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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004 Commission file number 0-1026
WHITNEY HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Louisiana 72-6017893
(State of incorporation) (I.R.S. Employer Identification No.)
228 St. Charles Avenue
New Orleans, Louisiana 70130
(Address of principal executive offices)
(504) 586-7272
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes X No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 31, 2004
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Common Stock, no par value 41,992,166
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WHITNEY HOLDING CORPORATION
TABLE OF CONTENTS
Page
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PART I. Financial Information
Item 1: Financial Statements:
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Changes in
Shareholders' Equity 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Selected Financial Data 12
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3: Quantitative and Qualitative Disclosures about
Market Risk 30
Item 4: Controls and Procedures 30
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PART II. Other Information
Item 1: Legal Proceedings 31
Item 2: Unregistered Sales of Equity Securities and
Use of Proceeds 31
Item 3: Defaults upon Senior Securities 31
Item 4: Submission of Matters to a Vote of Security
Holders 31
Item 5: Other Information 31
Item 6: Exhibits 31
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Signature 32
Exhibit Index 33
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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September 30 December 31
(dollars in thousands) 2004 2003
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ASSETS
Cash and due from financial institutions $ 249,327 $ 270,387
Federal funds sold and short-term investments 26,904 14,385
Loans held for sale 13,838 15,309
Investment securities
Securities available for sale 1,816,276 2,090,870
Securities held to maturity, fair values of $233,151 and $196,717, respectively 226,339 190,535
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Total investment securities 2,042,615 2,281,405
Loans, net of unearned income 5,380,023 4,882,610
Allowance for loan losses (54,611) (59,475)
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Net loans 5,325,412 4,823,135
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Bank premises and equipment 156,122 148,259
Goodwill 115,742 69,164
Other intangible assets 25,871 23,475
Accrued interest receivable 28,978 27,305
Other assets 87,231 82,158
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Total assets $8,072,040 $7,754,982
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LIABILITIES
Noninterest-bearing demand deposits $2,008,634 $1,943,248
Interest-bearing deposits 4,482,174 4,215,334
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Total deposits 6,490,808 6,158,582
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Short-term and other borrowings 588,731 600,053
Accrued interest payable 4,833 4,493
Other liabilities 67,669 151,541
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Total liabilities 7,152,041 6,914,669
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SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized - 100,000,000 shares
Issued - 41,976,314 and 40,448,929 shares, respectively 2,800 2,800
Capital surplus 244,609 183,624
Retained earnings 685,624 656,195
Accumulated other comprehensive income 231 8,438
Treasury stock at cost - 4,379 and 937 shares, respectively (159) (30)
Unearned restricted stock compensation (13,106) (10,714)
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Total shareholders' equity 919,999 840,313
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Total liabilities and shareholders' equity $8,072,040 $7,754,982
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The accompanying notes are an integral part of these financial statements.
1
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended Nine Months Ended
September 30 September 30
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(dollars in thousands, except per share data) 2004 2003 2004 2003
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INTEREST INCOME
Interest and fees on loans $69,025 $63,147 $195,600 $190,526
Interest and dividends on investments
Mortgage-backed securities 14,589 11,382 45,589 37,487
U.S. agency securities 2,682 4,449 8,837 12,323
U.S. Treasury securities 1,255 1,980 4,168 5,465
Obligations of states and political subdivisions 2,562 2,225 7,471 6,382
Other securities 318 414 895 1,443
Interest on federal funds sold and short-term investments 41 259 117 652
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Total interest income 90,472 83,856 262,677 254,278
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INTEREST EXPENSE
Interest on deposits 9,029 8,875 25,059 32,569
Interest on short-term and other borrowings 1,257 698 3,883 2,110
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Total interest expense 10,286 9,573 28,942 34,679
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NET INTEREST INCOME 80,186 74,283 233,735 219,599
PROVISION FOR LOAN LOSSES - (4,000) - (3,500)
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 80,186 78,283 233,735 223,099
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NONINTEREST INCOME
Service charges on deposit accounts 9,392 9,698 28,160 28,325
Secondary mortgage market operations 1,136 3,373 3,785 9,097
Bank card fees 2,555 2,272 7,559 6,921
Trust service fees 2,204 1,997 6,696 6,104
Other noninterest income 4,698 5,335 16,083 16,849
Securities transactions 68 863 68 863
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Total noninterest income 20,053 23,538 62,351 68,159
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NONINTEREST EXPENSE
Employee compensation 30,174 29,096 88,586 85,226
Employee benefits 7,167 6,587 22,360 20,734
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Total personnel expense 37,341 35,683 110,946 105,960
Net occupancy expense 5,331 5,052 15,079 14,550
Equipment and data processing expense 4,468 4,444 13,086 12,967
Telecommunication and postage 2,216 2,221 6,722 6,366
Corporate value and franchise taxes 1,919 1,727 5,764 5,253
Legal and professional fees 2,106 1,463 4,362 4,504
Amortization of intangibles 1,448 1,290 4,026 4,042
Other noninterest expense 13,432 9,452 34,574 27,629
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Total noninterest expense 68,261 61,332 194,559 181,271
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INCOME BEFORE INCOME TAXES 31,978 40,489 101,527 109,987
INCOME TAX EXPENSE 9,900 12,987 31,388 35,265
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NET INCOME $22,078 $27,502 $ 70,139 $ 74,722
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EARNINGS PER SHARE
Basic $.54 $.69 $1.73 $1.87
Diluted .53 .68 1.71 1.85
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic 40,969,394 39,993,350 40,490,366 39,882,839
Diluted 41,551,024 40,383,047 41,131,828 40,320,434
CASH DIVIDENDS PER SHARE $.33 $.30 $.99 $.90
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The accompanying notes are an integral part of these financial statements.
2
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
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Accumulated Unearned
Other Restricted
(dollars in thousands, Common Capital Retained Comprehensive Treasury Stock
except per share data) Stock Surplus Earnings Income Stock Compensation Total
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Balance at December 31, 2002 $2,800 $167,235 $607,235 $30,104 $ - $(6,891) $800,483
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Comprehensive income:
Net income - - 74,722 - - - 74,722
Other comprehensive income:
Unrealized net holding loss on
securities, net of reclassification
adjustments and taxes - - - (15,648) - - (15,648)
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Total comprehensive income - - 74,722 (15,648) - - 59,074
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Cash dividends, $.90 per share - - (36,237) - - - (36,237)
Stock issued to dividend reinvestment plan - 832 - - 487 - 1,319
Long-term incentive plan stock activity:
Restricted grants and related activity - 6,460 - - (1,084) (2,473) 2,903
Options exercised - 2,481 - - 430 - 2,911
Directors' compensation plan
stock activity - 425 - - 167 - 592
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Balance at September 30, 2003 $2,800 $177,433 $645,720 $14,456 $ - $(9,364) $831,045
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Balance at December 31, 2003 $2,800 $183,624 $656,195 $ 8,438 $ (30) $(10,714) $840,313
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Comprehensive income:
Net income - - 70,139 - - - 70,139
Other comprehensive income:
Unrealized net holding loss on
securities, net of reclassification
adjustments and taxes - - - (8,207) - - (8,207)
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Total comprehensive income - - 70,139 (8,207) - - 61,932
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Cash dividends, $.99 per share - - (40,710) - - - (40,710)
Stock issued in business combination - 41,932 - - - - 41,932
Stock issued to dividend reinvestment plan - 1,058 - - 495 - 1,553
Long-term incentive plan stock activity:
Restricted grants and related activity - 8,239 - - (857) (2,392) 4,990
Options exercised - 8,915 - - 55 - 8,970
Directors' compensation plan
stock activity - 841 - - 178 - 1,019
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Balance at September 30, 2004 $2,800 $244,609 $685,624 $ 231 $(159) $(13,106) $919,999
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The accompanying notes are an integral part of these financial statements.
3
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine Months Ended
September 30
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(dollars in thousands) 2004 2003
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OPERATING ACTIVITIES
Net income $70,139 $74,722
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of bank premises and equipment 9,957 9,924
Amortization of purchased intangibles 4,026 4,042
Restricted stock compensation earned 6,558 4,276
Premium amortization (discount accretion), net 3,309 6,987
Provision for losses on loans and foreclosed assets 96 (3,452)
Net gains on sales of foreclosed assets and surplus property (829) (777)
Net gains on sales of investment securities (68) (863)
Deferred tax benefit (1,313) (769)
Net decrease in loans originated and held for sale 1,471 5,195
Net increase in accrued income taxes 7,430 3,591
Net decrease in accrued interest receivable and prepaid expenses 1,377 1,708
Net increase in accrued interest payable and other accrued expenses 6,477 4,346
Other operating items, net 1,325 574
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Net cash provided by operating activities 109,955 109,504
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INVESTING ACTIVITIES
Proceeds from maturities of investment securities held to maturity 8,980 20,063
Purchases of investment securities held to maturity (45,768) (23,819)
Proceeds from maturities of investment securities available for sale 415,322 591,752
Proceeds from sales of investment securities available for sale 64,926 278,752
Purchases of investment securities available for sale (304,881) (893,220)
Net increase in loans (318,798) (187,453)
Net increase in federal funds sold and short-term investments (12,519) (68,586)
Proceeds from sales of foreclosed assets and surplus property 3,794 4,459
Purchases of bank premises and equipment (11,928) (6,942)
Net cash received in branch acquisition and business combination 7,364 -
Other, net 1,883 (12,051)
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Net cash used in investing activities (191,625) (297,045)
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FINANCING ACTIVITIES
Net increase (decrease) in transaction account and savings account deposits (4,432) 228,776
Net increase (decrease) in time deposits 133,167 (47,398)
Net decrease in short-term and other borrowings (35,979) (4,041)
Proceeds from issuance of common stock 9,946 4,367
Purchases of common stock (1,890) (1,528)
Cash dividends (40,202) (36,140)
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Net cash provided by financing activities 60,610 144,036
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Decrease in cash and cash equivalents (21,060) (43,505)
Cash and cash equivalents at beginning of period 270,387 326,124
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Cash and cash equivalents at end of period $249,327 $282,619
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Cash received during the period for:
Interest income $261,601 $255,064
Cash paid during the period for:
Interest expense $29,000 $37,011
Income taxes 24,428 31,600
Noncash investing activities:
Foreclosed assets received in settlement of loans $1,967 $2,137
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The accompanying notes are an integral part of these financial statements.
4
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Whitney
Holding Corporation and its subsidiaries (the "Company" or "Whitney"). All
significant intercompany balances and transactions have been eliminated. Certain
financial information for prior periods has been reclassified to conform to the
current presentation.
In preparing the consolidated financial statements, the Company is
required to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates. The consolidated financial statements reflect
all adjustments which are, in the opinion of management, necessary for a fair
statement of the financial condition, results of operations, changes in
shareholders' equity and cash flows for the interim periods presented. These
adjustments are of a normal recurring nature and include appropriate estimated
provisions.
Pursuant to rules and regulations of the Securities and Exchange
Commission ("SEC"), certain financial information and disclosures have been
condensed or omitted in preparing the consolidated financial statements
presented in this quarterly report on Form 10-Q. These financial statements
should be read in conjunction with the Company's 2003 annual report on Form
10-K. Financial information reported in these financial statements is not
necessarily indicative of the financial condition, results of operations or cash
flows of any other interim or annual periods.
NOTE 2 - MERGERS AND ACQUISITIONS
In October 2004, Whitney entered into a definitive agreement to acquire
Destin Bancshares, Inc. ("Destin"). Destin's major subsidiary is Destin Bank
which operates ten banking centers in the Destin, Fort Walton Beach and
Pensacola areas of the Florida panhandle, with approximately $470 million in
total assets and $390 million in deposits. The transaction is valued at
approximately $115 million, and half of the merger consideration will be paid to
Destin shareholders in cash and half in Whitney stock totaling approximately 1.4
million shares. Subject to certain conditions and to the approval of Destin
shareholders, the transaction is expected to close in the first half of 2005.
On August 20, 2004, Whitney acquired Madison BancShares, Inc.
("Madison") and its subsidiary, Madison Bank. Madison Bank was merged
immediately into Whitney National Bank (the "Bank"). Madison shareholders
received 1,031,057 Whitney shares and cash totaling $23 million, for a total
transaction value of approximately $65 million. At acquisition, Madison Bank had
$219 million in assets, including $188 million in loans, and $177 million in
deposits at four banking locations in the Tampa Bay, Florida metropolitan area.
Applying purchase accounting to this transaction, the Company recorded $51
million in intangible assets, with $4 million assigned to the value of deposit
relationships with an estimated weighted-average life of approximately 3.5 years
and the remaining $46 million to goodwill. The Company's financial statements
include the results from these acquired operations since the acquisition date.
In June 2004, Whitney National Bank assumed approximately
$24 million in deposits and acquired certain assets from the First National Bank
Northwest Florida. The deposits and assets were associated with two First
National locations in Fort Walton Beach, Florida. Whitney recognized an
intangible asset for the value of the deposit relationships acquired
5
of $2.1 million that will be amortized over an estimated life of 8 years. No
loans or other noncash financial assets were exchanged in this transaction.
NOTE 3 - OTHER ASSETS AND OTHER LIABILITIES
The more significant components of other assets and other liabilities
at September 30, 2004 and December 31, 2003 were as follows:
Other assets
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September 30 December 31
(dollars in thousands) 2004 2003
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Net deferred income tax asset $27,848 $21,190
Low-income housing tax credit fund investments 18,440 16,199
Cash surrender value of life insurance 9,527 8,665
Prepaid pension asset 3,186 7,230
Prepaid expenses 6,761 4,288
Foreclosed assets and surplus property 2,950 3,490
Miscellaneous investments, receivables and other assets 18,519 21,096
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Total other assets $87,231 $82,158
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Other liabilities
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September 30 December 31
(dollars in thousands) 2004 2003
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Trade date securities payable $ - $100,925
Accrued taxes and expenses 25,793 12,319
Dividends payable 13,852 13,344
Obligation for postretirement benefits other than
pensions 10,100 9,379
Miscellaneous payables, deferred income and other
liabilities 17,924 15,574
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Total other liabilities $67,669 $151,541
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NOTE 4 - EMPLOYEE BENEFIT PLANS
Retirement Plans
Whitney has a noncontributory qualified defined benefit pension plan
covering substantially all of its employees. The Company contributed $8 million
to the plan in 2003. The Company made no contributions during the first nine
months of 2004, and, based on currently available information, does not
anticipate making a contribution during the remainder of 2004. The components of
net pension expense were as follows:
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Three Months Ended Nine Months Ended
September 30 September 30
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(dollars in thousands) 2004 2003 2004 2003
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Service cost for benefits during the period $1,628 $1,326 $4,884 $3,982
Interest cost on benefit obligation 1,639 1,508 4,917 4,523
Expected return on plan assets (2,007) (1,655) (6,020) (4,965)
Amortization of:
Unrecognized net actuarial losses 108 102 324 306
Unrecognized net implementation asset - (70) - (212)
Unrecognized prior service cost (27) (27) (81) (81)
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Net pension expense $1,341 $1,184 $4,024 $3,553
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6
Whitney also has an unfunded nonqualified defined benefit pension plan
that provides retirement benefits to designated executive officers. The net
pension expense for nonqualified plan benefits was approximately $.2 million for
the third quarters of 2004 and 2003 and $.6 million year-to-date in 2004 and $.5
million in the comparable period in 2003.
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. The Company funds its obligations under these plans as
contractual payments come due to health care organizations and insurance
companies.
Whitney recognized a net periodic expense for postretirement benefits
of approximately $.2 million in the third quarter of 2004 and $.5 million in the
third quarter of 2003. Year-to-date expense through September 30 was $1.3
million in 2004 and $1.4 million in 2003. None of the individual components of
the net periodic expense was individually significant for any period.
As discussed in Note 11, Whitney elected to defer recognizing the
impact of the Medicare Prescription Drug, Improvement and Modernization Act of
2003 ("Medicare Drug Act") in its accounting for postretirement health benefits,
pending authoritative guidance on the accounting for the federal subsidy
introduced by the act. This guidance has been issued and was implemented
effective with the quarter ended September 30, 2004. The impact was immaterial.
NOTE 5 - STOCK-BASED INCENTIVE COMPENSATION
Whitney maintains incentive compensation plans that incorporate
stock-based compensation. The plans for both key employees and directors have
been approved by the Company's shareholders, including the new long-term
incentive plan for key employees that was approved at the Company's annual
meeting in April 2004. The new employee plan provides for substantially the same
types of stock-based compensation awards as earlier plans and authorizes the
issuance of up to 2,600,000 Whitney common shares, plus any unused authorized
shares from the most recent prior plan, to satisfy awards.
During June 2004, annual stock-based compensation awards were made
under each of these plans as follows:
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Stock Grants Stock Option Awards
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(dollars in thousands, except per share data) Shares Market Value Shares Exercise Price
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Long-term incentive plan for key employees 163,750 $7,089 442,825 $43.29
Directors' compensation plan 7,200 $322 48,000 $44.75
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Employees forfeit their stock grants if they terminate employment
within three years of the award date and during this period they cannot transfer
or otherwise dispose of the shares received. In addition, the employee grants
can be adjusted based on Whitney's financial performance 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. The directors' shares are awarded without any
significant restrictions and are not subject to adjustment.
7
Compensation expense for stock grants, initially measured as the market
value of the shares awarded on the grant date, is recognized ratably over the
restriction period, if any. The expense for employee grants is re-measured
periodically to reflect changes in the expected performance adjustment and in
the market value of the Company's stock, and any difference from the previous
measurement is recognized prospectively.
The stock options are fixed awards. The exercise price for options is
set at the market price for Whitney's stock on the grant date. All options are
fully exercisable after six months from the grant date and expire after ten
years. Unexercised options can expire earlier if a recipient terminates service
with the Company.
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 incentive
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 had no intrinsic value on the award date, which is also the measurement
date for compensation expense under APB No. 25. The compensation expense
recognized under APB No. 25 for the Company's performance-based restricted stock
grants reflects their fair value, but the timing of when fair value is
determined and the method of allocating expense over time differ in certain
respects from what is required under SFAS No. 123, as amended.
The following shows the effect on net income and earnings per share if
Whitney had applied the provisions of SFAS No. 123 to both measure and recognize
stock-based compensation expense for all awards.
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Three Months Ended Nine Months Ended
September 30 September 30
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(dollars in thousands, except per share data) 2004 2003 2004 2003
- ---------------------------------------------------------------------------------------------------------------
Net income $22,078 $27,502 $70,139 $74,722
Stock-based compensation expense included
in net income, net of related tax effects 1,282 937 4,263 2,779
Stock-based compensation expense determined
under SFAS No. 123, net of related tax effects (981) (803) (7,223) (5,189)
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Pro forma net income $22,379 $27,636 $67,179 $72,312
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Earnings per share:
Basic - as reported $.54 $.69 $1.73 $1.87
Basic - pro forma .55 .69 1.66 1.81
Diluted - as reported .53 .68 1.71 1.85
Diluted - pro forma .54 .68 1.63 1.79
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Weighted-average fair value of options awarded - - $9.96 $6.55
- ---------------------------------------------------------------------------------------------------------------
The fair values of the stock options were estimated as of the grant
dates using the Black-Scholes option-pricing model. The estimated option value
totaled $4.9 million for the 2004 awards and $3.0 million for the 2003 awards.
If expensed, the after-tax impact would have been to reduce net income by $4.2
million in 2004 and $2.6 million in 2003. The full impact for each
8
year is reflected in year-to-date pro forma information in the table above. The
Company made the following significant assumptions in applying the option-
pricing model: (a) a weighted-average expected annualized volatility for
Whitney's common stock of 24.97% in 2004 and 25.55% in 2003; (b) a weighted-
average option life of 6.86 years in 2004 and 7.00 years in 2003; (c) an
expected annual dividend yield of 3.23% in 2004 and 3.56% in 2003; and (d) a
weighted-average risk-free interest rate of 4.44% in 2004 and 3.01% in 2003.
NOTE 6 - 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 Whitney's
financial condition, results of operations or cash flows.
NOTE 7 - OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS AND DERIVATIVES
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 guarantees under standby and other
letters of credit. 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 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. The
majority of standby letters of credit at September 30, 2004 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
letters of credit may, and many times do, expire without being drawn upon,
however, the contractual amounts should not be understood to represent expected
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
securities, accounts receivable, inventory, property, plant and equipment, and
income-producing commercial property.
A summary of off-balance-sheet financial instruments follows:
- -------------------------------------------------------------------------------------
September 30 December 31
(dollars in thousands) 2004 2003
- -------------------------------------------------------------------------------------
Commitments to extend credit - revolving $1,581,841 $1,410,555
Commitments to extend credit - nonrevolving 422,763 355,076
Credit card and related lines 430,143 388,902
Standby and other letters of credit 328,306 292,558
- -------------------------------------------------------------------------------------
9
NOTE 8 - EARNINGS PER SHARE
The components used to calculate basic and diluted earnings per share
were as follows:
- ---------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
- ---------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2004 2003 2004 2003
- ---------------------------------------------------------------------------------------------------------------
Numerator:
Net income $22,078 $27,502 $70,139 $74,722
Effect of dilutive securities - - - -
- ---------------------------------------------------------------------------------------------------------------
Numerator for diluted earnings per share $22,078 $27,502 $70,139 $74,722
- ---------------------------------------------------------------------------------------------------------------
Denominator:
Weighted-average shares outstanding 40,969,394 39,993,350 40,490,366 39,882,839
Effect of potentially dilutive securities
and contingently issuable shares 581,630 389,697 641,462 437,595
- ---------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share 41,551,024 40,383,047 41,131,828 40,320,434
- ---------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $.54 $.69 $1.73 $1.87
Diluted .53 .68 1.71 1.85
- ---------------------------------------------------------------------------------------------------------------
Antidilutive stock options 488,450 162,750 164,005 463,824
- ---------------------------------------------------------------------------------------------------------------
NOTE 9 - STOCK REPURCHASE PROGRAM
In October 2004, the Board of Directors authorized the Company to
repurchase up to 1.75 million shares of its common stock. This represents
approximately 4.2% of shares outstanding as of September 30, 2004. The
repurchase program is authorized for one year, beginning October 27, 2004.
NOTE 10 - COMPREHENSIVE INCOME
Comprehensive income for a period encompasses net income and all other
changes in a company's equity other than from transactions with its owners.
Whitney's comprehensive income was as follows:
- -------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2004 2003 2004 2003
- -------------------------------------------------------------------------------------------------------------
Net income $22,078 $27,502 $70,139 $74,722
Other comprehensive income:
Unrealized holding gain (loss) on securities,
net of reclassification adjustments and taxes 20,837 (12,535) (8,207) (15,648)
- -------------------------------------------------------------------------------------------------------------
Comprehensive income $42,915 $14,967 $61,932 $59,074
- -------------------------------------------------------------------------------------------------------------
NOTE 11 - ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board ("FASB")
issued a revised version of SFAS No. 132. This revised statement added to the
annual disclosures about pensions and other postretirement benefits that were
required by the original statement issued in 1997. With certain limited
exceptions, the added annual disclosures were effective as of December 31, 2003.
The revised statement also introduced a requirement for certain interim
disclosures that are included
10
in Note 4. Both the original and the revised statements address disclosure only
and do not address accounting measurement or recognition for benefit
obligations.
Also related to postretirement benefits, the FASB issued staff
positions in January and May of 2004 in response to certain accounting issues
raised by the enactment of the Medicare Drug Act. The most significant issue
concerned how and when to account for the federal subsidy to plan sponsors that
is provided for in the act. As allowed for in the initial staff position,
Whitney elected to defer recognizing the impact of this new legislation in its
accounting for postretirement health benefits until authoritative guidance on
the accounting for the federal subsidy was issued. The staff position issued in
May provided the authoritative guidance that was effective for the Company's
third quarter of 2004. The impact of applying this guidance was immaterial.
The SEC issued Staff Accounting Bulletin ("SAB") 105 in early March
2004 to communicate its view that the fair value recognized for a loan
commitment accounted for as a derivative instrument should not incorporate
expected cash flows related to servicing. The provisions of SAB 105 must be
applied to loan commitments entered into after March 31, 2004. Applying the
guidance in SAB 105 did not impact Whitney's financial condition or results of
operations.
The Emerging Issues Task Force reached a consensus in March 2004 on a
model to be used to determine if the impairment of certain debt and equity
securities and cost method investments should be considered other than temporary
and an impairment loss recognized. The model was to be applied prospectively in
interim or annual reporting periods beginning after June 15, 2004. In September
2004, the FASB proposed additional implementation guidance and delayed the
effective date for applying the model until the proposed guidance is finalized.
The eventual impact of applying this model on Whitney's financial condition or
results of operations cannot be determined until the final guidance is released.
In December 2003, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 03-3 to address the accounting
for differences between contractual cash flows and expected cash flows from
loans or debt securities acquired in a transfer if those differences are
attributable, at least in part, to credit quality. This SOP prohibits the
"carrying over" or creation of valuation allowances in the initial accounting
for all acquired loans that are within its scope. It also specifies how these
differences impact the yield subsequently recognized on these loans. SOP 03-3 is
effective for loans acquired in fiscal years beginning after December 31, 2004
and does not change the accounting for loans previously acquired.
11
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
Nine Months Ended
Third Second Third September 30
Quarter Quarter Quarter ----------------------------
(dollars in thousands, except per share data) 2004 2004 2003 2004 2003
- ----------------------------------------------------------------------------------------------------------------------
QUARTER-END BALANCE SHEET DATA
Total assets $8,072,040 $7,789,126 $7,310,341 $8,072,040 $7,310,341
Earning assets 7,463,380 7,221,846 6,747,540 7,463,380 6,747,540
Loans 5,380,023 5,139,549 4,669,536 5,380,023 4,669,536
Investment securities 2,042,615 2,063,826 1,972,175 2,042,615 1,972,175
Deposits 6,490,808 6,340,782 5,964,257 6,490,808 5,964,257
Shareholders' equity 919,999 842,724 831,045 919,999 831,045
- ----------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET DATA
Total assets $7,882,497 $7,782,108 $7,293,393 $7,795,897 $7,187,081
Earning assets 7,309,316 7,253,932 6,772,338 7,246,325 6,670,593
Loans 5,231,828 5,069,304 4,620,970 5,069,875 4,549,576
Investment securities 2,052,769 2,149,211 1,974,230 2,148,849 1,982,290
Deposits 6,440,765 6,248,685 5,949,378 6,270,394 5,870,668
Shareholders' equity 882,744 862,016 822,678 866,804 819,578
- ----------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Interest income $90,472 $85,665 $83,856 $262,677 $254,278
Interest expense 10,286 9,306 9,573 28,942 34,679
Net interest income 80,186 76,359 74,283 233,735 219,599
Net interest income (TE) 81,725 77,869 75,696 238,265 223,769
Provision for loan losses - 2,000 (4,000) - (3,500)
Noninterest income 20,053 21,391 23,538 62,351 68,159
Net securities gains in noninterest income 68 - 863 68 863
Noninterest expense 68,261 64,272 61,332 194,559 181,271
Net income 22,078 21,903 27,502 70,139 74,722
- ----------------------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets 1.11% 1.13% 1.50% 1.20% 1.39%
Return on average shareholders' equity 9.95 10.22 13.26 10.81 12.19
Net interest margin 4.46 4.31 4.45 4.39 4.48
Average loans to average deposits 81.23 81.13 77.67 80.85 77.50
Efficiency ratio 67.11 64.75 62.35 64.73 62.28
Allowance for loan losses to loans 1.02 1.10 1.31 1.02 1.31
Nonperforming assets to loans plus foreclosed assets
and surplus property .53 .68 .73 .53 .73
Net annualized charge-offs to average loans .33 .25 .07 .19 .04
Average shareholders' equity to average assets 11.20 11.08 11.28 11.12 11.40
Shareholders' equity to total assets 11.40 10.82 11.37 11.40 11.37
Leverage ratio 10.05 10.03 10.04 10.05 10.04
- ----------------------------------------------------------------------------------------------------------------------
COMMON SHARE DATA
Earnings Per Share
Basic $.54 $.54 $.69 $1.73 $1.87
Diluted .53 .53 .68 1.71 1.85
Dividends
Cash dividends per share $.33 $.33 $.30 $.99 $.90
Dividend payout ratio 62.74% 61.48% 44.01% 58.04% 48.50%
Book Value Per Share $21.92 $20.65 $20.59 $21.92 $20.59
Trading Data
High price $45.18 $44.79 $35.74 $45.18 $35.74
Low price 39.90 39.52 31.94 39.52 31.62
End-of-period closing price 42.00 44.67 34.00 42.00 34.00
Trading volume 4,828,742 3,328,548 5,300,892 11,645,889 19,847,169
Average Shares Outstanding
Basic 40,969,394 40,304,997 39,993,350 40,490,366 39,882,839
Diluted 41,551,024 40,978,580 40,383,047 41,131,828 40,320,434
- ----------------------------------------------------------------------------------------------------------------------
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
securities transactions.
12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to focus on significant
changes in the financial condition of Whitney Holding Corporation and its
subsidiaries (the "Company" or "Whitney") from December 31, 2003 to September
30, 2004 and on their results of operations during the third quarters of 2004
and 2003 and during the nine-month periods through September 30 in each year.
Nearly 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 quarterly
report on Form 10-Q, particularly the consolidated financial statements and
related notes in Item 1. This discussion and analysis should be read in
conjunction with the Company's 2003 annual report on Form 10-K.
Certain financial information for prior periods has been reclassified
to conform to the current presentation.
FORWARD-LOOKING STATEMENTS
This discussion contains "forward-looking statements" within the
meaning of section 27A of the Securities Act of 1933, as amended, and section
21E of the Securities Exchange Act of 1934, as amended. Such statements include,
but may not be limited to, those regarding (a) changes in the duration of the
investment portfolio with changes in market rates, (b) the future level of funds
available in the customer deposit base, (c) the results of net interest income
simulations run by the Company to measure interest rate sensitivity, (d) the
performance of Whitney's net interest income and net interest margin assuming
certain future conditions, (e) possible future levels of income from secondary
mortgage market operations, and (f) expected increases in certain categories of
noninterest expense.
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 or revise any
forward-looking statement included in this discussion, whether as a result of
new information, future events or developments, or for any other reason.
13
OVERVIEW
Whitney earned $22.1 million for the quarter ended September 30, 2004,
or $.54 per basic share and $.53 per diluted share. Several significant expense
items, which are discussed in more detail below and in the discussion of the
results of operations, impacted the results for the period. These items totaled
approximately $2.7 million pretax ($1.8 million after tax or $.04 per share).
For the third quarter of 2003, Whitney reported net income of $27.5 million, or
$.69 per basic share and $.68 per diluted share, including the positive impact
of a $4 million pretax negative provision for loan losses ($2.6 million after
tax or $.07 per share). Year-to-date earnings of $70.1 million in 2004 were 6%
below the comparable period in 2003. Year-to-date per share earnings were $1.73
per basic share and $1.71 per diluted share in 2004, each approximately 8% lower
than in 2003.
Selected third quarter highlights follow:
o Earning assets in the third quarter of 2004 were on average 8%
higher than in 2003's third quarter. Average total loans,
excluding loans originated for sale, have grown consistently
throughout 2003 and 2004 and were up 13% in the current year's
third quarter compared to the year-earlier period. The acquisition
of Madison Bank in August 2004 contributed approximately 2% to the
growth in average loans. The growth in earning assets compared to
the third quarter of 2003 was largely matched by 8% growth in
average deposits, approximately 2% of which was related to the
Madison Bank acquisition and a branch acquisition in 2004's second
quarter.
o Whitney's net interest income (TE) for the third quarter of 2004
increased $6.0 million, or 8%, compared to the third quarter of
2003, consistent with the growth in average earning assets. The
net interest margin (TE) was 4.46% for the third quarter of 2004,
slightly higher than the year-earlier period.
o Whitney made no provision for loan losses in the third quarter of
2004. There was a $4 million negative provision in the third
quarter of 2003. Net-charge offs totaled $4.3 million in the third
quarter of 2004, compared to $.8 million in the third quarter of
2003. Charge-offs and collections during the third quarter of 2004
led to a $6.9 million reduction in nonperforming loans from the
end of 2004's second quarter, and the loss allowance required for
impaired loans decreased $4.1 million over this period.
o Noninterest income decreased 15%, or $3.5 million, from the third
quarter of 2003. Fee income from Whitney's secondary mortgage
market operations was down $2.2 million as a marked slowdown in
refinancings led to a sharp reduction in production compared to
the third quarter of 2003. There was also a $.8 million decrease
in gains realized on securities transactions.
o Noninterest expense increased 11%, or $6.9 million, from 2003's
third quarter. Several significant expense items impacted the most
recent quarter, including a $1.6 million loss on the abandonment
of certain noncancelable facility leases, $.5 million in costs to
convert Madison Bank's systems, and a $.6 million casualty loss
for hurricane damage. Storm-related disruptions to banking
operations were minimal. These items and other incremental costs
associated with Madison Bank operations totaled nearly half of the
overall increase in noninterest expense. Personnel expense was up
5%, or $1.7 million, in total, including $.4 million associated
with Madison Bank.
14
FINANCIAL CONDITION
LOANS, CREDIT RISK MANAGEMENT AND ALLOWANCE FOR LOAN LOSSES
Loan Portfolio Developments
Total loans increased $497 million, or 10%, from year-end 2003 to the
end of 2004's third quarter, and were up 15%, or $710 million, from the end of
2003's third quarter. Approximately $189 million of loans was acquired with
Madison Bank in the third quarter of 2004. The loan portfolio has grown
consistently throughout 2003 and 2004, although the rate of internal growth
slowed somewhat in the most recent quarterly period. New customer development
and demand from Whitney's established customer base for commercial, commercial
real estate and real estate construction loans has accounted for most of the
increase. Table 1, which is based on regulatory reporting codes for banks, shows
loan balances at September 30, 2004 and at the end of the four prior quarters.
TABLE 1. LOANS
- ---------------------------------------------------------------------------------------------------------------
2004 2003
- ------------------------------------------------------------------------------ -------------------------------
(dollars in thousands) September 30 June 30 March 31 December 31 September 30
- ---------------------------------------------------------------------------------------------------------------
Commercial, financial and
agricultural $2,263,882 $2,276,942 $2,203,213 $2,213,207 $2,041,629
Real estate - commercial,
construction and other 2,104,184 1,882,044 1,821,445 1,726,212 1,705,289
Real estate -
residential mortgage 684,303 658,187 628,331 619,869 610,795
Individuals 327,654 322,376 331,176 323,322 311,823
- ---------------------------------------------------------------------------------------------------------------
Total loans $5,380,023 $5,139,549 $4,984,165 $4,882,610 $4,669,536
- ---------------------------------------------------------------------------------------------------------------
The portfolio of commercial loans, other than those secured by real
property, increased 2%, or $51 million, between year-end 2003 and September 30,
2004. This portfolio sector grew 11%, or $222 million, from the end of 2003's
third quarter. The Madison Bank acquisition had little impact on this portfolio
segment. Overall the portfolio has remained diversified, with customers in a
wide range of industries, including oil and gas exploration and production,
marine transportation, wholesale and retail trade in and the manufacture of
various durable and nondurable products, financial services, and professional
services. 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. There have
been no major trends or changes in the concentration mix of this portfolio
category from year-end 2003.
Loans outstanding to oil and gas industry customers totaled $483
million, or approximately 9% of total loans at the end of 2004's third quarter,
down from 10% at year-end 2003. The total at September 30, 2004 was up $66
million from the end of the year-earlier quarter. The major portion of Whitney's
customer base provides transportation and other services and products to support
exploration and production activities, although market conditions have increased
lending opportunities in the exploration and production sector.
Outstanding balances under participations in larger shared-credit loan
commitments totaled $346 million at the end of 2004's third quarter, including
approximately $121 million related to the oil and gas industry. Substantially
all such shared credits are with customers operating in Whitney's market area.
15
The commercial real estate portfolio, which includes construction loans
and loans secured by properties used in commercial or industrial operations,
grew 22%, or $378 million, from December 31, 2003, and has increased 23%, or
$399 million, since the end of the third quarter of 2003. $222 million of this
growth occurred in the third quarter of 2004, almost two-thirds of which related
to the Madison Bank acquisition. Whitney has been able to develop new business
in this highly competitive market, including increased activity at its Houston
operations, and the Company continues to finance new projects for its
well-established customer base.
The residential mortgage loan portfolio has shown moderate growth
beginning with the fourth quarter of 2003. Whitney has increased the promotion
of tailored mortgage products that are held in the portfolio, although it
continues to sell most conventional residential mortgage loan production in the
secondary market. The Madison Bank acquisition accounted for most of the growth
in this portfolio segment during the third quarter of 2004.
Credit Risk Management and Allowance for Loan Losses
Whitney manages credit risk mainly through adherence to consistent
underwriting and loan administration standards established by its Credit Policy
Committee and through the efforts of the credit administration function to
ensure consistent application and monitoring of standards throughout the
Company. Lending officers are responsible for ongoing monitoring and the
assignment of risk ratings to individual loans based on established guidelines.
An independent credit review function reporting to the Audit Committee of the
Board of Directors assesses the accuracy of officer ratings and the timeliness
of rating changes and performs concurrent reviews of the underwriting process.
Management's evaluation of credit risk in the loan portfolio is
ultimately reflected in the estimate of probable losses inherent in the
portfolio 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 expense. The methodology
for determining the allowance involves significant judgment, and important
factors that influence this judgment are re-evaluated quarterly to respond to
changing conditions.
The recorded allowance encompasses three elements: (1) allowances
established for losses on criticized loans; (2) allowances based on historical
loss experience for loans with acceptable credit quality; and (3) allowances
based on general economic conditions and other qualitative risk factors internal
and external to the Company.
Criticized loans are credits with above-average weaknesses as
identified through the internal risk-rating process. The total of criticized
loans would have decreased approximately $7 million during the third quarter of
2004 absent the impact of the Madison Bank acquisition. Including Madison Bank's
loans, the total of criticized loans at September 30, 2004 was up $11 million
from June 30, 2004. No Madison Bank loans were rated as having doubtful
prospects for full repayment, and the total of loans classified as doubtful
decreased $5 million for the third quarter of 2004, to $18 million at quarter
end. This reduction included a $3.2 million charge-off from one commercial
credit that had been first identified as impaired in the second quarter of 2004
after unexpected developments. Charge-offs and collections also led to a $7
million decrease in the total of nonperforming loans from the end of 2004's
second quarter, as shown in Table 2. There were no significant additions to
loans rated doubtful or to nonperforming loans during the most recent quarter.
Loans rated as having well-defined weaknesses that would likely result in some
loss if not corrected increased $4 million during the third quarter of 2004, to
16
a total of $83 million at quarter end. Loans warranting special attention
totaled $73 million at the end of the current quarter, up $12 million from June
30, 2004.
TABLE 2. NONPERFORMING ASSETS
- --------------------------------------------------------------------------------------------------------------
2004 2003
- ------------------------------------------------------------------------------------- ------------------------
September June March December September
(dollars in thousands) 30 30 31 31 30
- --------------------------------------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis $25,659 $32,560 $25,095 $26,776 $30,533
Restructured loans 61 74 98 114 215
- --------------------------------------------------------------------------------------------------------------
Total nonperforming loans 25,720 32,634 25,193 26,890 30,748
Foreclosed assets and surplus property 2,950 2,450 2,812 3,490 3,255
- --------------------------------------------------------------------------------------------------------------
Total nonperforming assets $28,670 $35,084 $28,005 $30,380 $34,003
- --------------------------------------------------------------------------------------------------------------
Loans 90 days past due still accruing $4,814 $2,986 $3,653 $3,385 $2,725
- --------------------------------------------------------------------------------------------------------------
Ratios:
Nonperforming assets to loans
plus foreclosed assets and surplus property .53% .68% .56% .62% .73%
Allowance for loan losses to
nonperforming loans 212.33 172.97 228.65 221.18 199.69
Loans 90 days past due still accruing to
loans .09 .06 .07 .07 .06
- --------------------------------------------------------------------------------------------------------------
TABLE 3. SUMMARY OF ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES
- ---------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
- ---------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2004 2003 2004 2003
- ---------------------------------------------------------------------------------------------------------------
Balance at the beginning of period $56,447 $66,243 $59,475 $66,115
Allowance of acquired banks 2,461 - 2,461 -
Provision for loan losses charged to operations - (4,000) - (3,500)
Loans charged to the allowance:
Commercial, financial and agricultural (4,369) (1,241) (8,030) (6,059)
Real estate - commercial, construction and other (72) (396) (248) (694)
Real estate - residential mortgage (238) (209) (486) (532)
Individuals (637) (582) (2,045) (1,999)
- ---------------------------------------------------------------------------------------------------------------
Total charge-offs (5,316) (2,428) (10,809) (9,284)
- ---------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial, financial and agricultural 601 429 2,063 1,563
Real estate - commercial, construction and other 30 652 95 3,291
Real estate - residential mortgage 75 33 178 1,780
Individuals 313 472 1,148 1,436
- ---------------------------------------------------------------------------------------------------------------
Total recoveries 1,019 1,586 3,484 8,070
- ---------------------------------------------------------------------------------------------------------------
Net charge-offs (4,297) (842) (7,325) (1,214)
- ---------------------------------------------------------------------------------------------------------------
Balance at the end of period $54,611 $61,401 $54,611 $61,401
- ---------------------------------------------------------------------------------------------------------------
Ratios:
Net annualized charge-offs to average loans .33% .07% .19% .04%
Gross annualized charge-offs to average loans .41 .21 .28 .27
Recoveries to gross charge-offs 19.17 65.32 32.23 86.92
Allowance for loan losses to loans at period end 1.02 1.31 1.02 1.31
- ---------------------------------------------------------------------------------------------------------------
17
The allowance for criticized loans considered impaired under SFAS No.
114 decreased $4.1 million during the third quarter of 2004, although the net
impact of all changes in criticized loans was to reduce the corresponding
allowance by $2.9 million for the period. The overall allowance for loan losses
determined as of September 30, 2004 was $1.8 million lower than the level at
June 30, 2004. Management's regular quarterly reassessment of loss experience
factors and the consideration of general economic and other qualitative risk
factors had a minimal impact. The $188 million in total loans acquired with
Madison Bank carried a $2.5 million allowance for loan losses.
Table 3 compares third quarter and year-to-date activity in the
allowance for loan losses for 2004 with the comparable periods of 2003. There
have been no significant trends related to industries or markets underlying the
Company's charge-off and recovery activity or the changes in its nonperforming
assets.
INVESTMENT SECURITIES
The portfolio of investment securities was maintained at a fairly
stable level during most of 2003 as funds from deposit growth and reductions in
liquidity investments and other earning assets were available to support steady
loan growth. Toward the end of 2003, management executed a strategy, in response
to market conditions, to invest in advance of the paydowns and prepayments on
securities expected in 2004, and the portfolio increased $309 million during the
fourth quarter of 2003. This strategy has been unwinding as planned during 2004,
and the portfolio total of $2.04 billion at September 30, 2004 was down 10%, or
$239 million, compared to December 31, 2003, with proceeds supporting loan
growth. The average investment securities portfolio in the third quarter of 2004
was up 4%, or $79 million, from the year-earlier period.
The composition of the average portfolio and effective yields are shown
in Table 7. Whitney has increased the proportion of both mortgage-backed
securities and state and municipal obligations in the portfolio, and the
duration of the portfolio increased to 3.2 years at both September 30, 2004 and
year-end 2003 from 2.9 years at September 30, 2003. The duration of the
portfolio at September 30, 2004 would extend to 3.8 years assuming an immediate
300 basis point increase in market rates, according to the Company's
asset/liability management model. Duration provides a measure of the sensitivity
of the portfolio's fair value to changes in interest rates.
Securities available for sale constituted 89% of the total investment
portfolio at September 30, 2004. There was a minor net unrealized loss on this
portfolio segment at quarter end. At year-end 2003, there was a net unrealized
gain of $13 million, largely concentrated in 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, movement in spreads to the yield curve
for different types of securities, and changing expectations about the timing of
cash flows on securities that can be prepaid.
Management monitors securities that are subject to possible credit
deterioration, such as obligations of states and political subdivisions, for
signs that contractual obligations may not be met and that there may be value
impairment that is other than temporary. If such impairment is identified, the
carrying amount of the security is reduced with a charge to operations. No
impairment losses were recognized in the first nine months of 2004 or 2003.
18
The Company does not normally maintain a trading portfolio, other than
holding 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.
DEPOSITS AND BORROWINGS
Deposits at September 30, 2004 were up 5%, or $332 million, from the
level at year-end 2003. Compared to September 30, 2003, deposits were up 9%, or
$527 million. Deposits at the locations acquired with Madison Bank in August
2004 and the branch purchase in June 2004 contributed approximately 3% to each
of these growth rates. Short-term and other borrowings decreased 2%, or $11
million, from year-end 2003, but were up 31%, or $139 million, compared to the
year-earlier quarter.
Continued demand for deposit products and appropriate deposit-pricing
strategies helped maintain a favorable mix of deposits through the first nine
months of 2004. Table 4 presents the composition of deposits at September 30,
2004 and at the end of the previous four quarters.
TABLE 4. DEPOSITS
- ---------------------------------------------------------------------------------------------------------------
2004 2003
- ------------------------------------------------------------------------------ -------------------------------
(dollars in thousands) September 30 June 30 March 31 December 31 September 30
- ---------------------------------------------------------------------------------------------------------------
Noninterest-bearing
demand deposits $2,008,634 $1,952,420 $1,937,379 $1,943,248 $1,815,163
NOW account deposits 818,677 823,298 860,650 827,360 708,682
Money market deposits 1,353,702 1,343,645 1,373,574 1,396,420 1,407,112
Savings deposits 691,402 644,783 620,087 585,943 564,322
Other time deposits 729,410 715,594 730,186 745,478 773,321
Time deposits $100,000
and over 888,983 861,042 776,514 660,133 695,657
- ---------------------------------------------------------------------------------------------------------------
Total deposits $6,490,808 $6,340,782 $6,298,390 $6,158,582 $5,964,257
- ---------------------------------------------------------------------------------------------------------------
The deposits from recent acquisitions accounted for most of the 3%, or
$119 million, growth in total lower-cost deposits from year-end 2003. Lower-cost
deposits, which exclude time deposits, were 8%, or $377 million, higher than the
end of the third quarter of 2003, with noninterest-bearing demand deposits up
11% and deposits in lower-cost interest-bearing products up 7%. Lower-cost
deposits remained at approximately three-quarters of total deposits over this
period, and noninterest-bearing demand deposits were steady at close to 31% of
total deposits.
Higher-cost time deposits were up 15%, or $213 million, from year-end
2003, and have increased 10%, or $149 million from the end of 2003's third
quarter. Acquired deposits contributed $69 million to these totals, including
approximately $28 million of time deposits of $100,000 and over. The increase in
time deposits of $100,000 and over in 2004 also reflected the addition of
competitively bid public funds and temporary excess funds of certain larger
commercial customers, partly as an alternative to other short-term borrowings.
Public fund time deposits totaled $194 million at September 30, 2004, up $103
million from year-end 2003 and $97 million from September 30, 2003. Public funds
also factored into the fluctuations in NOW deposits from the third quarter of
2003 through the end of 2004's second quarter. The Bank received an unexpected
$80 million commercial deposit at the end of 2004's first quarter that was held
briefly in a NOW account.
19
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
Shareholders' equity totaled $920 million at September 30, 2004, which
represented an increase of $80 million from the end of 2003. The 1.03 million
shares issued in the acquisition of Madison BancShares, Inc. in August 2004 were
valued at $42 million. During the first nine months of 2004, Whitney retained
$29 million of earnings, net of dividends declared, and recognized $15 million
in additional equity from activity in stock-based compensation plans for
employees and directors, including option exercises. There was an $8 million
decrease in other comprehensive income for the first nine months of 2004
representing an unrealized net holding loss on securities available for sale.
The Company paid 58% of its earnings for the first nine months of 2004 in
dividends, up from the 50% payout ratio for the full year in 2003.
The ratios in Table 5 indicate that the Company remained strongly
capitalized at September 30, 2004. The increase in risk-weighted assets since
year-end 2003 resulted mainly from an increase in loans, including those
acquired with Madison Bank, and, to a lesser degree, from growth in
off-balance-sheet obligations, such as loan facilities and letters of credit,
which are converted to assets for the risk-based capital calculations. Goodwill
and other intangible assets recognized in business acquisitions are excluded
from risk-weighted assets. These intangible assets, however, are also deducted
in determining regulatory capital and serve to offset the addition to capital
for the value of shares issued as consideration for the acquisition.
TABLE 5. RISK-BASED CAPITAL AND CAPITAL RATIOS
- --------------------------------------------------------------------------------------------
September 30 December 31
(dollars in thousands) 2004 2003
- --------------------------------------------------------------------------------------------
Tier 1 regulatory capital $778,155 $739,236
Tier 2 regulatory capital 54,611 59,475
- --------------------------------------------------------------------------------------------
Total regulatory capital $832,766 $798,711
- --------------------------------------------------------------------------------------------
Risk-weighted assets $6,285,540 $5,777,094
- --------------------------------------------------------------------------------------------
Ratios
Leverage (Tier 1 capital to average assets) 10.05% 10.13%
Tier 1 capital to risk-weighted assets 12.38 12.80
Total capital to risk-weighted assets 13.25 13.83
Shareholders' equity to total assets 11.40 10.84
- --------------------------------------------------------------------------------------------
The regulatory capital ratios for the 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.
LIQUIDITY MANAGEMENT AND CONTRACTUAL OBLIGATIONS
Liquidity Management
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. Whitney develops its liquidity management strategies
and measures and monitors liquidity risk as part of its overall asset/liability
management process.
On the liability side, liquidity management focuses on growing the base
of 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
20
above on Deposits and Borrowings discusses changes in these liability funding
sources in the third quarter of 2004. Liquidity management on the asset side
primarily addresses the composition and maturity structure of the loan and
investment securities portfolios and their impact on the Company's ability to
generate cash flows.
Cash generated from operations is another important source of funds to
meet liquidity needs. The consolidated statements of cash flows present
operating cash flows and summarize all significant sources and uses of funds for
the first nine months of 2004 and 2003.
As noted earlier, continued high levels of funds available in the
Bank's customer deposit base helped support increased loan production and
overall growth in earning assets during 2003 and into the third quarter of 2004.
Management anticipates that some of this funds availability will moderate with
increased economic activity, renewed confidence in the capital markets and
rising market interest rates and has factored this possibility into its
liquidity projections and modeling parameters.
At September 30, 2004, Whitney Holding Corporation had approximately
$161 million in cash and demand notes from the Bank available to provide
liquidity for acquisitions, dividend payments to shareholders, stock
repurchases, or other corporate uses, before consideration of any future
dividends that may be received from the Bank. In October 2004, the Board of
Directors authorized the Company to repurchase up to 1.75 million shares of its
common stock over a one-year period beginning October 27, 2004. Based on
Whitney's closing stock price at September 30, 2004, the total cash outlay to
complete the repurchase program would be approximately $74 million. In October
2004, Whitney announced an agreement to acquire Destin Bancshares, Inc. for
stock and cash in a transaction expected to close in the first half of 2005. The
cash component of the purchase price will total approximately $58 million.
Contractual Obligations
Payments due from the Company and the Bank under specified long-term
and certain other binding contractual obligations were scheduled in Whitney's
annual report on 10-K for the year ended December 31, 2003. The most significant
obligations, other than obligations under deposit contracts and short-term
borrowings, were for operating leases for banking facilities. The Company and
the Bank have no significant long-term borrowings. There have been no material
changes in contractual obligations from year-end 2003 through the end of 2004's
third quarter.
OFF-BALANCE SHEET ARRANGEMENTS
As a normal part of it business, the Company enters into arrangements
that create financial obligations that are not recognized, wholly or in part, in
the consolidated financial statements. The most significant off-balance-sheet
obligations are the Bank's commitments under traditional credit-related
financial instruments. Table 6 schedules these commitments as of September 30,
2004 by the periods in which they expire. Commitments under credit card and
personal credit lines generally have no stated maturity.
21
TABLE 6. CREDIT-RELATED COMMITMENTS
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands) Commitments expiring by period from September 30, 2004
- ----------------------------------------------------------------------------------------------------------------
Less than 1 - 3 3 - 5 More than
Total 1 year years years 5 years
- ----------------------------------------------------------------------------------------------------------------
Loan commitments - revolving $1,581,841 $1,183,813 $262,502 $134,787 $739
Loan commitments - nonrevolving 422,763 199,964 222,799 - -
Credit card and personal credit lines 430,143 430,143 - - -
Standby and other letters of credit 328,306 256,317 71,989 - -
- ----------------------------------------------------------------------------------------------------------------
Total $2,763,053 $2,070,237 $557,290 $134,787 $739
- ----------------------------------------------------------------------------------------------------------------
Revolving loan commitments are issued to support commercial activities.
The availability of funds under revolving loan commitments generally depends on
whether the borrower continues to meet credit standards established in the
underlying contract. Many such commitments are used only partially or not at all
before they expire. Credit card and personal credit lines are generally subject
to cancellation if the borrower's credit quality deteriorates, and many lines
remain partly or wholly unused. Unfunded balances on revolving loan commitments
and credit lines should not be used to project actual future liquidity
requirements. Nonrevolving loan commitments are issued mainly to provide
financing for the acquisition and construction of real property, both commercial
and residential, although many are not expected to lead to permanent financing
by the Bank. Expectations about the level of draws under all credit-related
commitments are incorporated into the Company's liquidity and asset/liability
management models.
Substantially all of the letters of credit 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' other commercial or
public financing arrangements and to help them demonstrate financial capacity to
vendors. The Bank has historically had minimal calls to perform under standby
agreements.
ASSET/LIABILITY MANAGEMENT
The objective of the Company's asset/liability management is to
implement strategies for the funding and deployment of its financial resources
that are expected to maximize soundness and profitability over time at
acceptable levels of risk.
Interest rate sensitivity is the potential impact of changing rate
environments on both net interest income and cash flows. The Company measures
interest rate sensitivity primarily by running net interest income simulations.
The net interest income simulations run at the end of 2004's third quarter
indicated that Whitney continued to be moderately asset sensitive over the near
term, similar to its position at year-end 2003. Based on these simulations,
annual net interest income (TE) would be expected to increase $17.1 million, or
5.1%, and decrease $26.6 million, or 7.9%, if interest rates instantaneously
increased or decreased, respectively, from current rates by 100 basis points.
These changes are measured against the results of a base simulation run that
uses current growth forecasts and assumes a stable rate environment and
structure. The comparable simulation run at year-end 2003 produced results that
ranged from a positive impact on net interest income (TE) of $14.7 million, or
4.7%, to a negative impact of $15.4 million, or 5.0%. The actual impact that
changes in interest rates have on net interest income will depend on many
factors. These include Whitney's ability to achieve growth in earning assets and
maintain a desired mix of
22
earning assets and interest-bearing liabilities, the actual timing when assets
and liabilities reprice, the magnitude of interest rate changes, interest rate
spreads and the level of success of asset/liability management strategies
implemented.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Whitney's net interest income (TE) increased $6.0 million, or 8%, in
the third quarter of 2004 compared to the third quarter of 2003, consistent with
the growth in average earning assets between these periods. Third quarter net
interest income (TE) in 2004 was $3.9 million, or 5%, higher than in the current
year's second quarter on average earning asset growth of 1%.
As noted earlier, Whitney is moderately asset sensitive, which implies
that its net interest margin would tend to widen in a rising rate environment,
holding other factors constant, but tend to compress in a declining rate
environment. The net interest margin (TE) is net interest income (TE) as a
percent of average earning assets. Whitney's net interest margin (TE) was 4.46%
in 2004's third quarter, slightly higher than the year-earlier quarter, and up
15 basis points from 2004's second quarter. Tables 7 and 8 provide details on
the components of the Company's net interest income (TE) and net interest margin
(TE).
The overall yield on average earning assets for the third quarter of
2004 was unchanged from the third quarter of 2003, but has improved 18 basis
points from 2004's second quarter, reflecting both rising benchmark rates for
the significant variable-rate segment of Whitney's loan portfolio and an
increase in the percentage of loans in the earning asset mix. A further shift to
variable pricing within the loan portfolio and the concentration of loan growth
in high-quality commercial credits contributed to a 10 basis point decline in
loan yields between the third quarters of 2003 and 2004. This trend also
positioned the portfolio for more rapid yield improvement with rising short-term
market interest rates, as was evident in the 21 basis point increase in loan
yields from the second to the third quarter of 2004. The addition of the Madison
Bank portfolio in the third quarter of 2004 also had a small favorable impact on
loan yields. The yield on the largely fixed-rate investment portfolio is less
responsive to changes in market rates and the overall investment portfolio yield
has fluctuated within a narrow range from the third quarter of 2003 through the
current year's third quarter.
There was a moderate favorable shift in the earning asset mix in the
third quarter of 2004, prompted in part by the Madison Bank acquisition. Average
loans, including loans held for sale, increased to 72% of total earning assets
from 69% in the third quarter of 2003 and 70% in 2004's second quarter.
Investment securities were 28% of average earning assets in the most recent
quarter, down slightly from 29% in the year-earlier period and 30% in the second
quarter of 2004.
Funding costs for the third quarter of 2004 were on the whole little
changed from both the third quarter of 2003 and 2004's second quarter. The
overall cost of interest-bearing deposits decreased 3 basis points compared to
the third quarter of 2003 and was up 6 basis points from 2004's second quarter.
The rate on time deposits in 2004's third quarter was down 17 basis points from
the year-earlier period, but was 10 basis points higher than in the second
quarter of 2004. The recent increase mainly reflects a higher level of public
funds deposits and the cost of deposits acquired with Madison Bank. The overall
rate on other interest-bearing deposits was relatively stable, having risen only
3 basis points between the third quarters of 2003 and 2004.
23
TABLE 7. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME(TE)(a) AND INTEREST RATES
- --------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Third Quarter 2004 Second Quarter 2004 Third Quarter 2003
- --------------------------------------------------------------------------------------------------------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- --------------------------------------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans (TE)(b) (c) $5,244,833 $69,185 5.25% $5,086,100 $63,729 5.04% $4,697,344 $63,360 5.35%
- --------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 1,324,322 14,589 4.41 1,397,338 15,087 4.32 1,061,425 11,382 4.29
U.S. agency securities 325,303 2,682 3.30 346,237 2,822 3.26 460,044 4,449 3.87
U.S. Treasury securities 120,398 1,255 4.15 131,146 1,364 4.18 209,897 1,980 3.74
Obligations of states and political
subdivisions (TE) 248,670 3,941 6.34 240,969 3,842 6.38 201,740 3,425 6.79
Other securities 34,076 318 3.73 33,521 285 3.40 41,124 414 4.03
- --------------------------------------------------------------------------------------------------------------------------
Total investment securities 2,052,769 22,785 4.44 2,149,211 23,400 4.36 1,974,230 21,650 4.38
- --------------------------------------------------------------------------------------------------------------------------
Federal funds sold and
short-term investments 11,714 41 1.39 18,621 46 .99 100,764 259 1.02
- --------------------------------------------------------------------------------------------------------------------------
Total earning assets 7,309,316 $92,011 5.01% 7,253,932 $87,175 4.83% 6,772,338 $85,269 5.01%
- --------------------------------------------------------------------------------------------------------------------------
NONEARNING ASSETS
Other assets 630,448 585,274 587,646
Allowance for loan losses (57,267) (57,098) (66,591)
- --------------------------------------------------------------------------------------------------------------------------
Total assets $7,882,497 $7,782,108 $7,293,393
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
NOW account deposits $ 811,827 $779 .38% $ 793,746 $ 697 .35% $ 706,851 $ 544 .31%
Money market deposits 1,369,703 2,276 .66 1,363,687 2,212 .65 1,416,716 2,299 .64
Savings deposits 669,996 618 .37 634,595 489 .31 560,469 380 .27
Other time deposits 732,506 2,425 1.32 720,801 2,290 1.28 790,238 3,236 1.62
Time deposits $100,000 and over 862,454 2,931 1.35 791,246 2,372 1.21 694,675 2,416 1.38
- --------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 4,446,486 9,029 .81 4,304,075 8,060 .75 4,168,949 8,875 .84
- --------------------------------------------------------------------------------------------------------------------------
Short-term and other borrowings 498,613 1,257 1.00 616,644 1,246 .81 457,508 698 .61
- --------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 4,945,099 $10,286 .83% 4,920,719 $ 9,306 .76% 4,626,457 $ 9,573 .82%
- --------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING
LIABILITIES AND
SHAREHOLDERS' EQUITY
Demand deposits 1,994,279 1,944,610 1,780,429
Other liabilities 60,375 54,763 63,829
Shareholders' equity 882,744 862,016 822,678
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $7,882,497 $7,782,108 $7,293,393
- --------------------------------------------------------------------------------------------------------------------------
Net interest income and margin (TE) $81,725 4.46% $77,869 4.31% $75,696 4.45%
Net earning assets and spread $2,364,217 4.18% $2,333,213 4.07% $2,145,881 4.19%
Interest cost of funding earning
assets .55% .52% .56%
- --------------------------------------------------------------------------------------------------------------------------
(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 $30,416, 26,684, and $32,360, respectively, in the third and second
quarters of 2004 and the third quarter of 2003.
24
TABLE 7. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME(TE)(a) AND INTEREST RATES (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
(dollars in thousands) September 30, 2004 September 30, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average
Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans (TE)(b) (c) $5,083,308 $196,107 5.15% $4,612,010 $191,259 5.54%
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 1,386,270 45,589 4.38 1,140,588 37,487 4.38
U.S. agency securities 352,165 8,837 3.35 407,201 12,323 4.04
U.S. Treasury securities 136,468 4,168 4.08 194,940 5,465 3.75
Obligations of states and political
subdivisions (TE) 239,725 11,494 6.39 193,417 9,819 6.77
Other securities 34,221 895 3.49 46,144 1,443 4.17
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities 2,148,849 70,983 4.40 1,982,290 66,537 4.48
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and
short-term investments 14,168 117 1.10 76,293 652 1.14
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 7,246,325 $267,207 4.92% 6,670,593 $258,448 5.18%
- ------------------------------------------------------------------------------------------------------------------------------------
NONEARNING ASSETS
Other assets 607,560 583,351
Allowance for loan losses (57,988) (66,863)
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $7,795,897 $7,187,081
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
NOW account deposits $ 799,175 $ 2,144 .36% $ 697,697 $ 2,257 .43%
Money market deposits 1,381,083 6,780 .66 1,400,583 9,041 .86
Savings deposits 635,910 1,546 .32 550,867 1,777 .43
Other time deposits 730,597 7,170 1.31 812,606 11,414 1.88
Time deposits $100,000 and over 784,451 7,419 1.26 682,221 8,080 1.58
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 4,331,216 25,059 .77 4,143,974 32,569 1.05
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term and other borrowings 602,065 3,883 .86 435,354 2,110 .65
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 4,933,281 $ 28,942 .78% 4,579,328 $ 34,679 1.01%
- ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING
LIABILITIES AND
SHAREHOLDERS' EQUITY
Demand deposits 1,939,178 1,726,694
Other liabilities 56,634 61,481
Shareholders' equity 866,804 819,578
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $7,795,897 $7,187,081
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income and margin (TE) $238,265 4.39% $223,769 4.48%
Net earning assets and spread $2,313,044 4.14% $2,091,265 4.17%
Interest cost of funding earning assets .53% .70%
- ------------------------------------------------------------------------------------------------------------------------------------
(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 $27,742 and $36,512, respectively, in the first nine months of 2004 and 2003.
25
TABLE 8. SUMMARY OF CHANGES IN NET INTEREST INCOME(TE)(a)(b)
- ------------------------------------------------------------------------------------------------------------------------------
Third Quarter 2004 Compared to: Nine Months Ended September 30,
Second Quarter 2004 Third Quarter 2003 2004 Compared to 2003
------------------------------------------------------- -------------------------------
Due to Due to Due to
Change in Total Change in Total Change in Total
---------------- Increase ---------------- Increase ---------------- Increase
(dollars in thousands) Volume Rate (Decrease) Volume Rate (Decrease) Volume Rate (Decrease)
- ------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME (TE)
Loans (TE) $2,336 $3,120 $5,456 $7,090 $(1,265) $5,825 $18,735 $(13,887) $ 4,848
- ------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities (799) 301 (498) 2,888 319 3,207 8,080 22 8,102
U.S. agency securities (172) 32 (140) (1,175) (592) (1,767) (1,540) (1,946) (3,486)
U.S. Treasury securities (99) (10) (109) (916) 191 (725) (1,752) 455 (1,297)
Obligations of states and political
subdivisions (TE) 122 (23) 99 755 (239) 516 2,245 (570) 1,675
Other securities 5 28 33 (67) (29) (96) (335) (213) (548)
- ------------------------------------------------------------------------------------------------------------------------------
Total investment securities (943) 328 (615) 1,485 (350) 1,135 6,698 (2,252) 4,446
- ------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and
short-term investments (20) 15 (5) (287) 69 (218) (514) (21) (535)
- ------------------------------------------------------------------------------------------------------------------------------
Total interest income (TE) 1,373 3,463 4,836 8,288 (1,546) 6,742 24,919 (16,160) 8,759
- ------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
NOW account deposits 18 64 82 88 147 235 302 (415) (113)
Money market deposits 16 48 64 (80) 57 (23) (124) (2,137) (2,261)
Savings deposits 30 99 129 83 155 238 248 (479) (231)
Other time deposits 47 88 135 (226) (585) (811) (1,065) (3,179) (4,244)
Time deposits $100,000 and over 238 321 559 568 (53) 515 1,107 (1,768) (661)
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 349 620 969 433 (279) 154 468 (7,978) (7,510)
- ------------------------------------------------------------------------------------------------------------------------------
Short-term and other borrowings (258) 269 11 67 492 559 951 822 1,773
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense 91 889 980 500 213 713 1,419 (7,156) (5,737)
- ------------------------------------------------------------------------------------------------------------------------------
Change in net interest income (TE) $1,282 $2,574 $3,856 $7,788 $(1,759) $6,029 $23,500 $(9,004) $14,496
- ------------------------------------------------------------------------------------------------------------------------------
(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.
26
The rate on short-term and other borrowings, which are more sensitive to market
rate changes, increased 39 basis points in 2004's third quarter compared to the
same period in 2003 and 19 basis points compared to the second quarter of 2004.
The overall funding mix shifted only slightly in the third quarter of
2004. Average noninterest-bearing deposits funded 27% of average earning assets
in the third quarter of 2004, up from 26% in 2003's third quarter, and the
percentage of funding from all noninterest-bearing sources was steady at
approximately 32% between these periods. Lower-cost interest-bearing deposits
supported 39% of earning assets, down slightly from 40% in the year-earlier
quarter. Higher-cost sources of funds, which include time deposits and
short-term borrowings, increased to 29% of average earning assets from 28% in
the third quarter of 2003, including the impact of additional public funds
deposits.
For the first nine months of 2004, net interest income (TE) increased
6%, or $14.5 million, compared to the same period in 2003, driven by 9% growth
in average earning assets between these periods. The net interest margin (TE)
was 4.39% for the 2004 period and 4.48% for the prior year's period. The yield
on average earning assets decreased 26 basis points, with the loan portfolio
yield down 39 basis points and the rate earned on the investment portfolio down
8 basis points. The total interest cost of funding earning assets declined 17
basis points compared to the first nine months of 2003. Substantially the same
factors that affected the mix and rates for earning assets and funding sources
in the third quarter of 2004 were evident for the year-to-date period.
PROVISION FOR LOAN LOSSES
Whitney recorded no provision for loan losses in the third quarter of
2004, compared to a $2 million provision in 2004's second quarter and a negative
provision of $4 million in the third quarter of 2003. Net charge-offs totaled
$4.3 million in the third quarter of 2004, of which $3.2 million was from one
credit that had been first identified as impaired in the second quarter of 2004.
Net charge-offs totaled $3.2 million in second quarter of 2004 and $.8 million
in 2003's third quarter.
For a more detailed discussion of changes in the allowance for loans
losses, nonperforming assets and general credit quality, see the earlier section
on Loans, Credit Risk Management 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
Noninterest income totaled $20.1 million for the third quarter of 2004.
This represented a decrease of 15%, or $3.5 million, from the third quarter of
2003, mainly reflecting a $2.2 million decline in fee income from Whitney's
secondary mortgage market operations and a $.8 million decrease in gains
realized on securities transactions. The rate environment for home loans during
2004, though still low from a historical perspective, was unable to stimulate
refinancing activity at the levels seen in recent years, and Whitney's
production of loans held for sale during the third quarter of 2004 was less than
one-third of that produced in the year-earlier period. Given the current rate
environment and rate expectations over the near term, both loan production
levels and secondary mortgage market fee income for the fourth quarter of 2004
are expected to be below the results for the comparable period of 2003.
27
The earnings credit allowed against service charges on certain business
deposit accounts has increased with rising short-term market rates, contributing
to a 3%, or $.3 million, decrease in deposit service charge income compared to
the third quarter of 2003. Improved pricing and the addition of new services,
however, offset some of the impact on income from larger earnings credits and
from reduced charging opportunities on both commercial and personal accounts.
Bank card fees, both credit and debit cards, increased a combined 12%,
or $.3 million, compared to 2003's third quarter, reflecting both higher
transaction volumes and improvement in the effective fee rates realized. Visa
USA restructured and effectively lowered debit transaction rates in early 2004
following the temporary rate reduction it implemented in August 2003 under the
terms of a settlement with merchants. Fees per transaction generated under the
restructured rates have been somewhat higher than under the temporary rate
reduction.
Trust service fees increased 10%, or $.2 million, compared to the third
quarter of 2003 from new business and improved equity market valuations relative
to the year-earlier period. Other noninterest income categories decreased a net
$.6 million, or 12%, with investment service fees down $.3 million mainly on
reduced demand for fixed-income securities in the third quarter of 2004 among
Whitney's customer base.
During the third quarter of 2003, Whitney sold $276 million in
mortgage-backed securities experiencing accelerated prepayments and repositioned
the proceeds in issues with characteristics more consistent with overall
investment strategies. The sale generated a gain of approximately $.9 million.
Noninterest income was $62.4 million through the first nine months of
2004, a decrease of 9%, or $5.8 million, from the same period in 2003.
Year-to-date changes in individual income categories from the prior year were
for the most part consistent with the quarterly changes discussed above and were
driven by substantially the same factors. Year-to-date other noninterest income
was down 5%, or $.8 million, from the comparable period in 2003. Net gains on
asset sales were lower by $.9 million year-to-date in 2004. The assets sold
included surplus banking property and foreclosed assets and, in 2003, a
portfolio of seasoned loans originated under affordable-housing programs. The
results posted by recurring revenue sources included in other noninterest income
were on the whole stable between the first nine months of 2003 and 2004.
NONINTEREST EXPENSE
Total noninterest expense of $68.3 million in the third quarter of 2004
was 11%, or $6.9 million, higher than the total for the year-earlier period.
Incremental costs associated with Madison Bank operations totaled approximately
$1.1 million in the third quarter of 2004, including $.5 million for system
conversion services and other merger-related expenses that are reported with
legal and professional fees.
Personnel expense increased 5%, or $1.7 million, in total, including
$.4 million associated with Madison Bank employees. Base pay and compensation
earned under sales-based and other employee incentive programs increased a
combined 3%, or $.8 million. Compensation expense under management incentive
programs was up 11%, or $.3 million, with stock-based compensation driving this
increase. Stock-based compensation will vary with changes in Whitney's stock
price, which was up 24% at the end of 2004's third quarter from a year earlier.
The rising cost of providing current health benefits was the main factor behind
the 9%, or $.6 million, increase in employee benefits.
28
Net occupancy expense in the third quarter of 2004 was up 6%, or $.3
million, from the comparable period in 2003. Ignoring the cost of operating the
Madison Bank facilities, the increase was closer to 4%. A moderate increase in
net occupancy expense in 2004 was expected with the opening of six new or
replacement branches scheduled for late 2003 through the third quarter of 2004,
including three additional locations to serve the Houston market. To reduce
costs over the long term and enhance productivity, certain operations in Houston
were moved to one of the new locations and out of space that is subject to
noncancelable leases. Whitney recognized a loss of $1.6 million in the third
quarter of 2004 related to its remaining obligation under the leases. This loss
is reported with other noninterest expense. Also included in other noninterest
expense for the most recent quarter is a $.6 million casualty loss for property
damage from Hurricane Ivan that struck the Florida-Alabama coastal border during
the period. Storm-related disruptions to banking operations were minimal.
Equipment and data processing expense increased nominally in the third
quarter of 2004 compared to 2003's third quarter, although a moderate increase
is expected for the full year. The data processing system's capacity was
upgraded in the second half of 2003 and applications and capabilities have been
added to support expanded customer service. Upgrades to the capacity and
functionality of branch communication lines have increased telecommunication
expense in 2004, but this was largely offset in the third quarter of 2004 by
savings realized on a recent change in service provider.
Amortization of intangibles increased in the third quarter of 2004 with
the August 2004 acquisition of Madison Bank and the branch purchase in June
2004. The amortization of deposit relationship intangibles acquired in these
transactions will add approximately $.5 million to annual expense in 2004.
As noted earlier, other noninterest expense in the third quarter of
2004 included $2.2 million related to a loss on the abandonment of certain
noncancelable facility leases and a casualty loss for storm damage. Ignoring
these items, the categories making up other noninterest expense increased $1.8
million, or 19%. A number of factors contributed to this increase, the largest
of which were an increase in marketing activities and the amortization of
expanded affordable housing investments. Management has directed additional
resources to marketing activities in 2004 to support new product introductions
and broaden market recognition. Tax credits associated with the affordable
housing investments helped lower the effective tax rate as noted in the
following section.
For the nine-month period ended September 30, 2004, noninterest expense
totaled $195 million. This was a 7%, or $13.3 million, increase compared to the
same period in 2003. Similar to the quarterly comparison, year-to-date personnel
expense was up 5% from 2003, or $5.0 million in total. Employee compensation
rose 4%, or $3.4 million, with $2.3 million in additional stock-based management
incentive compensation. Base pay and sales-based incentive compensation
increased less that 2%, reflecting the impact of the sharp reduction in mortgage
origination commissions with lower loan production in 2004. Employee benefits
were up 8%, or $1.6 million, year-to-date in 2004, including a 12%, or $.7
million, increase in the cost of providing current health benefits compared to
2003. Defined benefit pension expense and the cost of providing health benefits
to retirees increased a net $.5 million for the year-to-date period.
The changes in other major noninterest expense categories between the
first nine months of 2003 and 2004 were generally consistent with the
quarter-to-quarter changes and were influenced mainly by the same factors cited
in the discussion of quarterly results above.
29
INCOME TAXES
The Company provided for income tax expense at an effective rate of
31.0% in the third quarter of 2004 compared to a rate of 32.1% in the 2003's
third quarter. Year-to-date, the rate was 30.9% in 2004 and 32.1% in 2003.
Whitney's effective tax rate has been lower than the 35% federal statutory rate
primarily because of tax-exempt interest income from the financing of state and
local governments. Additional investment in projects that generate affordable
housing tax credits helped lower the effective tax rate in 2004 compared to
2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required for this item is included in the section
entitled Asset/Liability Management in Management's Discussion and Analysis of
Financial Condition and Results of Operations that appears in Item 2 of this
Form 10-Q and is incorporated here by reference.
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, with the participation of the CEO and CFO,
has evaluated the effectiveness of the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of the end of the period covered by this
quarterly report on Form 10-Q. Based on that evaluation, the CEO and CFO have
concluded that the disclosure controls and procedures as of the end of the
period covered by this quarterly report are effective. There were no changes in
the Company's internal control over financial reporting during the fiscal
quarter covered by this quarterly report that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
30
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information with respect to purchases made
by or on behalf of the Company or any "affiliated purchaser" (as defined in Rule
10b-18(a)(3) under the Securities Exchange Act of 1934) of the Company's common
stock during the three months ended September 30, 2004.
----------------------- --------------- -------------- ------------------------ ------------------------
Total Number of Shares Maximum Number of
Total Number Average Purchased as Part of Shares that May Yet Be
of Shares Price Paid Publicly Announced Purchased Under the
Period Purchased per share Plans or Programs (1) Plans or Programs (1)
----------------------- --------------- -------------- ------------------------ ------------------------
July 2004 - - - -
----------------------- --------------- -------------- ------------------------ ------------------------
August 2004 3,004 (2) $41.175 - -
----------------------- --------------- -------------- ------------------------ ------------------------
September 2004 - - - -
----------------------- --------------- -------------- ------------------------ ------------------------
(1) The Company had no publicly announced plans or programs to
purchase its common stock in effect during the third quarter of
2004. In October 2004, the Board of Directors authorized the
Company to repurchase up to 1.75 million shares of its common
stock. This represents approximately 4.2% of shares outstanding as
of September 30, 2004. The repurchase program is authorized for
one year, beginning October 27, 2004.
(2) Represents shares tendered to the Company as consideration for the
exercise price of employee stock options.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
The exhibits listed on the accompanying Exhibit Index, located on page
33, are filed (or furnished, as applicable) as part of this report. The Exhibit
Index is incorporated herein by reference in response to this Item 6.
31
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHITNEY HOLDING CORPORATION
(Registrant)
By: /s/Thomas L. Callicutt, Jr.
--------------------------------------
Thomas L. Callicutt, Jr.
Executive Vice President and
Chief Financial Officer
(in his capacities as a duly authorized
officer of the registrant and as
principal accounting officer)
November 9, 2004
----------------------------------------
Date
32
EXHIBIT INDEX
Exhibit Description
- -------------- --------------------------------------------------------------
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 annual report on Form 10-K for the year ended
December 31, 2003 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.1* Form of notice and acceptance of stock option grant to certain
of the Company's officers under the Company's 2004 Long-Term
Incentive Plan.
Exhibit 10.2* Form of notice and acceptance of restricted stock award to
certain of the Company's officers under the Company's 2004
Long-Term Incentive Plan.
Exhibit 31.1 Certification by the Company's Chief Executive Officer
pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification by the Company's Chief Financial Officer
pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32 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.
* Management contract or compensatory plan or arrangement.
33
Exhibit 10.1
Re: 2004 Long-Term Incentive Plan
Notice and Acceptance of Stock Option Grant
-------------------------------------------
On ____________ (the "Grant Date"), the Compensation Committee of the
Board of Directors of Whitney Holding Corporation (the "Company") (the
"Committee"), which is appointed to administer the Company's 2004 Long-Term
Incentive Plan (the "Plan"), granted to you stock options, which are rights to
purchase shares of the Company's no par value voting common stock (the "Common
Stock"). This letter is intended to provide you with notice of the terms and
conditions that apply to your grant and to constitute your acknowledgment of and
agreement to be bound by them. Unless otherwise defined, the meanings of
capitalized terms used in this letter are set forth in the Plan.
1. Grant and Type of Options. The Company hereby grants to you options
to purchase _____ shares of Common Stock at an exercise price of $_____ per
share, which is the Fair Market Value of a share of Common Stock on the Grant
Date, as determined under section 2.13 of the Plan. These options are intended
to be incentive stock options within the meaning of Code Section 422.
The Company also grants to you non-qualified options to purchase ______
shares of Common Stock at an exercise price of $_____ per share, which is the
Fair Market Value of a share of Common Stock on the Grant Date, as determined
under section 2.13 of the Plan.
2. Time of Exercise. Except as expressly provided herein, your options
are exercisable only while you are an employee of the Company, Whitney National
Bank (the "Bank") or of an affiliate of the Company or the Bank. Your options
are first exercisable, in whole or in part, six months and one day from the
Grant Date and, unless earlier forfeited, they will expire and be cancelled,
without the requirement of notice or the payment of compensation, ten years
after the Grant Date, or on _____________ (the "Expiration Date").
If your employment with the Company, the Bank and their affiliates
ceases before the Expiration Date and all or a portion of your options are then
exercisable:
a. If your employment ceases on account of your death, the
options will remain exercisable until the earlier of the
Expiration Date or one year after the date of your death.
b. If your employment ceases on account of your Disability,
Retirement or involuntary severance without Cause, the options
will remain exercisable until the earlier of the Expiration
Date or 90 days after your employment ceases.
c. If your employment ends for any other reason, your options
will expire and be cancelled as of the date on which your
employment ceases, without notice or the payment of
compensation.
3. Change in Control. If a Change in Control occurs, then
notwithstanding any provision of this letter or the Plan to the contrary and
provided you are an employee of the Company, the Bank or their affiliates at the
time of the change, your options will be and remain fully exercisable until the
later of (a) six months after the date of the change, or (b) the Expiration
Date.
4. Method of Exercise and Delivery of Shares. Your options, to
the extent exercisable, are exercised, in whole or in part, by providing written
notice to the Company, in care of its Chief Executive Officer (or his designee),
which notice shall specify the number of
34
shares of Common Stock to be purchased and shall be accompanied by the full
purchase price for the shares. The purchase price may be paid in the form of:
a. Cash, certified or uncertified check, bank draft or other form
of cash equivalent;
b. Mature shares of Common Stock, which are shares that you
acquired on the open market or that you have held for more
than six months, free of any transfer restriction; or
c. A broker assisted transaction, provided that the Company's
Insider Trading and Confidentiality Policy, as amended from
time to time, then permits this form of exercise and that your
proposed transaction is consistent with the policy. You must
obtain the approval of the Company's General Counsel before
you engage in a broker assisted transaction.
Delivery of certificates representing the purchased shares of Common
Stock shall be made by the Company promptly after receipt of your notice of
exercise and payment in full for the shares; provided, however, that the
Company's obligation to deliver certificates to you may be postponed, in the
sole discretion of the Company, for any period necessary to list, register or
otherwise qualify the purchased shares under applicable Federal or state
securities laws. The Company shall have the right to collect, as a further
condition of delivery of shares of Common Stock hereunder, any taxes that the
Company determines are required by law to be withheld.
5. No Guarantee of Tax Consequences. Incentive stock options granted
hereunder are intended to comply with Code Section 422, which generally provides
that you will not recognize Federal income tax on the grant or exercise of the
options. When you exercise your options, however, the difference between the
exercise price and the current fair market value of Common Stock may be a tax
preference item that is subject to the alternative minimum tax.
Neither the Company nor the Committee guarantees the tax consequences
of your options. Several actions may cause your options to lose their favorable
tax status as incentive stock options, including, but not limited to:
a. Your election to use a broker assisted transaction as the
method of paying for your options;
b. The exercise of your options later than three months after you
cease to be an employee of the Company, the Bank or their
affiliates;
c. You fail to hold the Common Stock you acquire on the exercise
of your options for the period required under the Code; or
d. You exercise your options after the Expiration Date, which may
occur in the event of a Change in Control.
If your options cease to be treated as incentive stock options for any reason,
they will automatically be recharacterized as nonqualified options and will be
subject to different, less favorable, tax treatment.
More information about the tax consequences of your options is included
in the Plan's Prospectus, a copy of which has or will be furnished to you. You
should also consult your own tax advisor before you exercise your options or
sell Common Stock that you acquire on the exercise of your options.
6. No Assignment. Your options granted are not subject in any manner to
sale, transfer, pledge, assignment or other encumbrance or disposition, whether
by operation of law or otherwise, and whether voluntarily or involuntarily,
except by will or the laws of descent and distribution. The Company will not
recognize any attempt by you to assign your options.
35
7. Employment and Compensation Rights. Neither this letter, the grant
of your options nor their exercise confers on you any right to continue in the
employ of the Company, the Bank or any of their affiliates. The grant of your
options does not interfere, in any manner, with the right of the Company, the
Bank or any of their affiliates to terminate your employment, whether with or
without cause, in their sole discretion. In addition, the grant of your options
is not a promise that additional options will be granted to you in the future.
8. Shareholder Rights. Prior to the exercise of your options and the
issuance of shares of Common Stock in connection therewith, you have no rights
as a shareholder of the Company with respect to the shares subject to your
options.
9. Additional Requirements. Common Stock that is issued to you on the
exercise of your options will be subject to such legends as the Company deems
necessary or appropriate to comply with applicable Federal or state securities
laws. In connection therewith and prior to the issuance of your shares, you may
be required to deliver to the Company such documents as it may reasonably
determine are necessary to ensure compliance with such laws.
10. Plan Provisions. Your options granted are subject to terms and
conditions imposed under the Plan, in addition to the terms and conditions set
forth in this letter. Your options will be interpreted and construed in
accordance with the terms of this letter and the Plan.
Very truly yours,
WHITNEY HOLDING CORPORATION
Enclosure: Prospectus
2004 Long-Term Incentive Plan
ACKNOWLEDGMENT AND AGREEMENT
By execution of this letter, I agree that the options to acquire shares
of Common Stock granted to me herein shall be governed by and are subject to the
foregoing terms and conditions and the provisions of the Plan. By execution
below, I acknowledge that I have received a copy of the Plan and the Prospectus.
I further agree that the Committee shall not be liable for any determination
made in good faith with respect to the Plan, the options granted to me hereunder
or the terms of this letter.
--------------------------------
Participant
Date
--------------------------------
36
Exhibit 10.2
Re: 2004 Long-Term Incentive Plan
Notice and Acceptance of Award
of Targeted Restricted Stock
----------------------------
On _____________ (the "Award Date"), the Compensation Committee of the
Board of Directors of Whitney Holding Corporation (the "Company") (the
"Committee"), which is appointed to administer the Company's 2004 Long-Term
Incentive Plan (the "Plan"), awarded to you restricted stock, which is a
specified number of shares of the Company's no par value voting common stock
(the "Common Stock"). This letter is intended to provide you with notice of the
terms and conditions that apply to your award and to constitute your
acknowledgment of and agreement to be bound by them. Unless otherwise defined,
the meanings of capitalized terms used in this letter are set forth in the Plan.
1. Target Award. The Company hereby awards to you ______ shares of
Common Stock (the "Target Award"), subject to the restrictions set forth herein.
2. Forfeiture Restrictions. The shares of Common Stock issued to you in
the form of the Target Award, including the rights to receive dividends and to
vote the shares, cannot be subject in any manner to sale, transfer, pledge,
assignment or other encumbrance or disposition, whether by operation of law or
otherwise, and whether voluntarily or involuntarily (the "Forfeiture
Restrictions"). Except as provided herein, the Forfeiture Restrictions lapse
three years from the Award Date, or on _____________ (the "Lapse Date"),
provided that you have been continuously employed by the Company, the Bank or
their affiliates between the Award Date and the Lapse Date.
To enforce the Forfeiture Restrictions, the shares of Common Stock
constituting your Target Award will be held by the Company, in escrow, until the
Lapse Date. In addition, as a condition of your award, you will be required to
execute a Stock Power, a copy of which is attached, endorsed in blank. As soon
as practicable following the Lapse Date, and provided the conditions set forth
therein have been satisfied, your shares of Common Stock will be distributed to
you free of the Forfeiture Restrictions.
3. Adjustments to the Target Award. Notwithstanding the provisions of
paragraph 2 to the contrary, all or a portion of your Target Award may be
forfeited, or the number of shares subject to your Target Award may be
increased, based upon the Company's actual return on average assets ("ROAA") and
return on average equity ("ROAE") during calendar years ____, ____, and ____
(the "Performance Cycle"), when compared to fixed performance objectives that
have been determined by the Committee. The performance objectives applicable to
your Target Award are more fully described in a memorandum dated _____________
(the "Memorandum"), a copy of which has been furnished to you.
Any adjustment in the number of shares of Common Stock subject to your
Target Award (whether an increase or decrease) will be made by the Committee as
of the Lapse Date. As soon as practicable thereafter, the Committee (or its
designee) will provide you with written notice of any reduction or increase in
the number of shares subject to your Target Award, including information about
the Company's ROAA and ROAE as compared to the performance objectives.
For purposes of this paragraph 3, the Committee possesses the authority
to determine whether the performance objectives have been attained, including,
without limitation, the authority to determine the Company's ROAE and ROAA and
the method used to determine the
37
Company's peer group performance. In no event, however, will the aggregate
number of shares of Common Stock awarded to you hereunder exceed 200% of the
number of shares of Common Stock first subject to your Target Award.
4. Cessation of Employment. If your employment with the Company, the
Bank and their affiliates ceases before the Lapse Date on account of your death,
Disability, involuntary severance other than on account of Cause or your
voluntary cessation of employment on or after you attain age 55, the number of
shares of Common Stock subject to your Target Award will be multiplied by a
fraction, the numerator of which is the number of days completed in the
Performance Cycle and the denominator of which is the total number of days in
such cycle (those shares referred to as your "Adjusted Target Award"). Your
Adjusted Target Award will be subject to further adjustment at the end of the
Performance Cycle in accordance with paragraph 3 hereof. Your shares, as
adjusted, will be issued to you, free of Forfeiture Restrictions, as soon as
practicable after the Lapse Date and the remainder of your Target Award will be
forfeited.
If your employment ceases before the Lapse Date for any other reason,
your Target Award will be forfeited and cancelled, without the requirement of
notice or the payment of compensation.
5. Change in Control. If a Change in Control occurs, then
notwithstanding any provision of this letter or the Plan to the contrary and
provided you are an employee of the Company, the Bank or their affiliates at the
time of the change, all Forfeiture Restrictions applicable to your Target Award
will lapse as of the date of the change and the shares of Common Stock
constituting your Target Award will be delivered to you, free of such
restriction, as soon as practicable following the change.
6. Employment and Compensation Rights. Neither this letter nor the
Target Award confers on you any right to continue in the employ of the Company,
the Bank or any of their affiliates. The award does not interfere, in any
manner, with the right of the Company, the Bank or any of their affiliates to
terminate your employment, whether with or without cause, in their sole
discretion. In addition, the Target Award is not a promise that additional
awards will be made to you in the future.
7. Additional Requirements. Common Stock that is delivered to you as of
the Lapse Date will be subject to such legends as the Company deems necessary or
appropriate to comply with applicable Federal or state securities laws. In
connection therewith and prior to the delivery of your shares, you may be
required to provide to the Company such documents as it may reasonably determine
are necessary to ensure compliance with such laws.
8. Plan Provisions. Your Target Award is subject to terms and
conditions imposed under the Plan, in addition to the terms and conditions set
forth in this letter. Your Target Award will be interpreted and construed in
accordance with the terms of the Plan and the Memorandum, in addition to the
terms of this Letter.
9. Rights as a Shareholder. During the period commencing as of the
Award Date and ending on the Lapse Date, you will be entitled to vote and
receive dividends, as and when declared by the Board of Directors of the
Company, as to the number of shares of Common Stock constituting your Target
Award.
Very truly yours,
WHITNEY HOLDING CORPORATION
Enclosures: Prospectus
2004 Long-Term Incentive Plan
Memorandum
-----
38
ACKNOWLEDGMENT AND AGREEMENT
----------------------------
By execution of this letter, I agree that transfer of Common Stock
described herein shall be governed by and is subject to the foregoing terms and
conditions and the provisions of the Plan, including the Memorandum, both of
which have been furnished to me. By execution below, I acknowledge that I have
received a copy of the Plan, the Memorandum, and the Plan's Prospectus. I
further agree that the Committee shall not be liable for any determination made
in good faith with respect to the Plan, the Memorandum, or the terms of this
letter.
--------------------------------
Participant
--------------------------------
Date
STOCK POWER
ASSIGNMENT SEPARATE FROM CERTIFICATE
For Value Received, ___________________________________ hereby sell, assign and
transfer unto ____________________________________ (_______________) shares of
the ____________ Capital Stock of the Whitney Holding Corporation standing in
______________________________________ name on the Books of said
________________________________________________ represented by Certificate(s)
No(s). ___________________ herewith and do hereby irrevocably constitute and
appoint __________________________________ attorney to transfer the said stock
on the Books of the within named company with full power of substitution in the
premises.
Dated
--------------------------------------------------------
- --------------------------------------------------------------
Participant
IN PRESENCE OF
- --------------------------------------------------------------
WHITNEY HOLDING CORPORATION
2004 LONG-TERM INCENTIVE PROGRAM
PERFORMANCE DRIVEN RESTRICTED STOCK AWARD
39
Exhibit 31.1
CERTIFICATION
-------------
I, William L. Marks, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period
ended September 30, 2004 of Whitney Holding Corporation;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, 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 and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
/s/ William L. Marks
------------------------
William L. Marks
Chief Executive Officer
Date: November 9, 2004
----------------
40
Exhibit 31.2
CERTIFICATION
-------------
I, Thomas L. Callicutt, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period
ended September 30, 2004 of Whitney Holding Corporation;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, 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 and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
/s/ Thomas L. Callicut, Jr.
---------------------------
Thomas L. Callicutt, Jr.
Chief Financial Officer
Date: November 9, 2004
--------------------
41
Exhibit 32
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 on the dates indicated below, hereby certify
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on their
knowledge,
(1) the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 2004 (the "Report") fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended; 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: November 9, 2004 By: /s/ William L. Marks
--------------------- ------------------------------------
William L. Marks
Chairman of the Board and
Chief Executive Officer
Dated: November 9, 2004 By: /s/ Thomas L. Callicutt, Jr.
--------------------- ------------------------------------
Thomas L. Callicutt, Jr.
Executive Vice President and
Chief Financial Officer
42