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WHITNEY HOLDING CORPORATION LETTERHEAD
WHITNEY HOLDING CORPORATION
228 St. Charles Avenue
New Orleans, Louisiana 70130
August 14, 2002
Mr. Jonathan G. Katz
Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Dear Mr. Katz:
Enclosed please find the Quarterly Report of Whitney Holding
Corporation ("Whitney") on Form 10-Q for the period ending June 30, 2002 (the
"Report"), which we are hereby submitting for filing with the Securities and
Exchange Commission. Each of the undersigned, in the capacities and as of the
dates indicated below, hereby certifies pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of Whitney.
Dated: August 14, 2002 By:/s/William L. Marks
------------------------ ---------------------------------
William L. Marks
Chairman of the Board and
Chief Executive Officer
Dated: August 14, 2002 By:/s/Thomas L. Callicutt, Jr.
------------------------ ---------------------------------
Thomas L. Callicutt, Jr.
Executive Vice President and
Chief Financial Officer
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002 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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 2002
----- ----------------------------
Common Stock, no par value 40,009,791
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WHITNEY HOLDING CORPORATION
TABLE OF CONTENTS
Page
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PART I. Financial Information
Item 1: Financial Statements:
Consolidated Balance Sheets 1
Consolidated Statements of Operations 2
Consolidated Statements of Changes in Shareholders' Equity 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Selected Financial Data 9
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3: Quantitative and Qualitative Disclosures about Market Risk 25
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PART II. Other Information
Item 1: Legal Proceedings 26
Item 2: Changes in Securities and Use of Proceeds 26
Item 3: Defaults upon Senior Securities 26
Item 4: Submission of Matters to a Vote of Security Holders 26
Item 5: Other Information 27
Item 6: Exhibits and Reports on Form 8-K 27
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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June 30 December 31
(dollars in thousands) 2002 2001
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from financial institutions $ 225,461 $ 271,512
Investment in securities
Securities available for sale 1,705,832 1,440,527
Securities held to maturity, fair values of $176,217
and $195,712, respectively 170,023 191,813
- -----------------------------------------------------------------------------------------------------------------
Total investment in securities 1,875,855 1,632,340
Federal funds sold and short-term investments 220,541 494,908
Loans, net of unearned income 4,300,658 4,554,538
Allowance for loan losses (71,667) (71,633)
- -----------------------------------------------------------------------------------------------------------------
Net loans 4,228,991 4,482,905
- -----------------------------------------------------------------------------------------------------------------
Bank premises and equipment 158,814 167,419
Goodwill 69,164 68,952
Other intangible assets 31,730 34,653
Accrued interest receivable 32,551 32,461
Other assets 66,186 58,500
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Total assets $ 6,909,293 $ 7,243,650
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LIABILITIES
Noninterest-bearing demand deposits $ 1,563,569 $ 1,634,258
Interest-bearing deposits 4,070,188 4,315,902
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Total deposits 5,633,757 5,950,160
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Short-term borrowings 448,845 511,517
Accrued interest payable 10,997 14,946
Accrued expenses and other liabilities 57,161 49,139
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Total liabilities 6,150,760 6,525,762
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SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized - 100,000,000 shares
Issued - 39,980,180 and 39,667,248 shares, respectively 2,800 2,800
Capital surplus 163,713 154,397
Retained earnings 580,601 556,241
Accumulated other comprehensive income 19,621 10,104
Treasury stock at cost - -
Unearned restricted stock compensation (8,202) (5,654)
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Total shareholders' equity 758,533 717,888
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 6,909,293 $ 7,243,650
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The accompanying notes are an integral part of these financial statements.
Share data gives effect to the 3-for-2 stock split effective April 9, 2002.
1
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended Six Months Ended
June 30 June 30
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(dollars in thousands, except per share data) 2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $69,073 $ 87,679 $139,460 $181,174
Interest and dividends on investments
Mortgage-backed securities 15,023 9,031 27,856 16,782
U.S. agency securities 5,643 8,188 12,002 17,775
Obligations of states and political subdivisions 1,646 1,907 3,428 4,059
U.S. Treasury securities 1,637 1,660 2,957 3,377
Other securities 621 315 1,204 919
Interest on federal funds sold and short-term investments 1,031 3,848 3,450 5,363
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 94,674 112,628 190,357 229,449
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INTEREST EXPENSE
Interest on deposits 18,534 40,287 40,481 83,100
Interest on short-term borrowings 966 4,075 2,095 10,144
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Total interest expense 19,500 44,362 42,576 93,244
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NET INTEREST INCOME 75,174 68,266 147,781 136,205
PROVISION FOR LOAN LOSSES 2,500 2,500 5,500 5,000
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 72,674 65,766 142,281 131,205
- ---------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 9,598 8,972 19,143 16,793
Credit card income 2,071 4,114 3,927 8,040
Trust service fees 2,345 2,308 4,602 4,769
Secondary mortgage market operations 1,850 1,492 3,900 2,544
Other noninterest income 4,356 4,930 9,017 13,614
Securities transactions 426 32 426 69
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest income 20,646 21,848 41,015 45,829
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NONINTEREST EXPENSE
Employee compensation 26,451 26,399 52,157 52,765
Employee benefits 5,628 4,606 10,896 9,533
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Total personnel expense 32,079 31,005 63,053 62,298
Equipment and data processing expense 4,607 5,492 9,981 12,406
Net occupancy expense 4,867 5,067 9,923 10,237
Credit card processing services 557 2,588 1,056 5,132
Telecommunication and postage 1,951 2,143 4,052 4,295
Legal and professional fees 1,792 1,676 3,170 4,767
Amortization of intangibles 1,462 1,818 2,923 3,638
Ad valorem taxes 1,912 1,809 3,789 3,573
Other noninterest expense 8,546 9,122 16,803 17,248
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 57,773 60,720 114,750 123,594
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 35,547 26,894 68,546 53,440
INCOME TAX EXPENSE 11,762 8,792 22,669 16,772
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NET INCOME $23,785 $ 18,102 $45,877 $36,668
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EARNINGS PER SHARE
Basic $.60 $.46 $1.15 $.93
Diluted .59 .46 1.14 .93
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic 39,888,693 39,484,184 39,815,143 39,448,590
Diluted 40,176,705 39,618,533 40,070,570 39,574,779
CASH DIVIDENDS PER SHARE $.27 $.25 $.54 $.51
- ---------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Share and per share data give effect to the 3-for-2 stock split effective April 9, 2002.
2
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
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Accumulated Unearned
Other Restricted
Common Capital Retained Comprehensive Treasury Stock
(dollars in thousands, except per share data) Stock Surplus Earnings Income Stock Compensation Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $ 2,800 $ 158,083 $ 521,220 $ 1,657 $ (13,680) $ (4,316) $ 665,764
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 36,668 - - - 36,668
Other comprehensive income:
Cumulative effect of accounting change - - - (4,175) - - (4,175)
Unrealized net holding gain on securities,
net of reclassification adjustments
and taxes - - - 8,905 - - 8,905
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Total comprehensive income - - 36,668 4,730 - - 41,398
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Cash dividends, $.51 per share - - (19,993) - - - (19,993)
Cash dividends, pooled entity - - (202) - - - (202)
Stock sold to dividend reinvestment and
employee retirement plans - 849 - - 702 - 1,551
Long-term incentive plan stock activity:
Restricted grants and related activity - 6,077 - - (802) (4,328) 947
Options exercised - 628 - - - - 628
Directors' compensation plan stock activity - 11 - - 101 - 112
Treasury stock issued in pooling
business combination - (12,978) - - 12,978 - -
Stock options from pooled entities exercised - 146 - - - - 146
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Balance at June 30, 2001 $ 2,800 $ 152,816 $ 537,693 $ 6,387 $ (701) $ (8,644) $ 690,351
- ------------------------------------------------------------------------------------------------------------------------------------
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Balance at December 31, 2001 $ 2,800 $ 154,397 $ 556,241 $ 10,104 $ - $ (5,654) $ 717,888
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 45,877 - - - 45,877
Other comprehensive income:
Unrealized net holding gain on securities,
net of reclassification adjustments
and taxes - - - 9,517 - - 9,517
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Total comprehensive income - - 45,877 9,517 - - 55,394
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Cash dividends, $.54 per share - - (21,517) - - - (21,517)
Stock sold to dividend reinvestment and
employee retirement plans - 685 - - - - 685
Long-term incentive plan stock activity:
Restricted grants and related activity - 3,359 - - (243) (2,548) 568
Options exercised - 4,862 - - 31 - 4,893
Directors' compensation plan stock activity - 123 - - 212 - 335
Stock options from pooled entities exercised - 287 - - - - 287
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Balance at June 30, 2002 $ 2,800 $ 163,713 $ 580,601 $ 19,621 $ - $ (8,202) $ 758,533
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Per share data gives effect to the 3-for-2 stock split effective April 9, 2002.
3
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Six Months Ended
June 30
- ----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 45,877 $ 36,668
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of bank premises and equipment 8,368 9,789
Amortization of purchased intangibles 2,923 3,638
Restricted stock compensation earned 2,616 1,705
Securities discount accretion, net of premium amortization 1,511 (177)
Provision for loan losses 5,500 5,000
Provision for losses on foreclosed assets 44 12
Net gains on sales and other dispositions of foreclosed assets (57) (343)
Net (gains) losses on sales and other dispositions of surplus property 94 (4,015)
Net gains on sales of investment securities (426) (69)
Deferred tax benefit (567) (2,328)
Increase (decrease) in accrued income taxes (1,425) 1,681
(Increase) decrease in accrued interest receivable and prepaid expenses (2,467) 3,104
Increase (decrease) in accrued interest payable and other accrued expenses (3,858) 3,272
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 58,133 57,937
- ----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of investment securities held to maturity 21,519 113,830
Proceeds from maturities of investment securities available for sale 227,674 350,769
Proceeds from sales of investment securities available for sale 13,745 50,533
Purchases of investment securities available for sale (492,964) (532,095)
Net decrease in loans 246,772 65,383
Net (increase) decrease in federal funds sold and short-term investments 274,367 (251,292)
Proceeds from sales of foreclosed assets 1,534 840
Proceeds from sales of surplus banking property 1,939 5,883
Purchases of bank premises and equipment (4,276) (6,335)
Other, net 2,872 (1,887)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 293,182 (204,371)
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FINANCING ACTIVITIES
Net increase (decrease) in transaction account and savings account deposits (96,555) 184,560
Net increase (decrease) in time deposits (219,848) 4,331
Net decrease in short-term borrowings (62,672) (62,660)
Proceeds from issuance of common stock 5,263 2,297
Purchases of common stock (2,256) (847)
Cash dividends (21,298) (18,754)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (397,366) 108,927
- ----------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (46,051) (37,507)
Cash and cash equivalents at beginning of period 271,512 273,121
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $225,461 $235,614
- ----------------------------------------------------------------------------------------------------------------------------
Cash received during the period for:
Interest income $190,267 $235,271
Cash paid during the period for:
Interest expense $ 46,525 $ 89,965
Income taxes 23,500 17,452
- ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
4
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Whitney
Holding Corporation and its subsidiaries (the "Company" or "Whitney.") All
significant intercompany balances and transactions have been eliminated. The
Company reports the balances and results of operations from businesses acquired
in purchase transactions from the respective acquisition dates. Certain
financial information for prior periods has been reclassified to conform to the
current presentation.
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. The consolidated financial statements reflect
all adjustments which are, in the opinion of management, necessary for a fair
statement of the financial condition, results of operations, changes in
shareholders' equity and cash flows for the interim periods presented. These
adjustments are of a normal recurring nature and include appropriate estimated
provisions.
Pursuant to rules and regulations of the Securities and Exchange
Commission, certain financial information and disclosures have been condensed or
omitted in preparing the consolidated financial statements presented in this
quarterly report on Form 10-Q. These financial statements should be read in
conjunction with the Company's 2001 annual report on Form 10-K.
In the first quarter of 2002, Whitney declared a three-for-two split of
its common stock that was effective April 9, 2002. All share and per share data
in this quarterly report give effect to this stock split.
NOTE 2 - EARNINGS PER SHARE
The components used to calculate basic and diluted earnings per share
were as follows:
- ---------------------------------------------------------------------------------------------------------------
Three Months Ended June 30 Six Months Ended June 30
- ---------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------
Numerator:
Net income $23,785 $18,102 $45,877 $36,668
Effect of dilutive securities - - - -
- ---------------------------------------------------------------------------------------------------------------
Numerator for diluted earnings per share $23,785 $18,102 $45,877 $36,688
- ---------------------------------------------------------------------------------------------------------------
Denominator:
Weighted-average shares outstanding 39,888,693 39,484,184 39,815,143 39,448,590
Effect of dilutive stock options 288,012 134,349 255,427 126,189
- ---------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share 40,176,705 39,618,533 40,070,570 39,574,779
- ---------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $.60 $.46 $1.15 $.93
Diluted .59 .46 1.14 .93
- ---------------------------------------------------------------------------------------------------------------
Antidilutive stock options 266,433 420,375 249,747 549,035
- ---------------------------------------------------------------------------------------------------------------
5
NOTE 3 - GOODWILL AND OTHER INTANGIBLE ASSETS
Whitney has recognized certain 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 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 in Note 8, in accordance with a new accounting
standard, there is no goodwill amortization beginning in 2002. The following
table shows net income and earnings per share adjusted to show the impact of the
elimination of goodwill amortization.
- ---------------------------------------------------------------------------------------------------------------
Three Months Ended June 30 Six Months Ended June 30
- ---------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------
Net income $23,785 $18,102 $45,877 $36,668
Eliminate goodwill amortization, net of tax - 806 - 1,615
- ---------------------------------------------------------------------------------------------------------------
Adjusted net income $23,785 $18,908 $45,877 $38,283
- ---------------------------------------------------------------------------------------------------------------
Basic earnings per share $.60 $.46 $1.15 $.93
Effect of eliminating goodwill amortization - .02 - .04
- ---------------------------------------------------------------------------------------------------------------
Adjusted basic earnings per share $.60 $.48 $1.15 $.97
- ---------------------------------------------------------------------------------------------------------------
Diluted earnings per share $.59 $.46 $1.14 $.93
Effect of eliminating goodwill amortization - .02 - .04
- ---------------------------------------------------------------------------------------------------------------
Adjusted diluted earnings per share $.59 $.48 $1.14 $.97
- ---------------------------------------------------------------------------------------------------------------
Beginning in 2002, goodwill must be tested for impairment at least
annually. The initial assessment required by the new accounting standard
indicated no goodwill impairment as of January 1, 2002.
The remaining unamortized cost of intangible assets other than goodwill
at June 30, 2002 consisted of deposit relationship intangibles and other
identifiable intangibles totaling $22.7 million, with a weighted-average
remaining life of approximately six years, and unidentified intangibles totaling
$9.0 million, with a remaining life of approximately five years. At December 31,
2001, these totals were $24.8 million and $9.9 million, respectively.
Amortization of other intangible assets totaled $1.5 million in the
second quarter of 2002 and $2.9 million year-to-date through June 30, 2002. The
following shows estimated amortization expense for the full year ending December
31, 2002 and the five succeeding years calculated based on current amortization
schedules.
(dollars in thousands)
- -----------------------------------------------------
2002 $ 5,846
2003 5,332
2004 5,152
2005 5,113
2006 5,107
2007 4,419
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6
NOTE 4 - STOCK-BASED INCENTIVE COMPENSATION
Whitney maintains a long-term incentive plan for key employees and a
directors' compensation plan, each of which allows for the awarding of stock
grants, stock options and other stock-based compensation. During June 2002,
annual awards were made under each of these plans as follows:
- -------------------------------------------------------------------------------------------------------------
Stock Grant Stock Option Award
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) Shares Market Value Shares Exercise Price
- -------------------------------------------------------------------------------------------------------------
Long-term incentive plan for key employees 137,775 $4,666 388,825 $33.87
Directors' compensation plan 6,750 $ 207 45,000 $30.79
- -------------------------------------------------------------------------------------------------------------
The stock grant awarded to employees is subject to forfeiture if the
recipient's employment is terminated within three years of the grant date and
any disposition of the shares received is restricted during this period. The
employee grant can be adjusted based on Whitney's financial performance in
relation to that of a designated peer group over the restriction period. The
ultimate number of shares awarded can range from 0% to 200% of the initial
grant. Compensation expense, initially measured as the market value of the
restricted shares on the grant date, is recognized ratably over the restriction
period. Periodic adjustments are made to reflect changes in the expected
performance adjustment and in the market value of the Company's stock.
The stock options are fixed awards, all of which are fully exercisable
after six months from the grant date. The exercise price is set at the market
price on the grant date. Although Whitney does not recognize compensation
expense with respect to such fixed awards of stock options, accounting
principles require an annual disclosure of the pro forma decrease in net income
and earnings per share as if compensation had been measured and recognized in
expense based on an estimate of the options' fair value. Using the Black-Sholes
option-pricing model to calculate fair value, the pro forma decrease in net
income for 2002 related to these awards is estimated at $3.0 million, net of
tax. This represents a pro forma decrease in earnings per share, both basic and
diluted, of $.07 per share, calculated using weighted-average shares for the six
months ended June 30, 2002. In the annual disclosure for 2001, the pro forma
decrease in net income of applying this same method was estimated to be $2.1
million, or $.05 per split-adjusted share, both basic and diluted. A
weighted-average fair value of $7.91 per optioned share was calculated for the
2002 awards, compared to $6.40 per share on a split-adjusted basis for the
awards in 2001.
The Company made the following significant assumptions in applying the
option-pricing model: (a) an expected annualized volatility for Whitney's common
stock of 25.25% in 2002 and 24.17% in 2001; (b) an average option life of seven
years; (c) an expected annual dividend yield of 3.44% in 2002 and 3.64% in 2001;
and (d) a weighted-average risk-free interest rate of 4.94% in 2002 and 5.28% in
2001.
NOTE 5 - 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.
7
NOTE 6 - INCOME TAXES
In January 2001, Whitney acquired a bank that had elected to be taxed
under Subchapter S of the Internal Revenue Code. Under this election, the bank
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, which was accounted for as a pooling of
interests, terminated the Subchapter S election, and income tax expense has been
provided for earnings derived from the acquired banking operations 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 the first
quarter of 2001 to reflect the expected tax effects of the resolution of
temporary differences between the tax bases of the acquired bank's assets and
liabilities and their reported amounts that had accumulated through the
termination date.
NOTE 7 - COMPREHENSIVE INCOME
Comprehensive income for a period encompasses net income and all other
changes in a company's equity other than from transactions with its owners.
Whitney's comprehensive income was as follows:
- -------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------
Net income $23,785 $18,102 $45,877 $36,668
Other comprehensive income:
Cumulative effect of accounting change - - - (4,175)
Unrealized holding gain (loss) on securities,
net of reclassification adjustments and taxes 14,556 (2,053) 9,517 8,905
- -------------------------------------------------------------------------------------------------------------
Comprehensive income $38,341 $16,049 $55,394 $41,398
- -------------------------------------------------------------------------------------------------------------
NOTE 8 - ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets," was issued in June 2001. Under this new accounting
standard, goodwill is no longer amortized, 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. In transitioning to
this new guidance, the Company was required to assess whether there was an
indication that goodwill in its reporting unit was impaired at the date of
adoption. See Note 3 for the results of this transitional assessment. Impairment
losses identified after this 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. They are reviewed for impairment in accordance with
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
8
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
2002 2001
-------------------------------- -------------------------------------------------
(dollars in thousands, except per share data) Second Quarter First Quarter Fourth Quarter Third Quarter Second Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
QUARTER-END BALANCE SHEET DATA
Total assets $6,909,293 $7,069,048 $7,243,650 $6,878,148 $6,807,256
Earning assets 6,397,054 6,571,160 6,681,786 6,361,118 6,283,248
Loans 4,300,658 4,379,030 4,554,538 4,509,222 4,533,439
Investment in securities 1,875,855 1,811,033 1,632,340 1,644,378 1,483,247
Deposits 5,633,757 5,841,040 5,950,160 5,566,192 5,521,365
Shareholders' equity 758,533 727,069 717,888 717,568 690,351
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET DATA
Total assets $6,986,870 $7,242,746 $7,034,722 $6,825,004 $6,813,065
Earning assets 6,460,942 6,690,593 6,503,952 6,306,997 6,290,430
Loans 4,357,118 4,425,412 4,539,401 4,488,933 4,503,302
Investment in securities 1,863,359 1,695,498 1,652,379 1,548,679 1,435,530
Deposits 5,757,493 5,951,971 5,726,667 5,548,850 5,548,425
Shareholders' equity 745,352 731,120 725,826 702,134 689,272
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Interest income $94,674 $95,683 $101,904 $109,792 $112,628
Interest expense 19,500 23,076 29,252 38,853 44,362
Net interest income 75,174 72,607 72,652 70,939 68,266
Net interest income (TE) 76,381 73,833 73,944 72,258 69,628
Provision for loan losses 2,500 3,000 6,500 8,000 2,500
Noninterest income, excluding securities transactions
and merger-related items 20,220 20,369 20,282 25,002 21,816
Securities transactions 426 - 96 - 32
Noninterest expense, excluding merger-related items 57,773 56,977 55,996 58,866 60,094
Merger-related items (net expense) - - 648 - 626
Net income 23,785 22,092 19,796 19,356 18,102
- ------------------------------------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets 1.37% 1.24% 1.12% 1.13% 1.07%
Return on average shareholders' equity 12.80 12.25 10.82 10.94 10.53
Net interest margin 4.74 4.45 4.52 4.56 4.43
Average loans to average deposits 75.68 74.35 79.27 80.90 81.16
Efficiency ratio before merger-related items 59.81 60.48 59.43 60.52 65.72
Allowance for loan losses to loans 1.67 1.64 1.57 1.45 1.37
Nonperforming assets to loans plus foreclosed assets
and surplus property .93 1.05 .76 .70 .73
Average shareholders' equity to average assets 10.67 10.09 10.32 10.29 10.12
Shareholders' equity to total assets 10.98 10.29 9.91 10.43 10.14
Leverage ratio 9.27 8.68 8.72 9.11 8.92
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON SHARE DATA
Earnings Per Share
Basic $.60 $.56 $.50 $.49 $.46
Diluted .59 .55 .49 .48 .46
Dividends
Cash dividends per share $.27 $.27 $.27 $.25 $.25
Dividend payout ratio 45.37% 48.55% 53.40% 51.83% 55.32%
Book Value Per Share $18.97 $18.30 $18.10 $18.12 $17.46
Trading Data
High closing price $38.52 $34.50 $31.27 $32.56 $31.27
Low closing price 30.51 29.13 26.17 26.84 25.67
End-of-period closing price 30.74 33.24 29.23 28.67 31.27
Trading volume 8,115,882 2,958,102 3,187,866 3,230,252 4,097,418
Average Shares Outstanding
Basic 39,888,693 39,740,776 39,676,092 39,626,288 39,484,184
Diluted 40,176,705 40,166,142 40,114,289 40,071,824 39,618,533
- ------------------------------------------------------------------------------------------------------------------------------------
Share and per share data give effect to the 3-for-2 stock split effective April 9, 2002.
Tax-equivalent (TE) amounts are calculated using a marginal federal income tax rate of 35%.
9
ITEM 2: 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 the second quarters of 2002 and 2001 and during the six-month periods
through June 30 in each year. Virtually all of the Company's operations are
contained in its banking subsidiary, Whitney National Bank (the "Bank.") This
discussion and analysis highlights and supplements information contained
elsewhere in this quarterly report on Form 10-Q, particularly the preceding
consolidated financial statements, notes and selected financial data. This
discussion and analysis should be read in conjunction with the Company's 2001
annual report on Form 10-K.
The Company reports the balances and results of operations from
businesses acquired in purchase transactions from the respective acquisition
dates. Certain financial information for prior periods has been reclassified to
conform to the current presentation.
OVERVIEW
Whitney completed two business acquisitions in the first half of 2001
and one in the fourth quarter of 2001, incurring conversion and other merger
expenses and recognizing a merger-related gain. Table 1 compares second quarter
and year-to-date net income, earnings per share, return on average assets and
return on average shareholders equity for 2002 and 2001, showing the effect of
these merger-related items. All share and per share information in this
quarterly report on Form 10-Q give effect to the three-for-two stock split that
was effective April 9, 2002.
TABLE 1. EFFECTS OF MERGER-RELATED ITEMS
- -------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------
Earnings before tax-effected merger-related items $23,785 $18,511 $45,877 $38,777
Tax-effected merger-related items - (409) - (2,109)
- -------------------------------------------------------------------------------------------------------------
Net income $23,785 $18,102 $45,877 $36,668
- -------------------------------------------------------------------------------------------------------------
Basic earnings per share before tax-effected
merger-related items $.60 $.47 $1.15 $.98
Effect of tax-effected merger-related items - (.01) - (.05)
- -------------------------------------------------------------------------------------------------------------
Basic earnings per share $.60 $.46 $1.15 $.93
- -------------------------------------------------------------------------------------------------------------
Return on average assets before
tax-effected merger-related items 1.37% 1.09% 1.30% 1.16%
Effect of tax-effected merger-related items - (.02) - (.06)
- -------------------------------------------------------------------------------------------------------------
Return on average assets 1.37% 1.07% 1.30% 1.10%
- -------------------------------------------------------------------------------------------------------------
Return on average shareholders' equity before
tax-effected merger-related items 12.80% 10.77% 12.53% 11.47%
Effect of tax-effected merger-related items - (.24) - (.63)
- -------------------------------------------------------------------------------------------------------------
Return on average shareholders' equity 12.80% 10.53% 12.53% 10.84%
- -------------------------------------------------------------------------------------------------------------
10
In accordance with new accounting standards issued in 2001, the
amortization of goodwill ceased completely beginning in 2002. The amortization
of other intangible assets purchased in business combinations continues.
Comparative earnings information excluding the after-tax effect of the
amortization of goodwill is presented in Note 3 to the consolidated financial
statements.
Selected highlights from the second quarter's results follow:
o Net interest income (TE) increased 10%, or $6.8 million, from the
second quarter of 2001, on 3% growth in average earning assets.
Whitney's net interest margin (TE) increased to 4.74% in the
second quarter of 2002, or 31 basis points above the year-earlier
quarter, as the cost of funding earning assets fell further than
earning asset yields during a period of sharply lower market
rates, increased demand for deposit products, and reduced loan
demand.
o Noninterest income, excluding securities transactions, decreased
7% from the second quarter of 2001, reflecting the $2.3 million
impact of Whitney's sale of its agreements to process merchants'
credit card transactions in 2001's third quarter. Adjusting for
this impact and excluding net gains on dispositions of surplus
banking property and grandfathered assets, noninterest income was
6%, or $1.1 million, higher than in the year-earlier quarter.
Growth in business deposits helped generate a 7%, or $.6 million,
increase in service charges from deposit accounts for the second
quarter of 2002. Income from secondary mortgage market operations
was up 24%, or $.4 million, from the level in the second quarter
of 2001.
o Noninterest expense was down 4% from 2001's second quarter,
excluding merger-related costs. Adjusting for an impact of
approximately $2.1 million from the merchant business sale,
noninterest expense would have been little changed. Total
personnel expense increased 6%, or $1.9 million, excluding
merger-related costs in 2001. Savings from systems integration
activities and close control over capital expenditures helped
reduce equipment and data processing expense by 16%, or $.9
million, in 2002's second quarter. The change in accounting for
goodwill contributed to a $.4 million net decrease in amortization
of purchased intangibles compared to the year-earlier quarter.
o Whitney provided $2.5 million for loan losses in the second
quarter of 2002, the same as in 2001's second quarter. Net
charge-offs were $2.5 million in the second quarter of 2002 and
$2.1 million in the year-earlier quarter. Nonperforming assets
totaled $40 million at June 30, 2002, or .93% of loans plus
foreclosed assets and surplus bank property, compared to $33
million, or .73%, at June 30, 2001. The allowance for loan losses
was 1.67% of total loans at June 30, 2002, compared to 1.37% a
year earlier.
11
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, (a) comments regarding the expected growth
rate of the loan portfolio, (b) comments about future changes in the mix of
deposits, (c) statements of the results of net interest income simulations run
by the Company to measure interest rate sensitivity, (d) comments about the
performance of Whitney's net interest income and net interest margin assuming
certain future conditions, (e) remarks about possible future benefits to be
derived from the alliance Whitney formed to provide credit card sale processing
services to its merchant customers, and (f) comments about anticipated growth in
revenue from secondary mortgage market operations.
Forward-looking statements, which Whitney makes in good faith, are
based on numerous assumptions, certain of which may be referred to specifically
in connection with a particular statement. Some of the more important
assumptions include:
o expectations about overall economic strength and the performance of the
economies in Whitney's market area,
o expectations about the movement of interest rates, including actions that
may be taken by the Federal Reserve Board in response to changing economic
conditions,
o reliance on existing or anticipated changes in laws or regulations
affecting the activities of the banking industry and other financial
service providers, and
o expectations regarding the nature and level of competition, changes in
customer behavior and preferences, and Whitney's ability to execute its
plans to respond effectively.
Because it is uncertain whether future conditions and events will
confirm these 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. Whitney cautions the reader 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.
12
FINANCIAL CONDITION
LOANS AND ALLOWANCE FOR LOAN LOSSES
Several factors that restricted growth in the loan portfolio during
2001 were also present during the first half of 2002. These included a reduced
level of economic activity and uncertainty regarding future economic conditions,
a rate environment that offered developers favorable permanent financing
opportunities and encouraged home owners to refinance, and management's decision
to continue selling most new production of retail mortgage loans in the
secondary market. Average loans in the second quarter of 2002 were 3%, or $146
million, lower than the second quarter of 2001. Since year-end 2001, total
loans have decreased 6%, or $254 million. Given current underlying conditions,
a return to significant portfolio growth is not anticipated in the near term.
The commercial real estate portfolio, which includes loans secured by
properties used in commercial or industrial operations, was little changed.
Growth in the commercial real estate portfolio has been limited by developers
taking advantage of permanent financing opportunities in a favorable rate
environment and a moderating pace of new project development in the face of a
slowdown in the general economy and heightened economic uncertainty. In recent
years, activity in this portfolio segment has been mainly driven by apartment
and condominium projects, particularly in the eastern Gulf Coast region,
development of retail, small office and commercial facilities throughout
Whitney's market area, and hotel and other hospitality industry projects,
largely in the New Orleans metropolitan area.
The portfolio of commercial loans other than those secured by real
property also showed little growth on average over 2001's second quarter. The
balance in this portfolio category at June 30, 2002, was $132 million below the
level at the end of 2001, although this decrease was partly related to year-end
seasonal factors. There have been no major trends or changes in the
concentration mix of this portfolio category from year-end 2001. Outstanding
balances under participations in syndicated loan commitments totaled $216
million at the end of 2002's second quarter compared to $200 million at the end
of 2001, including approximately $80 million related to the oil and gas industry
at each date. Whitney's customer base in the oil and gas industry mainly
provides services and products to support exploration and production activities.
Substantially all of the syndicated loans are with customers operating in
Whitney's market area.
The impact of refinancings and the continuing policy of selling most
retail mortgage production is evident in a 20%, or $176 million, decrease in
average retail mortgage loans from 2001's second quarter, as well as the 12%, or
$96 million, decrease from December 31, 2001. A reduction in retail mortgages in
the sale pipeline accounted for close to half of the change from the end of
2001. Loans to individuals grew a moderate 6%, or $18 million, between the
second quarters of 2002 and 2001, and are also up from year-end 2001, mainly
through the successful promotion of secured personal credit lines.
13
Table 2 shows loan balances at June 30, 2002 and at the end of the four
prior quarters.
TABLE 2. LOANS
- -------------------------------------------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------- --------------------------------------------
(dollars in thousands) June 30 March 31 December 31 September 30 June 30
- -------------------------------------------------------------------------------------------------------------------
Commercial, financial and
agricultural loans $1,719,674 $1,753,979 $1,852,497 $1,806,218 $1,775,708
Real estate loans - commercial
and other 1,535,446 1,568,782 1,576,817 1,543,307 1,548,386
Real estate loans - retail mortgage 724,429 740,448 820,808 857,701 907,441
Loans to individuals 321,109 315,821 304,416 301,996 301,904
- -------------------------------------------------------------------------------------------------------------------
Total loans $4,300,658 $4,379,030 $4,554,538 $4,509,222 $4,533,439
- -------------------------------------------------------------------------------------------------------------------
TABLE 3. SUMMARY OF ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES
- ---------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
- ---------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------
Balance at the beginning of period $71,669 $61,846 $71,633 $61,017
Allowance on loans transferred to held for sale - (21) - (651)
Provision for loan losses 2,500 2,500 5,500 5,000
Loans charged to the allowance:
Commercial, financial and agricultural (1,617) (2,986) (4,623) (4,765)
Real estate (1,268) (95) (1,630) (136)
Loans to individuals (786) (698) (1,782) (1,384)
- ---------------------------------------------------------------------------------------------------------
Total charge-offs (3,671) (3,779) (8,035) (6,285)
- ---------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial, financial and agricultural 579 553 1,193 1,420
Real estate 133 666 469 913
Loans to individuals 457 500 907 851
- ---------------------------------------------------------------------------------------------------------
Total recoveries 1,169 1,719 2,569 3,184
- ---------------------------------------------------------------------------------------------------------
Net charge-offs (2,502) (2,060) (5,466) (3,101)
- ---------------------------------------------------------------------------------------------------------
Balance at the end of period $71,667 $62,265 $71,667 $62,265
- ---------------------------------------------------------------------------------------------------------
Ratios:
Net annualized charge-offs
to average loans .23% .18% .25% .14%
Gross annualized charge-offs to average loans .34 .34 .37 .28
Recoveries to gross charge-offs 31.84 45.49 31.97 50.66
Allowance for loan losses to loans
at end of period 1.67 1.37 1.67 1.37
- ---------------------------------------------------------------------------------------------------------
14
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
size of the allowance for loan losses, and changes in this ongoing evaluation
over time are reflected in the provision for loan losses charged to operating
expense. Table 3 above compares second quarter 2002 activity in the allowance
for loan losses with the second quarter of 2001 and also compares six-month
activity for each year. Table 4 below shows total nonperforming assets at June
30, 2002 and at the end of the preceding four quarters.
TABLE 4. NONPERFORMING ASSETS
- -----------------------------------------------------------------------------------------------------------------------
2002 2001
- -----------------------------------------------------------------------------------------------------------------------
June March December September June
(dollars in thousands) 30 31 31 30 30
- -----------------------------------------------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis $37,442 $42,279 $33,412 $30,032 $31,655
Restructured loans 358 371 383 396 408
- -----------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 37,800 42,650 33,795 30,428 32,063
Foreclosed assets and surplus property 2,340 3,281 991 1,287 1,022
- -----------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $40,140 $45,931 $34,786 $31,715 $33,085
- -----------------------------------------------------------------------------------------------------------------------
Loans 90 days past due still accruing $ 9,390 $ 6,812 $ 6,916 $ 8,512 $ 6,581
- -----------------------------------------------------------------------------------------------------------------------
Ratios:
Nonperforming assets to loans
plus foreclosed assets and surplus property .93% 1.05% .76% .70% .73%
Allowance for loan losses to
nonperforming loans 189.60 168.04 211.96 214.77 194.20
Loans 90 days past due still accruing to loans .22 .16 .15 .19 .15
- -----------------------------------------------------------------------------------------------------------------------
The credit risk profile of the Company's customers increased moderately
during 2001 and Whitney steadily increased the allowance for loan losses as a
percent of loans over this period as economic conditions softened and
uncertainty increased. At December 31, 2001, the allowance for loan losses was
1.57% of total loans compared to 1.33% of total loans a year earlier. Credit
risk profiles were on the whole relatively stable in the first half of 2002, and
the increase in the ratio of the allowance to total loans to 1.67% at June 30,
2002, was largely a function of an increase in the allowance recognized against
certain impaired loans combined with a lower level of total loans outstanding.
Nonperforming assets increased to .93% of loans plus foreclosed assets
and surplus bank property at the end of 2002's second quarter, from .76% at
year-end 2001, and .73% at June 30, 2001. Neither this increase nor the higher
level of past-due loans still accruing at June 30, 2002, however, is indicative
of any significant underlying trends relating to industries or markets.
At June 30, 2002, loans internally classified as having above-normal
credit risk totaled $235 million, a decrease of approximately $64 million from
December 31, 2001, and $38 million from the end of 2001's second quarter. More
than half of the decrease from year-end 2001 was related to improved outlooks
for two larger credits that had been downgraded during 2001 and had been
included in the shared national credit review process by Federal banking
regulators. Loans warranting special attention because of risk characteristics
that indicate potential weaknesses decreased $68 million during the first half
of 2002 to a total of $86 million. There was a $5 million decrease, to a total
of $129 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, increased $9 million to a total of $20 million.
15
INVESTMENT IN SECURITIES
At June 30, 2002, total securities were $1.88 billion, compared to
$1.63 billion at December 31, 2001 and $1.48 billion at June 30, 2001. The
average investment in securities in 2002's second quarter was up 30%, or $428
million, from the second quarter of 2001. Short-term liquidity investments,
including federal funds sold, totaled $221 million at the end of 2002's second
quarter, compared to $495 million at year-end 2001 and $267 million at June 30,
2001. On average, liquidity investments in the second quarter of 2002 were $111
million, or 32%, below the level in the year-earlier quarter.
Deposit growth during a period of restrained loan demand led to a
significant increase in liquidity during 2001. Information on changes in
deposits and other funding sources is presented in the following section. Over
time, management has directed more of this liquidity to the investment
portfolio, particularly to securities with loan-type characteristics and a
relatively short duration, based on its expectations regarding the stability of
the funding sources and the near-term prospects for loan demand.
In recent years, Whitney had steadily built its investment in
securities classified as available for sale, primarily as a means to increase
liquidity management flexibility. 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 SFAS No. 133. 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. Securities available for sale now constitute 91% of the
total investment portfolio. At June 30, 2002, there was an unrealized net gain
on securities available for sale totaling $30.3 million. The increase from an
unrealized net gain of $15.8 million at year-end 2001 mainly reflected the
impact on fixed income security prices of shifts in the slope of the yield
curve.
DEPOSITS AND SHORT-TERM BORROWINGS
Average deposits were up 4%, or $209 million, in the second quarter of
2002 compared to the second quarter of 2001. Deposits associated with bank
operations purchased late in 2001 contributed approximately $130 million. At
June 30, 2002, deposits were 5%, or $316 million, below the level at December
31, 2001, mainly because of seasonality in the Company's deposit flows and an
influx of temporary funds from local governmental entities at the end of 2001
and during the first quarter of 2002.
Increased demand for the safety and liquidity of deposit products
helped fuel accelerated growth throughout 2001. Although no overall deposit
growth has occurred during the first half of 2002, there has been no indication
of a significant change in the factors underlying this demand. This is evident
in the 12%, or $174 million, increase in average noninterest-bearing demand
deposits for 2002's second quarter, including approximately $40 million from
acquired operations.
Total average interest-bearing deposits, however, increased less than
1%, or $35 million, compared to the year-earlier period, despite the addition of
approximately $90 million of deposits associated with acquired operations.
The lack of further growth in interest-bearing deposits during 2002 was largely
a reaction to steadily declining renewal rates for time deposits and, to a
lesser degree, reduced yields on other deposit products.
The shift in the mix of interest-bearing deposits between the second
quarters of 2001 and 2002 was partly a function of funds flows between deposit
products in response to the reduced yields. Average money market deposits grew
28%, or $289 million, compared to 2001's second quarter; and regular savings
deposits were up 13%, or $59 million, temporarily reversing a trend
16
away from this more traditional deposit product. NOW account deposits were also
up over the second quarter of 2002, by 15%, or $82 million on average. The sharp
drop in this deposit category compared to 2002's first quarter was related to an
influx of temporary funds from local governmental entities in that period. Total
time deposits, however, decreased 19%, or $396 million on average, compared to
the second quarter of 2001. The maturity of approximately $550 million of time
deposits in the third quarter of 2002 will likely contribute to further shifts
in the mix of deposits.
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. The Company develops its liquidity management
strategies and measures and monitors liquidity risk as part of its overall
asset/liability management process.
On the liability side, liquidity management focuses on growing the base
of 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 the second quarter of 2002. 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.
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
the first six months of 2002 and 2001.
The Bank had over $1.4 billion in unfunded loan commitments outstanding
at June 30, 2002, up 11% from 2001's year-end. 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.
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 measures
interest rate sensitivity primarily by running net interest income simulations
and monitoring the economic value of equity. The net interest income simulations
run at the end of 2002's second quarter indicated that Whitney continued to be
moderately asset sensitive over the near term, similar to its position at
year-end 2001. Based on these simulations, annual net interest income would be
expected to increase $10 million, or 3.5%, and decrease $11 million, or almost
4%, if interest rates instantaneously increased or decreased, respectively, from
current rates by 100 basis points. These changes are measured against the
results of a base simulation run that uses current growth forecasts and assumes
a stable rate environment and structure. The actual impact of changing interest
rates on net interest income is dependent on many factors including the growth
in earning assets and the demand for deposit products, the mix of earning assets
and interest-bearing liabilities, the 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.
17
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
At June 30, 2002, shareholders' equity totaled $759 million compared to
$718 million at year-end 2001. The major factors in this $41 million increase
were earnings, net of dividends declared, of approximately $24 million, and a
$10 million increase in the tax-effected net unrealized holding gain on
securities available for sale.
The ratios in Table 5 indicate that the Company remained strongly
capitalized at June 30, 2002.
TABLE 5. RISK-BASED CAPITAL AND CAPITAL RATIOS
- --------------------------------------------------------------------------------------------
June 30 December 31
(dollars in thousands) 2002 2001
- --------------------------------------------------------------------------------------------
Tier 1 regulatory capital $ 638,018 $ 604,179
Tier 2 regulatory capital 63,261 63,878
- --------------------------------------------------------------------------------------------
Total regulatory capital $ 701,279 $ 668,057
- --------------------------------------------------------------------------------------------
Risk-weighted assets $5,052,480 $5,102,470
- --------------------------------------------------------------------------------------------
Ratios
Leverage (Tier 1 capital to average assets) 9.27% 8.72%
Tier 1 capital to risk-weighted assets 12.63 11.84
Total capital to risk-weighted assets 13.88 13.09
Shareholders' equity to total assets 10.98 9.91
- --------------------------------------------------------------------------------------------
The regulatory capital ratios for 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.
During the first quarter, Whitney announced a three-for-two split of
its common stock that was effective April 9, 2002. The Company declared a
dividend of $.27 per post-split share in each of the first two quarters of 2002.
These dividends are comparable to the split-adjusted rate in the fourth quarter
of 2001 and represent more than a 6% increase over the $.25 per share
split-adjusted dividend declared for the first three quarters of 2001.
18
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income (TE) for the second quarter of 2002 increased 10%,
or $6.8 million, from the second quarter of 2001, on average earning asset
growth of 3%. Compared to 2002's first quarter, net interest income (TE) was up
3%, or $2.5 million, despite a 3% decline in average earning assets between
these periods. Whitney's net interest margin (TE) of 4.74% in the second quarter
of 2002 was 31 basis points above the year-earlier quarter and 29 basis points
above the first quarter of 2002, when an influx of temporary public fund
deposits caused some margin compression. Tables 6 and 7 show the components of
changes in the Company's net interest income and net interest margin.
Maintaining the net interest margin at current levels and further growing net
interest income during a period of static interest rates and limited asset
growth cannot be assured.
There was a 3% decrease in average loans in the second quarter of 2002
compared to the year-earlier quarter, and average loans declined to 67% percent
of earning assets from 72% in the second quarter of 2001. Liquidity generated by
loan reductions and a sustained demand for deposit products was gradually
deployed in the investment portfolio, which increased to 29% of earning assets
in 2002's second quarter from 23% a year earlier.
Market rates declined steadily throughout 2001, stabilizing somewhat in
the first half of 2002. The average prime rate in the most recent quarter was
more than 250 basis points lower than in the second quarter of 2001. Fixed-rate
components of the loan portfolio and discipline in loan pricing in the face of
declining demand helped limit the decrease in the loan portfolio yield (TE)
between these periods to 145 basis points. The average rate earned on the
predominantly fixed-rate investment portfolio decreased 70 basis points. The
overall yield on earning assets in 2002's second quarter was 131 basis points
lower than the year-earlier quarter.
The total interest cost of funding earning assets in 2002's second
quarter decreased 162 basis points from the second quarter of 2001. Increased
demand for the safety and liquidity of deposit products has had a favorable
impact on the mix of funding sources. The percent of earning assets funded by
noninterest-bearing sources grew to almost 29% in the second quarter of 2002
compared with 27% in 2001's second quarter. Over this same period, the ratio of
higher-cost sources of funds to average earning assets dropped to 32% from 40%
in the second quarter of 2001, as time deposits decreased 19% in response to
steadily declining renewal rates, shifting in part to lower cost products.
Higher-cost funding sources also include short-term borrowings. While the cost
of other interest-bearing funding sources decreased quickly throughout 2001 in
response to falling market rates, the maturity structure of fixed rate time
deposits was such that the cost of these deposits declined more slowly. As money
market rates stabilized in the first half of 2002, however, the cost of time
deposits continued to decline. The average rate on time deposits in the second
quarter of 2002 was 118 basis points lower than 2001's fourth quarter. Over the
same period the rate on other interest-bearing funds decreased by 35 basis
points.
For the first six months of 2002, net interest income (TE) increased
8%, or $11.3 million, over the same period in 2001, on earning asset growth of
6%. The net interest margin was 4.59% for the 2002 period and 4.51% for the
prior year's period. The average yield on earning assets decreased 164 basis
points, with loan yields down 168 basis points in 2002 and the average rate
earned on the investment portfolio 69 basis points below the rate earned in
2001. The total interest cost of funding earning assets declined 172 basis
points compared to the first six months of 2001. The same factors that affected
the mix and rates for earning assets and funding sources in the second quarter
of 2002 were evident for the year-to-date period.
19
TABLE 6. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME(TE)(a) AND INTEREST RATES
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Second Quarter 2002 First Quarter 2002 Second Quarter 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans (TE)(a),(b) $4,357,118 $69,394 6.39% $4,425,412 $70,653 6.47% $4,503,302 $ 88,015 7.84%
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 1,066,158 15,023 5.64 885,964 12,833 5.79 593,842 9,031 6.08
U.S. agency securities 435,538 5,643 5.18 483,250 6,359 5.26 542,803 8,188 6.03
Obligations of states and
political subdivisions (TE) (a) 145,999 2,532 6.94 156,102 2,742 7.03 164,173 2,933 7.15
U.S. Treasury securities 159,763 1,637 4.11 118,064 1,320 4.53 109,259 1,660 6.09
Other securities 55,901 621 4.44 52,118 583 4.47 25,453 315 4.95
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment in securities 1,863,359 25,456 5.47 1,695,498 23,837 5.63 1,435,530 22,127 6.17
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and
short-term investments 240,465 1,031 1.72 569,683 2,419 1.72 351,598 3,848 4.39
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 6,460,942 $95,881 5.95% 6,690,593 $96,909 5.85% 6,290,430 $113,990 7.26%
- ------------------------------------------------------------------------------------------------------------------------------------
NONEARNING ASSETS
Other assets 598,456 625,014 584,887
Allowance for loan losses (72,528) (72,861) (62,252)
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $6,986,870 $7,242,746 $6,813,065
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
NOW account deposits $ 653,014 $ 1,183 .73% $ 818,098 $ 2,125 1.05% $ 570,112 $ 1,873 1.32%
Money market deposits 1,332,376 4,920 1.48 1,298,161 5,183 1.62 1,043,498 8,408 3.23
Savings deposits 516,484 1,038 .81 501,394 1,006 .81 457,512 2,005 1.76
Other time deposits 933,329 6,986 3.00 981,800 8,471 3.50 1,144,672 16,201 5.68
Time deposits $100,000 and over 707,128 4,407 2.50 754,550 5,162 2.77 891,894 11,800 5.31
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 4,142,331 18,534 1.79 4,354,003 21,947 2.04 4,107,688 40,287 3.93
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 422,461 966 .92 495,683 1,129 .92 502,884 4,075 3.25
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 4,564,792 $19,500 1.71% 4,849,686 $23,076 1.93% 4,610,572 $ 44,362 3.86%
- ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 1,615,162 1,597,968 1,440,737
Other liabilities 61,564 63,972 72,484
Shareholders' equity 745,352 731,120 689,272
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $6,986,870 $7,242,746 $6,813,065
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income and
margin (TE) (a) $76,381 4.74% $73,833 4.45% $ 69,628 4.43%
Net earning assets and spread $1,896,150 4.24% $1,840,907 3.92% $1,679,858 3.40%
Interest cost of funding
earning assets 1.21% 1.40% 2.83%
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Tax-equivalent (TE) amounts are calculated using a marginal federal income tax rate of 35%.
(b) Average balance includes nonaccruing loans of $38,902, $34,636 and $25,837 respectively, in the second and first quarters
of 2002 and the second quarter of 2001.
20
TABLE 6. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME(TE)(a) AND INTEREST RATES (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
(dollars in thousands) June 30, 2002 June 30, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average
Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans (TE)(a),(b) $4,391,076 $140,047 6.43% $4,517,339 $181,764 8.11%
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 976,559 27,856 5.70 544,662 16,782 6.16
U.S. agency securities 459,262 12,002 5.23 590,265 17,775 6.02
Obligations of states and political
subdivisions (TE) (a) 151,022 5,274 6.98 170,575 6,223 7.30
U.S. Treasury securities 139,028 2,957 4.29 111,952 3,377 6.08
Other securities 54,020 1,204 4.46 31,278 919 5.88
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment in securities 1,779,891 49,293 5.54 1,448,732 45,076 6.23
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and short-term
investments 404,165 3,450 1.72 233,653 5,363 4.63
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 6,575,132 $192,790 5.90% 6,199,724 $232,203 7.54%
- ------------------------------------------------------------------------------------------------------------------------------------
NONEARNING ASSETS
Other assets 611,663 594,033
Allowance for loan losses (72,694) (62,121)
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $7,114,101 $6,731,636
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
NOW account deposits $ 735,101 $ 3,308 .91% $ 589,710 $ 4,190 1.43%
Money market deposits 1,315,363 10,103 1.55 968,793 17,048 3.55
Savings deposits 508,980 2,044 .81 453,733 4,209 1.87
Other time deposits 957,430 15,457 3.26 1,143,718 32,775 5.78
Time deposits $100,000 and over 730,709 9,569 2.64 889,286 24,878 5.64
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 4,247,583 40,481 1.92 4,045,240 83,100 4.14
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 458,870 2,095 .92 520,284 10,144 3.93
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 4,706,453 $ 42,576 1.82% 4,565,524 $ 93,244 4.12%
- ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 1,606,612 1,412,634
Other liabilities 62,761 71,524
Shareholders' equity 738,275 681,954
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity $7,114,101 $6,731,636
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income and margin (TE) (a) $150,214 4.59% $138,959 4.51%
Net earning assets and spread $1,868,679 4.08% $1,634,200 3.42%
Interest cost of funding earning assets 1.31% 3.03%
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Tax-equivalent (TE) amounts are calculated using a marginal federal income tax rate of 35%.
(b) Average balance includes nonaccruing loans of $36,781 and $24,962, respectively, in the first six months of 2002 and 2001.
21
TABLE 7. SUMMARY OF CHANGES IN NET INTEREST INCOME(TE)(a)
- ------------------------------------------------------------------------------------------------------------------------------------
Second Quarter 2002 Compared to: Six Months Ended June 30,
First Quarter 2002 Second Quarter 2001 2002 Compared to 2001
----------------------------------------------------------- ----------------------------
Due To Total Due To Total Due To Total
Change In Increase Change In Increase Change In Increase
(dollars in thousands) Volume Rate (Decrease) Volume Rate (Decrease) Volume Rate (Decrease)
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME(TE)
Loans (TE)(a) $ (693) $ (566) $(1,259) $(2,778) $(15,843) $(18,621) $(4,955) $(36,762) $(41,717)
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 2,546 (356) 2,190 6,710 (718) 5,992 12,404 (1,330) 11,074
U.S. agency securities (619) (97) (716) (1,485) (1,060) (2,545) (3,618) (2,155) (5,773)
Obligations of states and political
subdivisions (TE) (a) (176) (34) (210) (317) (84) (401) (691) (258) (949)
U.S. Treasury securities 448 (131) 317 628 (651) (23) 708 (1,128) (420)
Other securities 42 (4) 38 342 (36) 306 547 (262) 285
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment in securities 2,241 (622) 1,619 5,878 (2,549) 3,329 9,350 (5,133) 4,217
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and
short-term investments (1,385) (3) (1,388) (963) (1,854) (2,817) 2,593 (4,506) (1,913)
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income (TE) (a) 163 (1,191) (1,028) 2,137 (20,246) (18,109) 6,988 (46,401) (39,413)
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
NOW account deposits (371) (571) (942) 247 (937) (690) 881 (1,763) (882)
Money market deposits 149 (412) (263) 1,935 (5,423) (3,488) 4,764 (11,709) (6,945)
Savings deposits 39 (7) 32 236 (1,203) (967) 461 (2,626) (2,165)
Other time deposits (383) (1,102) (1,485) (2,594) (6,621) (9,215) (4,705) (12,613) (17,318)
Time deposits $100,000 and over (293) (462) (755) (2,081) (5,312) (7,393) (3,844) (11,465) (15,309)
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits (859) (2,554) (3,413) (2,257) (19,496) (21,753) (2,443) (40,176) (42,619)
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings (156) (7) (163) (566) (2,543) (3,109) (1,075) (6,974) (8,049)
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense (1,015) (2,561) (3,576) (2,823) (22,039) (24,862) (3,518) (47,150) (50,668)
- ------------------------------------------------------------------------------------------------------------------------------------
Change in net interest
income (TE)(a) $ 1,178 $ 1,370 $ 2,548 $ 4,960 $ 1,793 $ 6,753 $10,506 $ 749 $ 11,255
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Tax-equivalent (TE) amounts are calculated using a marginal federal income tax rate of 35%.
22
PROVISION FOR LOAN LOSSES
Whitney provided $2.5 million for loan losses in the second quarter of
2002, the same as in 2001's second quarter, but down from $3.0 million in the
first quarter of 2002. The $5.5 million year-to-date provision in 2002 compares
to a $5.0 million provision in the first half of 2001. Net charge-offs totaled
$2.5 million for the current quarter compared to $3.0 million in 2002's first
quarter, and $2.1 million in the year-earlier quarter. Net charge-offs were $5.5
million for the first six months of 2002 and $3.1 million for the comparable
period in 2001.
Reflecting a moderate increase in the Company's credit risk profile,
the allowance for loan losses increased to 1.67% of total loans at the end of
the most recent quarter compared to 1.37% a year earlier. The future level of
the allowance and provisions for loan losses will reflect management's ongoing
evaluation, based on established internal policies and practices, of the risk of
loss inherent in the portfolio.
For a discussion of changes in the allowance for loan losses,
nonperforming assets and general asset quality see the earlier section on Loans
and Allowance for Loan Losses.
NONINTEREST INCOME
Noninterest income, excluding securities transactions, totaled $20.2
million for the second quarter of 2002, a decrease of $1.6 million from the
second quarter of 2001. At the end of 2001's third quarter, Whitney sold its
merchant processing agreements to a firm that specializes in this business,
while maintaining an interest in the ongoing revenues generated through an
alliance formed with the specialist. In comparison with the second quarter of
2001, this move reduced noninterest income for the second quarter of 2002 by
approximately $2.3 million and noninterest expense by $2.1 million. Over time,
the results from the alliance are expected to benefit from the specialist's
operating efficiencies and from added growth in the merchant customer base
through focused sales management and enhanced customer service.
Quarterly income from service charges on deposit accounts was up 7%, or
$.6 million, in 2002. Growth in business deposits and benefits from pricing
policy refinements and automated decision tools that were introduced beginning
in 2001's second quarter both contributed to this increase. Lower market rates
have also had a favorable impact on deposit service fees by reducing the
earnings credit that is allowed as an offset to charges on certain business
accounts.
Income from secondary mortgage market operations was up $.4 million, or
24%, from the level in the second quarter of 2001. Sale volumes through the
first half of 2002 continued to show the benefits of favorable market rates,
although production levels were down from their peak in the fourth quarter of
2001. Significant year-over-year growth in this income category is not currently
anticipated for the second half of 2002.
Adjusting for the impact of the merchant business sale, revenue from
credit and debit card transactions rose $.3 million, or 19%, in the second
quarter of 2002, on wider distribution and increased use of Whitney's card
products.
Other noninterest income decreased approximately $.6 million. Net gains
on dispositions of surplus banking property and foreclosed assets, including
certain grandfathered assets, totaled approximately $.8 million in the second
quarter of 2001 but were negligible in the most recent quarter.
Noninterest income, excluding securities transactions, was $40.6
million through the first six months of this year, compared to $45.8 million in
the first half of 2001. Service charges on deposit accounts increased 14%, or
$2.3 million, with the year-to-date results reflecting a more pronounced benefit
from pricing policy and system changes first introduced in 2001's second
quarter. Secondary mortgage market operations posted a $1.4 million, or 53%,
increase for the first six months of 2002. Credit card income declined $4.1
million, but was up $.6 million, or
23
20%, after adjusting for the $4.7 million year-to-date impact of the merchant
business sale. Lower asset values in the capital markets contributed to a 4%, or
$.2 million, decrease in trust services income, although growth in the customer
base as well as a modification of fee schedules helped limit the negative impact
from continuing capital market turmoil.
The $4.6 million decrease in other noninterest income mainly reflected
a reduction in net gains from dispositions of surplus property and grandfathered
assets. Net gains of approximately $3.8 million were recognized in 2001,
including merger-related gains of $1.1 million. During the first half of 2002
there was a minor net loss from such activity. In 2001, other noninterest income
also included a $.9 million gain on the sale of a significant portion of the
student loan portfolio that followed management's decision to shorten the period
Whitney holds such loans.
NONINTEREST EXPENSE
Total noninterest expense was $57.8 million in the second quarter of
2002, a decrease of 4% compared to the $60.1 million total for the second
quarter of 2001. The 2001 total excludes $.6 million of merger-related costs.
Adjusting for the impact of the merchant business sale, noninterest expense
would have been little changed.
Total personnel expense in 2002's second quarter was 6%, or $1.9
million, higher than the second quarter of 2001, excluding $.8 million of
merger-related costs in the year-earlier period. Employee compensation increased
3%, or $.9 million, and employee benefits were up 22%, or $1.0 million. Base
salaries and the cost of various targeted employee incentive pay plans increased
a moderate 4%, or approximately $1.0 million, over the level in 2001's second
quarter, including the impact of bank operations purchased in late 2001. The
integration of operations of pooled entities acquired in early 2001 allowed the
Company to absorb the employees from the fourth quarter acquisition while
maintaining a staff level that was little changed from a year earlier.
Higher costs of providing both retirement and health benefits drove the
increase in employee benefits expense. The expense of providing benefits under
the defined benefit pension rose $.5 million for the second quarter of 2002.
Holding other variables constant, a weak investment performance by the pension
trust fund or a decline in market yields on fixed-income securities will cause
the actuarially determined periodic pension expense to increase in following
periods. Each of these conditions was present in 2001.
Equipment and data processing expense in the second quarter of 2002 was
16%, or $.9 million, less than the level in the year-earlier quarter. Savings
from systems integration activities completed in 2001 and close control over
capital expenditures, for both new projects and the replacement of
fully-depreciated assets, have helped offset recurring costs for purchased
operations and for applications that support expanded customer services and
products and management tools.
Amortization of purchased intangibles decreased $.4 million compared to
the year-earlier quarter. The $.9 million benefit from the elimination of
goodwill amortization in 2002 was partly offset by amortization of the deposit
relationship intangible purchased in the Northwest Bank acquisition in 2001's
fourth quarter and adjustments to the amortization schedule for certain other
purchased intangibles. Based on current schedules, amortization of purchased
intangibles other than goodwill will total $5.8 million in 2002. For 2001, total
amortization was $7.4 million, including $3.6 million of goodwill amortization
of which $2.5 million was not deductible for income tax purposes.
For the six-month period, noninterest expense totaled $115 million.
This was a 3%, or $3.3 million, decrease compared to the first half of 2001,
excluding $5.5 million of merger-
24
related costs in the earlier period. Adjusting for the impact of the merchant
business sale, there would have been an increase of less than 1%. Personnel
expense increased 6%, or $3.6 million, through the first half of 2002, after
excluding from the prior year $2.9 million of merger-related costs.
Substantially the same factors were behind the quarterly and year-to-date
increases in 2002 compared to 2001. Equipment and data processing expense
decreased 12%, or $1.4 million, in the first half of 2002, after excluding $1.1
million of merger-related costs in 2001. Legal and professional service fees
were up 10%, or $.3 million, before merger-related costs in 2001 totaling $1.9
million. These changes and the changes in other major noninterest expense
categories between the first six months of 2001 and 2002 were generally
consistent with the quarter-to-quarter changes and were mainly the result of the
same factors cited in the discussion of quarterly results above.
INCOME TAXES
The Company provided for income tax expense at an effective rate of
33.09% in the second quarter of 2002 compared to a rate of 32.69% in the
year-earlier period. Year-to-date the effective rate was 33.07% in 2002 and
31.38% in 2001. In the first quarter of 2001, Whitney recorded a deferred tax
benefit of approximately $1 million related to the termination of an acquired
bank's Subchapter S election, as discussed in Note 6 to the consolidated
financial statements. Whitney's effective rates have been lower than the 35%
federal statutory rate primarily because of tax-exempt interest income from the
financing of state and local governments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required for this item is included in the section
entitled Asset/Liability Management on page 17 of Management's Discussion and
Analysis of Financial Condition and Results of Operations.
25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
(c) On May 22, 2002, the Company issued to Richard B. Crowell, one
of its directors, 4,500 shares of Whitney Holding
Corporation common stock upon his exercise of stock options
previously issued to him under the Company Directors'
Compensation Plan. The exercise price for 1,500 of these
shares was $50,874.90, the exercise price for an additional
1,500 of these shares was $39,312.45 and the exercise price
for the remaining 1,500 of these shares was $34,437.45
(resulting in an aggregate purchase price of $124,624.80 for
the shares), all of which was paid in cash. This issuance
was made pursuant to an exception from registration provided
by Section 4(2) of the Securities Act of 1933, as amended
(the "Act"), as the issuance of common stock upon the
exercise of Mr. Crowell's options did not involve a "public
offering" under the Act given, among other things, the
identity, nature and limited number of persons to whom the
shares were issued.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of Whitney Holding Corporation's
shareholders was held on April 24, 2002.
(b),(c) Proxies for the meeting were solicited pursuant to Section
14(a) of the Securities and Exchange Act of 1934. There was no
solicitation in opposition to the nominees for election to the
Company's Board for Directors as listed in the proxy
statement.
The nominees for director and the voting results were as follows:
Nominee Elected Withheld/ Broker
as Director For Against Abstain Non-vote
-----------------------------------------------------------------------
James M. Cain 21,778,834 235,298 None None
Richard B. Crowell 21,778,810 235,322 None None
The vote to re-approve performance measures included in the Company's
1997 Long-Term Incentive Plan was as follows:
Withheld/ Broker
For Against Abstain Non-vote
----------------------------------------------
20,998,577 909,952 105,603 None
26
The vote to ratify the selection by the Company's Board of Directors of
Arthur Andersen LLP as independent public accountants was as follows:
Withheld/ Broker
For Against Abstain Non-vote
-----------------------------------------------
17,881,545 2,259,311 1,873,276 None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
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).
27
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).
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 (filed as
Exhibit 10.8b to the Company's annual report on Form 10-K for the year
ended December 31, 2001 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.8c - Form of restricted stock agreement between Whitney
Holding Corporation and certain of its officers appearing on page 31.
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 on Form 10-K for the year
ended December 31, 2000 (Commission file number 0-1026) and
incorporated by reference).
28
Exhibit 10.9b - Form of amendment to stock option agreement between
Whitney Holding Corporation and certain of its officers (filed as
Exhibit 10.9b to the Company's annual report on Form 10-K for the year
ended December 31, 2001 (Commission file number 0-1026) and
incorporated by reference).
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).
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).
29
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.
(b) Reports on Form 8-K
On a Form 8-K dated April 18, 2002, the registrant reported
under Item 5 the release of its financial results for the quarter ended
March 31, 2002. The news release covering the financial results was
filed as an exhibit under Item 7.
On a Form 8-K dated May 23, 2002, the registrant reported
under Item 4 its decision not to continue the engagement of Arthur
Andersen LLP as its independent accountants. The registrant also
reported the appointment of PricewaterhouseCoopers LLP to replace
Arthur Andersen LLP. These actions were taken with the approval of the
registrant's Board of Directors, which ratified the decisions reached
by its Audit Committee.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
WHITNEY HOLDING CORPORATION
(Registrant)
By:/s/Thomas L. Callicutt, Jr.
------------------------------
Thomas L. Callicutt, Jr.
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
August 14, 2002
------------------------------
Date
30
EXHIBIT 10.8c
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 (but not in excess of 200% of target number) if the Committee
determines that the performance objectives related to the return on average
assets ("ROAA") and return on average equity ("ROAE") of Whitney Holding
Corporation (the "Company") for calendar years , , and as more
fully summarized by memorandum dated , supplemented by the specific
performance based objectives established by the Committee with respect to each
calendar year (collectively referred to as the "Objectives"), were not satisfied
or were exceeded, as the case may be. Such adjustment shall be made by the
Committee as of the Lapse Date in accordance with the terms of the Objectives.
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 shall be deemed to
possess the sole authority to determine whether the Objectives have been
attained, including without limitation, the authority to determine the Company's
ROAA and ROAE and the determination of peer group performance.
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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.
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:
------------------------------
Chairman,
Compensation Committee of the Board
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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.
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Date
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