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March 30, 1999
Securities and Exchange Commission
450 Fifth St., N.W.
Judiciary Plaza
Washington, D.C. 20549-1004
Via Edgar Electronic Filing System
In Re: File Number 0-1026
------------------
Gentlemen:
Pursuant to regulations of the Securities and Exchange Commission,
submitted herewith for filing on behalf of Whitney Holding Corporation (the
"Company") is the Company's Report on Form 10-K for the period ended December
31, 1998.
This filing is being effected by direct transmission to the
Commission's EDGAR System.
Sincerely,
/s/ Thomas L. Callicutt, Jr.
----------------------------
Thomas L. Callicutt, Jr.
Senior Vice President &
Comptroller
(504) 552-4591
TLC/drm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission file number 0-1026
WHITNEY HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Louisiana 72-6017893
(State of incorporation) (I.R.S. Employer Identification No.)
228 St. Charles Avenue
New Orleans, Louisiana 70130
(Address of principal executive offices)
(504) 586-7272
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
---------------------
Title of each class on which registered
------------------- -------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
-----
As of March 4, 1999, the aggregate market value of the voting stock held by
non-affiliates was approximately $779,081,482
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, 1999
----- ----------------------------
Common Stock, no par value 23,431,022
Documents Incorporated by Reference Part of 10-K in which incorporated
- ----------------------------------- ----------------------------------
Proxy Statement for 1999 annual meeting Part III
except for information referred to in
Item 402(a)(8) of Regulation S-K
WHITNEY HOLDING CORPORATION
TABLE OF CONTENTS
Page
- --------------------------------------------------------------------------------
PART I
Item 1: Business 3
Item 2: Properties 4
Item 3: Legal Proceedings 4
Item 4: Submission of Matters to a Vote of Security Holders 4
Item 4a:Executive Officers of the Registrant 4
- --------------------------------------------------------------------------------
PART II
Item 5: Market for the Registrant's Common Stock and
Related Shareholder Matters 5
Item 6: Selected Financial Data 6
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 7a:Quantitative and Qualitative Disclosure about Market Risk 24
Item 8: Financial Statements and Supplementary Data 25
Item 9: Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 57
- --------------------------------------------------------------------------------
PART III
Item 10: Directors and Executive Officers of the Registrant 57
Item 11: Executive Compensation 59
Item 12: Security Ownership of Certain Beneficial Owners and
Management 60
Item 13: Certain Relationships and Related Transactions 60
- --------------------------------------------------------------------------------
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports
on Form 8-K 60
Signatures 63
Page 2 of 66 Pages
PART I
Item 1: BUSINESS
Whitney Holding Corporation (the "Company") is a Louisiana bank holding
company registered pursuant to the Bank Holding Company Act of 1956. The Company
began operations in 1962 as the parent of Whitney National Bank, which has been
in continuous operation since 1883. Beginning in 1995 and continuing through
1997, the Company operated as a multi-bank holding company, having established
the Whitney Bank of Alabama in 1995, the Whitney National Bank of Florida in
1996 and the Whitney National Bank of Mississippi in 1997 in connection with
business acquisitions. In January 1998, the Company merged all of its banking
operations into Whitney National Bank. Throughout this annual report, references
to the "Bank" will cover all former subsidiary banks. During 1995, the Company
established the Whitney Community Development Corporation ("WCDC"), which is
authorized to make equity and debt investments in corporations or projects
designed primarily to promote community welfare, including the economic
rehabilitation and development of low-income areas by providing housing,
services, or jobs for residents, or promoting small businesses that service
low-income areas.
The Company, through the Bank, engages in commercial and retail banking and
in trust business, including the taking of deposits, the making of secured and
unsecured loans, the financing of commercial transactions, the issuance of
credit cards, the delivery of corporate, pension and personal trust services,
and certain limited investment services. The Bank renders these services
throughout its market areas in south Louisiana, south Alabama, along the
Mississippi Gulf Coast, in the Pensacola, Florida area, and through a foreign
branch on Grand Cayman in the British West Indies.
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 Bank. Within its market areas, the Bank competes directly with major banking
institutions of comparable or larger size and resources as well as with various
other smaller banking organizations and local and national "non-bank"
competitors, including savings and loans, credit unions, mortgage companies,
personal and commercial finance companies, investment brokerage firms, and
registered investment companies.
In recent years there has been a significant consolidation within the
financial services industry, particularly with respect to the banking and
savings and loan segments of this industry. This consolidation has been driven
more recently by general competitive pressures. All of the Bank's major direct
banking competitors have been relatively active in expansion through
acquisition. Since January 1994 the Company has acquired eleven separate banking
operations involving approximately $1.6 billion of assets. The trend toward
industry consolidation is expected to continue in the near term.
EMPLOYEES
At the end of 1998, the Company and the Bank employed a total of 2,269
employees. The Company and its subsidiaries provide a variety of benefit
programs including group life, health and other insurance and retirement plans.
The Company also maintains training and educational programs designed to prepare
employees for positions of increasing responsibility.
THE SUBSIDIARY BANK
All material funds of the Company are invested in the Bank. The Bank has a
large number of customer relationships which have been developed over a period
of many years and is not dependent upon any single customer or upon a few
customers. 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 portion of revenue derived from these
foreign customers is not a material portion of its overall revenues.
Page 3 of 66 Pages
SUPERVISION AND REGULATION
The Company and the Bank and their related operations are subject to
federal, state and local laws applicable to banks and bank holding companies and
to the regulations of the Board of Governors of the Federal Reserve System, the
Office of the Comptroller of Currency, and the Federal Deposit Insurance
Corporation.
Item 2: PROPERTIES
The Company owns no real estate in its own name. The Company's and Whitney
National Bank's executive offices are located in downtown New Orleans in the
Bank's main office facilities, which the Bank owns. A portion of these
facilities, as well as portions of certain other facilities in Louisiana and
Mississippi, are available for lease to third parties, although such leasing
activity is not material to the Company's overall operations. The Bank owns
approximately seventy percent of the total number of branch banking facilities
currently in operation. The remaining branch facilities are subject to leases,
each of which management considers to be reasonable and appropriate to its
location. All facilities, whether owned or leased, are being maintained in a
manner so as to ensure that they continue to be suitable for their intended
banking operations.
In 1999, the Company plans to open or begin construction on four additional
branch locations throughout the market areas of the Bank. Total capital
expenditures for these new facilities are estimated at $3 million.
The Bank holds a variety of property interests acquired through the years
in settlement of loans. Reference is made to Note 7 to the financial statements
included in Item 8 for further information regarding such property interests as
of December 31, 1998.
Item 3: LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than routine
litigation incidental to the business, to which the Company or its subsidiaries
is a party or to which any of their property is subject.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 4a: EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the Company's 1998 10-K, Item 10.
Page 4 of 66 Pages
PART II
Item 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
a) The Company's stock price is reported on the National Association of
Securities Dealers Automated Quotation (NASDAQ) system under the symbol WTNY.
The Summary of Quarterly Financial Information located on page 56 shows the
range of closing prices of the Company's stock for each calendar quarter of 1998
and 1997 as reported on The Nasdaq Stock Market.
b) The approximate number of shareholders of record of the Company, as of
March 4, 1999, is as follows:
Title of Class Shareholders of Record
- --------------------------------- ----------------------
Common Stock, no par value 6,493
c) Also located on the Summary of Quarterly Financial Information, page 56,
are details regarding the dividends declared by the Company.
Page 5 of 66 Pages
Item 6: SELECTED FINANCIAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
YEAR-END BALANCE SHEET DATA
Total assets $ 5,211,919 $ 4,787,447 $ 4,675,250 $ 4,367,552 $ 4,038,262
Earning assets 4,762,169 4,359,432 4,233,584 3,939,430 3,644,901
Investment in securities 1,340,078 1,470,967 1,668,000 1,822,582 2,001,994
Loans 3,270,581 2,864,664 2,484,495 2,027,538 1,582,438
Deposits 4,256,662 3,935,871 3,672,438 3,656,457 3,428,389
Shareholders' equity 560,961 525,136 482,992 449,225 393,457
- ----------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET DATA
Total assets $ 4,857,088 $ 4,630,995 $ 4,438,672 $ 4,117,755 $ 4,079,839
Earning assets 4,429,631 4,229,210 4,043,543 3,742,192 3,702,458
Investment in securities 1,301,163 1,569,143 1,798,811 1,901,027 2,091,980
Loans 2,972,664 2,609,275 2,174,400 1,745,433 1,484,687
Deposits 3,930,221 3,679,832 3,569,118 3,453,728 3,430,632
Shareholders' equity 548,806 503,325 465,347 417,417 359,075
- ----------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Interest income $ 336,113 $ 323,571 $ 301,586 $ 278,988 $ 251,125
Interest expense 122,981 122,245 117,368 102,071 81,233
Net interest income 213,132 201,326 184,218 176,917 169,892
Net interest income (TE) 217,858 206,220 189,075 181,122 174,016
Provision for possible loan losses 73 (2,120) (3,626) (8,616) (25,618)
Non-interest income (exclusive of securities
transactions) 59,932 54,169 44,827 40,953 41,255
Securities transactions 839 12 2 50 (771)
Non-interest expense 195,993 171,587 161,952 148,180 141,219
Net income 52,679 57,178 47,811 53,646 69,138
Net income, before tax-effected merger-related expenses 57,237 59,705 51,230 53,646 69,138
- ----------------------------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets 1.08% 1.23% 1.08% 1.30% 1.69%
Return on average shareholders' equity 9.60% 11.36% 10.27% 12.85% 19.25%
Net interest margin 4.92% 4.88% 4.68% 4.84% 4.70%
Tier 1 capital ratio 13.81% 15.27% 15.39% 17.68% 20.97%
Total capital ratio 14.87% 16.49% 16.64% 18.93% 22.22%
Leverage ratio 10.39% 10.83% 10.60% 9.75% 9.53%
Average shareholders' equity to average assets 11.30% 10.87% 10.48% 10.14% 8.80%
Shareholders' equity to total assets 10.76% 10.97% 10.33% 10.29% 9.74%
Average loans to average deposits 75.64% 70.91% 60.92% 50.54% 43.28%
Reserve for possible loan losses to loans 1.23% 1.55% 1.77% 2.23% 2.72%
Non-performing assets to loans plus foreclosed assets .49% .51% .69% 1.12% 1.93%
Reserve for possible loan losses to non-performing loans 284.54% 381.46% 354.74% 307.66% 192.47%
- ----------------------------------------------------------------------------------------------------------------------------
SELECTED COMMON SHARE DATA
Earnings Per Share
Basic $ 2.26 $ 2.48 $ 2.10 $ 2.39 $ 3.12
Basic, before tax-effected merger-related expenses $ 2.46 $ 2.59 $ 2.25 $ 2.39 $ 3.12
Diluted $ 2.24 $ 2.46 $ 2.09 $ 2.37 $ 3.10
Diluted, before tax-effected merger-related expenses $ 2.44 $ 2.57 $ 2.24 $ 2.37 $ 3.10
Dividends
Cash dividends per share $ 1.20 $ 1.12 $ .97 $ .82 $ .64
Dividend payout ratio 53.04% 45.10% 46.11% 34.27% 20.54%
Book Value Per Share
Book value $ 23.98 $ 22.72 $ 21.14 $ 19.91 $ 17.64
Tangible book value $ 23.01 $ 21.90 $ 20.20 $ 18.85 $ 17.02
Trading Data
High stock price $ 63.38 $ 59.75 $ 35.88 $ 34.00 $ 28.50
Low stock price $ 35.75 $ 34.75 $ 29.50 $ 22.00 $ 21.00
Closing stock price $ 37.50 $ 57.00 $ 35.38 $ 31.00 $ 21.75
Trading volume 6,574,200 5,582,668 4,514,528 4,577,317 5,791,054
Average Shares Outstanding
Basic 23,283,458 23,025,173 22,729,851 22,417,663 22,185,791
Diluted 23,499,643 23,236,174 22,897,208 22,615,722 22,283,920
- ----------------------------------------------------------------------------------------------------------------------------
Page 6 of 66 Pages
Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to focus on significant
changes in the financial condition of Whitney Holding Corporation (the Company)
and its subsidiaries and on their results of operations during 1998, 1997 and
1996. The Company's principal subsidiary is Whitney National Bank (the "Bank"),
in which virtually all of the Company's operations are contained. This
discussion and analysis is intended to highlight and supplement information
contained elsewhere in this annual report, particularly the preceding
Consolidated Financial Statements and Notes to Consolidated Financial
Statements. Prior year financial information has been restated to include the
accounts of acquired companies accounted for as poolings-of-interests.
Acquisitions accounted for as purchases are included from their respective dates
of acquisition.
OVERVIEW
During the three-year period ended December 31, 1998, the Company made nine
acquisitions as discussed in Note 3. As a result, the Company incurred
conversion and other merger expenses related to the acquisitions in each of
these three years. The effects of these tax-effected merger-related expenses on
net income, earnings per share, return on average assets and return on average
shareholders' equity for each of the years are shown in Table 1.
TABLE 1. EFFECTS OF MERGER-RELATED EXPENSES Years Ended December 31
- -----------------------------------------------------------------------------------------------------------------------------
(dollars in millions, except per share data) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
Earnings, before tax-effected merger-related expenses $ 57.2 $ 59.7 $ 51.2
Tax-effected merger-related expenses (4.5) (2.5) (3.4)
- -----------------------------------------------------------------------------------------------------------------------------
Net Income $ 52.7 $ 57.2 $ 47.8
- -----------------------------------------------------------------------------------------------------------------------------
Basic earnings per share, before tax-effected merger-related expenses $ 2.46 $ 2.59 $ 2.25
Effect of tax-effected merger-related expenses (.20) (.11) (.15)
- -----------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 2.26 $ 2.48 $ 2.10
- -----------------------------------------------------------------------------------------------------------------------------
Return on average assets, before tax-effected merger-related expenses 1.18 % 1.29 % 1.15%
Effect of tax-effected merger-related expenses ( .10) ( .06) ( .07)
- -----------------------------------------------------------------------------------------------------------------------------
Return on average assets 1.08 % 1.23 % 1.08 %
- -----------------------------------------------------------------------------------------------------------------------------
Return on average shareholders' equity, before tax-effected merger-related expenses 10.43 % 11.86 % 11.01 %
Effect of tax-effected merger-related expenses ( .83) ( .50) ( .74)
- -----------------------------------------------------------------------------------------------------------------------------
Return on average shareholders' equity 9.60 % 11.36 % 10.27%
- -----------------------------------------------------------------------------------------------------------------------------
Earnings before tax-effected merger-related expenses decreased by $2.5
million in 1998 from 1997. Positive factors contributing to 1998 earnings
include increases in net interest income of $11.8 million, or 6%, and
non-interest income of $6.6 million, or 12%. Offsetting these positive factors
were a change in the provision for loan losses of $2.2 million and increased
non-interest expense of $21.7 million, or 13%, excluding merger-related
expenses.
The growth in net interest income was primarily due to a 14% increase in
average loans. The change in the provision for loan losses resulted from a
minimal provision arising from pooled entities in 1998, compared to a reserve
reduction in 1997. The rise in non-interest income was primarily due to
increases in credit card income and trust service fees resulting from increased
business in those areas. Non-interest expense, exclusive of merger-related
expenses, increased from 1997 due to the hiring of key personnel, increased
incentive compensation expense, unexpectedly high health claims expense,
expenses related to the addition of newly constructed branches and the acquired
branches in Lake Charles, Louisiana, increases related to the refurbishment of
existing facilities, expenses related to enhancements to communications and data
processing hardware and software, and increased credit card processing charges
resulting from the growth in the related income noted above.
Earnings before tax-effected merger-related expenses increased by $8.5
million from 1996 to 1997. The growth in net interest income of 9% resulted
primarily from a 20% increase in average loans. The net reduction in the reserve
for possible loan losses
Page 7 of 66 Pages
was $1.5 million less than in 1996. Non-interest income increased $9.4 million
over all categories, with the largest single increase of $3.5 million in net
gains on sales and other dispositions of foreclosed assets. Excluding merger
- -related expenses, non-interest expense rose $10.5 million from increased
personnel, incentive compensation and stock-based compensation expense,
branch renovation and expansion, expenses related to the opening of a new
operations facility and increased credit card processing charges, coupled with
decreases in legal and professional fees and deposit insurance expense.
FORWARD-LOOKING STATEMENTS
Certain statements in this annual report may be regarded as forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements, made in good faith by the Company, are
based on a number of assumptions about future events and are subject to various
risks and uncertainties, which may cause actual results to differ materially
from those in such statements. These risks and uncertainties include, but are
not limited to (i) the strength of the U.S. economy in general and the strength
of the local economies in which the Company conducts operations, particularly
considering the effects of oil and gas prices, (ii) changes in trade, monetary
and fiscal policies, laws and regulations of government agencies and similar
organizations, including interest rate policies of the Board of Governors of the
Federal Reserve System, (iii) inflation, interest rate, market and monetary
fluctuations, (iv) the Company's ability to improve sales and service quality
and to develop profitable new products, (v) the willingness of users to
substitute competitors' products and services for the Company's products and
services, (vi) the success of the Company in gaining regulatory approval of its
products and services, when required, (vii) changes in consumer spending,
borrowing and saving habits, (viii) the effect of changes in accounting policies
and practices, as may be adopted by regulatory agencies as well as the Financial
Accounting Standards Board, (ix) the amount and rate of growth of the Company's
expenses and its ability to achieve targeted or projected cost controls, (x) the
costs and effects of litigation and of unexpected or adverse outcomes in such
litigation, (xi) technological changes, including the possibility that the
Company's Year 2000 remediation project may not be completed as projected,
resulting in losses related to data processing and other systems that may not
operate as expected, (xii) acquisitions and the integration of acquired
businesses, (xiii) the impact on the Company's financial statements of
non-recurring accounting charges that may result from its ongoing evaluation of
its business strategies, asset valuations and organizational structures, (xiv)
charge-off and delinquency trends, (xv) the effects of easing of restrictions on
the financial services industry, and the effects of competition from
institutions that can take better advantage of eased restrictions and from new
entries into the markets served by the Company, and (xvi) the success of the
Company at managing the risks involved in the foregoing.
LOANS AND RESERVE FOR POSSIBLE LOAN LOSSES
In 1998, average loans grew $363 million, or 14%, compared to an increase
in 1997 of $435 million, or 20%. Table 2, which is based on regulatory
collateral codes, shows the Company has experienced significant loan growth in
all major categories.
TABLE 2. LOANS OUTSTANDING BY TYPE
- --------------------------------------------------------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural loans $1,239,976 $1,206,960 $1,040,639 $ 879,400 $ 705,244
Real estate loans - commercial and other 1,036,547 818,213 698,054 530,769 396,445
Real estate loans - retail mortgage 669,846 545,673 464,249 370,417 272,076
Loans to individuals 321,971 287,852 269,275 233,346 198,944
Lease financing 2,241 5,966 12,278 13,606 9,729
- --------------------------------------------------------------------------------------------------------------------------------
Total Loans $3,270,581 $2,864,664 $2,484,495 $2,027,538 $1,582,438
- --------------------------------------------------------------------------------------------------------------------------------
Commercial loans other than those secured by real estate increased $33
million, or 3%, in 1998. This increase was distributed among customers involved
in manufacturing, wholesaling, retailing and natural resource exploration and
development. Commercial real estate loans increased $218 million, or 27%. This
growth came from loans collateralized by income producing properties, as well as
from loans secured by other real estate used in commercial operations. As the
Page 8 of 66 Pages
Company's markets have expanded along the Gulf Coast and the Louisiana economy
has diversified, particularly in the tourism and hotel business in the New
Orleans metropolitan area, construction and commercial real estate lending has
grown to approximately 32% of the loan portfolio as of December 31, 1998. The
economies of many of the markets in which the Company operates, especially in
Southern Louisiana, have traditionally been dependent upon the oil and gas
industry and companies that service that industry. The Company maintains a
moderate amount of outstanding credits and loan commitments to customers
involved in the oil and gas industry. At December 31, 1998, outstanding loans to
these customers totalled $181.6 million.
Retail mortgage loans increased $124 million, or 23%, in 1998. This growth
is largely the result of the continued successful marketing of retail mortgage
loan products that have been introduced in recent years as an alternative to the
conventional mortgage loan products that the Company originates for sale in the
secondary market. Loans to individuals, other than retail mortgage loans,
increased $34 million, or 12%. These loans include various consumer, installment
and credit line loan products. The growth was, in part, the result of enhanced
sales efforts resulting from customer-focused sales training provided to the
Company's retail bankers during 1998.
Table 3 reflects contractual loan maturities, unadjusted for scheduled
principal reductions, prepayments or repricing opportunities. Approximately 89%
of the loans with maturities greater than one year bear fixed rates of interest.
TABLE 3. LOAN MATURITIES BY TYPE
- -------------------------------------------------------------------------------------------------------------------------------
December 31
- -------------------------------------------------------------------------------------------------------------------------------
One Year One Through More Than
(dollars in thousands) Or Less Five Years Five Years Total
- -------------------------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural loans $ 771,183 $ 362,475 $106,318 $1,239,976
Real estate loans- commercial and other 268,180 511,062 257,305 1,036,547
Real estate loans - retail mortgage 70,158 184,909 414,779 669,846
Loans to individuals 254,990 47,057 19,924 321,971
Lease financing 1,532 538 171 2,241
- -------------------------------------------------------------------------------------------------------------------------------
Total loans $1,366,043 $1,106,041 $798,497 $3,270,581
- -------------------------------------------------------------------------------------------------------------------------------
Each loan carries a degree of credit risk. Management's evaluation of this
risk is reflected in its financial statements by the size of the reserve for
possible loan losses, the amount of loans charged off and the provision for
possible loan losses charged to operating expense.
The Company maintains the reserve for possible loan losses at a level
believed by management to be adequate to absorb potential losses in the
portfolio. The factors that management considers in determining the adequacy of
the reserve include, but are not limited to, 1) credit reviews of individual
loans; 2) collateral values of properties securing loans; 3) growth in the loan
portfolio; 4) composition of the loan portfolio; and 5) past due and
non-accruing loans.
At December 31, 1998, the reserve for possible loan losses was $40.3
million, or 285%, of non-performing loans and 350% of nonaccruing loans,
compared to $44.5 million, or 381%, of non-performing loans in 1997. The reserve
was 1.23% of total loans at year-end 1998, compared to 1.55% at year-end 1997.
Table 4 shows the activity in the reserve for possible loan losses over the past
five years. The allocation of the reserve is included in Table 5.
Page 9 of 66 Pages
TABLE 4. SUMMARY OF ACTIVITY IN THE RESERVE FOR POSSIBLE LOAN LOSSES
- ------------------------------------------------------------------------------------------------------------------------------------
( dollars in thousands) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at the beginning of year $44,543 $44,030 $45,309 $42,983 $53,401
Reserves acquired in bank purchase - - - 1,772 -
Provision for possible loan losses
charged (credited) to operations 73 (2,120) (3,626) (8,616) (25,618)
Loans charged to the reserve
Commercial, financial and agricultural 6,100 5,174 4,981 3,669 3,132
Real estate 519 462 185 260 726
Loans to individuals 5,423 2,474 1,662 1,610 1,978
Lease financing 588 1,085 1,849 200 132
- ------------------------------------------------------------------------------------------------------------------------------------
Total 12,630 9,195 8,677 5,739 5,968
- ------------------------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off
Commercial, financial and agricultural 3,999 6,290 3,868 5,259 5,497
Real estate 2,699 3,442 5,481 6,972 12,377
Loans to individuals 1,597 2,096 1,652 2,620 3,224
Lease financing 1 - 23 58 70
- ------------------------------------------------------------------------------------------------------------------------------------
Total 8,296 11,828 11,024 14,909 21,168
- ------------------------------------------------------------------------------------------------------------------------------------
Net (charge-offs) recoveries (4,334) 2,633 2,347 9,170 15,200
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at the end of year 40,282 44,543 44,030 45,309 42,983
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios
Gross charge-offs to average loans .42 % .35 % .40 % .33 % .40 %
Recoveries to gross charge-offs 65.68 % 128.64 % 127.05 % 259.78 % 354.69 %
Net charge-offs (recoveries) to average loans .15 % (.10)% (.11)% (.53)% (1.02)%
Reserve for possible loan losses to loans at end of year 1.23 % 1.55 % 1.77 % 2.23 % 2.72 %
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 5. ALLOCATION OF THE RESERVE FOR POSSIBLE LOAN LOSES
- ------------------------------------------------------------------------------------------------------------------------
December 31
- ------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
RESERVE LOANS RESERVE LOANS RESERVE LOANS RESERVE LOANS RESERVE LOANS
- ------------------------------------------------------------------------------------------------------------------------
Commercial, financial and
agricultural 39.70% 37.92% 41.46% 42.13% 41.94% 41.88% 40.75% 43.37% 43.93% 44.58%
Real estate - commercial
and other 31.62 31.69 28.27 28.56 26.71 28.10 23.21 26.18 27.00 25.05
Real estate - retail 20.45 20.48 16.36 19.05 14.84 18.69 12.69 18.27 11.84 17.19
mortgage
Loans to individuals 7.88 9.84 9.01 10.05 6.88 10.84 8.05 11.51 9.59 12.57
Lease financing .10 .07 .67 .21 2.41 .49 1.91 .67 .48 .61
Unallocated .25 - 4.23 - 7.22 - 13.39 - - 7.16
- ------------------------------------------------------------------------------------------------------------------------
Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
- ------------------------------------------------------------------------------------------------------------------------
In 1998, the Company recovered $8.3 million of previously charged-off
loans, compared to $11.8 million in 1997. Also in 1998, the Company identified
$12.6 million of loans to be charged off as uncollectible against the reserve
for possible loan losses, as compared to $9.2 million of charge-offs in the
previous year. These charge-offs and recoveries created net charge-
Page 10 of 66 Pages
offs of $4.3 million in 1998, compared to net recoveries of $2.6 million in
1997. The increase in gross charge-offs in 1998 is primarily the result of
fully-reserved charge-offs of student loans stemming from a final settlement of
a claim by the U.S. Department of Education ("DOE") related to the Company's
participation in guaranteed student loan programs. Because of anticipated
declines in loan recoveries and continued loan growth, management expects net
charge-offs to grow in future periods.
A minimal provision for possible loan losses of $73,000 was recorded in
1998 by pooled entities prior to acquisition. A portion of the $2.1 million net
reserve reduction in 1997 reflected the reversal of excess reserves that had
previously been established to cover a settlement of claims by the DOE related
to the Company's participation in guaranteed student loan programs. The reserve
reduction in 1996 resulted from overall improvement in asset quality coupled
with large net recoveries from previously charged-off loans.
Non-performing assets consist of non-performing loans and foreclosed assets
and are shown for the five years ending December 31, 1998 in Table 6.
Non-performing assets at year-end 1998 totaled $16.2 million, an increase of
$1.4 million, or 10%, from year-end 1997, after showing steady declines over the
past five years. However, non-performing assets as a percent of loans plus
foreclosed assets declined to .49% from .51% at the end of 1997.
TABLE 6. NON-PERFORMING ASSETS
- -------------------------------------------------------------------------------------------------------------------------
December 31
- -------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
Loans accounted for on a non-accrual basis $ 11,497 $ 9,335 $ 9,383 $ 11,839 $ 19,015
Restructured Loans 2,660 2,342 3,029 2,888 3,317
- -------------------------------------------------------------------------------------------------------------------------
Total non-performing loans $ 14,157 $ 11,677 $ 12,412 $ 14,727 $ 22,332
Foreclosed assets 2,004 3,048 4,835 8,056 8,338
- -------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $ 16,161 $ 14,725 $ 17,247 $ 22,783 $ 30,670
- -------------------------------------------------------------------------------------------------------------------------
Loans 90 days past due still accruing $ 3,765 $ 2,142 $ 3,149 $ 2,084 $ 1,666
- -------------------------------------------------------------------------------------------------------------------------
Ratios
Non-performing assets to loans plus
foreclosed assets .49 % .51 % .69 % 1.12 % 1.93 %
Reserve for possible loan losses to
non-performing loans 284.54 % 381.46 % 354.74 % 307.66 % 192.47 %
Loans 90 days past due still accruing to loans .12 % .07 % .13 % .10 % .11 %
- -------------------------------------------------------------------------------------------------------------------------
At December 31, 1998, loans internally classified as having above normal
credit risk increased approximately $71 million, or 83%, to $157 million, or 5%
of total loans, from a historically low level of 3% of total loans at December
31, 1997. This increase is in part the result of four large commercial credits
totaling approximately $51 million, which were classified in the latter part of
1998. The classification totals at December 31, 1998 were as follows: loans as
to which there are serious doubts as to full repayment, $8.5 million;
substandard loans with well-defined weaknesses that, if not collected, would
likely result in some loss, $69.4 million; and loans with risk characteristics
that indicate potential weaknesses that warrant special attention, $79.2
million. Management continually reviews the loan portfolio to identify
potentially weak or deteriorating credits.
INVESTMENT IN SECURITIES
Total investment in securities was $1.34 billion at December 31, 1998,
compared to $1.47 billion at year-end 1997, a decrease of $131 million. The
average total investment portfolio was $1.30 billion in 1998, compared to $1.57
billion in 1997, a decrease of $268 million. Funds from investment maturities,
in particular U.S. Treasury securities, were used to fund increased loan demand.
The weighted average maturity of the overall securities portfolio was 47 months
at December 31, 1998. The weighted average tax-equivalent portfolio yield was
6.37% at December 31, 1998, a decrease of 31 basis points from
Page 11 of 66 Pages
6.68% at December 31, 1997, reflecting the maturities of older higher-yielding
securities. Information about investment maturities at December 31, 1998 is
shown in Table 7.
TABLE 7. DISTRIBUTION OF INVESTMENT MATURITIES
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) MATURITY
- ------------------------------------------------------------------------------------------------------------------------------------
One Year and Less Over One Through Over Five Through Over Ten Years Total
Five Years Ten Years
- ------------------------------------------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD TO MATURITY
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities $ 80,056 6.77 % $ 103,214 6.06 % $ - - % $ - - % $ 183,270 6.37 %
U.S. Agency securities 60,589 6.46 273,844 5.80 95,689 6.47 1,013 6.96 431,135 6.04
Mortgage-backed securities(1) 14,318 6.45 109,448 6.24 155,456 6.34 174,323 6.42 453,545 6.35
Obligations of state and
political subdivisions(2) 13,668 7.60 64,561 7.96 51,342 7.70 29,115 7.18 158,686 7.70
Federal Reserve stock and
other corporate securities(3) - - - - - - 8,081 - 8,081 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 168,631 6.70 % $ 551,067 6.19 % $ 302,487 6.61 % $ 212,532 6.28 % $1,234,717 6.38 %
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE (4)
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities $ 17,089 6.21 % $ 3,050 6.41 % $ - - % $ - - % $ 20,139 6.37 %
U.S. Agency securities 5,033 5.71 26,086 6.43 4,171 7.95 5,981 7.11 41,271 6.04
Mortgage-backed securities (1) 14,327 7.11 13,431 5.96 3,432 6.02 11,211 6.42 42,401 6.35
Obligations of state and
political subdivisions (2) 71 10.41 - - 350 9.38 531 9.73 952 7.70
Other corporate securities (3) - - - - 598 5.72 - - 598 5.72
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 36,520 6.50 % $ 42,567 6.28 % $ 8,551 7.08 % $ 17,723 6.75 % $ 105,361 6.24 %
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Distributed by contractual maturity without regard to repayment schedules or projected prepayments.
(2) Tax exempt yields are expressed on a tax-equivalent basis.
(3) These securities have no stated maturities or guaranteed dividends.
(4) These securities are classified as available for sale before maturity. The actual timing of any such sales, however, is not
determinable at year-end.
Securities classified as held to maturity continued to constitute the bulk
of investment in securities and represented 92% of the total investment
portfolio at the end of 1998, compared to 86% at the end of 1997. Securities
held to maturity represent those securities that the Bank both positively
intends and has the ability to hold to maturity and are carried at amortized
cost in the consolidated balance sheets.
Securities classified as available for sale constituted approximately 8% of
the total investment portfolio at year-end 1998 and 14% at the end of 1997.
These securities are reported at their estimated fair values in the consolidated
balance sheets. The net unrealized loss on available for sale securities was $.3
million at year-end 1998, compared to an unrealized gain of $.4 million at
1997's year-end. These gains and losses are recognized, net of tax, in other
comprehensive income and in accumulated other comprehensive income, a separate
component of shareholders' equity.
The Bank does not normally maintain a securities trading portfolio.
However, immaterial amounts of trading account securities are held occasionally
for short periods while buying and selling securities for customers. Such
securities, if any, are included in other assets in the consolidated balance
sheets.
At December 31, 1998, the Bank held no investment in securities of a single
issuer, other than U.S. Treasury and U.S. agency securities and mortgage-backed
securities issued or guaranteed by U.S. agencies, that exceeded 10% of its
shareholders' equity. The Bank has not had investments or participations in
financial instruments or agreements whose values are linked to
Page 12 of 66 Pages
or derived from changes in the values of some underlying assets or index.
Such instruments or agreements include futures, forward contracts, option
contracts, interest rate swap agreements and other financial arrangements with
similar characteristics and are commonly referred to as derivatives. Management
continues to evaluate the use of and need for such instruments as part of its
asset/liability and liquidity management processes.
DEPOSITS AND SHORT-TERM BORROWINGS
Deposits were $4.3 billion at December 31, 1998. Average deposits were $3.9
billion in 1998, a 7% increase over 1997. The most significant growth was in a
new premium money market product. This growth was partially offset by slight
declines in NOW and savings deposits. As shown in Table 8, time deposits, which
are primarily certificates of deposits, rose 2% in 1998 and represented 33% of
total deposits. The Bank continued to show growth in non-interest-bearing demand
deposits, with an increase of 9% over 1997. Average noninterest-bearing deposits
were 28% of total average deposits during 1998, up from 27% in 1997. Shown in
Table 9 are the maturities of time deposits at December 31, 1998.
TABLE 8. AVERAGE DEPOSITS
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing demand deposits $ 1,083,530 27.56% $ 996,888 27.09% $ 946,063 26.51%
Savings deposits 508,180 12.93 542,901 14.76 557,265 15.61
NOW and Money Market deposits 1,046,039 26.62 867,878 23.58 804,952 22.55
Time deposits 1,292,472 32.89 1,272,165 34.57 1,260,838 35.33
- -----------------------------------------------------------------------------------------------------------------------------------
Total average deposits $ 3,930,221 100.00% $ 3,679,832 100.00% $ 3,569,118 100.00%
- -----------------------------------------------------------------------------------------------------------------------------------
TABLE 9. MATURITIES OF TIME DEPOSITS
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
Remaining maturity of certificates of deposit of $100,000 or more
as of December 31, 1998
Three months or less $ 331,571
Over three months through twelve months 189,883
Over twelve months 36,858
- -----------------------------------------------------------------------------------------------------------------------------------
Total certificates of deposit of $100,000 or more 558,312
- -----------------------------------------------------------------------------------------------------------------------------------
Remaining maturity of certificates of deposit of less than $100,000
as of December 31,1998
Three months or less 206,706
Over three months through twelve months 372,117
Over twelve months 182,487
- -----------------------------------------------------------------------------------------------------------------------------------
Total certificates of deposit of less than $100,000 761,310
- -----------------------------------------------------------------------------------------------------------------------------------
Total certificates of deposit $ 1,319,622
- -----------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings consist of purchases of federal funds and sales of
securities under repurchase agreements and were $355 million at December 31,
1998. These short-term borrowings are solely the result of transactions with
customers and do not include brokered funds. Average short-term borrowings in
1998 were $338 million, compared to $410 million in 1997. This decrease was in
part the result of a decline in the number of smaller correspondent banks in the
Bank's market area. In the normal course of business, funds are purchased from
downstream correspondent banks, which have declined over the year due to various
bank acquisitions, including those made by the Company.
Page 13 of 66 Pages
LIQUIDITY
The object of liquidity management is to ensure that funds are available to
meet cash flow requirements of depositors and borrowers, while at the same time
meeting the cash flow needs of the Company and the Bank. Liquidity is provided
by a stable base of funding sources, including low cost core deposits, and an
adequate level of maturing assets. The company models liquidity needs on a
periodic basis to determine the best strategy of investments and borrowings to
meet those needs.
The Bank had over $1.1 billion in unfounded loan commitments outstanding at
December 31, 1998, a slight decrease from the level at 1997's year-end. Note 13
shows the details of these and other unfunded commitments at December 31, 1998
and 1997. Because commitments and unused lines of credit may, and many times do,
expire without being drawn upon, unfunded balances do not represent actual
future liquidity requirements.
In order to ensure adequate liquidity, the Company has developed an
investment strategy, which plans a level of investment maturities that
management considers adequate to meet funding needs. In addition the Company and
the Bank also have access to external funding sources in the financial markets.
ASSET/LIABILITY MANAGEMENT
The objective of the Company's asset/liability management is to implement
strategies for the funding and deployment of its financial resources that are
expected to maximize soundness and profitability over time at acceptable levels
of risk.
Interest rate sensitivity is the potential impact of changing rate
environments on both net interest income and cash flows. The Company and the
Bank use a number of methods to measure rate sensitivity, including gap
analysis, net interest income simulations and monitoring the economic value of
equity.
The simplest measure of interest rate sensitivity is gap analysis, which
details the contractual maturities, prepayments or repricing mismatches for
assets and liabilities within specified time periods. Gap analysis has several
limitations, including the fact that it is a point in time measurement. Table 10
demonstrates the Company's static gap position as of December 31, 1998.
Page 14 of 66 Pages
TABLE 10. INTEREST RATE SENSITIVITY
- ------------------------------------------------------------------------------------------------------------------------------------
By Maturity or Repricing Dates at December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
0-30 31-90 91-180 181-365 After Non-Interest
(dollars in millions) Days Days Days Days 1 Year Bearing Total
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Securities available for sale $ 8 $ 16 $ 16 $ 13 $ 52 $ - $ 105
Securities held to maturity 29 66 76 108 956 - 1,235
Loans 714 338 413 534 1,272 - 3,271
Federal funds sold and short-term investments 152 - - - - - 152
Other assets - - - - - 449 449
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 903 $ 420 $ 505 $ 655 $ 2,280 $ 449 $ 5,212
- ------------------------------------------------------------------------------------------------------------------------------------
SOURCES OF FUNDS
Savings Deposits $ 14 $ - $ - $ - $ 479 $ - $ 493
NOW and Money Market Deposits 1,205 - - - - - 1,205
Time Deposits 279 255 293 272 220 - 1,319
Short-Term Borrowings 355 - - - - - 355
Non-interest bearing Demand Deposits - - - - - 1,240 1,240
Other liabilities - - - - - 39 39
Shareholders' equity - - - - - 561 561
- ------------------------------------------------------------------------------------------------------------------------------------
Total Sources of Funds $ 1,853 $ 255 $ 293 $ 272 $ 699 $ 1,840 $ 5,212
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY GAP $ (950) $ 165 $ 212 $ 383 $ 1,581 $ (1,391)
CUMULATIVE INTEREST RATE SENSITIVITY GAP $ (950) $ (785) $ (573) $ (190) $ 1,391 $ -
CUMULATIVE INTEREST RATE
SENSITIVITY GAP AS A PERCENT
OF TOTAL EARNING ASSETS (19.94) % (16.48) % (12.03)% (3.99)% 29.20 %
- ------------------------------------------------------------------------------------------------------------------------------------
Table 10 indicates that the company is liability sensitive. However, static
gap analysis does not take into consideration the actions that management
intends to take to maximize net interest income over time. The assets and
liabilities of the Company are constantly managed to limit changes in earnings
due to changes in interest rates.
A more sophisticated tool used by the Company to test its interest rate
sensitivity is a net interest simulation model, which tests the Bank's reaction
to various economic environments. The model's assumptions incorporate
management's expectations regarding such factors as loan and deposit growth,
pricing, prepayment speeds and spreads between interest rates. In general, the
simulations indicate that the Company is actually moderately asset sensitive.
Balance sheet simulations were run at year-end to determine the impact of
various rate scenarios on net interest income for the next twelve-month period.
A "base case" scenario used a rate forecast which showed a slight decline in
rates throughout 1999 totaling 35 basis points. The results of this simulation
reveal an increase in net interest income of approximately $12.3 million, or
5.6%, from 1998 levels after consideration of projected asset and liability
volumes. When the balance sheet simulations were subjected to parallel up and
down shifts of 100 to 300 basis points, these rate shocks showed an annual
impact on the Company's 1999 net interest income from a positive $5.6 million at
300 basis points up to a negative $19.0 million at 300 basis points down. The
results of these simulations show that the Bank was within acceptable limits,
considering established guidelines.
The method used for measuring longer-term interest rate risk is the
economic value of equity analysis. At year-end 1998, the Company's sensitivity
was acceptable at all levels of rate shock simulation.
The actual impact of changing interest rates on net interest income is
dependent upon many factors including the growth of earning assets, the mix of
earning assets and interest-bearing liabilities, the timing of repricing of
assets and liabilities, the magnitude of interest rate changes, interest rate
spreads and the level of success of asset/liability management strategies
implemented.
Page 15 of 66 Pages
Changes in interest rates affect the fair values of financial instruments.
Note 14 contains information regarding these fair values. The differences
between fair values and book values were primarily the result of differences
between contractual and market interest rates at each year-end. Fluctuations in
fair values will occur as interest rates change.
IMPACT OF INFLATION AND CHANGING PRICES
The majority of assets and liabilities of a financial institution are
monetary in nature. Inflation and changing prices may have an impact on the
growth of total assets in the banking industry and the resulting need to
increase capital at higher than normal rates in order to maintain an appropriate
equity to assets ratio. Changing prices also affect other expenses that
fluctuate as economic environments change.
Management believes the most significant impact of inflationary economic
cycles on financial results is the Company's ability to react to changes in
interest rates. Interest rates do not necessarily move in the same direction, or
at the same magnitude, as the prices of other goods and services. As discussed
above, management attempts to maintain a balance in its maturity and repricing
structure to minimize the effects of economic cycles on the Company's net
interest income.
CAPITAL ADEQUACY
At December 31, 1998, shareholders' equity to total assets was 10.76%,
compared to 10.97% in 1997. The Company's risk-based regulatory ratios, shown in
Table 11, declined in 1998. These declines were consistent with the growth
between periods in total risk-weighted assets. Loan growth, which was partly
funded by maturities of generally lower risk-weighted investment securities, was
the main factor contributing to the rise in risk-weighted assets.
TABLE 11. RISK-BASED CAPITAL AND CAPITAL RATIOS
- ---------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Tier 1 capital $ 524,028 $ 505,470 $ 461,379 $ 424,731 $ 366,082
Tier 2 capital 40,282 41,380 37,474 30,029 21,822
- ---------------------------------------------------------------------------------------------------------------------------------
Total capital $ 564,310 $ 546,850 $ 498,853 $ 454,760 $ 387,904
- ---------------------------------------------------------------------------------------------------------------------------------
Risk-weighted assets $ 3,794,290 $ 3,310,400 $ 2,997,914 $ 2,402,325 $ 1,745,742
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios
Leverage ratio 10.39% 10.83% 10.60% 9.75% 9.53%
Tier 1 capital 13.81% 15.27% 15.39% 17.68% 20.97%
Total capital 14.87% 16.49% 16.64% 18.93% 22.22%
Equity ratio 10.76% 10.97% 10.33% 10.29% 9.74%
Tangible equity ratio 10.05% 10.57% 9.87% 9.72% 9.07%
- ---------------------------------------------------------------------------------------------------------------------------------
The regulatory capital ratios of the Bank far 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.
YEAR 2000 REMEDIATION
The Year 2000 situation arose because many existing computer programs used
only two digits to identify a year in the date field. These programs were
designed and developed without considering the impact of the upcoming change in
the century. Inherent risks to the Company with respect to the Year 2000
situation include potential losses related to data processing and other systems
that may not operate as expected, disruption of Company operations resulting
from technological malfunctions from within the Company's internal
communications and other processing systems, business problems associated with
key third party vendors and other external service providers that may not be
Year 2000 system compliant, credit quality issues that may arise with respect to
significant customers that may not be Year 2000 system compliant, liquidity
issues arising from potential withdrawals of cash by customers during late 1999
and early 2000, as well as other business and economic risks that may result
from the pervasive impact that the Year 2000 situation could have on overall
social and economic conditions.
Page 16 of 66 Pages
In response to Year 2000 issues, a company-wide task force developed a plan
to review and test the Company's systems and other business operations in
relation to Year 2000 compliance. To date, the task force has identified
appropriate remediation action steps, and system revisions and/or upgrades are
being made, where appropriate. These remediation action steps also include
non-information technology systems that employ embedded technology, such as
facilities control systems.
The Company had its internal mission-critical systems substantially
remediated and tested for Year 2000 compliance by the end of 1998. All
mission-critical systems arc planned to be placed back into production by March
1999. Remediation and testing of other systems and business operations are
underway and are anticipated to be fully compliant and in production by June
1999. Approximately 65% of mission-critical systems were compliant as of
December 31, 1998. Processes and procedures are in place to ensure that all
projects undertaken in the interim deliver Year 2000 compliant solutions, all
future third party hardware and software acquisitions are Year 2000 compliant,
and all commercial third-party service providers are queried regarding their
Year 2000 compliance plans.
Non-interest expense in 1998 includes direct costs incurred in connection
with the Company's efforts to ensure that its operations will not be
significantly affected by the use of the year 2000 in its computer systems or
other systems or in the systems of its suppliers and customers. The majority of
systems remediation costs have been borne by third party vendors who supply the
software under annual maintenance fees. The Company's costs for installation of
vendor-remediated software fall within the business as usual" budget.
Expenditures for vendor maintenance and specific software costs related to the
Year 2000 items have been approximately $1 million. Internal costs associated
with Year 2000 compliance were approximately $1.6 million in 1998. The Company's
remaining cost of system remediation is estimated to be an additional $1.5
million. This estimate includes an additional $.9 million of internal costs.
The Bank started working with certain of its borrowing customers in early
1998 relative to understanding and assessing the customers' progress concerning
the Year 2000 situation. These customers represent most of the Bank's investment
in commercial loans and assert that they are compliant with Year 2000 needs or
will be by the middle of 1999. The small number of customers who do not have
adequate plans to assure compliance with Year 2000 needs are receiving extra
attention. This attention includes internal training of the Bank's account
officers on methods to assist customers as well as protect the Bank's interests
and counseling directly with customers to assist them in avoiding disruption to
their businesses.
The Company is also dependent upon customers and others for deposits and
other funding sources to fund its assets. In a process similar to that used for
borrowing customers, the Company sent assessment questionnaires to major
depositors and investment counter-parties. These responses have been used to
assess the possible impact from Year 2000 problems on the Company's ability to
secure sufficient funding to support its operations and have been included in
its asset/liability and liquidity modeling and planning.
The Company has also initiated formal communications with its significant
suppliers to determine the extent to which it is vulnerable to those third
parties' failures to remediate their own Year 2000 issues. However, there can be
no assurance that the systems of other organizations upon which the Company's
operations rely, including essential utilities and telecommunications providers,
will be timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with the Company's systems, would not have a
materially adverse effect on the Company.
Because there is no generally accepted definition of "Year 2000 Compliant"
and the ability of any organization's systems to operate reliably after midnight
on December 31, 1999 is dependent upon factors that may be outside the control
of, or unknown to, that organization, no certification of compliance is possible
by any business. For example, in Securities and Exchange Commission ("SEC")
Staff Legal Bulletin No. 5, the SEC opined that "it is not, and will not, be
possible for any single entity or collective enterprise to represent that it has
achieved complete Year 2000 compliance and thus to guarantee its remediation
efforts. The problem is simply too complex for such a claim to have legitimacy.
Efforts to solve Year 2000 problems are best described as 'risk mitigation'."
Consequently, the Company cannot so "certify" either. Although the Company
believes the likelihood of any or all of the above risks occurring to be low,
specific contingency plans have been developed in the event that efforts to
remediate the Company's systems are not fully successful or are not completed in
Page 17 of 66 Pages
accordance with current expectations. The contingency plans are designed to
safeguard the Company under various Year 2000 scenarios and are an addition to
the Company's existing business resumption plans. While there can be no
assurance that the Company will not be materially adversely effected by Year
2000 problems, it is committed to ensuring that it is fully Year 2000 compliant
and believes its plans adequately address the above-mentioned risks.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Tax-equivalent net interest income increased $11.6 million, or 6%, in 1998
from 1997, and the net interest margin, which is tax-equivalent net interest
income as a percent of average earning assets, increased to 4.92% from 4.88%. In
1997, tax-equivalent net interest income increased $17.1 million, or 9%, over
1996, and the net interest margin increased from 4.68% to 4.88%. The
improvements in both net interest income and the net interest margin were
primarily the result of loan growth and increases in interest-free funding
sources. Tables 12 and 13 show the factors contributing to these changes and the
components of those changes.
The mix of earning assets continued to improve from 1996 to 1998. In 1997,
average earning assets grew 5%, while average loans rose 20%, and in 1998,
average loan growth of 14% continued to exceed average earning asset growth of
5%. As a percent of earning assets, average loans increased to 67% in 1998 from
62% in 1997 and 54% in 1996. Increases were experienced in virtually all
categories of loans and reflected the economic activity and loan demand in the
market areas that the Company serves.
The loan growth was mainly funded by both reductions in the securities
portfolio and steady deposit growth. The average securities portfolio fell by
17% in 1998 and 13% in 1997. Average securities were 29% of average earning
assets in 1998, down from 37% in 1997.
Both demand and interest-bearing deposit growth supported average earning
asset growth in 1998 and 1997. Average demand deposits grew 9% in 1998 and 5% in
1997. Average interest-bearing deposits grew 6% in 1998 and 2% in 1997 in all
categories except savings deposits.
The net interest spread, which is the yield on earning assets less the cost
of interest-bearing liabilities, remained stable from 1997 to 1998, increasing
by only one basis point to 3.83% in 1998. This stability reflected the active
management of interest-bearing deposit rates to offset the effects of lower
earning asset yields, which decreased from 7.77% in 1997 to 7.69% in 1998. The
net interest spread increased from 3.66% in 1996 to 3.82% in 1997, reflecting a
19 basis point increase in the yield on earning assets, while the cost of
interest-bearing liabilities only increased three basis points to 3.95%.
Page 18 of 66 Pages
TABLE 12. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME(TE) AND INTEREST RATES (1)
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans (tax-equivalent)(1) (2) $2,972,664 $ 247,287 8.32 % $2,609,275 $ 224,798 8.62 % $2,174,400 $ 191,671 8.81 %
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities 263,710 17,010 6.45 520,404 31,063 5.97 768,681 43,780 5.70
U.S. agency securities 435,925 28,024 6.42 558,306 35,453 6.35 557,433 34,156 6.13
Mortgage-backed securities 450,436 28,138 6.25 331,175 21,194 6.40 315,870 20,243 6.41
Obligations of states and political
subdivisions (tax-equivalent) (1) 140,873 11,396 8.08 147,935 12,213 8.25 148,746 12,244 8.23
Federal Reserve stock and other
corporate securities 10,219 573 5.61 11,323 641 5.66 8,081 507 6.27 %
- ---------------------------------------------------------------------- -------------------------------------------------------------
Total investment in securities(3) 1,301,163 85,141 6.54 1,569,143 100,564 6.41 1,798,811 110,930 6.17
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and short-term
investments 155,804 8,411 5.39 50,792 3,103 6.11 70,332 3,842 5.46
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 4,429,631 $ 340,839 7.69 % 4,229,210 $ 328,465 7.77 % 4,043,543 $ 306,443 7.58 %
- ------------------------------------------------------------------------------------------------------------------------------------
NON-EARNING ASSETS
Other assets 470,525 446,339 442,933
Reserve for possible loan losses (43,068) (44,554) (47,804)
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $4,857,088 $4,630,995 $4,438,672
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
Savings deposits $ 508,180 $ 12,070 2.38 % $ 542,901 $ 14,301 2.63 % $ 557,265 $ 15,026 2.70 %
NOW and money market deposits 1,046,039 29,602 2.83 867,878 22,368 2.58 804,952 18,458 2.29
Time deposits 1,292,472 65,786 5.09 1,272,165 65,123 5.12 1,260,838 65,747 5.21
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 2,846,691 107,458 3.77 2,682,944 101,792 3.79 2,623,055 99,231 3.78
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 337,544 15,523 4.59 409,875 20,453 4.99 368,511 18,137 4.92
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $3,184,235 $ 122,981 3.86 % $3,092,819 $ 122,245 3.95 %$2,991,566 $ 117,368 3.92 %
- ------------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST-BEARING DEPOSITS AND SHAREHOLDERS' EQUITY
Demand deposits 1,083,530 996,888 946,063
Other liabilities 40,517 37,963 35,696
Shareholders' equity 548,806 503,325 465,347
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity $4,857,088 $4,630,995 $4,438,672
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income and margin
(tax-equivalent)(1) 217,858 4.92 % $ 206,220 4.88 % $ 189,075 4.68 %
- ------------------------------------------------------------------------------------------------------------------------------------
Net earning assets and spread $1,245,396 3.83 % $1,136,391 3.82 % $1,051,977 3.66 %
- ------------------------------------------------------------------------------------------------------------------------------------
(1)Tax-equivalent amounts are calculated using a marginal federal income tax rate of 35%.
(2)Average balance includes non-accruing loans of $10,679, $9,208 and $11,042 respectively, in 1998, 1997 and 1996.
(3)Average balance excludes unrealized gain or loss on securities available for sale.
Page 19 of 66 Pages
TABLE 13. SUMMARY OF CHANGES IN NET INTEREST INCOME(TE)(1)
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1998 compared to 1997 1997 compared to 1996
--------------------------------------------------------------------------------
Due To Due To
Change In Total Increase Change In Total Increase
------------------------- ----------------------
Volume Rate (Decrease) Volume Rate (Decrease)
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME(TE)
Loans (tax-equivalent)(1)(2) $ 30,443 $ (7,954) $ 22,489 $ 37,554 $ (4,427) $ 33,127
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities (16,384) 2,331 (14,053) (14,732) 2,015 (12,717)
U.S. government agency securities (7,862) 433 (7,429) 54 1,243 1,297
Mortgage-backed securities 7,461 (517) 6,944 980 (29) 951
Obligations of states and political
subdivisions (tax-equivalent) (1) (575) (242) (817) (67) 36 (31)
Federal reserve stock and other
corporate securities (62) (6) (68) 187 (53) 134
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment in securities (17,422) 1,999 (15,423) (13,578) 3,212 (10,366)
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and short-term investments 5,709 (401) 5,308 (1,156) 417 (739)
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income (tax-equivalent)(1) 18,730 (6,356) 12,374 22,820 (798) 22,022
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Savings deposits (879) (1,352) (2,231) (383) (342) (725)
NOW and money market deposits 4,896 2,338 7,234 1,512 2,398 3,910
Time deposits 1,035 (372) 663 587 (1,211) (624)
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 5,052 614 5,666 1,716 845 2,561
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings (3,413) (1,517) (4,930) 2,061 255 2,316
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,639 (903) 736 3,777 1,100 4,877
- ------------------------------------------------------------------------------------------------------------------------------------
Changes in net interest income
(tax-equivalent)(1) $ 17,091 $ (5,453) $ 11,638 $ 19,043 $ (1,898) $ 17,145
- ------------------------------------------------------------------------------------------------------------------------------------
(1)Tax-equivalent amounts are calculated using a marginal federal income tax rate of 35%.
(2)Interest recognized on a cash basis on non-accruing loans and prior cost recovery interest currently recognized on
non-accruing and certain accruing loans was $1,216, $1,645, and $3,729 in 1998, 1997 and 1996, respectively.
Page 20 of 66 Pages
PROVISION FOR POSSIBLE LOAN LOSSES
The Company had a minimal provision of $73,000 in 1998 from pooled entities.
In 1997, there was a reserve reduction of $2.1 million, following a reserve
reduction in 1996 of $3.6 million. Management continually monitors the adequacy
of the Company's reserve for possible loan losses based upon defined internal
credit policies and, if deemed appropriate based on the Company's loan portfolio
structure and potential changes in economic conditions, additional loss
provisions may be recorded in future periods. Mainly due to expected continued
growth in the loan portfolio and an expected decline in loan recoveries,
management expects to begin providing for possible loan losses in 1999,
depending upon the results of reserve adequacy analysis to be conducted
throughout the year.
For discussion of the reserve for possible loan losses, net charge-offs,
non-performing assets and general asset quality, see the Loans and Reserve for
Possible Loan Losses section of this discussion.
NON-INTEREST INCOME
Table 14 shows the components of non-interest income for each of the three
years ending December 31, 1998, along with the percent changes between years for
each component. Non-interest income in 1998 increased $6.6 million, or 12%, from
1997, and $9.4 million, or 21%, from 1996 to 1997.
TABLE 14. NON-INTEREST INCOME
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1998 % Change 1997 % Change 1996
- ---------------------------------------------------------------------------------------------------------------------------
Service charges on deposit accounts $25,162 3.32% $24,354 6.97 % $22,768
Credit card income 10,075 35.14 7,455 25.91 5,921
Trust service fees 6,739 36.92 4,922 17.72 4,181
Net gain on sales and other
dispositions of foreclosed assets 5,897 (11.20) 6,641 112.92 3,119
ATM fees 3,446 14.07 3,021 28.00 2,360
Secondary market mortgage fees 2,230 99.29 1,119 36.13 822
International services income 1,895 4.06 1,821 (.27) 1,826
Investment services income 1,466 41.64 1,035 (4.17) 1,080
Other fees and charges 1,755 (10.23) 1,955 8.49 1,802
Other operating income 1,267 (31.37) 1,846 94.73 948
- ---------------------------------------------------------------------------------------------------------------------------
Total non-interest income before securities transactions 59,932 10.64 54,169 20.84 44,827
Securities transactions 839 (a) 12 (a) 2
- ---------------------------------------------------------------------------------------------------------------------------
Total non-interest income $60,771 12.16% $54,181 20.86% $44,829
- ---------------------------------------------------------------------------------------------------------------------------
(a) Not meaningful.
Income from service charges on deposit accounts increased 3% in 1998 after
an increase of 7% in 1997. The increase from 1996 to 1997 was mainly due to
changes in the rate schedules for certain deposit services. The lower increase
from 1997 to 1998 reflects increased deposit business and the assimilation of
acquisitions to Whitney's rate schedules, somewhat offset by the migration of
customers to Whitney SELECT and other products offering bundled services and
lower service charges.
Credit card income, the second-largest component of non-interest income,
grew 35% in 1998 after increasing 26% in 1997. These large increases reflect an
increasing customer base from acquisitions and successful marketing efforts,
more merchant processing customers and activity, and healthy retail economies in
the Company's market areas. Similarly, trust service fees grew 37% in 1998 and
18% in 1997 due to an increased customer base and strong performance in the
financial markets.
Page 21 of 66 Pages
Net gains on sales and other dispositions of foreclosed assets include the
effects of sales of pre-1933 assets that vary from year to year as opportunities
for sale arise. They also include gains from additional payouts related to
previously sold foreclosed assets.
ATM fees have increased as the Company has deployed full service ATMs and
cash dispensers in both banking and other locations. At December 31, 1998, 1997
and 1996 the Company had 191, 137 and 89 ATMs and cash dispensers in service,
respectively.
Secondary market mortgage fees have increased dramatically with the fall in
interest rates and increased mortgage product emphasis and marketing.
NON-INTEREST EXPENSE
Table 15 shows the components of non-interest expense without
merger-related expenses for each of the three years ending December 31, 1998,
along with the percent changes between years for each component. Non-interest
expense before merger-related expenses increased 13% in 1998 after a 7% increase
in 1997.
TABLE 15. NON-INTEREST EXPENSE
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1998 % Change 1997 % Change 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Personnel expense $ 97,377 12.37 % $ 86,661 8.53 % $ 79,853
Equipment expense 19,261 16.64 16,513 10.45 14,951
Net occupancy expense 14,938 13.39 13,174 7.00 12,313
Credit card processing services 7,405 35.23 5,476 26.26 4,337
Postage and communications 7,188 20.68 5,956 12.70 5,285
Legal and professional fees 5,493 42.34 3,859 (28.03) 5,362
Ad valorem taxes 5,270 22.42 4,305 13.47 3,794
Stationery and supplies 4,468 7.22 4,167 3.48 4,027
Other outside services 3,964 1.51 3,905 15.94 3,368
Advertising 3,074 (13.11) 3,538 20.04 2,947
Amortization of intangible assets 2,777 14.84 2,418 (16.08) 2,881
Miscellaneous operating losses 2,409 (11.30) 2,716 172.96 995
Training expense 2,148 172.94 787 23.35 638
Security services 1,511 (28.94) 2,126 12.51 1,890
Deposit insurance and regulatory fees 1,182 (14.94) 1,390 (48.01) 2,673
Insurance, other than real estate 847 (27.69) 1,171 (27.04) 1,605
Other operating expense 10,532 5.04 10,028 (7.21) 10,807
- -----------------------------------------------------------------------------------------------------------------------------------
Non-interest expense, before
merger-related expenses 189,844 12.88 168,190 6.63 157,726
Merger-related expenses 6,149 (a) 3,397 (a) 4,226
- -----------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense $ 195,993 14.22 % $ 171,587 5.95 % $ 161,952
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Not meaningful.
Personnel expense increased $10.7 million, or 12%, in 1998 after an
increase of $6.8 million, or 9% in 1997. Approximately $1.1 million of the
increase in 1998 and $.9 million of the increase in 1997 is due to the addition
of key personnel and the staffing of additional banking locations opened in
those years. Incentive compensation increased $3.7 million in 1998 and $2.3
million in 1997 primarily as a result of increased incentive bonuses and
stock-based incentive compensation as participation and shares granted under the
various plans increased. Also increasing benefits expense in 1998 were
unexpectedly high health
Page 22 of 66 Pages
claims expense under a self-insured medical plan. Beginning in 1999,
employees are covered under an insured plan or health maintenance organization.
Equipment expense increased $2.7 million, or 17%, in 1998 after an increase
of $1.6 million in 1997. The construction and refurbishment of banking and
administrative facilities contributed to these increases, as well as the opening
of a new operations center in 1996. In addition, the implementation of
enhancements to the Company's data processing and communications systems,
including new branch delivery systems and a standardized office automation
network, resulted in growth in this expense category
Net occupancy expense increased $1.8 million, or 13%, in 1998 after growing
$.9 million, or 7%, in 1997 from 1996. Both of these increases were the result
of the Company's expansion of its branch network, its ongoing program to upgrade
the appearance and functionality of all of its facilities and the costs
associated with a new operations center occupied in 1996. From the beginning of
1996, the Company has constructed 26 new branch locations, six of which were
replacements for existing branches. In addition, 1998 was impacted by the
addition of eight branches purchased from a bank in Lake Charles, Louisiana,
which also caused the increase in amortization of intangible assets.
Credit card processing services expense grew from 1996 through 1998 at
rates that are generally consistent with the growth in revenue from those
operations.
Legal and professional fees grew in 1998 after declining in 1997. These
fluctuations reflect the general level of corporate legal activity in each of
these periods and also the use of consultants in 1998 for customer call center
design work and Year 2000 remediation testing.
Advertising expense decreased 13% in 1998 after increasing 20% in 1997 as
the result of fewer campaigns and media buys in 1998. Training expense increased
markedly to $2.1 million in 1998 due to specific customer-focused sales training
at all levels designed to benefit revenue growth in future periods.
Security services was impacted in 1998 by changes in the mix of on-site
armed guards versus other security measures. Therefore, even with increases in
the number of branch and ATM locations, this expense category decreased in 1998
after a 13% increase in 1997. The growth in the Company's branch and ATM
delivery systems impacted virtually every other category of non-interest expense
to some degree, particularly postage and communications expense, ad valorem
taxes, insurance, and stationery and supplies.
The Company and its merger candidates incur various non-recurring costs to
complete merger transactions and to consolidate operations subsequent to a
merger. Such merger-related costs include change in control payments and
severance or retention bonuses for management and employees of the merged
entity, investment banker fees, fees for various professional services and
losses on cancellations of contracts and the disposition of obsolete and
redundant facilities and equipment. Total merger-related expenses vary with each
transaction.
INCOME TAXES
Income tax expense was $25.2 million in 1998, $28.9 million in 1997 and
$22.9 million in 1996. The changes in income tax expense resulted primarily from
changes in pretax income and non-deductible merger-related expenses. The
Company's effective tax rate was 32% in both 1998 and 1996 and 34% in 1997.
These effective rates were lower than the 35% federal statutory tax rate,
primarily because of tax-exempt interest income received from the financing of
state and local governments. Louisiana-sourced income of commercial banks is not
subject to state income taxes. Rather, banks in Louisiana pay an ad valorem tax
based on the value of their capital stock in lieu of income and franchise taxes,
and these property taxes are included in non-interest expense.
For additional information on the Company's effective tax rates and the
composition of changes in income tax expense for all periods, see Note 18.
Page 23 of 66 Pages
FOURTH QUARTER RESULTS
The Company's income before merger-related expenses for the fourth quarter
of 1998 was $12.3 million, or $.53 per share, compared to $15.4 million, or $.67
per share, in the fourth quarter of 1997 and $11.6 million, or $.50 per share,
in the third quarter of 1998. Net income for the fourth quarter of 1998 was
$11.4 million, or $.49 per share, compared to $14.7 million, or $.64 per share,
in the fourth quarter of 1997 and $10.7 million, or $.46 per share, in the third
quarter of 1998.
Tax-equivalent net interest income increased 6% from the fourth quarter of
1997 and 4% from 1998's third quarter. Continued loan growth was the most
significant factor in this improvement.
Like the third quarter of 1998, there was no provision for possible loan
losses in the fourth quarter. There was a nominal $236,000 provision in the
fourth quarter of 1997 from pooled acquisitions.
Non-interest income, excluding securities transactions and gains on sales
of foreclosed property, was 7% higher than in 1997's fourth quarter and 8%
higher than in the third quarter of 1998, with increases in most all categories
of non-interest income. The largest dollar contribution was from service charges
on deposit accounts, which increased 6% from 1997 and 9% from the third quarter
of 1998. Credit card income increased 31% and 13% and trust fees improved 34%
and 15% from the fourth quarter of 1997 and the third quarter of 1998,
respectively.
Non-interest expense, excluding conversion and other merger-related
expenses, was $52.5 million in the fourth quarter, compared to $43.1 million in
the fourth quarter of 1997 and $50.3 million in the third quarter of 1998.
Investments in additional key personnel, unexpectedly high health claims
expense, expenses related to the addition of newly constructed branches and
acquired branches in Lake Charles, Louisiana, and increased professional fees
all contributed to the increases in expenses in the third and fourth quarters of
1998 from the fourth quarter of 1997.
Summary of Quarterly Financial Information on page 56 compares certain
quarterly financial information for 1998 and 1997.
Item 7a: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Incorporated by reference to the Company's 1998 10-K, Item 7.
Page 24 of 66 Pages
Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
- ----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from financial institutions $ 214,963 $ 238,058
Investment in securities
Securities available for sale 105,361 208,195
Securities held to maturity, fair values of $1,253,113 and $1,276,925, respectively 1,234,717 1,262,772
- ----------------------------------------------------------------------------------------------------------------------------
Total investment in securities 1,340,078 1,470,967
Federal funds sold and short-term investments 151,510 23,801
Loans, net of unearned income of $1,704 and $2,646, respectively 3,270,581 2,864,664
Reserve for possible loan losses (40,282) (44,543)
- ----------------------------------------------------------------------------------------------------------------------------
Net loans 3,230,299 2,820,121
- ----------------------------------------------------------------------------------------------------------------------------
Bank premises and equipment 169,724 146,066
Accrued interest receivable 31,070 35,750
Other assets 74,275 52,684
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $5,211,919 $ 4,787,447
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Non-interest-bearing demand deposits $1,240,189 $ 1,104,784
Interest-bearing deposits 3,016,473 2,831,087
- ----------------------------------------------------------------------------------------------------------------------------
Total deposits 4,256,662 3,935,871
- ----------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under repurchase agreements 355,322 289,686
Accrued interest payable 12,229 11,314
Accounts payable and other accrued liabilities 26,745 25,440
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 4,650,958 4,262,311
- ----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized -100,000,000 shares
Issued - 23,669,700 and 23,460,619 shares, respectively 2,800 2,800
Capital surplus 138,848 127,316
Retained earnings 428,880 403,892
Accumulated other comprehensive income (272) 373
Treasury stock at cost - 276,703 and 346,344 shares, respectively (4,613) (3,685)
Unearned restricted stock compensation (4,682) (5,560)
- ----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 560,961 525,136
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $5,211,919 $ 4,787,447
- ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these balance sheets.
Page 25 of 66 Pages
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 246,534 $ 224,158 $ 191,163
Interest and dividends on investments
U.S. Treasury securities 17,010 31,063 43,780
U.S. Agency securities 28,024 35,453 34,156
Mortgage-backed securities 28,138 21,194 20,243
Obligations of states and political subdivisions 7,423 7,959 7,895
Federal Reserve stock and other corporate securities 573 641 507
Interest on federal funds sold and short-term investments 8,411 3,103 3,842
- -------------------------------------------------------------------------------------------------------------------
Total interest income 336,113 323,571 301,586
- -------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 107,458 101,792 99,231
Interest on federal funds purchased and securities sold under repurchase
agreements 15,523 20,453 18,137
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 122,981 122,245 117,368
- -------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 213,132 201,326 184,218
PROVISION FOR POSSIBLE LOAN LOSSES 73 (2,120) (3,626)
- -------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 213,059 203,446 187,844
- -------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service charges on deposit accounts 25,162 24,354 22,768
Credit card income 10,075 7,455 5,921
Trust service fees 6,739 4,922 4,181
Other non-interest income 17,956 17,438 11,957
Securities transactions 839 12 2
- -------------------------------------------------------------------------------------------------------------------
Total non-interest income 60,771 54,181 44,829
- -------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Employee compensation 84,537 73,543 68,450
Employee benefits 14,283 13,599 12,214
- -------------------------------------------------------------------------------------------------------------------
Total personnel expense 98,820 87,142 80,664
Equipment and data processing expense 19,555 16,578 14,996
Net occupancy expense 14,943 13,174 12,313
Legal and professional fees 7,734 5,608 7,153
Credit card processing services 7,405 5,476 4,337
Postage and communications 7,188 5,956 5,285
Ad valorem taxes 5,270 4,305 3,794
Stationery and supplies 4,468 4,167 4,027
Other non-interest expense 30,610 29,181 29,383
- -------------------------------------------------------------------------------------------------------------------
Total non-interest expense 195,993 171,587 161,952
- -------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 77,837 86,040 70,721
INCOME TAX EXPENSE 25,158 28,862 22,910
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $ 52,679 $ 57,178 $ 47,811
- -------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Basic $ 2.26 $ 2.48 $ 2.10
Diluted $ 2.24 $ 2.46 $ 2.09
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic 23,283,458 23,025,173 22,729,851
Diluted 23,499,643 23,236,174 22,897,208
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Page 26 of 66 Pages
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, 1995 $ 2,800 $111,007 $ 342,660 $ 533 $(5,257) $ (2,518) $449,225
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income
Net income - - 47,811 - - - 47,811
Unrealized loss on securities, net of
reclassification adjustment of $186
and tax benefit of $540 - - - (1,002) - - (1,002)
- -------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 47,811 (1,002) - - 46,809
- -------------------------------------------------------------------------------------------------------------------------------
Cash dividends, $.97 per share - - (16,796) - - - (16,796)
Cash dividends, pooled entities - - (2,585) - - - (2,585)
Exercise of stock options - 2,154 - - 210 - 2,364
Sales to benefit and reinvestment plans - 2,699 - - - - 2,699
Stock grants - 1,166 - - 354 (1,461) 59
Restricted stock activity - - - - - 898 898
Common stock issued, pooled entities - 319 - - - - 319
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 2,800 117,345 371,090 (469) (4,693) (3,081) 482,992
- -------------------------------------------------------------------------------------------------------------------------------
Comprehensive income
Net income - - 57,178 - - - 57,178
Unrealized gain on securities, net of reclassification
adjustment of $214 and tax benefit of $453 - - - 842 - - 842
- -------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 57,178 842 - - 58,020
- -------------------------------------------------------------------------------------------------------------------------------
Cash dividends, $1.12 per share - - (22,790) - - - (22,790)
Cash dividends, pooled entities - - (1,586) - - - (1,586)
Exercise of stock options - 861 - - 295 - 1,156
Sales to benefit and reinvestment plans - 4,922 - - 123 - 5,045
Stock grants - 3,827 - - 590 (4,647) (230)
Restricted stock activity - 361 - - - 2,168 2,529
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 2,800 127,316 403,892 373 (3,685) (5,560) 525,136
- -------------------------------------------------------------------------------------------------------------------------------
Comprehensive income
Net income - - 52,679 - - - 52,679
Unrealized loss on securities, net of reclassification
adjustment of $1,038 and tax benefit of $347 - - - (645) - - (645)
- -------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 52,679 (645) - - 52,034
- -------------------------------------------------------------------------------------------------------------------------------
Cash dividends, $1.20 per share - - (27,041) - - - (27,041)
Cash dividends, pooled entities - - (650) - - - (650)
Exercise of stock options - 1,997 - - 37 - 2,034
Sales to benefit and reinvestment plans - 6,005 - - 150 - 6,155
Stock grants - 3,530 - - (1,115) (2,412) 3
Restricted stock activity - - - - - 3,290 3,290
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $ 2,800 $138,848 $ 428,880 $ (272) $(4,613) $ (4,682) $560,961
- -------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Page 27 of 66 Pages
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 52,679 $ 57,178 $ 47,811
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 20,420 18,572 20,493
Amortization of intangibles 2,777 2,418 2,881
Deferred tax expense (benefit) (486) 221 62
Net gains on sales of investment securities (839) (12) (2)
Provision for possible loan losses 73 (2,120) (3,626)
Provision for losses on other real estate owned 128 243 385
Net gains on sales and other dispositions of foreclosed assets (595) (102) (1,190)
Increase (decrease) in accrued income taxes (51) 1,725 (222)
Decrease in accrued interest receivable and other assets 420 1,719 189
Increase (decrease) in accrued expenses and other liabilities 1,462 1,477 (423)
Other, net (41) 379 352
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 75,947 81,698 66,710
- ------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of investment securities held to maturity 551,791 777,045 463,770
Purchases of investment securities held to maturity (522,828) (633,357) (375,826)
Proceeds from sales of investment securities available for sale 1,051 - 77,027
Proceeds from maturities of investment securities available for sale 105,698 128,222 113,123
Purchases of investment securities available for sale (4,927) (75,866) (133,622)
Net increase in loans (371,130) (378,408) (454,508)
Net increase (decrease) in federal funds sold and short-term investments (127,709) 56,063 9,733
Proceeds from sales and other dispositions of foreclosed assets 2,787 2,217 5,343
Purchases of premises and equipment (36,936) (36,008) (36,106)
Net cash acquired in branch purchase 83,459 - -
Other, net 1,734 4,222 (3,563)
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (317,010) (155,870) (334,629)
- ------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in demand deposits, NOW, money market and savings deposits 238,370 147,151 31,380
Net increase (decrease) in time deposits (66,496) 115,671 (16,051)
Net increase (decrease) in federal funds purchased and securities sold under
repurchase agreements 65,636 (194,734) 256,399
Proceeds from issuance of stock 8,201 6,044 4,661
Purchases of treasury stock (1,300) (513) -
Cash dividends (26,443) (23,425) (18,273)
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 217,968 50,194 258,116
- ------------------------------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (23,095) (23,978) (9,803)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 238,058 262,036 271,839
- ------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 214,963 $238,058 $ 262,036
- ------------------------------------------------------------------------------------------------------------------------------
Cash received during the period for:
Interest income $ 340,793 $324,564 $ 300,721
Cash paid during the period for:
Interest expense $ 122,066 $121,684 $ 117,997
Income taxes $ 23,482 $ 26,489 $ 23,054
- ------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Page 28 of 66 Pages
Notes To Financial Statements
(Note 1) NATURE OF BUSINESS
Whitney Holding Corporation ("the Company") is a Louisiana bank holding
company headquartered in New Orleans, Louisiana. The Company's principal
subsidiary is Whitney National Bank ("the Bank"), which has been in continuous
operation since 1883 and represents virtually all of the operations and net
income of the Company. The Bank engages in community banking in its market areas
in Southern Louisiana; the coastal region of Mississippi; Mobile, Montgomery,
Butler County and the Alabama Gulf Coast; and the Pensacola area of Florida. The
Bank offers commercial and retail banking products and services, including trust
products and services, to the customers in the communities it serves.
(Note 2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT PRONOUNCEMENTS
The accounting and reporting policies of the Company and its subsidiaries
follow generally accepted accounting principles and practices within the banking
industry. The following is a summary of the more significant accounting
policies.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated. Prior year financial statements have been restated to
include the accounts of business combinations accounted for as
poolings-of-interests. Business combinations accounted for as purchases are
included from the respective dates of acquisition. Certain balances for prior
years have been reclassified to conform to the current year's financial
statement presentation.
USE OF ESTIMATES
In preparing the consolidated financial statements, the Company is required
to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
INVESTMENT IN SECURITIES
Securities are classified as trading, held to maturity or available for
sale. Management determines the classification of securities when they are
purchased and reevaluates this classification periodically as conditions change
that could require reclassification.
Trading account securities are bought and held principally for resale in
the near term. They are carried at fair value with realized and unrealized gains
or losses reflected in non-interest income. Trading account securities are
immaterial in each period presented and have been included in other assets on
the consolidated balance sheets.
Securities which the Company both positively intends and has the ability to
hold to maturity are classified as securities held to maturity and are carried
at amortized cost. Intent and ability to hold are not considered satisfied when
a security is available to be sold in response to changes in interest rates,
prepayment rates, liquidity needs or other reasons as part of an overall
asset/liability management strategy.
Securities not meeting the criteria to be classified as either trading
securities or securities held to maturity are classified as available for sale
and are carried at fair value. Net unrealized holding gains or losses are
excluded from
Page 29 of 66 Pages
net income and are recognized in other comprehensive income and in accumulated
other comprehensive income, a separate component of shareholders' equity.
Interest and dividend income earned on securities either held to
maturity or available for sale are recognized in interest income, including
amortization of premiums and accretion of discounts computed using the interest
method. Realized gains and losses on securities either held to maturity or
available for sale are computed based upon specifically identified amortized
cost and are reported as a separate component of non-interest income.
LOANS
Loans are carried at the principal amounts outstanding net of unearned
income. Interest on loans and accretion of unearned income are computed to yield
a level rate of return on recorded principal. Material loan fees are deferred
and amortized as an adjustment to loan yields.
NON-PERFORMING LOANS
Non-performing loans consist of loans accounted for on a non-accrual basis
and restructured loans. Loans are placed on non-accrual status when, in the
opinion of management, there is an indication that a borrower will be unable to
meet contractual payments as they become due. For commercial and real estate
loans, generally a loan is placed on non-accrual status when it is 90 days past
due as to principal and interest, and the loan is not otherwise both well
secured and in the process of collection. When a loan is placed on non-accrual
status, any accrued but uncollected interest is reversed against interest
income. Interest payments on non-accrual loans are used to reduce the reported
loan principal under the cost recovery method when the collectibility of the
remaining principal is not reasonably assured; otherwise, such payments are
recognized as interest income in the period in which they are received. A loan
on non-accrual 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.
IMPAIRED LOANS
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 non-accrual basis.
The extent of impairment is measured based upon a comparison of the recorded
investment in the loan with either the expected cash flows discounted using the
loan's original effective interest rate or, in the case of certain
collateral-dependent loans, the fair value of the underlying collateral. The
amount of impairment is included in the reserve for possible loan losses.
RESERVE FOR POSSIBLE LOAN LOSSES
The reserve for possible loan losses is maintained at a level which, in the
opinion of management, is adequate to absorb potential losses inherent in the
loan portfolio. The adequacy of the reserve is based on an ongoing evaluation of
the portfolio. Factors considered include estimated potential losses from
specific lending relationships, including unused loan commitments and credit
guarantees; general economic conditions; economic conditions affecting specific
classes of borrowers or types of loan collateral; historic loss experience; and
various trends in loan portfolio characteristics, such as volume, maturity,
customer mix, delinquencies and non-accruals. Adjustments arising from changes
in these factors are reflected in the provision for possible loan losses in the
period in which they arise.
As actual loan losses are incurred, they are charged against the reserve.
Recoveries on loans previously charged against the reserve are added back to the
reserve when collected.
Page 30 of 66 Pages
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are carried at cost, less accumulated
depreciation and amortization. Depreciation and amortization are computed
primarily using the straight-line method over the estimated useful lives of the
assets and over the shorter of the lease terms or the estimated lives of
leasehold improvements. Additions to bank premises and equipment and major
replacements or improvements are capitalized. Gains and losses on dispositions,
maintenance, repairs and minor replacements are reflected in current earnings.
FORECLOSED ASSETS
Foreclosed assets include real property collateral acquired through
foreclosure or in settlement of loans, unused banking property, pre-1933
property interests and other foreclosed assets and are carried in other assets
in the consolidated balance sheets. With the exception of pre-1933 property
interests, which are carried at nominal book value, foreclosed assets are
recorded at the lower of the remaining investment in the related loan or
estimated fair value, less estimated selling costs. At foreclosure or loan
settlement, the reduction in the carrying amount to fair value of the collateral
received is charged to the reserve for possible loan losses. Any subsequent
charge necessary to adjust the recorded value to reflect a change in the
estimate of the fair value of a foreclosed asset or its selling costs is charged
to current earnings. In addition, revenues and expenses associated with the
management of foreclosed assets prior to sale are included in current earnings.
INTANGIBLE ASSETS
The unamortized cost of intangible assets is included in other assets.
Goodwill, the excess of cost over the fair value of net assets of acquired
businesses, and identified intangible assets is amortized on a straight-line
basis over periods of up to twenty five years. Other intangible assets, such as
premiums on purchased deposits, are amortized using the straight-line method
over the periods benefited.
The Company periodically reviews its intangible assets for possible
impairment in value or life.
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 reductions
of future taxes payable. Currently enacted tax rates and laws are used to
calculate expected tax consequences when such amounts are settled or realized.
Valuation allowances are established against net deferred tax assets if, based
on all available evidence, it is more likely than not that some or all of the
assets will not be realized.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing income applicable to
common shares (net income in all periods presented) by the weighted average
number of common shares outstanding for the applicable period. Diluted earnings
per share is computed using the weighted average number of common shares
outstanding increased by the number of additional shares that would have been
outstanding if potentially dilutive unexercised stock options had been issued 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.
Page 31 of 66 Pages
OTHER
Assets held by the Bank in a fiduciary capacity are not assets of the Bank
and are not included in the consolidated balance sheets. Generally, certain
minor sources of income are recorded on a cash basis, which does not differ
materially from the accrual basis.
RECENT PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." The Company's current and prior years financial
statements have been revised to conform to the reporting and disclosure
requirements of this statement.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." This statement established
standards for reporting information about a company's operating segments using a
"management approach." The statement requires that reportable segments be
identified based upon those revenue-producing components for which separate
financial information is produced internally and are subject to evaluation by
the chief operating decision maker in deciding how to allocate resources to
segments. The provisions of SFAS No. 131 were effective for 1998.
The Company has applied the provisions of SFAS No. 131 during 1998 and has
evaluated its potential operating segments against the criteria specified in the
statement. Based upon that evaluation, the Company has determined that no
operating segment disclosures are required in 1998 because of the aggregation
concepts specified in the statement.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities, in which the Company does not presently participate. The
provisions of SFAS No. 133 are effective as of January 1, 2000 for the Company,
with early adoption permitted. At the date of initial application of this
statement, the Company may transfer any security held to maturity into the
available for sale category or the trading category without calling into
question the Company's intent to hold other debt securities to maturity in the
future. The Company has not determined what transfers, if any, may be made in
accordance with this provision. Other than for the effects of such transfers, if
any, adoption of this accounting standard is not expected to have a material
effect on the Company's financial position or results of operations.
(Note 3) MERGERS AND ACQUISITIONS
On September 11, 1998, the Bank purchased substantially all of the assets
and deposits of eight of the branches of The First National Bank of Lake
Charles, Louisiana. These eight branches, all of which are located in or near
Lake Charles in southwest Louisiana, had approximately $39 million of loans and
$149 million of deposits at the time of purchase. The Bank's acquisition cost
included an amount calculated at 15.25% of the estimated deposits assumed, or
approximately $23 million, which has been allocated to assets purchased, deposit
intangibles and goodwill. The deposit intangibles are being amortized over the
estimated lives of the deposits, approximately eight years, and the goodwill is
being amortized over 25 years. The results of operations of the Lake Charles
branches have been included in the financial statements from the acquisition
date. The pro forma impact of the Lake Charles acquisition would not be material
to the Company's 1998 results of operations.
During the three-year period ended December 31, 1998, eight financial
institutions merged with the Company. These mergers were accounted for as
poolings-of-interests, and the Company's financial statements have been restated
to include these pooled companies. These financial institutions include First
Citizens BancStock, Inc. ("First Citizens"), the parent of The First National
Bank in St. Mary Parish, Louisiana; American Bank and Trust ("AB&T"), Pensacola,
Florida; Liberty Holding Corporation LHC"), the parent of Liberty Bank,
Pensacola, Florida; First National
Page 32 of 66 Pages
Bankshares, Inc. ("FNB"), the parent of First National Bank of Houma,
Louisiana; Merchants Bancshares, Inc. ("Merchants"), the parent of Merchants
Bank & Trust Company, Gulfport, Mississippi; Meritrust Federal Savings Bank
("Meritrust"), Thibodaux, Louisiana; Louisiana National Security Bank ("LNSB"),
Donaldsonville, Louisiana; and The First National Bancorp of Greenville, Inc.
("Greenville"), the parent of The First National Bank of Greenville, Greenville,
Alabama. The following table shows the merger date, assets acquired and the
number of Company common shares issued for each of the pooled institutions:
- --------------------------------------------------------------------------------------------------------------------
Assets Acquired
Merger Date (dollars in millions) Shares Issued
- --------------------------------------------------------------------------------------------------------------------
First Citizens March 8, 1996 $243 2,031,775
LHC October 25, 1996 $ 48 435,951
AB&T October 25, 1996 $ 57 318,173
FNB February 28, 1997 $235 1,132,983
Merchants April 18, 1997 $208 1,451,507
Meritrust April 24, 1998 $233 1,046,686
LNSB May 16, 1998 $104 542,476
Greenville August 21, 1998 $115 720,938
- --------------------------------------------------------------------------------------------------------------------
The following table shows the effects on the Company's results of
operations in 1997 and 1996 from restatements for the three
poolings-of-interests occurring in 1998:
- ----------------------------------------------------------------------------------------------------------
Originally Reported Restated
- ----------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------
Net interest income $ 184,462 $ 168,568 $ 201,326 $ 184,218
Non-interest income $ 51,035 $ 41,817 $ 54,181 $ 44,829
Net income $ 52,218 $ 44,494 $ 57,178 $ 47,811
Earnings per share
Basic $ 2.52 $ 2.18 $ 2.48 $ 2.10
Diluted $ 2.50 $ 2.17 $ 2.46 $ 2.09
- ----------------------------------------------------------------------------------------------------------
Page 33 of 66 Pages
(Note 4) INVESTMENT IN SECURITIES
Summary information about securities available for sale and securities
held to maturity follows:
- ----------------------------------------------------------------------------------------------------------------------
Securities Available for Sale
- ----------------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gains (Losses) Value
- ----------------------------------------------------------------------------------------------------------------------
December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities $ 19,986 $ 154 $ (1) $ 20,139
U.S. Agency securities 41,123 238 (90) 41,271
Mortgage-backed securities 42,452 293 (344) 42,401
Obligations of state and political subdivisions 904 48 - 952
Other corporate securities 648 - (50) 598
- ----------------------------------------------------------------------------------------------------------------------
Total $ 105,113 $ 733 $ (485) $ 105,361
- ----------------------------------------------------------------------------------------------------------------------
December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities $ 46,323 $ 196 $ (3) $ 46,516
U.S. Agency securities 75,697 615 (48) 76,264
Mortgage-backed securities 81,548 514 (480) 81,582
Obligations of state and political subdivisions 1,530 55 - 1,585
Other corporate securities 1,597 736 (85) 2,248
- ----------------------------------------------------------------------------------------------------------------------
Total $ 206,695 $ 2,116 $ (616) $ 208,195
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Securities Held to Maturity
- ----------------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gains (Losses) Value
- ----------------------------------------------------------------------------------------------------------------------
December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities $ 183,270 $ 3,754 $ (3) $ 187,021
U.S. Agency securities 431,135 2,429 (1,706) 431,858
Mortgage-backed securities 453,545 5,596 (422) 458,719
Obligations of state and political subdivisions 158,686 5,117 (121) 163,682
Federal Reserve stock and other corporate securities 8,081 3,752 - 11,833
- ----------------------------------------------------------------------------------------------------------------------
Total $ 1,234,717 $ 20,648 $ (2,252) $ 1,253,113
- ----------------------------------------------------------------------------------------------------------------------
December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities $ 301,360 $ 3,038 $ (16) $ 304,382
U.S. Agency securities 485,197 2,850 (1,726) 486,321
Mortgage-backed securities 328,172 1,136 (849) 328,459
Obligations of state and political subdivisions 139,331 4,475 (12) 143,794
Federal Reserve stock and other corporate securities 8,712 5,257 - 13,969
- ----------------------------------------------------------------------------------------------------------------------
Total $ 1,262,772 $ 16,756 $ (2,603) $ 1,276,925
- ----------------------------------------------------------------------------------------------------------------------
Page 34 of 66 Pages
The amortized cost and estimated fair value of securities available for
sale and held to maturity by contractual maturity follows:
- ------------------------------------------------------------------------
Securities Available for Sale
- ------------------------------------------------------------------------
Amortized Fair
(dollars in thousands) Cost Value
- ------------------------------------------------------------------------
December 31, 1998
- ------------------------------------------------------------------------
Within one year $ 36,239 $ 36,520
One to five years 42,328 42,567
Five to ten years 8,117 8,551
After ten years 18,429 17,723
- ------------------------------------------------------------------------
Total securities available for sale $ 105,113 $ 105,361
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Securities Held to Maturity
- ------------------------------------------------------------------------
Amortized Fair
(dollars in thousands) Cost Value
- ------------------------------------------------------------------------
December 31, 1998
- ------------------------------------------------------------------------
Within one year $ 168,631 $ 169,245
One to five years 551,067 557,090
Five to ten years 302,487 307,261
After ten years 212,532 219,517
- ------------------------------------------------------------------------
Total securities held to maturity $ 1,234,717 $ 1,253,113
- ------------------------------------------------------------------------
Expected maturities may differ from contractual maturities,
particularly for mortgage-backed securities and obligations of states and
political subdivisions, because of principal prepayments and the exercise of
call options.
Securities with carrying values of $953 million and $827 million at
December 31, 1998 and 1997, respectively, were sold under repurchase agreements,
pledged to secure public and trust deposits or pledged for other purposes.
During 1997, approximately $28 million of securities that had been
classified by pooled entities as available for sale prior to their merger with
the Company were transferred to the held to maturity category in accordance with
the investment policies and practices of the combined institution. These
transfers were recorded at fair value. The unrealized gains and losses at the
transfer dates, which are included net of tax as a component of accumulated
other comprehensive income in shareholders' equity, were insignificant.
Page 35 of 66 Pages
(Note 5) LOANS
The composition of the Company's loan portfolio follows:
December 31
- ------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural $ 1,239,976 37.92% $ 1,206,960 42.13%
Real estate - commercial and other 1,036,547 31.69% 818,213 28.56%
Real estate - retail mortgage 669,846 20.48% 545,673 19.05%
Loans to individuals 321,971 9.84% 287,852 10.05%
Lease financing 2,241 .07% 5,966 .21%
- ------------------------------------------------------------------------------------------------------------------------
Total loans $ 3,270,581 100.00% $ 2,864,664 100.00%
- ------------------------------------------------------------------------------------------------------------------------
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 ("related
parties"). Loans to related parties are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated parties and do not involve more than
normal risks of collectibility at the time of the transactions. An analysis of
the changes in such loans during 1998 follows:
- -------------------------------------------------------------
(dollars in thousands) 1998
- -------------------------------------------------------------
Beginning balance $ 74,164
Additions 119,962
Repayments (127,947)
- -------------------------------------------------------------
Ending balance $ 66,179
- -------------------------------------------------------------
Outstanding commitments and letters of credit to related parties totaled
$108 million and $86 million at December 31, 1998 and 1997, respectively.
(Note 6) RESERVE FOR POSSIBLE LOAN LOSSES
A summary analysis of changes in the reserve for possible loan losses
follows:
Years Ended December 31
- -----------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------
Balance at beginning of year $ 44,543 $ 44,030 $ 45,309
Provision for possible loan losses 73 (2,120) (3,626)
Loans charged off (12,630) (9,195) (8,677)
Recoveries 8,296 11,828 11,024
- -----------------------------------------------------------------------------
Net (charge-offs) recoveries (4,334) 2,633 2,347
- -----------------------------------------------------------------------------
Balance at end of year $ 40,282 $ 44,543 $ 44,030
- -----------------------------------------------------------------------------
Page 36 of 66 Pages
(Note 7) IMPAIRED LOANS, NON-PERFORMING LOANS AND FORECLOSED ASSETS
Information on loans evaluated for possible impairment losses follows:
December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
Impaired loans at year-end
Requiring a loss reserve $ 5,054 $ 4,737
Not requiring a loss reserve 6,007 5,431
- --------------------------------------------------------------------------------
Total recorded investment in impaired loans $ 11,061 $ 10,168
- --------------------------------------------------------------------------------
Total impairment loss allowance required at year-end $ 1,554 $ 2,152
- --------------------------------------------------------------------------------
Average recorded investment in impaired loans during year $ 10,819 $ 10,576
- --------------------------------------------------------------------------------
The following is a summary of non-performing loans and foreclosed assets:
December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
Loans accounted for on a non-accrual basis $ 11,497 $ 9,335
Restructured loans 2,660 2,342
- --------------------------------------------------------------------------------
Total non-performing loans $ 14,157 $11,677
- --------------------------------------------------------------------------------
Foreclosed assets
Other real estate $ 2,170 $ 3,456
Other foreclosed assets 54 53
Reserve for losses on other real estate (220) (461)
- --------------------------------------------------------------------------------
Total foreclosed assets $ 2,004 $ 3,048
- --------------------------------------------------------------------------------
Interest income on certain non-accrual loans is recognized as cash interest
payments are received. Interest payments on non-accrual loans that were
accounted for under the cost recovery method may also subsequently be recognized
as interest income when loan collections exceed expectations or when workout
efforts result in fully rehabilitated credits. The following compares
contractual interest income on non-accrual loans and restructured loans with
both the interest income reported on a cash basis for these loans and the cost
recovery interest recognized on non-accrual loans and certain accruing loans:
Years Ended December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Contractual interest $ 1,218 $ 1,111 $ 1,242
Interest recognized 1,216 1,645 3,729
- --------------------------------------------------------------------------------
Increase (decrease) in reported interest income $ (2) $ 534 $ 2,487
- --------------------------------------------------------------------------------
Page 37 of 66 Pages
The activity in the valuation reserve for losses on other real estate
follows:
Years Ended December 31
- ------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996
- ------------------------------------------------------------------------
Balance at beginning of year $ 461 $ 905 $ 645
Reserve provisions 128 243 385
Sales and dispositions (369) (687) (125)
- ------------------------------------------------------------------------
Net change (241) (444) 260
- ------------------------------------------------------------------------
Balance at end of year $ 220 $ 461 $ 905
- ------------------------------------------------------------------------
The Bank owns a variety of property interests which were acquired through
routine banking transactions prior to 1933 and for which there existed no ready
market. These assets were subsequently written down to a nominal holding value
in accordance with general banking practice at that time. The property includes
ownership interests in scattered undeveloped acreage, various mineral interests,
and a few commercial and residential site locations, principally in the New
Orleans area.
Revenues and direct expenses related to these property interests that are
included in the statements of operations follows:
Years Ended December 31
- ----------------------------------------------------------------
(dollars in thousands) 1998 1997 1996
- ----------------------------------------------------------------
Revenues $ 2,488 $ 3,026 $ 955
- ----------------------------------------------------------------
Direct expenses $ 36 $ 38 $ 58
- ----------------------------------------------------------------
(Note 8) BANK PREMISES AND EQUIPMENT
An analysis of bank premises and equipment by asset classification follows:
December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
Land $ 36,502 $ 33,461
Buildings and improvements 150,248 127,436
Furnishings and equipment 100,256 91,188
- --------------------------------------------------------------------------------
287,006 252,085
Accumulated depreciation and amortization (117,282) (106,019)
- --------------------------------------------------------------------------------
Total bank premises and equipment $ 169,724 $ 146,066
- --------------------------------------------------------------------------------
Provisions for depreciation and amortization included in non-interest
expense were as follows:
Years Ended December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Buildings and improvements $ 5,044 $ 4,604 $ 4,084
Furnishings and equipment 10,998 9,478 7,956
- --------------------------------------------------------------------------------
Total depreciation and amortization expense $ 16,042 $ 14,082 $ 12,040
- --------------------------------------------------------------------------------
Page 38 of 66 Pages
At December 31, 1998, the Bank was obligated under a number of
non-cancelable operating leases. Certain of these leases have escalation clauses
and renewal options. Total rental expense, net of immaterial sublease rentals,
was $2.8 million, $1.8 million and $1.5 million in 1998, 1997 and 1996,
respectively.
As of December 31, 1998, the future minimum rentals under non-cancelable
operating leases having an initial lease term in excess of one year were as
follows:
(dollars in thousands)
- -------------------------------------------------
1999 $ 2,339
2000 2,178
2001 1,362
2002 1,259
2003 1,140
Later years 9,803
- -------------------------------------------------
$ 18,081
- -------------------------------------------------
(Note 9) SHORT-TERM BORROWINGS
Short-term borrowings consisted of the following components:
December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
Federal funds purchased $ 70,780 $ 55,065
Securities sold under agreements to repurchase 284,542 234,621
- --------------------------------------------------------------------------------
Total short-term borrowings $ 355,322 $ 289,686
- --------------------------------------------------------------------------------
The Bank has the ability to exercise legal authority over the securities
that serve as collateral for the securities sold under repurchase agreements.
The carrying and estimated fair values of securities sold under repurchase
agreements at December 31, 1998, by term of the underlying borrowing agreement,
were as follows:
Up to
(dollars in thousands) Overnight 30 days
- -----------------------------------------------------------
December 31, 1998
- -----------------------------------------------------------
Book value:
U.S. Treasury securities $ 21,232 $ 12,958
U.S. Agency securities 250,352 -
- -----------------------------------------------------------
Total book value $ 271,584 $ 12,958
- -----------------------------------------------------------
Fair value:
U.S. Treasury securities $ 21,752 $ 12,158
U.S. Agency securities 252,098 -
- -----------------------------------------------------------
Total fair value $ 273,850 $ 12,158
- -----------------------------------------------------------
Outstanding borrowings $ 272,446 $ 12,096
- -----------------------------------------------------------
Page 39 of 66 Pages
Additional information about federal funds purchased follows:
- ---------------------------------------------------------------------------
(dollars in thousands) 1998 1997
- ---------------------------------------------------------------------------
Average interest rate on December 31 4.25% 5.06%
- ---------------------------------------------------------------------------
Average for the year
Interest rate 5.08% 5.37%
Balance $ 66,803 $ 83,531
- ---------------------------------------------------------------------------
Maximum month-end outstanding $ 79,650 $ 105,587
- ---------------------------------------------------------------------------
Additional information about securities sold under repurchase agreements
follows:
- -----------------------------------------------------------------------------
(dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------
Average interest rate on December 31 4.07% 5.06%
- -----------------------------------------------------------------------------
Average for the year
Interest rate 4.44% 4.90%
Balance $ 270,741 $ 326,344
- -----------------------------------------------------------------------------
Maximum month-end outstanding $ 320,190 $ 408,151
- -----------------------------------------------------------------------------
(Note 10) EMPLOYEE BENEFIT PLANS
Retirement Plans
The Company has a noncontributory qualified defined benefit pension plan
covering substantially all employees. The benefits are based upon an employee's
total years of service and his or her highest five-year average level of
compensation during the final ten years of employment. Contributions are made in
amounts sufficient to meet funding requirements of federal employee benefit and
tax laws plus such additional amounts as the Company may determine to be
appropriate.
Page 40 of 66 Pages
The following table is in accordance with SFAS No. 132 and 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, 1998 and 1997. The
table also shows the funded status of the plan at each year-end and identifies
amounts recognized and unrecognized in the Company's consolidated balance
sheets.
- --------------------------------------------------------------------------------
(dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
Benefit obligation, beginning of year $ 65,533 $ 59,820
Service cost for benefits 2,854 2,019
Interest cost on benefit obligation 4,222 4,237
Net actuarial loss 4,385 2,617
Benefits paid (3,225) (3,160)
- --------------------------------------------------------------------------------
Benefit obligation, end of year 73,769 65,533
- --------------------------------------------------------------------------------
Plan assets at fair value, beginning of year 91,206 73,548
Actual return on plan assets 10,069 21,065
Benefits paid (3,225) (3,160)
Plan expenses (284) (247)
- --------------------------------------------------------------------------------
Plan assets at fair value, end of year 97,766 91,206
- --------------------------------------------------------------------------------
Plan assets in excess of benefit obligation,
end of year 23,997 25,673
Unrecognized net actuarial gains (18,561) (21,106)
Unrecognized net implementation asset (1,904) (2,309)
Unrecognized prior service cost resulting
from plan amendments (1,329) (1,453)
- --------------------------------------------------------------------------------
Prepaid pension asset $ 2,203 $ 805
- --------------------------------------------------------------------------------
The Company recognized a net pension benefit in each of the three years in
the period ended December 31, 1998. The components of the net pension benefit
were as follows:
- --------------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Service cost for benefits during the period $ 2,854 $ 2,019 $ 1,669
Interest cost on benefit obligation 4,222 4,237 3,797
Expected return on plan assets (7,162) (5,750) (5,305)
Amortization of:
Unrecognized net actuarial gains (785) (55) (107)
Unrecognized net implentation asset (405) (405) (405)
Unrecognized prior service cost (124) (124) (124)
- --------------------------------------------------------------------------------
Net pension benefit $ (1,400) $ (78) $ (475)
- --------------------------------------------------------------------------------
The weighted-average discount rate used in determining the actuarial
present value of the pension benefit obligation was 6.25% for 1998, 7.00% for
1997 and 7.25% for 1996. For all periods presented, the Company assumed an 8%
expected long-term rate of return on plan assets and an annual rate of increase
in future compensation levels of 4%.
The pension plan held 219,800 shares of Company common stock at December
31, 1998 and 239,555 shares at both December 31, 1997 and 1996.
The Company also has a nonqualified defined benefit plan, which provides
retirement benefits calculated using the qualified plan's formula to designated
executive officers, but without the restrictions imposed on qualified plans by
certain provisions of the Internal Revenue Code. Benefits that become payable
under the nonqualified plan would be reduced by amounts paid from the qualified
plan. At December 31, 1998, the actuarial present value of the excess
Page 41 of 66 Pages
benefit obligation was $2.3 million, and the recorded accrued pension
liability was $1.5 million. The net pension expense for the nonqualified defined
benefit plan was not material in 1998, 1997 or 1996.
The Company sponsors an employee savings plan under Section 401(k) of the
Internal Revenue Code. This plan covers substantially all full-time employees,
and the Company matches the savings of each participant up to 3% of his or her
compensation. Tax law imposes limits on total annual participant savings.
Participants are fully vested in their savings and in the matching Company
contributions at all times. The expense of the Company's matching contributions,
including those made by pooled entities with comparable plans, was approximately
$1.6 million in 1998, $1.4 million in 1997 and $1.3 million in 1996.
Health and Welfare Plans
The Company maintains health care and life insurance benefit plans for
retirees and their eligible dependents. Participant contributions are required
under the health plan, and the Company has established annual and lifetime
maximum health care benefit limits. The Company recognizes the expected cost of
providing these postretirement benefits during the period employees are actively
working. The Company continues to fund its obligations under the postretirement
benefit plans as the benefit payments are made.
At December 31, 1998, the net postretirement benefit liability reported
with other liabilities in the consolidated balance sheets was approximately $6.7
million, essentially unchanged from December 31, 1997. The net periodic
postretirement benefit expense was approximately $.5 million for both 1998 and
1997 and $.4 million for 1996. This expense includes components for the portion
of the expected benefit obligation attributed to current service, interest on
the accumulated benefit obligation, and amortization of unrecognized actuarial
gains or losses. No component was individually significant for any period
reported.
For the actuarial calculation of its postretirement benefit obligations at
December 31, 1998, 1997 and 1996, the Company assumed annual health care cost
increases beginning at 8.40%, 9.00% and 9.50%, respectively, with each
decreasing to a 5.00% rate over a six to seven year period. Discount rates of
6.25% in 1998, 7.00% in 1997 and 7.25% in 1996 were used in determining the
present value of benefit obligations in each period. A 1% rise in the assumed
health care cost trend rates would increase the accumulated benefit obligation
by approximately $1.2 million and the periodic net benefit expense by
approximately $150,000. A 1% fall in these trend rates would decrease the
accumulated benefit obligation by approximately $900,000 and the periodic net
benefit expense by approximately $120,000.
Page 42 of 66 Pages
(Note 11) STOCK-BASED INCENTIVE COMPENSATION PLANS AND OTHER STOCK-BASED
COMPENSATION
The Company maintains two stock-based compensation plans. The long-term
incentive plan for key employees is administered by the Compensation Committee
of the Board of Directors, which designates the participants and authorizes the
awarding of grants. Under this plan, participants may be awarded stock options,
restricted stock, performance shares, phantom shares and stock appreciation
rights. To date, only stock options and restricted stock grants have been
awarded under the plan. The directors' compensation plan provides for the annual
award of common stock and options to purchase common stock to each non-employee
director.
The following schedule summarizes the common stock grants awarded under
these plans during 1998, 1997 and 1996:
- ----------------------------------------------------------------------
(dollars in thousands) Market Value
Shares Of Award On
Year Plan Awarded Grant Date
- ----------------------------------------------------------------------
1998 Employee-performance 61,500 $ 3,383
Director 5,100 $ 259
1997 Employee-performance 62,375 $ 2,505
Employee 54,040 $ 2,141
Director 5,400 $ 192
1996 Employee-performance 53,500 $ 1,605
Director 5,100 $ 156
- ----------------------------------------------------------------------
Shares awarded to employees are subject to possible forfeiture if a
recipient's employment is terminated within three years of the grant date and
the transfer or other disposition of the shares is prohibited during this
period. In addition, with the exception of a portion of the 1997 grants, the
employee grants are subject to adjustment based on the performance of the
Company, as measured by its return on assets and return on equity, in relation
to that of a designated peer group over the restriction period. The ultimate
performance-based awards can range from 0% to 200% of the initial grants. Shares
granted to employees before 1996 are subject to possible forfeiture and transfer
restrictions for a five-year period but not to performance-based adjustments.
The directors' shares are awarded without any significant restrictions and are
not subject to future adjustment.
The Company initially measures the compensation expense related to a
restricted stock grant as the market value of the shares awarded on the grant
date. Compensation expense is recognized ratably over the restriction period, if
any. Adjustments are made for forfeitures as they occur. The Company
periodically re-measures compensation expense for performance-based grants for
changes both in the estimate of the unrestricted shares to which employees will
ultimately become entitled and in the market value of the Company's stock. These
re-measurements affect both the recognition of cumulative compensation expense
through that date and the future recognition of expense over the remaining
restriction periods. The total compensation expense recognized during 1998, 1997
and 1996 related to common stock awards was $3.5 million, $2.4 million and $1.0
million, respectively.
Page 43 of 66 Pages
The following table summarizes stock option activity under the long-term
incentive plan for employees and its predecessor incentive program and under the
directors' compensation plan for each of the three years in the period ended
December 31, 1998. The exercise price for all options is set at the market price
on the grant date. All options are fully exercisable six months after the date
of grant and expire after ten years.
- --------------------------------------------------------------------------------
Employees Directors
- --------------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Number Price Number Price
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1995 260,848 $ 23.97 25,000 $ 26.53
Options granted 103,500 $ 30.00 17,000 $ 30.50
Options exercised (21,524) $ 18.98 (1,000) $ 26.75
Options forfeited (3,000) $ 29.00 - -
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1996 339,824 $ 26.08 41,000 $ 28.17
Options granted 150,500 $ 42.44 18,000 $ 42.44
Options exercised (30,021) $ 22.69 (1,000) $ 30.50
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1997 460,303 $ 31.65 58,000 $ 32.56
Options granted 146,750 $ 55.00 17,000 $ 50.88
Options exercised (94,540) $ 24.74 (4,000) $ 34.47
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1998 512,513 $ 39.61 71,000 $ 36.84
- --------------------------------------------------------------------------------
Exercisable at
December 31, 1998 512,513 $ 39.61 71,000 $ 36.84
- --------------------------------------------------------------------------------
Available for grant at
December 31, 1998 1,637,510 - 1,000 -
- --------------------------------------------------------------------------------
The following table summarizes certain information about the stock options
outstanding under these plans at December 31, 1998:
- --------------------------------------------------------------
Weighted Weighted
Number of Average Average
Range of Shares Years to Exercise
Exercise Prices Under Option Expiration Price
- --------------------------------------------------------------
$13.22-$19.42 38,017 4.25 $ 18.12
$26.25-$28.88 121,182 6.14 $ 28.16
$30.00-$30.50 95,564 7.55 $ 30.08
$42.44-$42.44 165,000 8.50 $ 42.44
$50.88-$55.00 163,750 9.45 $ 54.57
- --------------------------------------------------------------
$13.22-$55.00 583,513 7.84 $ 39.27
- --------------------------------------------------------------
In connection with the merger with Meritrust in April 1998, the Company
converted options held by certain
Page 44 of 66 Pages
Meritrust employees and directors into options to acquire 93,283 shares of
Company stock. The weighted-average exercise price of these options was $11.26.
At December 31, 1998, 56,052 of these options with a weighted-average exercise
price of $12.31 and a weighted-average remaining life of 5.75 years remained
unexercised.
Upon its merger with First Citizens in March 1996, the Company converted
options held by certain First Citizens employees and directors into options to
acquire 192,551 Company shares with a weighted-average exercise price of $11.64.
Holders exercised options for 146,964 shares in 1996, 14,085 in 1997 and 1,000
in 1998. The unexercised options at December 31, 1998 for 33,502 shares had a
weighted-average exercise price of $10.13 and a remaining life of 5 years.
In 1990, an executive officer was granted options to purchase 33,750 shares
of common stock at $18.11 per share. During 1998, all of these options were
exercised.
SFAS No. 123, "Accounting for Stock-Based Compensation," was effective for
the Company's 1996 fiscal year. This statement established a fair value based
method of accounting for stock-based compensation, including the award of stock
options. As provided for in SFAS No. 123, the Company elected not to adopt the
fair value based method for measuring stock-based compensation cost to be
included in its results of operations, but is continuing to follow prior
generally accepted accounting principles
SFAS No. 123 requires the following disclosure of pro forma net income and
earnings per share determined as if the fair value method had been applied in
measuring compensation cost related to stock option grants awarded in 1995 and
thereafter:
- -------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1998 1997 1996
- -------------------------------------------------------------------------------------------
Net income $ 52,679 $ 57,178 $ 47,811
Pro forma stock-based compensation expense, net of tax 1,961 1,474 770
- -------------------------------------------------------------------------------------------
Pro forma net income $ 50,718 $ 55,704 $ 47,041
- -------------------------------------------------------------------------------------------
Pro forma earnings per share
Basic $ 2.18 $ 2.42 $ 2.07
Diluted $ 2.16 $ 2.40 $ 2.05
Weighted-average fair value of options granted during the
year $ 14.22 $ 10.79 $ 7.67
- -------------------------------------------------------------------------------------------
The fair values of the stock options granted in 1998, 1997 and 1996 under
the Company's employee incentive and directors' compensation plans were
estimated as of the grant dates using the Black-Scholes option-pricing model.
The Company made the following significant assumptions in applying the
option-pricing model:(a) an expected annualized volatility for the Company's
common stock of 22.74% in 1998, 18.78% in 1997, and 17.70% in 1996; (b) an
average option life of seven years before exercise; (c) an expected annual
dividend yield of 2.70% in 1998, 2.80% in 1997 and 2.90% in 1996; and (d) a
weighted-average risk-free interest rate of 5.60% in 1998, 6.50% in 1997 and
7.01% in 1996.
Page 45 of 66 Pages
(Note 12) REGULATORY MATTERS
Regulatory Capital Requirements
Measures of regulatory capital are an important tool used by regulators to
monitor the financial health of insured financial institutions. The primary
quantitative measures used by regulators to gauge capital adequacy are the
ratios of Tier 1 and total regulatory capital to risk-weighted assets and the
ratio of Tier 1 regulatory capital to average total assets, also known as the
leverage ratio. The regulators define the components and computation of each of
these ratios. The minimum capital ratios for both the Company and the Bank are
generally 4% Tier 1 capital, 8% total capital and 4% leverage. However,
regulators may set higher capital requirements for an individual institution
when particular circumstances warrant.
To evaluate capital adequacy, regulators compare an institution's
regulatory capital ratios with their agency guidelines as well as with the
guidelines established as part of the uniform regulatory framework for prompt
corrective supervisory action toward insured institutions. In reaching an
overall conclusion on capital adequacy or assigning an appropriate
classification under the uniform framework, regulators must also consider other
subjective and quantitative assessments of risk associated with the institution,
such as interest-rate risk. Institutions not judged to be adequately capitalized
are subject to certain mandatory and possible additional discretionary actions
by regulators that 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 Tier 1 capital, total capital and leverage ratios must
be at least 6%, 10% and 5%, respectively. Maintaining capital ratios at the
well-capitalized levels avoids certain restrictions that, for example, could
impact the FDIC insurance premium rate. As of December 31, 1998 and 1997, the
Bank was categorized as well-capitalized, and there have been no events since
December 31, 1998 that management believes would cause this status to change.
Page 46 of 66 Pages
The actual capital amounts and ratios and the minimum and well-capitalized
required capital amounts for the Company and the Bank are presented in the
following tables:
(dollars in thousands)
- --------------------------------------------------------------------------------
Actual Well-
December 31, 1998 Amount Ratio Minimum Capitalixed
(a) (b)
- --------------------------------------------------------------------------------
Total Capital (to Risk Weighted Assets):
Company $ 564,310 14.87% $ 303,543 (c)
Bank 505,988 13.35% 303,292 $ 379,115
- --------------------------------------------------------------------------------
Tier 1 Capital (to Risk Weighted Assets):
Company $ 524,028 13.81% $ 151,772 (c)
Bank 465,707 12.28% 151,646 $ 227,469
- --------------------------------------------------------------------------------
Leverage (to Average Assets):
Company $ 524,028 10.39% $ 201,691 (c)
Bank 465,707 9.24% 201,583 $ 251,979
- --------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------------
Total Capital (to Risk Weighted Assets):
Company $ 546,850 16.49% $ 264,832 (c)
Bank 538,267 16.28% 264,444 $ 330,555
- --------------------------------------------------------------------------------
Tier 1 Capital (to Risk Weighted Assets):
Company $ 505,470 15.27% $ 132,416 (c)
Bank 498,063 15.07% 132,222 $ 198,333
- --------------------------------------------------------------------------------
Leverage (to Average Assets):
Company $ 505,470 10.83% $ 186,654 (c)
Bank 498,063 10.68% 186,567 $ 233,208
- --------------------------------------------------------------------------------
(a) Minimum capital required for capital adequacy purposes.
(b) Capital required for well-capitalized status.
(c) Not applicable.
Other Regulatory Matters
Dividends received from the Bank represent the primary source of funds
available to the Company for the declaration and payment of dividends to the
Company's shareholders. There are various regulatory and statutory provisions
that limit the amount of dividends that the Bank may distribute to the Company.
Without prior regulatory approvals, the Bank will have available an amount equal
to approximately $10 million plus its current net income to pay to the Company
as dividends in 1999.
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.
Banks are required to maintain currency and coin or a non-interest-bearing
balance with the Federal Reserve Bank to meet reserve requirements based on a
percentage of deposits. Average balances maintained by the Bank with the Federal
Reserve Bank for such purposes were $11 million and $13 million during 1998 and
1997, respectively.
Page 47 of 66 Pages
(Note 13) OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
To meet the financing needs of its customers, the Bank deals in financial
instruments that expose it to off-balance-sheet risk. These financial
instruments include commitments to extend credit, letters of credit, and other
financial guarantees. Such instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amounts recognized in the
consolidated balance sheets.
The Bank's exposure to credit loss in the event of non-performance by other
parties for commitments to extend credit and letters of credit and other
financial guarantees written is represented by the contractual amount of those
instruments. The Bank follows the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit for loans and credit card and related lines
are agreements to make loans to customers as long as there is no violation of
any condition established in the commitments or credit line contracts.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amount outstanding does
not necessarily represent total future cash outlays. Of the total commitments
outstanding at December 31, 1998, approximately 18% carried a fixed rate of
interest over their terms.
The amount of collateral, if any, required by the Bank upon issuance of a
commitment is based on management's credit evaluation of the borrower. Required
collateral varies but may include accounts receivable, inventory, property,
plant and equipment, and income-producing commercial properties.
Letters of credit and financial guarantees written are conditional
agreements issued by the Bank to guarantee the performance of a customer to a
third party. These agreements are primarily issued to support commercial trade.
The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The Bank holds
marketable securities as collateral to support those letters of credit and
guarantees for which collateral is deemed necessary.
The Company does not maintain any investment or participation in financial
instruments or agreements whose value is linked to, or derived from, changes in
the value of some underlying asset or index, such as futures, forward contracts,
option contracts, interest-rate swap agreements and other financial arrangements
with similar characteristics that are commonly referred to as derivatives.
A summary of off-balance-sheet financial instruments follows:
December 31
- --------------------------------------------------------------------------------
dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
Commitments to extend credit $ 1,122,761 $ 1,168,717
Letters of credit and financial guarantees written $ 102,416 $ 104,570
Credit card and related lines $ 147,843 $ 102,948
- --------------------------------------------------------------------------------
Page 48 of 66 Pages
(Note 14) 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. Because many of the Company's financial instruments lack readily
available trading markets, fair values for such instruments are based on
significant estimations and present value calculations. The use of different
assumptions and estimation methods, such as those concerning appropriate
discount rates and estimates of future cash flows, could significantly affect
the fair value amounts disclosed. In addition, reasonable comparability between
financial institutions may not be possible due to the wide range of permitted
valuation techniques and numerous estimates involved.
Fair value estimates do not consider the value of future business, the
value of certain financial instruments or the value of assets and liabilities
that are not considered financial instruments. In addition, the tax
ramifications related to the unrealized gains and losses have not been
considered in the estimates. Accordingly, the aggregate fair value amounts
presented are not necessarily indicative of the amounts the Company could
realize in a current settlement of the underlying financial instruments, nor
should they be interpreted as representing an aggregate measure of the
underlying value of the Company.
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
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 rates that are repriced in coordination with movements
in market rates and with no significant change in credit risk 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 stated maturities,
such as non-interest-bearing demand deposits, NOW deposits, money market
deposits and savings deposits, have fair values equal to the amounts payable
upon demand (carrying amounts). Deposits with stated maturities were valued by
discounting contractual cash flows using a discount rate approximating current
market rates for deposits of similar remaining maturities.
Short-term borrowings - Short-term borrowings are valued fairly at their
carrying amounts.
Off-balance-sheet financial instruments - Off-balance-sheet financial
instruments include commitments to extend credit, letters of credit and other
financial guarantees. The fair values of such instruments were estimated using
fees currently charged for similar arrangements in the market, adjusted for
changes in terms and credit risk as appropriate. The estimated fair values of
these instruments are not material.
Page 49 of 66 Pages
The estimated fair values of the Company's financial instruments follows:
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(dollars in thousands) Amount Value Amount Value
- --------------------------------------------------------------------------------------------------------------------
ASSETS:
Cash and short-term investments $ 366,473 $ 366,473 $ 261,859 $ 261,859
Investment in securities $ 1,340,078 $ 1,358,474 $ 1,470,967 $ 1,485,120
Loans, net $ 3,230,299 $ 3,230,099 $ 2,820,121 $ 2,816,407
LIABILITIES:
Deposits $ 4,256,662 $ 4,256,087 $ 3,935,871 $ 3,932,942
Short-term borrowings $ 355,322 $ 355,322 $ 289,686 $ 289,686
- --------------------------------------------------------------------------------------------------------------------
(Note 15) CONTINGENCIES
In 1992, the Company discovered and reported to the United States
Department of Education (the "DOE") that in earlier years it had not in all
cases followed some collection procedures related to guaranteed student loans
under the Federal Family Education Loan Program (the "Program"). At that time, a
reserve for potential settlement with the DOE was established and internal
procedures were revised for future compliance with the Program. During 1997, the
Company reached a tentative settlement agreement with the DOE and recorded
certain expenses and income tax effects, which were substantially offset by the
reversal of excess reserves for possible loan losses, also related to the
settlement. During the fourth quarter of 1998, amounts accrued for the tentative
settlement in 1997 were paid in final settlement to the DOE.
The Company and its subsidiaries are parties to various legal proceedings
arising in the ordinary course of business. After reviewing pending and
threatened actions with legal counsel, management believes that the ultimate
resolution of these actions will not have a material effect on the Company's
financial condition or results of operations.
(Note 16) OTHER NON-INTEREST INCOME
The components of other non-interest income were as follows:
Years Ended December 31
- ---------------------------------------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
Net gains on sales and other dispositions of foreclosed assets $ 5,897 $ 6,641 $ 3,119
ATM fees 3,446 3,021 2,360
Secondary market mortgage fees 2,230 1,119 822
International services income 1,895 1,821 1,826
Investment services income 1,466 1,035 1,080
Other fees and charges 1,755 1,955 1,802
Other operating income 1,267 1,846 948
- ---------------------------------------------------------------------------------------------------------
Total other non-interest income $ 17,956 $ 17,438 $ 11,957
- ---------------------------------------------------------------------------------------------------------
Page 50 of 66 Pages
(Note 17) OTHER NON-INTEREST EXPENSE
The components of other non-interest expense were as follows:
Years Ended December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Other outside services $ 3,964 $ 3,905 $ 3,368
Advertising 3,074 3,538 2,947
Miscellaneous operating losses 2,855 3,330 1,090
Amortization of intangible assets 2,777 2,418 2,881
Training expense 2,148 787 638
Security services 1,511 2,126 1,890
Deposit insurance and regulatory fees 1,182 1,390 2,673
Other operating expense 13,099 11,687 13,896
- --------------------------------------------------------------------------------
Total other non-interest expense $ 30,610 $ 29,181 $ 29,383
- --------------------------------------------------------------------------------
(Note 18) INCOME TAXES
The components of income tax expense (benefit) follows:
Years Ended December 31
- ----------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
Included in net income
Current
Federal $ 25,422 $ 28,405 $ 22,718
State 222 236 130
- ----------------------------------------------------------------------------------------------------------------------
Total 25,644 28,641 22,848
Deferred
Federal (221) 213 69
State (265) 8 (7)
- ----------------------------------------------------------------------------------------------------------------------
Total (486) 221 62
- ----------------------------------------------------------------------------------------------------------------------
Total income tax expense $ 25,158 $ 28,862 $ 22,910
- ----------------------------------------------------------------------------------------------------------------------
Included in shareholders' equity
Deferred tax expense (benefit) related to the change in the net unrealized
gain (loss) on securities $ (378) $ 416 $ (546)
Current tax benefit related to nonqualified stock options and restricted stock (1,342) (661) (708)
- ----------------------------------------------------------------------------------------------------------------------
Total $ (1,720) $ (245) $ (1,254)
- ----------------------------------------------------------------------------------------------------------------------
Page 51 of 66 Pages
Income tax expense was different from the amounts computed by applying the
statutory federal income tax rates to pretax income as follows:
Years Ended December 31
- -------------------------------------------------------------------------------------------------------
(in percentages) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
Federal income tax expense 35.00 % 35.00 % 35.00 %
Increase (decrease) resulting from
Tax exempt income (3.92) (3.67) (4.43)
Non-deductible merger-related expenses .72 .37 1.02
Tentative settlement of contingent liability - 1.19 -
Miscellaneous items .52 .66 .80
- -------------------------------------------------------------------------------------------------------
Effective tax rate 32.32 % 33.55 % 32.39 %
- -------------------------------------------------------------------------------------------------------
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The components of the net
deferred income tax asset, which is included in other assets on the consolidated
balance sheets, follow:
December 31
- ----------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Reserves for losses on loans, other real estate, and other problem assets $12,677 $14,035
Employee benefit plan liabilities 5,955 4,303
Net operating loss carryforward 593 1,364
Unrecognized interest income 1,193 1,220
Other 1,728 1,104
- ----------------------------------------------------------------------------------------------------------------------
Total deferred tax assets $22,146 $22,026
- ----------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Accumulated depreciation and amortization $ 4,579 $ 5,510
Other 2,096 1,909
- ----------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities $ 6,675 $ 7,419
- ----------------------------------------------------------------------------------------------------------------------
Net deferred tax asset $15,471 $14,607
- ----------------------------------------------------------------------------------------------------------------------
At December 31, 1998, the Company had approximately $1.7 million in net
operating loss carryforwards generated by a pooled entity. Substantially all of
these carryforwards expire in 2004 and 2007.
Page 52 of 66 Pages
(Note 19) PARENT COMPANY FINANCIAL STATEMENTS
Summarized parent company only financial statements follow:
BALANCE SHEETS December 31
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------------------------
ASSETS
Investment in and advances to banking subsidiaries $ 559,263 $ 523,356
Other investments in subsidiaries 1,035 1,032
Dividends receivable 7,384 6,189
Other assets 2,591 1,816
- -----------------------------------------------------------------------------------------------
Total assets $ 570,273 $ 532,393
- -----------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable $ 7,015 $ 5,987
Other liabilities 2,297 1,270
- -----------------------------------------------------------------------------------------------
Total liabilities 9,312 7,257
SHAREHOLDERS' EQUITY 560,961 525,136
- -----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 570,273 $ 532,393
- -----------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS Years Ended December 31
- ---------------------------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------
Dividend income from banking subsidiaries $ 71,474 $ 28,089 $ 27,260
Equity in undistributed earnings of subsidiaries
Banks (18,557) 29,888 22,176
Nonbanks 4 11 18
Other expense, net (242) (810) (1,643)
- ---------------------------------------------------------------------------------------------
NET INCOME $ 52,679 $ 57,178 $ 47,811
- ---------------------------------------------------------------------------------------------
Page 53 of 66 Pages
STATEMENTS OF CASH FLOWS Years Ended December 31
- ----------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income $ 52,679 $ 57,178 $ 47,811
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries 18,553 (29,899) (22,194)
Increase in dividends receivable (1,195) (1,331) (1,216)
Other, net 468 117 732
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 70,505 26,065 25,133
- ---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investment in and advances to banking
subsidiaries (50,995) (7,742) (15,015)
Other, net - (653) 3,248
- ---------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (50,995) (8,395) (11,767)
- ---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Cash dividends (26,443) (23,425) (18,273)
Proceeds from issuance of stock 8,201 6,044 4,661
Purchases of treasury stock (1,300) (513) -
- ---------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (19,542) (17,894) (13,612)
- ---------------------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (32) (224) (246)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 237 461 707
- ---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 205 $ 237 $ 461
- ---------------------------------------------------------------------------------------------------------------------
(Note 20) EARNINGS PER SHARE
The components used to calculate basic and diluted earnings per share are
as follows:
Years Ended December 31
- ----------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
Numerator:
Net income $ 52,679 $ 57,178 $ 47,811
Effect of dilutive securities - - -
- ----------------------------------------------------------------------------------------------------
Numerator for diluted earnings per share $ 52,679 $ 57,178 $ 47,811
- ----------------------------------------------------------------------------------------------------
Denominator:
Weighted average shares outstanding 23,283,458 23,025,173 22,729,851
Effect of dilutive stock options 216,185 211,001 167,357
- ----------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share 23,499,643 23,236,174 22,897,208
- ----------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 2.26 $ 2.48 $ 2.10
Diluted $ 2.24 $ 2.46 $ 2.09
- ----------------------------------------------------------------------------------------------------
Antidilutive stock options 123,125 42,125 -
- ----------------------------------------------------------------------------------------------------
Page 54 of 66 Pages
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Whitney Holding Corporation is responsible for the
preparation of the financial statements, related financial data and other
information in this annual report. The financial statements are prepared in
accordance with generally accepted accounting principles and include amounts
based on management's estimates and judgments where appropriate. Financial
information appearing throughout this annual report is consistent with that in
the financial statements.
The Company's financial statements have been audited by Arthur Andersen LLP,
independent public accountants. Management has made available to Arthur Andersen
LLP all of the Company's financial records and related data, as well as the
minutes of shareholders' and directors' meetings. Furthermore, management
believes that all representations made to Arthur Andersen LLP during the
Company's audit were valid and appropriate.
Management of the Company has established and maintains a system of internal
control that provides reasonable assurance as to the integrity and reliability
of the financial statements, the protection of assets from unauthorized use or
disposition, and the prevention and detection of fraudulent financial reporting.
The system of internal control provides for appropriate division of
responsibility, is documented by written policies and procedures that are
communicated to employees with significant roles in the financial reporting
process, and is updated as necessary. Management continually monitors the system
of internal control for compliance. The Company maintains a professional staff
of internal auditors who independently assess the effectiveness of internal
controls and recommend possible improvements thereto. As part of their audit of
the Company's 1998 financial statements, Arthur Andersen LLP considered the
Company's system of internal control to the extent they deemed necessary to
determine the nature, timing and extent of their audit tests. Management has
considered the recommendations of the internal auditors and Arthur Andersen LLP
concerning the Company's system of internal control and has taken actions that
it believes are cost-effective in the circumstances to respond appropriately to
these recommendations. Management believes that, as of December 31, 1998, the
Company's system of internal control is adequate to accomplish the objectives
discussed herein.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS
AND BOARD OF DIRECTORS OF
WHITNEY HOLDING CORPORATION:
We have audited the consolidated balance sheets of WHITNEY HOLDING
CORPORATION (a Louisiana corporation) and subsidiaries as of December 31, 1998
and 1997 and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Whitney Holding Corporation
and subsidiaries as of December 31, 1998 and 1997, and the consolidated results
of their operations and cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
January 18, 1999
Page 55 of 66 Pages
SUMMARY OF QUARTERLY FINANCIAL INFORMATION 1998 Quarters (a)
- ---------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 4th 3rd 2nd 1st
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 55,005 $ 52,938 $ 52,697 $ 52,492
Provision for loan losses - - - 73
Non-interest income (exclusive of securities transactions) 15,212 13,767 17,551 13,402
Securities transactions (2) 833 - 8
Non-interest expense 53,810 51,667 47,877 42,639
Income tax expense 4,962 5,216 7,464 7,516
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 11,443 $ 10,655 $ 14,907 $ 15,674
- ---------------------------------------------------------------------------------------------------------------------------------
Per share data
Basic $ .49 $ .46 $ .64 $ .67
Diluted $ .49 $ .45 $ .63 $ .67
Dividends $ .30 $ .30 $ .30 $ .30
Trading data (b)
High stock price $ 41.88 $ 51.25 $ 62.38 $ 63.38
Low stock price $ 35.75 $ 36.63 $ 50.00 $ 51.13
Closing stock price $ 37.50 $ 41.75 $ 50.75 $ 60.00
Trading volume 1,922,621 2,093,098 1,410,536 1,147,945
- ---------------------------------------------------------------------------------------------------------------------------------
1997 Quarters (a)
- ----------------------------------------------------------------------------------------------------------------------------------
4th 3rd 2nd 1st
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 51,970 $ 51,661 $ 49,572 $ 48,123
Provision for loan losses 236 (2,808) 121 331
Non-interest income (exclusive of securities transactions) 13,982 13,314 15,285 11,588
Securities transactions 20 3 (11) -
Non-interest expense 44,032 44,206 41,927 41,422
Income tax expense 6,969 8,695 7,283 5,915
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 14,735 $ 14,885 $ 15,515 $ 12,043
- ----------------------------------------------------------------------------------------------------------------------------------
Per share data
Basic $ .64 $ .65 $ .67 $ .52
Diluted $ .63 $ .64 $ .67 $ .52
Dividends $ .28 $ .28 $ .28 $ .28
Trading data (b)
High stock price $ 59.75 $ 47.25 $ 43.00 $ 40.50
Low stock price $ 46.13 $ 40.00 $ 35.25 $ 34.75
Closing stock price $ 57.00 $ 47.25 $ 42.25 $ 38.94
Trading volume 1,052,417 1,232,680 1,762,829 1,534,742
- ----------------------------------------------------------------------------------------------------------------------------------
(a) Unaudited.
(b) Common stock is traded in the over-the-counter market on The Nasdaq Stock
Market. All closing prices represent closing sales prices as reported on The
Nasdaq Stock Market.
Page 56 of 66 Pages
Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the Company's directors and executive
officers are listed below with their business experience during the past five
years.
Director Term
Name and Age Principal Occupation Since Expires
- ------------------------ -------------------------------------------- -------- -------
Robert C. Baird, Jr., 48 Executive Vice President of N/A N/A
the Company and the Bank since 1995; Former
President and CEO of Union Bank and Trust, a
$500 million bank, from 1991 to 1994 and
Chairman from 1993 to 1994
Guy C. Billups, Jr., 70 Former Chairman of the Board 1997 2002
of Merchants Bancshares, Inc. and
Merchants Bank & Trust Company;
Chairman, the Mississippi Bank
Advisory Board; Partner, Billups
Farms and Director, Billups
Plantation, Inc. (farming)
Harry J. Blumenthal, Jr., 53 President, Blumenthal 1993 1999
Print Works, Inc.
(textiles manufacturing)
Joel B. Bullard, Jr., 48 President, Joe Bullard 1994 1999
Automotive Companies
James M. Cain, 65 Former Vice Chairman, Entergy 1987 2002
Corp. (utility holding company);
former Chairman of the Board,
Chief Executive Officer and former
President, Louisiana Power and
Light Company (electric utility);
Former Director, Chief Executive
Officer and President, New
Orleans Public Service, Inc.
(electric utility)
Rodney D. Chard, 56 Executive Vice President N/A N/A
of the Company and the Bank;
Former Consultant with EDS
Management Consulting Services from
1992 to 1995
Page 57 of 66 Pages
Angus R. Cooper II, 55 Chairman and Chief Executive 1994 1999
Officer, Cooper/T. Smith Corp.
(shipping service company)
Robert H. Crosby, Jr., 78 Chairman of the Board and 1972 2002
Chief Executive Officer,
Crosby Land & Resources
(timberland holdings, oil
and gas production)
Richard B. Crowell, 59 Attorney, Crowell & Owens 1983 2002
Camille A. Cutrone, 69 Partner, Cutrone, 1996 2000
Verlander & Meyer, Attorney
at Law
G. Blair Ferguson, 55 Executive Vice President N/A N/A
of the Company and the Bank
William A. Hines, 62 Chairman of the Board, 1986 2001
Nassau Holding Corporation
(holding company of entities
in oil field service industry)
John C. Hope, III, 49 Executive Vice President N/A N/A
of the Company and the Bank;
Former Chairman and Chief
Executive Officer of the
Alabama Bank; Former Executive Vice
President of AmSouth Bank of Alabama from
1974 to 1994
Robert E. Howson, 67 Former Chairman of the Board 1989 2000
and Chief Executive Officer of
McDermott International, Inc.
and of McDermott Incorporated
(marine construction services
and power generation systems)
John J. Kelly, 64 Former President, Textron 1986 2000
Marine and Land Systems
(designs and builds advanced
technology vehicles and
ships); Chairman, New Orleans
Technology Council
E. James Kock, Jr., 69 Former President: Bowie 1965 2003
Lumber Associates, Downmans
Associates, Jeanerette Lumber &
Shingle Co., Ltd. and White
Castle Lumber & Shingle Co., Ltd.
(land and timber holdings, and
investments)
Page 58 of 66 Pages
Kenneth A. Lawder, Jr., 57 Executive Vice President N/A N/A
of the Company and the Bank
Alfred S. Lippman, 60 Partner, Lippman, Mahfouz 1996 2001
& Martin, Attorneys at Law
William L. Marks, 55 Chairman of the Board and 1990 2000
Chief Executive Officer of
the Company and the Bank
Joseph W. May, 53 Executive Vice President N/A ` N/A
of the Company and the Bank
R. King Milling, 58 President of the Company 1979 2003
and the Bank
John G. Phillips, 76 Former Chairman of the Board 1972 2003
and Chief Executive Officer, The
Louisiana Land and Exploration
Company (oil and gas exploration
and production)
John K. Roberts, Jr., 62 Chairman and Chief Executive 1985 2002
Officer, Pan-American Life
Insurance Company (markets
and services life, health
and retirement insurance);
Director, Pan-American
Financial Services, Inc.
Carroll W. Suggs, 60 Chairman, Chief Executive 1996 2001
Officer and President,
Petroleum Helicopters, Inc.
Warren K. Watters, 71 President, Reilly-Benton 1986 2000
Company, Inc. (fabrication
and wholesale distribution of
marine and commercial
construction materials)
In further response to this Item 10, registrant incorporates by reference
the sections entitled "Compliance with Section 16(a) of the Exchange Act" of its
Proxy statement dated March 18, 1999.
Item 11: EXECUTIVE COMPENSATION
In response to this item, registrant incorporates by reference the sections
entitled "Compensation of Directors," "Summary Compensation Table," "Option
Grants Table," "Option Exercises and Year End Value Table," and "Company Plans"
and the sub-sections entitled "Long-Term Incentive Plan" and "Executive
Compensation Plan" under the heading of "Executive Compensation Report," of its
Proxy Statement dated March 18, 1999.
Page 59 of 66 Pages
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In response to this item, registrant incorporates by reference the sections
entitled "Voting Securities and Principal Holders Thereof" and "Election of
Directors" of its Proxy Statement dated March 18, 1999.
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In response to this item, registrant incorporates by reference the section
entitled "Certain Transactions" of its Proxy Statement dated March 18, 1999.
PART IV
Item 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements of the Company and its
subsidiaries are included in Part II Item 8:
Page Number
Consolidated Balance Sheets --
December 31, 1998 and 1997 25
Consolidated Statements of Operations --
Years Ended December 31, 1998, 1997, and 1996 26
Consolidated Statements of Changes in Shareholders' Equity --
Years Ended December 31, 1998, 1997, and 1996 27
Consolidated Statements of Cash Flows --
Years Ended December 31, 1998, 1997, and 1996 28
Notes to Financial Statements 29
Report of Independent Public Accountants 55
Summary of Quarterly Financial Information 56
(a) (2) All schedules have been omitted because they are either not applicable
or the required information has been included in the financial statements or
notes to the financial statements.
(a)(3) Exhibits:
Exhibit 3.1 - Copy of Composite Charter (filed as Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993 (Commission file number 0-1026) and incorporated
herein by reference).
Exhibit 3.3 - Copy of Bylaws, as amended July 1998 (filed as Exhibit
3.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 (Commission file number 0-1026)
and incorporated by reference herein).
Page 60 of 66 Pages
Exhibit 10.1 - Stock Option Agreement between Whitney Holding
Corporation and William L. Marks (filed as Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1990 (Commission file number 0-1026) and incorporated by
reference).
Exhibit 10.2 - Executive agreement between Whitney Holding
Corporation, Whitney National Bank and William L. Marks (filed as
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993 (Commission file number 0-1026)
and incorporated by reference).
Exhibit 10.3 - 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 10.4 - Executive agreement between Whitney Holding
Corporation, Whitney National Bank and Edward B. Grimball (filed as
Exhibit 10.5 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 10.5 - Executive agreement between Whitney Holding
Corporation, Whitney National Bank and Kenneth A. Lawder, Jr. (filed
as Exhibit 10.6 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 10.6 - Executive agreement between Whitney Holding
Corporation, Whitney National Bank and G. Blair Ferguson (filed as
Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.7 - Executive agreement between Whitney Holding
Corporation, Whitney National Bank and Joseph W. May (filed as Exhibit
10.7 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993 (Commission file number 0-1026) and incorporated by
reference).
Exhibit 10.8 - Executive agreement between Whitney Holding
Corporation, Whitney Bank of Alabama 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 10.9 - 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 10.10a - 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 10.10b - Long-term incentive plan (filed as a Proposal in the
Company's Proxy Statement dated March 18, 1997 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.11 - 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 10.12 - Form of restricted stock agreement between Whitney
Holding Corporation and certain of its officers (filed as Exhibit 19.1
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992 (Commission file number 0-1026) and incorporated by
reference).
Page 61 of 66 Pages
Exhibit 10.13 - 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 10.14 - 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 10.14a - 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 10.15 - 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 10.16 - 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 10.17 - Form of Amendment to Section 2.1e of the Executive
agreements (filed as Exhibits 10.2 through 10.9 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 10.18 - Executive agreement between Whitney National Bank of
Mississippi and Guy C. Billups, Jr. dated April 18, 1997 (filed as
Exhibit 10.19 to the Company's Quarterly Report on form 10-Q for the
quarter ended June 30, 1997 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.19 - Form of Amendment adding subsection 2.1g to the
Executive Agreements set forth as Exhibits 10.2 through 10.9, Exhibit
10.16 and Exhibit 10.18 herein (filed as Exhibit 10.19 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998 (Commission file number 0-0126) and incorporated by
reference).
Exhibit 21 - Subsidiaries
Whitney Holding Corporation owns 100% of the capital stock of Whitney
National Bank, successor by merger in early January 1998 to Whitney
Bank of Alabama, Whitney National Bank of Florida and Whitney National
Bank of Mississippi.
Exhibit 23 - Consent of Arthur Andersen LLP dated March 26, 1999
All other subsidiaries considered in the aggregate would not
constitute a significant subsidiary.
Exhibit 27 - Financial Data Schedule
(b) Reports of Form 8-K
None
Page 62 of 66 Pages
Pursuant to the requirements of the 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, Chief Executive Officer,
and Chief Financial Officer (Principal Accounting
Officer)
March 24, 1999
-------------------------------------------------
Date
Page 63 of 66 Pages
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Date
- ----------------------------------- -------------------
/s/ William L. Marks , Chairman of the Board,
- ----------------------------------- Chief Executive Officer, and
William L. Marks Chief Financial Officer
(Principal Accounting March 24, 1999
Officer) and Director ---------------------
/s/ R. King Milling , President and Director March 24, 1999
- ----------------------------------- ---------------------
R. King Milling
/s/ John G. Phillips , Director March 24, 1999
- ----------------------------------- ---------------------
John G. Phillips
/s/ Robert H. Crosby, Jr. , Director March 24, 1999
- ----------------------------------- ---------------------
Robert H. Crosby, Jr.
/s/ Richard B. Crowell , Director March 24, 1999
- ----------------------------------- ---------------------
Richard B. Crowell
/s/ James M. Cain , Director March 24, 1999
- ----------------------------------- ---------------------
James M. Cain
/s/ Harry J. Blumenthal, Jr. , Director March 24, 1999
- ----------------------------------- ---------------------
Harry J. Blumenthal, Jr.
/s/ Robert E. Howson , Director March 24, 1999
- ----------------------------------- ---------------------
Robert E. Howson
/s/ Warren K. Watters , Director March 24, 1999
- ----------------------------------- ---------------------
Warren K. Watters
/s/ John K. Roberts, Jr. , Director March 24, 1999
- ----------------------------------- ---------------------
John K. Roberts, Jr.
, Director
- ----------------------------------- ---------------------
William A. Hines
Page 64 of 66 Pages
/s/ E. James Kock, Jr. , Director March 24, 1999
- ----------------------------------- ---------------------
E. James Kock, Jr.
/s/ John J. Kelly , Director March 24, 1999
- ----------------------------------- ---------------------
John J. Kelly
/s/ Angus R. Cooper, III , Director March 24, 1999
- ----------------------------------- ---------------------
Angus R. Cooper, III
/s/ Joel B. Bullard, Jr. , Director March 24, 1999
- ----------------------------------- ---------------------
Joel B. Bullard, Jr.
/s/ Camille A. Cutrone , Director March 24, 1999
- ----------------------------------- ---------------------
Camille A. Cutrone
/s/ Carroll W. Suggs , Director March 24, 1999
- ----------------------------------- ---------------------
Carroll W. Suggs
/s/ Alfred S. Lippman , Director March 24, 1999
- ----------------------------------- ---------------------
Alfred S. Lippman
/s/ Guy C. Billups, Jr. , Director March 24, 1999
- ----------------------------------- ---------------------
Guy C. Billups, Jr.
Page 65 of 66 Pages
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference of our report included herein or incorporated by reference in this
Form 10-K, into Whitney Holding Corporation's previously filed Registration
Statements on Forms S-3 (File Nos. 33-56024, 33-55307, and 33-56277) and Form
S-8 (File No. 33-68506).
/s/ Arthur Andersen LLP
New Orleans, Louisiana
March 26, 1999
Page 66 of 66 Pages