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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
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None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. X
---
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2.) Yes X No
----- ------
As of February 28, 2003, the aggregate market value of the voting
stock held by nonaffiliates was approximately $1,232,565,000.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date.
Class Outstanding at February 28, 2003
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Common Stock, no par value 40,112,538
Documents Incorporated by Reference Part of 10-K in which incorporated
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Proxy Statement dated March 14, 2003 Part III
WHITNEY HOLDING CORPORATION
TABLE OF CONTENTS
Page
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PART I
Item 1: Business 1
Item 2: Properties 3
Item 3: Legal Proceedings 4
Item 4: Submission of Matters to a Vote of Security Holders 4
Item 4a: Executive Officers of the Registrant 4
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PART II
Item 5: Market for the Registrant's Common Stock and
Related Stockholder Matters 4
Item 6: Selected Financial Data 5
Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Item 7a: Quantitative and Qualitative Disclosure about
Market Risk 27
Item 8: Financial Statements and Supplementary Data 28
Item 9: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 61
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PART III
Item 10: Directors and Executive Officers of the Registrant 62
Item 11: Executive Compensation 65
Item 12: Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters 65
Item 13: Certain Relationships and Related Transactions 65
Item 14: Controls and Procedures 66
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PART IV
Item 15: Exhibits, Financial Statement Schedules
and Reports on Form 8-K 66
Signatures and Certifications 70
PART I
Item 1: BUSINESS
ORGANIZATION AND RECENT DEVELOPMENTS
Whitney Holding Corporation (the Company or Whitney) is a Louisiana
bank holding company registered pursuant to the Bank Holding Company Act of 1956
(BHCA). The Company began operations in 1962 as the parent of Whitney National
Bank, which has been in continuous operation in the greater New Orleans area
since 1883. Beginning in 1995 the Company has at times operated as a multi-bank
holding company, having established new entities in connection with business
acquisitions. The Company has merged all banking operations into Whitney
National Bank and intends to continue merging the operations of future
acquisitions at the earliest possible dates. Throughout this annual report,
references to the "Bank" will cover Whitney National Bank and all former
subsidiary banks. The Company made no acquisitions during 2002.
The Company also owns Whitney Community Development Corporation, which
is authorized to make equity and debt investments in corporations or projects
whose activities promote community welfare. Such activities could include
providing housing, services or jobs for residents of areas with mainly low or
moderate incomes and supporting small businesses that service such areas.
Whitney Securities, L.L.C., a broker-dealer in securities, is a wholly-owned
subsidiary of the Bank.
NATURE OF BUSINESS AND MARKETS
The Company, through the Bank, engages in community banking, serving a
market area that covers the five-state Gulf Coast region stretching from
Houston, Texas, across southern Louisiana and the coastal region of Mississippi,
to central and south Alabama, and into the western panhandle of Florida. The
Bank serves commercial, small business and retail customers, offering a variety
of transaction and savings deposit products and cash management services,
secured and unsecured loan products, including revolving credit facilities, and
letters of credit and similar financial guarantees. The Bank also provides trust
and investment management services to retirement benefit plans, corporations and
individuals, and, through Whitney Securities, L.L.C., offers investment
brokerage services and annuity products. In addition, the Bank maintains a
foreign branch domiciled on Grand Cayman in the British West Indies.
THE SUBSIDIARY BANK
All material funds of the Company are invested in the Bank. The Bank
has a large number of customer relationships that have been developed over a
period of many years. The loss of any single customer or a few customers would
not have a material adverse effect on the Bank or the Company. The Bank has
customers in a number of foreign countries, but the revenue derived from these
foreign customers is not a material portion of its overall revenues.
COMPETITION
There is significant competition within the financial services industry
in general as well as with respect to the particular financial services provided
by the Company and the Bank. Within its market, the Bank competes directly with
major banking institutions of comparable or larger size and resources, as well
as with various other smaller banking organizations. The Bank also has numerous
local and national "nonbank" competitors, including thrifts, credit unions,
mortgage companies, personal and commercial finance companies, investment
brokerage and financial advisory firms, and registered investment companies.
Legislative efforts to modernize the financial services industry, as
discussed in the following section on industry regulation, may lead to changes
in the organizational structure of and scope of services provided by certain
1
of Whitney's competitors. As these changes occur, management will evaluate
whether they create competitive advantages and develop appropriate responses.
The growth of electronic communication and commerce over the Internet
influences the Company's competitive environment in several ways. Entities have
been formed which deliver financial services and access to financial products
and transactions exclusively through the Internet. Internet-based services have
been and are being developed that are designed to enhance the value of
traditional financial products. The Internet will also make it easier for
consumers to obtain comparative information on financial products and, over
time, could lead to changes in consumer preferences for financial products.
Whitney opened a web-site in 2000 to provide information about the
Company and to market the Bank's products and services. The Company has enhanced
the capabilities of the site in following years by adding online banking
services in each year since the introduction and plans to add new features in
the future. As management continues to monitor and evaluate the competitive
challenges posed by the growing use of the Internet, it will develop responses
appropriate in light of its overall market strategy.
For over a decade, there has been consolidation within the financial
services industry, particularly with respect to the banking and thrift segments
of this industry. General competitive pressures have driven the most recent
industry consolidation activity. All of the Bank's major direct banking
competitors have been relatively active in expansion through acquisition. Since
early 1994 Whitney has acquired 16 separate banking operations involving
approximately $2.5 billion of assets. Recently, the Company has focused on
opportunities in the Houston, Texas market, consistent with its goal of growing
its Houston-area operations to at least $1.5 billion over the next several
years. While growth in Houston is Whitney's primary focus, the Company continues
to seek opportunities to leverage its operations through acquisitions that
significantly expand existing market share or provide access to new parts of its
market area with attractive economic fundamentals. Whitney made no acquisitions
in 2002. The overall trend toward industry consolidation is expected to continue
in the near term.
INDUSTRY REGULATION AND INFLUENCE OF GOVERNMENTAL AGENCIES
The participants in the financial services industry are subject to
varying degrees of regulation and governmental supervision. The current system
of laws and regulations will likely change over time and will influence the
competitive positions of the participants. Whether these changes will be
favorable or unfavorable to the Company and the Bank cannot be predicted.
The banking industry is extensively regulated under both federal and
state law. The regulation and ongoing supervision of bank holding companies and
their subsidiaries is intended primarily for the protection of depositors, the
deposit insurance funds of the Federal Deposit Insurance Corporation (FDIC) and
the banking system as a whole, and not for the protection of the holding
company's shareholders and creditors. The Bank has been assessed at relatively
low rates for deposit insurance premiums in recent years, reflecting both the
level of the deposit insurance funds in relation to required levels and the
favorable overall risk rating assigned to the Bank by its primary regulator.
Growth in insured deposits and higher estimates of potential insured losses by
the FDIC have lowered the ratio of deposit insurance funds to insured deposits
and increased the likelihood that premium rates will go up. Certain legislative
proposals related to deposit insurance reform have included provisions that
would substantially increase the cost of deposit insurance. The Company's
management is unable to predict if or when deposit insurance premiums will be
increased or to what extent.
The Company is subject to regulation under the BHCA and to supervision
by the Board of Governors of the Federal Reserve System (FRB). Bank holding
companies must seek the FRB's approval for all bank acquisitions and must limit
their activities to those permitted under the BHCA, including the modifications
to the BHCA brought about by the enactment of the Gramm-Leach-Bliley Act (GLB)
of 1999. GLB attempts in many ways to modernize the framework of the U.S.
financial services industry. Among other provisions, it allows for the creation
of a financial holding company that is authorized to engage in underwriting and
selling insurance and securities, to
2
conduct both commercial and merchant banking, to invest in and develop real
estate and to engage in other complementary activities. Whitney currently has no
plans to apply for a financial holding company charter.
The Office of the Comptroller of the Currency (OCC) is the Bank's
primary regulator and provides ongoing supervision through regular examinations
and other means. Bank supervision focuses on evaluating management's ability to
identify, assess and control risk in all areas of bank operations in a safe and
sound manner. Regulators have a wide range of enforcement actions available to
deal with institutions with unacceptable levels of risk. These actions could
have a material impact on a bank's financial results and could impose additional
limits on a bank's ability to pay dividends to its holding company. Regulators
are also charged with monitoring compliance with other laws and regulations,
such as those designed to encourage banks to meet the needs of all segments of
their service areas. Regulatory agencies consider compliance ratings when
deciding, for example, whether to approve an acquisition by a bank or its
holding company.
The monetary and fiscal policies of the FRB also have a significant
impact on the banking industry. In its effort to restrain inflationary growth or
moderate recessions, the FRB uses various tools to influence the money supply
and interest rates. These actions attempt to regulate the availability of bank
credit and affect asset yields and costs of funds.
EMPLOYEES
At the end of 2002, the Company and the Bank employed a total of 2,431
employees. Whitney affords its employees a variety of competitive benefit
programs including retirement plans and group health, life and other insurance
programs. The Company also supports training and educational programs designed
to ensure that employees have the types and levels of skills needed to perform
at their best in their current positions and to help them prepare for positions
of increased responsibility.
AVAILABLE INFORMATION
The Company's filings with the Securities and Exchange Commission,
including annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports, are available on Whitney's
web-site as soon as reasonably practicable after the Company files with the SEC.
Copies can be obtained free of charge in the "For Whitney Shareholders" section
of the Company's web-site at www.whitneybank.com.
Item 2: PROPERTIES
The Company owns no real estate in its own name. The Company's
executive offices are located in downtown New Orleans in the main office
facility owned by Whitney National Bank. The Bank makes portions of this
facility and certain other facilities available for lease to third parties,
although such incidental leasing activity is not material to Whitney's overall
operations. The Bank owns outright approximately 75% of its active banking
facilities, which total close to 130 locations. The remaining branch facilities
are subject to leases, each of which management considers to be reasonable and
appropriate to its location. Management ensures that all properties, whether
owned or leased, are maintained in suitable condition. Management also evaluates
its banking facilities on an ongoing basis to identify possible
under-utilization and to determine the need for functional improvements,
relocations or possible sales.
The Bank and a subsidiary hold a variety of property interests acquired
through the years in settlement of loans. Reference is made to Note 7 to the
consolidated financial statements included in Item 8 for further information
regarding such property interests.
3
Item 3: LEGAL PROCEEDINGS
There are no pending legal proceedings, other than routine litigation
incidental to the business, to which the Company or its subsidiaries is a party
or to which any of their property is subject.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 4a: EXECUTIVE OFFICERS OF THE REGISTRANT
Information about the names, ages, positions and business experiences
of the Company's executive officers is incorporated by reference to the table in
Item 10 of this Form 10-K, page 62.
PART II
Item 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
a) The Company's stock is traded over-the-counter on The Nasdaq
Stock Market and is reported under the symbol WTNY. The Summary of
Quarterly Financial Information appearing in Item 8 of this Form 10-K
and located on page 28 shows the range of closing prices of the
Company's stock for each calendar quarter of 2002 and 2001 as
reported on The NASDAQ Stock Market, and is incorporated here by
reference.
In 2002, the Company declared a 3-for-2 split of its common
stock that was paid on April 9, 2002. Share and per share figures in
this annual report on Form 10-K have been adjusted to reflect this
split.
b) The approximate number of shareholders of record of the
Company, as of February 28, 2003, was as follows:
Title of Class Shareholders of Record
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Common Stock, no par value 5,570
c) Dividends declared by the Company are listed in the Summary of
Quarterly Financial Information appearing in Item 8 of this Form 10-K
and located on page 28, which is incorporated here by reference.
4
Item 6: SELECTED FINANCIAL DATA
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
Years Ended December 31
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(dollars in thousands, except per share data) 2002 2001 2000 1999 1998
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YEAR-END BALANCE SHEET DATA
Total assets $7,097,881 $7,243,650 $6,650,265 $5,868,028 $5,627,153
Earning assets 6,501,009 6,681,786 6,078,951 5,362,819 5,151,564
Loans 4,455,412 4,495,085 4,587,438 3,920,601 3,486,300
Investment in securities 1,975,698 1,632,340 1,462,189 1,387,016 1,436,684
Deposits 5,782,879 5,950,160 5,332,474 4,666,375 4,607,638
Shareholders' equity 800,483 717,888 665,764 596,204 599,777
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AVERAGE BALANCE SHEET DATA
Total assets $7,016,675 $6,831,564 $6,282,044 $5,638,980 $5,222,628
Earning assets 6,492,791 6,303,445 5,771,256 5,163,140 4,771,433
Loans 4,372,194 4,475,149 4,228,948 3,595,574 3,175,543
Investment in securities 1,816,216 1,525,254 1,478,609 1,466,061 1,397,271
Deposits 5,750,141 5,548,556 4,927,214 4,540,887 4,234,796
Shareholders' equity 760,725 698,099 622,814 600,012 587,511
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INCOME STATEMENT DATA
Interest income $370,909 $441,145 $452,261 $378,493 $363,568
Interest expense 75,701 161,349 185,181 135,433 134,242
Net interest income 295,208 279,796 267,080 243,060 229,326
Net interest income (TE) 300,134 285,161 273,176 249,407 234,782
Provision for loan losses 7,500 19,500 12,690 6,470 709
Noninterest income, excluding
securities transactions 84,774 91,044 74,270 68,885 60,890
Securities transactions 411 165 850 (32) 841
Noninterest expense 230,926 239,104 223,179 207,753 207,648
Net income 95,323 75,820 72,842 67,326 57,125
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KEY RATIOS
Return on average assets 1.36% 1.11% 1.16% 1.19% 1.09%
Return on average shareholders' equity 12.53 10.86 11.70 11.22 9.72
Net interest margin 4.62 4.52 4.73 4.83 4.92
Average loans to average deposits 76.04 80.65 85.83 79.18 74.99
Efficiency ratio 60.00 62.09 63.92 65.27 68.15
Allowance for loan losses to loans 1.48 1.59 1.33 1.21 1.24
Nonperforming assets to loans plus foreclosed
and surplus property .95 .77 .55 .45 .48
Net charge-offs to average loans .28 .21 .04 .06 .16
Average shareholders' equity to average assets 10.84 10.22 9.91 10.64 11.25
Shareholders' equity to total assets 11.28 9.91 10.01 10.16 10.66
Leverage ratio 9.76 8.72 8.93 10.01 10.33
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COMMON SHARE DATA
Earnings Per Share
Basic $2.39 $1.92 $1.89 $1.73 $1.46
Diluted 2.38 1.90 1.89 1.73 1.44
Dividends
Cash dividends per share $1.11 $1.03 $.96 $.88 $.80
Dividend payout ratio 46.50% 53.81% 50.04% 48.76% 52.34%
Book Value Per Share $19.98 $18.10 $16.92 $15.62 $15.22
Trading Data
High closing price $38.52 $32.56 $27.79 $27.83 $42.25
Low closing price 28.09 24.00 21.00 21.46 23.83
End-of-period closing price 33.33 29.23 24.21 24.71 25.00
Trading volume 21,926,523 13,965,350 10,566,587 14,055,669 9,861,300
Average Shares Outstanding
Basic 39,848,881 39,550,723 38,475,984 38,833,197 39,237,878
Diluted 40,121,544 39,836,047 38,568,699 38,949,348 39,562,155
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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%.
The efficiency ratio is noninterest expense to total net interest (TE) and noninterest income, excluding
merger-related items.
5
Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to focus on significant
changes in the financial condition of Whitney Holding Corporation and its
subsidiaries (the Company or Whitney) and on their results of operations during
2002, 2001 and 2000. Virtually all of the Company's operations are contained in
its banking subsidiary, Whitney National Bank (the Bank). This discussion and
analysis is intended to highlight and supplement information presented elsewhere
in this annual report on Form 10-K, particularly the consolidated financial
statements and related notes in Item 8. Certain financial information in prior
years has been reclassified to conform to the current year's presentation.
OVERVIEW
The Company earned $2.39 per share, or $95.3 million, for 2002. This
was a 24% increase over the $1.92 per share, or $75.8 million, earned for 2001.
The key components of 2002's earnings performance follow:
o Net interest income, on a taxable-equivalent (TE) basis, increased
5%, or $15.0 million, from 2001. Whitney was and continues to be
moderately asset sensitive, which implies it would experience some
compression in its net interest margin in a declining rate
environment, holding other factors constant. The persistently low
interest rate environment in 2002 did put pressure on the margin,
but Whitney was able to improve the margin by 10 basis points to
4.62%, reflecting loan pricing discipline, careful investment of
excess liquidity and successful deposit pricing strategies.
o Noninterest income before securities transactions decreased 7%, or
$6.3 million. Excluding revenues and gains associated with
merchant processing agreements that were sold in 2001, noninterest
income grew 5%, or $4.2 million. Service charges on deposit
accounts increased 9%, or $3.1 million, showing benefits from
pricing refinements, new management tools and low interest rates.
Income from secondary mortgage market operations was bolstered by
a strong refinancing market and ended 2002 up 19%, or $1.5
million.
o Noninterest expense, excluding merger-related costs in 2001,
decreased 1% in 2002. Adjusting for the impact of the merchant
business sale, noninterest income was up a moderate 2%, or $3.9
million. A sharp increase in defined benefit pension plan expense
was the main driver of an 8%, or $9.5 million, increase in
personnel expense. Close control over capital expenditures and
ongoing attention to expense control efforts led to reduction in
several other major expense categories. A required change in
accounting for goodwill led to a $1.6 million decrease in
amortization of purchased intangibles.
o The total of loans internally rated as having above-normal credit
risk at the end of 2002 was down $106 million from the prior
year's level, helping reduce the allowance for loan losses by $5.5
million from the end of 2001. Net charge-offs were .28% of average
loans in 2002, up slightly from 2001, but still favorable in
relation to peer and industry statistics. The Company provided
$7.5 million for loan losses in 2002, down from $19.5 million in
2001. The level of the allowance and the provision for loan losses
in 2001 reflected increased customer credit risks arising from,
among other factors, a weakening economy and heightened
uncertainty in the aftermath of the September 11 terrorist
attacks. Although the Company's credit quality statistics have
improved in 2002, there are continued concerns relating to the
sustained softness in economic conditions and the longer-term
impact on certain customers' business activity.
6
FORWARD-LOOKING STATEMENTS
This discussion contains forward-looking statements as that term is
defined by the Private Securities Litigation Reform Act of 1995. Such statements
include, but may not be limited to comments regarding (a) the potential for
earnings volatility from changes in the estimated allowance for loan losses over
time, (b) the expected growth rate of the loan portfolio, (c) future changes in
the mix of deposits, (d) the results of net interest income simulations run by
the Company to measure interest rate sensitivity, (e) the performance of
Whitney's net interest income and net interest margin assuming certain future
conditions, and (f) changes or trends in expense levels for retirement benefits,
equipment and data processing and deposit insurance.
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.
CRITICAL ACCOUNTING POLICIES
Whitney prepares its financial statements in accordance with accounting
principles generally accepted in the United States. Note 2 to the consolidated
financial statements discusses certain accounting principles and methods of
applying those principles that are particularly important to this process. In
applying these principles to determine the amounts and other disclosures that
are presented in the financial statements and discussed in this section, the
Company is required to make estimates and assumptions. Whitney believes that the
determination of its estimate of the allowance for loan losses involves a higher
degree of judgment and complexity than its application of other significant
accounting policies. Factors considered in this determination and the process
used by management are discussed in Note 2 and in the following section on Loans
and Allowance for Loan Losses. Although management believes it has identified
appropriate factors for review and designed and implemented adequate procedures
to support the estimation process that are consistently followed, the allowance
remains an estimate about the effect of matters that are inherently uncertain.
Over time, changes in economic conditions or the actual or perceived financial
condition of Whitney's credit customers or other factors can materially impact
the allowance estimate, potentially subjecting the Company to significant
earnings volatility.
7
FINANCIAL CONDITION
LOANS AND ALLOWANCE FOR LOAN LOSSES
Total loans decreased a little under 1%, or $40 million, from year-end
2001, and the prior year total was down 2%, or $92 million, from the end of
2000. Average loans for 2002 were 2%, or $103 million, below the prior year's
level. The major portion of these reductions came from the residential mortgage
loan portfolio, prompted by increased refinancing activity and management's
continuing decision to sell most current production in the secondary market.
Although there was some recent growth in the commercial loan portfolio, demand
for business credit in general has been restrained for over a year during a
period of reduced economic activity and uncertainty regarding future economic
conditions. Over this same period, the rate environment has continued to present
real estate developers with favorable permanent financing opportunities. Recent
growth reflected new customer development and some increased economic activity
for certain industry sectors. Conditions that would support accelerated loan
growth, however, are not yet evident. Table 2, which is based on regulatory
reporting codes, shows loan balances at December 31, 2002 and at the end of the
previous four years.
TABLE 2. LOANS OUTSTANDING BY TYPE
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December 31
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(dollars in thousands) 2002 2001 2000 1999 1998
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Commercial, financial and agricultural loans $1,917,859 $1,852,497 $1,815,205 $1,564,903 $1,404,003
Real estate loans - commercial and other 1,584,099 1,576,817 1,544,390 1,318,130 1,123,309
Real estate loans - retail mortgage 638,703 761,355 874,645 718,952 637,420
Loans to individuals 314,751 304,416 353,198 318,616 321,568
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Total loans $4,455,412 $4,495,085 $4,587,438 $3,920,601 $3,486,300
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The portfolio of commercial loans, other than those secured by real
property, increased by $65 million, or 4%, compared to year-end 2001. This
followed a $37 million, or 2%, increase in 2001 from the end of 2000. Overall
the portfolio remained well-diversified, with customers in a wide range of
industries, including oil and gas exploration and production, marine
transportation, wholesaling, retailing and manufacturing of various durable and
nondurable products, and agricultural production. There have been no major
trends or changes in the concentration mix of this portfolio category from
year-end 2001, although there has been some noticeable growth in loans to
customers in the oil and gas industry as discussed below. Also included in the
commercial loan category are loans to individuals, generally secured by
collateral other than real estate, that are used to fund investments in new or
expanded business opportunities. Participations in syndicated commercial loans
at December 31, 2002, totaled approximately $300 million, including $118 million
related to the oil and gas industry and $44 million to the gaming industry.
Substantially all of these loans are with customers operating in Whitney's
market area and are subject to standard underwriting criteria. The rate of
commercial loan growth in 2003 will depend mainly on the economic fundamentals
of the Company's market area as well as on its ability to develop customers in
the newer parts of its market and take advantage of competitive circumstances to
attract new business in its established market.
At December 31, 2002, outstanding loans to oil and gas industry
customers totaled $384 million, or approximately 9% of total loans, an increase
of approximately $50 million from the end of the previous year after a $20
million increase in 2001. The increase in 2002 included approximately $38
million in new participations in syndicated credits. The Company's customer base
in this industry mainly provides transportation and other services and products
to support exploration and production activities, but the Bank has recently
increased its attention to lending opportunities in the exploration and
production sector. Whitney seeks customers who are quality operators that can
manage through volatile commodity price cycles. Political turmoil and the threat
of armed conflict in important producing countries have supported a recent run
up in underlying commodity prices for oil. Domestic natural gas prices have also
risen dramatically, reflecting larger than expected draws from storage to
satisfy winter demand and a continued decline in overall deliverable production.
The commitment to new exploration and development, however, is impacted more by
changes in longer-term expectations about demand and prices. The industry
appears poised for a period of increased activity, but when this begins will
depend, among other factors, on the resolution of current international
uncertainties and trends in global demand. The level of activity in this
industry
8
continues to have an important impact on the economies of certain portions of
Whitney's market area, particularly southern Louisiana and Houston.
The commercial real estate portfolio, which includes loans secured by
properties used in commercial or industrial operations, has been relatively
stable since the end of 2000. Whitney has been able to develop new business in
this highly competitive market, including a recent increase in activity at its
Houston operations. The overall pace of new real estate project development,
however, has slowed with the general economy and heightened economic
uncertainty, and growth from new business has for the most part been offset by
expected paydowns on and permanent take outs of seasoned projects. In recent
years, activity in this portfolio sector has been 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. Hotel loans were 8% of total commercial real estate
loans, or $130 million, at the end of 2002, compared to 11% at the end of both
2001 and 2000.
The impact of refinancings and the continuing policy of selling most
retail mortgage production which began late in 2000 was evident in the 16%, or
$123 million, decrease in the retail mortgage loan portfolio between 2001 and
2002, which followed a 13%, or $113 million, decrease in 2001 from the prior
year. Whitney continued to promote its fixed-term home equity loan product in
2002. Such loans increased $12 million, or 7%, in 2002, after an increase of $10
million, or 6%, in 2001. This product offers customers the opportunity to
leverage increased home values and equity to obtain tax-advantaged consumer
financing. The rate of growth in this product slowed in 2001 and 2002 as
borrowers increasingly tapped home equity when refinancing their primary home
mortgages. If current market conditions persist, a further reduction in the
Company's retail mortgage loan portfolio sector is likely in the near term.
Loans to individuals include various consumer installment and credit
line loan products other than fixed-term retail mortgage loan products. Between
2001 and 2002, this portfolio sector grew a moderate 3%, or $10 million, mainly
from the promotion of secured personal credit lines. The 14%, or $49 million,
decrease in 2001 from the prior year reflected, in part, the decision by
management to shorten the period it holds student loans before being taken out
by the permanent financing source.
Table 3 reflects contractual loan maturities, unadjusted for scheduled
principal reductions, prepayments or repricing opportunities. Approximately 63%
of the value of loans with a maturity greater than one year bears a fixed rate
of interest.
TABLE 3. LOAN MATURITIES BY TYPE
- -----------------------------------------------------------------------------------------------------------------
December 31, 2002
- -----------------------------------------------------------------------------------------------------------------
One year One through More than
(dollars in thousands) or less five years five years Total
- -----------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural loans $1,208,517 $ 610,032 $ 99,310 $1,917,859
Real estate loans - commercial and other 411,935 1,025,433 146,731 1,584,099
Real estate loans - retail mortgage 75,901 212,640 350,162 638,703
Loans to individuals 151,329 156,213 7,209 314,751
- -----------------------------------------------------------------------------------------------------------------
Total $1,847,682 $2,004,318 $603,412 $4,455,412
- -----------------------------------------------------------------------------------------------------------------
Each loan carries a degree of credit risk. Management's evaluation of
this risk is ultimately reflected in the estimate of probable loan losses that
is reported in the Company's financial statements as the allowance for loan
losses. Changes in this ongoing evaluation over time are reflected in the
provision for loan losses charged to operating expense.
9
TABLE 4. SUMMARY OF ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Balance at the beginning of year $71,633 $61,017 $47,543 $43,187 $47,549
Allowance acquired in bank purchases - 1,196 2,388 - -
Allowance on loans transferred to held for sale (895) (651) - - -
Provision for loan losses
charged to operations 7,500 19,500 12,690 6,470 709
Loans charged to the allowance
Commercial, financial and agricultural (6,894) (11,678) (4,244) (5,673) (6,688)
Real estate - commercial and other (5,148) (252) (884) (917) (146)
Real estate - retail mortgage (1,816) (552) (697) (461) (398)
Individuals (3,353) (3,020) (2,656) (2,991) (6,492)
- -------------------------------------------------------------------------------------------------------------------
Total (17,211) (15,502) (8,481) (10,042) (13,724)
- -------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off
Commercial, financial and agricultural 2,472 3,130 2,679 4,408 4,054
Real estate - commercial and other 463 965 1,796 788 2,176
Real estate - retail mortgage 509 348 658 525 538
Individuals 1,644 1,630 1,744 2,207 1,885
- -------------------------------------------------------------------------------------------------------------------
Total 5,088 6,073 6,877 7,928 8,653
- -------------------------------------------------------------------------------------------------------------------
Net charge-offs (12,123) (9,429) (1,604) (2,114) (5,071)
- -------------------------------------------------------------------------------------------------------------------
Balance at the end of year $66,115 $71,633 $61,017 $47,543 $43,187
- -------------------------------------------------------------------------------------------------------------------
Ratios
Net charge-offs to average loans .28% .21% .04% .06% .16%
Gross charge-offs to average loans .39 .35 .20 .28 .43
Recoveries to gross charge-offs 29.56 39.18 81.09 78.95 63.05
Allowance for loan losses to loans at end of year 1.48 1.59 1.33 1.21 1.24
- -------------------------------------------------------------------------------------------------------------------
At December 31, 2002, the allowance for loan losses was $66.1 million,
or 1.48% of total loans, compared to $71.6 million, or 1.59% of total loans at
the end of 2001. Table 4 shows the activity in the allowance over the past five
years. The allocation of the allowance is included in Table 5.
TABLE 5. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
- -------------------------------------------------------------------------------------------------------------------
December 31
- -------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
- -------------------------------------------------------------------------------------------------------------------
Commercial, financial
and agricultural 48.5% 43.0% 50.7% 41.2% 48.2% 39.5% 47.6% 39.9% 39.6% 40.3%
Real estate -
commercial and other 28.4 35.6 24.8 35.1 28.1 33.7 29.0 33.6 31.7 32.2
Real estate -
retail mortgage 8.3 14.3 10.7 16.9 11.5 19.1 14.8 18.4 20.1 18.3
Individuals 7.1 7.1 6.3 6.8 8.1 7.7 8.4 8.1 8.4 9.2
Unallocated 7.7 - 7.5 - 4.1 - .2 - .2 -
- -------------------------------------------------------------------------------------------------------------------
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
- -------------------------------------------------------------------------------------------------------------------
In making its risk evaluation and establishing an allowance level that
it believes is adequate to absorb probable losses in the portfolio, management
considers various sources of information. Some of the more important sources
include analyses prepared on specific loans reviewed for impairment, statistics
on balances of loans assigned to internal risk rating categories by loan
officers and the Company's independent credit review function, reports on
10
the composition and repayment performance of consumer and other loan portfolios
not subject to individual risk ratings, and factors derived from historical loss
experience. In addition to this more objective and quantitative information,
management's evaluation must take into consideration its assessment of general
economic conditions and how current conditions affect specific segments of
borrowers. Management must also come to a judgment regarding the level of
accuracy inherent in the loss allowance estimation process. A formal allowance
analysis is prepared at least quarterly that summarizes the results of the
evaluation process and helps ensure a consistent process over time.
TABLE 6. NONPERFORMING ASSETS
- -----------------------------------------------------------------------------------------------------------------
December 31
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis $37,959 $33,412 $23,579 $13,966 $11,862
Restructured loans 336 383 465 1,634 2,660
- -----------------------------------------------------------------------------------------------------------------
Total nonperforming loans 38,295 33,795 24,044 15,600 14,522
Foreclosed assets and surplus banking property 3,854 991 995 1,909 2,320
- -----------------------------------------------------------------------------------------------------------------
Total nonperforming assets $42,149 $34,786 $25,039 $17,509 $16,842
- -----------------------------------------------------------------------------------------------------------------
Loans 90 days past due still accruing $5,817 $6,916 $4,343 $3,020 $5,228
- -----------------------------------------------------------------------------------------------------------------
Ratios:
Nonperforming assets to loans plus
foreclosed assets and surplus banking property .95% .77% .55% .45% .48%
Allowance for loan losses to
nonperforming loans 172.65 211.96 253.77 304.76 297.40
Loans 90 days past due still accruing to
loans .13 .15 .09 .08 .15
- -----------------------------------------------------------------------------------------------------------------
Nonperforming assets consist of nonperforming loans, foreclosed assets
and surplus banking property. Table 6 provides information on nonperforming
assets for each year in the five-year period ended December 31, 2002.
Nonperforming loans are included in the criticized loan total discussed below
and encompass substantially all loans separately evaluated for impairment. The
$7 million increase in nonperforming assets from year-end 2001 included $1
million related to surplus banking property. There have been no significant
trends related to industries or markets underlying the changes in nonperforming
assets.
At December 31, 2002, the total of loans internally rated as having
above-normal credit risk was down $106 million from the level at year-end 2001.
The decrease in criticized loans reflected in part improved outlooks for several
larger credits. These included one with a customer in the health care industry
that had demonstrated sustained improved financial performance and
participations in credit facilities for two customers in Whitney's market area
that had been downgraded in the later part of 2001 and were part of the Federal
banking regulators' shared national credit review process. Criticized loans
totaled $193 million at December 31, 2002. Loans warranting special attention
because of risk characteristics that indicate potential weaknesses totaled $58
million, down $94 million from the end of 2001. There was a $22 million
decrease, to a total of $113 million, in loans rated as having well-defined
weaknesses that, if not corrected, would likely result in some loss. Loans for
which full repayment is doubtful, however, increased by $10 million, to a total
of $22 million at year-end 2002.
The reduction in criticized loans was the main factor behind the $5.5
million decrease in the allowance for loan losses from the end of 2001, despite
a $1.5 million increase in the allowance required for impaired loans. No other
factor considered in determining the allowance had an individually significant
impact. In both 2001 and 2000, the credit risk profile of Whitney's customers
increased moderately, as was evidenced by higher levels of nonperforming loans
and criticized loans in each period. At year-end 2001, management's evaluation
of credit risk included an assessment of what impact the economic repercussions
of the terrorist attacks on the United States could have on the Company's
customers. In Whitney's market area, the most immediate impact was felt by
businesses related to the convention and tourism industry, including, among
others, hotels and restaurants, and by the employees of these businesses. Loan
officers continue to monitor the operations of affected customers and their
responses to a
11
sustained reduced level of travel and tourism. Management has applied stress
tests to identify credits that would have the most difficulty with debt service
if the downturn proves to be more severe and prolonged than is currently the
case or would have been considered in the normal underwriting process, and the
results have indicated acceptable levels of risk. The lasting impact remains
uncertain, however, and this uncertainty along with questions concerning the
impact of the economic slowdown that has persisted since 2001 has been reflected
in the level of unallocated reserves, which remained steady from year-end 2001
to the most recent year end.
INVESTMENT IN SECURITIES
Strong demand for deposit products during a period of restrained loan
demand led to a significant increase in liquidity in 2001. Information on
changes in deposits and other funding sources is presented in the following
section. Over time, management directed more of this liquidity to the investment
portfolio, particularly to mortgage-backed securities with relatively short
duration, based on its expectations regarding the stability of the funding
sources and the near-term prospects for loan demand.
At December 31, 2002, total securities were $1.98 billion, compared to
$1.63 billion at year-end 2001, and the average investment in securities in 2002
was up 19%, or $291 million, from 2001. Mortgage-backed securities grew to 59%
of the total portfolio at the end of 2002 from 51% in the prior year. Short-term
liquidity investments, including federal funds sold, totaled $4 million at the
end of 2002, compared to $495 million at year-end 2001. On average, liquidity
investments were $283 million, compared to $262 million in 2001, but the total
declined throughout 2002.
TABLE 7. DISTRIBUTION OF INVESTMENT MATURITIES
- -------------------------------------------------------------------------------------------------------------------------
December 31, 2002
- -------------------------------------------------------------------------------------------------------------------------
Over one through Over five through
(dollars in thousands) One year and less five years ten years Over ten years Total
- -------------------------------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- -------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE
- -------------------------------------------------------------------------------------------------------------------------
Mortgage-backed
securities(a) $ 84,832 4.74% $310,421 4.72% $351,578 5.39% $410,444 5.04% $1,157,275 5.04%
U. S. agency securities 168,684 4.70 180,582 3.98 14,752 5.87 - - 364,018 4.39
Obligations of states and
political subdivisions (b) 2,398 5.89 17,058 6.11 11,886 6.27 3,121 5.96 34,463 6.14
U. S. Treasury securities 26,426 2.94 137,659 3.67 - - - - 164,085 3.55
Other debt securities 25 8.00 23,782 4.59 2,150 6.23 - - 25,957 4.73
Equity securities(c) - - - - - - 27,793 - 27,793 -
- -------------------------------------------------------------------------------------------------------------------------
Total $282,365 4.56% $669,502 4.34% $380,366 5.44% $441,358 5.05% $1,773,591 4.78%
- -------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD TO MATURITY
- -------------------------------------------------------------------------------------------------------------------------
U. S. agency securities $32,847 5.32% $ - -% $ - -% $ - -% $ 32,847 5.32%
Obligations of states and
political subdivisions (b) 8,932 6.78 32,007 6.63 57,973 6.91 60,025 6.48 158,937 6.68
U. S. Treasury securities 10,323 5.75 - - - - - - 10,323 5.75
- -------------------------------------------------------------------------------------------------------------------------
Total $52,102 5.66% $ 32,007 6.63% $ 57,973 6.91% $ 60,025 6.48% $ 202,107 6.41%
- -------------------------------------------------------------------------------------------------------------------------
(a) Distributed by contractual maturity without regard to repayment schedules or projected prepayments, except for
certain collateral mortgage obligations that are distributed based on their expected average lives.
(b) Tax exempt yields are expressed on a fully taxable equivalent basis.
(c) These securities have no stated maturities or guaranteed dividends.
12
The weighted-average taxable-equivalent portfolio yield was
approximately 5.00% at December 31, 2002, a decrease of 77 basis points from
approximately 5.77% at December 31, 2001, reflecting mainly lower rates for
reinvestment opportunities in 2001. Substantially all of the securities in the
investment portfolio bear fixed interest rates.
Information about the contractual maturity structure of investment
securities at December 31, 2002 is shown in Table 7 above. The carrying value of
securities with explicit call options totaled $143 million at year-end 2002.
These call options and the scheduled principal reductions and projected
prepayments on mortgage-backed securities, other than certain collateral
mortgage obligations, are not reflected in Table 7. Including expected principal
reductions on all mortgage-backed securities, the weighted-average maturity of
the overall securities portfolio was approximately 39 months at December 31,
2002, compared with 41 months at year-end 2001.
In recent years, Whitney 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 2001. Securities available
for sale constituted 90% of the total investment portfolio at December 31, 2002.
The net unrealized gain on this portfolio segment totaled $46 million at
year-end 2002, including a $28 million gain on mortgage-backed securities. The
overall unrealized gain represented 2.7% of amortized cost. At year-end 2001,
there was a net unrealized gain of $16 million, or 1.0% of amortized cost,
including $2 million related to mortgage-backed securities. The net unrealized
gain or loss will vary based on overall changes in market rates, shifts in the
slope of the yield curve, and movement in spreads to the yield curve for
different types of securities.
The Company does not normally maintain a trading portfolio.
Occasionally, the Bank holds immaterial amounts of trading account securities
for short periods while buying and selling securities for customers. Such
securities, if any, are included in other assets in the consolidated balance
sheets.
At December 31, 2002, Whitney held no investment in securities of a
single issuer, other than securities issued or guaranteed by the U. S.
government or its agencies, that exceeded 10% of its shareholders' equity. The
Company has made no investments in financial instruments or participated in
agreements with values that are linked to or derived from changes in the value
of some underlying asset or index. These financial instruments or agreements are
commonly referred to as derivatives and include such instruments as futures,
forward contracts, option contracts, interest rate swap agreements and other
financial arrangements with similar characteristics. Management continues to
evaluate whether to use derivatives as part of its asset/liability and liquidity
management processes.
DEPOSITS AND SHORT-TERM BORROWINGS
At December 31, 2002, deposits were 3%, or $167 million, below the
level at December 31, 2001. Approximately $70 million of this decrease related
to an influx of temporary funds from local governmental entities at the end of
2001. Average deposits were up 4%, or $202 million, in 2002, but would have been
up approximately half this amount if the impact of deposits associated with bank
operations purchased late in 2001 is factored out. Short-term borrowings, the
major part of which represents liabilities under repurchase agreements with
customers, decreased 11%, or $58 million, from year-end 2001, and were down 14%,
or $73 million, on average for 2002 compared to the prior year.
13
TABLE 8. AVERAGE DEPOSITS
- ---------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------
Noninterest-bearing demand deposits $1,601,316 27.8% $1,447,871 26.1% $1,342,127 27.2%
NOW account deposits 690,011 12.0 598,973 10.8 543,424 11.0
Money market deposits 1,321,729 23.0 1,065,027 19.2 820,393 16.7
Savings deposits 515,878 9.0 463,583 8.3 458,717 9.3
Other time deposits 913,492 15.9 1,114,207 20.1 993,948 20.2
Time deposits $100,000 and over 707,715 12.3 858,895 15.5 768,605 15.6
- ---------------------------------------------------------------------------------------------------------------
Total $5,750,141 100.0% $5,548,556 100.0% $4,927,214 100.0%
- ---------------------------------------------------------------------------------------------------------------
Increased demand for the safety and liquidity of deposit products
helped fuel accelerated deposit growth throughot 2001. Many of the factors that
prompted the increased availability of deposit funds continued to influence
customer behavior during 2002. Noninterest-bearing demand deposits at year-end
2002 were up 4%, or $59 million, from the end of 2001. For the year, average
demand deposits increased 11%, or $153 million, including approximately $40
million from acquired operations. Noninterest-bearing demand deposits continue
to represent a healthy percentage of total deposits, as can be seen in Table 8
above. Interest-bearing deposits, however, declined 5%, or $226 million, between
year-end 2001 and the most recent year end. On average, interest-bearing
deposits were up only 1%, or $48 million, in 2002 compared to 2001, 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 2001 and 2002
was partly a function of funds flows between deposit products, and to deposits
from short-term borrowings, in response to the reduced yields. Money market
deposits were little changed from the end of 2001, but increased 24%, or $257
million, on average in 2002. Regular savings deposits grew 8%, or $39 million,
during 2002, and were up 11% on average from the prior year, at least
temporarily reversing a trend away from this more traditional deposit product.
NOW account deposits were down 9%, or $67 million, at year-end 2002, reflecting
the temporary influx of public funds at the end of 2001. The average balance of
NOW deposits, grew 15%, or $91 million, between 2001 and 2002. Total time
deposits, however, decreased 17%, or $316 million, from the end of 2001, and
were down a comparable amount on average in 2002 compared to the prior year.
Table 9 shows the maturity structure of time deposits over and under $100,000 at
December 31, 2002. The maturity of $614 million of time deposits in the first
quarter of 2003 will likely contribute to further shifts in the mix of deposits.
TABLE 9. MATURITIES OF TIME DEPOSITS
- --------------------------------------------------------------------------------
(dollars in thousands)
- --------------------------------------------------------------------------------
Remaining maturity of time deposits of $100,000 or more
as of December 31, 2002
Three months or less $ 371,472
Over three months through twelve months 253,453
Over twelve months 51,153
- --------------------------------------------------------------------------------
Total time deposits of $100,000 or more 676,078
- --------------------------------------------------------------------------------
Remaining maturity of time deposits of less than $100,000
as of December 31, 2002
Three months or less 242,124
Over three months through twelve months 464,672
Over twelve months 133,502
- --------------------------------------------------------------------------------
Total time deposits of less than $100,000 840,298
- --------------------------------------------------------------------------------
Total time deposits $1,516,376
- --------------------------------------------------------------------------------
14
As noted earlier, short-term borrowings consist primarily of sales of
securities under repurchase agreements. In both 2002 and 2001, Whitney made
little use of available wholesale short-term funding sources, such as overnight
and term federal funds purchased and brokered repurchase agreements, as it had
in 2000 to fund strong loan growth. Average short-term borrowings from customers
under repurchase agreements have been relatively stable over the past several
years, with an 11%, or $44 million, decrease in 2002, partly representing the
flow of funds back to deposits as the effective yield dropped below 1% for the
year. Increased funding from this source in recent years reflected both the
growth in commercial relationships and the attractiveness of Whitney's treasury
management sweep product. Because of the underlying customer relationship, these
borrowings can be a relatively stable source of funds.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
At December 31, 2002, shareholders' equity totaled $800 million
compared to $718 million at the end of 2001 and $666 million at the end of 2000.
The major factors in the $82 million increase in 2002 were earnings, net of
dividends declared, of $51 million, and a $20 million increase in other
comprehensive income representing an unrealized net holding gain on securities
available for sale. In 2001, net retained earnings of $35 million and an $8
million increase in comprehensive income led to a $52 million increase in
shareholders' equity. Over the last three years, the dividend payout ratio has
been relatively stable, decreasing slightly to 47% in 2002 from 54% in 2001 and
50% in 2000.
The ratios in Table 10 indicate that the Company remained strongly
capitalized at December 31, 2002. The increase in the capital ratios from 2001
was influenced mainly by a slower rate of growth in risk-weighted assets
relative to capital growth. The increase in risk-weighted assets at December 31,
2002 from the end of 2001 resulted mainly from an increase in off-balance-sheet
obligations under loan facilities and letters of credit that are converted to
assets for the risk-based capital calculations. On-balance assets were lower at
year-end 2002 compared to the end of 2001. Cash business acquisitions, such as
the purchases of Redstone Financial, Inc. in 2001 and Bank of Houston in 2000,
will reduce regulatory capital ratios. In these transactions, Whitney acquires
intangible assets that must be deducted in determining regulatory capital,
though they are also excluded from risk-weighted assets.
TABLE 10. RISK-BASED CAPITAL AND CAPITAL RATIOS
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Tier 1 regulatory capital $672,408 $604,179 $577,036 $568,117 $561,625
Tier 2 regulatory capital 66,115 63,878 61,017 47,543 43,187
- -------------------------------------------------------------------------------------------------------------------
Total regulatory capital $738,523 $668,057 $638,053 $615,660 $604,812
- -------------------------------------------------------------------------------------------------------------------
Risk-weighted assets $5,301,764 $5,102,470 $5,063,114 $4,427,620 $4,050,755
- -------------------------------------------------------------------------------------------------------------------
Ratios
Leverage ratio (Tier 1 capital to average
assets) 9.76% 8.72% 8.93% 10.01% 10.33%
Tier 1 capital to risk-weighted assets 12.68 11.84 11.40 12.83 13.86
Total capital to risk-weighted assets 13.93 13.09 12.60 13.90 14.93
Shareholders' equity to total assets 11.28 9.91 10.01 10.16 10.66
- -------------------------------------------------------------------------------------------------------------------
The regulatory capital ratios of Whitney National Bank exceed the
minimum required ratios, and the Bank has been categorized as "well-capitalized"
in the most recent notice received from its primary regulatory agency.
15
LIQUIDITY
The objective of liquidity management is to ensure that funds are
available to meet cash flow requirements of depositors and borrowers, while at
the same time meeting the operating, capital and strategic cash flow needs of
the Company and the Bank, all in the most cost-effective manner. Whitney
develops its liquidity management strategies and measures and monitors liquidity
risk as part of its overall asset/liability management process, making full use
of the quantitative modeling tools available to project cash flows under a
variety of possible scenarios. Projections are also made assuming credit
stressed conditions, although such conditions are not likely to arise.
On the liability side, liquidity management focuses on growing the base
of more stable core deposits at competitive rates, including the use of
treasury-management products for commercial customers, while at the same time
ensuring access to economical wholesale funding sources. The section above on
Deposits and Short-term Borrowings discusses changes in these liability-funding
sources in 2002. Whitney National Bank is a member of the Federal Home Loan Bank
system. This membership provides access to a variety of Federal Home Loan Bank
advance products as an alternative source of funds. In addition, both the
Company and the Bank have access to external funding sources in the financial
markets, and the Bank has developed the ability to gather deposits at a
nationwide level.
Liquidity management on the asset side primarily addresses the
composition and maturity structure of the loan and investment securities
portfolios and their impact on the Company's ability to generate cash flows from
scheduled payments, contractual maturities, prepayments, their use as collateral
for borrowings under repurchase agreements and possible outright sales or
securitizations. Table 3 above presents the contractual maturity structure of
the loan portfolio and Table 7 presents contractual investment maturities. As
mentioned earlier, Whitney has built its investment in securities classified as
available for sale in recent years and, effective 2001, reclassified in excess
of $500 million of its portfolio of securities held to maturity to this
category. These actions further increased liquidity management flexibility.
Cash generated from operations is another important source of funds to
meet liquidity needs. The consolidated statements of cash flows present
operating cash flows and summarize all significant sources and uses of funds for
each year in the three-year period ended December 31, 2002.
The Bank's liquidity position had grown throughout 2001 reflecting
strong deposit inflows, moderate loan demand, and an attractive refinancing
environment. Conditions supported ample liquidity again in 2002, and Whitney
made investment allocation decisions and developed deposit pricing strategies
consistent with management's assessment of the underlying conditions. The higher
level of liquidity in the past two years will likely return to more normal
levels with increased economic activity, a return to confidence in the capital
markets and rising market interest rates.
Whitney Holding Corporation had approximately $128 million in cash and
demand notes from the Bank available to provide liquidity for acquisitions,
dividend payments to shareholders, or other corporate uses at the end of 2002,
before consideration of any future dividends that may be received from the Bank.
Because the Bank has received approval to pay the Company dividends above limits
set by statutory and regulatory provisions, the Bank will be required to seek
continuing approval to declare future dividends to the Company until it
reestablishes dividend capacity under those provisions.
The Bank had approximately $1.5 billion in unfunded loan commitments,
excluding personal credit lines, outstanding at December 31, 2002, an increase
of $227 million from 2001's year end. Note 14 details these and other unfunded
commitments at December 31, 2002 and 2001. 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.
16
ASSET/LIABILITY MANAGEMENT
The objective of the Company's asset/liability management is to
implement strategies for the funding and deployment of its financial resources
that are expected to maximize soundness and profitability over time at
acceptable levels of risk.
Interest rate sensitivity is the potential impact of changing rate
environments on both net interest income and cash flows. The Company and the
Bank obtain measures of their interest rate sensitivity by running net interest
income simulations, monitoring the economic value of equity and preparing gap
analyses.
The simplest method of measuring interest rate sensitivity is gap
analysis, which identifies the difference between the dollar volume of assets
and liabilities that reprice within specified time periods. Table 11 shows the
Company's static gap position as of December 31, 2002.
Table 11 indicates that Whitney is somewhat liability sensitive in the
very near term and somewhat asset sensitive over a one-year time horizon. Gap
analysis has several limitations, including the fact that it is a point-in-time
measurement that ignores the dynamic nature of the Company's assets and
liabilities, and it does not take into consideration actions that management can
and will take to maximize net interest income over time. A more sophisticated
tool used by the Company to evaluate and manage its interest rate sensitivity is
a net interest income simulation model, which tests the Bank's reaction to
various economic environments. The model is able to incorporate management's
assumptions and expectations regarding such factors as loan and deposit growth,
pricing, prepayment speeds and spreads between interest rates. Assumptions can
also be entered into the model to evaluate the impact of possible strategic
responses to changes in the competitive environment.
TABLE 11. INTEREST RATE SENSITIVITY
- --------------------------------------------------------------------------------------------------------------------
By Maturity or Repricing Dates at December 31, 2002
- --------------------------------------------------------------------------------------------------------------------
Non-
0-30 31-90 91-180 181-365 After interest-
(dollars in millions) Days Days Days Days 1 Year bearing Total
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Loans $2,278 $ 363 $330 $420 $1,064 $ - $4,455
Securities available for sale 112 146 185 323 1,008 - 1,774
Securities held to maturity - 6 4 45 147 - 202
Loans held for sale and other
short-term investments 70 - - - - - 70
Other assets - - - - - 597 597
- --------------------------------------------------------------------------------------------------------------------
Total assets 2,460 515 519 788 2,219 597 7,098
- --------------------------------------------------------------------------------------------------------------------
SOURCES OF FUNDS
NOW account deposits 699 - - - - - 699
Money market deposits 1,347 - - - - - 1,347
Savings deposits 14 - - - 514 - 528
Other time deposits 76 166 211 254 133 - 840
Time deposits $100,000 and over 254 118 125 128 51 - 676
Short-term borrowings 454 - - - - - 454
Noninterest-bearing demand deposits - - - - - 1,693 1,693
Other liabilities - - - - - 61 61
Shareholders' equity - - - - - 800 800
- --------------------------------------------------------------------------------------------------------------------
Total sources of funds 2,844 284 336 382 698 2,554 7,098
- --------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ (384) $ 231 $183 $406 $1,521 $(1,957)
Cumulative interest rate sensitivity gap $ (384) $(153) $ 30 $436 $1,957 $ -
Cumulative interest rate sensitivity
gap as a percentage of total
earning assets (5.91)% (2.35)% .46% 6.71% 30.10%
- --------------------------------------------------------------------------------------------------------------------
As part of its regular formal asset/liability management process, a
base case simulation is run that uses current growth forecasts and assumes a
stable rate environment and structure. When the base case simulation as of the
end of 2002 was subjected to parallel up and down instantaneous rate shocks of
100 basis points, the model
17
showed an annual impact on Whitney's 2003 net interest income (TE) relative to
the base case that ranged from a positive $13 million, or 4.3%, at 100 basis
points up to a negative $15 million, or 4.9%, at 100 basis points down. The
comparable simulation run at year-end 2001 produced results that ranged from a
positive impact on net interest income (TE) of $10 million, or 3.3%, to a
negative impact of $6 million, or 2.2%. At the end of each year, additional
simulations were run applying instantaneous parallel rate shocks up to 300 basis
points as well as gradual rate changes of up to 200 basis points. In the recent
rate environment, certain downward rate shocks caused unrealistic model
assumptions, and the results from these simulation runs were disregarded. The
results of other simulations showed that the Company's sensitivity was within
acceptable limits, considering established internal guidelines.
Like the gap analysis, the net interest income simulations at the end
of 2002 indicate that the Company is moderately asset sensitive over a one-year
time horizon. The actual impact of changing interest rates on net interest
income, however, is dependent on many factors. These include Whitney's ability
to achieve growth in earning assets and maintain a desired mix of earning assets
and interest-bearing liabilities, the actual timing of repricing of assets and
liabilities, the magnitude of interest rate changes, interest rate spreads and
the level of success of asset/liability management strategies implemented.
The method used for measuring longer-term interest rate risk is the
economic value of equity analysis. At year-end 2002, the Company's sensitivity
was acceptable under internal guidelines at all levels of rate shock simulation
that produced realistic results.
Changes in interest rates affect the fair values of financial
instruments. The earlier section on Investment in Securities and Notes 4 and 15
to the consolidated financial statements contain information regarding fair
values.
IMPACT OF INFLATION AND CHANGING PRICES
The great majority of assets and liabilities of a financial institution
are monetary in nature. Management believes the most significant potential
impact of inflationary or deflationary economic cycles on Whitney's financial
results is its ability to react to changes in interest rates. Interest rates do
not, however, necessarily move in the same direction, or at the same magnitude,
as the prices of goods and services. As discussed above, the Company employs
asset/liability management strategies in its attempt to minimize the effects of
economic cycles on its net interest income.
Inflation and changing prices also have an impact on the growth of
total assets in the banking industry and the resulting need to increase capital
at higher than normal rates in order to maintain an appropriate equity to assets
ratio. Changing prices will also affect the trend in noninterest operating
expenses and noninterest income.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income (TE) increased 5%, or $15.0 million, in 2002, on 3%
growth in average earning assets. This followed a 4%, or $12.0 million, increase
in 2001 over 2000, when earning assets grew 9%. As discussed earlier, Whitney
has been moderately asset sensitive throughout 2002 and 2001, which implies that
it would experience some compression in its net interest margin in a declining
rate environment, holding other factors constant. The net interest margin is net
interest income (TE) as a percent of average earning assets. Margin compression
did occur in 2001, when there was a decrease of 21 basis points to 4.52%, but
this decline was well below what would have been expected based solely on the
steep reduction in market rates during 2001. Pressure on the margin continued in
2002, but Whitney was able to add 10 basis points to the margin during the year,
to 4.62%, in large part through pricing discipline on loans, careful deployment
of excess liquidity between the investment portfolio and short-term cash
management investments, and the implementation of successful pricing strategies
on deposits. The margin improvement in 2002 came as a 129 basis point decline in
the yield (TE) on earning assets was more than offset by a 139 basis point
decrease in the cost of funding these assets. Between 2000 and 2001, however,
18
the 86 basis point decrease in the earning asset yield was not fully matched by
a 65 basis point decrease in the cost of funds. Tables 12 and 13 show the
factors contributing to these changes and the components of these changes.
Maintaining the net interest margin at current levels and generating growth in
net interest income during a period of continued low interest rates, economic
uncertainty and limited earning asset growth cannot be assured.
In both 2002 and 2001, the earning asset mix has been impacted by
restrained loan demand and higher demand for deposit products, among other
factors. Together these factors provided a surge in liquidity to the earning
asset mix in 2001 that has continued into 2002. Short-term investments grew to
4% of average earning assets in 2001, from less than 1% in 2000, and remained on
average at the higher level in 2002. Over the same period, average loans,
including loans held for sale, declined as a percentage of earning assets to 68%
in 2002, from 72% in 2001 and a high for recent years of 73% in 2000. Management
gradually directed more of the liquidity from loan reductions and sustained
deposit demand to the investment portfolio, which increased to 28% of earning
assets in 2002 from 24% in 2001. At year-end 2002, the investment portfolio had
grown to 30% of earning assets, while short-term investments had decreased to
less than 1%.
Market rates were relatively stable during 2002, after a steep and
steady decline throughout 2001. The average prime rate during 2002 was
approximately 220 basis points lower than in 2001 and 450 basis points below
2000. Fixed rate components of the loan portfolio and discipline in loan pricing
in the face of restrained demand and heightened competition helped limit the
decrease in the loan portfolio yield (TE) to 137 basis points in 2002 and 90
basis points in 2001. The average rate earned on the predominantly fixed-rate
investment portfolio decreased 78 basis points in 2002 and was down 25 basis
points in 2001 compared to the prior year. Low market rates have stimulated home
mortgage refinancing activity and accelerated prepayments on mortgage-backed
securities, as was particularly evident in 2002. This has offset some of the
benefit to the portfolio return from the fixed-rate structure of the investment
portfolio.
Sustained higher demand for deposit products and the implementation of
deposit pricing strategies had a favorable impact on the mix of funding sources
in 2002. The percentage of average earning assets funded by noninterest-bearing
sources rose to 29%, from 27% in 2001, with a healthy 25% in the most recent
period representing noninterest-bearing deposits. Noninterest-bearing deposits
funded 23% of earning assets in 2001. Lower-cost interest-bearing deposits
supported 39% of earning assets in 2002, up from 34% in 2001. Higher-cost
sources of funds, which include time deposits and short-term borrowings, fell to
32% of average earning assets in 2002, from close to 40% in 2001. Total time
deposits decreased 18% on average in response to steadily declining renewal
rates, shifting in part to lower-cost products. Average short-term borrowings
were 14% lower than in 2001.
Although money market rates became relatively stable in 2002, the
maturity structure of time deposits was such that their cost continued to
decline throughout the year. The average rate on time deposits for 2002 was 245
basis points below the rate for 2001, and stood at 2.05% at year-end 2002,
approximately 150 basis points below the rate at the end of 2001. At current
market conditions, time deposit maturities should lead to some further cost
reductions in the near term.
An improved mix of funding sources also benefited 2001. Funds from
noninterest-bearing sources totaled 27% of average earnings assets in 2001
compared to 26% in 2000, with 23% from noninterest-bearing deposits in each
period. The impact of increased customer liquidity and demand for deposits was
most evident in the reduction in the percentage of higher-cost funds to average
earning assets from 42% in 2000 to 39% in 2001. During 2000, Whitney had made
increased use of wholesale funding sources to leverage loan growth in that
period and had responded to what then were rising short-term market rates with
competitively structured time-deposit products. In response to falling market
rates, the average cost of total interest-bearing liabilities decreased 85 basis
points in 2001, including the impact of a 246 basis point drop in the cost of
short-term borrowings. As would be expected, however, the cost of fixed-rate
time deposits in 2001 responded more slowly and was only 44 basis points below
2000 on average.
19
TABLE 12. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME (TE) (a) AND INTEREST RATES
- ------------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans (TE)(b),(c) $4,393,266 $274,979 6.26% $4,515,740 $344,613 7.63% $4,235,562 $361,345 8.53%
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 1,023,277 55,243 5.40 684,934 41,070 6.00 489,073 30,144 6.16
U.S. agency securities 433,554 21,723 5.01 530,411 31,372 5.91 636,052 38,882 6.11
Obligations of states and political
subdivisions (TE) 152,052 10,527 6.92 165,809 11,894 7.17 202,598 15,152 7.48
U.S. Treasury securities 152,349 6,160 4.04 104,670 6,215 5.94 122,018 7,438 6.10
Other securities 54,984 2,432 4.42 39,430 2,015 5.11 28,868 1,853 6.42
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment in securities 1,816,216 96,085 5.29 1,525,254 92,566 6.07 1,478,609 93,469 6.32
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and
short-term investments 283,309 4,771 1.68 262,451 9,331 3.56 57,085 3,543 6.21
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 6,492,791 $375,835 5.79% 6,303,445 $446,510 7.08% 5,771,256 $458,357 7.94%
- ------------------------------------------------------------------------------------------------------------------------------------
NONEARNING ASSETS
Other assets 595,445 592,469 565,213
Allowance for loan losses (71,561) (64,350) (54,425)
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $7,016,675 $6,831,564 $6,282,044
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
NOW account deposits $ 690,011 $ 5,508 .80% $ 598,973 $ 7,727 1.29% $ 543,424 $ 8,086 1.49%
Money market deposits 1,321,729 19,152 1.45 1,065,027 30,655 2.88 820,393 33,638 4.10
Savings deposits 515,878 4,014 .78 463,583 7,055 1.52 458,717 9,281 2.02
Other time deposits 913,492 26,315 2.88 1,114,207 58,772 5.27 993,948 53,294 5.36
Time deposits $100,000 and over 707,715 16,868 2.38 858,895 42,006 4.89 768,605 44,587 5.80
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 4,148,825 71,857 1.73 4,100,685 146,215 3.57 3,585,087 148,886 4.15
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 441,777 3,844 .87 515,152 15,134 2.94 672,118 36,295 5.40
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 4,590,602 $ 75,701 1.65% 4,615,837 $161,349 3.50% 4,257,205 $185,181 4.35%
- ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING
LIABILITIES AND
SHAREHOLDERS' EQUITY
Demand deposits 1,601,316 1,447,871 1,342,127
Other liabilities 64,032 69,757 59,898
Shareholders' equity 760,725 698,099 622,814
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $7,016,675 $6,831,564 $6,282,044
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income and margin(TE) $300,134 4.62% $285,161 4.52% $273,176 4.73%
Net earning assets and spread $1,902,189 4.14% $1,687,608 3.58% $1,514,051 3.59%
Interest cost of funding
earnings assets 1.17% 2.56% 3.21%
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Tax-equivalent (TE) amounts are calculated using a marginal federal income tax rate of 35%.
(b) Includes loans held for sale.
(c) Average balance includes nonaccruing loans of $37,152, $27,492 and $21,358, respectively, in 2002, 2001 and 2000.
20
TABLE 13. SUMMARY OF CHANGES IN NET INTEREST INCOME (TE) (a), (b)
- -------------------------------------------------------------------------------------------------------------
2002 Compared to 2001 2001 Compared to 2000
- -------------------------------------------------------------------------------------------------------------
Due to Due to
Change in Total Change in Total
-------------------- Increase ------------------- Increase
(dollars in thousands) Volume Rate (Decrease) Volume Rate (Decrease)
- -------------------------------------------------------------------------------------------------------------
INTEREST INCOME (TE)
Loans (TE) $(9,126) $(60,508) $(69,634) $22,931 $(39,663) $ (16,732)
- -------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 18,605 (4,432) 14,173 11,765 (839) 10,926
U.S. agency securities (5,252) (4,397) (9,649) (6,283) (1,227) (7,510)
Obligations of states and political
subdivisions (TE) (963) (404) (1,367) (2,660) (598) (3,258)
U.S. Treasury securities 2,300 (2,355) (55) (1,034) (189) (1,223)
Other securities 715 (298) 417 589 (427) 162
- -------------------------------------------------------------------------------------------------------------
Total investment in securities 15,405 (11,886) 3,519 2,377 (3,280) (903)
- -------------------------------------------------------------------------------------------------------------
Federal funds sold and
short-term investments 690 (5,250) (4,560) 7,879 (2,091) 5,788
- -------------------------------------------------------------------------------------------------------------
Total interest income (TE) 6,969 (77,644) (70,675) 33,187 (45,034) (11,847)
- -------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
NOW account deposits 1,047 (3,266) (2,219) 779 (1,138) (359)
Money market deposits 6,190 (17,693) (11,503) 8,536 (11,519) (2,983)
Savings deposits 723 (3,764) (3,041) 97 (2,323) (2,226)
Other time deposits (9,222) (23,235) (32,457) 6,356 (878) 5,478
Time deposits $100,000 and over (6,425) (18,713) (25,138) 4,886 (7,467) (2,581)
- -------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits (7,687) (66,671) (74,358) 20,654 (23,325) (2,671)
- -------------------------------------------------------------------------------------------------------------
Short-term borrowings (1,900) (9,390) (11,290) (7,167) (13,994) (21,161)
- -------------------------------------------------------------------------------------------------------------
Total interest expense (9,587) (76,061) (85,648) 13,487 (37,319) (23,832)
- -------------------------------------------------------------------------------------------------------------
Change in net interest income (TE)$16,556 $ (1,583) $14,973 $19,700 $ (7,715) $ 11,985
- -------------------------------------------------------------------------------------------------------------
(a) Tax-equivalent (TE) amounts are calculated using a marginal federal income tax rate of 35%.
(b) The change in interest shown as due to changes in either volume or rate includes an allocation of the
amount that reflects the interaction of volume and rate changes. This allocation is based on the absolute
dollar amounts of change due solely to changes in volume or rate.
21
PROVISION FOR LOAN LOSSES
The overall credit risk profile of Whitney's customers increased
moderately in both 2001 and 2000. As would be expected, net charge-offs rose in
the subsequent periods, to $12.1 million in 2002 and $9.4 million in 2001 from
$1.6 million in 2000. Improvements in overall credit risk in 2002 led to a $5.5
million reduction in the level of the allowance for loan losses from year-end
2001 and helped lower the provision for the year. Whitney provided $7.5 million
for loan losses in 2002, compared to $19.5 million in 2001 and $12.7 million in
2000.
For a more detailed discussion of changes in the allowance for loan
losses, nonperforming assets and general credit quality, see the earlier section
on Loans and Allowance for Loan Losses. The future level of the allowance and
provisions for loan losses will reflect management's ongoing evaluation of
credit risk, based on established internal policies and practices.
NONINTEREST INCOME
Table 14 shows the components of noninterest income for each year in
the three-year period ended December 31, 2002, along with the percent changes
between years for each component. Noninterest income before securities
transactions decreased 7%, or $6.3 million, in 2002 after increasing 23%, or
$16.8 million, in 2001. Excluding revenue and gains associated with merchant
processing agreements that were sold in 2001, as discussed below, noninterest
income grew 5%, or $4.2 million, in 2002, and was up 25%, or $15.9 million, in
2001.
TABLE 14. NONINTEREST INCOME
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 % change 2001 % change 2000
- -----------------------------------------------------------------------------------------------------------------
Service charges on deposit accounts $38,327 8.7% $35,275 16.4% $30,312
Credit card income 8,219 (41.3) 14,002 (8.8) 15,349
Trust service fees 8,814 (6.1) 9,384 1.9 9,206
Secondary mortgage market operations 9,045 19.4 7,575 257.6 2,118
ATM fees 4,861 13.5 4,281 4.7 4,089
Investment services income 4,257 9.0 3,906 45.7 2,681
Other fees and charges 6,047 41.1 4,285 8.2 3,959
Other operating income 2,993 (15.2) 3,529 (4.3) 3,689
Net gain on sales and other
revenue from foreclosed assets 1,714 (12.7) 1,963 14.5 1,714
Net gains on disposals of surplus property 497 (84.8) 3,274 184.0 1,153
Gain on sale of merchant processing agreements - (a) 3,570 (a) -
- -----------------------------------------------------------------------------------------------------------------
Total noninterest income before
securities transactions 84,774 (6.9) 91,044 22.6 74,270
Securities transactions 411 149.1 165 (80.6) 850
- -----------------------------------------------------------------------------------------------------------------
Total noninterest income $85,185 (6.6)% $91,209 21.4% $75,120
- -----------------------------------------------------------------------------------------------------------------
(a) Not meaningful.
Income from service charges on deposit accounts increased 9%, or $3.1
million, in 2002, after an increase of 16%, or $5.0 million, in 2001. Both
periods benefited from refinements to pricing policies for certain business
accounts that the Company implemented during the second quarter of 2001. In
addition, as short-term market interest rates declined sharply in 2001, Whitney
appropriately lowered the earnings credit allowed as an offset to service
charges on these accounts, and these lower rates prevailed throughout 2002. The
combined impact helped increase business service fees by $2.6 million in 2002
and $3.2 million in 2001. Both periods also benefited from the introduction,
beginning in 2001's second quarter, of automated tools to help banking officers
with certain service fee decisions and to measure their performance against
corporate standards. The integration of customers acquired in mergers also
generated additional fee income in both 2002 and 2001, as did underlying growth
in the customer deposit base.
22
At the end of 2001's third quarter, Whitney entered into an alliance
with a firm that specializes in processing credit card sale transactions for
merchants. In forming this alliance, Whitney sold its existing merchant
processing agreements to the firm and recognized a gain of $3.6 million, while
maintaining an interest in the ongoing net revenues generated through the
alliance. With this move, credit card income decreased a net 41%, or $5.8
million, in 2002, and 9%, or $1.3 million in 2001. The corresponding reduction
in credit card processing expense is discussed in the following section.
Excluding revenues associated with merchant processing in all periods, credit
card income rose 18%, or $1.2 million, in 2002, and was up 26%, or $1.4 million
in 2001. In addition to income from merchant processing services, this category
has included fees from activity on Bank-issued credit and debit cards. Fee
income from debit card activity has made an increasingly important contribution
in recent years as the Company expanded the distribution of this product and saw
increasing acceptance and use of these cards for retail transactions. Debit card
fee income was up 26%, or $1.0 million in 2002, on a 25% increase in transaction
volume and a 19% increase in the cardholder base. This followed income growth of
42%, or $1.2 million, in 2001 when transaction volume rose 37% and the base
increased 34%. Fee income from credit card activity grew 7% in 2002, consistent
with the growth in transaction volume, and was up 14% in 2001.
Secondary mortgage market operations posted a 19%, or $1.5 million,
increase in fee income in 2002. In 2001, this income category had increased $5.5
million to a level over three times that in 2000. Late in the third quarter of
2000, the Company began to shift away from retaining new residential mortgage
loans for the portfolio. In addition, favorable market rates and an expanded
sales force generated strong origination volumes throughout 2001 and again in
2002. Refinancing activity accounted for approximately 65% of the loans
originated in both 2002 and 2001. Total production was $510 million in 2002 and
$461 million in 2001, both up sharply from a total of $219 million in 2000.
Whitney sold approximately 86% of this production in 2002 compared to 95% in
2001 and only 38% in 2000.
Fees on letters of credit and unused loan commitments were the main
factors behind the 41%, or $1.8 million, growth in other fees and charges in
2002. Revenues from an agreement to outsource the Bank's official checks that
was implemented in the second half of 2002 also contributed to this improvement.
Investment service income increased 9%, or $.4 million, in 2002, mainly
on the strength of annuity sales. Increased demand for fixed income securities
drove the 46%, or $1.2 million, increase in this income category in 2001,
offsetting softness in retail brokerage activity that was brought on by weak
equity markets. The conditions underlying these 2001 changes were also present
throughout much of 2002.
Lower asset values in the capital markets were an important factor
behind the 6%, or $.6 million, decrease in trust service fees in 2002, and the
limited growth of only 2% in 2001. A modification of fee schedules, however,
helped limit the negative impact from capital market weaknesses.
The net gain on sales and other revenue from foreclosed assets includes
income from grandfathered assets that vary from year to year as opportunities
for sales arise. Management evaluates its banking facilities on an ongoing basis
to identify possible under-utilization and to determine the need for functional
improvements, relocations or possible sales. The net gains recognized in each
period from these and other dispositions of surplus banking property are shown
in Table 14. The total for 2001 includes a gain of approximately $1.1 million
related to a property acquired through merger.
23
NONINTEREST EXPENSE
Table 15 shows the components of noninterest expense with and without
merger-related expenses for each year in the three-year period ended December
31, 2002, along with the percent changes between years for each component.
Noninterest expense before merger-related expenses decreased 1%, or $2.0
million, in 2002 after a 5% increase in 2001. Adjusting for the impact of the
merchant business sale, noninterest expense increased a moderate 2% in 2002 and
approximately 6% in 2001.
TABLE 15. NONINTEREST EXPENSE
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 % change 2001 % change 2000
- -------------------------------------------------------------------------------------------------------------------
Employee compensation $107,021 5.0% $101,937 6.4% $95,838
Employee benefits 21,966 25.2 17,538 10.0 15,939
- -------------------------------------------------------------------------------------------------------------------
Total personnel expense 128,987 8.0 119,475 6.9 111,777
Equipment and data processing expense 18,876 (13.4) 21,802 (6.6) 23,346
Net occupancy expense 19,907 (1.0) 20,102 5.2 19,115
Credit card processing services 2,161 (73.4) 8,134 (21.4) 10,354
Telecommunication and postage 8,281 (3.4) 8,571 (1.6) 8,714
Legal and professional services 6,083 (5.8) 6,456 8.4 5,958
Amortization of intangibles 5,846 (21.3) 7,430 23.3 6,027
Ad valorem taxes 7,557 7.3 7,045 7.5 6,554
Security and other outsourced services 8,127 4.3 7,792 14.1 6,830
Advertising 4,769 7.3 4,443 26.3 3,519
Operating supplies 3,462 (19.8) 4,315 3.5 4,169
Deposit insurance and regulatory fees 1,971 1.8 1,936 11.3 1,740
Miscellaneous operating losses 1,429 (43.8) 2,544 46.4 1,738
Other operating expense 13,470 4.6 12,873 5.2 12,236
- -------------------------------------------------------------------------------------------------------------------
Noninterest expense, before
merger-related expenses 230,926 (.9) 232,918 4.9 222,077
Merger-related expenses - (a) 6,186 (a) 1,102
- -------------------------------------------------------------------------------------------------------------------
Total noninterest expense $230,926 (3.4)% $239,104 7.1% $223,179
- -------------------------------------------------------------------------------------------------------------------
(a) Not meaningful.
Total personnel expense increased 8%, or $9.5 million, in 2002, and was
up 7%, or $7.7 million, in 2001. Employee compensation rose 5%, or $5.1 million,
in 2002, including approximately $.4 million of nonrecurring costs associated
with acquired bank personnel; and employee benefits increased 25%, or $4.4
million. Base salaries and the cost of various targeted employee incentive pay
plans, such as for mortgage originators, increased 4%, or $3.7 million,
including the impact of recurring costs of bank operations purchased in late
2001. The successful integration of operations and employees from this
acquisition and continued attention to efficient management of human resources
helped the Company keep its average full-time equivalent staff level during 2002
essentially unchanged from 2001. An increase in stock-based compensation, which
fluctuates with changes in Whitney's stock price and employee participation
levels, was the main factor in an overall $1.6 million increase in long-term
incentive plan expense.
The Company provides retirement benefits under a defined benefit
pension plan and a 401(k) savings plan. A weak performance by the investments in
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
future periods, holding other variables constant. Each of these conditions was
present in 2001 as well as at the end of 2002. As a result, pension expense
increased $3.1 million from 2001 to 2002, accounting for approximately
three-quarters of the overall increase in employee benefits expense. An
additional, though somewhat smaller, increase is expected for 2003. Whitney also
expects an increase in the cost of providing health benefits for 2003, following
an increase of 11%, or $.7 million, in 2002.
24
In 2001, employee compensation rose 6%, or $6.1 million, while employee
benefits increased 10%, or $1.6 million. Base salaries and incentive pay
increased 6%, or $5.0 million, including $1.4 million related to the bank
operations purchased late in 2001. Adjusting for the impact of purchased
operations, the increase would have been approximately 4%. Reductions in staff
levels achieved through the integration of the operations of pooled entities
acquired in early 2001 helped limit the overall increase. Stock-based
compensation again drove the increase in long-term incentive plan expense for
2001, which was up $1.1 million. Effective for 2001, Whitney increased the
percentage of employee 401(k) plan savings that it matches. The impact of this
change and an increase in the cost of health benefits were the major factors
behind the rise in employee benefits expense in that year.
Equipment and data processing expense was 13%, or $2.9 million, lower
in 2002, following a decrease of 7%, or $1.5 million, in 2001. Continued close
control over capital expenditures, for both new projects and the replacement of
fully-depreciated assets, has been the major factor that provided an offset to
costs that have been added for applications to support expanded customer
services and enhanced management tools and for purchased operations. Systems
integration activities completed in 2001 also produced savings. The Company does
not anticipate a further decrease in equipment and data processing expense in
2003.
Net occupancy expense was little changed in 2002, after an increase of
5%, or $1.0 million, in 2001. The costs added for facilities of banking
operations purchased in late 2001 were offset by expense reductions in 2002,
mainly with respect to depreciation and utilities. Functional improvement
projects at certain facilities, including the main office in New Orleans, had
led to increased depreciation expense in 2001, and high energy prices early that
year had driven up the cost of utilities. The elimination of under-utilized
facilities helped reduce depreciation and other occupancy expenses in 2002 and
limit the growth in occupancy expense in 2001 from purchased operations and the
other factors mentioned above.
The significant reductions in credit card processing services expense
in both 2002 and 2001 were directly related to the merchant business sale
discussed earlier. Excluding merchant processing costs, this expense category
will vary mainly with changes in income from transactions on Bank-issued credit
cards.
Telecommunication and postage expense has been stable to slightly lower
over the last few years, despite postal rate increases in both 2002 and 2001.
Over the last two years, Whitney renegotiated its contract for mail services,
improved internal mail operations, and restructured its data and voice
communication contracts. The Company has also noted some trends in customer
transaction preferences that have reduced the cost of periodic mailings.
The expense for legal and professional services decreased 6% in 2002
after rising 8% in 2001. There had been a fairly sharp increase in legal expense
in 2001 that was partly the result of services used to form the merchant
business alliance. With the rise in nonperforming loans in recent years, as
shown above in Table 6, there also came increased demand for legal services to
support loan collection efforts. The impact was evident in both 2001 and 2002,
but the recovery of some relatively significant collection costs and the
resolution of certain corporate matters helped reduce 2002 legal expense in
comparison to the prior year. The expense for consulting and other professional
services was relatively stable between 2002 and 2001, as the Company pursued
initiatives that included implementing new on-line banking services, developing
products and service protocols that better target different customer groups, and
evaluating overall organizational efficiency and effectiveness. The decrease
from 2000 to 2001 can be traced in large part to consulting services in the
earlier period related to the Company's entry into the Houston, Texas market.
Amortization of purchased intangibles decreased $1.6 million in 2002
compared to 2001. The $3.6 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. The business acquisitions in 2001 and 2000 accounted for
all of the increase in the amortization of intangibles in 2001. Note 9 to the
consolidated financial statements presents pro forma information to show the
impact elimination of goodwill amortization has on net
25
income and earnings per share. Scheduled amortization of intangible assets other
than goodwill in 2003 is $5.3 million.
The expense for security and other outsourced services increased 4% in
2002 after rising 14% in 2001. The 2001 increase reflected in large part the
extension of existing service arrangements to acquired operations.
Toward the end of 2000, Whitney launched a multi-faceted advertising
campaign featuring a Louisiana-based celebrity spokesperson. Costs associated
with this campaign, which continued throughout 2002, contributed to the 26%, or
$.9 million, increase in advertising expense in 2001.
The favorable impact of ongoing expense control efforts in recent years
is evident in the stationery and supplies expense category which decreased 20%
in 2002, following a moderate 4% increase in 2001. The success of these efforts
also factored into the moderate growth in other operating expense in both 2002
and 2001.
The Bank has been assessed at relatively low rates for deposit
insurance premiums in recent years, reflecting both the level of the deposit
insurance funds in relation to required levels and the favorable overall risk
rating assigned to the Bank by its primary regulator. Growth in insured deposits
and higher estimates of potential insured losses by the FDIC have lowered the
ratio of deposit insurance funds to insured deposits and increased the
likelihood that premium rates will go up.
The Company and its acquired entities recognize various nonrecurring
expenses to complete merger transactions and to integrate the acquired
operations into the Whitney system. These merger-related expenses include change
in control payments and severance or retention bonuses for management and
employees of a merged entity, investment banker fees, fees for various
professional services and losses on cancellation of contracts and the
disposition of obsolete and redundant facilities and equipment. Total
merger-related expenses vary with each transaction.
INCOME TAXES
Income tax expense was $46.7 million in 2002, $36.6 million in 2001 and
$33.5 million in 2000. The Company's effective tax rate was 32.9% in 2002, 32.6%
in 2001 and 31.5% in 2000. These effective rates were lower than the 35% federal
statutory tax rate primarily because of tax-exempt interest income received from
the financing of state and local governments. The increase from 2000 to 2001
mainly reflected the termination of the Subchapter S election for post-merger
earnings from an acquired bank's operations, as discussed in Note 19 to the
consolidated financial statements. In connection with the Subchapter S
termination, however, Whitney also recorded a deferred tax benefit of
approximately $1 million in 2001 that partly offset the impact of the taxability
of post-merger earnings.
Louisiana-sourced income of commercial banks is not subject to state
income taxes. Rather, banks in Louisiana pay a tax based on the value of their
capital stock in lieu of income and franchise taxes, and these ad valorem taxes
are included in noninterest expense. This expense will fluctuate based in part
on the growth in the Bank's equity and earnings and in part based on market
valuation trends for the banking industry.
See Note 19 for additional information on the Company's effective tax
rates and the composition of changes in income tax expense for all periods.
FOURTH QUARTER RESULTS
Whitney earned $.63 per share, or $25.1 million, in the fourth quarter
of 2002, a 26% increase over earnings of $.50 per share, or $19.8 million, in
the fourth quarter of 2001.
Selected highlights from the fourth quarter's results follow:
o Net interest income (TE) increased 1%, or $.8 million, from the
fourth quarter of 2001, on the strength of an improved net
interest margin (TE) that increased to 4.61%, or 9 basis points
above the year-
26
earlier quarter. Earning assets decreased in total by less than 1%
between these periods. Although sustained lower market rates
reduced both asset yields and funding costs, there was a deeper
reduction in the cost of funds. Funding costs, which decreased 85
basis points, benefited from a shift in the mix of funds to
noninterest-bearing and other lower-cost sources. Changes in the
earning asset mix helped moderate the decline in overall asset
yields, which totaled 76 basis points. Loans remained a relatively
steady percentage of earning assets between these periods.
Investment securities grew to 29% of earning assets from 25% in
the year-earlier period, with a comparable reduction in short-term
liquidity investments. The growth in investment securities, which
generally carry fixed rates, was concentrated in shorter-duration
mortgage-backed issues.
o Noninterest income, excluding securities transactions, increased
8%, or $1.6 million, from the fourth quarter of 2001. Income from
secondary mortgage market operations rose 9%, or $.2 million, as
production levels were again bolstered by a strong refinancing
market. Expanded distribution and use of bank-issued debit cards
drove a 12%, or $.2 million, increase in the credit card income
category. Other contributors to noninterest income growth included
fees on letters of credit and unused loan commitments, investment
services income, and revenue from the official check outsourcing
agreement, all of which increased a combined $1.1 million.
Difficult capital market conditions were the main factor behind a
6% decline in trust service fees from 2001's fourth quarter.
Service charges from deposit accounts were also lower in the
fourth quarter of 2002 by less than 1%.
o Noninterest expense increased 2%, or $1.3 million, from 2001's
fourth quarter. A sharp increase in defined benefit pension plan
expense was the main driver of a 12%, or $3.5 million, increase in
total personnel expense from the fourth quarter of 2001. Employee
compensation increased a more moderate 5%, or $1.4 million, in
total, as base salaries and targeted employee incentive pay rose
4%, aided in part by a 1% reduction in full-time equivalent staff
levels from year-end 2001. Most other major expense categories
showed improvement from the fourth quarter of 2001. Close control
over capital expenditures has had a favorable impact on equipment
and data processing expense, which decreased 17%, or $.9 million,
in 2002's fourth quarter. Legal and professional fees were down
$.8 million from the fourth quarter of 2001, when system
conversion expenses were incurred related to a merger. The change
in accounting for goodwill led to a $.5 million net decrease in
amortization of purchased intangibles compared to the year-earlier
quarter.
o Improvements in overall credit quality helped reduce the level of
the allowance for loan losses by $5.5 million from the end of
2001. The allowance represented 1.48% of total loans at December
31, 2002, compared to 1.59% a year earlier. Net charge-offs
totaled $1.7 million in the fourth quarter of 2002, and $1.4
million in the fourth quarter of 2001. Whitney provided $.5
million for loan losses in the fourth quarter of 2002, compared to
$6.5 million in the final quarter of 2001. The provision in last
year's fourth quarter reflected increased customer credit risks
arising from, among other factors, a weakening economy and
heightened uncertainty in the aftermath of the September 11
terrorist attacks.
The Summary of Quarterly Financial Information appearing in Item 8 of
this Form 10-K and located on page 28 provides selected comparative financial
information for each of the four quarters in 2002 and 2001.
Item 7a: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information required for this item is included in the section
entitled Asset/Liability Management on pages 17 and 18 of Management's
Discussion and Analysis of Financial Condition and Results of Operations that
appears in Item 7 of this Form 10-K.
27
Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SUMMARY OF QUARTERLY FINANCIAL INFORMATION (Unaudited)
- -------------------------------------------------------------------------------------------------------
2002 Quarters
- -------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 4th 3rd 2nd 1st
- -------------------------------------------------------------------------------------------------------
Net interest income $73,463 $73,964 $75,174 $72,607
Net interest income (TE) 74,758 75,162 76,381 73,833
Provision for loan losses 500 1,500 2,500 3,000
Noninterest income (excluding securities
transactions) 21,890 22,295 20,220 20,369
Securities transactions - (15) 426 -
Noninterest expense 57,946 58,230 57,773 56,977
Income tax expense 11,777 12,198 11,762 10,907
- -------------------------------------------------------------------------------------------------------
Net income $25,130 $24,316 $23,785 $22,092
- -------------------------------------------------------------------------------------------------------
Average balances
Total assets $6,957,714 $6,883,963 $6,986,870 $7,242,746
Earning assets 6,449,785 6,373,798 6,460,942 6,690,593
Loans 4,417,449 4,326,383 4,344,882 4,400,375
Deposits 5,660,729 5,634,831 5,757,493 5,951,971
Shareholders' equity 792,292 773,326 745,352 731,120
- -------------------------------------------------------------------------------------------------------
Ratios
Return on average assets 1.43% 1.40% 1.37% 1.24%
Return on average equity 12.58 12.47 12.80 12.25
Net interest margin 4.61 4.69 4.74 4.45
- -------------------------------------------------------------------------------------------------------
Earnings per share
Basic $.63 $.61 $.60 $.56
Diluted .63 .60 .59 .55
Cash dividends per share .30 .27 .27 .27
Trading data
High closing price $34.27 $34.00 $38.52 $34.50
Low closing price 29.46 28.09 30.51 29.13
End-of-period closing price 33.33 32.08 30.74 33.24
Trading volume 5,774,008 5,078,531 8,115,882 2,958,102
- -------------------------------------------------------------------------------------------------------
2001 Quarters
- -------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 4th 3rd 2nd 1st
- -------------------------------------------------------------------------------------------------------
Net interest income $72,652 $70,939 $68,266 $67,939
Net interest income (TE) 73,944 72,258 69,628 69,331
Provision for loan losses 6,500 8,000 2,500 2,500
Noninterest income (excluding securities
transactions) 20,282 25,002 21,816 23,944
Securities transactions 96 - 32 37
Noninterest expense 56,644 58,866 60,720 62,874
Income tax expense 10,090 9,719 8,792 7,980
- -------------------------------------------------------------------------------------------------------
Net income $19,796 $19,356 $18,102 $18,566
- -------------------------------------------------------------------------------------------------------
Average balances
Total assets $7,034,722 $6,825,004 $6,813,065 $6,649,303
Earning assets 6,503,952 6,306,997 6,290,430 6,108,016
Loans 4,491,247 4,450,095 4,451,840 4,507,874
Deposits 5,726,667 5,548,850 5,548,425 5,366,320
Shareholders' equity 725,826 702,134 689,272 674,556
- -------------------------------------------------------------------------------------------------------
Ratios
Return on average assets 1.12% 1.13% 1.07% 1.13%
Return on average equity 10.82 10.94 10.53 11.16
Net interest margin 4.52 4.56 4.43 4.58
- -------------------------------------------------------------------------------------------------------
Earnings per share
Basic $.50 $.49 $.46 $.47
Diluted .49 .48 .46 .47
Cash dividends per share .27 .25 .25 .25
Trading data
High closing price $31.27 $32.56 $31.27 $27.58
Low closing price 26.17 26.84 25.67 24.00
End-of-period closing price 29.23 28.67 31.27 26.38
Trading volume 3,187,866 3,230,252 4,097,418 3,449,813
- -------------------------------------------------------------------------------------------------------
All closing prices represent closing sales prices as reported on The NASDAQ Stock Market.
Share and per share data give effect to the 3-for-2 stock split effective April 9, 2002.
28
WHITNEY HOLDING COPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- -------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from financial institutions $ 326,124 $ 271,512
Federal funds sold and short-term investments 4,327 494,908
Loans held for sale 65,572 59,453
Investment in securities
Securities available for sale 1,773,591 1,440,527
Securities held to maturity, fair values of $209,506
and $195,712, respectively 202,107 191,813
- -------------------------------------------------------------------------------------------------------------
Total investment in securities 1,975,698 1,632,340
Loans, net of unearned income 4,455,412 4,495,085
Allowance for loan losses (66,115) (71,633)
- -------------------------------------------------------------------------------------------------------------
Net loans 4,389,297 4,423,452
- -------------------------------------------------------------------------------------------------------------
Bank premises and equipment 151,620 167,419
Goodwill 69,164 68,952
Other intangible assets 28,807 34,653
Accrued interest receivable 28,649 32,461
Other assets 58,623 58,500
- -------------------------------------------------------------------------------------------------------------
Total assets $ 7,097,881 $ 7,243,650
- -------------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing demand deposits $ 1,692,939 $ 1,634,258
Interest-bearing deposits 4,089,940 4,315,902
- -------------------------------------------------------------------------------------------------------------
Total deposits 5,782,879 5,950,160
- -------------------------------------------------------------------------------------------------------------
Short-term borrowings 453,415 511,517
Accrued interest payable 7,383 14,946
Accrued expenses and other liabilities 53,721 49,139
- -------------------------------------------------------------------------------------------------------------
Total liabilities 6,297,398 6,525,762
- -------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized --100,000,000 shares
Issued -- 40,067,783 and 39,667,248 shares, respectively 2,800 2,800
Capital surplus 167,235 154,397
Retained earnings 607,235 556,241
Accumulated other comprehensive income 30,104 10,104
Treasury stock at cost - -
Unearned restricted stock compensation (6,891) (5,654)
- -------------------------------------------------------------------------------------------------------------
Total shareholders' equity 800,483 717,888
- -------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 7,097,881 $ 7,243,650
- -------------------------------------------------------------------------------------------------------------
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.
29
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31
- ---------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 273,737 $ 343,397 $ 360,480
Interest and dividends on investments
Mortgage-backed securities 55,243 41,070 30,144
U.S. agency securities 21,723 31,372 38,882
Obligations of states and political subdivisions 6,843 7,745 9,921
U.S. Treasury securities 6,160 6,215 7,438
Other securities 2,432 2,015 1,853
Interest on federal funds sold and short-term investments 4,771 9,331 3,543
- ---------------------------------------------------------------------------------------------------------------
Total interest income 370,909 441,145 452,261
- ---------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 71,857 146,215 148,886
Interest on short-term borrowings 3,844 15,134 36,295
- ---------------------------------------------------------------------------------------------------------------
Total interest expense 75,701 161,349 185,181
- ---------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 295,208 279,796 267,080
PROVISION FOR LOAN LOSSES 7,500 19,500 12,690
- ---------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 287,708 260,296 254,390
- ---------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 38,327 35,275 30,312
Credit card income 8,219 14,002 15,349
Trust service fees 8,814 9,384 9,206
Secondary mortgage market operations 9,045 7,575 2,118
Other noninterest income 20,369 24,808 17,285
Securities transactions 411 165 850
- ---------------------------------------------------------------------------------------------------------------
Total noninterest income 85,185 91,209 75,120
- ---------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Employee compensation 107,021 104,806 95,838
Employee benefits 21,966 17,604 15,939
- ---------------------------------------------------------------------------------------------------------------
Total personnel expense 128,987 122,410 111,777
Equipment and data processing expense 18,876 23,040 23,346
Net occupancy expense 19,907 20,179 19,115
Credit card processing services 2,161 8,134 10,354
Telecommunication and postage 8,281 8,582 8,714
Legal and professional fees 6,083 8,712 6,686
Amortization of intangibles 5,846 7,430 6,027
Ad valorem taxes 7,557 7,045 6,554
Other noninterest expense 33,228 33,572 30,606
- ---------------------------------------------------------------------------------------------------------------
Total noninterest expense 230,926 239,104 223,179
- ---------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 141,967 112,401 106,331
INCOME TAX EXPENSE 46,644 36,581 33,489
- ---------------------------------------------------------------------------------------------------------------
NET INCOME $ 95,323 $ 75,820 $ 72,842
- ---------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Basic $ 2.39 $ 1.92 $ 1.89
Diluted 2.38 1.90 1.89
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic 39,848,881 39,550,723 38,475,984
Diluted 40,121,544 39,836,047 38,568,699
CASH DIVIDENDS PER SHARE $ 1.11 $ 1.03 $ .96
- ---------------------------------------------------------------------------------------------------------------
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.
30
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
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, 1999 $2,800 $158,618 $484,830 $(5,293) $(40,678) $(4,073) $596,204
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 72,842 - - - 72,842
Other comprehensive income:
Unrealized net holding gain on securities,
net of reclassification adjustments and taxes - - - 6,950 - - 6,950
- ---------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 72,842 6,950 - - 79,792
- ---------------------------------------------------------------------------------------------------------------------------------
Cash dividends, $.96 per share - - (32,872) - - - (32,872)
Cash dividends, pooled entities - - (3,580) - - - (3,580)
Stock issued in purchase business combination - (344) - - 22,497 - 22,153
Stock issued to dividend reinvestment and
employee retirement plans - 46 - - 3,034 - 3,080
Long-term incentive plan stock activity:
Restricted grants and related activity - 140 - - 797 (243) 694
Options exercised - (51) - - 240 - 189
Directors' compensation plan stock activity - - - - 120 - 120
Stock transactions, pooled entities - (326) - - 310 - (16)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 2,800 158,083 521,220 1,657 (13,680) (4,316) 665,764
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 75,820 - - - 75,820
Other comprehensive income:
Cumulative effect of accounting change - - - (4,175) - - (4,175)
Unrealized net holding gain on securities,
net of reclassification adjustments and taxes - - - 12,622 - - 12,622
- ---------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 75,820 8,447 - - 84,267
- ---------------------------------------------------------------------------------------------------------------------------------
Cash dividends, $1.03 per share - - (40,597) - - - (40,597)
Cash dividends, pooled entities - - (202) - - - (202)
Stock issued to dividend reinvestment and
employee retirement plans - 1,613 - - 1,535 - 3,148
Long-term incentive plan stock activity:
Restricted grants and related activity - 5,273 - - (934) (1,338) 3,001
Options exercised - 2,103 - - - - 2,103
Directors' compensation plan stock activity - 42 - - 101 - 143
Treasury stock issued in pooling
business combination - (12,978) - - 12,978 - -
Stock transactions, pooled entities - 261 - - - - 261
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 2,800 154,397 556,241 10,104 - (5,654) 717,888
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 95,323 - - - 95,323
Other comprehensive income:
Unrealized net holding gain on securities,
net of reclassification adjustments and taxes - - - 20,000 - - 20,000
- ---------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 95,323 20,000 - - 115,323
- ---------------------------------------------------------------------------------------------------------------------------------
Cash dividends, $1.11 per share - - (44,329) - - - (44,329)
Stock issued to dividend reinvestment and
employee retirement plans - 1,490 - - - - 1,490
Long-term incentive plan stock activity:
Restricted grants and related activity - 4,451 - - (243) (1,237) 2,971
Options exercised - 6,355 - - 31 - 6,386
Directors' compensation plan stock activity - 255 - - 212 - 467
Stock transactions, pooled entities - 287 - - - - 287
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2002 $2,800 $167,235 $607,235 $ 30,104 $ - $(6,891) $800,483
- ---------------------------------------------------------------------------------------------------------------------------------
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.
31
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 95,323 $ 75,820 $ 72,842
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of bank premises and equipment 15,336 19,201 20,258
Amortization of purchased intangibles 5,846 7,430 6,027
Restricted stock compensation earned 4,951 3,758 2,307
Premium amortization (discount accretion), net 4,338 302 497
Provision for losses on loans and foreclosed assets 7,634 19,579 12,779
Net gains on sales of foreclosed assets and surplus property (1,269) (4,542) (2,436)
Net gains on sales of investment securities (411) (165) (850)
Deferred tax benefit (811) (5,619) (4,941)
Net (increase) decrease in loans originated and held for sale 21,342 (45,399) (6,241)
Increase (decrease) in accrued income taxes (744) 2,155 614
(Increase) decrease in accrued interest receivable and prepaid expenses 5,030 12,842 (8,209)
Increase (decrease) in accrued interest payable and other accrued expenses (6,777) (7,168) 13,329
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 149,788 78,194 105,976
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of investment securities held to maturity 40,710 206,034 173,789
Purchases of investment securities held to maturity (51,368) - (14,476)
Proceeds from maturities of investment securities available for sale 588,067 562,282 72,409
Proceeds from sales of investment securities available for sale 56,375 140,305 1,294
Purchases of investment securities available for sale (950,507) (1,004,264) (157,635)
Net (increase) decrease in loans (5,356) 157,698 (565,448)
Net (increase) decrease in federal funds sold and short-term investments 490,581 (456,988) 4,389
Proceeds from sales of foreclosed assets and surplus banking property 10,915 8,078 7,055
Purchases of bank premises and equipment (7,678) (10,501) (13,334)
Net cash paid in business acquisitions - (35,933) (45,141)
Other, net (3,768) (1,080) (2,646)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 167,971 (434,369) (539,744)
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in transaction account and savings account deposits 148,904 683,648 18,429
Net increase (decrease) in time deposits (316,185) (212,110) 408,153
Net increase (decrease) in short-term borrowings (58,102) (82,421) 60,070
Proceeds from issuance of common stock 7,385 5,096 3,316
Purchases of common stock (2,256) (847) (1,705)
Cash dividends (42,893) (38,800) (35,486)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (263,147) 354,566 452,777
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 54,612 (1,609) 19,009
Cash and cash equivalents at beginning of year 271,512 273,121 254,112
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 326,124 $ 271,512 $ 273,121
- -----------------------------------------------------------------------------------------------------------------------------------
Cash received during the year for:
Interest income $ 374,721 $ 452,887 $ 445,411
Cash paid during the year for:
Interest expense 83,264 169,895 176,006
Income taxes 46,600 39,842 36,992
Noncash investing activities:
Loans transferred to held for sale 27,461 2,927 -
Foreclosed assets received in settlement of loans 4,707 1,249 983
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
NATURE OF BUSINESS
Whitney Holding Corporation is a Louisiana bank holding company
headquartered in New Orleans, Louisiana. Its principal subsidiary is Whitney
National Bank (the Bank), which represents virtually all its operations and net
income.
The Bank, which has been in continuous operation since 1883, engages in
community banking in its market area stretching across the five-state Gulf Coast
region, including southern Louisiana; the Houston, Texas metropolitan area; the
coastal region of Mississippi; central and south Alabama; and the panhandle of
Florida. The Bank, together with its wholly-owned subsidiary, Whitney Securities
L.L.C., offers commercial and retail banking products and services, including
trust products and investment services, to the customers in the communities it
serves.
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT PRONOUNCEMENTS
Whitney Holding Corporation and its subsidiaries (the Company or
Whitney) follow accounting and reporting policies that conform with accounting
principles generally accepted in the United States of America and those
generally practiced within the banking industry. The following is a summary of
the more significant accounting policies.
Basis of Presentation
The consolidated financial statements include the accounts of Whitney
Holding Corporation and its subsidiaries. All significant intercompany balances
and transactions have been eliminated. Whitney reports the balances and results
of operations from business combinations accounted for as purchases from the
respective dates of acquisition (see Note 3). Certain financial information for
prior years has been reclassified to conform to the current year's presentation,
including the segregation of information relating to loans held for sale.
In the first quarter of 2002, Whitney declared a three-for-two split of
its common stock that was effective on April 9, 2002. All share and per share
data in this annual report give effect to this stock split.
Use of Estimates
In preparing the consolidated financial statements, the Company is
required to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Investment in Securities
Securities are classified as trading, held to maturity or available for
sale. Management determines the classification of securities when they are
purchased and reevaluates this classification periodically as conditions change
that could require reclassification.
Trading account securities are bought and held principally for resale
in the near term. They are carried at fair value with realized and unrealized
gains or losses reflected in noninterest income. Trading account securities are
immaterial in each period presented and have been included in other assets on
the consolidated balance sheets.
Securities which the Company both positively intends and has the
ability to hold to maturity are classified as securities held to maturity and
are carried at amortized cost. Intent and ability to hold are not considered
satisfied when a security is available to be sold in response to changes in
interest rates, prepayment rates, liquidity needs or other reasons as part of an
overall asset/liability management strategy.
33
Securities not meeting the criteria to be classified as either trading
securities or securities held to maturity are classified as available for sale
and are carried at fair value. Net unrealized holding gains or losses are
excluded from net income and are recognized, net of tax, in other comprehensive
income and in accumulated other comprehensive income, a separate component of
shareholders' equity.
Interest and dividend income earned on securities either held to
maturity or available for sale are recognized in interest income, including
amortization of premiums and accretion of discounts computed using the interest
method. Realized gains and losses on sales of these securities are computed
based upon specifically identified amortized cost and are reported as a
component of noninterest income.
Loans Held for Sale
Loans originated for sale are carried at the lower of either cost or
market value. At times, management may decide to sell loans that were not
originated for that purpose. These loans are reclassified as held for sale when
that decision is made and also are carried at the lower of cost or market. The
cost of such loans at reclassification is their carrying value, which includes
remaining principal, deferred fees or costs and the applicable allowance for
loan losses.
Loans
Loans are carried at the principal amounts outstanding net of unearned
income. Interest on loans and accretion of unearned income, including deferred
loan fees, are computed in a manner that approximates a level rate of return on
recorded principal.
Interest is no longer accrued on a loan when the borrower's ability to
meet contractual payments is in doubt. For commercial and real estate loans, a
loan is placed on nonaccrual status generally when it is ninety days past due as
to principal or interest, and the loan is not otherwise both well secured and in
the process of collection. When a loan is placed on nonaccrual status, any
accrued but uncollected interest is reversed against interest income. Interest
payments on nonaccrual loans are used to reduce the reported loan principal
under the cost recovery method when the collectibility of the remaining
principal is not reasonably assured; otherwise, such payments are recognized as
interest income in the period in which they are received. A loan on nonaccrual
status may be reinstated to accrual status when full payment of contractual
principal and interest is expected and this expectation is supported by current
sustained performance.
A loan is considered impaired when it is probable that all amounts will
not be collected as they become due according to the contractual terms of the
loan agreement. Generally, impaired loans are accounted for on a nonaccrual
basis. The extent of impairment is measured based upon a comparison of the
recorded investment in the loan with either the expected cash flows discounted
using the loan's original effective interest rate or, in the case of certain
collateral-dependent loans, the fair value of the underlying collateral. The
amount of impairment is included in the allowance for loan losses.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level that, in the
opinion of management, is adequate to absorb probable losses inherent in the
loan portfolio as of the balance sheet date. The adequacy of the allowance is
evaluated on an ongoing basis. Management considers various sources of
information including analyses of specific loans reviewed for impairment,
statistics from the internal credit risk rating process, reports on the payment
performance of portfolio segments not subject to individual risk ratings,
historical loss experience and reports on general and local economic conditions.
Management also forms a judgment about the level of accuracy inherent in the
evaluation process. Changes in management's evaluation over time are reflected
in the provision for loan losses charged to operating expense.
As actual loan losses are incurred, they are charged against the
allowance. Subsequent recoveries are added back to the allowance when collected.
34
Bank Premises and Equipment
Bank premises and equipment are carried at cost, less accumulated
depreciation. Depreciation is computed primarily using the straight-line method
over the estimated useful lives of the assets and over the shorter of the lease
terms or the estimated lives of leasehold improvements. Useful lives range
principally from fifteen to thirty years for buildings and improvements and from
three to ten years for furnishings and equipment, including data processing
equipment and software. Additions to bank premises and equipment and major
replacements or improvements are capitalized.
Foreclosed Assets and Surplus Property
Collateral acquired through foreclosure or in settlement of loans and
surplus property are reported with other assets in the consolidated balance
sheets. With the exception of grandfathered property interests, which are
assigned a nominal book value, these assets are recorded at estimated fair
value, less estimated selling costs, if this value is lower than the carrying
value of the related loan or property asset. The initial reduction in the
carrying amount of a loan to the fair value of the collateral received is
charged to the allowance for loan losses. Losses arising from the transfer of
bank premises and equipment to surplus property are charged to current earnings.
Subsequent valuation adjustments for either foreclosed assets or surplus
property are also included in current earnings, as are the revenues and expenses
associated with managing these assets prior to sale.
Goodwill and Other Intangible Assets
Whitney has recognized intangible assets in connection with its
purchase business combinations. Identifiable intangible assets acquired by the
Company have mainly represented the value of the deposit relationships purchased
in these transactions. Goodwill represents the purchase price premium over the
fair value of the net assets of an acquired business, including identifiable
intangible assets.
Beginning in 2002, goodwill is no longer subject to amortization but is
subject to at least an annual assessment for impairment, unless interim events
or circumstances make it more likely than not that an impairment loss has
occurred. Impairment is defined as the amount by which the implied fair value of
the goodwill contained in any reporting unit within a company is less than the
goodwill's carrying value. The Company has assigned all goodwill to one
reporting unit that represents Whitney's overall banking operations. This
reporting unit is the same as the operating segment identified below, and its
operations constitute substantially all of the Company's consolidated
operations. Impairment losses identified after a transition period that ended in
2002 would be charged to operating expense.
Identifiable intangible assets with finite lives continue to be
amortized over the periods benefited and are evaluated for impairment similar to
other long-lived assets. If the useful life of an identifiable intangible asset
is indefinite, the recorded asset is not amortized but tested for impairment by
comparison to its estimated fair value. Unidentifiable intangibles other than
goodwill that were recognized in certain earlier banking industry acquisitions
not meeting the definition of a business combination also continue to be
amortized in accordance with accounting guidance that existed at the acquisition
date.
Stock-Based Compensation
At December 31, 2002, the Company had two incentive compensation plans
that incorporate stock-based compensation, as is more fully described in Note
12. Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," as amended by SFAS No. 148, established a fair
value-based method of accounting for stock-based compensation. As provided for
in SFAS No. 123, however, the Company elected to continue to follow Accounting
Principles Board Opinion (APB) No. 25 and related interpretations to measure and
recognize stock-based compensation expense. Under this Opinion, Whitney
recognizes no compensation expense with respect to fixed awards of stock
options. The Company grants options with an exercise price equal to the stock's
market price. As such, the options have no intrinsic value on the award date,
which is also the measurement date for compensation expense. The compensation
expense recognized under APB No. 25 for the Company's restricted stock grants is
the same as that determined under SFAS No. 123, as amended.
35
The following shows the effect on net income and earnings per share if
Whitney had applied the fair value recognition provisions of SFAS No. 123 to
measure and recognize stock-based compensation expense for all awards:
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Net income $95,323 $75,820 $72,842
Stock-based compensation expense included in reported net income,
net of related tax effects 3,218 2,442 1,500
Stock-based compensation expense determined under fair value-based
method for all awards, net of related tax effects (6,228) (4,497) (3,102)
- -----------------------------------------------------------------------------------------------------------------
Pro forma net income $92,313 $73,765 $71,240
- -----------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic - as reported $2.39 $1.92 $1.89
Basic - pro forma 2.32 1.87 1.85
Diluted - as reported 2.38 1.90 1.89
Diluted - pro forma 2.30 1.85 1.85
- -----------------------------------------------------------------------------------------------------------------
Weighted-average fair value of options awarded during the year $7.91 $6.40 $5.43
- -----------------------------------------------------------------------------------------------------------------
The fair values of the stock options were estimated as of the grant
dates using the Black-Sholes option-pricing model. The Company made the
following significant assumptions in applying the option-pricing model: (a) an
expected annualized volatility for Whitney's common stock of 25.25% in 2002,
24.17% in 2001, and 23.43% in 2000; (b) an average option life of seven years
before exercise; (c) an expected annual dividend yield of 3.44% in 2002, 3.64%
in 2001, and 4.20% in 2000; and (d) a weighted-average risk-free interest rate
of 4.94% in 2002, 5.28% in 2001, and 6.30% in 2000.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return. Income taxes are accounted for using the asset and liability method.
Under this method the expected tax consequences of temporary differences that
arise between the tax bases of assets or liabilities and their reported amounts
in the financial statements represent either deferred tax liabilities to be
settled in the future or deferred tax assets that will be realized as a
reduction of future taxes payable. Currently enacted tax rates and laws are used
to calculate the expected tax consequences. Valuation allowances are established
against deferred tax assets if, based on all available evidence, it is more
likely than not that some or all of the assets will not be realized.
Earnings Per Share
Basic earnings per share is computed by dividing income applicable to
common shares (net income in all periods presented) by the weighted-average
number of common shares outstanding for the applicable period. Shares
outstanding are adjusted for restricted shares issued to employees under the
long-term incentive compensation plan and for certain shares that will be issued
under the directors' compensation plan. Diluted earnings per share is computed
using the weighted-average number of shares outstanding increased by the number
of restricted shares in which employees would vest based on current performance
and by the number of additional shares that would have been issued if
potentially dilutive stock options were exercised, each as determined using the
treasury stock method.
Statements of Cash Flows
The Company considers only cash on hand and balances due from financial
institutions as cash and cash equivalents for purposes of the consolidated
statements of cash flows.
36
Operating Segment Disclosures
Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
established standards for reporting information about a company's operating
segments using a "management approach." Reportable segments are identified in
this statement as those revenue-producing components for which separate
financial information is produced internally and which are subject to evaluation
by the chief operating decision maker in deciding how to allocate resources to
segments. Consistent with its stated strategy that is focused on providing a
consistent package of community banking products and services throughout a
coherent market area, Whitney has identified its overall banking operations as
its only reportable segment. Because the overall banking operations comprise
substantially all of the consolidated operations, no separate segment
disclosures are presented.
Other
Assets held by the Bank in a fiduciary capacity are not assets of the
Bank and are not included in the consolidated balance sheets. Generally, certain
minor sources of income are recorded on a cash basis, which does not differ
materially from the accrual basis.
Recent Pronouncements
In late 2002 and early 2003 the Financial Accounting Standards Board
(FASB) issued two interpretations of existing accounting principles. FASB
Interpretation (FIN) No. 45 elaborated on disclosures an entity should make
about its obligations under certain guarantees and clarified that a guarantor
should recognize a liability for the fair value of the obligations when a
guarantee is first issued. The only significant guarantees issued by Whitney
that are subject to the guidance in FIN No. 45 are its standby letters or
credit. Note 14 provides information, including the FIN No. 45 disclosures, on
these and other guarantees and off-balance-sheet financial instruments. The
requirement to recognize a liability is effective for those guarantees issued or
modified beginning in 2003. Based on the current level and type of guarantees
issued, this requirement should have no significant impact on the Company's
financial position or results of operations.
FIN No. 46 was issued in response to perceived weaknesses in the
accounting for special-purpose entities, in particular the possibility that a
controlling financial interest in such an entity might not result in
consolidation of the entity with the holder of the interest. The specific
entities to which FIN No. 46 refers are called "variable interest entities," and
the interpretation explains how to identify a variable interest entity and how
an enterprise should assess its interest in such an entity to decide whether
consolidation is appropriate. Whitney has no interests that would fall under the
guidance of FIN No. 46.
SFAS No. 142, "Goodwill and Other Intangible Assets," was issued in
June 2001. Under this 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 the this new guidance, the Company was required
to assess during 2002 whether there was an indication that goodwill in its
reporting unit was impaired at the date of adoption. See Note 9 for the results
of this transitional assessment. Impairment losses identified after the
transition period are charged to operating expense.
Under SFAS No. 142, identifiable intangible assets that have finite
lives 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."
When SFAS No. 142 was issued, questions arose concerning the continued
appropriateness of the accounting for unidentifiable intangible assets that had
been recognized in certain banking-industry acquisitions under existing
accounting principles. SFAS No. 147, "Acquisitions of Certain Financial
Institutions," which was issued in October 2002, brought all acquisitions
completed after October 1, 2002, except for transactions between mutual
enterprises, under the guidance of SFAS No 141, "Business Combinations," and
SFAS No. 142. It also required reclassification to goodwill of any
unidentifiable intangible asset that was acquired in a business combination. If
an unidentifiable intangible asset was recognized in the purchase of net assets
and activities that did not constitute a business, it was not reclassified to
goodwill and continues to be amortized in accordance with the previous guidance.
Implementing SFAS
37
No. 147 did not impact Whitney's accounting for unidentifiable intangibles.
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure," was issued in December 2002, mainly to provide alternative methods
of transition for entities that elect to change to the fair value method of
accounting for stock-based compensation that was introduced with SFAS No. 123.
The standard also required prominent disclosure, in both annual and interim
financial information, of how an entity's accounting policy decision with
respect to stock-based compensation impacts reported net income. Whitney's
accounting policy for stock-based compensation and its impact on reported net
income are discussed above in the section on Stock-Based Compensation.
NOTE 3
MERGERS AND ACQUISITIONS
Whitney entered into no business combinations during 2002. Information
about mergers and acquisitions in the two preceding years follows.
Purchase Transactions
In October, 2001, Whitney purchased Redstone Financial, Inc. and one of
its subsidiary banks, Northwest Bank, N.A., for cash of approximately $34
million. Northwest Bank had two offices in Houston, Texas with approximately
$170 million in total assets, including $74 million in loans, and $145 million
in deposits. Applying purchase accounting to this transaction, the Company
recorded approximately $25 million in intangible assets, with $7.5 million
assigned to the value of deposit relationships with an eight-year life and the
remainder to goodwill.
During 2000, Whitney completed two business acquisitions, both of which
were accounted for as purchases. In mid-February 2000, Bank of Houston was
acquired for cash of $58 million. At acquisition, Bank of Houston had $180
million in assets, including $44 million in loans, and $142 million in deposits
at its two locations in the metropolitan Houston area. In early November 2000,
the Company purchased First Ascension Bancorp, Inc. and its subsidiary, First
National Bank of Gonzales, which had $90 million in total assets, including $60
million in loans, and $77 million in deposits in four locations in Ascension
Parish, Louisiana. The Company issued 970,893 shares of common stock in this
transaction that was valued at approximately $22 million. Intangible assets
acquired in these transactions totaled $59 million, with $12 million assigned to
the value of deposit relationships with an estimated life of approximately nine
years and $47 million to goodwill.
The Company's financial statements include the results from these
acquired operations since the respective acquisition dates. The pro forma impact
of these acquisitions on Whitney's results of operations is insignificant. All
acquired banking operations have been merged into Whitney National Bank.
Poolings of Interests
In January 2001, Whitney completed two acquisitions that were accounted
for as poolings of interests: American Bank in Houston, Texas (American) and
Prattville Financial Services Corporation (PFSC), whose principal subsidiary was
Bank of Prattville. American had five locations in the Houston area with $275
million in total assets and $247 million in deposits. American shareholders
received 2,722,485 shares in this transaction. Bank of Prattville had
approximately $160 million in total assets and $136 million of deposits in its
three locations in the metropolitan area of Montgomery, Alabama. The Company
exchanged 1,590,205 shares of its common stock in this transaction. Prior period
financial statements were restated to reflect the balances and operating results
of these pooled entities.
38
NOTE 4
INVESTMENT IN SECURITIES
Summary information about securities available for sale and securities
held to maturity follows:
- ------------------------------------------------------------------------------------------------------------
Securities Available for Sale
- ------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gains (Losses) Value
- ------------------------------------------------------------------------------------------------------------
December 31, 2002
- ------------------------------------------------------------------------------------------------------------
Mortgage-backed securities $1,128,912 $28,363 $ - $1,157,275
U.S. agency securities 354,173 9,845 - 364,018
U.S. Treasury securities 158,075 6,010 - 164,085
Obligations of states and political
subdivisions 32,942 1,521 - 34,463
Other securities 53,378 372 - 53,750
- ------------------------------------------------------------------------------------------------------------
Total $1,727,480 $46,111 $ - $1,773,591
- ------------------------------------------------------------------------------------------------------------
December 31, 2001
- ------------------------------------------------------------------------------------------------------------
Mortgage-backed securities $ 827,623 $ 5,616 $(3,221) $ 830,018
U.S. agency securities 444,302 10,335 (254) 454,383
U.S. Treasury securities 61,799 2,471 (28) 64,242
Obligations of states and political
subdivisions 39,782 592 (203) 40,171
Other securities 51,258 455 - 51,713
- ------------------------------------------------------------------------------------------------------------
Total $1,424,764 $19,469 $(3,706) $1,440,527
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Securities Held to Maturity
- ------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gains (Losses) Value
- ------------------------------------------------------------------------------------------------------------
December 31, 2002
- ------------------------------------------------------------------------------------------------------------
U.S. agency securities $ 32,847 $ 1,108 $ - $ 33,955
U.S. Treasury securities 10,323 292 - 10,615
Obligations of states and political
subdivisions 158,937 6,316 (317) 164,936
- ------------------------------------------------------------------------------------------------------------
Total $ 202,107 $ 7,716 $ (317) $ 209,506
- ------------------------------------------------------------------------------------------------------------
December 31, 2001
- ------------------------------------------------------------------------------------------------------------
U.S. agency securities $ 40,032 $ 1,551 $ - $ 41,583
U.S. Treasury securities 30,911 738 - 31,649
Obligations of states and political
subdivisions 120,870 2,252 (642) 122,480
- ------------------------------------------------------------------------------------------------------------
Total $ 191,813 $ 4,541 $ (642) $ 195,712
- ------------------------------------------------------------------------------------------------------------
39
The following table shows the amortized cost and estimated fair value
of securities available for sale and held to maturity grouped by contractual
maturity. Debt securities with scheduled repayments, such as mortgage-backed
securities, and equity securities are presented in separate totals.
- -------------------------------------------------------------------------
Securities Available for Sale
- -------------------------------------------------------------------------
Amortized Fair
(dollars in thousands) Cost Value
- -------------------------------------------------------------------------
December 31, 2002
- -------------------------------------------------------------------------
Within one year $ 194,165 $ 197,532
One to five years 322,577 335,636
Five to ten years 27,955 28,787
After ten years 3,003 3,121
- -------------------------------------------------------------------------
Debt securities with single maturities 547,700 565,076
Mortgage-backed securities 1,128,912 1,157,275
Equity and other debt securities 50,868 51,240
- -------------------------------------------------------------------------
Total $1,727,480 $1,773,591
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Securities Held to Maturity
- -------------------------------------------------------------------------
Amortized Fair
(dollars in thousands) Cost Value
- -------------------------------------------------------------------------
December 31, 2002
- -------------------------------------------------------------------------
Within one year $ 52,102 $ 53,565
One to five years 32,007 33,894
Five to ten years 57,973 61,361
After ten years 60,025 60,686
- -------------------------------------------------------------------------
Total $202,107 $209,506
- -------------------------------------------------------------------------
The expected maturity of a security may differ from its contractual
maturity, particularly for certain U.S. agency securities and obligations of
states and political subdivisions, because of the exercise of call options.
Securities with carrying values of $867 million and $987 million at
December 31, 2002 and 2001, respectively, were sold under repurchase agreements,
pledged to secure public deposits and trust deposits or pledged for other
purposes. In these totals were $84 million in 2002 and $78 million in 2001 for
securities pledged at the Federal Reserve discount window in connection with the
Company's overall contingency funding plans.
NOTE 5
LOANS
The composition of the Company's loan portfolio follows:
December 31
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- ----------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural $1,917,859 43.0% $1,852,497 41.2%
Real estate loans - commercial and other 1,584,099 35.6 1,576,817 35.1
Real estate loans - retail mortgage 638,703 14.3 761,355 16.9
Loans to individuals 314,751 7.1 304,416 6.8
- ----------------------------------------------------------------------------------------------------------------
Total $4,455,412 100.0% $4,495,085 100.0%
- ----------------------------------------------------------------------------------------------------------------
40
The Bank makes loans in the normal course of business to directors and
executive officers of the Company and the Bank and to their associates. Loans to
such related parties carry substantially the same terms, including interest
rates and collateral requirements, as those prevailing at the time for
comparable transactions with unrelated parties and do not involve more than
normal risks of collectibility when originated. An analysis of the changes in
loans to related parties during 2002 follows:
- --------------------------------------------------------------------------
(dollars in thousands) 2002
- --------------------------------------------------------------------------
Beginning balance $42,798
Additions 62,934
Repayments (63,790)
Net increase from changes in related parties 17,564
- --------------------------------------------------------------------------
Ending balance $59,506
- --------------------------------------------------------------------------
Outstanding unfunded commitments and letters of credit to related
parties totaled $85 million and $39 million at December 31, 2002 and 2001,
respectively.
NOTE 6
ALLOWANCE FOR LOAN LOSSES
A summary analysis of changes in the allowance for loan losses follows:
Years Ended December 31
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
Balance at beginning of year $ 71,633 $ 61,017 $ 47,543
Allowance acquired in bank purchases - 1,196 2,388
Allowance on loans transferred to held for sale (895) (651) -
Provision for loan losses 7,500 19,500 12,690
Loans charged off (17,211) (15,502) (8,481)
Recoveries 5,088 6,073 6,877
- -------------------------------------------------------------------------------------------------------------
Net charge-offs (12,123) (9,429) (1,604)
- -------------------------------------------------------------------------------------------------------------
Balance at end of year $ 66,115 $ 71,633 $ 61,017
- -------------------------------------------------------------------------------------------------------------
NOTE 7
IMPAIRED LOANS, NONPERFORMING LOANS, FORECLOSED ASSETS AND SURPLUS PROPERTY
Information on loans evaluated for possible impairment losses follows:
December 31
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- -------------------------------------------------------------------------------------------------------------
Impaired loans at year end
Requiring a loss allowance $24,852 $22,141
Not requiring a loss allowance 6,265 2,504
- -------------------------------------------------------------------------------------------------------------
Total recorded investment in impaired loans $31,117 $24,645
- -------------------------------------------------------------------------------------------------------------
Total impairment loss allowance required at year end $10,084 $8,607
- -------------------------------------------------------------------------------------------------------------
Average recorded investment in impaired loans during the year $29,172 $22,478
- -------------------------------------------------------------------------------------------------------------
41
The following is a summary of nonperforming loans and foreclosed assets
and surplus property:
December 31
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- -------------------------------------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis $37,959 $33,412
Restructured loans 336 383
- -------------------------------------------------------------------------------------------------------------
Total nonperforming loans $38,295 $33,795
- -------------------------------------------------------------------------------------------------------------
Total foreclosed assets and surplus property $3,854 $991
- -------------------------------------------------------------------------------------------------------------
Interest income is recognized on certain nonaccrual loans as payments
are received. Interest payments on other nonaccrual loans are accounted for
under the cost recovery method, but this interest may later be recognized in
income when loan collections exceed expectations or when workout efforts result
in fully rehabilitated credits. The following compares contractual interest
income on nonaccrual loans and restructured loans with the cash-basis and
cost-recovery interest actually recognized on these loans:
Years Ended December 31
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
Contractual interest $ 3,394 $ 2,752 $ 1,927
Interest recognized 1,119 945 2,586
- -------------------------------------------------------------------------------------------------------------
Increase (decrease) in reported interest income $(2,275) $(1,807) $ 659
- -------------------------------------------------------------------------------------------------------------
The Bank and a subsidiary own a variety of property interests that it
acquired in routine banking transactions generally before 1933. No ready market
for these assets existed when they were initially acquired; and, as was general
banking practice at the time, they were written down to a nominal value. The
property includes ownership interests in scattered undeveloped acreage, various
mineral interests, and a few commercial and residential sites primarily in
southeast Louisiana.
The revenues and direct expenses related to these grandfathered
property interests that are included in the statements of income follow:
Years Ended December 31
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
Revenues $983 $1,365 $1,314
Direct expenses 154 211 41
- -------------------------------------------------------------------------------------------------------------
NOTE 8
BANK PREMISES AND EQUIPMENT
An analysis of bank premises and equipment by asset classification
follows:
December 31
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- -------------------------------------------------------------------------------------------------------------
Land $ 36,483 $ 39,861
Buildings and improvements 171,903 175,326
Furnishings and equipment 100,764 107,191
- -------------------------------------------------------------------------------------------------------------
309,150 322,378
Accumulated depreciation (157,530) (154,959)
- -------------------------------------------------------------------------------------------------------------
Total bank premises and equipment $151,620 $167,419
- -------------------------------------------------------------------------------------------------------------
42
Provisions for depreciation included in noninterest expense were as
follows:
Years Ended December 31
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
Buildings and improvements $ 6,794 $ 7,099 $ 6,672
Furnishings and equipment 8,542 12,102 13,586
- -------------------------------------------------------------------------------------------------------------
Total depreciation expense $15,336 $19,201 $20,258
- -------------------------------------------------------------------------------------------------------------
At December 31, 2002, the Bank was obligated under a number of
noncancelable operating leases. Certain of these leases have escalation clauses
and renewal options. Total rental expense, net of immaterial sublease rentals,
was $4.0 million in 2002, $3.8 million in 2001, and $3.9 million in 2000.
As of December 31, 2002, the future minimum rentals under noncancelable
operating leases having an initial lease term in excess of one year were as
follows:
(dollars in thousands)
- ------------------------------------------------
2003 $ 3,629
2004 3,561
2005 3,462
2006 2,894
2007 2,401
Later years 11,749
- ------------------------------------------------
Total $27,696
- ------------------------------------------------
NOTE 9
GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets consist of identifiable intangibles, such as the
value of deposit relationships; goodwill acquired in business combinations
accounted for as purchases; and unidentifiable intangibles acquired in certain
banking-industry transactions that did not meet the criteria for business
combinations.
As is discussed in Note 2, the accounting for goodwill and other
intangible assets is now governed by SFAS No. 142, "Goodwill and Other
Intangible Assets," that was issued in June 2001. Under this standard, there is
no goodwill amortization in 2002 and later years.
Beginning in 2002, goodwill must be tested for impairment at least
annually. No indication of goodwill impairment was identified in either the
preliminary initial assessment required by SFAS No. 142 or in the first annual
assessment as of September 30, 2002.
Identifiable intangible assets with finite lives continue to be
amortized under SFAS No. 142. The Company's only significant identifiable
intangible assets reflect the value of deposit relationships, all of which have
finite lives. Remaining lives ranged from five to seven years at December 31,
2002. The weighted-average remaining life of identifiable intangible assets was
approximately six years. Unidentifiable intangible assets are being amortized
over a remaining life of approximately five years.
43
The carrying value of intangible assets subject to amortization was as
follows:
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands) December 31, 2002 December 31, 2001
- ----------------------------------------------------------------------------------------------------------------
Purchase Accumulated Carrying Purchase Accumulated Carrying
Value Amortization Value Value Amortization Value
- ----------------------------------------------------------------------------------------------------------------
Deposit relationships and other
identifiable intangibles $37,261 $16,591 $20,670 $37,261 $12,458 $24,803
Unidentifiable intangibles 11,321 3,184 8,137 11,321 1,471 9,850
- ----------------------------------------------------------------------------------------------------------------
Total $48,582 $19,775 $28,807 $48,582 $13,929 $34,653
- ----------------------------------------------------------------------------------------------------------------
Amortization of intangible assets included in noninterest expense was
as follows:
Years Ended December 31
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------
Deposit relationships and other identifiable intangibles $4,133 $3,352 $2,681
Unidentifiable intangibles 1,713 453 453
Goodwill - 3,625 2,893
- ----------------------------------------------------------------------------------------------------------------
Total amortization $5,846 $7,430 $6,027
- ----------------------------------------------------------------------------------------------------------------
Approximately $2.5 million of the goodwill amortization in 2001 was not
deductible for income tax purposes. The balance of goodwill that will not
generate future tax deductions was $60 million at December 31, 2002.
The following shows estimated amortization expense for the five
succeeding years calculated based on current amortization schedules.
(dollars in thousands)
- ------------------------------------
2003 $5,332
2004 5,152
2005 5,113
2006 5,107
2007 4,419
- ------------------------------------
The following table shows net income and earnings per share adjusted to
show the impact of the elimination of goodwill amortization.
Years Ended December 31
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------
Net income $95,323 $75,820 $72,842
Eliminate goodwill amortization, net of tax - 3,227 2,495
- ----------------------------------------------------------------------------------------------------------------
Adjusted net income $95,323 $79,047 $75,337
- ----------------------------------------------------------------------------------------------------------------
Basic earnings per share $2.39 $1.92 $1.89
Effect of eliminating goodwill amortization - .08 .07
- ----------------------------------------------------------------------------------------------------------------
Adjusted basic earnings per share $2.39 $2.00 $1.96
- ----------------------------------------------------------------------------------------------------------------
Diluted earnings per share $2.38 $1.90 $1.89
Effect of eliminating goodwill amortization - .08 .06
- ----------------------------------------------------------------------------------------------------------------
Adjusted diluted earnings per share $2.38 $1.98 $1.95
- ----------------------------------------------------------------------------------------------------------------
44
NOTE 10
SHORT-TERM BORROWINGS
Short-term borrowings consisted of the following:
December 31
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- ----------------------------------------------------------------------------------------------------------------
Securities sold under agreements to repurchase $349,305 $371,416
Federal funds purchased 64,886 100,101
Treasury Investment Program 39,224 40,000
- ----------------------------------------------------------------------------------------------------------------
Total short-term borrowings $453,415 $511,517
- ----------------------------------------------------------------------------------------------------------------
The Bank has the ability to exercise legal authority over the
securities that serve as collateral for the securities sold under repurchase
agreements. The estimated fair value and carrying value of securities sold under
repurchase agreements at December 31, 2002, by term of the underlying borrowing
agreement, were as follows:
Up to
(dollars in thousands) Overnight 30 days
- ----------------------------------------------------------------------------------------------------------------
December 31, 2002
- ----------------------------------------------------------------------------------------------------------------
Fair and carrying value:
U.S. agency securities $271,306 $341
U.S. Treasury securities 78,454 -
- ----------------------------------------------------------------------------------------------------------------
Total fair and carrying value $349,760 $341
- ----------------------------------------------------------------------------------------------------------------
Outstanding borrowings $348,965 $340
- ----------------------------------------------------------------------------------------------------------------
Additional information about securities sold under repurchase
agreements follows:
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- ----------------------------------------------------------------------------------------------------------------
Average effective yield on December 31 .52% .68%
- ----------------------------------------------------------------------------------------------------------------
Average for the year
Effective yield .71% 2.67%
Balance $352,603 $396,664
- ----------------------------------------------------------------------------------------------------------------
Maximum month-end outstanding $403,775 $435,319
- ----------------------------------------------------------------------------------------------------------------
Additional information about federal funds purchased follows:
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- ----------------------------------------------------------------------------------------------------------------
Average effective yield on December 31 .75% 1.27%
- ----------------------------------------------------------------------------------------------------------------
Average for the year
Effective yield 1.51% 3.84%
Balance $69,249 $ 91,548
- ----------------------------------------------------------------------------------------------------------------
Maximum month-end outstanding $95,397 $114,977
- ----------------------------------------------------------------------------------------------------------------
Under the Treasury Investment Program, temporary excess U.S. Treasury
receipts are loaned to participating financial institutions at 25 basis points
under the federal funds rate. Repayment of these borrowed funds can be demanded
at any time. The Company limited its participation to $40 million and has
pledged securities with a comparable value as collateral for borrowings under
this program.
45
NOTE 11
EMPLOYEE BENEFIT PLANS
Retirement Plans
Whitney has a noncontributory qualified defined benefit pension plan
covering substantially all of its employees. The benefits are based on an
employee's total years of service and his or her highest five-year level of
compensation during the final ten years of employment. Contributions are made in
amounts sufficient to meet funding requirements set forth in federal employee
benefit and tax laws plus such additional amounts as the Company may determine
to be appropriate. No funding was required and no contributions were made in any
of the three years ended December 31, 2002.
The following table details the changes both in the actuarial present
value of the pension benefit obligation and in the plan's assets for the years
ended December 31, 2002 and 2001. The table also shows the funded status of the
plan at each year end and identifies amounts recognized and unrecognized in the
Company's consolidated balance sheets.
- ---------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- ---------------------------------------------------------------------------------------------------------------
Benefit obligation, beginning of year $ 77,734 $ 74,706
Service cost for benefits 3,893 3,020
Interest cost on benefit obligation 5,451 4,843
Net actuarial (gain) loss 9,124 (1,117)
Benefits paid (4,211) (3,718)
- ---------------------------------------------------------------------------------------------------------------
Benefit obligation, end of year 91,991 77,734
- ---------------------------------------------------------------------------------------------------------------
Plan assets at fair value, beginning of year 94,822 100,039
Actual return on plan assets (5,560) (1,181)
Benefits paid (4,211) (3,718)
Plan expenses (315) (318)
- ---------------------------------------------------------------------------------------------------------------
Plan assets at fair value, end of year 84,736 94,822
- ---------------------------------------------------------------------------------------------------------------
Benefit obligation (in excess of) less than plan assets,
end of year (7,255) 17,088
Unrecognized net actuarial (gains) losses 12,137 (10,065)
Unrecognized net implementation asset (283) (689)
Unrecognized prior service cost resulting
from plan amendments (631) (956)
- ---------------------------------------------------------------------------------------------------------------
Prepaid pension asset $ 3,968 $ 5,378
- ---------------------------------------------------------------------------------------------------------------
The Company recognized a net pension expense in 2002 and a net pension
benefit in each of the two previous years. The components of the net pension
expense or benefit were as follows:
- --------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
Service cost for benefits during the period $ 3,893 $ 3,020 $ 3,458
Interest cost on benefit obligation 5,451 4,843 4,905
Expected return on plan assets (7,421) (7,857) (8,002)
Amortization of:
Unrecognized net actuarial gains - (1,149) (999)
Unrecognized net implementation asset (405) (405) (405)
Unrecognized prior service cost (108) (124) (124)
- --------------------------------------------------------------------------------------------------------------
Net pension expense (benefit) $ 1,410 $ (1,672) $(1,167)
- --------------------------------------------------------------------------------------------------------------
46
The weighted-average discount rate used in determining the actuarial
present value of the pension benefit obligation was 6.50% for 2002, 6.75% for
2001 and 7.25% for 2000. For all periods presented, the Company assumed an 8%
expected long-term rate of return on plan assets and an annual rate of increase
in future compensation levels of 4%.
The pension plan held 257,200 shares of Whitney common stock at
December 31, 2002, 322,200 shares at December 31, 2001, and 329,700 at December
31, 2000.
Whitney also has a nonqualified defined benefit plan that provides
retirement benefits to designated executive officers. These benefits are
calculated using the qualified plan's formula, but without applying the
restrictions imposed on qualified plans by certain provisions of the Internal
Revenue Code. Benefits that become payable under the nonqualified plan would be
reduced by amounts paid from the qualified plan. At December 31, 2002, the
actuarial present value of the excess benefit obligation was $4.4 million and
the recorded accrued pension liability was $3.6 million. The net pension expense
for the excess benefit plan was approximately $.6 million in 2002 and 2001 and
$.5 million in 2000.
Whitney sponsors an employee savings plan under Section 401(k) of the
Internal Revenue Code that covers substantially all full-time employees.
Beginning in 2001, the matching percentage increased to 4%. Through 2000, the
Company annually matched the savings of each participant up to 3% of his or her
compensation. Tax law imposes limits on total annual participant savings.
Participants are fully vested in their savings and in the matching Company
contributions at all times. The expense of the Company's matching contributions,
including those made by pooled entities with comparable plans, was approximately
$2.7 million in 2002, $2.5 million in 2001 and $1.9 million in 2000.
Health and Welfare Plans
Whitney maintains health care and life insurance benefit plans for
retirees and their eligible dependents. Participant contributions are required
under the health plan. All health care benefits are covered under contracts with
health maintenance or preferred provider organizations or insurance contracts.
The Company recognizes the expected cost of providing these postretirement
benefits during the period employees are actively working. The Company funds its
obligations under these plans as contractual payments come due.
The net postretirement benefit liability reported with other
liabilities in the consolidated balance sheets was $8.1 million at December 31,
2002 and $7.6 million at December 31, 2001. The net periodic postretirement
benefit expense was approximately $1.1 million for 2002 and 2001 and $.7 million
for 2000. This expense includes components for the portion of the expected
benefit obligation attributed to current service, for interest on the
accumulated benefit obligation, and for amortization of unrecognized actuarial
gains or losses. No component was individually significant for any period
reported.
For the actuarial calculation of its postretirement benefit obligations
at December 31, 2002, 2001 and 2000, the Company assumed annual health care cost
increases beginning at 10.00%, 11.00% and 7.20%, respectively, with each
decreasing to a 5.00% rate over a four to seven year period. Discount rates of
6.50% in 2002, 6.75% in 2001 and 7.25% in 2000 were used in determining the
present value of benefit obligations at the end of each period. A 1% rise in the
assumed health care cost trend rates would increase the accumulated benefit
obligation by approximately $1.7 million and the periodic net benefit expense by
approximately $310,000. A 1% fall in these trend rates would decrease the
accumulated benefit obligation by $1.4 million and the periodic net benefit
expense by $260,000.
47
NOTE 12
STOCK-BASED COMPENSATION
Whitney maintains two incentive compensation plans that incorporate
stock-based compensation, the long-term incentive plan (LTIP) for key employees
and the directors' compensation plan. Each of these plans has been approved by
the Company's shareholders. The Compensation Committee of the Board of Directors
administers the LTIP, designates who will participate and authorizes the
awarding of grants. Under this plan, participants may receive stock options,
restricted stock subject to a vesting period, performance shares, phantom shares
and stock appreciation rights. To date, the Company has awarded only stock
options and restricted stock. The Company may issue up to 7% of its outstanding
common shares in connection with LTIP awards. The directors' compensation plan
provides for the annual award of stock grants and stock options to each
nonemployee director. Under this plan, Whitney is authorized to issue an
aggregate number of common shares not exceeding 3% of the Company's outstanding
shares but in no event more than 1,125,000 shares. At December 31, 2002, future
awards covering the issuance of 607,481 shares could be made under the LTIP and
1,045,950 shares under the directors' plan.
The following schedule summarizes the stock grants awarded under these
plans during 2002, 2001 and 2000:
- ----------------------------------------------------------------
(dollars in thousands) Initial Market Value
Shares of Award on
Year Plan Awarded Grant Date
- ----------------------------------------------------------------
2002 Employee 137,775 $4,666
Director 6,750 208
2001 Employee 123,300 3,436
Director 6,300 196
2000 Employee 117,750 2,909
Director 6,300 145
- ----------------------------------------------------------------
Employees forfeit their shares if they terminate employment within
three years of the award date and they are prohibited from transferring or
otherwise disposing of the shares during this period. In addition, the employee
grants are subject to adjustment based on the Company's performance, as measured
by its return on assets and return on equity over the restriction period, in
relation to that of a designated peer group. Depending on the performance
adjustment, the actual number of shares that vest can range from 0% to 200% of
the initial grants. All restrictions on employee shares would lapse upon a
change in control of the Company. The directors' shares are awarded without any
significant restrictions and are not subject to future adjustment.
The Company initially measures the compensation expense related to a
stock grant as the market value of the shares awarded on the grant date. This
expense is recognized ratably over the restriction period, if any. Adjustments
are made for forfeitures as they occur. The Company periodically re-measures
compensation expense for grants for changes both in the estimate of the shares
to which employees will ultimately become entitled and in the market value of
Whitney's stock. Differences from previous compensation expense measurements are
recognized prospectively over the remaining restriction periods. Compensation
expense related to common stock awards was $5.0 million in 2002, $3.8 million in
2001, and $2.5 million in 2000.
48
The following table summarizes stock option activity under the LTIP and
under the directors' compensation plan for each of the three years in the period
ended December 31, 2002. The exercise price for all options is set at the market
price on the grant date. All options are fully exercisable six months after the
grant date and expire after ten years.
- --------------------------------------------------------------------------------------------------------------
LTIP Directors
- --------------------------------------------------------------------------------------------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Number Price Number Price
- --------------------------------------------------------------------------------------------------------------
Outstanding at
December 31, 1999 942,608 $26.78 132,000 $24.88
Options granted 309,177 24.77 21,000 22.96
Options exercised (10,651) 15.93 - -
Options forfeited (58,887) 29.30 - -
- --------------------------------------------------------------------------------------------------------------
Outstanding at
December 31, 2000 1,182,247 26.22 153,000 24.61
Options granted 335,812 27.87 21,000 31.12
Options exercised (77,144) 21.38 (1,500) 20.33
Options forfeited (19,500) 30.15 - -
- --------------------------------------------------------------------------------------------------------------
Outstanding at
December 31, 2001 1,421,415 26.82 172,500 25.44
Options granted 388,825 33.87 45,000 30.79
Options exercised (237,193) 23.09 (6,000) 27.84
Options forfeited (9,825) 30.30 - -
- --------------------------------------------------------------------------------------------------------------
Outstanding and exercisable at
December 31, 2002 1,563,222 $29.12 211,500 $26.51
- --------------------------------------------------------------------------------------------------------------
The following table summarizes certain information about the stock
options outstanding under these plans at December 31, 2002:
- -----------------------------------------------------------------------------------------------------------------
Weighted-
Number of Average Weighted-
Range of Shares Years to Average
Exercise Prices Under Option Expiration Exercise Price
- -----------------------------------------------------------------------------------------------------------------
$12.95-$19.25 96,407 2.1 $18.31
$20.00-$24.79 340,509 6.2 23.15
$26.21-$28.29 676,231 6.7 27.72
$30.79-$36.67 661,575 8.2 34.36
- -----------------------------------------------------------------------------------------------------------------
$12.95-$36.67 1,774,722 6.9 $28.81
- -----------------------------------------------------------------------------------------------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation," established a
fair value-based method of accounting for stock-based compensation, including
the award of stock options. As provided for in SFAS No. 123, however, the
Company elected to continue to follow Accounting Principles Board Opinion No. 25
and related interpretations to measure and recognize stock-based incentive
compensation expense. The impact of this election is discussed in Note 2.
49
NOTE 13
REGULATORY MATTERS
Regulatory Capital Requirements
Measures of regulatory capital are an important tool used by regulators
to monitor the financial health of insured financial institutions. The primary
quantitative measures used by regulators to gauge capital adequacy are the ratio
of Tier 1 regulatory capital to average total assets, also known as the leverage
ratio, and the ratios of total and Tier 1 regulatory capital to risk-weighted
assets. The regulators define the components and computation of each of these
ratios. The minimum capital ratios for both the Company and the Bank are
generally 4% leverage, 8% total capital and 4% Tier 1 capital. However,
regulators may set higher capital requirements for an individual institution
when particular circumstances warrant.
The actual capital amounts and ratios and the minimum and
well-capitalized required capital amounts for the Company and the Bank are
presented in the following tables:
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) Actual Well-
December 31, 2002 Amount Ratio Minimum(a) Capitalized(b)
- -----------------------------------------------------------------------------------------------------------------
Leverage (Tier 1 Capital to Average Assets):
Company $672,408 9.76% $275,470 (c)
Bank 550,041 8.00 275,115 $343,894
- -----------------------------------------------------------------------------------------------------------------
Total Capital (to Risk-Weighted Assets):
Company 738,523 13.93 424,141 (c)
Bank 616,156 11.64 423,490 529,363
- -----------------------------------------------------------------------------------------------------------------
Tier 1 Capital (to Risk-Weighted Assets):
Company 672,408 12.68 212,071 (c)
Bank 550,041 10.39 211,745 317,618
- -----------------------------------------------------------------------------------------------------------------
December 31, 2001
- -----------------------------------------------------------------------------------------------------------------
Leverage (Tier 1 Capital to Average Assets):
Company $604,179 8.72% $277,245 (c)
Bank 536,597 7.75 276,982 $346,227
- -----------------------------------------------------------------------------------------------------------------
Total Capital (to Risk-Weighted Assets):
Company 668,057 13.09 408,198 (c)
Bank 600,363 11.79 407,472 509,340
- -----------------------------------------------------------------------------------------------------------------
Tier 1 Capital (to Risk-Weighted Assets):
Company 604,179 11.84 204,099 (c)
Bank 536,597 10.54 203,736 305,604
- -----------------------------------------------------------------------------------------------------------------
(a) Minimum capital required for capital adequacy purposes.
(b) Capital required for well-capitalized status.
(c) Not applicable.
To evaluate capital adequacy, regulators compare an institution's
regulatory capital ratios with their agency guidelines as well as with the
guidelines established as part of the uniform regulatory framework for prompt
corrective supervisory action toward insured institutions. In reaching an
overall conclusion on capital adequacy or assigning an appropriate
classification under the uniform framework, regulators must also consider other
subjective and quantitative assessments of risk associated with the institution.
Regulators will take certain mandatory as well as possible additional
discretionary actions against institutions they judge to be inadequately
capitalized. These actions could materially impact the institution's financial
position and results of operations.
50
Under the regulatory framework for prompt corrective action, the
capital levels of banks are categorized into one of five classifications ranging
from well-capitalized to critically under-capitalized. For an institution to
qualify as well-capitalized, its total capital, Tier 1 capital and leverage
ratios must be at least 10%, 6% and 5%, respectively. Maintaining capital ratios
at the well-capitalized levels avoids certain restrictions that, for example,
could impact the FDIC insurance premium rate. As of December 31, 2002 and 2001,
the Bank was categorized as well-capitalized, and there have been no events
since December 31, 2002 that management believes would cause this status to
change.
Other Regulatory Matters
Dividends received from the Bank represent the primary source of funds
available to the Company for the declaration and payment of dividends to
Whitney's shareholders. There are various regulatory and statutory provisions
that limit the amount of dividends that the Bank may distribute to the Company.
As of December 31, 2002, the Bank had paid to the Company, with prior regulatory
approval, approximately $81 million in dividends in excess of these limits. As a
result, the Bank will be required to seek continuing approval to declare future
dividends until it reestablishes dividend capacity under those provisions. This
should not impair the Company's ability to declare regular quarterly dividends.
The Company had approximately $128 million in cash and demand notes from the
Bank available at the end of 2002 to provide liquidity for future dividend
payments and other corporate purposes.
Under current Federal Reserve regulations, the Bank is limited in the
amounts it may lend to the Company to a maximum of 10% of its capital and
surplus, as defined in the regulations. Any such loans must be collateralized
from 100% to 130% of the loan amount, depending upon the nature of the
underlying collateral. The Bank made no loans to the Company during 2002 and
2001.
Banks are required to maintain currency and coin or a
noninterest-bearing balance with the Federal Reserve Bank to meet reserve
requirements based on a percentage of deposits. During 2002 as in 2001, the Bank
covered its reserve maintenance requirement with balances of coin and currency.
NOTE 14
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
To meet the financing needs of its customers, the Bank issues financial
instruments which represent conditional obligations that are not recognized on
the consolidated balance sheets. These financial instruments include commitments
to extend credit under loan facilities and letters of credit and similar
financial guarantees. Such instruments expose the Bank to varying degrees of
credit and interest rate risk in much the same way as funded loans.
Commitments under loan facilities, including credit card and related
lines, obligate the Bank to make loans to customers as long as there is no
violation of the conditions established in the underlying contracts. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Substantially all of the letters of credit and similar
financial guarantees are standby agreements that obligate the Bank to fulfill a
customer's financial commitments to a third party if the customer is unable to
perform. The Bank issues standby letters of credit primarily to provide credit
enhancement to its customers' commercial or public financing arrangements and to
help customers demonstrate the financial capacity required to obtain essential
goods and services, such as insurance services. The majority of standby letters
of credit at year-end 2002 have a term of one year or less.
The Bank's exposure to credit losses from these financial instruments
is represented by their contractual amounts. Because loan commitments and
financial guarantees may, and many times do, expire without being drawn upon,
however, the contractual amounts should not be understood to represent actual
future funding requirements. The Bank follows its standard credit policies in
making loan commitments and financial guarantees and requires collateral support
if warranted. The collateral required could include cash instruments, marketable
51
securities, accounts receivable, inventory, property, plant and equipment, and
income-producing commercial property. Approximately $160 million of outstanding
letters of credit and similar guarantees were issued without specific collateral
support.
A summary of off-balance-sheet financial instruments follows:
December 31
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- -----------------------------------------------------------------------------------------------------------------
Commitments to extend credit $1,532,160 $1,305,091
Letters of credit and similar financial guarantees written 263,220 161,525
Credit card and related lines 338,463 303,262
- -----------------------------------------------------------------------------------------------------------------
The Company has had no investments in financial instruments or
agreements whose value is linked to or derived from changes in the value of some
underlying asset or index. Such instruments or agreements include futures,
forward contracts, option contracts, interest-rate swap agreements and other
financial arrangements with similar characteristics and are commonly referred to
as derivatives.
NOTE 15
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires the disclosure of estimated fair value information about certain on-
and off-balance-sheet financial instruments where it is practicable to estimate
those values. If quoted market prices are not available, which is true for many
of Whitney's financial instruments, the Company estimates fair value using
present value or other valuation techniques. The assumptions used in applying
these techniques, such as those concerning appropriate discount rates and
estimates of future cash flows, require considerable judgment and significantly
affect the resulting fair value estimates. In addition, no value estimate is
assigned to future business opportunities from long-term customer relationships
underlying certain financial instruments. Accordingly, the derived fair value
estimates may not indicate the amount the Company could realize in a current
settlement of the financial instruments. Reasonable comparability of fair value
estimates between financial institutions may not be possible due to the wide
range of permitted valuation techniques and numerous assumptions involved. The
aggregate fair value amounts presented do not, and are not intended to,
represent an aggregate measure of the underlying fair value of the Company.
The following significant methods and assumptions were used by the
Company to estimate the fair value of financial instruments:
Cash and short-term investments - The carrying amount is a reasonable
estimate of the fair value of cash and due from financial institutions, federal
funds sold and short-term investments.
Investment in securities - Fair values of securities are based on
quoted market prices obtained from independent pricing services.
Loans - Loans with no significant change in credit risk and with rates
that are repriced in coordination with movements in market rates are valued at
carrying amounts. The fair values of other loans are estimated by discounting
scheduled cash flows to maturity using current rates at which loans with similar
terms would be made to borrowers of similar credit quality. Appropriate
adjustments are made to reflect probable credit losses.
Deposits - SFAS No. 107 requires that deposits without a stated
maturity, such as noninterest-bearing demand deposits, NOW account deposits,
money market deposits and savings deposits, be assigned fair values equal to the
amounts payable upon demand (carrying amounts). Deposits with a stated maturity
were valued by discounting contractual cash flows using a discount rate
approximating current market rates for deposits of similar remaining maturity.
Short-term borrowings - Short-term borrowings are valued fairly at
their carrying amounts.
Off-balance-sheet financial instruments - Off-balance-sheet financial
instruments include commitments to extend credit, letters of credit and other
financial guarantees. The fair values of such instruments are estimated using
fees currently charged for similar arrangements in the market, adjusted for
changes in terms and credit risk as appropriate. The estimated fair values of
these instruments are not material.
52
The estimated fair values of the Company's financial instruments
follow:
December 31, 2002 December 31, 2001
- -----------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(dollars in thousands) Amount Value Amount Value
- -----------------------------------------------------------------------------------------------------------------
ASSETS:
Cash and short-term investments $ 330,451 $ 330,451 $ 766,420 $ 766,420
Investment in securities 1,975,698 1,983,097 1,632,340 1,636,239
Loans held for sale 65,572 67,534 59,453 59,453
Loans, net 4,389,297 4,429,790 4,423,452 4,483,053
LIABILITIES:
Deposits 5,782,879 5,790,908 5,950,160 5,964,834
Short-term borrowings 453,415 453,415 511,517 511,517
- -----------------------------------------------------------------------------------------------------------------
NOTE 16
CONTINGENCIES
The Company and its subsidiaries are parties to various legal
proceedings arising in the ordinary course of business. After reviewing pending
and threatened actions with legal counsel, management believes that the ultimate
resolution of these actions will not have a material effect on the Company's
financial condition, results of operations or cash flows.
NOTE 17
OTHER NONINTEREST INCOME
The components of other noninterest income were as follows:
Years Ended December 31
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
ATM fees $4,861 $4,281 $4,089
Investment services income 4,257 3,906 2,681
Other fees and charges 6,047 4,285 3,959
Other operating income 2,993 3,529 3,689
Net gains on sales and other revenue from foreclosed assets 1,714 1,963 1,714
Net gains on disposals of surplus property 497 3,274 1,153
Gain on sale of merchant processing agreements - 3,570 -
- -----------------------------------------------------------------------------------------------------------------
Total $20,369 $24,808 $17,285
- -----------------------------------------------------------------------------------------------------------------
NOTE 18
OTHER NONINTEREST EXPENSE
The components of other noninterest expense were as follows:
Years Ended December 31
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Security and other outsourced services $8,127 $7,792 $6,830
Advertising 4,769 4,443 3,519
Stationery and supplies 3,462 4,315 4,169
Deposit insurance and regulatory fees 1,971 1,936 1,740
Miscellaneous operating losses 1,429 2,544 1,738
Other operating expense 13,470 12,542 12,610
- -----------------------------------------------------------------------------------------------------------------
Total $33,228 $33,572 $30,606
- -----------------------------------------------------------------------------------------------------------------
53
NOTE 19
INCOME TAXES
The components of income tax expense (benefit) follow:
Years Ended December 31
- ------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Included in net income
Current
Federal $46,573 $41,063 $37,886
State 882 1,137 544
- ------------------------------------------------------------------------------------------------------------------
Total current 47,455 42,200 38,430
- ------------------------------------------------------------------------------------------------------------------
Deferred
Federal (883) (5,567) (5,059)
State 72 (52) 118
- ------------------------------------------------------------------------------------------------------------------
Total deferred (811) (5,619) (4,941)
- ------------------------------------------------------------------------------------------------------------------
Total included in net income $46,644 $36,581 $33,489
- ------------------------------------------------------------------------------------------------------------------
Included in shareholders' equity
Deferred tax expense related to the change in the
net unrealized gain on securities $10,563 $ 4,581 $ 3,745
Current tax benefit related to nonqualified stock options
and restricted stock (1,306) (512) (28)
- ------------------------------------------------------------------------------------------------------------------
Total included in shareholders' equity $ 9,257 $ 4,069 $ 3,717
- ------------------------------------------------------------------------------------------------------------------
Income tax expense was different from the amounts computed by applying
the statutory federal income tax rates to pretax income as follows:
Years Ended December 31
- ------------------------------------------------------------------------------------------------------------------
(in percentages) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Federal income tax expense 35.00% 35.00% 35.00%
Increase (decrease) resulting from
Tax exempt income (2.14) (2.74) (3.08)
Low income housing credit (.51) (.22) (.05)
Subchapter S election and termination - (.84) (1.35)
Nondeductible goodwill amortization - .77 .59
State income tax and miscellaneous items .51 .58 .39
- ------------------------------------------------------------------------------------------------------------------
Effective tax rate 32.86% 32.55% 31.50%
- ------------------------------------------------------------------------------------------------------------------
Before its acquisition by Whitney in January 2001, American Bank had
elected to be taxed under Subchapter S of the Internal Revenue Code. Under this
election, American was not subject to income tax at the corporate level and
reported no income tax expense; rather, its shareholders were taxed on their
proportionate shares of corporate taxable income. The acquisition by the Company
terminated the Subchapter S election, and income tax expense has been provided
for earnings from the acquired 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 2001 to reflect the expected tax effects
of the resolution of temporary differences that had accumulated in American Bank
through the termination date. The impact of the Subchapter S election and
subsequent termination on Whitney's effective tax rate is shown above.
54
Temporary differences arise between the tax bases of assets or
liabilities and their reported amounts in the financial statements. The expected
tax effects when these differences are resolved are recorded currently as
deferred tax assets or liabilities. The components of the net deferred income
tax asset, which is included in other assets on the consolidated balance sheets,
follow:
December 31
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- ----------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for losses on loans and foreclosed assets $22,761 $24,473
Employee compensation and benefits 7,528 6,146
Unrecognized interest income 2,197 1,897
Net operating loss carryforward 1,732 2,820
Other 3,079 2,103
- ----------------------------------------------------------------------------------------------------------------
Total deferred tax assets 37,297 37,439
- ----------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Net unrealized gain on securities 16,007 5,444
Accumulated depreciation and amortization 7,163 9,261
Other 2,986 2,267
- ----------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 26,156 16,972
- ----------------------------------------------------------------------------------------------------------------
Net deferred tax asset $11,141 $20,467
- ----------------------------------------------------------------------------------------------------------------
The change in the net deferred tax asset during 2002 includes the
impact of adjustments of deferred tax assets and liabilities of acquired
companies. This component of the overall change is not reflected in the deferred
tax provisions for 2002.
At December 31, 2002, the Company had approximately $5 million in net
operating loss carryforwards generated by acquired entities. Substantially all
of the carryforwards expire by 2020.
NOTE 20
EARNINGS PER SHARE
The components used to calculate basic and diluted earnings per share
are as follows:
Years Ended December 31
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Numerator:
Net income $95,323 $75,820 $72,842
Effect of dilutive securities - - -
- -----------------------------------------------------------------------------------------------------------------
Numerator for diluted earnings per share $95,323 $75,820 $72,842
- -----------------------------------------------------------------------------------------------------------------
Denominator:
Weighted-average shares outstanding 39,848,881 39,550,723 38,475,984
Effect of potentially dilutive securities
and contingently issuable shares 272,663 285,324 92,715
- -----------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share 40,121,544 39,836,047 38,568,699
- -----------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $2.39 $1.92 $1.89
Diluted 2.38 1.90 1.89
- -----------------------------------------------------------------------------------------------------------------
Antidilutive stock options 424,461 514,807 871,839
- -----------------------------------------------------------------------------------------------------------------
55
NOTE 21
PARENT COMPANY FINANCIAL STATEMENTS
The following financial statements are for the parent company only. For the
statements of cash flows, cash and cash equivalents include noninterest-bearing
and interest-bearing deposits in the Bank and the demand note receivable from
the Bank.
BALANCE SHEETS December 31
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Investment in bank subsidiary $598,116 $570,308
Note receivable - bank subsidiary 128,400 -
Interest-bearing deposit in bank subsidiary - 62,830
Investments in nonbank subsidiaries 1,210 1,122
Notes receivable - nonbank subsidiaries 80,394 81,084
Dividends receivable - 10,572
Other assets 10,196 7,245
- -----------------------------------------------------------------------------------------------------------------
Total assets $818,316 $733,161
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable $ 12,009 $ 10,572
Other liabilities 5,824 4,701
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 17,833 15,273
SHAREHOLDERS' EQUITY 800,483 717,888
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $818,316 $733,161
- -----------------------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME Years Ended December 31
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Dividend income from bank subsidiary $89,200 $162,597 $62,982
Equity in undistributed earnings of subsidiaries
Bank 1,854 (88,166) 8,814
Nonbanks 68 100 188
Other income, net of expenses 4,201 1,289 858
- -----------------------------------------------------------------------------------------------------------------
NET INCOME $95,323 $75,820 $72,842
- -----------------------------------------------------------------------------------------------------------------
56
STATEMENTS OF CASH FLOWS Years Ended December 31
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $95,323 $75,820 $72,842
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries (1,922) 88,066 (9,002)
(Increase) decrease in dividends receivable 10,572 (2,165) (957)
Other, net (1,073) 48 409
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 102,900 161,769 63,292
- -----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investments in subsidiaries (20) (39,147) (58,177)
Loans to nonbank subsidiaries, net of repayments 690 (80,248) 108
Other, net 13 376 105
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities 683 (119,019) (57,964)
- -----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Cash dividends (42,893) (38,598) (32,399)
Proceeds from issuance of stock 7,385 5,096 3,316
Purchases of stock (2,256) (847) (1,705)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (37,764) (34,349) (30,788)
- -----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 65,819 8,401 (25,460)
Cash and cash equivalents at beginning of year 62,886 54,485 79,945
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $128,705 $62,886 $54,485
- -----------------------------------------------------------------------------------------------------------------
Whitney Holding Corporation issued common stock with a value of $22
million in connection with its purchase of First Ascension Bancorp, Inc. in
November 2000.
57
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Whitney is responsible for the preparation and fair
presentation of the consolidated financial statements and other financial
information included in this annual report on Form 10-K. The financial
statements are prepared in accordance with accounting principles generally
accepted in the United States of America and include amounts based on
management's estimates and judgments where appropriate. Financial information
appearing throughout this annual report on Form 10-K is consistent with that in
the financial statements.
Management has established and maintains a system of internal control
that provides reasonable assurance as to the integrity and reliability of the
Company's financial statements, the protection of assets from unauthorized use
or disposition, and the prevention and detection of fraudulent financial
reporting. The system of internal control provides for appropriate division of
responsibility, is documented by written policies and procedures that are
communicated to employees with significant roles in the financial reporting
process, and is updated as necessary. The Company maintains a professional staff
of internal auditors who independently assess the effectiveness of internal
controls and make recommendations on policies and procedures. Management
believes that, as of December 31, 2002, the Company's system of internal control
is adequate to accomplish the objectives discussed above.
The Audit Committee of the Board of Directors, which is composed
entirely of independent directors, has oversight responsibilities for the
Company's financial reporting and internal controls. The Committee has appointed
PricewaterhouseCoopers LLP as independent accountants to audit the financial
statements in accordance with auditing standards generally accepted in the
United States of America and to express an opinion as to the fairness of
presentation of such financial statements. The Committee meets periodically with
management, the independent accountants and internal auditors to review
accounting, financial reporting and internal control matters. Both the
independent accountants and internal auditors have direct access to the
Committee.
58
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS
AND BOARD OF DIRECTORS OF
WHITNEY HOLDING CORPORATION:
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statement of income, changes in shareholders' equity and
cash flows present fairly, in all material respects, the financial position of
Whitney Holding Corporation and subsidiaries (the "Corporation") at December 31,
2002, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Corporation's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. The financial statements of
the Corporation as of December 31, 2001, and for each of the two years in the
period ended December 31, 2001, prior to the revisions discussed in Notes 2 and
9, were audited by other independent accountants who have ceased operations.
Those independent accountants expressed an unqualified opinion on those
financial statements in their report dated January 16, 2002.
As discussed in Note 9 to the consolidated financial statements, the
Corporation changed its method of accounting for goodwill and intangible assets
on January 1, 2002.
As discussed above, the financial statements of the Corporation as of
December 31, 2001, and for each of the two years in the period ended December
31, 2001, were audited by other independent accountants who have ceased
operations. As described in Notes 2 and 9, these financial statements have been
revised to include the transitional disclosures required by Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets,"
which was adopted by the Corporation as of January 1, 2002 and to reflect a
three-for-two stock split. We audited the transitional disclosures described in
Note 9 and the three-for-two stock split described in Note 2. In our opinion,
the transitional disclosures for 2001 and 2000 in Note 9 and the impact of the
three-for-two stock split described in Note 2 are appropriate. However, we were
not engaged to audit, review, or apply any procedures to the 2001 and 2000
financial statements of the Corporation other than with respect to such
disclosures and, acccordingly, we do not express an opinion or any other form of
assurance on the 2001 or 2000 financial statements taken as a whole.
/s/ PricewaterhouseCoopers LLP
New Orleans, Louisiana
January 15, 2003
59
THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR
ANDERSEN LLP IN CONNECTION WITH WHITNEY'S FILING ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2001. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP IN
CONNECTION WITH THIS FILING ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2002.
FOR FURTHER DISCUSSION, SEE EXHIBIT 23.2 WHICH IS FILED HEREWITH.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS
AND BOARD OF DIRECTORS OF
WHITNEY HOLDING CORPORATION:
We have audited the consolidated balance sheets of Whitney Holding
Corporation (a Louisiana corporation) and subsidiaries as of December 31, 2001
and 2000 and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Whitney Holding
Corporation and subsidiaries as of December 31, 2001 and 2000, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 2 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 133 effective
January 1, 2001.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
January 16, 2002
60
Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On May 22, 2002, Whitney Holding Corporation decided not to continue
the engagement of Arthur Andersen LLP (Andersen) as the Company's independent
accountants. This action was taken with the approval of Whitney's Board of
Directors, which ratified the decision reached by its Audit Committee.
Andersen issued a report on the Company's consolidated financial
statements for each of the two fiscal years in the period that ended December
31, 2001. Neither of these reports contained an adverse opinion or disclaimer of
opinion, nor was either qualified or modified as to uncertainty, audit scope or
accounting principles. During the two fiscal years that ended December 31, 2001
and continuing through May 22, 2002, Whitney and Andersen had no disagreements
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, that, if not resolved to Andersen's
satisfaction, would have caused them to make reference to the matter of
disagreement in their report on the financial statements.
Whitney provided Andersen with a copy of the foregoing disclosure, and
a letter from Andersen stating its agreement with the statements in this
disclosure was filed as an exhibit to Whitney's Current Report on Form 8-K filed
with the Securities and Exchange Commission on May 23, 2002.
None of the reportable events described under Item 304(a)(1)(v) of
Regulation S-K occurred during Whitney's two fiscal years that ended December
31, 2001 and through May 22, 2002.
Also on May 22, 2002, Whitney appointed PricewaterhouseCoopers LLP
(PwC) to replace Andersen as the Company's independent accountants. The Audit
Committee's selection of PwC was also ratified by the Board of Directors. During
the two fiscal years ended December 31, 2001, and the subsequent interim period
through May 22, 2002, the Company did not consult with PwC regarding any of the
matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
61
PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the Company's directors and executive
officers are listed below with their business experience during the past five
years.
Director Term
Name and Age Principal Occupation Since Expires
- ------------ -------------------- -------- -------
Robert C. Baird, Jr., 52 Executive Vice President of the N/A N/A
Company and Whitney National
Bank since 1995;
President, Avoca, Inc.
Harry J. Blumenthal, Jr., 57 President, Blumenthal 1993 2004
Print Works, Inc.
(textiles manufacturing)
Joel B. Bullard, Jr., 52 President, Joe Bullard 1994 2004
Automotive Companies
(automotive sales and service)
James M. Cain, 69 Former Vice Chairman, Entergy 1987 2007
Corporation (utility holding company);
former Chairman of the Board,
Chief Executive Officer and President,
Louisiana Power and Light Company
(electric utility); former Director,
Chief Executive Officer and President,
New Orleans Public Service, Inc.,
retired 1993
Thomas L. Callicutt, Jr., 55 Executive Vice President and Chief N/A N/A
Financial Officer of the Company and
Whitney National Bank since 1999 and
Treasurer of the Company since 2001;
Senior Vice President and Comptroller of
Whitney National Bank from 1998 to 1999;
Executive Vice President, Controller
and Principal Accounting Officer,
First Commerce Corporation (bank
holding company) from 1996 to 1998
Rodney D. Chard, 60 Executive Vice President of the N/A N/A
Company and Whitney National
Bank since 1996
Angus R. Cooper II, 60 Chairman and Chief Executive 1994 2004
Officer, Cooper/T. Smith Corp.
(shipping service company);
Director, Friede Goldman Halter, Inc.
62
Director Term
Name and Age Principal Occupation Since Expires
- ------------ -------------------- -------- -------
Richard B. Crowell, 64 Attorney, Crowell & Owens; 1983 2007
Director, CLECO Corporation
Joseph S. Exnicios, 47 Senior Vice President of N/A N/A
Whitney National Bank since 1994
G. Blair Ferguson, 59 Executive Vice President of the N/A N/A
Company and Whitney National
Bank since 1993
William A. Hines, 66 Chairman of the Board, 1986 2006
Nassau Holding Corporation
(holding company of entities
in the oil field service industry);
Director, Unifab International, Inc.
John C. Hope III, 53 Executive Vice President of the N/A N/A
Company since 1994 and of
Whitney National Bank since 1998;
Chairman of the Board,
Energy South, Inc.
John J. Kelly, 68 Chairman, Louisiana Technology 1986 2005
Council (nonprofit organization
advancing technology in Louisiana);
former President, Textron
Marine and Land Systems (designs
and builds advanced technology
vehicles and craft), retired 1999
E. James Kock, Jr., 74 Former President, Bowie Lumber 1965 2003
Associates, Downmans Associates,
Jeanerette Lumber & Shingle Co., Ltd.
and White Castle Lumber & Shingle
Co., Ltd. (land and timber holdings,
and investments), retired 1993
Alfred S. Lippman, 64 Managing Member, Lippman 1996 2006
& Mahfouz, L.L.C., Attorneys at Law
Michael L. Lomax, 55 President, Dillard University 2002 2003
since 1997
William L. Marks, 59 Chairman of the Board and 1990 2005
Chief Executive Officer of the
Company and Whitney National
Bank since 1990; Director, Adtran, Inc.;
Director, CLECO Corporation
R. King Milling, 62 President of the Company and 1979 2003
Whitney National Bank since 1984
63
Director Term
Name and Age Principal Occupation Since Expires
- ------------ -------------------- -------- -------
Eric J. Nickelsen, 58 Real estate developer and part 2000 2005
owner, John S. Carr & Company,
Inc. (January 1998 to present);
former Chairman of the Board, Chief
Executive Officer and President,
Barnett Bank of West Florida
(December 1993 to January 1998)
John G. Phillips, 80 Former Chairman of the Board 1972 2003
and Chief Executive Officer, The
Louisiana Land and Exploration
Company (oil and gas exploration
and production), retired 1985;
Director, Energy Partners, Ltd.
Lewis P. Rogers, 50 Senior Vice President of N/A N/A
Whitney National Bank since 1998
Carroll W. Suggs, 64 Vice Chairman, National Ocean 1996 2006
Industries Association (2002-2003)
(trade association representing a broad
base of offshore/ocean related industries);
former Chairman, Chief Executive
Officer and President, Petroleum
Helicopters, Inc., retired 2001; Director,
GlobalSantaFe Corporation; Director,
Pogo Producing Company
Dean E. Taylor, 54 President (since 2001) and Chief 2002 2003
Executive Officer (since 2002),
Tidewater, Inc. (marine offshore supply);
Executive Vice President, Tidewater, Inc.
(2000-2001), Senior Vice President
(1998-2000)
Thomas D. Westfeldt, 51 President, Westfeldt Brothers Inc., 2002 2003
(green coffee importing firm)
In further response to this Item 10, registrant incorporates by
reference the section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance" of its Proxy Statement dated March 14, 2003.
64
Item 11: EXECUTIVE COMPENSATION
In response to this item, registrant incorporates by reference the
section entitled "Executive Compensation" of its Proxy Statement dated March 14,
2003.
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
In partial response to this item, registrant incorporates by reference
the sections entitled "Voting Securities and Principal Holders" and "Beneficial
Ownership of Directors and Management and Other Information" of its Proxy
Statement dated March 14, 2003.
The following table summarizes certain information regarding the
registrant's equity compensation plans of December 31, 2002. The underlying
compensation plans, which are more fully described in Note 12 to the
consolidated financial statements included in Item 8, have been previously
approved by a vote of the shareholders.
Equity Compensation Plan Information
- ---------------------------------- -------------------------- ------------------------- -------------------------
(a) (b) (c)
- ---------------------------------- -------------------------- ------------------------- -------------------------
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
Plan category warrants and rights warrants and rights column (a))
- ---------------------------------- -------------------------- ------------------------- -------------------------
Equity compensation plans
approved by shareholders 1,774,722 $28.81 1,653,431(1),(2)
Equity compensation plans
not approved by shareholders --- --- ---
- ---------------------------------- -------------------------- ------------------------- -------------------------
Total 1,774,722 $28.81 1,653,431
- ---------------------------------- -------------------------- ------------------------- -------------------------
(1) Includes 1,045,950 shares that remain available for future issuance
under the 2001 Directors' Compensation Plan, including shares that will
be issued with respect to common stock credits accumulated in deferred
compensation accounts. The Company is authorized under this plan to
issue an aggregate number of common shares not exceeding 3% of its
shares issued and outstanding from time to time, but in no event more
than 1,125,000 shares. Under this plan, the Company may award common
stock in addition to awarding stock options and issuing shares for
common stock credits.
(2) Includes 607,481 shares available for future issuance under the 1997
Long-Term Incentive Plan. The aggregate number of shares issued under
the terms of this plan cannot exceed 7% of the total number of Company
shares issued and outstanding from time to time. In addition to stock
options, the Company may grant or award restricted stock, performance
shares, phantom shares and stock appreciation rights under the plan.
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In response to this item, registrant incorporates by reference the
section entitled "Certain Transactions" of its Proxy Statement dated March 14,
2003.
65
Item 14: CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the reports it
files under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Commission's rules and forms. Such controls include those designed to ensure
that material information is communicated to management, including the Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate to
allow timely decisions regarding required disclosure.
The CEO and CFO, with the participation of management, have evaluated
the effectiveness of Whitney's disclosure controls and procedures as of a date
within ninety days before the filing date of this annual report on Form 10-K.
Based on their evaluation, they have concluded that the disclosure controls and
procedures are effective. There were no significant changes in the Company's
internal controls or in other factors subsequent to the date of the evaluation
that could significantly affect the operation of the disclosure controls and
procedures.
PART IV
Item 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)The following consolidated financial statements and
supplementary data of the Company and its subsidiaries are
included in Part II Item 8 of this Form 10-K:
Page Number
Summary of Quarterly Financial Information 28
Consolidated Balance Sheets --
December 31, 2002 and 2001 29
Consolidated Statements of Income --
Years Ended December 31, 2002, 2001 and 2000 30
Consolidated Statements of Changes in Shareholders'
Equity --
Years Ended December 31, 2002, 2001 and 2000 31
Consolidated Statements of Cash Flows --
Years Ended December 31, 2002, 2001 and 2000 32
Notes to Consolidated Financial Statements 33
Report of Independent Accountants 59
(a)(2)All schedules have been omitted because they are either not
applicable or the required information has been included in the
consolidated financial statements or notes to the consolidated
financial statements.
66
(a)(3) Exhibits:
To obtain a copy of any listed exhibit send your request to the address
below. The copy will be furnished upon payment of a fee.
Mrs. Shirley Fremin, Manager
Investor Relations
Whitney Holding Corporation
P. O. Box 61260
New Orleans, LA 70161-1260
(504) 586-3627 or toll free (800) 347-7272
E-mail: investor.relations@whitneybank.com
Exhibit 3.1 - Copy of the Company's Composite Charter (filed as
Exhibit 3.1 to the Company's quarterly report on Form 10-Q for
the quarter ended September 30, 2000 (Commission file number
0-1026) and incorporated by reference).
Exhibit 3.2 - Copy of the Company's Bylaws (filed as Exhibit 3.2
to the Company's quarterly report on Form 10-Q for the quarter
ended September 30, 2000 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.1 - Executive agreement between Whitney Holding
Corporation, Whitney National Bank and William L. Marks (filed as
Exhibit 10.3 to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1993 (Commission file number 0-1026)
and incorporated by reference).
Exhibit 10.2 - Executive agreement between Whitney Holding
Corporation, Whitney National Bank and R. King Milling (filed as
Exhibit 10.4 to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1993 (Commission file number 0-1026)
and incorporated by reference).
Exhibit 10.3 - Executive agreement between Whitney Holding
Corporation, Whitney National Bank and G. Blair Ferguson (filed
as Exhibit 10.7 to the Company's quarterly report on Form 10-Q
for the quarter ended September 30, 1993 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.4 - Executive agreement between Whitney Holding
Corporation, Whitney Bank of Alabama (now Whitney National Bank)
and John C. Hope III (filed as Exhibit 10.8 to the Company's
annual report on Form 10-K for the year ended December 31, 1994
(Commission file number 0-1026) and incorporated by reference).
Exhibit 10.5 - Executive agreement between Whitney Holding
Corporation, Whitney National Bank and Robert C. Baird, Jr.
(filed as Exhibit 10.9 to the Company's quarterly report on Form
10-Q for the quarter ended June 30, 1995 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.6 - Long-term incentive program (filed as Exhibit 10.7
to the Company's annual report on Form 10-K for the year ended
December 31, 1991 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.6a - Long-term incentive plan (filed as a Proposal in
the Company's Proxy Statement dated March 18, 1997 (Commission
file number 0-1026) and incorporated by reference).
Exhibit 10.7 - Executive compensation plan (filed as Exhibit 10.8
to the Company's annual report on Form 10-K for the year ended
December 31, 1991 (Commission file number 0-1026) and
incorporated by reference).
67
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 (filed as
Exhibit 10.8c to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 2002 (Commission file number 0-1026)
and incorporated by reference).
Exhibit 10.9 - Form of stock option agreement between Whitney
Holding Corporation and certain of its officers (filed as Exhibit
19.2 to the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1992 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.9a - Form of amendment to stock option agreement
between Whitney Holding Corporation and certain of its officers
(filed as Exhibit 10.10a to the Company's annual report of Form
10-K for the year ended December 31, 2000 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.9b - Form of amendment to stock option agreement
between Whitney Holding Corporation and certain of its officers
(filed as Exhibit 10.9b to the Company's annual report of 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).
68
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 - 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 0-1026) and incorporated by
reference).
Exhibit 10.15 - 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 10.16 - Form of officer agreement between Whitney Holding
Corporation, Whitney National Bank and Joseph S. Exnicios,
executed May 11, 1993, and amended March 27, 1998, and Lewis P.
Rogers, executed June 23, 1999 (filed as Exhibit 10.16 to the
Company's quarterly report on Form 10-Q for the quarter ended
September 30, 2002 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 16.1 - Letter from Arthur Andersen LLP dated May 22, 2002
(filed as Exhibit 16 to the Company's Form 8-K dated May 22, 2002
(Commission file number 0-1026) and incorporated by reference).
Exhibit 21 - Subsidiaries
Whitney Holding Corporation owns 100% of Whitney National
Bank. All other subsidiaries considered in the aggregate would
not constitute a significant subsidiary.
Exhibit 23.1 - Consent of PricewaterhouseCoopers LLP dated March
14, 2003.
Exhibit 23.2 - Notice Regarding Consent of Arthur Andersen LLP.
Exhibit 99.1 - Certification by the Company's Chief Executive
Officer and Chief Financial Officer pursuant to 18 U.S.C Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports of Form 8-K
On a Form 8-K dated October 17, 2002, the registrant reported under
Item 5 the release of its financial results for the quarter ended September 30,
2002. The news release covering the financial results was filed as an exhibit
under Item 7.
69
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WHITNEY HOLDING CORPORATION
(Registrant)
By:/s/ William L. Marks
---------------------------------
William L. Marks
Chairman of the Board and
Chief Executive Officer
March 14, 2003
---------------------------------
Date
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- ----------------------------- ------------------------ --------------
/s/ William L. Marks Chairman of the Board, March 14, 2003
- ----------------------------- Chief Executive Officer --------------
William L. Marks and Director
/s/ R. King Milling President and Director March 14, 2003
- ----------------------------- --------------
R. King Milling
/s/ Thomas L. Callicutt, Jr Executive Vice President and March 14, 2003
- ----------------------------- Chief Financial Officer --------------
Thomas L. Callicutt, Jr. (Principal Accounting Officer)
/s/ Harry J. Blumenthal, Jr. Director March 14, 2003
- ----------------------------- --------------
Harry J. Blumenthal, Jr.
/s/ Joel B. Bullard, Jr. Director March 14, 2003
- ----------------------------- --------------
Joel B. Bullard, Jr.
/s/ James M. Cain Director March 14, 2003
- ----------------------------- --------------
James M. Cain
/s/ Angus R. Cooper II Director March 14, 2003
- ----------------------------- --------------
Angus R. Cooper II
/s/ Richard B. Crowell Director March 14, 2003
- ----------------------------- --------------
Richard B. Crowell
70
Signature Title Date
- ----------------------------- ------------------------ --------------
/s/ William A. Hines Director March 14, 2003
- ----------------------------- --------------
William A. Hines
/s/ John J. Kelly Director March 14, 2003
- ----------------------------- --------------
John J. Kelly
/s/ E. James Kock, Jr. Director March 14, 2003
- ----------------------------- --------------
E. James Kock, Jr.
/s/ Alfred S. Lippman Director March 14, 2003
- ----------------------------- --------------
Alfred S. Lippman
/s/ Michael L. Lomax Director March 14, 2003
- ----------------------------- --------------
Michael L. Lomax
/s/ Eric J. Nickelsen Director March 14, 2003
- ----------------------------- --------------
Eric J. Nickelsen
/s/ John G. Phillips Director March 14, 2003
- ----------------------------- --------------
John G. Phillips
/s/ Carroll W. Suggs Director March 14, 2003
- ----------------------------- --------------
Carroll W. Suggs
/s/ Dean E. Taylor Director March 14, 2003
- ----------------------------- --------------
Dean E. Taylor
Director
- ----------------------------- --------------
Thomas D. Westfeldt
71
CERTIFICATIONS
--------------
I, William L. Marks, certify that:
1. I have reviewed this annual report on Form 10-K of Whitney Holding
Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ William L. Marks
-----------------------------
William L. Marks
Chief Executive Officer
Date: March 14, 2003
--------------
72
I, Thomas L. Callicutt, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Whitney Holding
Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Thomas L. Callicutt, Jr.
-----------------------------------
Thomas L. Callicutt, Jr.
Chief Financial Officer
Date: March 14, 2003
-----------------
73
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-3 (No. 33-52999, No. 33-55307, No. 333-56277 and No.
333-75676) of Whitney Holding Corporation and the Registration Statements on
Form S-8 (No. 333-56024, as amended, No. 333-68506, No. 333-30257, No. 333-87050
and No. 333-91358) of Whitney Holding Corporation of our report dated January
15, 2003 relating to the consolidated financial statements of Whitney Holding
Corporation, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
New Orleans, Louisiana
March 14, 2003
74
Exhibit 23.2
Notice Regarding Consent of Arthur Andersen LLP
Section 11(a) of the Securities Act of 1933, as amended (the Securities
Act), provides that if part of a registration statement at the time it becomes
effective contains an untrue statement of a material fact, or omits a material
fact required to be stated therein or necessary to make the statements therein
not misleading, any person acquiring a security pursuant to such registration
statement (unless it is proved that at the time of such acquisition such person
knew of such untruth or omission) may assert a claim against, among others,
every accountant who has consented to be named as having prepared or certified
any report or valuation which is used in connection with the registration
statement, report of valuation which purports to have been prepared or certified
by the accountant.
The Annual Report on Form 10-K for the year ended December 31, 2002
(the Form 10-K) to which this notice is filed as an exhibit is incorporated by
reference into the following registration statements (collectively, the
Registration Statements) filed by Whitney Holding Corporation (the Company) with
the Securities and Exchange Commission (the SEC), and, for purposes of
determining any liability under the Securities Act, is deemed to be a new
registration statement for each Registration Statement into which it is
incorporated by reference:
Form S-3 No. 33-52999 (dated April 6, 1994)
Form S-3 No. 33-55307 (dated August 31, 1994)
Form S-3 No. 33-56277 (dated November 1, 1994)
Form S-3 MEF No. 333-75676 (dated December 21, 2001)
Form S-8 No. 333-56024, as amended (dated December 18, 1992)
Form S-8 No. 333-68506 (dated September 8, 1993)
Form S-8 No. 333-30257 (dated June 27, 1997)
Form S-8 No. 333-87050 (dated April 26, 2002)
Form S-8 No. 333-91358 (dated June 27, 2002)
On May 22, 2002, Whitney Holding Corporation decided not to continue
the engagement of Arthur Andersen LLP (Andersen) as the Company's independent
accountants. This action was taken with the approval of Whitney's Board of
Directors, which ratified the decision reached by its Audit Committee. For
additional information see the Company's Current Report on Form 8-K filed with
the SEC on May 23, 2003. The Company understands that the staff of the SEC has
taken the position that it will not accept consents from Andersen if the
engagement partner and the manager for the Company's audit are no longer with
Andersen. Both the engagement partner and the manager for the Company's audit
are no longer with Andersen. As a result, the Company has been unable to obtain
Andersen's written consent to the incorporation by reference into the
Registration Statements of Andersen's audit report with respect to the Company's
consolidated financial statements as of December 31, 2001 and 2000 and for the
years then ended. Under these circumstances, Rule 437a under the Securities Act
permits the Company to file this Form 10-K without a written consent from
Andersen. As a result, however, Andersen will not have any liability under
Section 11(a) of the Securities Act for any untrue statements of a material fact
contained in the financial statements audited by Andersen or any omissions of a
material fact required to be stated therein. Accordingly, purchasers of the
Company's securities would be unable to assert a claim against Andersen under
Section 11(a) of the Securities Act for any purchases of the Company's
securities made on or after the date of this Form 10-K pursuant to the
Registration Statements. To the extent provided in Section 11(b)(3)(C) of the
Securities Act, however, other persons who are liable under Section 11(a) of the
Securities Act, including the Company's officers and directors, may still rely
on Andersen's original audit reports as being made by an expert for purposes of
establishing a due diligence defense under Section 11(b) of the Securities Act.
75
Exhibit 99.1
Certification Pursuant to 18 U.S.C Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Each of the undersigned officers of Whitney Holding Corporation (the
"Company"), in the capacities and dates indicated below, hereby certify pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my
knowledge,
(1) the Company's Annual Report on Form 10-K for the period ended
December 31, 2002 (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 the Company.
Dated: March 14, 2003 By:/s/ William L. Marks
--------------------- -------------------------------
William L. Marks
Chairman of the Board and
Chief Executive Officer
Dated: March 14, 2003 By:/s/ Thomas L. Callicutt, Jr.
--------------------- -------------------------------
Thomas L. Callicutt, Jr.
Executive Vice President and
Chief Financial Officer
76