the Bank issues financial
instruments which represent conditional obligations that are not recognized on
the consolidated balance sheets. These financial instruments include commitments
to extend credit under loan facilities and letters of credit and similar
financial guarantees. Such instruments expose the Bank to varying degrees of
credit and interest rate risk in much the same way as funded loans.
Commitments under loan facilities, including credit card and related
lines, obligate the Bank to make loans to customers as long as there is no
violation of the conditions established in the underlying contracts. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Letters of credit and similar financial guarantees are
agreements that obligate the Bank to fulfill a customer's financial commitments
to a third party if the customer is unable to perform. The Bank issues these
conditional agreements primarily to support commercial trade.
The Bank's exposure to credit losses from these financial instruments
is represented by their contractual amounts. Because loan commitments and
financial guarantees may, and many times do, expire without being drawn upon,
however, the contractual amounts do not represent actual future funding
requirements. The Bank follows its standard credit policies in making loan
commitments and financial guarantees. The amount of collateral, if any, that the
Bank requires to support a loan commitment is based on the credit evaluation of
the borrower. The collateral required may include accounts receivable,
inventory, property, plant and equipment, and income-producing commercial
property. The Bank holds marketable securities as collateral to support letters
of credit and similar financial guarantees when it is deemed necessary.
The Company has had no investments in financial instruments or
agreements whose value is linked to or derived from changes in the value of some
underlying asset or index. Such instruments or agreements include futures,
forward contracts, option contracts, interest-rate swap agreements and other
financial arrangements with similar characteristics and are commonly referred to
as derivatives.
A summary of off-balance-sheet financial instruments follows:
December 31
- --------------------------------------------------------------------
(dollars in thousands) 2001 2000
- --------------------------------------------------------------------
Commitments to extend credit $1,305,091 $1,230,808
Letters of credit and similar financial
guarantees written 161,525 138,569
Credit card and related lines 303,262 268,868
- --------------------------------------------------------------------
NOTE 15
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires the disclosure of estimated fair value information about certain on-
and off-balance-sheet financial instruments where it is practicable to estimate
those values. If quoted market prices are not available, which is true for many
of Whitney's financial instruments, the Company estimates fair value using
present value or other valuation techniques. The assumptions used in applying
these techniques, such as those concerning appropriate discount rates and
estimates of future cash flows, require considerable judgment and significantly
affect the resulting fair value estimates. In addition, no value estimate is
assigned to future business opportunities from long-term customer relationships
underlying certain financial instruments. Accordingly, the derived fair value
estimates may not indicate the amount the Company could realize in a current
settlement of the financial instruments. Reasonable comparability of fair value
estimates between financial institutions may not be possible due to the wide
range of permitted valuation techniques and numerous assumptions involved. The
aggregate fair value amounts presented do not, and are not intended to,
represent an aggregate measure of the underlying fair value of the Company.
Page 50 0f 73 Pages
The following significant methods and assumptions were used by the
Company to estimate the fair value of financial instruments:
Cash and short-term investments - The carrying amount is a reasonable
estimate of the fair value of cash and due from financial institutions, federal
funds sold and short-term investments.
Investment in securities - Fair values of securities are based on
quoted market prices obtained from independent pricing services.
Loans - Loans with no significant change in credit risk and with rates
that are repriced in coordination with movements in market rates are valued at
carrying amounts. The fair values of other loans are estimated by discounting
scheduled cash flows to maturity using current rates at which loans with similar
terms would be made to borrowers of similar credit quality. Appropriate
adjustments are made to reflect probable credit losses.
Deposits - SFAS No. 107 requires that deposits without a stated
maturity, such as noninterest-bearing demand deposits, NOW account deposits,
money market deposits and savings deposits, be assigned fair values equal to the
amounts payable upon demand (carrying amounts). Deposits with a stated maturity
were valued by discounting contractual cash flows using a discount rate
approximating current market rates for deposits of similar remaining maturity.
Short-term borrowings - Short-term borrowings are valued fairly at
their carrying amounts.
Off-balance-sheet financial instruments - Off-balance-sheet financial
instruments include commitments to extend credit, letters of credit and other
financial guarantees. The fair values of such instruments were estimated using
fees currently charged for similar arrangements in the market, adjusted for
changes in terms and credit risk as appropriate. The estimated fair values of
these instruments are not material.
The estimated fair values of the Company's financial instruments
follow:
December 31, 2001 December 31, 2000
- ------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(dollars in thousands) Amount Value Amount Value
- ------------------------------------------------------------------------------------------------------------
ASSETS:
Cash and short-term investments $ 766,420 $ 766,420 $ 288,391 $ 288,391
Investment in securities 1,632,340 1,636,239 1,462,189 1,456,301
Loans, net 4,482,905 4,542,506 4,540,475 4,537,864
LIABILITIES:
Deposits 5,950,160 5,964,834 5,332,474 5,339,202
Short-term borrowings 511,517 511,517 586,477 586,477
- ------------------------------------------------------------------------------------------------------------
NOTE 16
CONTINGENCIES
The Company and its subsidiaries are parties to various legal
proceedings arising in the ordinary course of business. After reviewing pending
and threatened actions with legal counsel, management believes that the ultimate
resolution of these actions will not have a material effect on the Company's
financial condition or results of operations.
Page 51 of 73 Pages
NOTE 17
STOCK REPURCHASE PROGRAM
In 1999 the Board of Directors authorized the Company to repurchase up
to one million shares, or approximately 4.3%, of its common stock. The Company
completed the repurchase program in 1999, purchasing one million shares at a
weighted-average price of $38.74 per share, or a total of approximately $39
million. No such programs were in effect during 2001 or 2000.
NOTE 18
OTHER NONINTEREST INCOME
The components of other noninterest income were as follows:
Years Ended December 31
- ------------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999
- ------------------------------------------------------------------------------------------------------
ATM fees $4,281 $4,089 $3,862
Investment services income 3,906 2,681 1,550
International services income 2,371 2,138 2,052
Other fees and charges 2,658 2,532 2,090
Other operating income 2,785 2,978 1,661
Net gains on sales and other dispositions of foreclosed assets 1,963 1,714 1,248
Net gains on sales of surplus property 3,274 1,153 2,262
Gain on sale of merchant processing agreements 3,570 - -
- ------------------------------------------------------------------------------------------------------
Total $24,808 $17,285 $14,725
- ------------------------------------------------------------------------------------------------------
NOTE 19
OTHER NONINTEREST EXPENSE
The components of other noninterest expense were as follows:
Years Ended December 31
- ------------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999
- ------------------------------------------------------------------------------------------------------
Security and other outsourced services $7,792 $6,830 $6,188
Stationery and supplies 4,315 4,169 4,635
Advertising 4,443 3,519 2,422
Deposit insurance and regulatory fees 1,936 1,740 1,493
Miscellaneous operating losses 2,544 1,738 1,273
Other operating expense 12,542 12,610 12,707
- ------------------------------------------------------------------------------------------------------
Total $33,572 $30,606 $28,718
- ------------------------------------------------------------------------------------------------------
Page 52 of 73 Pages
NOTE 20
INCOME TAXES
The components of income tax expense (benefit) follow:
Years Ended December 31
- --------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999
- --------------------------------------------------------------------------------------------------
Included in net income
Current
Federal $41,063 $37,886 $31,541
State 1,137 544 762
- --------------------------------------------------------------------------------------------------
Total current 42,200 38,430 32,303
- --------------------------------------------------------------------------------------------------
Deferred
Federal (5,567) (5,059) (1,893)
State (52) 118 (46)
- --------------------------------------------------------------------------------------------------
Total deferred (5,619) (4,941) (1,939)
- --------------------------------------------------------------------------------------------------
Total $36,581 $33,489 $30,364
- --------------------------------------------------------------------------------------------------
Included in shareholders' equity
Deferred tax expense (benefit) related to the change
in the net unrealized gain (loss) on securities $4,581 $3,745 $(3,383)
Current tax benefit related to nonqualified stock
options and restricted stock (512) (28) (383)
- --------------------------------------------------------------------------------------------------
Total $4,069 $3,717 $(3,766)
- --------------------------------------------------------------------------------------------------
Income tax expense was different from the amounts computed by applying
the statutory federal income tax rates to pretax income as follows:
Years Ended December 31
- --------------------------------------------------------------------------------------------------
(in percentages) 2001 2000 1999
- --------------------------------------------------------------------------------------------------
Federal income tax expense 35.00% 35.00% 35.00%
Increase (decrease) resulting from
Tax exempt income (2.74) (3.08) (3.54)
Subchapter S election and termination (.84) (1.35) (1.20)
Nondeductible merger-related expenses .17 - -
State income tax and miscellaneous items .96 .93 .82
- --------------------------------------------------------------------------------------------------
Effective tax rate 32.55% 31.50% 31.08%
- --------------------------------------------------------------------------------------------------
Page 53 of 73 Pages
Temporary differences arise between the tax bases of assets or
liabilities and their reported amounts in the financial statements. The expected
tax effects when these differences are resolved are recorded currently as
deferred tax assets or liabilities. The components of the net deferred income
tax asset, which is included in other assets on the consolidated balance sheets,
follow:
December 31
- -------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000
- -------------------------------------------------------------------------------------------------
Deferred tax assets:
Reserves for losses on loans and foreclosed assets $24,473 $19,747
Employee benefit plan liabilities 6,146 5,162
Net operating loss carryforward 2,820 2,056
Unrecognized interest income 1,897 1,343
Other 2,103 2,009
- -------------------------------------------------------------------------------------------------
Total deferred tax assets 37,439 30,317
- -------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Accumulated depreciation and amortization 9,261 8,347
Net unrealized gain on securities 5,444 863
Other 2,267 1,307
- -------------------------------------------------------------------------------------------------
Total deferred tax liabilities 16,972 10,517
- -------------------------------------------------------------------------------------------------
Net deferred tax asset $20,467 $19,800
- -------------------------------------------------------------------------------------------------
The change in the net deferred tax asset during 2001 includes the
impact of the addition of deferred tax assets and liabilities of acquired
companies. This component of the overall change is not reflected in the deferred
tax provisions for 2001.
At December 31, 2001, the Company had approximately $8 million in net
operating loss carryforwards generated by acquired entities. Substantially all
of the carryforwards expire by 2020.
Before its acquisition by Whitney in January 2001, American Bank had
elected to be taxed under Subchapter S of the Internal Revenue Code. Under this
election, American was not subject to income tax at the corporate level and
reported no income tax expense; rather, its shareholders were taxed on their
proportionate shares of corporate taxable income. The acquisition by the Company
terminated the Subchapter S election, and income tax expense has been provided
for American earnings subsequent to that date. In addition, the Company recorded
a net deferred tax asset, and a corresponding deferred tax benefit, of
approximately $1 million in 2001 to reflect the expected tax effects of the
resolution of temporary differences that had accumulated in American Bank
through the termination date. The impact of the Subchapter S election and
subsequent termination on Whitney's effective tax rate is shown above.
Page 54 of 73 Pages
NOTE 21
EARNINGS PER SHARE
The components used to calculate basic and diluted earnings per share
are as follows:
Years Ended December 31
- -------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2001 2000 1999
- -------------------------------------------------------------------------------------------------
Numerator:
Net income $75,820 $72,842 $67,326
Effect of dilutive securities - - -
- -------------------------------------------------------------------------------------------------
Numerator for diluted earnings per share $75,820 $72,842 $67,326
- -------------------------------------------------------------------------------------------------
Denominator:
Weighted-average shares outstanding 26,367,149 25,650,656 25,888,798
Effect of dilutive stock options 190,216 61,810 77,434
- -------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share 26,557,365 25,712,466 25,966,232
- -------------------------------------------------------------------------------------------------
Earnings per share:
Basic $2.88 $2.84 $2.60
Diluted 2.85 2.83 2.59
- -------------------------------------------------------------------------------------------------
Antidilutive stock options 343,205 581,226 458,421
- -------------------------------------------------------------------------------------------------
NOTE 22
PARENT COMPANY FINANCIAL STATEMENTS
The following financial statements are for the parent company only. For the
statement of cash flows, cash and cash equivalents include noninterest-bearing
and interest-bearing deposits in banking subsidiaries.
BALANCE SHEETS December 31
- ----------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000
- ----------------------------------------------------------------------------------------------------
ASSETS
Investment in banking subsidiaries $570,308 $606,277
Other investments in subsidiaries 82,206 3,035
Interest-bearing deposits in banking subsidiaries 62,830 54,430
Dividends receivable 10,572 8,407
Other assets 7,245 6,155
- ----------------------------------------------------------------------------------------------------
Total assets $733,161 $678,304
- ----------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable $10,572 $ 8,574
Other liabilities 4,701 3,966
- ----------------------------------------------------------------------------------------------------
Total liabilities 15,273 12,540
SHAREHOLDERS' EQUITY 717,888 665,764
- ----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $733,161 $678,304
- ----------------------------------------------------------------------------------------------------
Page 55 of 73 Pages
STATEMENTS OF OPERATIONS Years Ended December 31
- ----------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999
- ----------------------------------------------------------------------------------------------------
Dividend income from banking subsidiaries $162,597 $62,982 $88,861
Equity in undistributed earnings of subsidiaries
Banks (88,166) 8,814 (22,774)
Nonbanks 100 188 154
Other income (expense), net 1,289 858 1,085
- ----------------------------------------------------------------------------------------------------
NET INCOME $75,820 $72,842 $67,326
- ----------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS Years Ended December 31
- ----------------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999
- ----------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $75,820 $72,842 $67,326
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries 88,066 (9,002) 22,620
Increase in dividends receivable (2,165) (957) (66)
Other, net 48 409 171
- ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 161,769 63,292 90,051
- ----------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investment in and advances to subsidiaries (119,395) (58,069) (753)
Other, net 376 105 (115)
- ----------------------------------------------------------------------------------------------------
Net cash used in investing activities (119,019) (57,964) (868)
- ----------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Cash dividends (38,598) (32,399) (30,295)
Proceeds from issuance of stock 5,096 3,316 3,354
Purchases of stock (847) (1,705) (40,008)
- ----------------------------------------------------------------------------------------------------
Net cash used in financing activities (34,349) (30,788) (66,949)
- ----------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 8,401 (25,460) 22,234
Cash and cash equivalents at beginning of year 54,485 79,945 57,711
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $62,886 $54,485 $79,945
- ----------------------------------------------------------------------------------------------------
As is discussed in Note 3, Whitney Holding Corporation issued common
stock with a value of $22 million in connection with its purchase of First
Ascension Bancorp, Inc. in November 2000.
Page 56 of 73 Pages
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Whitney Holding Corporation is responsible for the
preparation of the financial statements, related financial data and other
information in this annual report. The financial statements are prepared in
accordance with generally accepted accounting principles and include amounts
based on management's estimates and judgements where appropriate. Financial
information appearing throughout this annual report is consistent with that in
the financial statements.
The Company's financial statements have been audited by Arthur Andersen
LLP, independent public accountants. Management has made available to Arthur
Andersen LLP all of the Company's financial records and related data, as well as
the minutes of shareholders' and directors' meetings. Furthermore, management
believes that all representations made to Arthur Andersen LLP during the
Company's audit were valid and appropriate.
Management of the Company has established and maintains a system of
internal control that provides reasonable assurance as to the integrity and
reliability of the financial statements, the protection of assets from
unauthorized use or disposition, and the prevention and detection of fraudulent
financial reporting. The system of internal control provides for appropriate
division of responsibility, is documented by written policies and procedures
that are communicated to employees with significant roles in the financial
reporting process, and is updated as necessary. Management continually monitors
the system of internal control for compliance. The Company maintains a
professional staff of internal auditors who independently assess the
effectiveness of internal controls and recommend possible system improvements.
As part of their audit of the Company's 2001 financial statements, Arthur
Andersen LLP considered the Company's system of internal control to the extent
they deemed necessary to determine the nature, timing and extent of their audit
tests. Management has considered the recommendations of the internal auditors
and Arthur Andersen LLP concerning the Company's system of internal control and
has taken actions that it believes are cost-effective in the circumstances to
respond appropriately to these recommendations. Management believes that, as of
December 31, 2001, the Company's system of internal control is adequate to
accomplish the objectives discussed above.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS
AND BOARD OF DIRECTORS OF
WHITNEY HOLDING CORPORATION:
We have audited the consolidated balance sheets of Whitney Holding
Corporation (a Louisiana corporation) and subsidiaries as of December 31, 2001
and 2000 and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Whitney Holding
Corporation and subsidiaries as of December 31, 2001 and 2000, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 2 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 133 effective
January 1, 2001.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
January 16, 2002
Page 57 of 73 Pages
SUMMARY OF QUARTERLY FINANCIAL INFORMATION
- -------------------------------------------------------------------------------------------------------------------
2001 Quarters
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 4th 3rd 2nd 1st
- -------------------------------------------------------------------------------------------------------------------
Net interest income $72,652 $70,939 $68,266 $67,939
Net interest income (TE) 73,944 72,258 69,628 69,331
Provision for possible loan losses 6,500 8,000 2,500 2,500
Noninterest income (excluding securities transactions) (a) 20,282 25,002 21,816 23,944
Securities transactions 96 - 32 37
Noninterest expense (b) 56,644 58,866 60,720 62,874
Income tax expense 10,090 9,719 8,792 7,980
- -------------------------------------------------------------------------------------------------------------------
Net income (c) $19,796 $19,356 $18,102 $18,566
- -------------------------------------------------------------------------------------------------------------------
Average balances
Total assets $7,034,722 $6,825,004 $6,813,065 $6,649,303
Earning assets 6,503,952 6,306,997 6,290,430 6,108,016
Loans 4,539,401 4,488,933 4,503,302 4,531,536
Deposits 5,726,667 5,548,850 5,548,425 5,366,320
Shareholders' equity 725,826 702,134 689,272 674,556
- -------------------------------------------------------------------------------------------------------------------
Ratios
Return on average assets 1.12% 1.13% 1.07% 1.13%
Return on average equity 10.82 10.94 10.53 11.16
Net interest margin 4.52 4.56 4.43 4.58
- -------------------------------------------------------------------------------------------------------------------
Earnings per share
Basic $.75 $.73 $.69 $.71
Diluted .74 .72 .69 .70
Cash dividends per share .40 .38 .38 .38
Trading data (d)
High closing price $46.90 $48.84 $46.90 $41.38
Low closing price 39.26 40.26 38.51 36.00
End-of-period closing price 43.85 43.00 46.90 39.56
Trading volume 2,125,244 2,153,501 2,731,612 2,299,875
- -------------------------------------------------------------------------------------------------------------------
2000 Quarters
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 4th 3rd 2nd 1st
- -------------------------------------------------------------------------------------------------------------------
Net interest income $68,387 $67,114 $66,948 $64,631
Net interest income (TE) 69,827 68,563 68,470 66,316
Provision for possible loan losses 4,898 2,598 2,597 2,597
Noninterest income (excluding securities transactions) 19,663 18,703 18,031 17,873
Securities transactions 850 (13) - 13
Noninterest expense (b) 58,107 55,929 55,490 53,653
Income tax expense 8,470 8,379 8,433 8,207
- -------------------------------------------------------------------------------------------------------------------
Net income (c) $17,425 $18,898 $18,459 $18,060
- -------------------------------------------------------------------------------------------------------------------
Average balances
Total assets $6,548,409 $6,397,590 $6,209,152 $5,968,830
Earning assets 6,028,512 5,888,185 5,694,479 5,469,730
Loans 4,511,194 4,320,926 4,134,891 3,971,271
Deposits 5,093,451 4,914,591 4,930,712 4,768,396
Shareholders' equity 651,614 623,932 611,714 603,669
- -------------------------------------------------------------------------------------------------------------------
Ratios
Return on average assets 1.06% 1.18% 1.20% 1.22%
Return on average equity 10.64 12.05 12.14 12.03
Net interest margin 4.62 4.64 4.83 4.87
- -------------------------------------------------------------------------------------------------------------------
Earnings per share
Basic $.67 $.74 $.72 $.71
Diluted .67 .74 .72 .71
Cash dividends per share .36 .36 .36 .36
Trading data (d)
High closing price $41.69 $37.19 $39.13 $36.66
Low closing price 33.13 33.38 31.75 31.50
End-of-period closing price 36.31 36.31 34.19 32.63
Trading volume 1,891,381 1,306,004 1,609,130 2,237,876
- -------------------------------------------------------------------------------------------------------------------
(a) Merger-related noninterest income was $1,087 in the first quarter of 2001.
(b) Merger-related noninterest expense was $648, $626 and $4,912, respectively, in the fourth,
second and first quarters of 2001, and $1,102 in 2000's fourth quarter.
(c) Merger-related items reduced net income by $421, $409 and $1,700, respectivley, in the fourth,
second and first quarters of 2001, and $716 in 2000's fourth quarter.
(d) All closing prices represent closing sales prices as reported on The Nasdaq Stock Market.
Page 58 of 73 Pages
Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the Company's directors and executive
officers are listed below with their business experience during the past five
years.
Director Term
Name and Age Principal Occupation Since Expires
- ----------- -------------------- -------- -------
Robert C. Baird, Jr., 51 Executive Vice President of N/A N/A
the Company and Whitney
National Bank since 1995
Guy C. Billups, Jr., 74 Former Chairman of the Board 1997 2002
of Merchants Bancshares, Inc. and
Merchants Bank & Trust Company,
retired 1997; Director, Billups
Plantation, Inc. (farming)
Harry J. Blumenthal, Jr., 56 President, Blumenthal 1993 2004
Print Works, Inc.
(textiles manufacturing)
Joel B. Bullard, Jr., 51 President, Joe Bullard 1994 2004
Automotive Companies
(automotive sales and service)
James M. Cain, 68 Former Vice Chairman, Entergy 1987 2002
Corp. (utility holding company);
former Chairman of the Board,
Chief Executive Officer and
President, Louisiana Power and
Light Company (electric utility);
former Director, Chief Executive
Officer and President, New
Orleans Public Service, Inc.,
retired 1993
Thomas L. Callicutt, Jr., 54 Executive Vice President and Chief N/A N/A
Financial Officer of the Company and
Whitney National Bank since 1999 and
Treasurer of the Company since 2001; Senior
Vice President and Comptroller of Whitney
National Bank from 1998 to 1999; former
Executive Vice President, Controller and
Principal Accounting Officer, First
Commerce Corporation, a $9 billion asset
bank holding company, from 1996 to 1998,
and Senior Vice President, Controller
and Principal Accounting Officer from
1987 to 1996
Page 59 of 73 Pages
Director Term
Name and Age Principal Occupation Since Expires
- ----------- -------------------- -------- -------
Rodney D. Chard, 59 Executive Vice President N/A N/A
of the Company and Whitney
National Bank since 1996
Angus R. Cooper II, 59 Chairman and Chief Executive 1994 2004
Officer, Cooper/T. Smith Corp.
(shipping service company);
Director, Friede Goldman Halter, Inc.
Richard B. Crowell, 63 Attorney, Crowell & Owens; 1983 2002
Director, CLECO
G. Blair Ferguson, 58 Executive Vice President N/A N/A
of the Company and Whitney
National Bank since 1993
William A. Hines, 65 Chairman of the Board, 1986 2006
Nassau Holding Corporation
(holding company of entities
in the oil field service industry)
John C. Hope III, 52 Executive Vice President N/A N/A
of the Company since 1994 and
Whitney National Bank since 1998
John J. Kelly, 67 Chairman, Louisiana Technology 1986 2005
Council; former President, Textron
Marine and Land Systems (designs
and builds advanced technology
vehicles and craft), retired 1999
E. James Kock, Jr., 73 Former President, Bowie Lumber 1965 2003
Associates, Downmans Associates,
Jeanerette Lumber & Shingle Co.,
Ltd. and White Castle Lumber &
Shingle Co., Ltd. (land and
timber holdings, and investments),
retired 1993
Alfred S. Lippman, 63 Managing Member, 1996 2006
Lippman & Mahfouz, L.L.C.
Attorneys at Law
William L. Marks, 58 Chairman of the Board and 1990 2005
Chief Executive Officer of
the Company and Whitney
National Bank since 1990
R. King Milling, 61 President of the Company 1979 2003
and Whitney National Bank
since 1984
Page 60 of 73 Pages
Director Term
Name and Age Principal Occupation Since Expires
- ----------- -------------------- -------- -------
Eric J. Nickelsen, 57 Real estate developer and 2000 2005
part owner, John S. Carr &
Company, Inc. (January 1998
to present); former Chairman
of the Board, Chief Executive
Officer and President, Barnett
Bank of West Florida (December
1993 to January 1998)
John G. Phillips, 79 Former Chairman of the Board 1972 2003
and Chief Executive Officer, The
Louisiana Land and Exploration
Company (oil and gas exploration
and production), retired 1985
John K. Roberts, Jr., 65 Former Chairman of the Board, 1985 2002
Pan-American Life Insurance
Company (markets and services
life, health and retirement insurance),
retired 2000
Carroll W. Suggs, 63 Former Chairman, Chief Executive 1996 2006
Officer and President,
Petroleum Helicopters, Inc.,
retired 2001; Director,
GlobalSantaFe Corporation (formed
through the merger of Global Marine, Inc.
and Santa Fe International Corporation)
In further response to this Item 10, registrant incorporates by
reference the section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance" of its Proxy Statement dated March 15, 2002.
Page 61 of 73 Pages
Item 11: EXECUTIVE COMPENSATION
In response to this item, registrant incorporates by reference the
section entitled "Executive Compensation" of its Proxy Statement dated
March 15, 2002.
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In response to this item, registrant incorporates by reference the
sections entitled "Voting Securities and Principal Holders" and "Beneficial
Ownership of Directors and Management and Other Information" of its Proxy
Statement dated March 15, 2002.
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In response to this item, registrant incorporates by reference the
section entitled "Certain Transactions" of its Proxy Statement dated March 15,
2002.
PART IV
Item 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)The following consolidated financial statements and
supplementary data of the Company and its subsidiaries are
included in Part II Item 8 herein:
Page Number
-----------
Consolidated Balance Sheets --
December 31, 2001 and 2000 28
Consolidated Statements of Operations --
Years Ended December 31, 2001, 2000 and 1999 29
Consolidated Statements of Changes in Shareholders' Equity --
Years Ended December 31, 2001, 2000 and 1999 30
Consolidated Statements of Cash Flows --
Years Ended December 31, 2001, 2000 and 1999 31
Notes to Consolidated Financial Statements 32
Report of Independent Public Accountants 57
Summary of Quarterly Financial Information 58
(a)(2)All schedules have been omitted because they are either not
applicable or the required information has been included in the
consolidated financial statements or notes to the consolidated
financial statements.
Page 62 of 73 Pages
(a)(3) Exhibits:
To obtain a copy of any listed exhibit send your request to the address
below. The copy will be furnished upon payment of a fee.
Ms. Shirley Fremin, Manager
Investor Relations
Whitney Holding Corporation
P. O. Box 61260
New Orleans, LA 70161-1260
(504) 586-3627 or toll free (800) 347-7272
E-mail: investor.relations@whitneybank.com
Exhibit 3.1 - Copy of the Company's Composite Charter (filed as
Exhibit 3.1 to the Company's quarterly report on Form 10-Q for
the quarter ended September 30, 2000 (Commission file number
0-1026) and incorporated by reference).
Exhibit 3.2 - Copy of the Company's Bylaws (filed as Exhibit 3.2
to the Company's quarterly report on Form 10-Q for the quarter
ended September 30, 2000 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.1 - Executive agreement between Whitney Holding
Corporation, Whitney National Bank and William L. Marks (filed as
Exhibit 10.3 to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1993 (Commission file number 0-1026)
and incorporated by reference).
Exhibit 10.2 - Executive agreement between Whitney Holding
Corporation, Whitney National Bank and R. King Milling (filed as
Exhibit 10.4 to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1993 (Commission file number 0-1026)
and incorporated by reference).
Exhibit 10.3 - Executive agreement between Whitney Holding
Corporation, Whitney National Bank and G. Blair Ferguson (filed
as Exhibit 10.7 to the Company's quarterly report on Form 10-Q
for the quarter ended September 30, 1993 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.4 - Executive agreement between Whitney Holding
Corporation, Whitney Bank of Alabama (now Whitney National Bank)
and John C. Hope III (filed as Exhibit 10.8 to the Company's
annual report on Form 10-K for the year ended December 31, 1994
(Commission file number 0-1026) and incorporated by reference).
Exhibit 10.5 - Executive agreement between Whitney Holding
Corporation, Whitney National Bank and Robert C. Baird, Jr.
(filed as Exhibit 10.9 to the Company's quarterly report on Form
10-Q for the quarter ended June 30, 1995 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.6 - Long-term incentive program (filed as Exhibit 10.7
to the Company's annual report on Form 10-K for the year ended
December 31, 1991 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.6a - Long-term incentive plan (filed as a Proposal in
the Company's Proxy Statement dated March 18, 1997 (Commission
file number 0-1026) and incorporated by reference).
Exhibit 10.7 - Executive compensation plan (filed as Exhibit 10.8
to the Company's annual report on Form 10-K for the year ended
December 31, 1991 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.8 - Form of restricted stock agreement between Whitney
Holding Corporation and certain of its officers (filed as Exhibit
19.1 to the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1992 (Commission file number 0-1026) and
incorporated by reference).
Page 63 of 73 Pages
Exhibit 10.8a - Form of amendment to restricted stock agreement
between Whitney Holding Corporation and certain of its officers
(filed as Exhibit 10.9a to the Company's annual report on Form
10-K for the year ended December 31, 2000 (Commission file number
0-1026) and incorporated by reference.
Exhibit 10.8b - Form of amendment to restricted stock agreement
between Whitney Holding Corporation and certain of its officers
appearing herein on page 69.
Exhibit 10.9 - Form of stock option agreement between Whitney
Holding Corporation and certain of its officers (filed as Exhibit
19.2 to the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1992 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.9a - Form of amendment to stock option agreement
between Whitney Holding Corporation and certain of its officers
(filed as Exhibit 10.10a to the Company's annual report of Form
10-K for the year ended December 31, 2000 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.9b - Form of amendment to stock option agreement
between Whitney Holding Corporation and certain of its officers
appearing herein on page 71.
Exhibit 10.10 - Directors' Compensation Plan (filed as Exhibit A
to the Company's Proxy Statement dated March 24, 1994 (Commission
file number 0-1026) and incorporated by reference).
Exhibit 10.10a - Amendment No. 1 to the Whitney Holding
Corporation Directors' Compensation Plan (filed as Exhibit A to
the Company's Proxy Statement dated March 15, 1996 (Commission
file number 0-1026) and incorporated by reference).
Exhibit 10.10b - Whitney Holding Corporation 2001 Directors'
Compensation Plan (filed as Appendix B to the Company's Proxy
Statement dated March 15, 2001 (Commission file number 0-1026)
and incorporated by reference).
Exhibit 10.11 - Retirement Restoration Plan effective January 1,
1995 (filed as Exhibit 10.16 to the Company's annual report on
Form 10-K for the year ended December 31, 1995 (Commission file
number 0-1026) and incorporated by reference).
Exhibit 10.12 - Executive agreement between Whitney Holding
Corporation, Whitney National Bank and Rodney D. Chard (filed as
Exhibit 10.17 to the Company's quarterly report on Form 10-Q for
the quarter ended September 30, 1996 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.13 - Form of Amendment to Section 2.1e of the
Executive agreements filed as Exhibits 10.1 through 10.5 herein
(filed as Exhibit 10.18 to the Company's annual report on Form
10-K for the year ended December 31, 1996 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.14 - Executive agreement between Whitney National Bank
of Mississippi (now Whitney National Bank) and Guy C. Billups,
Jr. (filed as Exhibit 10.19 to the Company's quarterly report on
form 10-Q for the quarter ended June 30, 1997 (Commission file
number 0-1026) and incorporated by reference).
Page 64 of 73 Pages
Exhibit 10.15 - Form of Amendment adding subsection 2.1g to the
Executive Agreements filed as Exhibits 10.1 through 10.5 and
Exhibit 10.12 herein (filed as Exhibit 10.19 to the Company's
quarterly report on Form 10-Q for the quarter ended March 31,
1998 (Commission file number 0-0126) and incorporated by
reference).
Exhibit 10.16 - Executive agreement between Whitney Holding
Corporation, Whitney National Bank and Thomas L. Callicutt, Jr.
(filed as Exhibit 10.20 to the Company's quarterly report on Form
10-Q for the quarter ended September 30, 1999 (Commission file
number 0-1026) and incorporated by reference).
Exhibit 21 - Subsidiaries
Whitney Holding Corporation owns 100% of Whitney National
Bank. All other subsidiaries considered in the aggregate would
not constitute a significant subsidiary.
Exhibit 23 - Consent of Arthur Andersen LLP dated March 18, 2002
(b) Reports of Form 8-K
On a Form 8-K dated October 18, 2001, the registrant reported under
Item 5 the release of its financial results for the quarter ended September 30,
2001. The news release covering the financial results was filed as an exhibit
under Item 7.
Page 65 of 73 Pages
Pursuant to the requirements of Section 13 or 15(d) 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.
WHITNEY HOLDING CORPORATION
(Registrant)
By:/s/William L. Marks
----------------------------
William L. Marks
Chairman of the Board and
Chief Executive Officer
March 18, 2002
----------------------------
Date
Page 66 of 73 Pages
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- ------------------------- ------------------------ ---------------
/s/William L. Marks March 18, 2002
- -------------------------, Chairman of the Board, ---------------
William L. Marks Chief Executive Officer
and Director
/s/R. King Milling March 18, 2002
- -------------------------, President and Director ---------------
R. King Milling
/s/Thomas L. Callicutt, Jr March 18, 2002
- -------------------------, Executive Vice President ---------------
Thomas L. Callicutt, Jr. and Chief Financial
Officer (Principal
Accounting Officer)
/s/Guy C. Billups, Jr. March 18, 2002
- -------------------------, Director ---------------
Guy C. Billups, Jr.
/s/Harry J. Blumenthal, Jr. March 18, 2002
- -------------------------, Director ---------------
Harry J. Blumenthal, Jr.
- -------------------------, Director ---------------
Joel B. Bullard, Jr.
/s/James M. Cain March 18, 2002
- -------------------------, Director ---------------
James M. Cain
- -------------------------, Director ---------------
Angus R. Cooper II
/s/Richard B. Crowell March 18, 2002
- -------------------------, Director ---------------
Richard B. Crowell
Page 67 of 73 Pages
Signature Title Date
- ------------------------- ------------------------ ---------------
/s/William A. Hines March 18, 2002
- -------------------------, Director ---------------
William A. Hines
- -------------------------, Director ---------------
John J. Kelly
/s/E. James Kock, Jr. March 18, 2002
- -------------------------, Director ---------------
E. James Kock, Jr.
- -------------------------, Director ---------------
Alfred S. Lippman
/s/Eric J. Nickelsen March 18, 2002
- -------------------------, Director ---------------
Eric J. Nickelsen
/s/John G. Phillips March 18, 2002
- -------------------------, Director ---------------
John G. Phillips
/s/John K. Roberts, Jr. March 18, 2002
- -------------------------, Director ---------------
John K. Roberts, Jr.
/s/Carroll W. Suggs March 18, 2002
- -------------------------, Director ---------------
Carroll W. Suggs
Page 68 of 73 Pages
Exhibit 10.8b
WHITNEY HOLDING CORPORATION
Re: NOTICE AND ACCEPTANCE OF GRANT OF TARGETED RESTRICTED STOCK
-----------------------------------------------------------
Dear :
--------
The Compensation Committee (the "Committee") appointed under the
Whitney Holding Corporation (the "Company") Long Term Incentive Plan (the
"Plan") has granted you shares of no par value voting common stock issued by the
Corporation (the "Common Stock"), subject to certain limitations and
restrictions. This letter is intended to constitute notice of the terms and
conditions applicable to the grant, your acknowledgement of and agreement to be
bound by the terms and conditions set forth below.
1. Grant. The Company hereby grants you______shares of Common Stock
(the "Target Grant"), subject to the restrictions set forth in this agreement.
2. Restrictions and Adjustments Related to Target Award. Common Stock
issued in the form of the Target Grant, including the right to receive dividends
or vote shares, shall not be subject in any manner to sale, transfer, pledge,
assignment or other encumbrance or disposition, whether by operation of law or
otherwise and whether voluntarily or involuntarily. Except as set forth herein,
such restrictions shall lapse three years from the date hereof,_____.
Notwithstanding the preceding paragraph, all or a portion of the Target
Grant may be forfeited or the number of shares subject to the Target Grant may
be increased if the Committee, in its sole discretion, determines that the
performance objectives related to the return on assets ("ROA") and return on
equity ("ROE") of Whitney Holding Corporation (the "Company") for calendar years
_____, _____, and _____, all as set forth more fully in that certain memorandum
dated _____, concerning performance driven restricted stock awards ("the
Memorandum"), were not satisfied or were exceeded, as the case may be. Such
adjustment shall be made by the Committee as of the Lapse Date; the Committee
(or its designee) shall provide you with written notice of any reduction or
increase in the number of shares subject to the Target Grant, including
information concerning the attainment of the performance objectives set forth
herein.
For purposes of this paragraph 2, the Committee possesses the sole
discretion to determine whether the performance objectives set forth herein have
been attained, including without limitation, the authority to determine the
Company's ROE and ROA and the method used to determine peer group performance.
In addition, the Committee possesses the authority to modify either the method
used to determine attainment of the performance objectives or the number of
shares subject to adjustment (provided, however, that the transfer of Common
Stock hereunder shall not exceed 200% of the amount of the Target Grant), if the
Committee determines such modification is necessary or appropriate to take into
account unusual facts and circumstances.
3. Termination. If your employment with the Company or the Bank (the
"Bank") or an affiliate thereof is terminated for any reason, including death,
disability or retirement, shares of Common Stock then subject to restriction
shall be forfeited; provided, however, that the Committee, in its sole
discretion, may elect to modify the forfeiture required under this paragraph 3.
Page 69 of 73 Pages
4. Escrow Requirement. Certificates representing shares of Common
Stock shall be issued and registered in your name, but held, together with a
stock power endorsed by you in blank, by the Corporation.
As of the Lapse Date, the Company shall promptly deliver to you shares
of Common Stock free of restriction, subject to the adjustment described in
paragraph 2 hereof; provided, however, that the Company's obligation to deliver
certificates may be postponed, in the sole discretion of the Company, for any
period necessary to list, register or otherwise qualify the shares under Federal
securities laws or other applicable state securities law, and the Company shall
have the right to collect, as a condition of delivery of shares of Common stock
hereunder, any taxes required by law to be withheld.
5. Employment Rights. Neither this letter nor the transfer of shares
hereunder shall be deemed to confer upon you any right to continue in the employ
of the Company or the Bank or an affiliate or interfere, in any manner, with the
right of the Company or the Bank or an affiliate thereof to terminate your
employment, whether with or without cause.
6. Additional Requirements. Shares of Common Stock issued hereunder
shall be subject to such legends as the Committee, in its sole discretion, deems
necessary or appropriate to implement the restrictions imposed hereunder or
comply with applicable Federal or state securities laws. In connection therewith
and prior to the issuance of such shares, you may be required to deliver to the
Committee or the Company such documents as the Committee or the Company deems
necessary or appropriate to ensure compliance with applicable law.
7. Rights as a Shareholder. During the period commencing as of the date
hereof and ending as of the Lapse Date, you shall be entitled to vote shares and
receive dividends with respect to shares subject to the Target Grant.
8. Plan Provisions. The issuance of Common Stock hereunder shall be
subject to such additional terms and conditions as may be imposed under the
terms of the Plan, including the Memorandum, in addition to the terms and
conditions of this agreement. By execution of this agreement, you acknowledge
that you have reviewed and read a copy of the Plan, the Memorandum, and that any
determination by the Committee taken in good faith with respect to the Plan or
any grant or award hereunder or this agreement.
Very truly yours,
WHITNEY HOLDING CORPORATION
BY:
------------------------------------
William L. Marks, Chairman of the Board
and Chief Executive Officer
ACKNOWLEDGMENT AND AGREEMENT
----------------------------
By execution of this letter, I agree that transfer of Common Stock
discussed herein shall be governed by and is subject to the foregoing terms and
conditions and the provisions of the Plan, including the Memorandum, all of
which have been furnished to me.
-----------------------------
-----------------------------
Date
Page 70 of 73 Pages
Exhibit 10.9b
WHITNEY HOLDING CORPORATION
Re: Long Term Incentive Plan
NOTICE AND ACCEPTANCE OF GRANTS OF STOCK OPTIONS
------------------------------------------------
Dear _________:
The Compensation Committee (the "Committee") of the Whitney Holding
Corporation (the "Company") Long Term Incentive Plan (the "Plan") has granted to
you an incentive stock option which is the right to purchase shares of no par
value voting common stock issued by the Company (the "Common Stock"), subject to
certain conditions. This letter is intended to constitute notice of the terms
and conditions applicable to such grant and your acknowledgment of and agreement
to be bound by the terms and conditions set forth below.
1. Grant. The Corporation hereby grants to you the incentive
stock options to purchase _______ shares and a non-statutory option to purchase
_______ shares each at a price of _____ per share, which is the fair market
value of the shares as of the date thereof.
2. Time of Exercise. This option shall be exercisable only while you
are an employee of the Company or Whitney National Bank (the "Bank"). The option
shall be exercisable no sooner than six months and one day from the date of the
grant, _____, or later than ten years after the date of the grant.
Notwithstanding any other provision of this paragraph 2, when an
incentive stock option granted hereunder becomes exercisable for the first time,
the incentive stock option is exercisable only to the extent that the aggregate
fair market value (determined at the time the option is granted) of the shares
of Common Stock subject to such option does not exceed $100,000.00 as is the
case in this grant. The term "fair market value" shall have the meaning set
forth in Section 2.10 of the Plan.
3. Method of Exercise. The option, to the extent exercisable, shall be
exercised, in whole or part, by providing written notice to the Company care of
the Chief Executive Officer or their designee, which notice shall designate the
number of shares of Common Stock to be purchased and shall be accompanied by the
full purchase price for the shares. The purchase price for the shares may be
paid in cash, certified or uncertified check, bank draft, or in the form of
mature shares of common stock. For this purpose, a mature share is a share
purchased on the open market, acquired by a third party or held for more than
six months.
Delivery of certificates representing the purchased shares of Common
Stock shall be made by the Company promptly after receipt of notice of exercise
and payment; provided, however, that the Company's obligation to deliver
certificates may be postponed, in the sole discretion of the Committee or the
Company, for any period necessary to list, register or otherwise qualify the
purchased shares under Federal securities laws or any applicable state
securities law, and the Company shall have the right to collect, as a condition
of delivery shares of Common Stock hereunder, any taxes required by law to be
withheld.
4. No Assignment. This option shall not be subject in any manner
to sale, transfer, pledge, assignment or other encumbrance or disposition,
whether by operation of law or otherwise and whether voluntarily or
involuntarily, except by will or the laws of descent and distribution.
5. Employment Rights. Neither this letter, nor the grant of the option
hereunder, nor the exercise of such option shall be deemed to confer upon you
any right to continue in the employment of the Company or the Bank or interfere,
in any manner, with the right of the Company or the Bank to terminate your
employment, whether with or without cause, in its sole discretion.
Page 71 of 73 Pages
6. Additional Requirements. Common Stock acquired by you on the
exercise of an option hereunder shall be subject to such legends as the
Committee or the Company, in its sole discretion, deems appropriate to comply
with applicable Federal or state Securities laws. In connection therewith and
prior to the issuance of such shares, you shall be required to deliver to the
Company such other documents as may be reasonably required to ensure compliance
with applicable Federal or state securities laws.
7. Plan Provisions. The option to acquire shares of Common Stock
granted hereunder shall be subject to such additional terms and conditions as
may be imposed under the terms of the Plan, in addition to the terms and
conditions of this agreement. By execution of this agreement, you acknowledge
that you have reviewed and read a copy of the Plan Prospectus and that no member
of the Committee shall be liable for any action or determination taken on good
faith with respect to the Plan or any grant or award hereunder or this
agreement.
Very truly yours,
WHITNEY HOLDING CORPORATION
BY:
------------------------------------
William L. Marks, Chairman of the Board
and Chief Executive Officer
ACKNOWLEDGMENT AND AGREEMENT
----------------------------
By execution of this letter, I agree that the options and the shares
of Common Stock transferred upon exercise of the option shall be governed by and
are subject to the foregoing terms and conditions and the provisions of the
Plan.
-----------------------------
-----------------------------
Date
Page 72 of 73 Pages
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report in this Form 10-K, into Whitney Holding Corporation's
previously filed Registration Statements on Form S-3 (File Nos. 33-52999,
33-55307 and 333-75676) and Form S-8 (File Nos. 333-56024, as amended,
333-68506, 333-30257 and 333-51065).
/s/ Arthur Andersen LLP
New Orleans, Louisiana
March 18, 2002
Page 73 of 73 Pages