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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of exchange on which registered
------------------ ------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
----
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. __
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2.) Yes X No
------
As of December 31, 2004, the aggregate market value of the
registrant's common stock (all shares are voting shares) held by
nonaffiliates was approximately $1.8 billion (based on the closing price of
the stock on June 30, 2004).
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date.
Class Outstanding at March 4, 2005
--------------------------------- ------------------------------
Common Stock, no par value 40,587,840
Documents incorporated by reference Part of 10-K in which incorporated
------------------------------------- ----------------------------------
Proxy Statement for the 2005 Annual Part III
Meeting of Shareholders to be filed
with the Securities and Exchange
Commission
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WHITNEY HOLDING CORPORATION
TABLE OF CONTENTS Page
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PART I
Item 1: Business 1
Item 2: Properties 7
Item 3: Legal Proceedings 7
Item 4: Submission of Matters to a Vote of Security Holders 7
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PART II
Item 5: Market for the Registrant's Common Stock, Related
Stockholder Matters and Issuer Purchases of
Equity Securities 8
Item 6: Selected Financial Data 9
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 7A: Quantitative and Qualitative Disclosures about Market
Risk 35
Item 8: Financial Statements and Supplementary Data 36
Item 9: Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 73
Item 9A: Controls and Procedures 73
Item 9B: Other Information 73
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PART III
Item 10: Directors and Executive Officers of the Registrant 74
Item 11: Executive Compensation 74
Item 12: Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 74
Item 13: Certain Relationships and Related Transactions 75
Item 14: Principal Accounting Fees and Services 75
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PART IV
Item 15: Exhibits and Financial Statement Schedules 76
Signatures 80
PART I
Item 1: BUSINESS
ORGANIZATION AND RECENT DEVELOPMENTS
Whitney Holding Corporation (the Company or Whitney) is a Louisiana
corporation that is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (BHCA). The Company began operations in 1962 as
the parent of Whitney National Bank (the Bank). The Bank is a national banking
association headquartered in New Orleans, Louisiana, that has been in continuous
operation in the greater New Orleans area since 1883. The Company has at times
operated as a multi-bank holding company when it established new entities in
connection with business acquisitions. The Company has merged all banking
operations into the Bank and intends to continue merging the operations of
future acquisitions at the earliest possible dates.
During 2004, Whitney acquired Madison BancShares, Inc. and its
subsidiary, Madison Bank. This acquisition marked the Company's entry into the
Tampa Bay metropolitan area of Florida. In October 2004, Whitney announced plans
to expand its presence in the Florida panhandle through the acquisition of
Destin Bancshares, Inc., whose major subsidiary, Destin Bank, operates in the
Destin, Fort Walton Beach and Pensacola areas of Florida. Destin Bancshares,
Inc. also owns a full-service independent insurance agency, and Whitney intends
to continue this business after the acquisition as a subsidiary of the Bank.
Subject to certain conditions and to the approval of Destin's shareholders, this
transaction is expected to close in the first half of 2005. Since early 1994,
Whitney has acquired 17 separate banking operations involving approximately $2.8
billion of assets, with the more recent focus on banks in faster-growing markets
such as those in certain parts of Florida and the Houston, Texas area. The
Company continues to seek opportunities to leverage its operations through
acquisitions that expand existing market share or provide access to new parts of
its market area with attractive deposit bases and economic fundamentals.
The Company also owns Whitney Community Development Corporation (WCDC).
WCDC was formed to provide financial support to corporations or projects that
promote community welfare in areas with mainly low or moderate incomes. WCDC's
main activity has been to provide financing for the development of affordable
housing. Whitney Securities, L.L.C., a registered broker-dealer in securities,
is a wholly-owned subsidiary of the Bank.
NATURE OF BUSINESS AND MARKETS
The Company, through the Bank, engages in community banking and serves
a market area that covers the five-state Gulf Coast region stretching from
Houston, Texas, across southern Louisiana and the coastal region of Mississippi,
to central and south Alabama, the western panhandle of Florida, and to the Tampa
Bay metropolitan area of Florida. The Bank also maintains a foreign branch on
Grand Cayman in the British West Indies.
The Bank provides a broad range of community banking services to
commercial, small business and retail customers, offering a variety of
transaction and savings deposit products, cash management services, secured and
unsecured loan products, including revolving credit facilities, and letters of
credit and similar financial guarantees. The Bank also provides trust and
investment management services to retirement plans, corporations and individuals
and, through Whitney Securities, L.L.C., offers investment brokerage services
and annuity products.
THE BANK
All material funds of the Company are invested in the Bank. The Bank
has a large number of customer relationships that have been developed over a
period of many years. The loss of any single customer or a few customers would
not have a material adverse effect on the Bank or the Company. The Bank has
customers in a number of foreign countries, but the revenue derived from these
foreign customers is not a material portion of its overall revenues.
1
COMPETITION
There is significant competition within the financial services industry
in general as well as with respect to the particular financial services provided
by the Company and the Bank. Within its market, the Bank competes directly with
major banking institutions of comparable or larger size and resources, as well
as with various other smaller banking organizations. The Bank also has numerous
local and national nonbank competitors, including savings and loan associations,
credit unions, mortgage companies, personal and commercial finance companies,
investment brokerage and financial advisory firms, and mutual fund companies.
Entities that deliver financial services and access to financial products and
transactions exclusively through the Internet are another source of competition.
Technological advances have also allowed the Bank and other financial
institutions to provide electronic and Internet-based services that enhance the
value of traditional financial products. Continued consolidation within the
financial services industry will most likely change the nature and intensity of
competition that Whitney faces, but can also create opportunities for Whitney to
demonstrate and exploit competitive advantages.
The participants in the financial services industry are subject to
varying degrees of regulation and governmental supervision. The following
section summarizes certain important aspects of the supervision and regulation
of banks and bank holding companies. Some of Whitney's competitors that are not
banks or bank holding companies may be subject to less regulation than are the
Company and the Bank, and this may give them a competitive advantage. The
current system of laws and regulations can change over time and this would
influence the competitive positions of the participants in the financial
services industry. We cannot predict whether these changes will be favorable or
unfavorable to the Company and the Bank.
SUPERVISION AND REGULATION
The Company and the Bank are subject to comprehensive supervision and
regulation that affect virtually all aspects of their operations. The following
summarizes certain of the more important statutory and regulatory provisions.
Supervisory Authorities
Whitney is a bank holding company, registered with and regulated by the
Federal Reserve Board (FRB). The Bank is a national bank and, as such, is
subject to supervision, regulation and examination by the Office of the
Comptroller of the Currency (OCC). Ongoing supervision is provided through
regular examinations and other means that allow the regulators to gauge
management's ability to identify, assess and control risk in all areas of
operations in a safe and sound manner and to ensure compliance with laws and
regulations. As a result, the scope of routine examinations of the Company and
the Bank is rather extensive. To facilitate supervision, the Company and the
Bank are required to file periodic reports with the regulatory agencies, and
much of this information is made available to the public by the agencies.
Capital
The FRB and the OCC require that the Company and the Bank meet certain
minimum ratios of capital to assets in order to conduct their activities. Two
measures of regulatory capital are used in calculating these ratios - Tier 1
Capital and Total Capital. Tier 1 Capital generally includes common equity,
retained earnings, a limited amount of qualifying preferred stock, and
qualifying minority interests in consolidated subsidiaries, reduced by goodwill
and certain other intangible assets, such as core deposit intangibles, and
certain other assets. Total Capital generally consists of Tier 1 Capital plus
the allowance for loan losses, preferred stock that did not qualify as Tier 1
Capital, certain types of subordinated debt and a limited amount of other items.
The Tier 1 Capital ratio and the Total Capital ratio are calculated
against an asset total weighted for risk. Certain assets, such as cash and U. S.
Treasury securities, have a zero risk weighting. Others, such as commercial and
consumer loans, often have a 100% risk weighting. Assets also include amounts
that represent the potential funding of off-balance sheet obligations such as
loan commitments and letters of credit. These potential assets are assigned to
risk categories in the same manner as funded assets. The total assets in each
category are multiplied by
2
the appropriate risk weighting to determine risk-adjusted assets for the
capital calculations. The leverage ratio also provides a measure of the adequacy
of Tier 1 Capital, but assets are not risk-weighted for this calculation. Assets
deducted from regulatory capital, such as goodwill and other intangible assets,
are also excluded from the asset base used to calculate capital ratios. The
minimum capital ratios for both the Company and the Bank are generally 8% for
Total Capital, 4% for Tier 1 Capital and 4% for leverage.
To be eligible to be classified as "well-capitalized," the Bank must
generally maintain a Total Capital ratio of 10% or greater, a Tier 1 Capital
ratio of 6% or greater, and a leverage ratio of 5% or more. If an institution
fails to remain well-capitalized, it will be subject to a series of restrictions
that increase as the capital condition worsens. For instance, federal law
generally prohibits a depository institution from making any capital
distribution, including the payment of a dividend, or paying any management fee
to its holding company, if the depository institution would be undercapitalized
as a result. Undercapitalized depository institutions may not accept brokered
deposits absent a waiver from the Federal Deposit Insurance Corporation (FDIC),
are subject to growth limitations, and must submit a capital restoration plan
that is guaranteed by the institution's parent holding company. Significantly
undercapitalized depository institutions may be subject to a number of
requirements and restrictions, including orders to sell sufficient voting stock
to become adequately capitalized, requirements to reduce total assets, and
cessation of receipt of deposits from correspondent banks. Critically
undercapitalized institutions are subject to the appointment of a receiver or
conservator.
The capital ratios for both the Company and the Bank exceed the
required minimums, and the capital ratios for the Bank make it eligible for
classification as "well-capitalized" under current regulatory criteria.
Expansion and Activity Limitations
With prior regulatory approval, Whitney may acquire other banks or bank
holding companies and the Bank may merge with other banks. Acquisitions of banks
domiciled in states other than Louisiana may be subject to certain restrictions,
including restrictions related to the percentage of deposits that the resulting
bank may hold in that state and nationally and the number of years that the bank
to be acquired must have been operating. Whitney may also engage in or acquire
an interest in a company that engages in activities that the FRB has determined
by regulation or order to be so closely related to banking as to be a proper
incident to banking activities. The FRB normally requires some form of notice or
application to engage in or acquire companies engaged in such activities. Under
the BHCA, Whitney is generally prohibited from engaging in or acquiring direct
or indirect control of more than 5% of the voting shares of any company engaged
in activities other than those referred to above.
Under the Gramm-Leach-Bliley Act (GLB Act), adopted in 1999, bank
holding companies that are well-capitalized and well-managed and meet other
conditions can elect to become financial holding companies. As financial holding
companies, they and their subsidiaries are permitted to acquire or engage in
certain activities that were not previously permitted for bank holding
companies. These activities include insurance underwriting, securities
underwriting and distribution, travel agency activities, broad insurance agency
activities, merchant banking, and other activities that the FRB determines to be
financial in nature or complementary to these activities. Whitney has not
elected to become a financial holding company, but may elect to do so in the
future. The GLB Act also permits well-capitalized and well-managed banks to
establish financial subsidiaries that may engage in activities not previously
permitted for banks. The Bank recently elected for the first time to establish a
financial subsidiary so that it will be able to continue the insurance agency
business to be acquired with Destin Bancshares, Inc.
Support of Subsidiary Banks by Holding Companies
Under current FRB policy, Whitney is expected to act as a source of
financial strength for the Bank and to commit resources to support the
Bank in circumstances where it might not do so absent such policy. In addition,
any loans by a bank holding company to a subsidiary bank are subordinate in
right of payment to deposits and certain other indebtedness of the subsidiary
bank. In the event of a bank holding company's bankruptcy, any commitment by the
bank holding company to a federal bank regulatory agency to maintain the capital
of a subsidiary bank at a certain level would be assumed by the bankruptcy
trustee and entitled to priority of payment.
3
Limitations on Acquisitions of Bank Holding Companies
As a general proposition, other companies seeking to acquire control of
a bank holding company such as Whitney would require the approval of the Federal
Reserve Board under the BHCA. In addition, individuals or groups of individuals
seeking to acquire control of a bank holding company would need to file a prior
notice with the FRB (which the FRB may disapprove under certain circumstances)
under the Change in Bank Control Act. Control is conclusively presumed to exist
if an individual or company acquires 25% or more of any class of voting
securities of the bank holding company. Control may exist under the Change in
Bank Control Act if the individual or company acquires 10% or more of any class
of voting securities of the bank holding company.
Deposit Insurance
The Bank is a member of the FDIC, and its deposits are insured by the
FDIC up to the amount permitted by law. The Bank is thus subject to FDIC deposit
insurance premium assessments. The FDIC uses a risk-based assessment system that
assigns insured depository institutions to different premium categories based
primarily on each institution's capital position and its overall risk rating as
determined by its primary regulator. Annual premium rates currently range from
none for institutions that are judged to pose the least risk to the insurance
fund to 27 cents per $100 of assessable deposits for the most risky
institutions, but the FDIC is authorized to set the top rate as high as 31
cents. Under the premium structure currently in effect and based on its current
capital position and regulatory risk rating, the Bank pays no deposit insurance
premium.
The FDIC also collects a deposit-based assessment from insured
financial institutions on behalf of The Financing Corporation (FICO). The funds
from these assessments are used to service debt issued by FICO in its capacity
as a financial vehicle for the Federal Savings & Loan Insurance Corporation. The
FICO assessment rate is set quarterly and in 2004 ranged from 1.54 cents to 1.46
cents per $100 of assessable deposits.
Other Statutes and Regulations
The Company and the Bank are subject to a myriad of other statutes and
regulations affecting their activities. Some of the more important are:
Anti-Money Laundering. Financial institutions must maintain anti-money
laundering programs that include established internal policies, procedures, and
controls; a designated compliance officer; an ongoing employee training program;
and testing of the program by an independent audit function. The Company and the
Bank are also prohibited from entering into specified financial transactions and
account relationships and must meet enhanced standards for due diligence and
"knowing your customer" in their dealings with foreign financial institutions
and foreign customers. Financial institutions must take reasonable steps to
conduct enhanced scrutiny of account relationships to guard against money
laundering and to report any suspicious transactions, and recent laws provide
the law enforcement authorities with increased access to financial information
maintained by banks. Anti-money laundering obligations have been substantially
strengthened as a result of the USA Patriot Act, enacted in 2001. Bank
regulators routinely examine institutions for compliance with these obligations
and are required to consider compliance in connection with the regulatory review
of applications. The regulatory authorities have been active in imposing "cease
and desist" orders and money penalty sanctions against institutions found to be
violating these obligations.
Sections 23A and 23B of the Federal Reserve Act. The Bank is limited in
its ability to lend funds or engage in transactions with the Company or other
nonbank affiliates of the Company, and all transactions must be on an
arms-length basis and on terms at least as favorable to the Bank as those
prevailing at the time for transactions with unaffiliated companies. Outstanding
loans from the Bank to the Company may not exceed 10% of the Bank's capital
stock and surplus, and these loans must be fully collateralized.
4
Dividends. Whitney's principal source of cash flow, including cash flow
to pay dividends to its shareholders, is the dividends that it receives from the
Bank. Statutory and regulatory limitations apply to the Bank's payment of
dividends to the Company as well as to the Company's payment of dividends to its
shareholders. A depository institution may not pay any dividend if payment would
cause it to become undercapitalized or if it already is undercapitalized. The
federal banking agencies may prevent the payment of a dividend if they determine
that the payment would be an unsafe and unsound banking practice. Moreover, the
federal agencies have issued policy statements that provide that bank holding
companies and insured banks should generally only pay dividends out of current
operating earnings.
Community Reinvestment Act. The Bank is subject to the provisions of
the Community Reinvestment Act of 1977, as amended (CRA), and the related
regulations issued by federal banking agencies. The CRA states that all banks
have a continuing and affirmative obligation, consistent with safe and sound
operation, to help meet the credit needs for their entire communities, including
low- and moderate-income neighborhoods. The CRA also charges a bank's primary
federal regulator, in connection with the examination of the institution or the
evaluation of certain regulatory applications filed by the institution, with the
responsibility to assess the institution's record in fulfilling its obligations
under the CRA. The regulatory agency's assessment of the institution's record is
made available to the public. The Bank received an "outstanding" rating
following its most recent CRA examination.
Consumer Regulation. Activities of the Bank are subject to a variety of
statutes and regulations designed to protect consumers. These laws and
regulations include provisions that:
o limit the interest and other charges collected or contracted for
by the Bank;
o govern the Bank's disclosures of credit terms to consumer
borrowers;
o require the Bank to provide information to enable the public and
public officials to determine whether it is fulfilling its
obligation to help meet the housing needs of the community it
serves;
o prohibit the Bank from discriminating on the basis of race,
creed or other prohibited factors when it makes decisions to
extend credit;
o require that the Bank safeguard the personal nonpublic
information of its customers, provide annual notices to
consumers regarding the usage and sharing of such information,
and limit disclosure of such information to third parties except
under specific circumstances; and
o govern the manner in which the Bank may collect consumer debts.
The deposit operations of the Bank are also subject to laws and
regulations that:
o require the Bank to adequately disclose the interest rates and
other terms of consumer deposit accounts;
o impose a duty on the Bank to maintain the confidentiality of
consumer financial records and prescribe procedures for
complying with administrative subpoenas of financial records;
and
o govern automatic deposits to and withdrawals from deposit
accounts with the Bank and the rights and liabilities of
customers who use automated teller machines and other electronic
banking services.
EMPLOYEES
At the end of 2004, the Company and the Bank had a total of 2,436
employees, or 2,373 employees on a full-time equivalent basis. Whitney affords
its employees a variety of competitive benefit programs including retirement
plans and group health, life and other insurance programs. The Company also
supports training and educational programs designed to ensure that employees
have the types and levels of skills needed to perform at their best in their
current positions and to help them prepare for positions of increased
responsibility.
5
EXECUTIVE OFFICERS OF THE COMPANY
Name and Age Position Held and Recent Business Experience
- --------------------------- --------------------------------------------
William L. Marks, 61 Chief Executive Officer and Chairman of the
Board of the Company and Whitney National
Bank since 1990
R. King Milling, 64 President of the Company and Whitney
National Bank since 1984; Director of the
Company and Whitney National Bank since 1979
Robert C. Baird, Jr., 54 Executive Vice President of the Company and
Whitney National Bank since 1995, Division
Executive of Louisiana Banking
Thomas L. Callicutt, Jr., 57 Executive Vice President and Chief Financial
Officer of the Company and Whitney National
Bank since 1999 and Treasurer of the Company
since 2001; Senior Vice President and
Comptroller of Whitney National Bank from
1998 to 1999
Rodney D. Chard, 62 Executive Vice President of the Company and
Whitney National Bank since 1996, Division
Executive of Operations and Technology
Joseph S. Exnicios, 49 Executive Vice President of the Company and
Whitney National Bank since 2004, Senior
Vice President of Whitney National Bank from
1994 to 2004, Division Executive of New
Orleans Commercial Banking
John C. Hope III, 55 Executive Vice President of the Company
since 1994 and of Whitney National Bank
since 1998, Division Executive of Gulf Coast
Banking
Kevin P. Reed, 44 Executive Vice President of the Company and
Whitney National Bank since 2004, Senior
Vice President of Whitney National Bank from
1998 to 2004, Division Executive of Trust &
Wealth Management
Lewis P. Rogers, 52 Executive Vice President of the Company and
Whitney National Bank since 2004, Senior
Vice President of Whitney National Bank from
1998 to 2004, Division Executive of Credit
Administration
John M. Turner, 43 Executive Vice President of the Company and
Whitney National Bank since February 2005,
Senior Vice President of Whitney National
Bank from 1994 to 2005, Regional Executive -
Eastern Region
AVAILABLE INFORMATION
The Company's filings with the Securities and Exchange Commission
(SEC), including annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those reports, are available on
Whitney's website as soon as reasonably practicable after the Company files with
the SEC. Copies can be obtained free of charge by visiting the Company's website
at www.whitneybank.com. The Company's website is not incorporated into this
annual report on Form 10-K.
6
Item 2: PROPERTIES
The Company owns no real estate in its own name. The Company's
executive offices are located in downtown New Orleans in the main office
facility owned by Whitney National Bank. The Bank also owns an operations center
in the greater New Orleans area. The Bank makes portions of its main office
facility and certain other facilities available for lease to third parties,
although such incidental leasing activity is not material to Whitney's overall
operations. The Bank maintains approximately 130 active banking facilities in
five states. The Bank owns approximately 75% of these facilities, and the
remaining banking facilities are subject to leases, each of which management
considers to be reasonable and appropriate to its location. Management ensures
that all properties, whether owned or leased, are maintained in suitable
condition. Management also evaluates its banking facilities on an ongoing basis
to identify possible under-utilization and to determine the need for functional
improvements, relocations or possible sales.
The Bank and a subsidiary hold a variety of property interests acquired
through the years in settlement of loans. Note 7 to the consolidated financial
statements included in Item 8 provides further information regarding such
property interests and is incorporated here by reference.
Item 3: LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the Company's business, to which the Company or
its subsidiaries is a party or to which any of their property is subject.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
7
PART II
Item 5: MARKET FOR THE REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's stock trades on The Nasdaq National Market under the
symbol WTNY. The Summary of Quarterly Financial Information appearing in Item 8
of this Form 10-K shows the high and low sales prices of the Company's stock for
each calendar quarter of 2004 and 2003 as reported on The Nasdaq National
Market, and is incorporated here by reference.
The approximate number of shareholders of record of the Company, as of
March 4, 2005, was as follows:
Title of Class Shareholders of Record
----------------------------------------------------------------------
Common Stock, no par value 5,232
Dividends declared by the Company are listed in the Summary of
Quarterly Financial Information appearing in Item 8 of this Form 10-K, which is
incorporated here by reference. For a description of certain restrictions on the
payment of dividends see the section entitled "Supervision and Regulation"
appearing in Item 1 of this annual report.
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, as amended) of the
Company's common stock during the three months ended December 31, 2004.
- ------------- ----------- ---------- ----------------------- -------------------
Total Number Maximum Number of
Total of Shares Shares that May Yet
Number of Average Purchased as Part Be Purchased Under
Shares Price Paid of Publicly Announced the Plans or
Period Purchased per share Plans or Programs (1) Programs (1)
- ------------- ----------- ---------- ----------------------- -------------------
October 2004 1,662(2) $43.585 - 1,750,000
- ------------- ----------- ---------- ----------------------- -------------------
November 2004 142,626(2) $45.385 141,250 1,608,750
- ------------- ----------- ---------- ----------------------- -------------------
December 2004 566,628 $44.232 566,628 1,042,122
- ------------- ----------- ---------- ----------------------- -------------------
(1) In October 2004, the Board of Directors authorized the Company to
repurchase up to 1.75 million shares of its common stock. The
repurchase program is authorized for one year, beginning October
27, 2004.
(2) Includes 1,662 shares in October and 1,376 shares in November that
were tendered to the Company as consideration for the exercise
price of employee stock options.
8
Item 6: SELECTED FINANCIAL DATA
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
Years Ended December 31
- --------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------
YEAR-END BALANCE SHEET DATA
Total assets $8,222,624 $7,754,982 $7,097,881 $7,243,650 $6,650,265
Earning assets 7,648,740 7,193,709 6,501,009 6,681,786 6,078,951
Loans 5,626,276 4,882,610 4,455,412 4,495,085 4,587,438
Investment securities 1,991,244 2,281,405 1,975,698 1,632,340 1,462,189
Deposits 6,612,607 6,158,582 5,782,879 5,950,160 5,332,474
Shareholders' equity 904,765 840,313 800,483 717,888 665,764
- --------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET DATA
Total assets $7,890,183 $7,238,022 $7,016,675 $6,831,564 $6,282,044
Earning assets 7,327,233 6,717,863 6,492,791 6,303,445 5,771,256
Loans 5,179,734 4,595,868 4,372,194 4,475,149 4,228,948
Investment securities 2,120,594 2,004,245 1,816,216 1,525,254 1,478,609
Deposits 6,347,503 5,913,186 5,750,141 5,548,556 4,927,214
Shareholders' equity 881,477 823,698 760,725 698,099 622,814
- --------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Interest income $360,772 $338,069 $370,909 $441,145 $452,261
Interest expense 40,682 43,509 75,701 161,349 185,181
Net interest income 320,090 294,560 295,208 279,796 267,080
Net interest income (TE) 326,237 300,115 300,134 285,161 273,176
Provision for loan losses 2,000 (3,500) 7,500 19,500 12,690
Noninterest income 82,523 89,504 85,185 91,209 75,120
Net securities gains in noninterest income 68 863 411 165 850
Noninterest expense 260,278 242,923 230,926 239,104 223,179
Net income 97,137 98,542 95,323 75,820 72,842
- --------------------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets 1.23% 1.36% 1.36% 1.11% 1.16%
Return on average shareholders' equity 11.02 11.96 12.53 10.86 11.70
Net interest margin 4.45 4.47 4.62 4.52 4.73
Average loans to average deposits 81.60 77.72 76.04 80.65 85.83
Efficiency ratio 63.69 62.49 60.00 62.09 63.92
Allowance for loan losses to loans .97 1.22 1.48 1.59 1.33
Nonperforming assets to loans plus foreclosed
and surplus property .46 .62 .95 .77 .55
Net charge-offs to average loans .19 .07 .28 .21 .04
Average shareholders' equity to average assets 11.17 11.38 10.84 10.22 9.91
Shareholders' equity to total assets 11.00 10.84 11.28 9.91 10.01
Leverage ratio 9.56 10.13 9.76 8.72 8.93
- --------------------------------------------------------------------------------------------------------------------
COMMON SHARE DATA
Earnings Per Share
Basic $2.38 $2.47 $2.39 $1.92 $1.89
Diluted 2.35 2.44 2.38 1.90 1.89
Dividends
Cash dividends per share $1.34 $1.23 $1.11 $1.03 $.96
Dividend payout ratio 56.99% 50.32% 46.50% 53.81% 50.04%
Book Value Per Share $21.85 $20.78 $19.98 $18.10 $16.92
Trading Data
High sales price $46.24 $41.32 $38.52 $32.56 $27.79
Low sales price 39.52 30.75 28.09 24.00 21.00
End-of-period closing price 44.99 40.99 33.33 29.23 24.21
Trading volume 18,441,501 22,924,257 21,926,523 13,965,350 10,566,587
Average Shares Outstanding
Basic 40,748,387 39,929,431 39,848,881 39,550,723 38,475,984
Diluted 41,388,695 40,396,134 40,121,544 39,836,047 38,568,699
- --------------------------------------------------------------------------------------------------------------------
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).
All prices are as reported on The Nasdaq National Market.
9
Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to focus on significant
changes in the financial condition of Whitney Holding Corporation and its
subsidiaries (the Company or Whitney) and on their results of operations during
2004, 2003 and 2002. Virtually all of the Company's operations are contained in
its banking subsidiary, Whitney National Bank (the Bank). This discussion and
analysis is intended to highlight and supplement information presented elsewhere
in this annual report on Form 10-K, particularly the consolidated financial
statements and related notes appearing in Item 8. Certain financial information
in prior years has been reclassified to conform to the current year's
presentation.
FORWARD-LOOKING STATEMENTS
This discussion includes "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. Forward-looking
statements provide projections of results of operations or of financial
condition or state other forward-looking information, such as expectations about
future conditions and descriptions of future plans and strategies.
Forward-looking statements often contain words such as "anticipate," "believe,"
"estimate," "expect," "forecast," "goal," "intend," "plan," "project" or other
words of similar meaning.
The forward-looking statements made in this discussion include, but may
not be limited to (a) discussion of potential earnings volatility from changes
in the estimated allowance for loan losses over time, (b) comments on the
expected growth rate of the loan portfolio and conditions impacting certain
industries represented in the customer base, (c) statements of the results of
net interest income simulations run by the Company to measure interest rate
sensitivity, (d) comments about the performance of Whitney's net interest
income, net interest margin, yields on the loan and investment portfolios, and
deposit rates assuming certain conditions, (e) comments about possible future
levels of home loan refinancing activity, and (f) comments on expected changes
or trends in expense levels for retirement benefits, current health benefits,
equipment and data processing, amortization of intangibles, advertising and
promotion and corporate value tax.
Whitney's ability to accurately project results or predict the effects
of future plans or strategies is inherently limited. Although Whitney believes
that the expectations reflected in forward-looking statements are based on
reasonable assumptions, actual results and performance could differ materially
from those set forth in the forward-looking statements. Factors that could cause
actual results to differ from those expressed in the Company's forward-looking
statements include, but are not limited to:
o Changes in economic and business conditions, including those
caused by natural disasters or by acts of war or terrorism, that
directly or indirectly affect the financial health of Whitney's
customer base.
o Changes in interest rates that affect the pricing of Whitney's
financial products, the demand for its financial services and the
valuation of its financial assets and liabilities.
o Changes in laws and regulations that significantly affect the
activities of the banking industry and the industry's competitive
position relative to other financial service providers.
o Technological changes affecting the nature or delivery of
financial products or services and the cost of providing them.
o The failure to capitalize on growth opportunities and realize cost
savings in connection with business acquisitions.
o Management's inability to develop and execute plans for Whitney
to effectively respond to unexpected changes.
Whitney does not intend, and undertakes no obligation, to update or
revise any forward-looking statements, whether as a result of differences in
actual results, changes in assumptions or changes in other factors affecting
such statements.
10
OVERVIEW
Whitney earned $97.1 million in 2004, or 1% less than the $98.5 million
earned in 2003. Per share earnings in 2004 were $2.38 per basic share and $2.35
per diluted share, each approximately 4% lower than in 2003. The key components
of 2004's earnings performance follow:
o Net interest income, on a taxable-equivalent (TE) basis, increased
9% in 2004, consistent with the growth in average earning assets
over 2003. Whitney's net interest margin (TE) held steady between
these periods. The most important factors behind the increase in
net interest income (TE) in 2004 were loan growth and an improved
mix of earning assets, rising market interest rates over the
latter half of the year, continued liquidity in the deposit base,
and careful management of the pricing structure for loans and
deposits.
o The direction of overall credit quality was favorable during 2004
and Whitney was able to reduce its allowance for loan losses by
$5.1 million from the end of 2003. Net charge-offs totaled $9.6
million in 2004, up from $3.1 million in 2003 when the Company
made a significant recovery on a single relationship. For 2004,
the Company recognized a $2 million provision for loan losses
compared to a negative provision of $3.5 million in 2003.
o Noninterest income decreased 8%, or $7.0 million, in 2004. Fee
income generated by Whitney's secondary mortgage market operations
was down $6.3 million to a level less than half that generated in
2003 on a sharp reduction in home loan refinancing activity.
Rising short-term market rates led to an increase in the earnings
credit allowed against service charges on certain business deposit
accounts, which contributed to a 3%, or $1.2 million, decrease in
deposit service charge income. Fees from bank cards were up 12%,
or $1.1 million, in 2004, on continued growth in transaction
volumes. Trust service fees rose 10%, or $.8 million, on new
customer development and improved equity market valuations.
o Noninterest expense was 7%, or $17.4 million, higher in 2004.
The primary reason for this increase was the 6%, or $8.0 million,
increase in personnel expense. Employee compensation increased 5%,
or $5.7 million, with $2.9 million of the total increase coming
from the stock-based component of management incentive
compensation plans. Employee benefits expense was up 8%, or $2.3
million, mainly related to pension and current health benefits.
Banking operations acquired in 2004 contributed approximately 1%,
or $1.2 million, to the total increase in personnel expense for
the year. Noninterest expense in 2004 also included a $1.6
million loss on the abandonment of certain noncancelable facility
leases, $.5 million in costs to convert acquired operations to
Whitney's system and a $.6 million casualty loss for hurricane
damage.
11
CRITICAL ACCOUNTING POLICIES
Whitney prepares its financial statements in accordance with accounting
principles generally accepted in the United States of America. A discussion of
certain accounting principles and methods of applying those principles that are
particularly important to this process is included in Note 2 to the consolidated
financial statements. In applying these principles to determine the amounts and
other disclosures that are presented in the financial statements and discussed
in this section, the Company is required to make estimates and assumptions.
Whitney believes that the determination of its estimate of the
allowance for loan losses involves a higher degree of judgment and complexity
than its application of other significant accounting policies. Factors
considered in this determination and management's process are discussed in Note
2 and in the following section on "Loans, Credit Risk Management and Allowance
for Loan Losses." Although management believes it has identified appropriate
factors for review and designed and implemented adequate procedures to support
the estimation process that are consistently followed, the allowance remains an
estimate about the effect of matters that are inherently uncertain. Over time,
changes in economic conditions or the actual or perceived financial condition of
Whitney's credit customers or other factors can materially impact the allowance
estimate, potentially subjecting the Company to significant earnings volatility.
Management makes a variety of assumptions in applying principles that
govern the accounting for retirement benefits under the Company's defined
benefit pension plan. These assumptions are essential to the actuarial valuation
that determines the amounts Whitney recognizes and certain disclosures it makes
in the consolidated financial statements related to the operation of this plan
(see Note 13 in Item 8). Two of the more significant assumptions concern the
expected long-term rate of return on plan assets and the rate needed to discount
projected benefits to their present value. Changes in these assumptions impact
the cost of pension benefits recognized in earnings. Certain assumptions are
closely tied to current conditions and are generally revised at each measurement
date. For example, the discount rate is set with reference to market yields on
high quality fixed-income investments. Other assumptions, such as the rate of
return on assets, are determined, in part, with reference to historical and
expected conditions over time and are not as susceptible to frequent revision.
Holding other factors constant, pension cost will move opposite to changes in
either the discount rate or the rate of return on assets. Recent trends in
pension costs are discussed in the section on "Noninterest Expense."
12
FINANCIAL CONDITION
LOANS, CREDIT RISK MANAGEMENT AND ALLOWANCE FOR LOAN LOSSES
Loan Portfolio Developments
Total loans increased 15%, or $744 million, from year-end 2003, after
growing 10% in 2003. Approximately $189 million of loans was added through a
business acquisition in the third quarter of 2004. The loan portfolio has grown
consistently throughout 2004 and 2003. New customer development and demand from
Whitney's established customer base for commercial, commercial real estate and
real estate development and construction loans has accounted for most of the
increase. Table 1 shows loan balances by type of loan at December 31, 2004 and
at the end of the previous four years.
TABLE 1. LOANS OUTSTANDING BY TYPE
- ------------------------------------------------------------------------------------------------------------------
December 31
- ------------------------------------------------------------------------------------------------------------------
(in thousands) 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural $2,399,794 $2,213,207 $1,917,859 $1,852,497 $1,815,205
Real estate - commercial, construction and
other 2,209,975 1,726,212 1,584,099 1,576,817 1,544,390
Real estate - residential mortgage 685,732 619,869 638,703 761,355 874,645
Individuals 330,775 323,322 314,751 304,416 353,198
- ------------------------------------------------------------------------------------------------------------------
Total loans $5,626,276 $4,882,610 $4,455,412 $4,495,085 $4,587,438
- ------------------------------------------------------------------------------------------------------------------
The portfolio of commercial loans, other than those secured by real
property, was up $187 million, or 8%, compared to year-end 2003. This portfolio
sector grew $295 million, or 15%, in 2003 from the end of 2002. The bank
acquisition in 2004 had little impact on this portfolio segment. Overall the
portfolio remained well-diversified, with customers in a wide range of
industries, including oil and gas exploration and production, marine
transportation, wholesale and retail trade in various durable and nondurable
products and the manufacture of such 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. The rate of commercial loan growth at the Bank in
2005 will depend mainly on the economic fundamentals affecting its customers as
well as on its ability to continue to develop customers in the newer parts of
its market and take advantage of competitive circumstances to attract new
business in its established market.
At December 31, 2004, outstanding loans to oil and gas industry
customers represented approximately 9% of total loans. The outstanding balance
of $509 million at year-end 2004 was comparable to the balance at the end of
2003. The major portion of the Company's customer base in this industry provides
transportation and other services and products to support exploration and
production activities. Whitney seeks service and supply customers who are
quality operators that can manage through volatile commodity price cycles. With
expectations of sustained higher commodity prices, Whitney has increased its
attention to lending opportunities in the exploration and production sector
during 2003 and 2004. Outstanding loans to exploration and production companies
totaled close to a quarter of the industry portfolio at the end of 2004. The
Bank has a petroleum engineer on staff who participates in the underwriting of
loans to exploration and production customers. Management, through the Bank's
Credit Policy Committee, monitors both industry fundamentals and portfolio
performance and credit quality on a formal ongoing basis and establishes and
adjusts internal exposure guidelines as a percent of capital both for the
industry as a whole and for individual sectors within the industry. The level of
activity in this industry continues to have an important impact on the economies
of certain portions of Whitney's market area, particularly southern Louisiana
and Houston.
Outstanding balances under participations in larger shared-credit loan
commitments totaled approximately $333 million at December 31, 2004, including
$98 million related to the oil and gas industry. Substantially all such shared
credits are with customers operating in Whitney's market area.
13
The commercial real estate portfolio includes loans for construction
and real estate development, both commercial and residential, loans secured by
multi-family residential properties, and loans secured by properties used in
commercial or industrial operations. This portfolio sector grew 28%, or $484
million, in 2004, and 9%, or $142 million, in 2003. Approximately $145 million,
or close to a third, of the growth in 2004 was from loans with acquired
operations. Whitney has been able to develop new business in this highly
competitive market throughout its market area, and the Company continues to
finance new projects for its established customer base. The pace of new real
estate project development has increased with improving economic conditions and
higher confidence that these conditions will be sustained. The level of growth
achieved in a given period will be impacted by expected paydowns on and
permanent takeouts of seasoned projects as developers take advantage of
continued favorable long-term financing rates. The Bank's Credit Policy
Committee has also set exposure guidelines for the overall portfolio of
commercial real estate loans as well as for loans to developers or owner-users
that are secured by various subcategories of property. As with lending to the
oil and gas industry, management regularly monitors real estate industry
fundamentals and portfolio credit quality. In recent years, activity in this
portfolio sector has been driven by the development of retail, small office and
commercial facilities by customers throughout Whitney's market area, and by
apartment and condominium projects, particularly in the eastern Gulf Coast
region. Financing activity for hotel and other hospitality industry projects,
which have largely been concentrated in the New Orleans metropolitan area, has
slowed over this period.
The residential mortgage loan portfolio grew by $66 million, or 11%,
from the end of 2003 to year-end 2004, with a third of this growth from
acquisitions. 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. This portfolio
sector had declined over the previous three years as many loans refinanced while
new production was sold. There was little change in the total of fixed-term home
equity loans outstanding during 2004. This loan product offers customers the
opportunity to leverage increased home values and equity to obtain
tax-advantaged consumer financing. The rate of growth in this product slowed in
recent years as borrowers increasingly tapped home equity when refinancing their
primary home mortgages.
Loans to individuals include various consumer installment and credit
line loan products other than fixed-term home equity loans. This portfolio
sector has grown moderately for several years, mainly from the promotion of
secured personal credit lines.
Table 2 reflects contractual loan maturities, unadjusted for scheduled
principal reductions, prepayments or repricing opportunities. Approximately 53%
of the value of loans with a maturity greater than one year carries a fixed rate
of interest.
TABLE 2. LOAN MATURITIES BY TYPE
- -----------------------------------------------------------------------------------------------------------------
December 31, 2004
- -----------------------------------------------------------------------------------------------------------------
One year One through More than
(in thousands) or less five years five years Total
- -----------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural $1,619,336 $ 732,827 $ 47,631 $2,399,794
Real estate - commercial, construction and 609,860 1,343,341 256,774 2,209,975
other
Real estate - residential mortgage 87,881 328,579 269,272 685,732
Individuals 159,281 163,544 7,950 330,775
- -----------------------------------------------------------------------------------------------------------------
Total $2,476,358 $2,568,291 $581,627 $5,626,276
- -----------------------------------------------------------------------------------------------------------------
14
Credit Risk Management and Allowance for Loan Losses
Whitney manages credit risk mainly through adherence to 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. Written credit
policies define underwriting criteria, concentration guidelines, and lending
approval processes that cover individual authority and the appropriate
involvement of regional loan committees and a senior loan committee. The senior
loan committee is composed of the Bank's senior lenders, senior officers in
Credit Administration, the President and the Chairman and Chief Executive
Officer.
Commercial credits, including commercial real estate loans, are
underwritten principally based upon cash flow coverage, but additional support
is regularly obtained through collateralization and guarantees. Commercial loans
are typically relationship-based rather than transaction-driven. Loan
concentrations are monitored monthly by management and the Board of Directors.
Consumer loans are centrally underwritten with the support of automated credit
scoring tools, with appropriate secondary review procedures.
A strong monitoring process is the key to early identification of
problem credits. 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 processes.
Once a problem relationship over a certain size threshold is identified, a
quarterly watch committee process is initiated. The watch committee, composed of
senior lending and credit administration management, must approve any
substantive changes to identified problem credits and assigns relationships to
the special credits department when appropriate.
Management's evaluation of credit risk in the portfolio is ultimately
reflected in the estimate of probable loan 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 groups of
homogeneous loans not individually rated; 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. Criticized loans include
those that are deemed to be impaired as defined by Statement of Financial
Accounting Standards (SFAS) No. 114. Specific allowances are determined for
impaired loans based on the present value of expected future cash flows
discounted at the loan's contractual interest rate, the fair value of the
collateral if the loan is collateral dependent, or, when available, the loan's
observable market price. The allowance for the remainder of criticized loans is
calculated by applying loss factors to loan balances aggregated by the severity
of the internal risk rating. The loss factors applied to criticized loans are
determined with reference to the results of migration analysis, which analyzes
the charge-off experience over time for loans with in each rating category.
For the second element, loans assessed as having average or better
credit quality with similar risk ratings and homogeneous loans not subject to
individual rating, such as residential mortgage loans, consumer installment
loans and draws under consumer credit lines, are grouped together and individual
loss factors are applied to each group. The loss factors for homogeneous loan
groups are based on average historical charge-off information. Industry-based
factors are applied to other portfolio segments for which migration analysis has
not been performed.
15
Determining the final element of the allowance involves assessing how
other current factors, both internal and external, impact the accuracy of
results obtained for the other two elements. Internally, management must
consider whether trends have been identified in the quality of underwriting and
loan administration as well as in the timely identification of credit quality
issues. Management also monitors shifts in portfolio concentrations and other
changes in portfolio characteristics that indicate levels of risk not fully
captured in the loss factors. External factors include local and national
economic trends, as well as changes in the economic fundamentals of specific
industries that are well-represented in Whitney's customer base. Management has
established procedures to help ensure a consistent approach to this inherently
judgmental process over time.
TABLE 3. NONPERFORMING ASSETS
- -----------------------------------------------------------------------------------------------------------------
December 31
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis $23,597 $26,776 $37,959 $33,412 $23,579
Restructured loans 49 114 336 383 465
- -----------------------------------------------------------------------------------------------------------------
Total nonperforming loans 23,646 26,890 38,295 33,795 24,044
Foreclosed assets and surplus banking property 2,454 3,490 3,854 991 995
- -----------------------------------------------------------------------------------------------------------------
Total nonperforming assets $26,100 $30,380 $42,149 $34,786 $25,039
- -----------------------------------------------------------------------------------------------------------------
Loans 90 days past due still accruing $3,533 $3,385 $5,817 $6,916 $4,343
- -----------------------------------------------------------------------------------------------------------------
Ratios:
Nonperforming assets to loans plus foreclosed
assets and surplus property .46% .62% .95% .77% .55%
Allowance for loan losses to
nonperforming loans 229.83 221.18 172.65 211.96 253.77
Loans 90 days past due still accruing
to loans .06 .07 .13 .15 .09
- -----------------------------------------------------------------------------------------------------------------
Table 3 provides information on nonperforming loans and other
nonperforming assets for each of the five years in the period ended December 31,
2004. Nonperforming loans are included in the criticized loan total discussed
below and encompass substantially all loans separately evaluated for impairment.
There have been no significant trends related to industries or markets
underlying the changes in nonperforming assets. The Company reduced
nonperforming loans by $3 million in 2004 and $11 million in 2003. A comparison
of contractual interest income on nonperforming loans with cash-basis and
cost-recovery interest actually recognized on these loans for 2004, 2003 and
2002 is presented in Note 7 to the consolidated financial statements. Whitney's
policy for placing loans on nonaccrual status is presented in Note 2 to the
consolidated financial statements.
During 2004, there was a $14 million reduction in the total of loans
criticized through the internal credit risk classification process. Criticized
loans at December 31, 2004 included $15 million of loans whose full repayment is
in doubt, up $6 million from year-end 2003. Loans identified as having
well-defined weaknesses that would likely result in some loss if not corrected
decreased $21 million during 2004, to a total of $86 million at year end. Loans
warranting special attention totaled $72 million at year-end 2004, up $1 million
from the prior year end. The allowance determined for criticized loans at
December 31, 2004, other than those separately evaluated for impairment, was
$5.5 million below that determined at year-end 2003, reflecting mainly the lower
criticized balances outstanding and a reduction in the loss factor applied to
loans warranting special attention based on the regular reassessment of loss
experience. The allowance for impaired loans decreased $.7 million from the end
of 2003 to 2004's year end.
16
TABLE 4. SUMMARY OF ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------
Balance at the beginning of year $59,475 $66,115 $71,633 $61,017 $47,543
Allowance of acquired banks 2,461 - - 1,196 2,388
Allowance on loans transferred to held for sale - - (895) (651) -
Provision for loan losses charged to operations 2,000 (3,500) 7,500 19,500 12,690
Loans charged to the allowance:
Commercial, financial and agricultural (9,680) (7,286) (6,894) (11,678) (4,244)
Real estate - commercial, construction and (932) (963) (5,148) (252) (884)
other
Real estate - residential mortgage (619) (1,176) (1,816) (552) (697)
Individuals (2,799) (3,509) (3,353) (3,020) (2,656)
- -------------------------------------------------------------------------------------------------------------------
Total charge-offs (14,030) (12,934) (17,211) (15,502) (8,481)
- -------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial, financial and agricultural 2,488 2,273 2,472 3,130 2,679
Real estate - commercial, construction and 223 3,666 463 965 1,796
other
Real estate - residential mortgage 246 1,873 509 348 658
Individuals 1,482 1,982 1,644 1,630 1,744
- -------------------------------------------------------------------------------------------------------------------
Total recoveries 4,439 9,794 5,088 6,073 6,877
- -------------------------------------------------------------------------------------------------------------------
Net charge-offs (9,591) (3,140) (12,123) (9,429) (1,604)
- -------------------------------------------------------------------------------------------------------------------
Balance at the end of year $54,345 $59,475 $66,115 $71,633 $61,017
- -------------------------------------------------------------------------------------------------------------------
Ratios
Net charge-offs to average loans .19% .07% .28% .21% .04%
Gross charge-offs to average loans .27 .28 .39 .35 .20
Recoveries to gross charge-offs 31.64 75.72 29.56 39.18 81.09
Allowance for loan losses to loans at end
of year .97 1.22 1.48 1.59 1.33
- -------------------------------------------------------------------------------------------------------------------
The allowance for loans with average or better credit quality ratings
and loans not subject to individual rating increased $2.7 million from the end
of 2003 to December 31, 2004, mainly driven by loan growth. Favorable regular
adjustments to loss factors for certain smaller portfolio segments offset some
of the growth-driven increase in the allowance. The overall allowance determined
as of December 31, 2004, was $5.1 million below the allowance at year-end 2003,
including a $1.6 million reduction related to management's relative assessment
of economic and other qualitative risk factors between these dates.
TABLE 5. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
- -------------------------------------------------------------------------------------------------------------------
December 31
- -------------------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------
% % % % %
(dollars in millions) Balance Loans Balance Loans Balance Loans Balance Loans Balance Loans
- -------------------------------------------------------------------------------------------------------------------
Commercial, financial
and agricultural $24.3 43% $29.2 45% $32.0 43% $36.4 41% $29.5 39%
Real estate - commercial,
construction and other 21.2 39 19.2 35 18.8 36 17.7 35 17.1 34
Real estate -
residential mortgage 4.2 12 5.0 13 5.5 14 7.6 17 7.0 19
Individuals 2.7 6 2.6 7 4.7 7 4.5 7 4.9 8
Unallocated 1.9 - 3.5 - 5.1 - 5.4 - 2.5 -
- -------------------------------------------------------------------------------------------------------------------
Total $54.3 100% $59.5 100% $66.1 100% $71.6 100% $61.0 100%
- -------------------------------------------------------------------------------------------------------------------
Table 4 shows the activity in the allowance over the past five years,
and the allocation of the allowance to loan categories is included in Table 5,
together with the percentage of total loans in each category.
17
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 management 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 security
paydowns and prepayments expected in 2004, and the portfolio increased $309
million during the fourth quarter of 2003. This strategy was unwound as planned
during 2004, and the portfolio total of $2.0 billion at December 31, 2004 was
down 13%, or $290 million, compared to December 31, 2003, with proceeds
supporting loan growth in 2004.
Information about the contractual maturity structure of investment
securities at December 31, 2004, including the weighted-average yield on such
securities, is shown in Table 6. The carrying value of securities with explicit
call options totaled $173 million at year-end 2004. These call options and the
scheduled principal reductions and projected prepayments on mortgage-backed
securities are not reflected in Table 6. Including expected principal reductions
on mortgage-backed securities, the weighted-average maturity of the overall
securities portfolio was approximately 48 months at December 31, 2004, compared
to 45 months at year-end 2003.
TABLE 6. DISTRIBUTION OF INVESTMENT MATURITIES
- -------------------------------------------------------------------------------------------------------------------------
December 31, 2004
- -------------------------------------------------------------------------------------------------------------------------
Over one through Over five through
(dollars in thousands) One year and less five years ten years Over ten years Total
- -------------------------------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- -------------------------------------------------------------------------------------------------------------------------
Securities Available for Sale
- -------------------------------------------------------------------------------------------------------------------------
Mortgage-backed
securities(a) $ 1,659 4.32% $ 72,191 5.27% $294,651 4.19% $ 972,411 4.29% $1,340,912 4.32%
U. S. agency securities 35,089 3.90 176,378 2.70 72,117 3.99 - - 283,584 3.18
U. S. Treasury securities 55,607 5.34 24,742 2.47 - - - - 80,349 4.45
Obligations of states and
political subdivisions (b) 3,009 6.30 11,385 6.17 7,777 6.56 - - 22,171 6.33
Other debt securities 150 7.47 1,808 6.11 2,948 5.80 - - 4,906 5.96
Equity securities(c) - - - - - - 31,852 3.74 31,852 3.74
- -------------------------------------------------------------------------------------------------------------------------
Total $95,514 4.82% $286,504 3.49% $377,493 4.21% $1,004,263 4.28% $1,763,774 4.16%
- -------------------------------------------------------------------------------------------------------------------------
Securities Held to Maturity
- -------------------------------------------------------------------------------------------------------------------------
Obligations of states and
political subdivisions (b) $5,096 6.51% $33,481 6.79% $105,403 6.04% $83,490 6.20% $227,470 6.22%
- -------------------------------------------------------------------------------------------------------------------------
Total $5,096 6.51% $33,481 6.79% $105,403 6.04% $83,490 6.20% $227,470 6.22%
- -------------------------------------------------------------------------------------------------------------------------
(a) Distributed by contractual maturity without regard to repayment schedules or projected prepayments.
(b) Tax exempt yields are expressed on a fully taxable equivalent basis.
(c) These securities have no stated maturities or guaranteed dividends. Yield estimated based on expected near-term
returns.
The weighted-average taxable-equivalent portfolio yield was
approximately 4.40% at December 31, 2004, down slightly from 4.43% at December
31, 2003. A substantial majority of the securities in the investment portfolio
bear fixed interest rates. The investment in mortgage-backed securities with
final contractual maturities beyond ten years shown in Table 6 included
approximately $411 million of adjustable-rate issues with a weighted-average
yield of 4.16%. The initial reset dates on these securities are mainly within
four to six years from the end of 2004.
Whitney has increased the proportion of both mortgage-backed securities
and state and municipal obligations held in the portfolio over the past two
years and the duration of the portfolio increased to 3.1 years at December 31,
2004 from 1.5 years at year-end 2002. The duration of the portfolio at December
31, 2004 would extend to 3.9 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.
18
Securities available for sale constituted 89% of the total investment
portfolio at December 31, 2004. There was a net unrealized loss on this
portfolio segment of $5 million at year-end 2004. Gross losses totaled $14
million and were mainly related to mortgage-backed securities and certain
longer-maturity U. S. government agency securities. The gross losses represented
a little over 1% of the total amortized cost for the underlying securities. Note
4 to the consolidated financial statements provides information on the process
followed by management to evaluate whether unrealized losses on securities, both
those available for sale and those held to maturity, represent impairment that
is other than temporary and that should be recognized with a charge to
operations. Substantially all the unrealized losses at December 31, 2004
resulted from increases in market interest rates over the yields available at
the time the underlying securities were purchased. Management identified no
value impairment related to credit quality in the portfolio. At December 31,
2004, management had both the intent and ability to hold value-impaired
securities until full recovery of cost and no impairment was evaluated as other
than temporary. No impairment losses were recognized in any of the three years
in the period ended December 31, 2004.
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.
Apart from securities issued or guaranteed by the U. S. government or
its agencies, Whitney held no investment in the securities of a single issuer at
December 31, 2004 that exceeded 10% of its shareholders' equity.
DEPOSITS AND BORROWINGS
Deposits at December 31, 2004 were up 7%, or $454 million, from the
level at year-end 2003. Deposits with locations acquired in 2004 contributed
approximately 3% to the growth rate for the year. Average deposits also
increased 7%, or approximately $434 million, in 2004. Table 7 shows the
composition of deposits at December 31, 2004 and the previous two year ends. The
composition of average deposits and the effective yield on interest-bearing
deposits for each of these years is presented in Table 12.
TABLE 7. DEPOSIT COMPOSITION
- ---------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------
Noninterest-bearing demand deposits $2,111,703 32% $1,943,248 32% $1,692,939 29%
Interest-bearing deposits:
NOW account deposits 901,859 14 827,360 13 698,897 12
Money market deposits 1,270,479 19 1,396,420 23 1,346,481 23
Savings deposits 709,887 11 585,943 9 528,186 9
Other time deposits 694,458 10 745,478 12 840,297 15
Time deposits $100,000 and over 924,221 14 660,133 11 676,079 12
- ---------------------------------------------------------------------------------------------------------------
Total $6,612,607 100% $6,158,582 100% $5,782,879 100%
- ---------------------------------------------------------------------------------------------------------------
Continued demand for deposit products and appropriate deposit-pricing
strategies helped the Company maintain a favorable mix of deposits through 2004.
Lower-cost deposits, which exclude time deposits, increased 5%, or $241 million,
from the end of 2003, with noninterest-bearing demand deposits up 9% and
deposits in lower-cost interest-bearing products up 3%. Lower-cost deposits made
up a little more than three-quarters of total deposits at the end of both 2004
and 2003, and noninterest-bearing demand deposits held steady at close to
one-third of deposits. Each of these percentages was up slightly from the end of
2002.
19
Higher-cost time deposits at December 31, 2004 were up 15%, or $213
million, compared to year-end 2003. Acquired deposits contributed $62 million to
this increase, including approximately $26 million of time deposits of $100,000
and over. The increase in time deposits of $100,000 or more in 2004 mainly
reflected the attraction of temporary excess funds of certain larger commercial
customers to treasury-management deposit products and the addition of
competitively bid public funds, partly as an alternative to other short-term
borrowings. Public fund time deposits totaled $138 million at December 31, 2004,
up $47 million from December 31, 2003.
TABLE 8. MATURITIES OF TIME DEPOSITS
- -----------------------------------------------------------------------------------------------------
Deposits of Deposits of
$100,000 less than
(in thousands) or more $100,000 Total
- -----------------------------------------------------------------------------------------------------
Three months or less $560,260 $198,520 $ 758,780
Over three months through six months 160,967 177,095 338,062
Over six months through twelve months 114,223 169,086 283,309
Over twelve months 88,771 149,757 238,528
- -----------------------------------------------------------------------------------------------------
Total $924,221 $694,458 $1,618,679
- -----------------------------------------------------------------------------------------------------
Short-term and other borrowings increased 6%, or $34 million, from
year-end 2003, but were up 37%, or $162 million, on average compared to the
prior year. The main source of short-term borrowings has been the sale of
securities under repurchase agreements to customers using Whitney's treasury
management sweep product. The total of borrowings from customers under
repurchase agreements was stable between the end of 2003 and 2004's year end,
but has declined 13% on average, or $41 million, in 2004 and 10% in 2003, in
part reflecting a shift to treasury-management and other deposit products with
the elimination of any comparative yield advantage. Because of the underlying
customer relationship, these borrowings serve as a relatively stable source of
funds. During 2004, the Bank began using advances from the Federal Home Loan
Bank (FHLB) as an additional source of short-term funds to support loan growth.
At December 31, 2004, such advances totaled $100 million, and the average
borrowings during the year totaled $79 million. Other sources of wholesale
short-term funding include federal funds purchased and brokered repurchase
agreements. Additional information on borrowings, including yields and maximum
amounts borrowed, is presented in Note 11 to the consolidated financial
statements.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
Shareholders' equity totaled $905 million at December 31, 2004, which
represented an increase of $64 million from the end of 2003. During 2004,
Whitney retained $42 million of earnings, net of dividends declared, but this
was partly offset by an $11 million decrease in other comprehensive income
representing an unrealized net holding loss on securities available for sale
during 2004. The 1.03 million shares issued in a business acquisition in August
2004 were valued at $42 million, and Whitney recognized $22 million in
additional equity during 2004 from activity in stock-based compensation plans
for employees and directors, including option exercises. The Company repurchased
708 thousand shares at a cost of $32 million under a plan announced in October
2004. Total shareholders' equity grew $40 million in 2003, to $840 million at
December 31, 2003. Net retained earnings of $49 million and $11 million in
additional equity from stock-based compensation plan activity were partly offset
by a $22 million other comprehensive loss. The Company paid a relatively stable
percentage of its earnings in dividends over the last three years. The dividend
payout ratio was 57% in 2004, 50% in 2003 and 47% in 2002.
The ratios in Table 9 indicate that the Company remained strongly
capitalized at December 31, 2004. The increase in risk-weighted assets at
December 31, 2004 from the end of 2003 resulted mainly from an increase in loans
and other on-balance-sheet assets, including those acquired in business
combinations, 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 a business acquisition 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.
20
TABLE 9. RISK-BASED CAPITAL AND CAPITAL RATIOS
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Tier 1 regulatory capital $767,717 $739,236 $672,408 $604,179 $577,036
Tier 2 regulatory capital 54,345 59,475 66,115 63,878 61,017
- -------------------------------------------------------------------------------------------------------------------
Total regulatory capital $822,062 $798,711 $738,523 $668,057 $638,053
- -------------------------------------------------------------------------------------------------------------------
Risk-weighted assets $6,527,821 $5,777,094 $5,301,764 $5,102,470 $5,063,114
- -------------------------------------------------------------------------------------------------------------------
Ratios
Leverage ratio (Tier 1 capital to average 9.56% 10.13% 9.76% 8.72% 8.93%
assets)
Tier 1 capital to risk-weighted assets 11.76 12.80 12.68 11.84 11.40
Total capital to risk-weighted assets 12.59 13.83 13.93 13.09 12.60
Shareholders' equity to total assets 11.00 10.84 11.28 9.91 10.01
- -------------------------------------------------------------------------------------------------------------------
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, making full use of quantitative modeling tools available
to project cash flows under a variety of possible scenarios. Projections are
also made assuming credit-stressed conditions, although such conditions are not
likely to arise.
On the liability side, liquidity management focuses on growing the base
of core deposits at competitive rates, including the use of treasury-management
products for commercial customers, while at the same time ensuring access to
economical wholesale funding sources. The section above on "Deposits and
Borrowings" discusses changes in these liability-funding sources in 2004.
Whitney National Bank is a member of the Federal Home Loan Bank system. This
membership provides access to a variety of FHLB advance products as an
alternative source of funds, and the Bank increased its use of this funding
source during 2004. In addition, both the Company and the Bank have access to
external funding sources in the financial markets, and the Bank has developed
the ability to gather deposits at a nationwide level, although it has not used
this ability to date.
Liquidity management on the asset side primarily addresses the
composition and maturity structure of the loan portfolio and the portfolio of
investment securities and their ability to generate cash flows from scheduled
payments, contractual maturities, and prepayments, through use as collateral for
borrowings, and through possible sale or securitization. Table 2 above presents
the contractual maturity structure of the loan portfolio and Table 6 presents
contractual investment maturities.
Cash generated from operations is another important source of funds to
meet liquidity needs. The consolidated statements of cash flows present
operating cash flows and summarize all significant sources and uses of funds for
each year in the three-year period ended December 31, 2004.
Continued high levels of liquidity in the deposit base helped support
increased loan production and overall earning asset growth in 2003 and again in
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 planning processes.
21
At December 31, 2004, Whitney Holding Corporation had approximately
$170 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. During 2005, the Bank will have available an amount
equal to approximately $15 million plus its current net income to declare as
dividends to the Company without prior regulatory approval.
In October 2004, the Board of Directors authorized the Company to
repurchase up to 1.75 million shares of its common stock. As of December 31,
2004, Whitney had repurchased 707,878 shares at a total cost of $31.5 million.
Based on the Company's closing stock price at year-end 2004, the cash outlay to
complete the repurchase program would total approximately $47 million. The
repurchase program extends through October 2005. Whitney has 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
The following table summarizes payments due from the Company under
specified long-term and certain other contractual obligations as of December 31,
2004. Obligations under deposit contracts and short-term FHLB advances are not
included. The maturities of time deposits are scheduled in Table 8 above in the
section on "Deposits and Borrowings." Note 11 to the consolidated financial
statements provides information on short-term FHLB advances outstanding at
year-end 2004. Purchase obligations represent legal and binding contracts to
purchase services or goods that cannot be settled or terminated without paying
substantially all of the contractual amounts. The balance includes approximately
$2.1 million under contracts to construct or improve bank facilities. Not
included are a number of contracts entered into to support ongoing operations
that either do not specify fixed or minimum amounts of goods or services or are
cancelable on short notice without cause and without significant penalty. The
consolidated statements of cash flows provide a picture of Whitney's ability to
fund these and other more significant cash operating expenses, such as interest
expense and compensation and benefits, out of current operating cash flows.
TABLE 10. CONTRACTUAL OBLIGATIONS
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) Payments due by period from December 31, 2004
- -----------------------------------------------------------------------------------------------------------------
Less than 1 - 3 3 - 5 More than
Total 1 year years years 5 years
- -----------------------------------------------------------------------------------------------------------------
Long-term FHLB advances (a) $22,538 $ 3,809 $ 9,160 $ 722 $ 8,847
Capital lease obligation (a) 333 222 111 - -
Operating lease obligations 43,286 4,881 8,399 7,329 22,677
Purchase obligations 6,039 3,618 1,790 631 -
Other long-term liabilities (b) (c) - - - - -
- -----------------------------------------------------------------------------------------------------------------
Total $72,196 $12,530 $19,460 $8,682 $31,524
- -----------------------------------------------------------------------------------------------------------------
(a) Balances are included with short-term and other borrowings in the Company's
consolidated financial statements.
(b) Obligations under the qualified defined benefit pension plan are not
included. The Company does not anticipate making a pension contribution
during 2005, and does not anticipate any significant near-term payments
under the unfunded nonqualified pension plan. A $5.1 million nonqualified
plan obligation was recorded at year-end 2004.
(c) The recorded obligation for postretirement benefits other than pensions was
$10.3 million at December 31, 2004. The funding to purchase benefits for
current retirees, net of retiree contributions, has not been significant.
22
OFF-BALANCE SHEET ARRANGEMENTS
As a normal part of its business, the Company enters into arrangements
that create financial obligations that are not recognized, wholly or in part, in
the consolidated financial statements. Certain of these arrangements, such as
noncancelable operating leases, are reflected in Table 10 above. The most
significant off-balance sheet obligations are the Bank's commitments under
traditional credit-related financial instruments. Table 11 schedules these
commitments as of December 31, 2004 by the periods in which they expire.
Commitments under credit card and personal credit lines generally have no stated
maturity.
TABLE 11. CREDIT-RELATED COMMITMENTS
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) Commitments expiring by period from December 31, 2004
- -----------------------------------------------------------------------------------------------------------------
Less than 1 - 3 3 - 5 More than
Total 1 year years years 5 years
- -----------------------------------------------------------------------------------------------------------------
Loan commitments - revolving $1,652,600 $1,225,339 $257,291 $169,291 $679
Loan commitments - nonrevolving 415,173 194,315 220,858 - -
Credit card and personal credit lines 437,386 437,386 - - -
Standby and other letters of credit 355,040 286,058 68,982 - -
- -----------------------------------------------------------------------------------------------------------------
Total $2,860,199 $2,143,098 $547,131 $169,291 $679
- -----------------------------------------------------------------------------------------------------------------
Revolving loan commitments are issued primarily 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 and has not violated other contractual conditions.
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
development or 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 Company 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 has
developed a model to measure its interest rate sensitivity by running net
interest income simulations and monitoring the economic value of equity. The
model can be used to test the Company's sensitivity in various economic
environments. The model incorporates management's assumptions and expectations
regarding such factors as loan and deposit growth, pricing, prepayment speeds
and spreads between interest rates. Assumptions can also be entered into the
model to evaluate the impact of possible strategic responses to changes in the
competitive environment. Management, through the Company's Asset & Liability
Committee, monitors simulation results against rate sensitivity guidelines
specified in Whitney's asset/liability management policy.
23
The net interest income simulations run at the end of 2004 indicated
that Whitney was 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 $17.3 million, or 4.8%, and decrease
$25.6 million, or 7.1%, 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%. At the end of each year, additional
simulations were run applying instantaneous parallel rate shocks up to 300 basis
points as well as gradual rate changes of up to 200 basis points. In the recent
rate environment, certain downward rate shocks caused unrealistic model
assumptions, and the results from these simulation runs were disregarded.
The actual impact that changes in interest rates have on net interest
income will depend on many factors. These include Whitney's ability to achieve
expected growth in earning assets and maintain a desired mix of 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.
The method used for measuring longer-term interest rate risk is the
economic value of equity analysis. At year-end 2004, the simulated measure of
the Company's sensitivity was acceptable under internal guidelines at all levels
of rate shock that produced realistic model assumptions.
Changes in interest rates affect the fair values of financial
instruments. The earlier section on Investment Securities and Notes 4 and 17 to
the consolidated financial statements contain information regarding fair values.
The Bank has used interest rate swaps on a limited basis to bring the
market risk associated with the longer-duration fixed-rate loans desired by some
customers in line with Whitney's asset/liability management objectives. No
interest rate swap agreements were in effect at December 31, 2004. Swap activity
has had minimal impact on financial condition and results of operations.
Other than this swap activity, the Company has made no investments in
financial instruments or participated in agreements with values that are linked
to or derived from changes in the value of some underlying asset or index. These
are commonly referred to as derivatives and include such instruments as futures,
forward contracts, option contracts, and other financial arrangements with
similar characteristics. Management continues to evaluate whether to make
additional use of derivatives as part of its asset/liability and liquidity
management processes.
24
RESULTS OF OPERATIONS
NET INTEREST INCOME (TE)
Whitney's net interest income (TE) increased $26.1 million, or 9%, in
2004, consistent with the growth in average earning assets from 2003. The net
interest margin (TE) was essentially stable between these periods. The net
interest margin is net interest income (TE) as a percent of average earning
assets. The most important factors behind the increase in net interest income in
2004 were loan growth and an improved mix of earning assets, rising market
interest rates over the second half of the year, continued liquidity in the
deposit base, and careful management of the pricing structure for both loans and
deposits. Tables 12 and 13 provide details on the components of the Company's
net interest income (TE) and net interest margin (TE).
Average loans, which in Table 12 includes loans held for sale,
increased 12% in 2004 and comprised 71% of average earning assets for the
period, up from 69% in 2003. A further shift to variable pricing within the loan
portfolio and the concentration of loan growth in high-quality commercial
credits contributed to a 20 basis point decline in annual loan yields (TE)
between 2003 and 2004. This trend also positioned the portfolio for more rapid
yield improvement with rising short-term market rates, as was evident in the 51
basis point increase in loan yields (TE) from the second quarter to the fourth
quarter of 2004. As of year-end 2004, balances of loans with adjustable rates
tied to short-term market rate indices or prime totaled approximately 64% of the
dollar value of the portfolio, compared with 54% at the end of 2003. After
several years of sustained low market interest rates, short-term rates began to
increase in mid-2004 prompting an increase in bank prime rates totaling 125
basis points by year end. The yield on the largely fixed-rate investment
portfolio is less responsive to changes in market rates and the overall
investment portfolio yield (TE) has fluctuated within a narrow range during 2004
and 2003. The overall yield (TE) on average earning assets was 5.01% in 2004
compared to 5.12% in 2003, a decrease of 11 basis points. The overall earning
asset yield has increased 42 basis points during the second half of 2004
compared to the yield in 2004's second quarter.
The overall cost of funds decreased 9 basis points between 2003 and
2004. As with earning assets, however, the cost of funds has increased since the
second quarter of 2004 with rising market rates. Whitney's management of the
deposit-pricing structure helped limit this increase between the second and
fourth quarters of 2004 to 10 basis points. The cost of interest-bearing
deposits declined 19 basis points in 2004, but increased 10 basis points during
the second half of the year. Substantially all of this increase was from a 23
basis point increase in the rate paid on time deposits, which partly reflected a
higher level of public funds in the deposit base as well as the cost structure
of deposits acquired in a business combination in the third quarter of 2004. The
overall rate on short-term and other borrowings, which is more sensitive to
market rate changes, increased 36 basis points between 2003 and 2004 and was up
61 basis points from the second quarter to the fourth quarter of 2004.
Changes in the mix of funding sources have a significant impact on the
direction of the overall cost of funds. The overall funding mix shifted only
slightly in 2004 compared to 2003. Average noninterest-bearing deposits funded
27% of average earning assets in 2004, up from 26% in 2003, and the percentage
of funding from all noninterest-bearing sources was steady at 32% between these
periods. Lower-cost interest-bearing deposits supported 39% of earning assets in
2004, down slightly from 40% in 2003. Higher-cost sources of funds, which
include time deposits and short-term and other borrowings, totaled 29% of
average earning assets in 2004 and 28% in 2003. Whitney's ability to maintain
this favorable mix of funding sources will depend heavily on, among other
factors, its success in growing or retaining the deposit base in a highly
competitive environment and in managing its deposit-pricing structure as rates
rise on alternative financial products available to its customers.
25
TABLE 12. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME (TE) (a) AND INTEREST RATES
- -----------------------------------------------------------------------------------------------------------------------------
2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------
Average Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans (TE)(b) (c) $5,192,713 $273,125 5.26% $4,647,090 $253,555 5.46% $4,393,266 $274,979 6.26%
- -----------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 1,377,804 60,217 4.37 1,145,511 50,428 4.40 1,023,277 55,243 5.40
U.S. agency securities 343,502 11,366 3.31 422,331 16,547 3.92 433,554 21,723 5.01
U.S. Treasury securities 122,503 5,072 4.14 196,214 7,344 3.74 152,349 6,160 4.04
Obligations of states and political
subdivisions (TE) 242,058 15,663 6.47 196,410 13,175 6.71 152,052 10,527 6.92
Other securities 34,727 1,295 3.73 43,779 1,825 4.17 54,984 2,432 4.42
- -----------------------------------------------------------------------------------------------------------------------------
Total investment securities 2,120,594 93,613 4.41 2,004,245 89,319 4.46 1,816,216 96,085 5.29
- -----------------------------------------------------------------------------------------------------------------------------
Federal funds sold and
short-term investments 13,926 181 1.30 66,528 750 1.13 283,309 4,771 1.68
- -----------------------------------------------------------------------------------------------------------------------------
Total earning assets 7,327,233 $366,919 5.01% 6,717,863 $343,624 5.12% 6,492,791 $375,835 5.79%
- -----------------------------------------------------------------------------------------------------------------------------
NONEARNING ASSETS
Other assets 619,993 585,676 595,445
Allowance for loan losses (57,043) (65,517) (71,561)
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $7,890,183 $7,238,022 $7,016,675
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
NOW account deposits $ 810,074 $ 2,975 .37% $ 709,508 $ 2,838 .40% $ 690,011 $ 5,508 .80%
Money market deposits 1,371,419 8,959 .65 1,409,491 11,407 .81 1,321,729 19,152 1.45
Savings deposits 652,689 2,230 .34 557,178 2,180 .39 515,878 4,014 .78
Other time deposits 726,482 9,487 1.31 798,626 14,085 1.76 913,492 26,315 2.88
Time deposits $100,000 and over 809,324 11,014 1.36 678,969 10,183 1.50 707,715 16,868 2.38
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 4,369,988 34,665 .79 4,153,772 40,693 .98 4,148,825 71,857 1.73
- -----------------------------------------------------------------------------------------------------------------------------
Short-term and other borrowings 601,427 6,017 1.00 439,869 2,816 .64 441,777 3,844 .87
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 4,971,415 $40,682 .82% 4,593,641 $ 43,509 .95% 4,590,602 $ 75,701 1.65%
- -----------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING
LIABILITIES AND
SHAREHOLDERS' EQUITY
Demand deposits 1,977,515 1,759,414 1,601,316
Other liabilities 59,776 61,269 64,032
Shareholders' equity 881,477 823,698 760,725
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $7,890,183 $7,238,022 $7,016,675
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income and margin (TE) $326,237 4.45% $300,115 4.47% $300,134 4.62%
Net earning assets and spread $2,355,818 4.19% $2,124,222 4.17% $1,902,189 4.14%
Interest cost of funding
earnings assets .56% .65% 1.17%
- -----------------------------------------------------------------------------------------------------------------------------
(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 $26,942, $34,507 and $37,152, respectively, in 2004, 2003 and 2002.
26
TABLE 13. SUMMARY OF CHANGES IN NET INTEREST INCOME (TE) (a) (b)
- --------------------------------------------------------------------------------------------------------------------
2004 Compared to 2003 2003 Compared to 2002
- --------------------------------------------------------------------------------------------------------------------
Due to Due to
Change in Total Change in Total
----------------------- Increase ----------------------- Increase
(dollars in thousands) Volume Rate (Decrease) Volume Rate (Decrease)
- --------------------------------------------------------------------------------------------------------------------
INTEREST INCOME (TE)
Loans (TE) $28,950 $(9,380) $19,570 $15,254 $(36,678) $(21,424)
- --------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 10,155 (366) 9,789 6,120 (10,935) (4,815)
U.S. agency securities (2,827) (2,354) (5,181) (549) (4,627) (5,176)
U.S. Treasury securities (2,987) 715 (2,272) 1,669 (485) 1,184
Obligations of states and political
subdivisions (TE) 2,968 (480) 2,488 2,985 (337) 2,648
Other securities (351) (179) (530) (473) (134) (607)
- --------------------------------------------------------------------------------------------------------------------
Total investment securities 6,958 (2,664) 4,294 9,752 (16,518) (6,766)
- --------------------------------------------------------------------------------------------------------------------
Federal funds sold and
short-term investments (669) 100 (569) (2,808) (1,213) (4,021)
- --------------------------------------------------------------------------------------------------------------------
Total interest income (TE) 35,239 (11,944) 23,295 22,198 (54,409) (32,211)
- --------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
NOW account deposits 381 (244) 137 151 (2,821) (2,670)
Money market deposits (301) (2,147) (2,448) 1,198 (8,943) (7,745)
Savings deposits 346 (296) 50 299 (2,133) (1,834)
Other time deposits (1,187) (3,411) (4,598) (2,995) (9,235) (12,230)
Time deposits $100,000 and over 1,833 (1,002) 831 (660) (6,025) (6,685)
- --------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 1,072 (7,100) (6,028) (2,007) (29,157) (31,164)
- --------------------------------------------------------------------------------------------------------------------
Short-term and other borrowings 1,264 1,937 3,201 (17) (1,011) (1,028)
- --------------------------------------------------------------------------------------------------------------------
Total interest expense 2,336 (5,163) (2,827) (2,024) (30,168) (32,192)
- --------------------------------------------------------------------------------------------------------------------
Change in net interest income (TE) $32,903 $(6,781) $26,122 $24,222 $(24,241) $ (19)
- --------------------------------------------------------------------------------------------------------------------
(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.
27
Net interest income (TE) was little changed between 2002 and 2003. The
operating environment for much of 2003 proved a more difficult one for
generating growth in net interest income (TE). The most important
characteristics of this environment for Whitney were sustained low market
interest rates, high levels of liquidity in the deposit base, and moderate but
improving loan demand. The relative stability of the net interest margin (TE),
which declined 15 basis points, was the result of numerous factors, including
the implementation of successful pricing strategies on deposits, careful
deployment of excess liquidity in the deposit base, and pricing discipline on
loans in a highly competitive market.
Earning assets grew by 3% compared to 2002, mainly reflecting
accelerated loan growth toward the latter part of 2003. Asset yields trended
lower in 2003 as higher-yielding fixed-rate instruments gradually repriced and
new funds, including those from accelerated home mortgage refinancings, were
invested in an environment of low, though relatively stable, market interest
rates. Loan yields (TE) decreased 80 basis points compared to 2002, and the
average yield (TE) on the investment portfolio was lower by 83 basis points,
including the impact of a 100 basis point decrease in the yield on
mortgage-backed issues. The decrease in the overall yield (TE) on earning assets
was limited to 67 basis points in 2003 as loan growth and a redeployment of
excess liquidity from short-term investments to the investment portfolio
improved the earning asset mix.
In this rate environment, Whitney's funding costs also trended down in
2003, including the impact of the gradual repricing of fixed-rate time deposits.
Sustained low rates and demand for deposit products allowed Whitney to implement
deposit-pricing strategies to help shift the mix of funding sources in favor of
noninterest-bearing and lower-cost interest-bearing sources. The average rate on
lower-cost interest-bearing deposits decreased 52 basis points in 2003, and the
average rate on time deposits was down 102 basis points compared to 2002. The
overall cost of funds in 2003 was 52 basis points lower than in 2002.
PROVISION FOR LOAN LOSSES
The overall credit risk profile of Whitney's customer base improved in
both 2004 and 2003. With these improvements, Whitney was able to reduce its
allowance for loan losses by $5.1 million in 2004, following a reduction of $6.6
million in 2003. Net charge-offs were $9.6 million in 2004, compared to $3.1
million in 2003 when there was a significant recovery on a single relationship.
In 2004, Whitney recognized a $2.0 million provision for losses, compared to a
negative provision of $3.5 million in 2003 and a $7.5 million provision in 2002.
For a more detailed discussion of changes in the allowance for loan
losses, nonperforming assets and general credit quality, see the earlier section
on "Loans, 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.
28
NONINTEREST INCOME
Table 14 shows the components of noninterest income for each year in
the three-year period ended December 31, 2004, along with the percent changes
between years for each component. Noninterest income decreased 8%, or $7.0
million, in 2004 after increasing 5%, or $4.3 million, in 2003.
TABLE 14. NONINTEREST INCOME
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2004 % change 2003 % change 2002
- -----------------------------------------------------------------------------------------------------------------
Service charges on deposit accounts $37,148 (3)% $38,309 - % $38,327
Bank card fees 10,319 12 9,193 12 8,219
Trust service fees 8,959 10 8,126 (8) 8,814
Secondary mortgage market operations 4,925 (56) 11,248 24 9,045
ATM fees 4,497 (4) 4,691 (3) 4,861
Investment services income 3,508 (13) 4,010 (6) 4,257
Other fees and charges 7,048 (1) 7,145 18 6,047
Other operating income 3,880 (19) 4,764 59 2,993
Net gain on sales and other
revenue from foreclosed assets 1,378 22 1,132 (34) 1,714
Net gains on disposals of surplus property 793 (a) 23 (95) 497
Securities transactions 68 (92) 863 110 411
- -----------------------------------------------------------------------------------------------------------------
Total noninterest income $82,523 (8)% $89,504 5 % $85,185
- -----------------------------------------------------------------------------------------------------------------
(a) Not meaningful.
Income from service charges on deposit accounts declined 3%, or $1.2
million, in 2004, but was little changed between 2003 and 2002. Service charges
include periodic account maintenance fees, for both business and personal
customers, charges for specific transactions or services, such as processing
return items or wire transfers, and other revenue associated with deposit
accounts, such as commissions on check sales.
Account maintenance fees for business customers were down 11%, or $1.2
million, in 2004, after increasing 3% in 2003. The fees charged on a large
number of business accounts are based on an analysis of account activity, and
these accounts are allowed to offset accumulated charges with an earnings credit
based on balances maintained in the account. The rate used to calculate the
earnings credit is based on short-term market rates. Analysis account fees
declined 14%, or $1.3 million, in 2004, reflecting in large part the increase in
the earnings credit rate over the latter half of 2004. Growth in analysis fee
income in recent years has also been restrained by higher levels of liquidity in
the deposit base, some reduction in the volume of chargeable transactions, and
the migration of customers with lower transaction volumes to fixed-fee business
account products. Total fixed-fee account fees, though still small relative to
total analysis fees, increased 10% in 2004 and 17% in 2003.
Personal account service charges were lower in both 2004 and 2003, by
approximately $.5 million in each period, largely reflecting the loss of
lower-balance customers to competitive "no-fee" account products, which have
been aggressively promoted in parts of Whitney's market area. Income from
charges for specific transactions and services increased $.6 million in 2004
after a $.3 million decrease in 2003. The increase in 2004 reflected improved
pricing and expanded services.
29
Bank card fees increased 12%, or approximately $1 million, in both 2004
and 2003. This category includes fees from activity on Bank-issued credit and
debit cards. Fee income from credit card activity grew 15% in 2004, consistent
with the growth in transaction volume, and was up 11% in 2003. Debit card fee
income was up 11%, or $.5 million, in 2004, on a 13% increase in transaction
volume. This followed income growth of 7%, or $.3 million, in 2003 when
transaction volume rose 15%. The growth in fee income in 2003 did not fully
reflect the underlying growth in transaction volume because of a temporary rate
reduction starting in August 2003 under the terms of a settlement between Visa
USA and merchants. Visa USA subsequently restructured debit transaction rates in
early 2004, effectively lowering them to below pre-settlement levels. The fees
generated per transaction under the restructured rates, however, have been
somewhat higher than under the temporary rate reduction in 2003.
Trust service fees in 2004 increased 10%, or $.8 million, compared to
2003 from new business and improved equity market valuations relative to the
earlier period. During 2004, Whitney positioned additional relationship officers
to attract and service trust and wealth management customers across its market
area. The 8% decrease in trust service fees between 2002 and 2003 was also
largely related to equity market valuations during these periods.
Investment service income decreased 13% in 2004 and 6% in 2003. Market
conditions in 2004 and 2003 limited demand for fixed-income securities
transactions among Whitney's customer base and reduced the demand for and the
profitability of annuity products. At the same time, there was some improvement
in retail brokerage activity in both 2004 and 2003 with improving equity markets
and investor confidence.
Fee income generated by Whitney's secondary mortgage market operations
in 2004 decreased $6.3 million to a level less than half that generated in 2003.
This followed an increase of $2.2 million, or 24%, in 2003. Low rates have
benefited loan production volumes for several years by prompting homeowners to
refinance and by helping sustain demand for new home purchases. Although rates
remained low during 2004 from a historical perspective, they could not stimulate
refinancing activity to the levels seen in 2003 and 2002. Total home loan
production, including loans originated for the portfolio, was $405 million in
2004, $761 million in 2003 and $510 million in 2002. Refinancing activity
accounted for approximately 39% of the total dollar volume of loans originated
in 2004, compared to 70% in 2003 and 65% in 2002. Whitney sold approximately 65%
of total production in 2004, compared to 84% in 2003 and 86% in 2002. Given the
current rate environment, a significant resurgence in refinancing activity is
not expected over the near term.
Fees on letters of credit and unused loan commitments are the main
component of other fees and charges and were the major factor in the 18%
increase in this income category in 2003. Successful lending efforts led to
another increase in credit-related fees in 2004, but this was more than offset
by the elimination of revenues from an outsourcing agreement that was cancelled.
Other operating income in 2003 included a gain of $1.4 million
recognized on the sale of a portfolio of seasoned loans originated under
affordable-housing programs.
The net gain on sales and other revenue from foreclosed assets includes
income from grandfathered assets that vary from year to year as opportunities
for sales arise. Management evaluates its banking facilities on an ongoing basis
to identify possible under-utilization and to determine the need for functional
improvements, relocations or possible sales. The net gains recognized in each
period from dispositions of surplus banking property are shown in Table 14.
30
NONINTEREST EXPENSE
Table 15 shows the components of noninterest expense for each year in
the three-year period ended December 31, 2004, along with the percent changes
between years for each component. Noninterest expense increased 7%, or $17.4
million, in 2004, following an increase of 5%, or $12.0 million, between 2002
and 2003.
TABLE 15. NONINTEREST EXPENSE
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2004 % change 2003 % change 2002
- -------------------------------------------------------------------------------------------------------------------
Employee compensation $119,713 5% $113,994 7% $107,021
Employee benefits 29,644 8 27,377 25 21,966
- -------------------------------------------------------------------------------------------------------------------
Total personnel 149,357 6 141,371 10 128,987
Net occupancy 20,461 5 19,521 (2) 19,907
Equipment and data processing 17,636 2 17,264 (9) 18,876
Telecommunication and postage 8,846 3 8,614 4 8,281
Corporate value and franchise taxes 7,496 6 7,079 (6) 7,557
Legal and other professional services 5,943 (1) 6,029 (1) 6,083
Amortization of intangibles 5,657 6 5,332 (9) 5,846
Security and other outsourced services 9,045 2 8,846 9 8,127
Advertising and promotion 5,675 54 3,679 (23) 4,769
Operating supplies 3,727 5 3,546 2 3,462
Bank card processing services 2,612 14 2,293 6 2,161
Deposit insurance and regulatory fees 2,015 5 1,926 (2) 1,971
Miscellaneous operating losses 3,971 141 1,645 15 1,429
Other operating expense 17,837 13 15,778 17 13,470
- -------------------------------------------------------------------------------------------------------------------
Total noninterest expense $260,278 7% $242,923 5% $230,926
- -------------------------------------------------------------------------------------------------------------------
Personnel expense represented more than half of the Company's
noninterest expense in each period and was the major factor in fluctuations from
year to year. Employee compensation increased 5%, or $5.7 million, in 2004, and
was up 7%, or $7.0 million, in 2003. Employee compensation includes base pay,
compensation earned under sales-based and other employee incentive programs, and
compensation expense under management incentive plans.
Base pay rose 5%, or $4.9 million, in 2004, with acquired operations
contributing approximately 1% to the total percentage increase. This followed a
3%, or $2.6 million, increase from 2002 to 2003. With continued attention to
efficient management of human resources, Whitney's full-time equivalent staff
grew less than 1% from year-end 2002 to the end of 2004. The average staff level
increased approximately 1.5% in 2004, largely from acquisitions, new branches
and added relationship officers, but had declined 2% in 2003 from 2002.
Employees earned $2.0 million less under sales-based incentive plans
during 2004 than in 2003. Incentive compensation in 2003 had been $2.4 million
higher than in 2002. Incentive pay for residential mortgage loan production was
the main factor in each year, reflecting the significant fluctuations between
periods in loan origination volumes.
31
Increased stock-based compensation was the main factor behind increases
in management incentive plan expense of $2.8 million in 2004 and $1.6 million in
2003. Whitney has recognized stock-based compensation expense with respect to
performance-based restricted stock grants that have been awarded under long-term
incentive plans for key employees. This expense fluctuates with changes in the
Company's stock price, employee participation levels, and expectations about the
extent to which performance objectives will be met. As is discussed in Note 2 to
the consolidated financial statements, new authoritative guidance has been
issued that establishes the fair value-based method as the exclusive method of
accounting for stock-based compensation and is effective for awards, including
awards of stock options, which are granted, modified, repurchased, or cancelled
after June 30, 2005. This new guidance also changes how Whitney will calculate
compensation expense for unvested restricted stock awards beginning with the
third quarter of 2005. It is unlikely that the new calculation will yield
results materially different from those that would be determined under the
current method.
Employee benefits expense increased 8%, or $2.3 million, in 2004, and
was up 25%, or $5.4 million, in 2003. The major components of employee benefits
expense, in addition to payroll taxes, are the cost of providing health benefits
for active and retired employees and the cost of providing pension benefits
through both the defined-benefit plans and a 401(k) employee savings plan.
The performance of the pension trust fund and trends in market yields
on fixed-income securities in one period cause fluctuations in the
actuarially-determined periodic expense for the defined-benefit pension plan in
future periods, holding other variables constant. A weak investment performance
in 2002 and a decline in relevant market yields were followed by a $3.3 million
increase in pension expense in 2003. Pension expense increased a more moderate
$.8 million in 2004. Although fixed-income market yields declined again in 2003,
the trust fund posted better than assumed investment returns for the year. An $8
million employer contribution to the pension trust toward the end of 2003 also
had a favorable impact on 2004 expense. Pension expense in 2005 is expected to
increase somewhat faster than in 2004, reflecting a further decline in market
yields in 2004 and investment performance in line with assumptions.
Trends in fixed-income market yields also impact the actuarial
valuation results for postretirement health benefits as do trends in actual
benefit outlays. Lower rates and unfavorable benefit experience in 2002 led to a
$.8 million expense increase in 2003. The cost of postretirement health benefits
in 2004 was favorably impacted by legislation on prescription drug benefits
under Medicare enacted in late 2003 as is discussed more fully in Note 13 to the
consolidated financial statements.
The cost of providing health coverage to active employees increased
$1.0 million, in 2004, net of employee contributions, and has been increasing at
a pace well above the general rate of inflation for a number of years. This
mainly reflects broad trends in the consumption and cost of medical services,
including prescription drugs. Although Whitney seeks to provide competitive
benefits in a cost-efficient manner, and management reviews the structure of
Whitney's health plans and the appropriate level of employee cost-sharing on a
regular basis, an increase in expense comparable to that in 2004 is expected for
2005.
Net occupancy expense increased 5%, or $.9 million, in 2004, with
expansion as the main factor. Whitney opened six new or replacement branches
from late 2003 through the end of 2004, including three new locations to serve
the Houston market. These were in addition to locations acquired in Tampa and
Ft. Walton in 2004. Six new or replacement branches are scheduled to open during
2005. Net occupancy declined moderately in 2003. Several branch facilities were
eliminated during 2003 after their operations were consolidated with nearby
existing locations.
To reduce costs over the long term and enhance productivity, certain
operations in Houston were moved to one of the new facilities in 2004 and out of
office space that is subject to a noncancelable lease. Whitney recognized a loss
of $1.6 million in 2004 related to its remaining obligation under the lease when
the move was completed. This loss is included with miscellaneous operating
losses in Table 15.
32
Equipment and data processing expense increased 2% in 2004 after
declining 9%, or $1.6 million, in 2003. The Company's equipment and data
processing expense in recent years has shown the benefit of aggressive contract
management and close control over capital expenditures for both new projects and
the replacement of fully-depreciated assets. Branch expansion and acquisitions
were a factor in the expense increase in 2004. Although cost control efforts
will continue, additional branch expansion, the outsourcing of ATM operations
and the introduction of new applications and capabilities to support expanded
customer service are expected to lead to a somewhat higher rate of increase in
this expense category in 2005.
The total expense for professional services, both legal and other
services, was slightly lower in each of the last two years. Legal expense, which
covers services for both loan collection efforts and general corporate matters,
was down 12% in 2004, partly reflecting improvements in loan credit quality in
2003 that have continued through 2004. The expense for other professional
services in 2004 increased 12% from 2003. The total in 2004 included $.5 million
for system-conversion services related to a business acquisition and additional
audit and consulting fees associated with Whitney's compliance with the internal
control provisions of the Sarbanes-Oxley Act of 2002. Both legal and other
professional service fees were relatively stable between 2002 and 2003.
Bank and branch acquisitions in 2004 led to an increase in amortization
of intangibles in 2004 mainly associated with the value of deposit relationships
acquired in these transactions. There were no acquisitions in 2003 or 2002.
Amortization expense of $6.4 million is scheduled for 2005. This amount does not
include the impact of a pending business acquisition expected to be completed in
the first half of 2005. Note 3 to the consolidated financial statements reviews
completed and pending acquisitions.
The expense for security and other outsourced services increased 2% in
2004 after rising 9% in 2003. The outsourcing of trust-related processing
services was the main contributor to the larger increase in 2003.
During 2004, management directed an additional $2.0 million to
advertising and promotional activities. This mainly supported the execution of a
campaign aimed at enhanced image awareness and brand differentiation throughout
much of Whitney's market area. This campaign was largely completed by the end of
2004 and no comparable campaign is currently planned for 2005. No major
campaigns were introduced in 2003, while 2002 included the final phase of a
multi-faceted advertising campaign featuring a Louisiana-based celebrity
spokesperson that had been launched in 2000.
Bank card processing services expense will vary mainly with changes in
transaction volume on Bank-issued credit cards. Transaction volumes and bank
card fee income are discussed in the earlier section on "Noninterest Income."
In addition to the lease abandonment charge mentioned earlier,
miscellaneous operating losses in 2004 included a $.6 million casualty loss for
property damage sustained when Hurricane Ivan struck the Florida-Alabama coastal
border during the year. Storm-related disruptions to banking operations were
minimal.
The expense categories included in other operating expense were up 13%,
or $2.1 million, on a combined basis in 2004, and 17%, or $2.3 million, in 2003.
The required amortization of new affordable housing project investments was the
main factor behind the increase in 2004 and an important factor in 2003. Tax
credits associated with the affordable housing investments reduced income tax
expense and the effective tax rates as noted in the following section and Note
21 to the consolidated financial statements. The Company experienced a sharp
jump in its insurance premiums in 2003 when certain coverage was renewed in an
insurance market much harder than at the beginning of the prior multi-year
contract.
33
INCOME TAXES
The Company provided for income tax expense at an effective rate of
30.8% in 2004, 31.9% in 2003 and 32.9% in 2002. The effective tax rate has been
lower than the 35% statutory federal tax rate primarily because of tax-exempt
interest income from the financing of state and local governments and the
availability of tax credits generated by investments in affordable housing
projects. The following reconciles reported income tax expense to that computed
at the statutory federal tax rate for each year in the three-year period ended
December 31, 2004:
TABLE 16. INCOME TAXES
- ------------------------------------------------------------------------------------------------------------------
(in thousands)
2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------
Income tax expense at 35% of pre-tax income $49,117 $50,624 $49,688
Increase (decrease) resulting from
Tax exempt income (3,880) (3,481) (3,039)
Low income housing credits (1,929) (1,352) (719)
State income tax and miscellaneous items (110) 308 714
- ------------------------------------------------------------------------------------------------------------------
Income tax expense reported $43,198 $46,099 $46,644
- ------------------------------------------------------------------------------------------------------------------
Louisiana-sourced income of commercial banks is not subject to state
income taxes. Rather, banks in Louisiana pay a tax based on the value of their
capital stock in lieu of income and franchise taxes, and this tax is allocated
to parishes in which the banks maintain branches. Whitney's corporate value tax
is included in noninterest expense. This expense will fluctuate in part based on
the growth in the Bank's equity and earnings and in part based on market
valuation trends for the banking industry.
FOURTH QUARTER RESULTS
Whitney earned $27.0 million for the quarter ended December 31, 2004, a
13% increase compared to net income of $23.8 million reported for the fourth
quarter of 2003. Per share earnings were $.65 per basic share and $.64 per
diluted share in 2004's fourth quarter, up 10% and 8%, respectively, from $.59
per share, both basic and diluted, in the year-earlier period.
Selected fourth quarter highlights follow:
o Whitney's net interest income (TE) increased $11.6 million, or
15%, compared to the fourth quarter of 2003, driven by both a
10% increase in average earning assets and a widening net interest
margin. The net interest margin (TE) was 4.63% for the fourth
quarter of 2004, up 20 basis points from the year-earlier period,
and up 17 basis points from 2004's third quarter. The overall
yield on earning assets increased 31 basis points from the fourth
quarter of 2003, and was 24 basis points higher than the third
quarter of 2004, 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.
Funding costs for 2004's fourth quarter were up 11 basis points
from the fourth quarter of 2003 and 7 basis points from 2004's
third quarter. The growth in earning assets compared to the
fourth quarter of 2003 was mainly funded by growth in deposits,
which increased 9% between these periods.
o Whitney provided $2 million for loan losses in the fourth quarter
of 2004. There was no provision in the fourth quarter of 2003. Net
charge-offs totaled $2.3 million in 2004's fourth quarter and $1.9
million in the year-earlier period, or .16% of average loans on an
annualized basis in each period. There was no significant shift in
Whitney's overall credit risk posture during the fourth quarter of
2004. Collections and charge-offs led to a $2.1 million net
reduction in total nonperforming loans from the end of 2004's
third quarter. There was little change during 2004's fourth
quarter in the total of loans criticized through the internal
credit risk classification process or in the classification mix.
34
o Noninterest income decreased 5%, or $1.2 million, from the fourth
quarter of 2003. Fee income generated by Whitney's secondary
mortgage market operations in the fourth quarter of 2004 was down
$1.0 million to a level approximately half that generated in the
year-earlier period. 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. The earnings credit allowed against service charges on
certain business deposit accounts has increased with rising
short-term market rates, contributing to a 10%, or $1.0 million,
decrease in deposit service charge income compared to the fourth
quarter of 2003. Bank card fees, both credit and debit cards,
increased a combined 21%, or $.5 million, compared to 2003's
fourth quarter, reflecting both higher transaction volumes and
improvement in the effective fee rates realized. Trust service
fees increased 12%, or $.2 million, compared to the fourth quarter
of 2003 from new business and some improvement in equity market
valuations relative to the year-earlier period.
o Noninterest expense in the fourth quarter of 2004 increased 7%, or
$4.1 million, from 2003's fourth quarter. Incremental costs
associated with acquired operations totaled approximately $1.3
million in the fourth quarter of 2004. Personnel expense was up
8%, or $3.0 million, in total, including $.7 million for the
acquired operations. Base pay and compensation earned under
sales-based and other employee incentive programs increased a
combined 7%, or $1.8 million, with $.6 million from acquired
operations. Compensation expense under management incentive
programs was up 20%, or $.6 million, with stock-based compensation
driving this increase. The rising cost of providing current health
benefits accounted for approximately half of the 10%, or $.6
million, increase in employee benefits.
The Summary of Quarterly Financial Information appearing in Item 8 of
this Form 10-K provides selected comparative financial information for each of
the four quarters in 2004 and 2003.
Item 7A: 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 7 of this
Form 10-K and is incorporated here by reference.
35
Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SUMMARY OF QUARTERLY FINANCIAL INFORMATION (Unaudited)
- ---------------------------------------------------------------------------------------------------------------
2004 Quarters
- ---------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 4th 3rd 2nd 1st
- ---------------------------------------------------------------------------------------------------------------
Net interest income $86,355 $80,186 $76,359 $77,190
Net interest income (TE) 87,972 81,725 77,869 78,671
Provision for loan losses 2,000 - 2,000 (2,000)
Noninterest income 20,172 20,053 21,391 20,907
Net securities gains in noninterest income - 68 - -
Noninterest expense 65,719 68,261 64,272 62,026
Income tax expense 11,810 9,900 9,575 11,913
- ---------------------------------------------------------------------------------------------------------------
Net income $26,998 $22,078 $21,903 $26,158
- ---------------------------------------------------------------------------------------------------------------
Average balances
Total assets $8,170,990 $7,882,497 $7,782,108 $7,722,135
Earning assets 7,568,194 7,309,316 7,253,932 7,175,034
Loans 5,506,923 5,231,828 5,069,304 4,906,710
Deposits 6,577,154 6,440,765 6,248,685 6,119,857
Shareholders' equity 925,176 882,744 862,016 855,476
- ---------------------------------------------------------------------------------------------------------------
Ratios
Return on average assets 1.31% 1.11% 1.13% 1.36%
Return on average equity 11.61 9.95 10.22 12.30
Net interest margin 4.63 4.46 4.31 4.40
- ---------------------------------------------------------------------------------------------------------------
Earnings per share
Basic $.65 $.54 $.54 $.65
Diluted .64 .53 .53 .64
Cash dividends per share .35 .33 .33 .33
Trading data
High sales price $46.24 $45.18 $44.79 $44.00
Low sales price 41.21 39.90 39.52 39.72
End-of-period closing price 44.99 42.00 44.67 41.74
Trading volume 6,795,612 4,828,742 3,328,548 3,488,599
- ---------------------------------------------------------------------------------------------------------------
2003 Quarters
- ---------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 4th 3rd 2nd 1st
- ---------------------------------------------------------------------------------------------------------------
Net interest income $74,961 $74,283 $72,522 $72,794
Net interest income (TE) 76,346 75,696 73,857 74,216
Provision for loan losses - (4,000) - 500
Noninterest income 21,345 23,538 23,126 21,495
Net securities gains in noninterest income - 863 - -
Noninterest expense 61,652 61,332 60,645 59,294
Income tax expense 10,834 12,987 11,253 11,025
- ---------------------------------------------------------------------------------------------------------------
Net income $23,820 $27,502 $23,750 $23,470
- ---------------------------------------------------------------------------------------------------------------
Average balances
Total assets $7,389,183 $7,293,393 $7,191,244 $7,074,196
Earning assets 6,858,134 6,772,338 6,686,717 6,550,281
Loans 4,733,236 4,620,970 4,564,160 4,461,849
Deposits 6,039,349 5,949,378 5,898,219 5,762,353
Shareholders' equity 835,924 822,678 824,584 811,347
- ---------------------------------------------------------------------------------------------------------------
Ratios
Return on average assets 1.28% 1.50% 1.32% 1.35%
Return on average equity 11.31 13.26 11.55 11.73
Net interest margin 4.43 4.45 4.43 4.57
- ---------------------------------------------------------------------------------------------------------------
Earnings per share
Basic $.59 $.69 $.60 $.59
Diluted .59 .68 .59 .58
Cash dividends per share .33 .30 .30 .30
Trading data
High sales price $41.32 $36.00 $34.46 $34.55
Low sales price 33.88 31.55 31.44 30.75
End-of-period closing price 40.99 34.00 32.00 34.20
Trading volume 3,077,088 5,300,892 8,201,397 6,344,880
- ---------------------------------------------------------------------------------------------------------------
All prices are as reported on The Nasdaq National Market.
36
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Whitney Holding Corporation is responsible for
establishing and maintaining adequate internal control over financial reporting
for the Company. Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.
Management used the framework of criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission to conduct an evaluation of the
effectiveness of internal control over financial reporting. Based on that
evaluation, management concluded that internal control over financial reporting
for the Company as of December 31, 2004 was effective.
Management's assessment of the effectiveness of the Company's internal
control over financial reporting as of December 31, 2004 has been audited by
PricewaterhouseCooopers LLP, an independent registered public accounting firm,
as stated in their report, which follows.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To Shareholders and Board of Directors
of Whitney Holding Corporation:
We have completed an integrated audit of Whitney Holding Corporation's
2004 consolidated financial statements and of its internal control over
financial reporting as of December 31, 2004 and audits of its 2003 and 2002
consolidated financial statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Our opinions, based on our
audits, are presented below.
Consolidated financial statements
In our opinion, the consolidated financial statements listed in the
index appearing under Item 15(a)(1)present fairly, in all material respects, the
financial position of Whitney Holding Corporation and its subsidiaries (the
"Company") at December 31, 2004 and 2003, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2004 in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit of financial statements
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
37
Internal control over financial reporting
Also, in our opinion, management's assessment, included in the
accompanying "Management's Report on Internal Control Over Financial Reporting",
that the Company maintained effective internal control over financial reporting
as of December 31, 2004 based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), is fairly stated, in all material respects, based on
those criteria. Furthermore, in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2004, based on criteria established in Internal Control -
Integrated Framework issued by the COSO. The Company's management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express opinions on management's assessment and on the
effectiveness of the Company's internal control over financial reporting based
on our audit. We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
evaluating management's assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
March 15, 2005
38
WHITNEY HOLDING COPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
- --------------------------------------------------------------------------------------------------------
(dollars in thousands) 2004 2003
- --------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from financial institutions $ 213,751 $ 270,387
Federal funds sold and short-term investments 22,424 14,385
Loans held for sale 8,796 15,309
Investment securities
Securities available for sale 1,763,774 2,090,870
Securities held to maturity, fair values of $232,225 and
$196,717, respectively 227,470 190,535
- --------------------------------------------------------------------------------------------------------
Total investment securities 1,991,244 2,281,405
Loans, net of unearned income 5,626,276 4,882,610
Allowance for loan losses (54,345) (59,475)
- --------------------------------------------------------------------------------------------------------
Net loans 5,571,931 4,823,135
- --------------------------------------------------------------------------------------------------------
Bank premises and equipment 156,602 148,259
Goodwill 115,771 69,164
Other intangible assets 24,240 23,475
Accrued interest receivable 28,985 27,305
Other assets 88,880 82,158
- --------------------------------------------------------------------------------------------------------
Total assets $ 8,222,624 $ 7,754,982
- --------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing demand deposits $ 2,111,703 $ 1,943,248
Interest-bearing deposits 4,500,904 4,215,334
- --------------------------------------------------------------------------------------------------------
Total deposits 6,612,607 6,158,582
- --------------------------------------------------------------------------------------------------------
Short-term and other borrowings 634,259 600,053
Accrued interest payable 5,032 4,493
Other liabilities 65,961 151,541
- --------------------------------------------------------------------------------------------------------
Total liabilities 7,317,859 6,914,669
- --------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized - 100,000,000 shares
Issued - 42,108,932 and 40,448,929 shares, respectively 2,800 2,800
Capital surplus 250,793 183,624
Retained earnings 697,977 656,195
Accumulated other comprehensive income (2,963) 8,438
Treasury stock at cost - 707,878 and 937 shares, respectively (31,475) (30)
Unearned restricted stock compensation (12,367) (10,714)
- --------------------------------------------------------------------------------------------------------
Total shareholders' equity 904,765 840,313
- --------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 8,222,624 $ 7,754,982
- --------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
39
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31
- ---------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2004 2003 2002
- ---------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $272,460 $252,611 $273,737
Interest and dividends on investment securities
Taxable securities 77,950 76,144 85,558
Tax-exempt securities 10,181 8,564 6,843
Interest on federal funds sold and short-term investments 181 750 4,771
- ---------------------------------------------------------------------------------------------------
Total interest income 360,772 338,069 370,909
- ---------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 34,665 40,693 71,857
Interest on short-term and other borrowings 6,017 2,816 3,844
- ---------------------------------------------------------------------------------------------------
Total interest expense 40,682 43,509 75,701
- ---------------------------------------------------------------------------------------------------
NET INTEREST INCOME 320,090 294,560 295,208
PROVISION FOR LOAN LOSSES 2,000 (3,500) 7,500
- ---------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 318,090 298,060 287,708
- ---------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 37,148 38,309 38,327
Bank card fees 10,319 9,193 8,219
Trust service fees 8,959 8,126 8,814
Secondary mortgage market operations 4,925 11,248 9,045
Other noninterest income 21,104 21,765 20,369
Securities transactions 68 863 411
- ---------------------------------------------------------------------------------------------------
Total noninterest income 82,523 89,504 85,185
- ---------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Employee compensation 119,713 113,994 107,021
Employee benefits 29,644 27,377 21,966
- ---------------------------------------------------------------------------------------------------
Total personnel 149,357 141,371 128,987
Net occupancy 20,461 19,521 19,907
Equipment and data processing 17,636 17,264 18,876
Telecommunication and postage 8,846 8,614 8,281
Corporate value and franchise taxes 7,496 7,079 7,557
Legal and other professional services 5,943 6,029 6,083
Amortization of intangibles 5,657 5,332 5,846
Other noninterest expense 44,882 37,713 35,389
- ---------------------------------------------------------------------------------------------------
Total noninterest expense 260,278 242,923 230,926
- ---------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 140,335 144,641 141,967
INCOME TAX EXPENSE 43,198 46,099 46,644
- ---------------------------------------------------------------------------------------------------
NET INCOME $ 97,137 $ 98,542 $ 95,323
- ---------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Basic $ 2.38 $ 2.47 $ 2.39
Diluted 2.35 2.44 2.38
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic 40,748,387 39,929,431 39,848,881
Diluted 41,388,695 40,396,134 40,121,544
CASH DIVIDENDS PER SHARE $ 1.34 $ 1.23 $ 1.11
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
40
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated Unearned
Other Restricted
Common Capital Retained Comprehensive Treasury Stock
(dollars in thousands, except per share data) Stock Surplus Earnings Income Stock Compensation Total
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $2,800 $154,397 $556,241 $10,104 $ - $ (5,654) $717,888
- ----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 95,323 - - - 95,323
Other comprehensive income:
Unrealized net holding gain on securities,
net of reclassification adjustments and taxes - - - 20,000 - - 20,000
- ----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 95,323 20,000 - - 115,323
- ----------------------------------------------------------------------------------------------------------------------------------
Cash dividends, $1.11 per share - - (44,329) - - - (44,329)
Stock issued to dividend reinvestment plan - 1,490 - - - - 1,490
Long-term incentive plan stock activity:
Restricted grants and related activity - 4,451 - - (243) (1,237) 2,971
Options exercised - 6,355 - - 31 - 6,386
Directors' compensation plan stock activity - 255 - - 212 - 467
Stock transactions, pooled entities - 287 - - - - 287
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2002 2,800 167,235 607,235 30,104 - (6,891) 800,483
- ----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 98,542 - - - 98,542
Other comprehensive income:
Unrealized net holding loss on securities,
net of reclassification adjustments and taxes - - - (21,666) - - (21,666)
- ----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 98,542 (21,666) - - 76,876
- ----------------------------------------------------------------------------------------------------------------------------------
Cash dividends, $1.23 per share - - (49,582) - - - (49,582)
Stock issued to dividend reinvestment plan - 1,303 - - 487 - 1,790
Long-term incentive plan stock activity:
Restricted grants and related activity - 9,630 - - (1,227) (3,823) 4,580
Options exercised - 5,023 - - 503 - 5,526
Directors' compensation plan stock activity - 433 - - 207 - 640
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2003 2,800 183,624 656,195 8,438 (30) (10,714) 840,313
- ----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 97,137 - - - 97,137
Other comprehensive income:
Unrealized net holding loss on securities,
net of reclassification adjustments and taxes - - - (11,401) - - (11,401)
- ----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 97,137 (11,401) - - 85,736
- ----------------------------------------------------------------------------------------------------------------------------------
Cash dividends, $1.34 per share - - (55,355) - - - (55,355)
Stock acquired under repurchase program - - - - (31,475) - (31,475)
Stock issued in business combination - 41,932 - - - - 41,932
Stock issued to dividend reinvestment plan - 1,445 - - 654 - 2,099
Long-term incentive plan stock activity:
Restricted grants and related activity - 9,860 - - (857) (1,653) 7,350
Options exercised - 13,034 - - 55 - 13,089
Directors' compensation plan stock activity - 898 - - 178 - 1,076
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2004 $2,800 $250,793 $697,977 $(2,963) $(31,475) $(12,367) $904,765
- ----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
41
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $97,137 $98,542 $95,323
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of bank premises and equipment 13,458 13,242 15,336
Amortization of purchased intangibles 5,657 5,332 5,846
Restricted stock compensation earned 8,867 5,954 4,951
Premium amortization (discount accretion) on securities, net 4,139 8,221 4,338
Provision for losses on loans and foreclosed assets 2,099 (3,443) 7,634
Net gains on asset sales (1,189) (1,410) (1,680)
Deferred tax expense (benefit) (3,399) 1,415 (811)
Net decrease in loans originated and held for sale 6,513 22,802 21,342
Net (increase) decrease in accrued interest receivable and prepaid expenses 4,693 (2,798) 4,826
Net increase (decrease) in accrued interest payable and accrued expenses 11,343 (2,858) (7,755)
Other, net 100 986 232
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 149,418 145,985 149,582
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of investment securities held to maturity 16,440 52,938 40,710
Purchases of investment securities held to maturity (53,334) (40,898) (51,368)
Proceeds from maturities of investment securities available for sale 542,947 785,351 588,067
Proceeds from sales of investment securities available for sale 65,023 278,752 56,375
Purchases of investment securities available for sale (385,969) (1,321,413) (950,507)
Net increase in loans (564,403) (403,268) (5,356)
Net (increase) decrease in federal funds sold and short-term investments (8,039) (10,058) 490,581
Proceed from sales of foreclosed assets and surplus property 4,777 4,495 10,915
Purchases of bank premises and equipment (15,928) (11,128) (7,678)
Net cash received in branch acquisition and business combination 7,364 - -
Other, net (2,504) (16,209) (3,562)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (393,626) (681,438) 168,177
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in transaction account and savings account deposits 117,081 486,468 148,904
Net increase (decrease) in time deposits 133,654 (110,765) (316,185)
Net increase (decrease) in short-term and other borrowings 9,584 146,638 (58,102)
Proceeds from issuance of common stock 13,995 7,151 7,385
Purchases of common stock (29,681) (1,528) (2,256)
Cash dividends (57,061) (48,248) (42,893)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 187,572 479,716 (263,147)
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (56,636) (55,737) 54,612
Cash and cash equivalents at beginning of year 270,387 326,124 271,512
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $213,751 $270,387 $326,124
- -------------------------------------------------------------------------------------------------------------------
Cash received during the year for:
Interest income $360,756 $339,413 $374,721
Cash paid during the year for:
Interest expense 40,777 46,399 83,264
Income taxes 37,110 47,800 46,600
Noncash investing activities:
Loans transferred to held for sale - - 27,461
Foreclosed assets received in settlement of loans 2,125 2,574 4,707
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
NATURE OF BUSINESS
Whitney Holding Corporation is a Louisiana bank holding company
headquartered in New Orleans, Louisiana. Its principal subsidiary is Whitney
National Bank (the Bank), which represents virtually all its operations and net
income.
The Bank, which has been in continuous operation since 1883, engages in
community banking in its market area stretching across the five-state Gulf Coast
region, including southern Louisiana; the Houston, Texas metropolitan area; the
coastal region of Mississippi; central and south Alabama; the panhandle of
Florida; and the Tampa Bay metropolitan area of Florida. The Bank, together with
its wholly-owned subsidiary, Whitney Securities L.L.C., offers commercial and
retail banking products and services, including trust products and investment
services, to the customers in the communities it serves.
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT PRONOUNCEMENTS
Whitney Holding Corporation and its subsidiaries (the Company or
Whitney) follow accounting and reporting policies that conform with accounting
principles generally accepted in the United States of America and those
generally practiced within the banking industry. The following is a summary of
the more significant accounting policies.
Basis of Presentation
The consolidated financial statements include the accounts of Whitney
Holding Corporation and its subsidiaries. All significant intercompany balances
and transactions have been eliminated. Whitney reports the balances and results
of operations from business combinations accounted for as purchases from the
respective dates of acquisition (see Note 3). Certain financial information for
prior years has been reclassified to conform to the current year's presentation.
Use of Estimates
In preparing the consolidated financial statements, the Company is
required to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Investment Securities
Securities are classified as trading, held to maturity or available for
sale. Management determines the classification of securities when they are
purchased and reevaluates this classification periodically as conditions change
that could require reclassification.
Trading account securities are bought and held principally for resale
in the near term. They are carried at fair value with realized and unrealized
gains or losses reflected in noninterest income. Trading account securities are
immaterial in each period presented and have been included in other assets on
the consolidated balance sheets.
Securities which the Company both positively intends and has the
ability to hold to maturity are classified as securities held to maturity and
are carried at amortized cost. Intent and ability to hold are not considered
satisfied when a security is available to be sold in response to changes in
interest rates, prepayment rates, liquidity needs or other reasons as part of an
overall asset/liability management strategy.
Securities not meeting the criteria to be classified as either trading
securities or securities held to maturity are classified as available for sale
and are carried at fair value. Unrealized holding losses, other than those
determined to be other than temporary, and unrealized holding gains are excluded
from net income and are recognized, net of tax, in other comprehensive income
and in accumulated other comprehensive income, a separate component of
shareholders' equity.
43
Premiums and discounts on securities, both those held to maturity and
those available for sale, are amortized and accreted to income as an adjustment
to the securities' yields using the interest method. Realized gains and losses
on securities, including declines in value judged to be other than temporary,
are reported as a component of noninterest income. The cost of securities sold
is specifically identified for use in calculating realized gains and losses.
Loans Held for Sale
Loans originated for sale are carried at the lower of either cost or
market value. At times, management may decide to sell loans that were not
originated for that purpose. These loans are reclassified as held for sale when
that decision is made and are also carried at the lower of cost or market.
Loans
Loans are carried at the principal amounts outstanding net of unearned
income. Interest on loans and accretion of unearned income, including deferred
loan fees, are computed in a manner that approximates a level rate of return on
recorded principal.
The Company stops accruing interest on a loan when the borrower's
ability to meet contractual payments is in doubt. For commercial and real estate
loans, a loan is placed on nonaccrual status generally when it is ninety days
past due as to principal or interest, and the loan is not otherwise both well
secured and in the process of collection. When a loan is moved to nonaccrual
status, any accrued but uncollected interest is reversed against interest
income. Interest payments on nonaccrual loans are used to reduce the reported
loan principal under the cost recovery method if the collectibility of the
remaining principal is not reasonably assured; otherwise, such payments are
recognized as interest income when received. A loan on nonaccrual status may be
reinstated to accrual status when full payment of contractual principal and
interest is expected and this expectation is supported by current sustained
performance.
A loan is considered impaired when it is probable that all amounts will
not be collected as they become due according to the contractual terms of the
loan agreement. Generally, impaired loans are accounted for on a nonaccrual
basis. The extent of impairment is measured based upon a comparison of the
recorded investment in the loan with either the expected cash flows discounted
using the loan's original effective interest rate, the fair value of the
underlying collateral if the loan is collateral dependent, or when available,
the loans' observable market price. The amount of impairment is included in the
allowance for loan losses.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level that, in the
opinion of management, is adequate to absorb probable losses inherent in the
loan portfolio as of the balance sheet date. The adequacy of the allowance is
evaluated on an ongoing basis. Management considers various sources of
information including analyses of specific loans reviewed for impairment,
statistics from the internal credit risk rating process, reports on the payment
performance of portfolio segments not subject to individual risk ratings,
historical loss experience, portfolio concentration statistics and reports on
general and local economic conditions and the economic fundamentals of specific
industries that are well-represented in the customer base. Management also forms
a judgment about the level of accuracy inherent in the evaluation process.
Changes in management's evaluation over time are reflected in the provision for
loan losses charged to operating expense.
As actual loan losses are incurred, they are charged against the
allowance. Subsequent recoveries are added back to the allowance when collected.
44
Bank Premises and Equipment
Bank premises and equipment are carried at cost, less accumulated
depreciation. Depreciation is computed primarily using the straight-line method
over the estimated useful lives of the assets and over the shorter of the lease
terms or the estimated lives of leasehold improvements. Useful lives range
principally from fifteen to thirty years for buildings and improvements and from
three to ten years for furnishings and equipment, including data processing
equipment and software. Additions to bank premises and equipment and major
replacements or improvements are capitalized.
Foreclosed Assets and Surplus Property
Collateral acquired through foreclosure or in settlement of loans and
surplus property are both reported with other assets in the consolidated balance
sheets. With the exception of grandfathered property interests, which are
assigned a nominal book value, these assets are recorded at estimated fair
value, less estimated selling costs, if this value is lower than the carrying
value of the related loan or property asset. Any initial reduction in the
carrying amount of a loan to the fair value of the collateral received is
charged to the allowance for loan losses. Losses arising from the transfer of
bank premises and equipment to surplus property are charged to current earnings.
Subsequent valuation adjustments for either foreclosed assets or surplus
property are also included in current earnings, as are the revenues and expenses
associated with managing these assets before they are sold.
Goodwill and Other Intangible Assets
Whitney has recognized intangible assets in connection with its
purchase business combinations. Identifiable intangible assets acquired by the
Company have mainly represented the value of the deposit relationships purchased
in these transactions. Goodwill represents the purchase price premium over the
fair value of the net assets of an acquired business, including identifiable
intangible assets.
Goodwill must be assessed for impairment annually unless interim events
or circumstances make it more likely than not that an impairment loss has
occurred. Impairment is defined as the amount by which the implied fair value of
the goodwill contained in any reporting unit within a company is less than the
goodwill's carrying value. The Company has assigned all goodwill to one
reporting unit that represents Whitney's overall banking operations. This
reporting unit is the same as the operating segment identified below, and its
operations constitute substantially all of the Company's consolidated
operations. Impairment losses would be charged to operating expense.
Identifiable intangible assets with finite lives are amortized over the
periods benefited and are evaluated for impairment similar to other long-lived
assets. If the useful life of an identifiable intangible asset is indefinite,
the recorded asset is not amortized but tested for impairment by comparison to
its estimated fair value. Unidentifiable intangibles other than goodwill that
were recognized in certain earlier banking industry acquisitions not meeting the
definition of a business combination continue to be amortized in accordance with
accounting guidance that existed at the acquisition date.
Stock-Based Compensation
At December 31, 2004, the Company had two incentive compensation plans
that incorporate stock-based compensation, as is more fully described in Note
14. 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, among other
provisions. As provided for in SFAS No. 123, however, Whitney elected to
continue to follow Accounting Principles Board Opinion (APB) No. 25 and related
interpretations to measure and recognize stock-based compensation expense. Under
that Opinion, the Company recognizes no compensation expense with respect to
fixed awards of stock options. Whitney has awarded options with an exercise
price equal to the stock's market price on the grant date. As such, these
options have no intrinsic value on the grant date, which is also the date
compensation expense is measured for such awards under the Opinion. The
compensation expense recognized under APB No. 25 for the Company's 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.
45
The following shows the effect on net income and earnings per share if
Whitney had applied the provisions of SFAS No. 123 to measure and to recognize
stock-based compensation expense for all awards:
- -----------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------
Net income $97,137 $98,542 $95,323
Stock-based compensation expense included in reported net income,
net of related tax effects 5,764 3,870 3,218
Stock-based compensation expense determined under fair value-based
method for all awards, net of related tax effects (8,267) (5,935) (5,462)
- -----------------------------------------------------------------------------------------------------------------
Pro forma net income $94,634 $96,477 $93,079
- -----------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic - as reported $2.38 $2.47 $2.39
Basic - pro forma 2.32 2.42 2.34
Diluted - as reported 2.35 2.44 2.38
Diluted - pro forma 2.28 2.39 2.32
- -----------------------------------------------------------------------------------------------------------------
Weighted-average fair value of options awarded during the year $9.96 $6.55 $7.91
- -----------------------------------------------------------------------------------------------------------------
The fair values of the stock options were estimated as of the grant
dates using the Black-Sholes option-pricing model. The estimated option value
for each year's award totaled $4.9 million in 2004, $3.0 million in 2003, and
$3.4 million in 2002. 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, 25.55% in 2003, and
25.25% in 2002; (b) a weighted-average option life of 6.86 years in 2004 and
7.00 years in 2003 and 2002; (c) an expected annual dividend yield of 3.23% in
2004, 3.56% in 2003, and 3.44% in 2002; and (d) a weighted-average risk-free
interest rate of 4.44% in 2004, 3.01% in 2003, and 4.94% in 2002.
The Financial Accounting Standards Board (FASB) replaced the guidance
in SFAS No. 123 with the issuance in December 2004 of SFAS No. 123 (revised
2004), Share-Based Payment. Of greatest significance to Whitney, the revised
standard establishes the fair value-based method as the exclusive method of
accounting for stock-based compensation, with only limited exceptions, and
eliminates the option of following APB No. 25. Under SFAS No. 123 (revised
2004), the grant-date fair value of equity instruments awarded to employees
establishes the cost of the services received in exchange, and the cost
associated with awards that are expected to vest is recognized over the required
service period. The revised standard also clarifies and expands existing
guidance on measuring fair value, including considerations for selecting and
applying an option-pricing model, on classifying an award as equity or a
liability, and on attributing compensation cost to reporting periods.
SFAS No. 123 (revised 2004) applies to all awards granted after June
30, 2005 and to awards modified, repurchased, or cancelled after that date. The
Company has no current plans to modify, repurchase or cancel existing awards. If
there are outstanding awards for which the required service period extends
beyond June 30, 2005, Whitney will recognize compensation cost after that date
based on the grant-date fair value of those awards as calculated under the
original SFAS No. 123 for pro forma disclosure. As of December 31, 2004, all
stock options awarded by the Company were fully-exercisable and there were no
continuing service requirements. The service requirement for certain restricted
stock awards does extend beyond June 30, 2005, and the related compensation
expense recognized after that date will differ from what would have been
recognized under APB No. 25. The extent of this difference cannot be fixed at
this time, but it is unlikely to be material. The impact of the revised standard
on the accounting for future awards of stock-based compensation will depend on
the timing and terms of those awards.
46
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return. Income taxes are accounted for using the asset and liability method.
Under this method the expected tax consequences of temporary differences that
arise between the tax bases of assets or liabilities and their reported amounts
in the financial statements represent either deferred tax liabilities to be
settled in the future or deferred tax assets that will be realized as a
reduction of future taxes payable. Currently enacted tax rates and laws are used
to calculate the expected tax consequences. Valuation allowances are established
against deferred tax assets if, based on all available evidence, it is more
likely than not that some or all of the assets will not be realized.
Earnings per Share
Basic earnings per share is computed by dividing income applicable to
common shares (net income in all periods presented) by the weighted-average
number of common shares outstanding for the applicable period. Shares
outstanding are adjusted for restricted shares issued to employees under the
long-term incentive compensation plan and for certain shares that will be issued
under the directors' compensation plan. Diluted earnings per share is computed
using the weighted-average number of shares outstanding increased by the number
of restricted shares in which employees would vest based on current performance
and by the number of additional shares that would have been issued if
potentially dilutive stock options were exercised, each as determined using the
treasury stock method.
Statements of Cash Flows
The Company considers only cash on hand and balances due from financial
institutions as cash and cash equivalents for purposes of the consolidated
statements of cash flows.
Operating Segment Disclosures
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," established standards for reporting information about a company's
operating segments using a "management approach." Reportable segments are
identified in this statement as those revenue-producing components for which
separate financial information is produced internally and which are subject to
evaluation by the chief operating decision maker in deciding how to allocate
resources to segments. Consistent with its stated strategy that is focused on
providing a consistent package of community banking products and services
throughout a coherent market area, Whitney has identified its overall banking
operations as its only reportable segment. Because the overall banking
operations comprise substantially all of the consolidated operations, no
separate segment disclosures are presented.
Derivative Financial Instruments
To be able to accommodate the maturity/rate preferences of certain
potential borrowers, the Bank has employed interest rate swaps on a limited
basis to bring the market risk associated with these longer-duration fixed-rate
loans in line with Whitney's asset/liability management objectives by
essentially converting them to floating-rate loans. The only contract entered
into to date was designated at inception as a hedge of the fair value of a
specific loan and was terminated as of December 31, 2004.
To qualify as a fair value hedge, changes in the value of the hedging
derivative instrument or swap must be expected to be highly effective in
offsetting changes in the value of the hedged instrument or loan that result
from changes in the benchmark interest rate. Hedge effectiveness is assessed at
inception and on an ongoing basis. On at least a quarterly basis, changes in the
values of the swap and the loan are recognized in noninterest income, such that
any ineffectiveness would impact earnings. There has been no ineffectiveness
recognized with respect to hedging activity. The fair value of the derivative
instrument is recognized in the consolidated balance sheets with other assets or
other liabilities.
The counterparty to a swap can default on its obligations and, as such,
the use of these derivatives exposes the Company to credit risk. Whitney's
policies attempt to control this risk by limiting dealings in derivatives to
high-quality counterparties, among other requirements.
47
Other
Assets held by the Bank in a fiduciary capacity are not assets of the
Bank and are not included in the consolidated balance sheets. Generally, certain
minor sources of income are recorded on a cash basis, which does not differ
materially from the accrual basis.
Accounting Standard Developments
In December 2004, the FASB issued SFAS No. 123 (revised 2004),
Share-Based Payment. This statement replaces SFAS No. 123, Accounting for
Stock-Based Compensation. Information about the more significant provisions of
SFAS No. 123 (revised 2004), including effective dates, and the expected impact
on the Company's financial results is presented in the earlier section on
"Stock-Based Compensation."
The FASB issued a revised version of SFAS No. 132 in December 2003.
This revised statement added to the annual disclosures about pensions and other
postretirement benefits that were required by the original statement issued in
1997. Most of the added annual disclosures were effective as of December 31,
2003, with the remainder effective as of December 31, 2004. These disclosures
are included in Note 13. The revised statement also introduced a requirement for
certain interim disclosures that were effective for the quarter ended March 31,
2004. Both the original and the revised statements addressed disclosure only and
did not address accounting measurement or recognition for benefit obligations.
The FASB issued staff positions in January and May 2004 in response to
certain accounting issues raised by the enactment of the Medicare Prescription
Drug, Improvement and Modernization Act of 2003 (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 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
commitments entered into after March 31, 2004 to originate loans that will be
held for sale. 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.
48
NOTE 3
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. Destin reported $509 million in total
assets, including a $358 million loan portfolio, and $391 million in deposits as
of December 31, 2004. 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's shareholders, the transaction
is expected to close in the first half of 2005.
In August 2004, Whitney acquired Madison BancShares, Inc. (Madison) and
its subsidiary, Madison Bank. Madison Bank was merged immediately into Whitney
National 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 reported $219 million in assets, including
$189 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. No other significant adjustments were required to record Madison's
assets and liabilities at fair value. Whitney'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 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.
Whitney made no business acquisitions during 2003 or 2002.
49
NOTE 4
INVESTMENT SECURITIES
Summary information about securities available for sale and securities
held to maturity follows:
- ------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------
Securities Available for Sale
- ------------------------------------------------------------------------------------------------------------
December 31, 2004
- ------------------------------------------------------------------------------------------------------------
Mortgage-backed securities $1,340,222 $7,534 $ 6,844 $1,340,912
U. S. agency securities 289,816 326 6,558 283,584
U. S. Treasury securities 80,267 309 227 80,349
Obligations of states and political
subdivisions 21,318 853 - 22,171
Other securities 36,710 50 2 36,758
- ------------------------------------------------------------------------------------------------------------
Total $1,768,333 $9,072 $13,631 $1,763,774
- ------------------------------------------------------------------------------------------------------------
December 31, 2003
- ------------------------------------------------------------------------------------------------------------
Mortgage-backed securities $1,433,855 $15,425 $ 2,476 $1,446,804
U. S. agency securities 401,545 3,365 7,146 397,764
U. S. Treasury securities 180,211 2,949 468 182,692
Obligations of states and political
subdivisions 27,342 1,317 - 28,659
Other securities 34,937 18 4 34,951
- ------------------------------------------------------------------------------------------------------------
Total $2,077,890 $23,074 $10,094 $2,090,870
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Securities Held to Maturity
- ------------------------------------------------------------------------------------------------------------
December 31, 2004
- ------------------------------------------------------------------------------------------------------------
Obligations of states and political
subdivisions $227,470 $6,027 $1,272 $232,225
- ------------------------------------------------------------------------------------------------------------
Total $227,470 $6,027 $1,272 $232,225
- ------------------------------------------------------------------------------------------------------------
December 31, 2003
- ------------------------------------------------------------------------------------------------------------
Obligations of states and political
subdivisions $190,535 $7,230 $1,048 $196,717
- ------------------------------------------------------------------------------------------------------------
Total $190,535 $7,230 $1,048 $196,717
- ------------------------------------------------------------------------------------------------------------
The following summarizes securities with unrealized losses at December
31, 2004 by the period over which the security's fair value has been
continuously less than its amortized cost.
- ------------------------------------------------------------------------------------------------------------
Less than 12 Months 12 Months or Longer
- ------------------------------------------------------------------------------------------------------------
Fair Unrealized Fair Unrealized
(in thousands) Value Losses Value Losses
- ------------------------------------------------------------------------------------------------------------
Securities Available for Sale
- ------------------------------------------------------------------------------------------------------------
Mortgage-backed securities $664,513 $5,195 $ 87,376 $1,649
U.S. agency securities 148,219 1,635 120,734 4,923
U.S. Treasury securities 24,742 227 - -
Other securities 798 2 - -
- ------------------------------------------------------------------------------------------------------------
Total $838,272 $7,059 $208,110 $6,572
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Securities Held to Maturity
- ------------------------------------------------------------------------------------------------------------
Obligations of states and political
subdivisions $48,498 $499 $19,727 $773
- ------------------------------------------------------------------------------------------------------------
Total $48,498 $499 $19,727 $773
- ------------------------------------------------------------------------------------------------------------
50
Management evaluates whether unrealized losses on securities represent
impairment that is other than temporary. If such impairment is identified, the
carrying amount of the security is reduced with a charge to operations. In
making this evaluation, management first considers the reasons for the indicated
impairment. These could include changes in market rates relative to those
available when the security was acquired, changes in market expectations about
the timing of cash flows from securities that can be prepaid, and changes in the
market's perception of the issuer's financial health and the security's credit
quality. Management then considers the likelihood of a recovery in fair value
sufficient to eliminate the indicated impairment and the length of time over
which an anticipated recovery would occur, which could extend to the security's
maturity. Finally, management determines whether there is both the ability and
intent to hold the impaired security until an anticipated recovery, in which
case the impairment would be considered temporary. In making this assessment,
management considers whether a security continues to be a suitable holding from
the perspective of the Company's overall portfolio and asset/liability
management strategies.
Substantially all the unrealized losses at December 31, 2004 resulted
from increases in market interest rates over the yields available at the time
the underlying securities were purchased. Management identified no impairment
related to credit quality. In all cases, the indicated impairment would be
recovered by the security's maturity or repricing date or possibly earlier if
the market price for the security increases with a reduction in the yield
required by the market. All impaired securities were originally purchased for
continuing investment purposes, and management continues to find them suitable
for this purpose in light of current market conditions and Company strategies.
At December 31, 2004, management had both the intent and ability to hold
impaired securities until full recovery of cost is achieved and no impairment
was evaluated as other than temporary. No impairment losses were recognized in
any of the three years ended December 31, 2004.
The following table shows the amortized cost and estimated fair value
of securities available for sale and held to maturity grouped by contractual
maturity as of December 31, 2004. Debt securities with scheduled repayments,
such as mortgage-backed securities, and equity securities are presented in
separate totals.
- -------------------------------------------------------------------------
Amortized Fair
(in thousands) Cost Value
- -------------------------------------------------------------------------
Securities Available for Sale
- -------------------------------------------------------------------------
Within one year $ 93,278 $ 93,705
One to five years 215,423 212,505
Five to ten years 82,700 79,894
After ten years - -
- -------------------------------------------------------------------------
Debt securities with single
maturities 391,401 386,104
Mortgage-backed securities 1,340,222 1,340,912
Equity and other debt securities 36,710 36,758
- -------------------------------------------------------------------------
Total $1,768,333 $1,763,774
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Securities Held to Maturity
- -------------------------------------------------------------------------
Within one year $ 5,096 $ 5,142
One to five years 33,481 35,066
Five to ten years 105,403 107,987
After ten years 83,490 84,030
- -------------------------------------------------------------------------
Total $227,470 $232,225
- -------------------------------------------------------------------------
The expected maturity of a security, in particular certain U.S. agency
securities and obligations of states and political subdivisions, may differ from
its contractual maturity because of the exercise of call options.
51
Proceeds from sales of securities available for sale were $65 million
in 2004, $279 million in 2003 and $56 million in 2002. A gross gain of $.1
million was realized in 2004. Gross realized gains and losses were,
respectively, $3.0 million and $2.1 million in 2003, and $1.1 million and $.7
million in 2002.
Securities with carrying values of $1.32 billion at December 31, 2004
and $892 million at December 31, 2003 were sold under repurchase agreements,
pledged to secure public deposits or pledged for other purposes. In these totals
were $139 million in 2004 and $60 million in 2003 for securities pledged at the
Federal Reserve discount window in connection with the Company's overall
contingency funding plans.
NOTE 5
LOANS
The composition of the Company's loan portfolio follows:
December 31
- ------------------------------------------------------------------------------------------------------
(in thousands) 2004 2003
- ------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural $2,399,794 43% $2,213,207 45%
Real estate - commercial, construction and
other 2,209,975 39 1,726,212 35
Real estate - residential mortgage 685,732 12 619,869 13
Individuals 330,775 6 323,322 7
- ------------------------------------------------------------------------------------------------------
Total $5,626,276 100% $4,882,610 100%
- ------------------------------------------------------------------------------------------------------
The Bank makes loans in the normal course of business to directors and
executive officers of the Company and the Bank and to their associates. Loans to
such related parties carry substantially the same terms, including interest
rates and collateral requirements, as those prevailing at the time for
comparable transactions with unrelated parties and do not involve more than
normal risks of collectibility when originated. An analysis of the changes in
loans to related parties during 2004 follows:
- ----------------------------------------------
(in thousands) 2004
- ----------------------------------------------
Beginning balance $86,441
Additions 131,932
Repayments (131,492)
Net decrease from changes
in related parties (10,443)
- ----------------------------------------------
Ending balance $76,438
- ----------------------------------------------
Outstanding unfunded commitments and letters of credit to related
parties totaled $117 million and $114 million at December 31, 2004 and 2003,
respectively.
NOTE 6
ALLOWANCE FOR LOAN LOSSES
A summary analysis of changes in the allowance for loan losses follows:
Years Ended December 31
- -------------------------------------------------------------------------------------------------------------
(in thousands) 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------
Balance at beginning of year $59,475 $66,115 $71,633
Allowance of acquired banks 2,461 - -
Allowance on loans transferred to held for sale - - (895)
Provision for loan losses 2,000 (3,500) 7,500
Loans charged off (14,030) (12,934) (17,211)
Recoveries 4,439 9,794 5,088
- -------------------------------------------------------------------------------------------------------------
Net charge-offs (9,591) (3,140) (12,123)
- -------------------------------------------------------------------------------------------------------------
Balance at end of year $54,345 $59,475 $66,115
- -------------------------------------------------------------------------------------------------------------
52
NOTE 7
IMPAIRED LOANS, NONPERFORMING LOANS, FORECLOSED ASSETS AND SURPLUS PROPERTY
Information on loans evaluated for possible impairment loss follows:
December 31
- ---------------------------------------------------------------------------------------------
(in thousands) 2004 2003
- ---------------------------------------------------------------------------------------------
Impaired loans at year end
Requiring a loss allowance $14,238 $19,675
Not requiring a loss allowance 4,083 2,089
- ---------------------------------------------------------------------------------------------
Total recorded investment in impaired loans $18,321 $21,764
- ---------------------------------------------------------------------------------------------
Impairment loss allowance required at year end $5,497 $6,157
- ---------------------------------------------------------------------------------------------
Average recorded investment in impaired loans during the year $21,418 $28,380
- ---------------------------------------------------------------------------------------------
The following is a summary of nonperforming loans and foreclosed assets
and surplus property:
December 31
- --------------------------------------------------------------------------------
(in thousands) 2004 2003
- --------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis $23,597 $26,776
Restructured loans 49 114
- --------------------------------------------------------------------------------
Total nonperforming loans $23,646 $26,890
- --------------------------------------------------------------------------------
Foreclosed assets and surplus property $2,454 $3,490
- --------------------------------------------------------------------------------
Interest income is recognized on certain nonaccrual loans as payments
are received. Interest payments on other nonaccrual loans are accounted for
under the cost recovery method, but this interest may later be recognized in
income when loan collections exceed expectations or when workout efforts result
in fully rehabilitated credits. The following compares contractual interest
income on nonaccrual loans and restructured loans with the cash-basis and
cost-recovery interest actually recognized on these loans:
Years Ended December 31
- --------------------------------------------------------------------------------
(in thousands) 2004 2003 2002
- --------------------------------------------------------------------------------
Contractual interest $2,671 $2,789 $3,394
Interest recognized 1,615 1,237 1,119
- --------------------------------------------------------------------------------
Decrease in reported interest income $1,056 $1,552 $2,275
- --------------------------------------------------------------------------------
The Bank and a subsidiary own various property interests that were
acquired in routine banking transactions generally before 1933. There was no
ready market for these assets when they were initially acquired, and, as was
general banking practice at the time, they were written down to a nominal value.
The assets include direct and indirect ownership interests in scattered
undeveloped acreage, various mineral interests, and a few commercial and
residential sites primarily in southeast Louisiana.
The revenues and direct expenses related to these grandfathered
property interests that are included in the statements of income follow:
Years Ended December 31
- ------------------------------------------------------------------------
(in thousands) 2004 2003 2002
- ------------------------------------------------------------------------
Revenues $1,271 $1,067 $983
Direct expenses 205 205 154
- ------------------------------------------------------------------------
53
NOTE 8
BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment by asset classification
follows:
December 31
- ---------------------------------------------------------------------
(in thousands) 2004 2003
- ---------------------------------------------------------------------
Land $ 37,839 $ 36,335
Buildings and improvements 186,801 174,788
Equipment and furnishings 112,475 106,369
- ---------------------------------------------------------------------
337,115 317,492
Accumulated depreciation (180,513) (169,233)
- ---------------------------------------------------------------------
Total bank premises and equipment $156,602 $148,259
- ---------------------------------------------------------------------
Provisions for depreciation and amortization included in noninterest
expense were as follows:
Years Ended December 31
- --------------------------------------------------------------------------------
(in thousands) 2004 2003 2002
- --------------------------------------------------------------------------------
Buildings and improvements $ 6,679 $ 6,609 $ 6,794
Equipment and furnishings 6,779 6,633 8,542
- --------------------------------------------------------------------------------
Total depreciation and amortization
expense $13,458 $13,242 $15,336
- --------------------------------------------------------------------------------
At December 31, 2004, the Bank was obligated under a number of
noncancelable operating leases, substantially all related to premises. Certain
of these leases have escalation clauses and renewal options. Total rental
expense was $4.2 million in 2004 and $4.0 million in 2003 and 2002.
As of December 31, 2004, the future minimum rentals under noncancelable
operating leases having an initial lease term in excess of one year were as
follows:
(in thousands)
- ------------------------------------------------
2005 $ 4,881
2006 4,452
2007 3,947
2008 3,687
2009 3,642
Later years 22,677
- ------------------------------------------------
Total $43,286
- ------------------------------------------------
NOTE 9
GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets consist of identifiable intangibles such as the value
of deposit relationships, goodwill acquired in business combinations accounted
for as purchases, and unidentifiable intangibles acquired in certain
banking-industry transactions that did not meet the criteria for business
combinations. Note 3 presents information on goodwill and other intangible
assets acquired in 2004. There were no dispositions of intangible assets during
2004.
Goodwill is tested for impairment at least annually. No indication of
goodwill impairment was identified in the annual assessments as of September 30,
2004 and 2003. The balance of goodwill that will not generate future tax
deductions was $107 million at December 31, 2004.
54
Identifiable intangible assets with finite lives are amortized over the
periods benefited and are evaluated for impairment similar to other long-lived
assets. The Company's only significant identifiable intangible assets reflect
the value of deposit relationships, all of which have finite lives. Remaining
lives ranged from approximately three to seven years at December 31, 2004. The
weighted-average remaining life of identifiable intangible assets was
approximately four years. Unidentifiable intangible assets are being amortized
over a remaining life of approximately three years.
The carrying value of intangible assets subject to amortization was as
follows:
- ----------------------------------------------------------------------------------------------------------------
(in thousands) December 31, 2004 December 31, 2003
- ----------------------------------------------------------------------------------------------------------------
Purchase Accumulated Carrying Purchase Accumulated Carrying
Value Amortization Value Value Amortization Value
- ----------------------------------------------------------------------------------------------------------------
Deposit relationships and other
identifiable intangibles $36,841 $17,312 $19,529 $31,377 $14,326 $17,051
Unidentifiable intangibles 11,321 6,610 4,711 11,321 4,897 6,424
- ----------------------------------------------------------------------------------------------------------------
Total $48,162 $23,922 $24,240 $42,698 $19,223 $23,475
- ----------------------------------------------------------------------------------------------------------------
Amortization of intangible assets included in noninterest expense was
as follows:
Years Ended December 31
- ----------------------------------------------------------------------------------------------------------------
(in thousands) 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------
Deposit relationships and other identifiable intangibles $3,944 $3,619 $4,133
Unidentifiable intangibles 1,713 1,713 1,713
- ----------------------------------------------------------------------------------------------------------------
Total amortization $5,657 $5,332 $5,846
- ----------------------------------------------------------------------------------------------------------------
The following shows estimated amortization expense for the five
succeeding years, calculated based on current amortization schedules.
(in thousands)
- ------------------------------------
2005 $6,427
2006 6,180
2007 5,254
2008 3,072
2009 1,949
- ------------------------------------
55
NOTE 10
DEPOSITS
The composition of deposits was as follows:
December 31
- ------------------------------------------------------------------------------
(in thousands) 2004 2003
- ------------------------------------------------------------------------------
Noninterest-bearing demand deposits $2,111,703 $1,943,248
Interest-bearing deposits:
NOW account deposits 901,859 827,360
Money market deposits 1,270,479 1,396,420
Savings deposits 709,887 585,943
Other time deposits 694,458 745,478
Time deposits $100,000 and over 924,221 660,133
- ------------------------------------------------------------------------------
Total interest-bearing deposits 4,500,904 4,215,334
- ------------------------------------------------------------------------------
Total deposits $6,612,607 $6,158,582
- ------------------------------------------------------------------------------
Deposits include funds of public entities, such as states and
municipalities, and certain other deposits that are subject to collateral
requirements. Public funds and other collateralized deposits totaled $343
million and $313 million at December 31, 2004 and 2003, respectively, including
time deposits of $138 million at the end of 2004 and $91 million at the end of
2003.
Scheduled maturities of all time deposits at December 31, 2004 were as
follows:
- ------------------------------------------------
(in thousands)
- ------------------------------------------------
2005 $1,380,151
2006 149,296
2007 77,179
2008 9,006
2009 and thereafter 3,047
- ------------------------------------------------
Total $1,618,679
- ------------------------------------------------
NOTE 11
SHORT-TERM AND OTHER BORROWINGS
Short-term and other borrowings consisted of the following:
December 31
- --------------------------------------------------------------------------------
(in thousands) 2004 2003
- --------------------------------------------------------------------------------
Securities sold under agreements to repurchase $309,827 $296,580
Federal funds purchased 161,279 257,084
Federal Home Loan Bank advance 100,000 -
Treasury Investment Program 40,000 40,000
Other borrowings 23,153 6,389
- --------------------------------------------------------------------------------
Total short-term and other borrowings $634,259 $600,053
- --------------------------------------------------------------------------------
The Bank borrows funds on a secured basis by selling securities under
agreements to repurchase, mainly in connection with treasury-management services
offered to its deposit customers. Repurchase agreements generally mature daily.
The Bank has the ability to exercise legal authority over the underlying
securities. Mortgage-backed securities issued or guaranteed by U.S. government
agencies and other agency securities with a fair value of $310 million were sold
under repurchase agreements at December 31, 2004.
56
Additional information about securities sold under repurchase
agreements follows:
- ----------------------------------------------------------------------------
(dollars in thousands) 2004 2003 2002
- ----------------------------------------------------------------------------
At December 31
Interest rate .84% .50% .52%
Balance $309,827 $296,580 $349,305
- ----------------------------------------------------------------------------
Average for the year
Effective interest rate .69% .47% .71%
Balance $338,096 $325,213 $352,603
- ----------------------------------------------------------------------------
Maximum month-end outstanding $412,839 $362,904 $403,775
- ----------------------------------------------------------------------------
Federal funds purchased represent unsecured borrowings from other
banks, generally on an overnight basis. Additional information about federal
funds purchased follows:
- ----------------------------------------------------------------------------
(dollars in thousands) 2004 2003 2002
- ----------------------------------------------------------------------------
At December 31
Interest rate 2.17% .97% .75%
Balance $161,279 $257,084 $64,886
- ----------------------------------------------------------------------------
Average for the year
Effective interest rate 1.27% 1.00% 1.51%
Balance $160,554 $99,382 $69,249
- ----------------------------------------------------------------------------
Maximum month-end outstanding $294,878 $257,084 $95,397
- ----------------------------------------------------------------------------
During 2004, the Bank began using advances from the Federal Home Loan
Bank (FHLB) as an additional source of short-term funds. The advance outstanding
at December 31, 2004 had a maturity of less than one month and bore interest at
a rate of 2.25%. The Bank borrowed $79 million on average under short-term FHLB
advances during 2004 with an effective interest rate of 1.40%. The maximum
month-end balance was $100 million. Long-term advances from the FHLB are
included with other borrowings. The balance of other borrowings at December 31,
2004 included $17 million in advances assumed in a business combination.
Mortgage-backed securities with a fair value of $200 million were pledged to
secure borrowings under FHLB advances at December 31, 2004.
Under the Treasury Investment Program, temporary excess U.S. Treasury
receipts are loaned to participating financial institutions at 25 basis points
under the federal funds rate. Repayment of these borrowed funds can be demanded
at any time. The Company limited its participation to $40 million and has
pledged securities with a comparable value as collateral for borrowings under
this program.
57
NOTE 12
OTHER ASSETS AND OTHER LIABILITIES
The more significant components of other assets and other liabilities
at December 31, 2004 and 2003 were as follows:
Other Assets December 31
- --------------------------------------------------------------------------------
(in thousands) 2004 2003
- --------------------------------------------------------------------------------
Net deferred income tax asset $31,796 $21,190
Low-income housing tax credit fund investments 20,578 16,199
Cash surrender value of life insurance 9,768 8,665
Prepaid expenses 4,872 4,288
Prepaid pension asset 1,865 7,230
Miscellaneous investments, receivables and other assets 20,001 24,586
- --------------------------------------------------------------------------------
Total other assets $88,880 $82,158
- --------------------------------------------------------------------------------
Other Liabilities December 31
- --------------------------------------------------------------------------------
(in thousands) 2004 2003
- --------------------------------------------------------------------------------
Trade date obligations $ 4,583 $100,925
Accrued taxes and other expenses 22,959 12,319
Dividend payable 11,638 13,344
Obligation for postretirement benefits other than
pensions 10,344 9,379
Miscellaneous payables, deferred income and other
liabilities 16,437 15,574
- --------------------------------------------------------------------------------
Total other liabilities $65,961 $151,541
- --------------------------------------------------------------------------------
NOTE 13
EMPLOYEE BENEFIT PLANS
Retirement Plans
Whitney has a noncontributory qualified defined benefit pension plan
covering substantially all of its employees, subject to minimum age and
service-related requirements. The benefits are based on an employee's total
years of service and his or her highest consecutive five-year level of
compensation during the final ten years of employment. Contributions are made in
amounts sufficient to meet funding requirements set forth in federal employee
benefit and tax laws plus such additional amounts as the Company may determine
to be appropriate. Based on currently available information, the Company does
not anticipate making a contribution during 2005.
58
The following table details the changes both in the actuarial present
value of the pension benefit obligation and in the plan's assets for the years
ended December 31, 2004 and 2003. The table also shows the funded status of the
plan at each year end and identifies the related amounts recognized and not
recognized in the Company's consolidated balance sheets. Whitney uses a December
31 measurement date for all of its defined benefit retirement plans and other
postretirement benefit plans.
- --------------------------------------------------------------------------------
(in thousands) 2004 2003
- --------------------------------------------------------------------------------
Changes in benefit obligation:
Benefit obligation, beginning of year $109,758 $ 91,991
Service cost for benefits 6,511 5,311
Interest cost on benefit obligation 6,556 6,030
Net actuarial loss 6,088 10,418
Benefits paid (4,008) (3,992)
- --------------------------------------------------------------------------------
Benefit obligation, end of year 124,905 109,758
- --------------------------------------------------------------------------------
Changes in plan assets:
Plan assets at fair value, beginning of year 102,345 84,736
Actual return on plan assets 8,600 13,903
Employer contribution - 8,000
Benefits paid (4,008) (3,992)
Plan expenses (332) (302)
- --------------------------------------------------------------------------------
Plan assets at fair value, end of year 106,605 102,345
- --------------------------------------------------------------------------------
Funded status and amounts recognized
and unrecognized:
Benefit obligation in excess of plan assets,
end of year (18,300) (7,413)
Unrecognized net actuarial losses 20,580 15,166
Unrecognized prior service cost resulting
from plan amendments (415) (523)
- --------------------------------------------------------------------------------
Prepaid pension asset recognized $ 1,865 $ 7,230
- --------------------------------------------------------------------------------
The weighted-average assumptions used to determine the benefit
obligation at December 31, 2004 and 2003 follow:
- --------------------------------------------------------------------------------
2004 2003
- --------------------------------------------------------------------------------
Discount rate 5.75% 6.00%
Rate of future compensation increases 4.00 4.00
- --------------------------------------------------------------------------------
The accumulated benefit obligation was $103 million and $91 million at
December 31, 2004 and 2003, respectively. The calculation of the accumulated
benefit obligation ignores the assumption about future compensation levels.
59
The components of net pension expense were as follows:
- -------------------------------------------------------------------------------------------------
(in thousands) 2004 2003 2002
- -------------------------------------------------------------------------------------------------
Service cost for benefits during the period $6,511 $5,311 $3,893
Interest cost on benefit obligation 6,556 6,030 5,451
Expected return on plan assets (8,026) (6,620) (7,421)
Amortization of:
Unrecognized net actuarial losses 432 408 -
Unrecognized net implementation asset - (283) (405)
Unrecognized prior service cost (108) (108) (108)
- -------------------------------------------------------------------------------------------------
Net pension expense $5,365 $4,738 $1,410
- -------------------------------------------------------------------------------------------------
The Company used the following weighted-average assumptions in
determining the net pension expense or benefit for each of the three years in
the period ended December 31, 2004.
- --------------------------------------------------------------------------------
2004 2003 2002
- --------------------------------------------------------------------------------
Discount rate 6.00% 6.50% 6.75%
Rate of future compensation increases 4.00 4.00 4.00
Expected long-term return on plan assets 8.00 8.00 8.00
- --------------------------------------------------------------------------------
Benefit payments under the qualified pension plan and the nonqualified
plan discussed below are expected to total $4.1 million in 2005, $4.5 million in
2006, $4.8 million in 2007, $5.2 million in 2008, $5.8 million in 2009, and $39
million for the next five years combined. These estimates were developed based
on the same assumptions used in measuring benefit obligations as of December 31,
2004.
The following table shows the percentage allocation of plan assets by
investment category at December 31, 2004 and 2003, as well as the most recent
target allocation set by the investment manager and the target allocation ranges
specified in the plan's investment policy. The employer contribution in 2003 was
made late in the year and was in the process of being allocated to investment
categories at year end. This is reflected in the higher proportion of cash
investments for 2003.
- ----------------------------------------------------------------------------------------------
Actual Allocation Current Policy
2004 2003 Target Range
- ----------------------------------------------------------------------------------------------
Equity securities 61% 58% 60% 40-70%
Corporate debt securities 20 17
U. S. Treasury and government agency securities 16 18
- ----------------------------------------------------------------------------------------------
Total debt securities 36 35 40 30-60
Cash investments 3 7 0-20
- ----------------------------------------------------------------------------------------------
Total 100% 100%
- ----------------------------------------------------------------------------------------------
Whitney determines its assumption regarding the expected long-term
return on plan assets with reference to the plan's investment policy and
practices, including the tolerance for market and credit risk, and historical
returns for benchmark indices specified in the policy. The policy communicates
risk tolerance in terms of diversification criteria and constraints on
investment quality. The plan may not hold debt or equity securities of any
single issuer, except the U.S. Treasury and U.S. government agencies, in excess
of 10% of plan assets. In addition, all purchases for the debt portfolio are
limited to investment grade securities of less than 10 years' maturity. The
policy also calls for diversification of equity holdings across business
segments and states a preference for holdings in companies that demonstrate
consistent growth in earnings and dividends. Limited use of derivatives is
authorized by the policy, but the investment manager has not employed these
instruments.
60
The plan held 114,450 shares of Whitney common stock with a value of
$5.1 million (5% of plan assets) at December 31, 2004, and 182,200 shares with a
value of $7.5 million (7% of plan assets) at December 31, 2003.
Whitney also has an unfunded nonqualified defined benefit pension plan
that provides retirement benefits to designated executive officers. These
benefits are calculated using the qualified plan's formula, but without applying
the restrictions imposed on qualified plans by certain provisions of the
Internal Revenue Code. Benefits that become payable under the nonqualified plan
would be reduced by amounts paid from the qualified plan. The actuarial present
value of the nonqualified benefit plan obligation was $6.5 million at December
31, 2004 and $5.1 million at December 31, 2003. The accrued pension liability
recorded at year end for the accumulated benefit obligation was $5.1 million in
2004 and $4.3 million in 2003. The accrued pension liability is reported with
other liabilities in the consolidated balance sheets. The net pension expense
for nonqualified plan benefits was approximately $.8 million in 2004 and $.6
million in both 2003 and 2002. Benefit obligations and expense for the
nonqualified pension plan were determined using, where applicable, the same
assumptions that were employed for the qualified plan.
Whitney sponsors an employee savings plan under Section 401(k) of the
Internal Revenue Code that covers substantially all full-time employees. The
Company annually matches the savings of each participant up to 4% of his or her
compensation. Tax law imposes limits on total annual participant savings.
Participants are fully vested in their savings and in the matching Company
contributions at all times. The expense of the Company's matching contributions
was approximately $3.0 million in 2004, $2.8 million in 2003 and $2.7 million in
2002.
Health and Welfare Plans
Whitney maintains health care and life insurance benefit plans for
retirees and their eligible dependents. Participant contributions are required
under the health plan. All health care benefits are covered under contracts with
health maintenance or preferred provider organizations or insurance contracts.
The Company recognizes the expected cost of providing these postretirement
benefits during the period employees are actively working. The Company funds its
obligations under these plans as contractual payments come due.
The actuarial present value of the postretirement benefit obligation
was $15.7 million at December 31, 2004 and $15.3 million at December 31, 2003.
Adjusting for unrecognized actuarial gains and losses and unrecognized prior
service cost, the net postretirement benefit liability reported with other
liabilities in the consolidated balance sheets was $10.3 million at year-end
2004 and $9.4 million at the end of 2003. The net periodic postretirement
benefit expense was approximately $1.7 million for 2004, $1.9 million for 2003
and $1.1 million for 2002. This expense includes components for the portion of
the expected benefit obligation attributed to current service, for interest on
the accumulated benefit obligation, and for amortization of unrecognized
actuarial gains or losses. None of the individual components of either the
change in the benefit obligation or the net periodic expense was individually
significant for any period reported. Payments to provide benefits are expected
to range from $.7 million to $1.3 million annually over the next five years and
to total $9.6 million for the following five years combined. The federal subsidy
under the Medicare Drug Act is not expected to be significant in any of these
periods.
61
The discount rates used to determine the present value of the
postretirement benefit obligation and the net periodic expense were the same as
those shown above for the defined benefit pension plan. The Company also assumed
the following trends in health care costs for the actuarial calculation of the
benefit obligation at December 31, 2004 and 2003.
- --------------------------------------------------------------------------------------------------------------
Pre-Medicare Age Post-Medicare Age
Cost Cost
2004 2003 2004 2003
- --------------------------------------------------------------------------------------------------------------
Cost trend rate for next year 10% 10% 10% 10%
Ultimate rate to which the cost trend rate gradually
declines 5 5 5 5
Year in which the ultimate trend rate is reached 2010 2009 2010 2009
- --------------------------------------------------------------------------------------------------------------
A 1% increase or decrease in the assumed health care cost trend rates
would impact the calculation of the benefit obligation and net periodic expense
as follows:
- --------------------------------------------------------------------------------------------------
(in thousands) 1% Increase 1% Decrease
- --------------------------------------------------------------------------------------------------
Effect on total of service and interest components of expense $ 401 $ (322)
Effect on postretirement benefit obligation 2,479 (2,034)
- --------------------------------------------------------------------------------------------------
As discussed in Note 2, authoritative guidance on the accounting for
the federal subsidy introduced by the Medicare Drug Act was issued in 2004 and
implemented by Whitney effective with the quarter ended September 30, 2004. The
impact on amounts recognized and disclosed for retiree health and welfare plans
was immaterial.
NOTE 14
STOCK-BASED COMPENSATION
Whitney maintains incentive compensation plans that incorporate
stock-based compensation. The plans for both employees and directors have been
approved by the Company's shareholders, including the new long-term incentive
plan for key employees (the 2004 plan), which was approved at the Company's
annual meeting in April 2004.
The Compensation and Human Resources Committee of the Board of
Directors administers the employee plans, designates who will participate and
authorizes the awarding of grants. Under the 2004 plan, participants may be
awarded stock options, restricted stock and restricted stock units, and stock
appreciation rights. These are substantially the same as the awards that were
available under prior plans. To date, the Committee has awarded only stock
options and restricted stock.
The 2004 plan authorizes awards with respect to a maximum of 2,600,000
Whitney common shares, plus any unused authorized shares from the most recent
prior plan. At December 31, 2004, the Committee could make future awards with
respect to 2,096,869 shares.
The directors' plan provides for the annual award of stock grants and
stock options to each nonemployee director. Under this plan, Whitney is
authorized to issue an aggregate number of common shares not exceeding 3% of the
Company's outstanding shares, but in no event more than 1,125,000 shares. At
December 31, 2004, 901,564 shares remain available for future award and issuance
under the directors' plan.
62
The stock option grants 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. The following table summarizes stock option
activity under the employee plans and under the directors' plan for each of the
three years in the period ended December 31, 2004. All shares outstanding at the
end of each year were exercisable.
- --------------------------------------------------------------------------------------------------------------
Employee Director
- --------------------------------------------------------------------------------------------------------------
Weighted- Weighted-
Average Average
Number Exercise Price Number Exercise Price
- --------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2001 1,421,415 $26.82 172,500 $25.44
Options granted 388,825 33.87 45,000 30.79
Options exercised (237,193) 23.09 (6,000) 27.84
Options forfeited (9,825) 30.30 - -
- --------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2002 1,563,222 29.12 211,500 26.51
Options granted 411,000 33.67 45,000 31.99
Options exercised (208,194) 25.78 (13,500) 31.00
Options forfeited (39,875) 35.59 - -
- --------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2003 1,726,153 30.45 243,000 27.28
Options granted 442,825 43.29 48,000 44.75
Options exercised (416,739) 28.67 (27,500) -
Options forfeited (7,375) 38.56 - -
- --------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2004 1,744,864 $34.10 263,500 $31.12
- --------------------------------------------------------------------------------------------------------------
The following table summarizes certain information about the stock
options outstanding under these plans at December 31, 2004:
- ------------------------------------------------------------------------------
Weighted-
Number of Average Weighted-
Range of Shares Years to Average
Exercise Prices Under Option Expiration Exercise Price
- ------------------------------------------------------------------------------
$17.83-$19.25 18,750 .5 $18.00
$20.00-$24.79 213,692 4.5 23.51
$26.21-$28.29 408,162 4.9 27.70
$30.79-$33.92 745,910 7.8 33.45
$36.67-$36.67 135,650 3.4 36.67
$43.29-$44.75 486,200 9.5 43.43
- ------------------------------------------------------------------------------
$17.83-$44.75 2,008,364 6.9 $33.71
- ------------------------------------------------------------------------------
63
The following schedule summarizes the employee restricted stock grants
and director stock grants awarded under these plans during 2004, 2003 and 2002:
- ----------------------------------------------------------------
(dollars in thousands) Initial Market Value
Shares of Award on
Year Plan Awarded Grant Date
- ----------------------------------------------------------------
2004 Employee 163,750 $7,089
Director 7,200 322
2003 Employee 149,125 5,020
Director 6,750 216
2002 Employee 137,775 4,666
Director 6,750 208
- ----------------------------------------------------------------
Employees forfeit their restricted stock grants if they terminate
employment within three years of the grant date, although certain exceptions
related to death, disability or retirement apply to awards made in 2004 and
after. During this period they cannot transfer or otherwise dispose of the
shares received. In addition, the employee restricted stock 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. All restrictions on employee shares would lapse upon a
change in control of the Company. The directors' shares are awarded without
restrictions and are not subject to adjustment.
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. Adjustments are made for forfeitures as
they occur. Whitney recognized compensation expense for stock grants of $9.1
million in 2004, $6.2 million in 2003, and $5.0 million in 2002.
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 allowed for in SFAS No. 123, however, the Company
elected to continue to follow APB Opinion No. 25 and related interpretations to
measure and recognize stock-based incentive compensation expense. The impact of
this election is discussed in Note 2, together with a pro forma presentation of
net income and earnings per share is if Whitney had applied the provisions of
SFAS No. 123. A revision to SFAS No. 123 was issued in December 2004 that
establishes the fair value-based method as the exclusive method of accounting
for stock-based compensation. The provisions of the revised standard, which are
effective for the third quarter of 2005, are also discussed in Note 2.
NOTE 15
REGULATORY MATTERS
Regulatory Capital Requirements
Measures of regulatory capital are an important tool used by regulators
to monitor the financial health of insured financial institutions. The primary
quantitative measures used by regulators to gauge capital adequacy are the ratio
of Tier 1 regulatory capital to average total assets, also known as the leverage
ratio, and the ratios of Tier 1 and total regulatory capital to risk-weighted
assets. The regulators define the components and computation of each of these
ratios. The minimum capital ratios for both the Company and the Bank are
generally 4% leverage, 4% Tier 1 capital and 8% total capital. Regulators may,
however, set higher capital requirements for an individual institution when
particular circumstances warrant.
64
To evaluate capital adequacy, regulators compare an institution's
regulatory capital ratios with their agency guidelines, as well as with the
guidelines established as part of the uniform regulatory framework for prompt
corrective supervisory action toward insured institutions. In reaching an
overall conclusion on capital adequacy or assigning an appropriate
classification under the uniform framework, regulators must also consider other
subjective and quantitative assessments of risk associated with the institution.
Regulators will take certain mandatory as well as possible additional
discretionary actions against institutions they judge to be inadequately
capitalized. These actions could materially impact the institution's financial
position and results of operations.
Under the regulatory framework for prompt corrective action, the
capital levels of banks are categorized into one of five classifications ranging
from well-capitalized to critically under-capitalized. For an institution to
qualify as well-capitalized, its total capital, Tier 1 capital and leverage
ratios must be at least 10%, 6% and 5%, respectively. Maintaining capital ratios
at the well-capitalized levels avoids certain restrictions that, for example,
could impact the FDIC insurance premium rate. As of December 31, 2004 and 2003,
the Bank was categorized as well-capitalized, and there have been no events
since December 31, 2004 that management believes would cause this status to
change.
The actual capital amounts and ratios for the Company and the Bank are
presented in the following tables, together with the corresponding capital
amounts determined using regulatory guidelines:
- ---------------------------------------------------------------------------------------------------------------
(dollars in thousands) Actual Well-
December 31, 2004 Amount Ratio Minimum(a) Capitalized(b)
- ---------------------------------------------------------------------------------------------------------------
Leverage (Tier 1 Capital to Average Assets):
Company $767,717 9.56% $321,275 (c)
Bank 607,396 7.57 320,799 $400,999
- ---------------------------------------------------------------------------------------------------------------
Tier 1 Capital (to Risk-Weighted Assets):
Company 767,717 11.76 261,113 (c)
Bank 607,396 9.32 260,623 390,934
- ---------------------------------------------------------------------------------------------------------------
Total Capital (to Risk-Weighted Assets):
Company 822,062 12.59 522,226 (c)
Bank 661,741 10.16 521,246 651,557
- ---------------------------------------------------------------------------------------------------------------
December 31, 2003
- ---------------------------------------------------------------------------------------------------------------
Leverage (Tier 1 Capital to Average Assets):
Company $739,236 10.13% $291,862 (c)
Bank 562,639 7.72 291,491 $364,364
- ---------------------------------------------------------------------------------------------------------------
Tier 1 Capital (to Risk-Weighted Assets):
Company 739,236 12.80 231,084 (c)
Bank 562,639 9.76 230,687 346,030
- ---------------------------------------------------------------------------------------------------------------
Total Capital (to Risk-Weighted Assets):
Company 798,711 13.83 462,168 (c)
Bank 622,114 10.79 461,374 576,717
- ---------------------------------------------------------------------------------------------------------------
(a) Minimum capital required for capital adequacy purposes.
(b) Capital required for well-capitalized status under regulatory framework for prompt corrective action.
(c) Not applicable.
65
Other Regulatory Matters
Dividends received from the Bank represent the primary source of funds
available to the Company for the declaration and payment of dividends to
Whitney's shareholders. There are various regulatory and statutory provisions
that limit the amount of dividends that the Bank can distribute to the Company.
During 2005, the Bank will have available an amount equal to approximately $15
million plus its current net income to declare as dividends to the Company
without prior regulatory approval. At December 31, 2004, the Company had
approximately $170 million in cash and demand notes from the Bank available to
provide liquidity for future dividend payments to its shareholders and other
corporate purposes.
Under current Federal Reserve regulations, the Bank is limited in the
amounts it may lend to the Company to a maximum of 10% of its capital and
surplus, as defined in the regulations. Any such loans must be collateralized
from 100% to 130% of the loan amount, depending upon the nature of the
underlying collateral. The Bank made no loans to the Company during 2004 and
2003.
Banks are required to maintain currency and coin or a
noninterest-bearing balance with the Federal Reserve Bank to meet reserve
requirements based on a percentage of deposits. During 2004 as in 2003, the Bank
covered its reserve maintenance requirement with balances of coin and currency.
NOTE 16
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,
wholly or in part, in 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.
Revolving loan commitments are issued primarily 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 and has not violated other contractual conditions.
Many such commitments are used only partially or not at all before they expire.
Nonrevolving loan commitments are issued mainly to provide financing for the
acquisition and development or construction of real property, both commercial
and residential, although many are not expected to lead to permanent financing
by the Bank. Loan commitments generally have fixed expiration dates and may
require payment of a fee. 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.
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 of essential goods and services. A substantial majority of standby
letters of credit outstanding at year-end 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. The Bank follows its standard
credit policies in approving loan facilities and financial guarantees and
requires collateral support if warranted. The required collateral could include
cash instruments, marketable securities, accounts receivable, inventory,
property, plant and equipment, and income-producing commercial property.
66
A summary of off-balance-sheet financial instruments follows:
December 31
- --------------------------------------------------------------------------------
(in thousands) 2004 2003
- --------------------------------------------------------------------------------
Loan commitments - revolving $1,652,600 $1,410,555
Loan commitments - nonrevolving 415,173 355,076
Credit card and personal credit lines 437,386 388,902
Standby and other letters of credit 355,040 292,558
- --------------------------------------------------------------------------------
The Bank has used interest rate swaps on a limited basis to bring the
market risk associated with the longer-duration fixed-rate loans desired by some
customers in line with Whitney's asset/liability management objectives. No
interest rate swap agreements were in effect at December 31, 2004. Swap activity
has had minimal impact on financial condition and results of operations.
NOTE 17
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires the disclosure of estimated fair value information about certain on-
and off-balance-sheet financial instruments where it is practicable to estimate
those values. If quoted market prices are not available, which is true for many
of Whitney's financial instruments, the Company estimates fair value using
present value or other valuation techniques. The assumptions used in applying
these techniques, such as those concerning appropriate discount rates and
estimates of future cash flows, require considerable judgment and significantly
affect the resulting fair value estimates. In addition, no value estimate is
assigned to future business opportunities from long-term customer relationships
underlying certain financial instruments. Accordingly, the derived fair value
estimates may not indicate the amount the Company could realize in a current
settlement of the financial instruments. Reasonable comparability of fair value
estimates between financial institutions may not be possible due to the wide
range of permitted valuation techniques and numerous assumptions involved. The
aggregate fair value amounts presented do not, and are not intended to,
represent an aggregate measure of the underlying fair value of the Company.
The following significant methods and assumptions were used by the
Company to estimate the fair value of financial instruments:
Cash and short-term investments - The carrying amount is a reasonable
estimate of the fair value of cash and due from financial institutions, federal
funds sold and short-term investments.
Investment in securities - Fair values of securities are based on
quoted market prices obtained from independent pricing services.
Loans - Loans with no significant change in credit risk and with rates
that are repriced in coordination with movements in market rates are valued at
carrying amounts. The fair values of other loans are estimated by discounting
scheduled cash flows to maturity using current rates at which loans with similar
terms would be made to borrowers of similar credit quality. Appropriate
adjustments are made to reflect probable credit losses.
Deposits - SFAS No. 107 requires that deposits without a stated
maturity, such as noninterest-bearing demand deposits, NOW account deposits,
money market deposits and savings deposits, be assigned fair values equal to the
amounts payable upon demand (carrying amounts). Deposits with a stated maturity
were valued by discounting contractual cash flows using a discount rate
approximating current market rates for deposits of similar remaining maturity.
Short-term and other borrowings - Short-term borrowings are valued
fairly at their carrying amounts. Other borrowings are valued by discounting
contractual cash flows at current market rates.
Off-balance-sheet financial instruments - Off-balance-sheet financial
instruments include commitments to extend credit and guarantees under standby
and other letters of credit. The fair values of such instruments are estimated
using fees currently charged for similar arrangements in the market, adjusted
for changes in terms and credit risk as appropriate. The estimated fair values
of these instruments are not material.
67
The estimated fair values of the Company's financial instruments
follow:
December 31, 2004 December 31, 2003
- ------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(in thousands) Amount Value Amount Value
- ------------------------------------------------------------------------------------------------------------
ASSETS:
Cash and short-term investments $ 236,175 $ 236,175 $ 284,772 $ 284,772
Investment in securities 1,991,244 1,995,999 2,281,405 2,287,587
Loans held for sale 8,796 8,944 15,309 15,578
Loans, net 5,571,931 5,562,161 4,823,135 4,840,838
LIABILITIES:
Deposits 6,612,607 6,614,409 6,158,582 6,163,437
Short-term and other borrowings 634,259 633,949 600,053 599,936
Derivative contracts - - 704 704
- ------------------------------------------------------------------------------------------------------------
NOTE 18
CONTINGENCIES
The Company and its subsidiaries are parties to various legal
proceedings arising in the ordinary course of business. After reviewing pending
and threatened actions with legal counsel, management believes that the ultimate
resolution of these actions will not have a material effect on the Company's
financial condition, results of operations or cash flows.
NOTE 19
OTHER NONINTEREST INCOME
The components of other noninterest income were as follows:
Years Ended December 31
- --------------------------------------------------------------------------------------------------
(in thousands) 2004 2003 2002
- --------------------------------------------------------------------------------------------------
ATM fees $ 4,497 $ 4,691 $ 4,861
Investment services income 3,508 4,010 4,257
Other fees and charges 7,048 7,145 6,047
Other operating income 3,880 4,764 2,993
Net gains on sales and other revenue from foreclosed
assets 1,378 1,132 1,714
Net gains on disposals of surplus property 793 23 497
- --------------------------------------------------------------------------------------------------
Total $21,104 $21,765 $20,369
- --------------------------------------------------------------------------------------------------
68
NOTE 20
OTHER NONINTEREST EXPENSE
The components of other noninterest expense were as follows:
Years Ended December 31
- ----------------------------------------------------------------------------------------
(in thousands) 2004 2003 2002
- ----------------------------------------------------------------------------------------
Security and other outsourced services $ 9,045 $ 8,846 $ 8,127
Advertising and promotion 5,675 3,679 4,769
Operating supplies 3,727 3,546 3,462
Bank card processing services 2,612 2,293 2,161
Deposit insurance and regulatory fees 2,015 1,926 1,971
Miscellaneous operating losses 3,971 1,645 1,429
Other operating expense 17,837 15,778 13,470
- ----------------------------------------------------------------------------------------
Total $44,882 $37,713 $35,389
- ----------------------------------------------------------------------------------------
NOTE 21
INCOME TAXES
The components of income tax expense (benefit) follow:
Years Ended December 31
- -------------------------------------------------------------------------------------------------------------
(in thousands) 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------
Included in net income
Current
Federal $45,560 $43,853 $46,573
State 1,037 831 882
- -------------------------------------------------------------------------------------------------------------
Total current 46,597 44,684 47,455
- -------------------------------------------------------------------------------------------------------------
Deferred
Federal (3,238) 1,328 (883)
State (161) 87 72
- -------------------------------------------------------------------------------------------------------------
Total deferred (3,399) 1,415 (811)
- -------------------------------------------------------------------------------------------------------------
Total included in net income $43,198 $46,099 $46,644
- -------------------------------------------------------------------------------------------------------------
Included in shareholders' equity
Deferred tax related to the change in the
net unrealized gain or (loss) on securities $(6,139) $(11,464) $10,563
Current tax related to nonqualified stock options
and restricted stock (2,311) (751) (1,306)
- -------------------------------------------------------------------------------------------------------------
Total included in shareholders' equity $(8,450) $(12,215) $ 9,257
- -------------------------------------------------------------------------------------------------------------
69
The effective rate of tax included in net income differed from the
statutory federal income tax rate because of the following factors:
Years Ended December 31
- --------------------------------------------------------------------------------
(in percentages) 2004 2003 2002
- --------------------------------------------------------------------------------
Federal income tax rate 35.00% 35.00% 35.00%
Increase (decrease) resulting from
Tax exempt income (2.77) (2.41) (2.14)
Low income housing credits (1.37) (.94) (.51)
State income tax and miscellaneous items (.08) .22 .51
- --------------------------------------------------------------------------------
Effective tax rate 30.78% 31.87% 32.86%
- --------------------------------------------------------------------------------
Temporary differences arise between the tax bases of assets or
liabilities and their reported amounts in the financial statements. The expected
tax effects when these differences are resolved are recorded currently as
deferred tax assets or liabilities. The components of the net deferred income
tax asset, which is included in other assets on the consolidated balance sheets,
follow:
December 31
- -------------------------------------------------------------------------------------------
(in thousands) 2004 2003
- -------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for losses on loans and foreclosed assets $18,890 $20,725
Employee compensation and benefits 12,323 7,909
Unrecognized interest income 3,454 2,549
Net unrealized loss on securities available for sale 1,596 -
Net operating loss carryforward 512 1,103
Other 5,429 3,624
- -------------------------------------------------------------------------------------------
Total deferred tax assets 42,204 35,910
- -------------------------------------------------------------------------------------------
Deferred tax liabilities:
Accumulated depreciation and amortization 7,634 6,344
Net unrealized gain on securities available for sale - 4,543
Other 2,774 3,833
- -------------------------------------------------------------------------------------------
Total deferred tax liabilities 10,408 14,720
- -------------------------------------------------------------------------------------------
Net deferred tax asset $31,796 $21,190
- -------------------------------------------------------------------------------------------
At December 31, 2004, the Company had approximately $1.5 million in net
operating loss carryforwards generated by acquired entities. Substantially all
of the carryforwards expire in 2020.
NOTE 22
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. As of December 31,
2004, Whitney had repurchased 707,878 shares at an average cost of $44.46 per
share under this program. The program extends through October 2005.
70
NOTE 23
EARNINGS PER SHARE
The components used to calculate basic and diluted earnings per share
are as follows:
Years Ended December 31
- ----------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2004 2003 2002
- ----------------------------------------------------------------------------------------------
Numerator:
Net income $97,137 $98,542 $95,323
Effect of dilutive securities - - -
- ----------------------------------------------------------------------------------------------
Numerator for diluted earnings per share $97,137 $98,542 $95,323
- ----------------------------------------------------------------------------------------------
Denominator:
Weighted-average shares outstanding 40,748,387 39,929,431 39,848,881
Effect of potentially dilutive securities
and contingently issuable shares 640,308 466,703 272,663
- ----------------------------------------------------------------------------------------------
Denominator for diluted earnings per share 41,388,695 40,396,134 40,121,544
- ----------------------------------------------------------------------------------------------
Earnings per share:
Basic $2.38 $2.47 $2.39
Diluted 2.35 2.44 2.38
- ----------------------------------------------------------------------------------------------
Antidilutive stock options 134,846 346,915 424,461
- ----------------------------------------------------------------------------------------------
NOTE 24
PARENT COMPANY FINANCIAL STATEMENTS
The following financial statements are for the parent company only. For the
statements of cash flows, cash and cash equivalents include noninterest-bearing
deposits in the Bank and the demand note receivable from the Bank.
BALANCE SHEETS December 31
- --------------------------------------------------------------------------------
(in thousands) 2004 2003
- --------------------------------------------------------------------------------
ASSETS
Investment in bank subsidiary $664,444 $583,716
Demand note receivable - bank subsidiary 167,563 183,963
Investments in nonbank subsidiaries 1,498 1,374
Notes receivable - nonbank subsidiaries 81,774 80,974
Other assets 15,088 11,560
- --------------------------------------------------------------------------------
Total assets $930,367 $861,587
- --------------------------------------------------------------------------------
LIABILITIES
Dividends payable $ 11,638 $ 13,345
Other liabilities 13,964 7,929
- --------------------------------------------------------------------------------
Total liabilities 25,602 21,274
SHAREHOLDERS' EQUITY 904,765 840,313
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $930,367 $861,587
- --------------------------------------------------------------------------------
71
STATEMENTS OF INCOME Years Ended December 31
- ---------------------------------------------------------------------------------------------------
(in thousands) 2004 2003 2002
- ---------------------------------------------------------------------------------------------------
Dividend income from bank subsidiary $77,000 $93,300 $89,200
Equity in undistributed earnings of subsidiaries
Bank 14,891 574 1,854
Nonbanks 124 164 68
Other income, net of expenses 5,122 4,504 4,201
- ---------------------------------------------------------------------------------------------------
Net income $97,137 $98,542 $95,323
- ---------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS Years Ended December 31
- -----------------------------------------------------------------------------------------------------------
(in thousands) 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 97,137 $ 98,542 $ 95,323
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed earnings of subsidiaries (15,015) (738) (1,922)
Decrease in dividends receivable - - 10,572
Other, net 1,187 1,072 (1,073)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 83,309 98,876 102,900
- -----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investments in subsidiaries (22,851) - (20)
Loans to nonbank subsidiaries, net of repayments (800) (580) 690
Other, net - (16) 13
- -----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (23,651) (596) 683
- -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Cash dividends (57,061) (48,248) (42,893)
Proceeds from issuance of stock 13,995 7,151 7,385
Purchases of stock (29,681) (1,528) (2,256)
Other, net (1,471) - -
- -----------------------------------------------------------------------------------------------------------
Net cash used in financing activities (74,218) (42,625) (37,764)
- -----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (14,560) 55,655 65,819
Cash and cash equivalents at beginning of year 184,360 128,705 62,886
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $169,800 $184,360 $128,705
- -----------------------------------------------------------------------------------------------------------
The total for investments in subsidiaries in 2004 includes net cash
paid to acquire Madison BancShares, Inc. and its subsidiary, Madison Bank, which
was merged into Whitney National Bank.
72
Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 9A: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. The Company's
management, with the participation of the Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), have 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 annual report on Form 10-K. 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 annual report are effective.
Management's Report on Internal Control over Financial Reporting and
Report of Independent Registered Public Accounting Firm. "Management's Report on
Internal Control over Financial Reporting," which appears in Item 8 on page 37
of this annual report, and "Report of Independent Registered Public Accounting
Firm," which appears in Item 8 on pages 37 and 38 of this annual report are
incorporated here by reference.
Changes in Internal Control over Financial Reporting. There were no
changes in the Company's internal control over financial reporting during the
last fiscal quarter in the period covered by this annual report that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
Item 9B: OTHER INFORMATION
None.
73
PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Whitney has adopted a Code of Ethics and Conduct for Senior Financial
Officers and Executive Officers that applies to its chief executive officer,
chief financial officer, controller or principal accounting officer, as well as
such other persons, including officers of its subsidiaries, identified by Board
resolution from time to time as performing similar functions for the Company and
any other persons the Board designates as executive officers. A copy of the code
is available on the Company's website at www.whitneybank.com. Whitney will also
post on its website at the same address any amendments to the code and any
waivers from the code required to be disclosed by the rules of the SEC or The
Nasdaq National Market.
In further response to this Item 10, registrant incorporates by
reference the section entitled "Executive Officers of the Company" appearing in
Item 1 of this Form 10-K and the following sections of its Proxy Statement for
the 2005 Annual Meeting of Shareholders to be filed with the SEC:
o The section entitled "The Board of Directors."
o The first paragraph of the subsection entitled "Audit Committee"
and the subsection entitled "Nominating and Corporate Governance
Committee - Shareholder Recommendations of Director Candidates" of
the section entitled "Board of Directors and Its Committees."
o The section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance."
Item 11: EXECUTIVE COMPENSATION
In response to this item, registrant incorporates by reference the
section entitled "Executive Compensation Report" of its Proxy Statement for the
2005 Annual Meeting of Shareholders to be filed with the SEC.
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
In partial response to this item, registrant incorporates by reference
the sections entitled "Voting Securities and Principal Holders" and "Beneficial
Ownership of Directors and Management" of its Proxy Statement for the 2005
Annual Meeting of Shareholders to be filed with the SEC.
The following table summarizes certain information regarding the
registrant's equity compensation plans as of December 31, 2004. The underlying
compensation plans, which are more fully described in Note 14 to the
consolidated financial statements included in Item 8, have been previously
approved by a vote of the shareholders.
Equity Compensation Plan Information
- ---------------------------------- -------------------------- ------------------------- -------------------------
(a) (b) (c)
- ---------------------------------- -------------------------- ------------------------- -------------------------
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
Plan category warrants and rights warrants and rights column (a))
- ---------------------------------- -------------------------- ------------------------- -------------------------
Equity compensation plans
approved by shareholders 2,059,869 (1) $33.71 (2) 2,998,433 (3)
Equity compensation plans
not approved by shareholders --- --- ---
- ---------------------------------- -------------------------- ------------------------- -------------------------
Total 2,059,869 $33.71 2,998,433
- ---------------------------------- -------------------------- ------------------------- -------------------------
(1) The total includes an aggregate of 1,744,864 shares that can be issued
on the exercise of options held by employees. 438,200 shares are
subject to options granted under the 2004 Long-Term Incentive Plan
(2004 LTIP), 1,272,415 shares are subject to options granted under the
1997 Long-Term Incentive Plan (1997 LTIP), and 34,249 shares are
subject to options granted under the Long-Term Incentive Program.
74
The total also includes an aggregate of 263,500 shares that can be
issued on the exercise of options held by nonemployee directors of the
Company. These options were granted under the Directors' Compensation
Plan, as amended and restated.
Also included in the total are 51,505 common stock equivalent units
held in deferred compensation accounts maintained for certain of the
Company's directors, which must eventually be distributed as common
shares of the Company. As allowed under the Directors' Compensation
Plan, certain nonemployee directors have deferred receipt of annual
stock awards and fees, and the value of these deferrals has been
credited to a bookkeeping account maintained for each director. The
value of an account is indexed to the performance of one or more
investment options specified in the plans. One of the investment
options is equivalent units of the Company's common stock. This option
is mandatory for deferred stock awards and was extended by the
Directors' Compensation Plan to deferred compensation account balances
maintained under a prior deferred compensation plan. The number of
common stock equivalent units allocated to a director's account for
each deferral is based on the fair market value of the Company's common
stock on the deferral date. The common stock equivalent units are
deemed to earn any dividends declared on the Company's common stock,
and additional units are allocated on the dividend payment date based
on the stock's fair market value.
(2) Represents the weighted-average exercise price of options granted under
the 2004 LTIP, the 1997 LTIP, the Long-Term Incentive Program, and the
Directors' Compensation Plan. It does not include the per share price
of common stock equivalent units held in deferred compensation accounts
for the benefit of nonemployee directors. These units are allocated to
accounts based on the fair market value of the Company's common stock
on the date of each account transaction.
(3) Under the 2004 LTIP, the Company is authorized to make awards with
respect to a maximum of 2,600,000 of its common shares, plus any
authorized but unused shares from the 1997 LTIP. The 2004 LTIP provides
for the award of options, stock appreciation rights, restricted stock
and restricted stock units that represent common shares. Of the total
shares authorized, the Company can award a maximum of 1,300,000 shares
in the form of restricted stock or restricted stock units. At December
31, 2004, the Company could make future awards under the 2004 LTIP with
respect to 2,096,869 shares of its common stock.
Under the Directors' Compensation Plan, the Company is authorized to
make awards of stock options or common stock and allocations of common
stock equivalent units with respect to the lesser of either 1,125,000
common shares or 3% of its issued and outstanding common shares, as
determined from time to time. At December 31, 2004, the Company could
make future awards or allocations of common stock equivalent units
under the plan with respect to 901,564 shares of its common stock.
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In response to this item, registrant incorporates by reference the
section entitled "Certain Transactions" of its Proxy Statement for the 2005
Annual Meeting of Shareholders to be filed with the SEC.
Item 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
In response to this item, registrant incorporates by reference the
sections entitled "Auditors" of its Proxy Statement for the 2005 Annual Meeting
of Shareholders to be filed with the SEC.
75
PART IV
Item 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1)The following consolidated financial statements and supplementary
data of the Company and its subsidiaries are included in Part II
Item 8 of this Form 10-K:
Page Number
-----------
Summary of Quarterly Financial Information 36
Report of Independent Registered Public Accounting
Firm 37
Consolidated Balance Sheets --
December 31, 2004 and 2003 39
Consolidated Statements of Income --
Years Ended December 31, 2004, 2003 and 2002 40
Consolidated Statements of Changes in Shareholders'
Equity -- Years Ended December 31, 2004, 2003
and 2002 41
Consolidated Statements of Cash Flows --
Years Ended December 31, 2004, 2003 and 2002 42
Notes to Consolidated Financial Statements 43
(a)(2)All schedules have been omitted because they are either not
applicable or the required information has been included in the
consolidated financial statements or notes to the consolidated
financial statements.
(a)(3) Exhibits:
To obtain a copy of any listed exhibit send your request to the address
below. The copy will be furnished upon payment of a fee.
Mrs. Shirley Fremin, Manager
Investor Relations
Whitney Holding Corporation
P. O. Box 61260
New Orleans, LA 70161-1260
(504) 586-3627 or toll free (800) 347-7272, ext. 3627
E-mail: investor.relations@whitneybank.com
Exhibit 3.1 - Copy of the Company's Composite Charter (filed as
Exhibit 3.1 to the Company's quarterly report on Form 10-Q for
the quarter ended September 30, 2000 (Commission file number
0-1026) and incorporated by reference).
Exhibit 3.2 - Copy of the Company's Bylaws (filed as Exhibit 3.2
to the Company's 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 *- Executive agreement between Whitney Holding
Corporation, Whitney National Bank and William L. Marks (filed as
Exhibit 10.3 to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1993 (Commission file number 0-1026)
and incorporated by reference).
76
Exhibit 10.2 *- Executive agreement between Whitney Holding
Corporation, Whitney National Bank and R. King Milling (filed as
Exhibit 10.4 to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1993 (Commission file number 0-1026)
and incorporated by reference).
Exhibit 10.3 *- Executive agreement between Whitney Holding
Corporation, Whitney National Bank and John C. Hope III (filed as
Exhibit 10.8 to the Company's annual report on Form 10-K for the
year ended December 31, 1994 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.4 *- Executive agreement between Whitney Holding
Corporation, Whitney National Bank and Robert C. Baird, Jr.
(filed as Exhibit 10.9 to the Company's quarterly report on Form
10-Q for the quarter ended June 30, 1995 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.5 *- Whitney Holding Corporation long-term incentive
program (filed as Exhibit 10.7 to the Company's annual report on
Form 10-K for the year ended December 31, 1991 (Commission file
number 0-1026) and incorporated by reference).
Exhibit 10.6 *- Whitney Holding Corporation 1997 Long-Term
Incentive Plan (filed as Exhibit A to the Company's Proxy
Statement dated March 18, 1997 (Commission file number 0-1026)
and incorporated by reference).
Exhibit 10.7 *- Whitney Holding Corporation 2004 Long-Term
Incentive Plan (filed as Exhibit B to the Company's Proxy
Statement for the Annual Meeting of Shareholders dated March 19,
2004 (Commission file number 0-1026) and incorporated by
reference).
Exhibit 10.8 *- Executive compensation plan (filed as Exhibit
10.8 to the Company's annual report on Form 10-K for the year
ended December 31, 1991 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.9 *- Form of restricted stock agreement between
Whitney Holding Corporation and certain of its officers (filed as
Exhibit 10.8c to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 2002 (Commission file number 0-1026)
and incorporated by reference).
Exhibit 10.10 *- 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 (filed as Exhibit 10.2 to
the Company's quarterly report on Form 10-Q for the quarter ended
September 30, 2004 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.11 *- Form of stock option agreement between Whitney
Holding Corporation and certain of its officers (filed as Exhibit
19.2 to the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1992 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.12 *- Form of stock option agreement between Whitney
Holding Corporation and certain of its officers (filed as Exhibit
10.10a to the Company's annual report of Form 10-K for the year
ended December 31, 2000 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.13 *- Form of stock option agreement between Whitney
Holding Corporation and certain of its officers (filed as Exhibit
10.9b to the Company's annual report of Form 10-K for the year
ended December 31, 2001 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.14 *- 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 (filed as Exhibit 10.1 to the
Company's quarterly report of Form 10-Q for the quarter ended
September 30, 2004 (Commission file number 0-1026) and
incorporated by reference).
77
Exhibit 10.15 *- Directors' Compensation Plan (filed as Exhibit A
to the Company's Proxy Statement dated March 24, 1994 (Commission
file number 0-1026) and incorporated by reference).
Exhibit 10.16 *- Amendment No. 1 to the Whitney Holding
Corporation Directors' Compensation Plan (filed as Exhibit A to
the Company's Proxy Statement dated March 15, 1996 (Commission
file number 0-1026) and incorporated by reference).
Exhibit 10.17 *- Whitney Holding Corporation 2001 Directors'
Compensation Plan (filed as Appendix B to the Company's Proxy
Statement dated March 15, 2001 (Commission file number 0-1026)
and incorporated by reference).
Exhibit 10.18 *- Retirement Restoration Plan effective January 1,
1995 (filed as Exhibit 10.16 to the Company's annual report on
Form 10-K for the year ended December 31, 1995 (Commission file
number 0-1026) and incorporated by reference).
Exhibit 10.19 *- Executive agreement between Whitney Holding
Corporation, Whitney National Bank and Rodney D. Chard (filed as
Exhibit 10.17 to the Company's quarterly report on Form 10-Q for
the quarter ended September 30, 1996 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.20 *- Form of amendment to the executive agreements
filed as Exhibits 10.1 through 10.4 herein (filed as Exhibit
10.18 to the Company's annual report on Form 10-K for the year
ended December 31, 1996 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.21 *- Form of amendment to the executive agreements
filed as Exhibits 10.1 through 10.4 and Exhibit 10.19 herein
(filed as Exhibit 10.19 to the Company's quarterly report on Form
10-Q for the quarter ended March 31, 1998 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.22 *- Executive agreement between Whitney Holding
Corporation, Whitney National Bank and Thomas L. Callicutt, Jr.
(filed as Exhibit 10.20 to the Company's quarterly report on Form
10-Q for the quarter ended September 30, 1999 (Commission file
number 0-1026) and incorporated by reference).
Exhibit 10.23 *- Executive agreement between Whitney Holding
Corporation, Whitney National Bank and Joseph S. Exnicios (filed
as Exhibit 10.1 to the Company's quarterly report on Form 10-Q
for the quarter ended March 31, 2004 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.24 *- Form of executive agreement between Whitney
Holding Corporation, Whitney National Bank and each of Kevin P.
Reed and Lewis P. Rogers (filed as Exhibit 10.1 to the Company's
quarterly report on Form 10-Q for the quarter ended June 30, 2004
(Commission file number 0-1026) and incorporated by reference).
Exhibit 10.25 *- Executive agreement between Whitney Holding
Corporation, Whitney National Bank and John M. Turner (filed on
February 28, 2005 as Exhibit 99.1 to the Company's current report
on Form 8-K (Commission file number 0-1026) and incorporated by
reference).
Exhibit 21 - Subsidiaries
Whitney Holding Corporation owns 100% of Whitney National
Bank, a national banking association organized under the laws of
the United States of America. All other subsidiaries considered
in the aggregate would not constitute a significant subsidiary.
Exhibit 23 - Consent of PricewaterhouseCoopers LLP dated
March 16, 2005.
78
Exhibit 31.1 - Certification of 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 of 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.
79
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WHITNEY HOLDING CORPORATION
(Registrant)
By:/s/ William L. Marks
-----------------------------
William L. Marks
Chairman of the Board and
Chief Executive Officer
March 16, 2005
--------------
Date
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- ----------------------------------- ----------------------- --------------
/s/ William L. Marks Chairman of the Board,
- ------------------------------------ Chief Executive Officer March 16, 2005
William L. Marks and Director --------------
/s/ R. King Milling
- ------------------------------------ President and Director March 16, 2005
R. King Milling --------------
/s/ Thomas L. Callicutt, Jr. Executive Vice President
- ------------------------------------ and Chief Financial March 16, 2005
Thomas L. Callicutt, Jr. Officer --------------
(Principal Accounting
Officer)
/s/ Harry J. Blumenthal, Jr. Director March 16, 2005
- ------------------------------------ --------------
Harry J. Blumenthal, Jr.
/s/ Joel B. Bullard, Jr. Director March 16, 2005
- ------------------------------------ --------------
Joel B. Bullard, Jr.
/s/ James M. Cain Director March 16, 2005
- ------------------------------------ --------------
James M. Cain
Director
- ------------------------------------ --------------
Angus R. Cooper II
/s/ Richard B. Crowell Director March 16, 2005
- ------------------------------------ --------------
Richard B. Crowell
80
Signature Title Date
- ----------------------------------- ----------------------- --------------
/s/ William A. Hines Director March 16, 2005
- ------------------------------------ --------------
William A. Hines
/s/ John J. Kelly Director March 16, 2005
- ------------------------------------ --------------
John J. Kelly
/s/ E. James Kock, Jr. Director March 16, 2005
- ------------------------------------ --------------
E. James Kock, Jr.
/s/ Alfred S. Lippman Director March 16, 2005
- ------------------------------------ --------------
Alfred S. Lippman
/s/ Michael L. Lomax Director March 16, 2005
- ------------------------------------ --------------
Michael L. Lomax
/s/ Eric J. Nickelsen Director March 16, 2005
- ------------------------------------ --------------
Eric J. Nickelsen
/s/ John G. Phillips Director March 16, 2005
- ------------------------------------ --------------
John G. Phillips
/s/ Carroll W. Suggs Director March 16, 2005
- ------------------------------------ --------------
Carroll W. Suggs
/s/ Kathryn M. Sullivan Director March 16, 2005
- ------------------------------------ --------------
Kathryn M. Sullivan
/s/ Dean E. Taylor Director March 16, 2005
- ------------------------------------ --------------
Dean E. Taylor
/s/ Thomas D. Westfeldt Director March 16, 2005
- ------------------------------------ --------------
Thomas D. Westfeldt
81
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements of Whitney Holding Corporation on Forms S-3 (No. 33-52999, No.
33-55307, No. 333-56277, No. 333-75676 and No. 333-112501), on Form S-4
(No.333-116530) and on Forms S-8 (No.333-56024, as amended, No. 333-68506,
No. 333-30257, No. 333-87050, No.333-91358 and No. 333-116184) of our report
dated March 15, 2005 relating to the financial statements, management's
assessment of the effectiveness of internal control over financial reporting and
the effectiveness of internal control over financial reporting, which appears in
this Form 10-K.
/s/ PricewaterhouseCoopers LLP
New Orleans, Louisiana
March 16, 2005
82
Exhibit 31.1
CERTIFICATION
-------------
I, William L. Marks, certify that:
1. I have reviewed this annual report on Form 10-K for the year ended December
31, 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)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f))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) designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
(c) 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
(d) 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 (the registrant's fourth fiscal quarter in
the case of an annual report) 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 the 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.
Date: March 16, 2005
-----------------------------
/s/ William L. Marks
-----------------------------
William L. Marks
Chief Executive Officer
83
Exhibit 31.2
CERTIFICATION
-------------
I, Thomas L. Callicutt, Jr., certify that:
1. I have reviewed this annual report on Form 10-K for the year ended December
31, 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)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f))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) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
(c) 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
(d) 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 (the registrant's fourth fiscal quarter in the
case of an annual report) 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 the 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.
Date: March 16, 2005
-----------------------------
/s/ Thomas L. Callicutt, Jr.
-----------------------------
Thomas L. Callicutt, Jr.
Chief Financial Officer
84
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350,
------------------------------------------------
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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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, based on their
knowledge, that
(1) the Company's Annual Report on Form 10-K for the period ended
December 31, 2004 (the Report) fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
Dated: March 16, 2005 By: /s/ William L. Marks
--------------------- --------------------------------------------
William L. Marks
Chief Executive Officer
Dated: March 16, 2005 By: /s/ Thomas L. Callicutt, Jr.
--------------------- --------------------------------------------
Thomas L. Callicutt, Jr.
Chief Financial Officer
85